Benefits of Copyright Registration

If your company’s core products are original works of authorship — like software, websites, video games, music videos, graphics, photographs, musical compositions, cartoons, on-line publications, articles, books, or even automated databases — you may want to get enhanced benefits by filing a formal copyright registration with the Copyright Office.

There are several important reasons to file a federal copyright registration before infringement.  First, registration is necessary to even get to court. Second, if you win, the court may award statutory damages –- from $750 per infringed work to as high as $150,000 for willful infringement — and attorneys’ fees, which alone can be hundreds of thousands of dollars.

This big statutory hammer is very important when you send a cease and desist letter to an infringer.  If an infringer may face paying hundreds of thousands of dollars (or even millions) to the copyright owner pursuant to the statute, they should be more likely to stop infringing and settle out of court.

And the hammer is relatively cheap.

The registration fee for a simple work filed electronically is $35. (Fees vary depending on the type of work and method of filing.)

To get the statutory benefits, however, you must file for copyright registration before infringement or within three months of publication of the work.  If you file late, you will have to prove the amount of actual damages you have suffered because of the infringement and pay all of your own costs and attorneys fees. In some cases, without registration, the costs of enforcement may be too high to justify going to court.

The difference between statutory damages and actual damages can be astronomical and the copyright litigation in the music industry is illustrative.

Really, what are the actual damages from illegally downloading a song? 99 cents?

In one case, however, a jury found that a single mother who willfully downloaded 24 songs on the KaZa’s file sharing network liable for $1.9 million in statutory damages. Now, that’s a big hammer.

For software developers it’s especially important to note that to get the full statutory benefits you need to file registrations for new versions of your work that may be infringed.  For example, it’s not enough that you have a registration on an original version of your software when the work that is actually infringed is a newer version.  A common defense in a software copyright infringement case and a reason for dismissal is that the registration does not cover the software at issue in the lawsuit.  It can be a very, very expensive mistake to fail to file new registrations when you revise or update your work. (See the article Version Control Blues, about Airframe’s System’s legal woes for failure to register the new version of its software).

Of course, new registrations are a hassle when the copyright is for a work that is frequently updated, like software or a website. But it can be well worth the trouble.

Take Time to Review Your IP Strategy and Protection

As I explained in my last post, January is a great time of year to review your IP protection strategies and see if you need to file additional copyright registrations (and trademark registrations and patent applications)!  You may think this is a simple point but you may be amazed at how many companies screw up protection by not reviewing the status of their filings as their startup grows and changes.  All too often they find out too late that another company has beaten them to the PTO and filed a trademark or patent on a key part of their business. Or they lose in court because they screwed up and didn’t get their registrations up to date for new versions.

Filing with the Copyright Office

The Copyright Office has tried to make things simple.  Go to www.copyright.gov for more extensive information.  They have many circulars and brochures explaining what you need to do to file registrations for your specific type of work. Some brochure examples include:

• Copyright Registrations for Computer Programs
• Copyright Registration for Online Works
• Copyright Registrations for Multimedia Works

Registrations require filing out the proper form, paying a fee, and giving the Copyright Office a deposit of the work – a good copy of what you are registering.  And registrations for many works can be done electronically through the electronic Copyright Office (eCO), saving time, money and a trip to the Post Office.

Filing Considerations

There are several things that give people trouble when filing.

Type of Work. First, people tend to be confused and think they can register ideas, concepts, procedures, methods, short phrases, titles, or software program logic or algorithms.  You can’t.  Make sure you are registering a type of work that can be registered like software source code, literary works, photographs, artwork, text, sculpture, choreography, or music.

Publication.  Second, you also need to identify the first date of publication.  Publication of on-line material is confusing, even to the courts, but it basically means when you distribute copies of the work to the public for sale, rental or lease or an offering to others for further distribution or public display.  Just figure out the first date you sold the work or allowed others to freely distribute or download it.

Copyright Claimant or Author. To file a registration you need to be the author or the owner of the copyright, the Copyright Claimant.  A super common mistake for startups is that they don’t own the copyright to the works created for them.  Remember you must have a signed, written assignment agreement with the proper language from the author of the work – like the logo designer or software developer – before you can register the copyright for the work.  You must also identify all authors of the work even if you are the owner. You must also own all of the rights to the parts of the work you are registering.

Don’t get tripped up when they ask if the work is a “made for hire.”  Unless you have a contract specifying the work as a “work made for hire” or the author is your employee, the made for hire doctrine does not apply.  See related posts.

Deposit. Third, sometimes the deposit requirement trips people up because they don’t know what to deposit or they don’t want to give a deposit.  For example, software is special and the filing is frequently screwed up.  This is why you need to read the circulars carefully and follow the directions.  Generally, for a software deposit of a program with more than 50 pages of source code, you can file the first and last 25 pages of a printout of the source code, which can uploaded electronically in PDF format.

In your software source code deposit, you can black out trade secrets and vary what you file.  But of course, you need to be able to identify a trade secret to block it out.

Ask yourself:   Are there any special sections of the source code for a cool features you want to keep secret because it gives your company a competitive advantage over other programmers who don’t know the code?  Black out those sections with a magic marker.

If you unwittingly disclose a trade secret, you lose legal trade secret protection.  Because some developer’s don’t want anyone to have any of the source code and they choose to forgo statutory benefits of an early filing or file object code.

Short on-line works can be uploaded in the electronic system very simply.  Long on-line works need to be sent in on a CD-ROM with representative paper copies and the length required varies.  Again the Copyright Office has brochures trying to explain what you need to do.

Make sure you use an acceptable file type of electronic submissions like .jpeg or .pdf or logos or art; .wav or .mp3 for audio files; and .pdf for text and .ppt for presentations.  The Copyright Office has a list.  The wrong file format is a common trip up. If you can’t upload the file, check the file format.

Taking the time to file copyright registrations can give your little company a big statutory hammer and help protect its valuable works.  Just remember to update your filings, especially in the new year.

January is a great time of year to take stock of your IP protection strategy.

How has your business grown or changed?

Have you shifted your brand strategy?

Have you created new core technology, website, or interactive platform?

If so, you should reevaluate whether:

• you have taken proper steps to protect your new brand name with trademark and service mark registrations;
• you own the IP rights to the new core technology;
• you may be able to file for patent or copyright protection; and
• you have the proper licenses to the copyrighted works you are using.

You don’t want someone else to register your most fabulous brand name.

You don’t want to be barred from obtaining a patent because you waited too long to file your initial application.

You want to avoid copyright infringement.

Most importantly, you want to own the IP for works created for your company.

Taking time to review your strategy can help you stay on track to protect your company’s most valuable assets — its IP.

As an IP attorney who has conducted due diligence for VCs, Angels, and acquiring companies, I’m wondering:

Is your startup ready for due diligence?

Do you even know what that means?

Let me explain what IP due diligence is and why your preparation today is important.

If you are very fortunate and a savvy investor or company wants to invest in or buy your company, your startup will likely be subject to a process called “due diligence.” This means that one or more attorneys will carefully examine your IP and company records — its contracts, licenses, assignments, and IP filings.  They will ask a lot of questions about what you have done in the past and they will judge your credibility and IP knowledge.

The attorneys will be trying to find out what you have done right and what you have done wrong. They will be trying to find potential liability and risks for the investors.

Don’t kid yourself.  It is highly likely that the attorneys will find where you have screwed up.

Importantly, the attorneys will be ascertaining whether your startup owns the IP it says it does or whether it has failed to do what is necessary to nail the IP to the company.

• Do you have proper signed, written IP assignment agreements with all founders, key contractors, and employees that transfer all IP to the company?
• Have you used cheap, sketchy foreign contractors to create your key technology with self drafted contracts?
• Do you really have the right to use the IP you say you do or are you missing a critical license from a university or consultant?
• Are former employers of the founders threatening to sue for trade secret misappropriation and ownership of the key technology?

These are just a few of the issues the attorneys will examine.

If the attorneys find problems, like your startup doesn’t own the IP or it’s at high risk for potential liability, your deal may be derailed.

Sometimes the problems can be fixed and sometimes they can’t.

Moreover, it can be a huge headache for you to try and track down what you are missing, like IP assignments from a departed founder or stray licenses to part of your code. For example, if you don’t know who created your software code or where it came from, you can be in big trouble if the code with the questionable genealogy is the foundation for your business. Or if you have an offer for a million dollars for your great website, your deal may collapse because your site is loaded with infringing material and you only have weak implied licenses to the content.

Make sure you do what you need to do to ensure that your startup owns it’s IP or has proper licenses–NOW. It may be simple to do today and impossible tomorrow.

You want to be prepared for IP due diligence and not delay or derail your future deals.

Jill Hubbard Bowman is an intellectual property attorney who helps startups do things right.

Related posts:

Analyzing the Risk: Will My Current Employer Claim Rights to my Startup’s IP

Does Your Startup Own the IP Created by the Founders

Who Owns the IP Rights to Custom Software?

How to Avoid Trademark Infringement When Selecting Business or Product Names

I recently spoke with VC Rudy Garza of G51 Capital Management about entrepreneurs and their attitude about IP.

Rudy made an interesting observation: when entrepreneurs give their investment pitch to his group, entrepreneurs either don’t discuss their startup’s IP or put information about it in an appendix — almost like an afterthought.

This neglect is interesting in light of the fact that Rudy says they always ask about the startup’s IP protection plan.

We discussed why some entrepreneurs don’t seem to understand the importance of IP.

Maybe inexperienced entrepreneurs get caught up in the business fad of the day stressing quick iterations and little planning.

Or maybe IP gets ignored because it just isn’t sexy — until someone offers a million dollars for it.

Rudy put it clearly: “IP is the linchpin of a sustainable business.”

VCs understand this but clearly many new entrepreneurs don’t.

Rudy thinks every investment pitch should have a slide discussing IP.  And it shouldn’t be in the appendix.

So the next time you make your pitch you might want to discuss your IP strategy.

Indeed, you might want to create one.

Have you thought about how to protect:

• your company’s brand with trademarks,
• it’s software with copyrights or trade secrets,or
• your key technology or business methods with patents?

The time to think about your IP protection strategy is before you are put on the spot by a VC.

Jill Hubbard Bowman is an IP attorney who helps startups be more successful through strategic IP protection.

One of the biggest, most frequent mistakes I see as an intellectual property attorney is a startups’s lack of ownership to all of the exclusive rights to the intellectual property created for it.

One of the most damaging omissions is not taking the proper steps to ensure the company owns all of the rights to the IP created by all founders.

You should all sign the IP assignment agreements at the very beginning when everyone is committed to the company’s success.

If your company does not own the rights to the founders’ work, a founder may walk off and take their IP rights with them. This may leave the company in a precarious position if the founder’s IP is central to the company’s key technology.

For the company to own all of the IP rights, all founders must sign an IP assignment agreement that transfers the IP to the company.

And the contract must have a provision that sweeps back and captures work done before incorporation.

Most standard form agreements don’t have this provision. It is special to the needs of startups. If a corporate attorney gives you the IP assignment forms, make sure you ask about this type of retro-provision and get it included in the agreements signed by the founders. Also, beware of do-it-yourself contracts drafted by non-lawyers. They usually don’t have the proper “magic” legal language that transfers the IP to the company despite the attempts to do so.

If you don’t have a written assignment agreement that sweeps back and captures the IP created before and after incorporation, your company won’t own all of the IP rights of the founders.

Lack of proper contracts may have very serious consequences.

If the departing founder created the work on his own before incorporation or when he was not a company employee, he may own all of the IP rights to his work. And when he walks out the company may be left with shallow arguments about fiduciary duties and his obligation to transfer the IP back.

Worse yet, the departing founder may start a new company in competition with the old company and transfer his IP rights to the new company.  Leaving the prior partners with a worthless, empty shell of a company.

Reports say this is exactly what Mark Zukerberg did with Facebook.  The original Facebook company was incorporated in Florida but Mark did not assign the IP rights to the Facebook software to the first company.  And after Mark had a falling out with his partner Eduardo Saverin, Mark hired a real startup lawyer, incorporated Facebook in Delaware (like a savvy startup would do), and assigned the IP rights for the software to the new company.

The resulting lawsuit was eventually settled. But I bet the legal bills were huge.

Similarly, if the work of the founders was a joint work, and the remaining partners assign their rights, the company may have rights to exploit the work. But the rights won’t be exclusive.  The departing founder may exploit the work too, without any obligation to make an accounting or pay the other creators. This scenario makes most investors run scared.

Do your startup a favor. Get all founders to sign a decent contract drafted by a professional that transfers all IP rights to your company. And do it before the founders walk out the door.

Jill Hubbard Bowman is an intellectual property attorney who helps startup companies own their IP.

On Your Mark….Get Set…GO!

With a swift stroke of his pen, President Obama signed the America Invents Act last week that will completely overhaul the U.S. patent system.

And what should be of interest to startups and entrepreneurs everywhere is the transition of U.S. patent law to a “first-to-file” system.

Currently, the U.S. is the only developed country on this planet to grant patents to the “first-to-invent.”  Under the first-to-invent system, there are several procedures within both the Patent Office and the Federal Courts that allow an inventor to assert prior rights due to prior invention over patents that have an earlier filing date than theirs.

For example, today, I may file a patent application on my invention for dog food that is completely 100% metabolized and therefore never comes out the other end of my dog (“Zero Emission Dog Food”).  Five months before today, Purina may have filed a patent application disclosing and claiming my exact formula for Zero Emission Dog Food.  Under a first-to-invent patent system, upon my proving my dates of invention predate those of Purina, the Patent Office would be persuaded to grant the patent for Zero Emission Dog Food to me rather than the earlier to file Purina.

After the new legislation takes effect (in about 1 year) I will no longer have recourse if I lose the “race to the patent office.”  It won’t matter how many days or years ahead of Purina I am in development, if I don’t get my application on file first – I lose.

Obama’s stated motivation for transitioning the U.S. patent system to first-to-file is to “encourage the entrepreneurial spirit” by “cut[ting] away the red tape that slows down or inventors and entrepreneurs.”

[What a load of dog crap. Jill's comment.]

Startup advocates everywhere have mixed opinions about whether the change will truly help entrepreneurs and small to midsize startups, citing the startup’s lack of financial resources.

Many feel the “first-to-file” system gives Big Companies an unfair advantage, allowing them to use their money and power to monopolize the creative intelligence of the universe by beating small to mid-size companies to the patent office.

David Kappos, director of the USPTO, had a different take on the situation.  He pointed out before a House committee that first-to-file may actually level the playing field.  The first-to-file system is far less subjective than the first-to-invent system, (can’t argue with that), and some very interesting statistics suggest the transition may not be as dire as Chicken Little makes it out to be.  Kappos rebutted the “first-to-file gives Big Companies an economic advantage” argument (e.g., they can afford to file patent applications at whim), by citing the cost to inventors of proving their first inventor status — $400,000-$500,000 at the low end.  Kappos continued with a second interesting statistic, “In the past seven years, of over three million applications filed, only 25 patents were granted to small entities that were the second inventor to file but were able to prove they were the first to invent.”

What does this mean for startups?

Don’t wait around to file your patent application!

If your invention is a good one, one on which you have already staked your house, marriage, retirement fund, or shoe budget, FIND the money to have a good application drafted and filed.  Make sure you work with a patent attorney who can draft a robust detailed application; taking into consideration the directions your company may go in the future.  A robust application will make it less likely that a competitor will be the “first to file” a patent application covering an improvement you neglected to cover in your first application.

[A big risk to startups is a crappy, hastily filed application. Jill's comment. See the post on hasty applications.]

The moral of the story: the early bird gets the worm, and the first-to-file gets the patent.

Heather N. Schafer is a patent attorney who helps startups draft robust patent applications.

Savvy investors hire lawyers to conduct IP due diligence before investing in a software startup for a very good reason:

All too often the startup does not own the exclusive IP rights to its software!

Usually the startup doesn’t own the IP rights to its software because of carelessness, a cavalier attitude toward contracts, and a basic misunderstanding about the law.

Many parts of IP law are counterintuitive and defy what people consider “common sense.”

It’s important for startup founders to learn a little about IP law to protect their hard work and investment and keep them out of legal trouble.

WARNING:  If your startup does not own the copyright to its software or have a proper license from the developers who created it allowing the startup to sublicense the software and make derivative works, the startup may be committing copyright infringement when it copies or modifies the software and sublicenses it to others.

And the startup’s customers may be committing copyright infringement too.

Ignorance of the law is not an excuse that will get you off the legal hook.

Sometimes the founders just don’t care. They know they are playing fast and loose with IP ownership of the startup’s alleged software.  But they don’t want to find or pay for proper contracts and do things right. In these cases, the startup’s licensing campaigns, contract warranties to other companies about IP ownership, and sale of stock in the company with a valuation based on the value of the software, simply smacks of fraud.

Frequent sad scenarios where the startup does not own the IP rights include the following:

• The founders don’t sign IP assignment agreements that capture the IP they created before incorporation and transfer it to the company.  A founder may walk off and assign their IP to another company, like Facebook’s Mark Zuckerberg did. Of course he got sued.

• The startup thinks that because  it paid for the software’s creation and had an NDA with the developers they own the IP rights.

Wrong! It doesn’t matter that the startup paid for the creation of the software. Payment doesn’t transfer IP rights.

Without a proper contract assigning the IP rights to the startup that is signed by the developers, the startup usually has nothing more than a revocable, implied license, which is almost worthless.

• The startup hires a software development company that uses independent contractors who have not assigned their IP rights to the software development company. The development company can’t pass through IP rights they don’t own to the startup. The startup does not own the rights.

• The startup and an independent developer sign a contract but the contract does not have the correct language transferring the IP rights to the startup. The developer retains the IP rights.

• An entrepreneur incorporates a new startup  to sell IP created by her former company.  Without proper IP transfer or license agreements, the new startup does not own or have the proper rights to agree to contractual IP warranties with the new company’s software customers. It’s another implied license scenario.

In the circumstances above, no smart company would pay money for a license to the startup’s alleged software or buy it as an asset.

The moral of the stories is the startup must have proper written contracts signed by all software developers.

The contract must have proper IP transfer language (not simply a statement that the job is a work for hire) and be physically signed by all developers.

IP assignment contracts preserve the value of the startup’s software asset and help avoid legal liability for infringement and fraud.

Jill Hubbard Bowman is an intellectual property attorney who helps companies own the rights to the software created for it.

For related posts explaining copyright law see the following:

• Who owns the rights to custom software?
• How to destroy the value of your software
• Critical legal issues for your website

For Happy Business Marriage Part 1: The Background Check

Although the Secret Third-party Infiltrator is a huge threat, the individuals to a collaboration have several other things to iron out before dancing through the daisies hand in hand.  To review – under both the patent and the copyright laws:

If there is more than one inventor or creator – each inventor or creator owns an equal and undivided interest in the whole invention or creation.  This means that each of the co-inventors or co-creators can exercise any of the rights that patents or copyrights bestow. 

More importantly, each of the co-inventors or co-creators may exploit those rights without the consent of and without sharing the profits to the other co-inventors or co-creators!

Therefore, prudent collaborators iron out their relationship ahead of time and address, in writing, such issues as:

1. How are we going to protect the Intellectual Property in the Work we create?
   • If you are going to seek patent or copyright protection for the product of the collaboration, it is important to get everyone on the same page.  There will be expenses involved, but more importantly there will be duties involved – for example, you have to agree ahead of time to keep good notes and not publish or otherwise disclose the invention before a patent application is on file.
   • Case in point – three fantastic scientists, each from a different continent, get together at a Research Institution to collaborate for a few weeks.  They create an amazing application that allows doctors to examine and diagnose patients remotely.  When the collaboration party is over, each of the collaborators goes back to her home country.  One of them submits an invention disclosure to the Research Institution.  One of them just goes back to playing the guitar on her porch in north Georgia.  However, before the other two have even stepped off the airplane, the third collaborator has fully disclosed the invention on her blog.  While the Research Institution would like to protect and commercialize the resulting product (and shoot some money back to the three collaborators) the publication has destroyed novelty in several countries, which prevents patent protection in those countries
2. How are we going to exploit the work that we create?  Are we going to exploit jointly or are we all going to go our separate ways and exploit it in competition with one another?
   • Unless the collaborators have an advanced agreement, each of them can exploit the entire work (regardless of their respective contribution to the work) in competition with the others.
   • It is important agree in advance that, for example, all of the collaborators must agree on how the invention is exploited.  This type of agreement give confidence to potential investors that a “wild man” co-inventor won’t go out selling the invention to competitors, thereby destroying it’s valuHow are we going to split the profits from the collaboration?
3. In the absence of an agreement, there is no duty to split profits. If you are a co-inventor with a Behemoth due to a collaborator’s employment agreement – Behemoth has no duty to give you a cut of its profits.

These are just a few considerations to be aware of when you are beginning your collaborative relationship.  There are many others.

The take home message is to get a written agreement while you are still in love, don’t wait until the million dollar baby is born and you are fighting over who gets the arms and who gets the legs.  The patent and copyright laws won’t be as generous as King Solomon – they won’t split the baby in equal parts.  Rather, its every collaborator for herself – may the best exploiter win!

Heather N. Schafer is an intellectual property attorney who hates to break bad news to inventors with soured co-inventor relationships.

The creative endeavor is one of the most beautiful relationships that two or more people can enter into together.  Creative ventures thrive on collaboration and there is no law against how many can join the venture.  However, it is important to know a sobering effect of joint works and inventions under both the patent and the copyright laws:

If there is more than one inventor or creator – each inventor or creator owns an equal and undivided interest in the whole invention or creation.

This means that each of the co-inventors or co-creators can exercise any of the rights that patents or copyrights bestow (e.g., making, using, selling, and importing patentable inventions and reproducing, distributing, performing, and making derivative works of copyrightable inventions).

More importantly, each of the co-inventors or co-creators may exploit those rights without the consent of and without sharing the profits to the other co-inventors or co-creators!

Therefore, in the honeymoon bliss that occurs at the genesis of a creative project, it is important to get a few things straight up front.  Such as:

For each party to the collaboration – what kind of contracts might we have entered that would give a third party ownership interest in our creations, be they patentable or copyrightable?

1. Think – employment agreements, independent contractor agreements, our spouse (especially if one party has a pending divorce), University policies (if the parties are graduate students or faculty).  We can refer to these as STI’s (Secret Third-party Interests).
2. If one of your collaborators is subject to, say an employment agreement or University IP policy, all of a sudden your database expert, Jane, is no longer at the table – instead you are a co-owner with her Behemoth employer or her University.  These entities may have very different ideas about how to exploit the work and may make exploitation of the work complicated if not impossible.
3. Case in point – two engineers get together to work out a novel method of cleaning up oil spills.  Each engineer works for a different company.  One works for a small local company that provides the skilled ground crew to clean up the oil spill.  The other engineer works for an international Behemoth company that manufacturers oil remediation equipment.  The engineers, being at the bottom of the totem pole, envision leaving their companies and starting their own venture around the method – one in which they merely buy equipment from the Behemoth and then set out to save the world and receive 100% of the market share.  However, Behemoth has a different idea – it owns the rights to the invention through its employee agreement with the co-inventor engineer.  Even though the Behemoth cannot stop the small co-inventor from practicing the invention, it can practice the resulting invention in competition with the small co-inventor.  With its international distributors everywhere on earth, it quickly dominates the market for the method and leaves the two inventing engineers empty handed.

The importance of a Background Check (firmly scrutinizing your future collaborator’s existing agreements to identify STI’s) is lost on many in the first blush of love.  The important problems that can be raised by unrevealed third party interests will be further explored in the next post.

Until then – the take home message is to (1) keep copies of your contracts and policies, (2) if you don’t have copies, go ask for them, (3) ask to see the paperwork showing that your collaborators are clean of STI’s before things get hot and heavy.

Heather N. Schafer is an intellectual property attorney who helps entrepreneurs keep their IP interests straight.

It’s big news:  Google is paying $12.5 billion to take over Motorola Mobility, the maker of mobile handsets.

And Google really wanted the company for its patents.

It’s trying to beef up it’s paltry portfolio. Google also recently bought 1,000 patents from IBM.

In July a group of companies including Apple and Microsoft spent $4.5 billion for the patents of bankrupt telecom company Nortel.

Companies are trying to beef up their defensive and offensive positions in an all out patent litigation and licensing duke-out over mobile phone applications. There are billions at stake and patents are providing the leverage.

You may be thinking, sure that’s great for the big boys who can afford patents but:

What’s the value of a good patent to a little startup?

1.  Patents can help you stop competitors from making, using, or selling an infringing device or service covered by the patent claims.

Even for a tiny startup, a good patent on your core technology, service or distribution method can give you an amazing competitive advantage. The mere fact that you have a patent can make potential competitors think twice before competing with you.  The threat of patent litigation is very serious and expensive. Potential investors of an infringing company would likely run for the hills. The patent isn’t making you any money per se but is providing a key barrier to competitors. A patent gives you a limited, legal monopoly.

A patent is like a big sign that says, “Keep Out of My Territory.”

For example, eLance, who provides a service for hiring workers on-line has a patent on its method of hooking up workers with companies.

See U.S. Patent No. 7,069,242, Method and apparatus for an electronic marketplace for services having a collaborative workspace.

The claims of the patent set out the boundaries of what is covered. Each claim has a slightly different scope. If a company does the method covered by the claim, it is guilty of patent infringement. Here is one claim of the eLance patent.

1. A computer implemented method, comprising:

accepting a posting on a website of a project that a buyer wants completed;

providing a database containing all registered sellers;

receiving a bid on the project from any seller, where all registered sellers are qualified to bid on postings in all categories;

allowing the buyer to accept the received bid from the seller; and

allowing the buyer and the seller to work on the project in a collaborative workspace accessible by only the buyer and the seller, where the seller develops and delivers the project in the collaborative workspace and the buyer can track the project in the collaborative workspace before it is complete.

This claim is pretty broad and a real coup for eLance. It will help them stay ahead of the website job placement pack.

2.  Patents can make your startup more attractive to investors.

Startup company valuations are often based primarily on the value of the intellectual property that protects the key technology or business method. A granted patent increases that value.

Before they invest in your company, Angels and VCs want to know how you are going to have an advantage in the marketplace.  A patent or even a patent application shows investors that you take intellectual property protection seriously and that you are trying to get a strong competitive advantage by using the law.

3.  Patents can give your startup leverage in negotiation with a big company.

I’ve represented little software companies in negotiation with big companies.  Startups with key patents had far more bargaining strength and were able to enter into cross-licensing deals on much better terms.

4.  Patents can also generate licensing revenue.

In some circumstances, a patent can also generate money for your company through licensing deals with others. It’s called patent monitization and even small companies with important patents can play the game.

(Although patents can also generate revenue though settlements and damages awards through litigation, patent litigation isn’t really practical for a startup unless you can find a litigator who will take your case on contingency for a chunk of the final recovery.)

A patent can do wonders for your startup and it’s worth serious consideration when you are developing your IP strategy.

But make sure you don’t inadvertently blow possible patent protection. See the related post.

Jill Hubbard Bowman is an intellectual property attorney who helps startups and emerging companies gain a competitive advantage.