Some of the most valuable assets of businesses within the fashion and luxury spaces (and beyond) are their innovative and creative works, and the distinctive elements of their branding. Given the importance of such intellectual property, McCann FitzGerald attorneys Rory O’Malley and John Neeson say that “companies no matter their size are encouraged to at least consider such protection” – from copyright and patents to trademarks and trade dress – at the outset in order to protect against infringement and/or enhance the commercial value of the business, and ultimately, will make their companies a more attractive investment for investors and compelling source of goods/services for consumers.
While COVID-19 and the corresponding financial crisis are wreaking havoc on the market, startups are proving to be among some of the hardest hit, raising the question of whether even some of the buzziest ones will be able to weather the storm. As Fast Co.’s Elizabeth Segran asserted this spring, the future for direct-to-consumer startups – whether it be apparel brands like Everlane and Outdoor Voices or beauty brand Glossier and footwear companies Allbirds and Rothy’s – “is complicated,” but it is safe to say that “brands that have cash on hand, continue to innovate, and stay relevant to customers are more likely to make it to the other side.”
“Some brands are unfortunately just not going to be able to survive this,” Matt Scanlan, an investor in Buffy and True Botanicals, and CEO of Naadam Cashmere, told Fast Co. But at the same time, he says that “those that do are going to be in a stronger position.”
With that in mind, brands across the board, and startups, in particular, need to pay attention to their intellectual property in light of the enduring health pandemic and the resulting market volatility in order to be well-positioned when the dust settles. O’Malley and Neeson say the following three steps are worth keeping in mind for all companies throughout the various stages of their development and evolution, start-ups included …
Step 1: Identify your intellectual property
Given that intellectual property is often one of the most important elements of a business, it is key that companies identify their assets and understand how they can be protected by way of the various intellectual property doctrines. As part of this exercise, it is not only imperative to understand the different types of intellectual property and what they protect, it is important to consider the entirety of the company’s products, the technology used in its business, and the various elements of its branding (such as its product packaging), among other assets.
In a nutshell, intellectual property includes:
(1) Copyright: This type of protection extends to “original works of authorship fixed in any tangible medium of expression.” Such rights can be particularly important for technology businesses, as many works they create such as software, content, databases and various types of technology can be protected. While copyright arises automatically upon the creation of an original work, it is worth noting that in the U.S., registration is a prerequisite to filing an infringement lawsuit.
(2) Patents: Depending in the type of patent at play, this doctrine provides exclusive rights in connection with inventions of new and useful processes, machine, manufacture, or composition of matter, or new and useful improvements thereof, or the decorative, non-functional features of a product’s appearance. For start-ups creating innovative products and technologies, patents can be useful, particularly since they give the patent owner the right to prevent others, for a limited period, from exploiting (i.e. making, using, selling and importing) the invention without its permission.
(3) Trademarks: A company’s brand is often one of its most valuable assets, and it can be useful to protect this by way of trademark rights, which can exist in generally any word, phrase, symbol, or design, or a combination thereof, that identifies and distinguishes the source of the goods ofone company from those of others. While registration of a trademark is not necessary to give rise to rights, there are certain benefits that come with it.
Consideration should be given as to what intellectual property rights may already exist and what intellectual property can be registered. For example, copyright may already exist – and be registered – in a company’s proprietary software or the imagery that is central to its staple advertising efforts. But what about its brand name and logos? Those important elements of branding should be registered with the U.S. Patent and Trademark Office and/or other relevant international trademark bodies.
More than that, if a company is in the business of selling staple products, such as Allbirds and Rothys, which respectively boast a lineup of core footwear, building up secondary meaning in those products (i.e., proof that consumers link the individual products to a single source) will enable such companies to claim trade dress rights in them.
Step 2: Assignment of intellectual property to the enterprise vehicle
Once the relevant intellectual property has been identified, it is important to identify who owns it and whether the business is entitled to use it. In the earlier stages of a start-up, founders often develop the business without having a formal business structure in place. As a result of this, they often personally own the intellectual property at play. To avoid future issues, for example when a founder leaves, the ownership of such intellectual property should be assigned to the company, itself. This can be done by way of a written assignment agreement between the founders and the company.
Step 3: Protection through non-disclosure agreements
Beyond intellectual property rights and registrations, another valuable tool for protecting certain assets and valuable business information is confidentiality. In certain circumstances, for example, when negotiating with external investors or collaborating with third parties, it might be necessary to share certain confidential information. Before sharing such information, it is recommended that companies enter into a non-disclosure agreement (“NDA”) with that third-party in order to protect propriety information, whether that be sales, manufacturing and distribution methods or consumer profiles, advertising strategies, and/or lists of important suppliers and clients. Typically, this information falls within the realm of trade secret law.
When drafting an NDA, it is essential to ensure that the agreement is suitable for the specific business of the startup and that the definition of confidential information is sufficiently detailed to adequately protect the information at play.