Column for January 18, 2002, KCBJ
In 1994, two Ph.D. students at Stanford–inspired by the Internet's pioneering potential for robust exchange of ideas–created a guide in their free time, directing Internet users to the students' favorite Web sites. Had the students been concerned about legal issues, they probably would have been paralyzed in their tracks, and Yahoo! never would have been born.
Yahoo! in the mid-1990s is representative of many technology companies. Driven by a thirst for innovation, these companies gloss over legal issues in their quest for success. After all, who wants to listen to nay-saying lawyers when there are inventions to develop and riches to reap? And, particularly in a hobbled economy, who can afford lawyers when research and development are so expensive?
These questions are legitimate. It's difficult to assess when the costs of being "lawyered" outweigh the benefits. Nevertheless, an old adage comes to mind: An ounce of prevention is worth a pound of cure.
There are some relatively cheap (and in some cases, free) steps technology companies can take before the money starts rolling in to lessen your legal expenses in the future.
First and foremost, because of the liability and tax advantages, incorporate or form a limited liability company if you haven't done so already. (But before you settle on a name, see the trademark, service mark and domain name discussion below.) Both the Kansas and Missouri secretary of state Web sites (at www.kssos.org and mosl.sos.state.mo.us, respectively) include information about and forms for forming companies. Before calling a lawyer, go to these Web sites. Even if you decide to retain a lawyer, you'll find that the understanding you glean from these Web sites will help minimize legal fees.
Second, get insurance. Even if everything you're doing is legally copacetic, someone might still sue you under some cockamamie theory. Generally speaking, you'll still have to pay your legal fees to defend against the claim. Insurance could offset some of the lawsuit pain by providing coverage for your attorneys' fees once you reach your deductible. For instance, there are several companies in town that offer "cyberliability" insurance, including Media/Professional Insurance and First Media Insurance Agency.
Third, protect your intellectual property. As a technology company, your ideas are the capital on which you thrive. In the race to "get to market" and under the pressure of getting a Fortune 500 company to sign on the dotted line, you might let your concerns about protecting your innovations fall by the wayside. Don't let a short-term pay-off jeopardize the long-term viability of your company.
There are several relatively inexpensive things you can do to protect your intellectual property. For instance, go to the U.S. Copyright Office home page on the Internet and learn as much about copyright as you can (at lcweb.loc.gov/copyright). Software code and Web content are copyrightable. Although you have copyright upon creation (or, as lawyers like to say, upon fixation of an original work of authorship in a tangible medium, blah, blah, blah), you need to register your copyright with the U.S. Copyright Office before you sue someone else for infringing. In addition, registration entitles you to certain kinds of damages not otherwise available and entitles you to possible recovery of your attorneys' fees if you prevail in a lawsuit.
How much more motivation do you need to register your copyrights than free lawyers? And copyright registration is cheap! In fact, I recently registered software code and Web content for $30.
Furthermore, before you sign any contracts, make sure those contracts include provisions that ensure you retain the level of ownership you desire in your intellectual property. Underlying ownership is generally better than a license back to you. If you can retain ownership, do it.
Next come trademarks and service marks. Registering these is a bit pricier than copyright registration. Although you can have trademark and service mark protection without registration, registration strengthens your mark. Similar to copyright registration, it entitles you to benefits you otherwise wouldn't have. To register a mark in a single class, the U.S. Patent and Trademark Office charges $325. To educate yourself for free, though, go to the U.S. Patent and Trademark Office home page on the Internet (at www.uspto.gov).
If you can't afford to register your mark, at least assert your rights in the mark by placing "TM" in superscript next to the mark for goods (trademark) and "SM" in superscript next to the mark for services (service mark). If you successfully register the mark later, "TM" and "SM" will transform to "®" which means the mark is registered.
Before you settle on a name for your company, search the company name in the U.S. Patent and Trademark Office database at the Web site above. What you'll look for, essentially, is any name that is confusingly similar to yours. If nothing comes close based on your quick and dirty search, you've taken one step toward preventing trademark and/or service mark lawsuits against your company.
You can take one more step toward trademark/service mark security by checking the availability and registering your preferred Internet addresses, or domain names. Perhaps the most popular Web site to check and register domain names is www.verisign.com. The cost of registration is generally about $30 to $50. If you want to shop for bargains, though, go to www.icann.org/registrars, where you'll find a list of other accredited and accreditation-qualified registrars.
Of course, as a lawyer, I have to tell you that you're safer having a lawyer perform incorporation, insurance audit and intellectual property tasks for you. For instance, if someone opposes your trademark or service mark registration application, things can get pretty complicated pretty quickly.
But if you don't have the money for legal fees, you don't have the money. And even if you do, you still might want to economize by studying on your own corporate formation, insurance, and intellectual property before hiring a lawyer.
Eventually, you could be like Yahoo!, which, despite its stock tumble over the past two years, has survived–no doubt in large part because it became sophisticated about technology-related legal issues. If you don't believe me, just read Yahoo!'s legal disclaimers (www.yahoo.com).