How Do You Create a Trade Secret?

Dear Rich: How are trade secrets made official? Do you have someone sign a NDA? Here's how you create a trade secret: (1) you think something up that will give your business an advantage (2) you keep it to yourself and hide it from others, and (3) if you need to tell someone you make sure that person is bound not to disclose it under the terms of an enforceable agreement (or under a law--for example, most states bar employees from disclosing an employer's trade secrets). There are a few other common sense requirements but that's basically it. The real test of your trade secret program occurs if someone steals your secrets or violates an NDA. For more info, check out this website we created about trade secrets.

Can an Inventor Ditch Her Investors?

Dear Rich: I entered into a corporate agreement with someone who had a patent pending idea. After a year of back and forth, we finally started a corporation in February 2010. In total we spent 1 year talking about creating a corporation together and 1.5 years involved in the corporation; she always kept meeting the next big investor at the club where she worked and would drop me until the investor lost interest. As per our agreement, she was to bring the patent into the corporation and I was to bring the business management and necessary prototyping funding. In the agreement, I was getting 38% of the company, she was getting the remainder. At the this point, the patent is close to being finalized, the trademark and slogan are now done, and the prototyping is virtually done. Unfortunately, she now wants to terminate the agreement and is going around me and telling the patent attorney and others not to speak with me. Her certified termination letter to me states nothing in regard to the amount of time, money, and work I have put into our company. We have a corporation formed with an operating agreement clearly indicating our roles and percentages. She now has amnesia and says she never agreed to give me part of the patent even though she has the original contract and corporate operating agreement. Ideally, I feel she has defaulted from the agreement and loses any rights whatsoever on the patent. This would have been the case had done something similar; I would lose my investment, work, time, and ownership if I defaulted and acted unethically behind her back. How should I best handle this situation? What would happen to one of the entrepreneurs on Shark Tank if they tried to do this to one of the Sharks? Please don't ask the Dear Rich Staff hypothetical questions about reality TV shows. We're not equipped to answer. It's not so much that we're old and out of touch (which is true), it's just that after the first season of Survivor -- the one where Susan and Richard got on each other's nerves ("Your inability to admit your failures without going into a whiney speech makes you a bit of a loser in life ...") -- we decided that the human race had created a fork in the road and we would take the path without reality TV.
Right, you had a question. The resolution of your problem depends on two things: your paperwork and the amount of money each party is willing to spend on a legal battle. Your lawyer needs to review the initial agreement, the corporate formation documents, and hopefully, if there is one, the assignment of patent rights. Even if there is no assignment to the corporation, your lawyer may still be able to force the transfer of rights (or at least a financial judgment tied to the value of the patent) if the remaining paperwork conclusively proves that the inventor was going to hand over the invention. In any case, based on the facts in your letter, it appears as if this matter is headed for some legal martial arts so we urge you to see an attorney ASAP.
Alternative courses of action. If you have an arbitration clause in your agreement, that may enable you to resolve the matter quicker, or you could always ask for arbitration if the inventor is willing to agree. More importantly, have you evaluated the patent's commercial potential? We know that you believe in the patent so much so that you're willing to fight about it, but the objectivity of a third-party evaluation my save you a lot of time and effort. As you may be aware, it's estimated that 50% of patent applications     never become patents and of those that do get issued, less than 2% are commercialized (offered for sale). (We're not sure how reliable these statistics are but they give you an idea.) In other words if the idea is uncommercial, its possible that your inventor friend is offering you a chance to walk away from your obligations without any more risk or investment. That may be a better choice than being trapped in a reality TV show with your so-called "partner."

Are Nonprofits Liable for Photo Infringement?

Dear Rich: I have been collecting black-and-white snapshots at antiques shops and flea markets for several years. This year i started posting some of them with slightly irreverent captions on my website. I think I understand that orphan works produced before 1923 are considered to be in the public domain. But what about the later photos? I haven't been too concerned about copyright violations because it is a nonprofit site. However what if I wanted to reproduce the images for profit? What kind of legal issues would I face? We think you're operating under a few misconceptions so maybe we should clear those up, first.
Nonprofits can be liable for infringement. Being a nonprofit won't shield you from a lawsuit. Nonprofits are occasionally named as defendants -- for example, the Internet Archive was sued over its caching of old web pages (and some nonprofits have filed suits as well). Nonprofit status may affect fair use determinations (as explained here). But in general, it makes little difference for purposes of determining infringement, whether the theft was for profit or not. You should also be aware that nonprofit status is a corporate tax status; a failure to profit doesn't make you a nonprofit.
Orphan works are not public domain. You are correct that works published in the U.S. before 1923 are in the public domain in the U.S. But these are not orphan works. An orphan work is one that is still protected under copyright but whose owner is missing in action and there's nobody to contact for permission. We think that's the case with most of the photos at your website.
Right, you had a question. We think the odds are slim that you will be the subject of a lawsuit. A copyright owner of one of your vintage photos (the owner would be whoever took the picture) is unlikely to see your work, unlikely to threaten a lawsuit and unlikely to recover much if the lawsuit should it actually go to court. So the chances are low that you will be hassled. Still, for the record, these are infringements. There is also a slim possibility that one of the subjects of these photos will see your site and claim an invasion of privacy or (if you sell the images) a violation of the right of publicity.  Again, unlikely, but possible ... kind of like guessing whether an earthquake will hit Virginia.

Contract Worker Broke My NDA!

Dear Rich: I just found out that a contract sewing employee I had sign an NDA is making my product! What can I do to stop him? An NDA is helpful if you want to stop someone from disclosing or using your secrets. So if the contractor took a confidential process or secret information, you can sue. If, however, your products are publicly available and there is no secret element in their production or marketing, you may have a hard time claiming trade secret theft and violation of the NDA.
What else? If you have a noncompete provision and your state enforces noncompetes, you also may have a solid claim. Is your product protected under copyright or trade dress laws? That may be a way to stop copying. Bottom line dept. Assuming this product is important to your business, you should have a lawyer look at your agreement and your product.

When Does New Patent Law Go Into Effect?

A.G. Bell takes a call
(c) Sasha Stim-Fogel
Dear Rich: I read that Congress passed a new patent law. Will this affect a provisional patent application that I filed last month? [Note: the law discussed in this question was finally enacted on September 16, 2011] No, the new law (The America Invents Act aka Patent Reform) has not been enacted, yet. ] Both the Senate and House of Representatives have passed versions but the two versions haven't been 'harmonized.' The Dear Rich staff believes that the Act will be enacted next month. In fact, we're so sure that we've prepared a timeline explaining when the 37 provisions of the bill go into effect.

Can I Use Book Covers on T-Shirts and Buttons?

Dear Rich: What is the law regarding reproducing book cover artwork as bookmarks, t-shirts, buttons, etc.? I was particularly wondering about older jacket art from before 1970. The Dear Rich Staff reports that the use of copyrighted cover art on merch is an infringement and one that is highly unlikely to be excused as a fair use. The copyright is owned either by the publisher or cover artist.
Lowering Risks. You're totally safe to use cover art published in the U.S. before 1923 (public domain). You may also be safe using cover art published between 1923 and 1964 because a large percentage of works from that period were never renewed and fell into the public domain. (You can learn how to research renewals here). After 1964, most cover art is likely to be protected under copyright. Of course, there's always the possibility that a publisher has gone out of business, the cover artist has passed away, or nobody cares about the reproduction, and there is nobody interested in going after you (the orphan works syndrome). Non-merchandise thumbnail uses of book covers for purposes such as this blog are likely to be fair use.

Can I Reproduce Magazine Cover When My Product Is Featured?

Dear Rich: My product has been recently featured in a national magazine along with my company name. I've asked the magazine's permission to use their magazine name and the pictures that display my product, but they haven't responded. Could I use a picture of their magazine cover and state that my product was featured in their magazine on my ecommerce site without their permission? Wow, congratulations on getting some serious inka-dinka-doo and good luck with your product sales. Reproducing the magazine cover without permission is most likely an infringement of the copyright owned by the magazine, the cover artist/photographer, or both. But there are ways you can use it that can seriously lower your risks.
Copyright issues. The safest use (and one that would likely be excused) would be to use a thumbnail of the magazine cover -- something in the ballpark of the illustration size above. Recent cases have considered thumbnails as permissible fair uses, including a case in which magazine covers were used in a book. You can probably even claim fair use successfully using larger sizes, though we must always remind readers that fair use is a defense that you have to prove in court (a scary proposition). You can also consider another factor that we mention to Dear Rich readers. Will the magazine find out about your use and will they care? Obviously -- based on the zillions of unauthorized reproductions of product reviews -- many people in your position take this "stop me if you don't like it approach."
Trademark issues. We know that the writer of the magazine article endorsed your product (Yay!) but that doesn't necessarily mean that the magazine endorses your product and it may have a policy that asks readers not to associate the magazine's name with product or service advertising. Other magazines may have a policy prohibiting use of the logo or other trademarks in advertising. Check out the magazine's trademark rules (usually posted at its website or within the magazine) and look for any blanket prohibitions. As a general rule you should be okay with straight informational statements like "Our cool binoculars were mentioned in Bird Magazine and the writer called them "extraordinary." (You can probably include a few lines from the review without running into copyright problems.)

Can We License Individual Patent Claims?

Dear Rich: We recently received a CIP patent (continuation in part patent) with numerous claims pertaining to different industries. For example, one claim covers the invention as it relates to government. Another claim covers the invention as it relates to the medical industry, etc. Can the owner of a patent assign or license the rights to specific claims within the patent? For example, can we license or assign only the rights of the claims pertaining to the medical industry to a biochemical company? According to Patent it Yourself author, David Pressman, the answer is "Generally yes, unless the licensing of less than all of the patent claims is in furtherance of a scheme to monopolize a certain industry beyond the monopoly conferred by the patent -- for example, in one case when a company was willing to license a critical patent only if the licensee took licenses under some additional undesirable patents, that was held to be an illegal antitrust practice since it extended the patent monopoly beyond its ordinary scope." Occasionally, a party sued for patent infringement will raise this issue as a defense (known as "patent misuse"). Pressman reminds readers that when it comes to questions of  antitrust law, things can get complicated (as the law is often vague on the subject). It's one of those areas where an attorney's consultation is probably necessary.

Is Dance Troupe Liable for Photo in Background?

N.Y.C. Garbage collector's strike, 1911- horse-drawn
cart being stoned (with 'scab' driver hiding inside).
Dear Rich: A member of my wife's dance troupe composed a piece about the Memphis sanitation worker's strike in 1968, and used a number of images from the time projected behind the stage during the dance. A magazine published a story on the performance, and included a picture of the dance that showed the projected image of striking sanitation workers. We've heard from someone at the magazine that the photographer's lawyer has contacted them. The image is of a historical event, and the topic of the performance was the impact of the strike. Isn't this fair use? If not, is the dance troupe liable? Yes, the dance troupe would be liable for infringement if a court determined that the photograph was copyrighted, was displayed without authorization, and did not qualify as a fair use. As Dear Rich readers are aware, what makes fair use such a slippery concept is that it can only be proven by going to court and most people can't afford to take the issue that far.
What do the courts say? There are a handful of cases where unauthorized imagery has appeared as the background in theatrical works, including theater, film, and TV. In one of the better known cases, a court of appeals determined that it was not a fair use to post the poster of a “church quilt” in the background of a television series (for a total of 27 seconds). The court was influenced by the prominence of the poster, its thematic importance for the set decoration of a church, and the fact that it was a conventional practice to license such works for use in television programs. (Ringgold v. Black Entertainment Television, Inc., 126 F.3d 70 (2d Cir. 1997).) On the other hand, several copyrighted photographs appeared in the film Seven, prompting the copyright owner of the photographs to sue the producer of the movie. The court held that the photos “appear fleetingly and are obscured, severely out of focus, and virtually unidentifiable.” The court excused the use of the photographs as “de minimis” and didn’t require a fair use analysis. (Sandoval v. New Line Cinema Corp., 147 F.3d 215 (2d Cir. 1998).) Your situation is likely somewhere in between these two cases. We've summarized other fair use cases here (to give you a flavor of how judges rule) and we discuss the four fair use factors, here. We think your case could go either way and will likely be dependent on the duration of the photo's display, whether the display is considered informational and/or for purposes of commentary, and whether the combination of the dance performance and photograph creates a transformative use of the image. This may be one of those cases where an attorney's advice is needed. Assuming you're in Memphis, can you avail yourself of this organization's legal services?

Will an Intent-To-Use Trademark Application Stop Theft of TM?

Dear Rich: Can I go ahead with website use and can I pitch an idea to licensing companies if all I have done is file an intent-to-use application at the Trademark Office? Is it considered intent-to-use if you don't plan on selling something yourself but you plan on licensing it? Short Answer: In your first question, we think you're asking whether there is a risk in using or exploiting your trademark while it is the subject of an intent-to-use (ITU) application. No, there's no risk ... in fact that's what you should be doing, assuming your uses match the goods and services in your ITU application. As for your second question, it will be considered an appropriate ITU if you plan on licensing it provided you can demonstrate your intent, as discussed in this article (and below)
No secrets with your ITU.  Keep in mind, there's nothing confidential about the ITU filing. Your advantage for trademark purposes is that you have priority based on your date of filing -- in other words, you can stop later users. As you're aware, the ITU application will only ripen into a trademark registration once the mark is used in commerce. So reserving the mark is a good idea but it will have no value if you can't demonstrate your use on the goods or services.
How do you show bona fide intent?  You can't simply list a group of goods and services in your ITU and expect that the USPTO will allow you to endlessly renew your ITU application. At some point, absent actual use, you will have to prove that you have a bona fide intent (BFI) to use the mark in commerce in the manner described in your application. Documentation is the key to proving your BFI. This documentation should be in the form of business plans, correspondence, product or service research, market research, manufacturing activities, promotional activities, steps to acquire distribution or licensing, expenses incurred towards your goal, and similar evidence. In addition, your BFI must exist for all the goods and services named in your application.
What's the TTAB have to say? The Trademark Trial and Appeals Board (TTAB) has held that "the absence of documentary evidence on the part of an applicant regarding such intent is sufficient to prove that the applicant lacks a bona fide intention to use the mark in commerce as required by Section 1(b)," Commodore Electronics Ltd. v. CBM Kabushiki Kaisha  26 USPQ2d 1503, 1507 (TTAB 1993). Our friends at the TTABlog have provided numerous examples of how these ITU cases play out at the TTAB. Check them out hereherehere, and here.

Has Roy Orbison Negatives

Dear Rich: I read an article about a man who took pictures of the Beatles when he was a teen and recently sold them. That got me thinking about my 23-year old negatives I have of the singer Roy Orbison and his family. I was working on a Christmas card for the family and shot several rolls of film. A month and a half after the photo shoot Mr. Orbison passed away. As the photographer I had them sign a release and I still maintain the negatives. Question is: Do I have the right to print and market those images? If so, what do I need to market images and how far may I go in creating additional marketable images? OMG! We just realized Roy Orbison has been gone for almost 25 years! It seems like yesterday that the In Dreams star passed away. What has the Dear Rich Staff been doing all these years?
Right, you had a question. The short answer is that you can sell copies of your photographs (prints) and you can license the photos for editorial uses such as books and website articles. But you cannot license them for commercial uses such as product endorsements or merchandise unless such rights were conveyed to you by the people signing the releases (unlikely).
The longer answer. There are three legal principles at work: copyright, contracts, and the right of publicity. Unless the photos were done under an employment relationship, copyright grants the photographer (the person who took the pictures) the right to copy and create derivatives of the photos.  The right of publicity allows the subject of the photo to control the way their image is used for endorsements and merchandise. Contracts are used to transfer these rights. So, the photographer retains copyright unless a contract transfers that right and the subject retains the right of publicity unless that right is transferred by contract (for example, a release). For that reason, you will obtain the most reliable answer after someone reviews your photo releases to determine what rights were granted to you.

Should We Wait for Patent to License?

Dear Rich: Our company has a product idea which has been professionally prototyped/tested and we have acquired a trademark. It is patent pending for the past 2.5 years and should be up for finalization within 6 months. It relates to a fashion technology and our intent is to try to license the technology to existing brands. I am concerned that potential customers (brand) could lose a sense of urgency if they have to wait for the patent to be finalized? As you know, there is always a chance a patent can be denied, delayed, or disputed. They could also look for workaround’s on the patent or possibly seek deals with like technologies already available. Due to the risks and costs involved, I have opted to license the technology instead of producing a line ourselves. Had we been in a manufacturing position, we would have produced our product under Patent Pending status. As we don’t have production facilities or know-how, serious cash flow, nor distribution channels we have opted for a licensing model. Should we wait for patent finalization before trying to license the technology out? We can't advise you what to do but we do know that many people in your position do not wait for a patent to issue before pursuing a license. Often that decision depends on the industry. For example, in the toy, entertainment and fashion industries, speed to market may be the most important variable, with proprietary rights being a second perhaps less important concern. You probably are aware that there is no legal protection for your technology until the patent issues. Because 18 months have passed, your patent may have been published by the USPTO (depending on whether you permitted publication) so you can take advantage of one protective aspect of patent law. Anyone who copies your invention now, before the patent issues, can be subject to infringement for past transgressions once the patent is granted, provided you place them on notice regarding your patent pending status. We talk about that more here.
Evaluation agreements. Most people in your position use evaluation or option agreements with potential licensees. These agreements allow someone to evaluate the potential, and if they like your stuff, to make a deal. If your application has not been published you will need a nondisclosure agrement (or some variation) as well.
License agreements. Because there is always a possibility that a patent will not issue many people in your position enter into licenses with a two-tiered royalty. (Here is some basic invention licensing information). If the patent issues, you receive one royalty; if the patent does not issue, you would be entitled to a lower royalty. There are numerous ways these agreements can play out and we've outlined a few of the scenarios in one of our books.

Wants to "Own" Shakespeare Phrase for Merchandise

Dear Rich: I have a plan to use a "theme" idea involving stories that were told to me by friends of mine at a retreat. I would use these stories in a book and title it with a quote from a Shakespeare play that fits the subject matter very well. I recorded and transcribed the stories and prepared the book proposal. I received permissions from the original participants and have developed stories beyond original telling and will use pseudonyms for the participants. My questions: (1) Can I use the Shakespeare phrase as title of book, in logo and brand, on cards, plaques, and entire product line? I searched the trademark database for phrase and there were no results. I grabbed .com domain name with phrase and there were no other domains using the phrase. (2) What do I need to do to "OWN" that phrase so that I can feel free to license it to appropriate product partners, or to enter into strategic partnerships with various companies to create gift packets with book and products, like candy and greeting cards. I also want to take the idea on the road to gather more stories after my website will launch and then once the book is published as the part of the book tour. (3) Do you think that I need a lawyer to guide me through these early stages so that the correct and necessary legal infrastructure is set in place to allow for graceful launch of this commercial universe? If so, do you have any referrals? 
All that glistens is not gold. Your plan is admirable and ambitious but we're always a little wary of attempting to plan the launch of a commercial universe all at once. We think it's usually better to take it step by step and see what works and what doesn't. With that caveat in place, here are the answers to your questions.
Good enough to call your own.  The idea of "owning" a Shakespeare phrase for merchandise is possible but it requires money and diligence. As you're aware, "ownership" of the phrase would require that you acquire trademark rights. (And as with all intellectual property rights, your claim will only have value if you have the money to go after those who infringe your trademark.) For each class of merchandise, you will need to register a trademark claim (between $275 and $325 per class, depending on how you register). So, candy would be in one class, greeting cards another, etc. By the way, if you register the phrase for greeting cards, that would give you the right to use the phrase for a line of cards; it wouldn't guarantee your exclusive right to use the phrase as the card's message. You can get the trademark registrations only by using the mark on the goods in commerce -- that is, you'll need to be selling the goods to get the rights. However, you can reserve the mark by filing an intent-to-use application, provided you have a bona fide intent to use the marks on the goods. Also, you cannot get trademark rights for a single book, but you can get it for a series of books.
What's in a name? As for using Shakespeare quotes for a book title, no problem, though you might want to check this site to avoid any confusion.
Let's kill all the lawyers. As for your last question, the Dear Rich Staff cannot refer you to any attorneys although there are many online sources for locating attorneys (including our employer's legal directory). As for doing the legal work yourself, that's always possible. Publishing the book won't bring up many legal issues and it sounds as if you have the necessary releases. More can be found in our Getting Permission book. As for the licensing deals, those probably will involve a lawyer and we would recommend contacting one once you have a solid offer in hand.

Wants to Invest in a Band

Dear Rich: Myself and a partner are considering investing in a band. The band is pretty far along, playing 2000 seat venues, recording their first cd, and seemingly taking success very seriously. They need funds to go to the next level and we are comfortable getting involved. However, the zillions of music industry contracts/guides out there do not touch on contracts protecting an investor buying a percentage of the band's entire business. Can you steer me toward something like this? I am looking for specific contract templates, along with what-to-watch-out-for insight. Investing in a band is the same as investing in any other business (which is why you're probably not finding paperwork specifically geared to bands). So lets take a look at the three things required to invest in a business: (1) a formal business entity -- that is the band must be a partnership, LLC, or corporation (preferably one of the latter two), and (2) an agreement between the owners of the entity formalizing your investment (for example, a stock agreement), and (3) some knowledge of the industry in which you are investing.
LLC or corporation. We recommend that the band form an LLC or corporation because investors in those entities have limited liability. That way investors will be shielded if the band throws a TV out of their hotel window and it lands on someone's Ferrari. These entities are also better suited for making investments than a partnership. There are plenty of self help books and forms, and online programs that explain how to form and invest in LLCs and corporations, though our hearts are with the Nolo products (insert FTC disclaimer, here).
Why it matters that you learn about the industry. Every industry has its quirks and the music industry has more than most. You should take a basic primer in music copyrights and trademarks because the assets of the band are concentrated in those intangibles. You'll probably want the songwriters in the band to contribute their songwriting copyrights to the band entity. However, that's not something they're obligated to do. So, before you drop your money into the band's piggy bank, you should probably be sure that the assets placed into the entity, reflect the money-making features of the band. And of course, it's probably in everyone's best interests for you and your partner to have your own attorney and the band to have different representation. That will go a long way to prevent a post-breakup challenge to the agreement.