By Administrator User posted on Monday, November 7, 2011 @ 1:29 PM - (Business Formation)
As a lawyer representing start-up (or “young”) business clients, one subject always surfaces—web sites. Web sites touch on many areas in the law, but primarily encompass critical intellectual property rights such as trademark, copyright, and trade secrets. This article focuses only on protecting three critical areas of IP during the design and development of a business web site.
The Three Pillars of Protection During the Web Site’s Design and Development Phase
For many entrepreneurial companies, lawsuits can be fatal. While the Internet is viewed by many as an open forum that carries little risk of litigation, business resources are far better used reducing the risk of litigation then defending against an expensive and potentially crushing, lawsuit. With this in mind, a business must focus on three pillars of protection during the web site’s design and development phase-trademark, copyrights, and trade secrets.
1. Protecting the Business’ Trademark: The business’ domain name is arguably one of the most important web site assets. The domain name, like the business name, must be memorable and identify your goods or services. Once you have settled on a name, immediately register a domain name that closely matches your business name/trademark.
a. Practice Tip 1 - If a web site will be integral to your business, research registered trademarks with the USPTO and the Nevada Secretary of State before you commit to a business name or register a domain name. Do not commit to a name, or register a domain name, that possibly infringes on existing trademark rights. Our firm recently encountered this issue with an existing, and very successful, client. It will take significant time and resources to reach a resolution that satisfies both the client and the third party whose trademark may be infringed.
b. Practice Tip 2 - It is advisable to purchase additional domain names the business may not use, but are similar to your trademark. As an example, if your trademark is “ACME Hardware” you may want to register both www.acmehardware.com and www.acmehardwarestore.com. This ensures that third parties do not register a similar domain name and dilute your trademark in the future.
2. Obtaining Copyrights in the Design and Development of the Web Site: If the individual designing the “look and feel” of your web site or writing its code is an employee of the business, the business is generally considered the copyright holder of the work if the work is created in the course and scope of employment. If, however, the business retains a third party to design the “look and feel” of your web site or write its code, the parties should execute a “work-for-hire agreement” to ensure the copyrights business is the legal author of the copyright.
a. Practice Tip 1- The United States Copyright Act of 1976 enforces work-for-hire agreements if certain prerequisites are met. If the prerequisites are not met, however, then the business is not the legal author of the work. Therefore, to hedge against the risk that the agreement is not enforceable under the Copyright Act, all agreements should also contain an appropriate assignment clause assigning all IP rights in the work to the business.
b. Practice Tip 2 – If the business hires a third party to design and develop the web site, and the third party utilizes its employees in the design and development, include a warranty in the agreement wherein the third party specifically warrants that all individuals designing and developing the site are employees of the third party, or, in the event they are not employees, the designer/developer has obtained all necessary copyrights in the assigned work. An indemnity clause should then follow the warranty clause indemnifying the business against any loss resulting from a dispute over the copyright in the work. This protects the business if any individual who designed or developed the site later attempts to claim a copyright in the work.
3. Protecting Your Business’ Trade Secrets: When a business designs and develops a web site, the employees or third parties involved in the process may become privy to a business’ trade secrets and/or confidential information. Competitors are always looking to obtain this vital intellectual property. Therefore, the business should take proactive steps to ensure this property is protected.
a. Practice Tip 1 – Businesses should have their employees execute an agreement when the employee is hired, or when the third party is retained to provide design and development services (whichever applies). The agreement should contain appropriate confidentiality clauses, trade secret designation and protection clauses, non-disclosure clauses, and non-compete clauses in order to put the developer/designer on notice of the importance of the information and adequately protect the business’ trade secrets and confidential information.
b. Practice Tip 2 – Customer data is a hot-button issue when negotiating web site design and development agreements because the data has extensive value. If your web site will collect customer data or that data is collected and stored on the web designer/developer’s servers, include an assignment of all rights in the customer data to the business. Moreover, include appropriate confidentiality and trade secret clauses that will protect the data from being used or disseminated by the developer without the business’ express written permission.
This Level 1 Audit contains very general, high-level IP protection strategies for the three most important aspects of designing and developing a business web site. Once the site is operational, a Level 2 Audit should be performed and resulting policies and procedures put in place (Level 2 Audit is not discussed here). It is important to impress upon business clients that a web site places a business in the legal world of “publishing” and proper legal strategies are essential to protecting the business’ intellectual property assets in the design and development phase.
Matthew Digesti is a partner in The Digesti Law Firm LTP. He advises a wide variety of entrepreneurial business clients in intellectual property portfolio protection, including extensive Web 2.0 transactions with celebrity athletes and musicians including Kobe Bryant, T-Pain, New Kids on the Block, Paul Oakenfold, the Game, Thalia, Chris Daughtry, and Third Eye Blind.
- November 7, 2011