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Most entrepreneurs fight this battle more often than most any other battle in their startup experience: what must be given up in order to preserve the cash flow? Although frequently this battle is waged in many other fields, in this particular case, the battle was between legal protection and cash flow.

Daniel had an amazing idea regarding a social media way of giving back to those who helped him (or others) out. The best part about the program was the name. The program itself was simple enough and could really have been called anything; however, there was one name that stuck and through a large amount of market research, generated the highest excitement when potential users heard it. For the sake of this document, we will call “Thanks Plus” although it is obvious that this could never be the exciting name they came up with.

The problem started when Daniel went to an idea pitch event in the public. At these events, entrepreneurs are invited to share their idea with investors and other members of the public who might be able to get their idea off the ground and into a successful venture. Because these events are typically open to a larger array of people, you never know what kinds of security is in place. At this particular event, there was nothing to protect Daniel.
When Daniel pitched his idea, it was well received. He even qualified to travel to the national pitch competition to be a finalist.

Three days later, his “Thanks Plus” name was trademarked by a friend of one of the audience members for exactly the same business model that Daniel had pitched. Daniel was rightfully outraged by this, but what could he do?

At this point, he could contest the validity of that other person’s trademark. Obviously Daniel was using it first in commerce, and that person knew about it. But, that costs money and time and isn’t even a guarantee of success. He could send threats and yell until he got his way, but he’d doubtfully get his way in this manner. Or, he could change his name and be first to market under an inferior name. None of the options he had sounded appealing to him, or really anyone. No matter what he chose, he would have to pay in time and money to make things right.
What he did do was negotiate away any rights he might have had to the trademark and the business idea in exchange for a small sum of money.

If he would have planned ahead, he could have protected everything for a couple hundred dollars.

1. Common law trademarks.

These are the cheapest way to protect a person’s trademark, but the problem lies in their general ineffectiveness. Theoretically, if you put the TM symbol on something you’re using in commerce, you have a trademark on it; however, it is limited to the geographic location in which it is being used, and you’d have to be able to prove that you were first and that it’s your mark.

Because it’s harder to prove and has its limits, it’s not all that safe.

2. USPTO Registered Trademark

These registered trademarks are exceptionally powerful and for their price, are well worth it when your entire idea is grounded in a name. For under $400 (if you do it yourself), you can have a registered trademark in your particular service or good in a relatively short period of time. This gives you the United States wide right to use that mark and prevent others from using it, in your classification. If Daniel had this, there would be no question that his name was protected.

But none of that protects the idea. For this, you need proactive solutions, like nondisclosure agreements or patents.

3. Patents

Obviously, a patent on the product would be the ideal solution. With a patent, you have a nearly incontestable protective layer over your product. If anyone steals it then, you are already in the correct position to take everything they made off of the stolen product and shut them down for good. The problem is that patents are incredibly expensive and cannot be granted on all things.

4. Nondisclosure

Where patents cannot help you, or when you cannot afford the patent, there are the proactive nondisclosure agreements. These are agreements where the receiving party promises to keep the idea a secret in exchange for the opportunity to hear the idea, or some other value as prescribed in the agreement. Nondisclosures, however, are only useful if they’re used liberally. Once an idea is in the public, it cannot be stopped.

Imagine a sand castle moat. Once the water breaches in one part into the castle, the entire wall will soon be dissolved and washed away. As is true with sand, once the information is public knowledge, the nondisclosure agreement no longer protects the idea from disclosure by the parties that previously signed because it is no longer a secret.

What it comes down to is protecting your ideas must always be at the forefront of your mind. Everyone has trusted advisers that you will not need to have sign nondisclosures; however, when addressing people you do not know, it is safer to assume they will steal your idea opposed to getting burned when it does happen.

Every time you tell a person an idea, there should be a cost benefit analysis. How much will it cost if this person steals the idea versus how much it would cost to get them to sign a nondisclosure agreement.

Furthermore, if your name is worth the value of the company, seek out a trademark of some form. If trade secrets and nondisclosures are not enough, patents are a viable way to go, and there are funding opportunities out there to get patents if you give up licensing rights or a portion of the company itself.

For more information, please contact us at richard@lawplusplus.com or call (919) 912-9640.

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