intellectual property

Intellectual Property Protection in the United States
  • Deborah Ann Nilson
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Intellectual Property Protection in the United States
Intellectual Property Protection in the United States 1920 1080 Deborah Ann Nilson

Intellectual property can be among the most valuable assets of a business. Therefore, it is critical that businesspeople understand the different varieties of intellectual property and protect them accordingly. “Intellectual property” describes intangible assets that are creations of the mind, which may be musical, literary, and artistic works; discoveries and inventions; or words, phrases, symbols, and designs. Below is a brief explanation of the different types of intellectual property that are recognized under U.S. law.

Trademarks and Servicemarks

A trademark is a word, phrase, symbol, or design that identifies and distinguishes the source of the goods of one party from others. A servicemark plays the same role for the services offered by a party. In this article, I will use “trademark” to describe both trademarks and servicemarks. The most common examples of trademarks are a company’s name and logo. For instance “McDonald’s” is a trademark of McDonald’s Corporation. The “golden arches” logo, the large yellow M, is also a trademark of McDonald’s Corporation. These trademarks help potential customers distinguish McDonald’s stores and products from other stores and products. A user of a trademark acquires some rights to such trademark by merely using it in commerce, but in order to take advantage of stronger protections under federal law against use by another party or challenges to ownership, a trademark owner must register its trademark with the United States Patent and Trademark Office (“USPTO”). Notably, while most European jurisdictions use a class-based registration system, in the United States, a trademark owner may only obtain a trademark registration in connection with the specific goods and services the trademark owner provides or has a bona fide intent to provide.

Once a trademark is registered, a trademark owner must maintain its trademarks properly in order to retain its rights. For one thing, if a trademark owner chooses to license its trademarks, such license must include provisions giving the trademark owner control over how the trademark is used and protecting the goodwill of the trademark and the reputation of the trademark owner. Failing to exercise the required amount of control could result in loss of trademark rights. Furthermore, a trademark owner may lose its rights through abandonment, either by failing to continue to use the trademark in commerce or by failing to stop unauthorized parties from using the trademark.

Copyrights

A copyright is the exclusive legal right to print, publish, perform, film, or record literary, artistic, or musical material. The most commonly-known types of works that are subject to copyright are books, movies, songs, and computer programs (including code). The author of a written or recorded work automatically possesses a copyright in a work as soon as the work is written down or recorded as long as such work qualifies as “original” under applicable federal law. However, in order to create proof of copyright and to avail itself of the stronger protections for copyrighted works provided under federal law, including the right to bring a legal action in court, a copyright holder must register its copyright with the United States Copyright Office. Use of a notice of copyright in connection with the work is also an important tool in copyright protection.

Patents

A patent is the exclusive legal right to exclude others from making, using, offering for sale, or selling an invention. Unlike trademark rights, copyrights, trade dress rights, and trade secrets (discussed below), patent rights do not automatically arise from use or creation of an invention but must be granted by a governmental authority. In the United States, an inventor must apply for a patent through the USPTO. Moreover, unlike trademarks and copyrights, which may be registered at any time after use or creation of the underlying work, respectively, applicants may only file for a patent within one year of the private or public disclosure of an invention. The two most common types of patents issued by the USPTO are utility patents and design patents. An invention qualifying for a utility patent must introduce a useful process, machine, manufacture, or composition of matter that is novel and nonobvious. An invention qualifying for a design patent must introduce a new, original, and ornamental design embodied in or applied to an article of manufacture that is nonobvious. The term of a utility patent is 20 years, while the term of a design patent is 14 years. Apple Inc. holds design patents for the iPhone, which include, for instance, the rounded edges and the bezel on the front surface of the phones. It also holds a utility patent for the tap-to-zoom feature used in iPhones.

Trade Dress

Trade dress is the distinctive packaging of a product or design of a building, which, like a trademark, identifies and distinguishes the source of the product. For example, the restaurant chain TGI Friday’s decorates its locations in red stripes and uses the same distinctive red stripes in its advertisements. In order to be protectable, trade dress must be inherently distinctive, and its distinctive aspects must not be purely functional. Although it is more difficult to register trade dress than it is to register trademarks, trade dress may be registered with the USPTO, thereby obtaining stronger protections under federal law.

Trade Secrets

A trade secret is a formula, process, device, or compilation used in business which gives the owner an advantage over competitors who do not know or use such trade secret. For instance, the recipe used in making Coca Cola is a trade secret that has never been revealed. Trade secrets cannot be registered. In fact, the only way to protect trade secrets is to preserve their secrecy by implementing proper security and confidentiality procedures within the business which owns the trade secret and with respect to anyone outside the business to whom the owner discloses the trade secret, such as attorneys and independent contractors. If a properly-maintained trade secret is misappropriated, the owner of the trade secret may sue the misappropriating party for damages.

This article provides only a basic summary of the various types of protection available under U.S. law. Consult an attorney for specific and individualized advice tailored to the needs of your business.

Disclaimer

No Legal Advice or Attorney-Client Relationship
The information and materials available in this article are for informational purposes only and are not intended to and do not constitute legal advice, a solicitation for the formation of an attorney-client relationship, or the creation of an attorney-client relationship. The information provided may not apply to your particular facts or circumstances; therefore, you should seek legal counsel prior to relying on any information that may be found in this article. Furthermore, information provided in the article may not reflect the most recent and/or all developments in the law.

What You Should Know About an Independent Contractor v. an Employee
  • Deborah Ann Nilson
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What You Should Know About an Independent Contractor v. an Employee
What You Should Know About an Independent Contractor v. an Employee 1920 1080 Deborah Ann Nilson

You start a company or your business is doing well and you want to expand; therefore, you need to hire more workers. You may have heard something about the difference between an independent contractor and an employee but the choice is pretty obvious no? Independent contractors are more flexible, cheaper, and you get to avoid the hassles of wage and hour laws. In addition, your worker has no problem with an independent contractor agreement, so why would you classify him or her as an employee? The answer is simple: the classification of this worker must be in compliance with the law; it is not up to you and the worker to choose it; and it is important to get this distinction right.

The most important IRS rule and common law doctrine to keep in mind when defining your worker is 1) the amount of control your business has over the individual-the more control your company has over the worker and how, where, and when the work is performed, the more likely he or she will be considered an employee and 2) companies, however small, are in fact being audited. So, while it may be tempting to circumvent laws associated with hiring employees (especially for foreign companies hiring independent contractors in the U.S. in a matter of minutes thanks to the internet), the risk is real and increasing.

What is the difference between an independent contractor and an employee?

In determining the status of a worker, the IRS uses eleven main tests/factors organized into three main groups: behavioral control, financial control, and the type of relationship of the parties (source: IRS Publication 15-A, 2010 Edition, page 6; available for downloading from http://www.irs.gov/pub/irs-pdf/p15a.pdf).1 Each factor is designed to evaluate who controls the work and how it is performed. No factor is determinative of an individual’s status but rather, looking at the totality of those factors and circumstances of each worker, one can make a more accurate classification.

Behavioral control

1. Instructions the business gives the worker. The key consideration is whether the business has retained the right to control the details of a worker’s performance.
2. Extent of any training the business gives the worker.

Financial control

3. The extent to which the worker has unreimbursed business expenses.
4. The extent of the worker’s investment. If the worker supplies his or her own equipment, materials and tools.
5. The extent to which the worker makes his or her services available to the relevant market.
6. Method of compensation: whether a person is on an employer’s payroll and receives a steady paycheck.
7. The extent to which the worker can realize a profit or loss.

Type of relationship

8. Written contracts describing the relationship the parties intended to create.
9. Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay.
10. The permanency of the relationship. If the worker can be discharged at any time and can choose whether or not to come to work without fear of losing employment.
11. The extent to which services performed by the worker are a key aspect of the regular business of the company.

Why the IRS and the Department of Labor care and what’s the risk?

When a worker is an employee, employers must pay state and federal unemployment tax, social security tax and workers compensation/disability premiums. When a worker is an independent contractor, the hiring party is not required to make any of these payments. For this reason, the IRS and the Department of Labor are getting more sensitive about misclassification and as a result more companies are starting to get audited regardless of their size. It is important that business owners understand that violations for misclassification can be steep. In some instances, there can be criminal charges for willful violations. Ultimately, if the IRS deems an independent contractor to be an employee, the punishment will likely require payment of a variety of fees and taxes including: FICA, federal unemployment tax, retroactive benefits, social security, and not to mention legal fees.

What about my intellectual property if the worker is an independent contractor?

At the IP level, this distinction is also important. If the person is an employee, his work, in the context of his employment, is regarded as “work made for hire.” This is an exception to the general rule that the person who creates a work is legally recognized as the author of this work.
However, many businesses which misclassify their workers (and have independent contractor agreements with workers who should be employees) omit to specify in such agreements that the work created in the name of the business and pursuant to the terms of an independent contractor
agreement is a “work for hire.” Failure to include this will result in any work created such as possibly pamphlets, trademarks, and customers lists to be the property of the worker, not the business.

The Bottom line

Know the status of your worker. An independent contractor is his or her own boss while an employee is much less independent and works within the parameters set by your business. Misclassification is a serious risk for a business of any size. Accurately classifying your worker will save you time and money in the long run.

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