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foundations and issues for netpreneurs:

intellectual property 101

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Mr. Morse: Are you saying that I'm concerned with how they use the data in making sure that they don't redistribute, sublicense or do something like that with it? Should I focus on that part of the contract and not worry about the platform that it's manifested on?

Mr. Capuano: Right. At one time, Proxicom had a software product that we licensed. The issues I had were to make sure that clients couldn't sublicense it or transfer it to other entities, even within the overall corporate structure. Focus on how they use it and making sure that it's nontransferable.

Mr. Fingerhut: Focus also on data manipulation, derivative rights and things of that nature.

Mr. Capuano: Derivative rights would be yours unless you otherwise assign them away.

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Ms. Tett: Good morning. I'm Lois Tett from Virtualis.com. Regarding IP, are there any similarities or differences between affiliates and joint ventures?

Mr. Capuano: Affiliate marketing is a looser structure than the corporate structure of a joint venture. In the technology industry, we engage in affiliate marketing a lot when we enter into partnerships and alliances with other technology firms, clients or whomever. When I say partnerships, it's not in a corporate or legal sense. It's not the kind of partnership where you are legally bound at the hip with the other company. With affiliate marketing, you're not becoming true partners; each retains a separate existence. What you're agreeing to do is to market your services together. That's the easiest way to think of it. You're not becoming legally bound except through the particulars of this marketing agreement.

For example, Proxicom and Intel signed a marketing agreement. Intel wants to get into the ASP business. Proxicom has the clients, a base of Unix and NT users, applications, etc. which we're going to bring to Intel to host. We're affiliates in the sense that we will jointly market our services. It's a win/win for both of us—Intel gets clients and Proxicom gets a top-tier hosting partner to recommend to our clients. The joint venture concept is a lot more technical, and it gets involved in creating a separate corporate entity where there are equity ownership rules, intellectual property rules, etc. It's a much more formalistic, legally binding entity than an affiliate or alliance.

Ms. McClellan: Hi, I'm Andria McClellan from CivicZone.com. What's the difference between trademarks and service marks, and how do you use them differently? Also, on a Web page, should you reference a mark only once in its first use or should it be referenced throughout the entire page, site or document?

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Mr. Fingerhut: Trademarks are used for goods, such as NIKE shoes. Service marks are used for services. The line between goods and services sometimes gets blurry when it comes to the distribution of computer software over the Internet. Traditionally, we've thought of computer software as a hard good, but certainly the operator or distributor of the software is providing a service by letting you download it. I believe that software is still regarded as a hard good, so it would be used as a trademark. Basically, there's no real difference. You could call a service mark a trademark and wouldn't lose any rights.

About the citations, you could use it as many times as you want. The one thing to remember about trademarks is that you want to use them consistently. If the mark shows up in a specific way, like a logo, you want to have that be a big splash at least once on the page. Whenever you refer to the trademark in text, you want to make sure that it stands out and it's used as you would a proper noun. For example, if you're Volkswagen, you want that logo at the top of the screen and any time the word "Volkswagen" shows up in text it should be in capital letters and used to describe particular automobiles, not generically, like "I'm driving my volkswagen." What you don't have to do, unless you want to, is put the "™" symbol after the "Volkswagen" mark every time. From a marketing perspective, I can see how that gets annoying. I think you'd satisfy your trademark lawyers if you simply put the mark in capital letters or if you did something to set it out from the rest of the text.

 

Mr. Monroe: I'm Hunter Monroe with ValueSpeed, Inc. We've been involved in several discussions with a potential partner or potential acquirer of our firm, one who's also a competitor. It's a murky area and we signed NDAs disclosing information to each other under the potential partner/acquirer role. I'm worried, however, about the strategic use of that information if they fall back into the competitor mode. If the partnership or acquisition doesn't take place, can you give us any guidance or how to negotiate that sort of situation? In several cases we've been asked to sign NDAs that did not contain standard clauses about verbal conveyance and documents stamped as confidential.

Mr. Fingerhut: In some ways you've answered your own question. If there's a problem, your action would be for breach of contract, so you'd want to make sure you have strong, maybe liquidated damages clauses in that type of agreement.

Mr. Kaufman: On the other side of the coin, you should also make sure that any NDA you sign when you take in confidential information has reasonable exceptions in it. For example, excepting information that you had knowledge of prior to the disclosure or from sources other than the disclosure. You want to make sure that the NDA doesn't limit you from using information that otherwise rightfully came into your knowledge.

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Mr. Capuano: We probably go through at least 10 NDAs every week, hundreds a year. Standard clauses in NDAs are the exceptions clauses for information that you discover on your own or information that otherwise makes itself into the public domain rather than through illegal machinations. Your question is right on since one area where there is a lot of pushback is "what is confidential information?". We prefer to deal with it as broadly as possible, and we're not uncomfortable with saying that any information disclosed, whether verbally or in writing, is confidential. This has to be mutual, but from our perspective, the simpler the better, and the easier to sign the better. From our end, all of our documents are mutual and they say that any information disclosed, whether in writing or orally, whether stamped "confidential" or not will be assumed confidential.

We don't have time to negotiate NDAs. When you're dealing with larger corporations, you're going to find that that they don't like those open-ended clauses. They don't like clauses that say "any information whatsoever disclosed is confidential." They want it to be only information that is stamped "confidential" in 48 point red type and guaranteed to be sealed in a vault. That's the natural tension you get with some clients, and, frankly, at times we've had to compromise on that. How do you stop them from doing that? Even big companies don't object to nondisclosure clauses with injunction provisions in them. That means that if your confidential information is used in a way other than as you intended, you can go to court in a relatively expeditious and relatively inexpensive manner to stop them from using it. Even the big companies won't object to provisions that say you can stop them from unauthorized use.

Mr. Kaufman: As a practical matter, I always tell my clients that the only way to ensure that people won't appropriate your confidential information is never to tell anybody. Unfortunately, that also makes it very difficult to commercially exploit the idea. You have to qualify the risk by dealing with people that you trust and by using reasonable NDAs. I agree, they don't have to be airtight because there's just no way to anticipate everything. Then, if necessary, you resort to filing suit, unfortunately.

 

Mr. Glowacki: I'm Tony Glowacki from WealthEngine.com. Marc, you said that inventions have to be useful, new and non-obvious. What are the criteria for being non-obvious? Is it complexity or just that no one has done it before?

Mr. Kaufman: That's a tough one. It's not just that no one has done it before, because that's the novelty aspect. There's no simple way to explain "non-obvious;" it's very much a factual determination. A court or the Patent Office, depending upon what level you are at, will look at everything that's known about the scope and content of the "prior art." They will determine the prior art suggests the invention, while not disclosing it, to a person of ordinary skill in the art. Other things that will be considered are practical considerations, such as whether there's been a long need for this solution that no one has come up with before. That's evidence that it wasn't obvious and that it wasn't suggested by the prior art. Also, commercial success of particular subject matter is evidence that the subject matter is non-obvious. Again, all of these considerations, and just about anything else you can imagine, get thrown in the pot, and a court or the Patent Office decides whether it is obvious or not. Obviousness is in the eye of the beholder.

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Mr. Amaro: Building on that previous question, how do the instant message (IM) products protect themselves from being copied? For example, I assume AOL has patents on their ICQ technology, but there are some five more IM products around. Is it possible for someone to create something similar to their product without having to obtain some type of license?

Mr. Kaufman: Well, here's the standard legal answer: It depends. To my knowledge, none of them have patents on their IM. That doesn't mean there isn't a patent application in there somewhere, meaning a pending application in the Patent Office that's still maintained as confidential. There are too many factors involved to give you a short answer as to whether it's obvious or not. My understanding is that ICQ has been doing IM for well over a year, and there may be others that are earlier which I'm not aware of. The concept itself, if a patent application were to be filed today, would clearly be refused, but if there are particular functions or code that are new and non-obvious, you might be able to patent particular features or functions of an IM. If those functions provide commercial advantage, they should be explored.

Mr. Amaro: And what would happen if I were to create new features, but did not patent them, then someone were to mimic them in the future? Would they be able to sue me, the creator?

Mr. Kaufman: I can't think of an example where they would be able to. The patent is not a right to use. I apologize if I wasn't clear about this. The patent is a right to exclude others. Not having a patent doesn't mean you can't use it. To make matters even more complex, having a patent doesn't mean that your use wouldn't infringe somebody else's patent.

 

Mr. Gorman: A friend of mine owned a url and pending trademark for "FreeTrade.com." He ended up selling it to an agent that represented Ameritrade. Prior to that sale, he had an agreement with me and my Web site for front page reciprocal links. Does that sale terminate my third party rights to the front page link?

Mr. Fingerhut: You'd have to know whether the purchase agreement with Ameritrade assumes the obligations of the party with whom you contracted. It also goes to whether your agreement has an assignability clause or not.

Mr. Gorman: I don't know if the agent was aware of that or if they did any due diligence.

Mr. Sherman: I would bring it to Ameritrade's attention and see what they come back with. Check your original cross-linking agreement, first and see what it says about assignability.

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There's really one topic I'd like Eric to address briefly that I think is very important. How do you make sure that you don't lose your trademark once it's registered and how do you attack a trademark that you think is now dormant?

Mr. Fingerhut: That's a good question. The first part is pretty easy. The way you maintain a trademark is by continuing to use it—by making sure that if you're licensing it, you're policing the usage to make sure that it's being conducted in accordance with the way that you want it to be used; by paying maintenance and renewal fees; and by filing all the appropriate papers.

Attacking prior usage of a trademark is an interesting issue, one that came up in the Brookfield v, West Coast Video decision I mentioned before. In that case, West Coast Video had made use of a mark similar, but not identical, to MovieBuff. I forget the exact name of the other mark. I think it was a slogan, something like, "the movie buff's movie store." That usage had gone on for many years prior to the first use of the mark MovieBuff by Brookfield. They tried to tack on the prior use, and the court ultimately concluded that the usages of the marks were so dissimilar, that the defendant couldn't tack on its prior use of a similar but different mark.

In terms of acquiring dormant marks, that's akin to what eToys tried to do. I have not read any other papers in that case, but they acquired an older registration of eToys that predated the etoy site, then tried to tack on the prior use. If it's dormant, there's a potential that whatever you've acquired may have been abandoned. The law basically says that three years of non-use is prima facie evidence of abandonment coupled with intent not to resume use. There you have an abandoned mark. When you're acquiring dormant marks, make sure you do your due diligence to see that they've actually been used.

Mr. Sherman: Well, I think we've learned this morning that these intangible assets are going to be the currency of the new economy. Every deal you read about seems to prove that. It's important for you to have good strategies for protecting your intellectual property, particularly in the context of capital formation. You've heard that several times, including Chris discussing the IPO drafting sessions and getting hammered on questions of protecting these important assets.

I want to thank the entire netpreneur team and particularly our panel for their excellent insights.

 

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Statements made at Netpreneur events and recorded here reflect solely the views of the speakers and have not been reviewed or researched for accuracy or truthfulness. These statements in no way reflect the opinions or beliefs of the Morino Institute, Netpreneur.org or any of their affiliates, agents, officers or directors. The transcript is provided "as is" and your use is at your own risk.

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