John Farmer's Column: 2009 Leading-Edge Law Group, PLC Attorneys Richmond Virginia

Sadly, tough economic times have caused closures and layoffs by major Virginia employers. But these cuts mean talented people will be available for hiring by new employers. These employers should be aware that many prospective employees come with legal strings attached.

Look for written agreements between the prospective employee and former employer. These agreements might contain some or all of the obligations and restrictions described below.

Sometimes an employee may be contractually bound to something he didn't sign, such as policies in an employee manual.

Also, even if the employee didn't sign any contract, the law may impose on him obligations to his former employer.

A former employee is obligated to guard the secrecy of the trade secrets of his former employer - information that the former employer took reasonable steps to keep confidential and that has value due to its confidentiality.

The law imposes this obligation, although it might be detailed in a confidentiality agreement.

Examples of information that might be a trade secret (if the former employer handled it properly) are customer lists, internal financial information and production methods.

Also, the prospective employee may be obligated to guard the confidentiality of information that was provided to his former employer by third parties. This might be information the former employer agreed to keep confidential (such as information provided by that employer's joint venture partner) or that the law requires to be kept confidential (such as individual health information).

A non-compete often is invalid unless it was tailored to the particular person who signed it. It must be reasonable in length of time, in geographic reach and in the scope of what it prohibits. If it's overbroad, it's invalid.

Yet, any non-compete signed by a prospective employee should give a potential employer pause unless it clearly doesn't apply to the new job. The question becomes whether it's worth the legal fees to fight over enforceability.

Sometimes a non-compete is triggered only if the employee is fired for poor performance or wrongful conduct.

Sometimes the employee didn't sign a non-compete but he promised to not solicit current customers of an employer during a period of time after employment ends. Sometimes this obligation extends to customer prospects contacted by the employer and to former customers of the employer.

Generally, by law an employer owns the copyright to works an employee creates on company time and using company resources. Copyrights cover creative works, such as advertising material, manuscripts and computer code.

Copyrights will matter if you wish to use material the prospective employee created prior to employment.

Unlike copyrights, by law generally an employee owns the patent rights to whatever he invents even if he creates the invention while working on company time and using company resources.

Nevertheless, if the prospective employee worked in research and development, he may have signed an agreement requiring him to disclose all patentable inventions to the employer and to assign all patent rights on those inventions to the employer. Such an assignment might even cover some inventions the person completes after his employment ends.

Even if there was no such agreement, a lot of patentable technology starts out as an employer's trade secret, which the former employee must keep confidential.

Everything depends on the circumstances, but here's a non-exclusive list of things an employer can do to screen prospective employees:

When a company hits hard times, it may find that legal claims against a better-faring competitor provide a potential additional revenue stream. Be judicious in your new-employee vetting so you don't become a fat target in lean times.

The federal appellate court responsible for patent matters recently issued an opinion on whether you can patent a business process. This decision and its aftermath could have a major affect on U.S. business.

The Court of Appeals for the Federal Circuit hears all appeals in patent cases. It recently affirmed a decision denying a patent on a process for managing risk in fixed-price commodity sales. It held this type of invention is beyond the scope of what can be patented.

The nature of this process isn't important. What's important is the test the court announced for deciding whether you can patent a business process.

What is a "business process"? That's patent lingo for processing data to produce useful information. Consider these examples:

The common thread is the input is intangible data, the output is intangible data, and the process that creates the output is mental, although a computer might perform the process rather than a brain. Can you get a patent on such a process?

The Federal Circuit said "no." Federal statutory law says an inventor can get a patent on a "useful process," provided it's a new process that wasn't an obvious improvement on a previously invented process. The statute doesn't say whether a patentable process can be a purely mental process, as opposed to, say, a process for manufacturing a tangible product.

The Federal Circuit held that, to be patentable, a process must either be tied to a machine or it must transform matter from one state to another. A purely mental process doesn't qualify.

Unfortunately, this decision left important questions unanswered. The biggest one is whether merely incorporating a general-purpose computer into the description of a process will make it patentable.

For example, let's say I invented a new way of organizing data from a computer database. Under the new decision, I can't get a patent if all I submit to the Patent Office is a description of the computational procedure utilized to do the work.

But what if a patent application describes a process for using a standard desktop computer to pull information from the database, and to organize that information on a screen or paper? The heart of the invention is the same but I've added a machine - a computer.

The court's decision doesn't answer that question. The dynamics of the technology sector may be shaped by the eventual answer.

Whether business processes should be patentable is hotly debated in many circles, including Congress.

The camp favoring business process patenting argues we should incentivize invention and that, nowadays, many of the most important inventions are computer processes and the like. If you can't get a patent, others may copy what you invent without paying you to do so, so your incentive to invent is reduced.

Also, it contends, by making patents available, you encourage folks to disclose useful inventions in published patents rather then trying to keep inventions secret. The disclosed technology can be used freely when the patent expires, or earlier if you buy a license from the patent owner.

The opposing camp argues business process patents can create a legal thicket that makes doing business difficult and risky.

It also claims giving an exclusive right (which is what a patent is) to a business process is essentially giving a monopoly on the use of a good business practice. Instead, they claim, for economic efficiency, all businesses should be free to copy the best business practices of others.

In addition, this camp claims opening the door to patents on business processes tends to result in patents being granted for processes that either weren't really new or that were obvious improvements on what existed before. While the law requires an invention to be new and not obvious to be patented, they say the Patent Office has had a hard time applying this rule to business processes. For example, someone once got a patent on a method of swinging on a swing.

This Federal Circuit decision won't be the last word on business process patents. Eventually, one of two things must happen: either Congress will clarify what can be patented, or the courts will eventually answer the questions this case created over a series of decisions and several years. My money is on the latter outcome. Regardless, a lot of money rides on the rule that eventually will be created.

As a trademark lawyer, I run into misconceptions about what secures the right to use a particular business name. Unfortunately, many business owners find out that they must switch their business names due to trademark problems only after they have spent a lot of money on their current names.

A little Trademarks 101 will help you understand why the misconceptions are wrong.

A trademark is the right to sell a product or service under a particular brand name. Usually a company name is a trademark because the company puts its name on its goods or in advertising for its services.

Trademark rights are formed by use. If you are the first to use a trademark, you can stop others from using the same trademark (or a confusingly similar trademark) to promote the sale of the same or similar goods or services.

Thus, if I open a hotdog stand on the corner of 10^th and Cary Streets called "Franks-in-Line," I can stop someone else from later opening another lunch stand nearby with a highly similar name.

I might strengthen my trademark by registering it with an agency of the federal government - the United States Patent and Trademark Office ("USPTO") - or with a state trademark registrar. Yet, even if I don't register, I have "common law" rights to my trademark.

#1 - Reserved the Corporate Name. When you incorporate a company (or form a limited liability company) in any state, you register that company's name with a state governmental body. In Virginia, it's the State Corporation Commission.

No state will let you pick a corporate name that's exactly the same as the registered name of another corporation formed in that state.

Getting a corporate name does not confer trademark rights because doing so, by itself, does not count as using the name in commerce to promote the sale of goods or services.

Plus, while the SCC will let you obtain a corporate name that isn't an exact match of an existing corporate name, trademark law prohibits you from using in commerce a business name that's merely "confusingly similar" to an existing trademark if the goods or services of the two companies also are similar.

#2 - Reserved a Trade Name. You can register a trade name with a state and usually (if not always) with a city or country. This too does not confer trademark rights. Registering a trade name just paves the way for you to use the name without violating business law.

#3 - Reserved a Domain Name. You can rent a domain name from a domain name registrar such as GoDaddy.com. Yet, domain name registrations by themselves don't create trademark rights. In fact, in some situations a trademark owner can take away a similar domain name.

#4 - Checked it Out on USPTO.gov. You can search a database of issued and applied-for federal trademark registrations on the USPTO's website - http://www.uspto.gov/.

Yet, the database doesn't contain all obstacles. It doesn't list common-law rights - trademarks in use but not registered.

Also, it's hard to find near matches using the website's search engine. Remember using a trademark that's confusingly similar to an existing trademark and that covers similar goods or services can be trademark infringement.

#5 - Obtained a Mark Registration. Getting a trademark registration does not make that name bulletproof. It can be cancelled by someone who has older, conflicting, common-law trademark rights. In fact, such a senior user could sue you successfully for trademark infringement.

When the USPTO reviews your trademark registration application, it looks only at other federal trademark registrations and senior registration applications. It doesn't look for common-law trademarks.

Also, even if the USPTO clears your trademark, the owner of another trademark may disagree. That owner can try to stop your mark registration or, after registration, it can try to cancel it. The other owner could sue you for trademark infringement. A judge is not bound by the determination of a USPTO official that no conflict exists.

The Bottom Line: The best way to clear a business name is to have a lawyer order and review a trademark availability report from a commercial service, such as Thomson CompuMark or CT Corsearch. These searches pull up identical and similar mark registrations, applications and common-law uses.

It takes an experienced trademark eye to tell which of the hundreds or thousands of report entries may be significant problems. You'll pay about $2000 for the report and a written legal analysis of it.

That's a lot of money, especially for a new business. Yet, if a business must change its name due to a trademark problem after building up goodwill, the cost of that change probably will be much higher.

What's on your list of things you know you need to take care of but you never get accomplished? Do you worry about the day when your neglect will suddenly sink you?

For an individual, it might be something like losing weight or building a rainy day fund.

For a business, consider putting the need to protect your trade secrets near the top of your worry list.

Just ask Bank of America about the importance of trade secrets. It recently suffered a painful lesson from its neglect.

A trade secret is information that has value because it has been kept confidential. For businesses, classic examples of potential trade secrets are customer lists and future business plans.

I emphasize the word "potential" because no information automatically is a trade secret just because of its subject matter. In order for something to be a trade secret, a business must have taken reasonable steps to keep it confidential.

If something is a trade secret, the business that owns the trade secret has legal remedies when someone absconds with it.

For example, if a Coca-Cola Company employee managed to leak the secret formula for Coke to a competitor, Coca-Cola lawyers could have a court order the return of and protection of that information. But that's only because Coca-Cola invests great effort in keeping the formula secret.

Bank of America recently purchased a very distressed Merrill Lynch in a rush deal. Just before the merger closed on January 1 of this year, Merrill paid more than $3.6 billion in bonuses.

After the deal closed, Bank of America purportedly discovered that Merrill's financial straits were much worse than it believed, so Bank of America threatened to undo the deal.

Yet Bank of America stuck with it under immense pressure from the Feds. As encouragement for Bank of America to keep the deal, the Feds put an additional $20 billion in federal aid into Bank of America and entered into $118 billion in Merrill loss-sharing protections.

As recent events with AIG and General Motors demonstrate, when the Feds own a piece of you, they run your life. And populism can run the Feds.

In mid-March, when bonus outrage swept the land, New York's Attorney General, Andrew Cuomo, subpoenaed records of the Merrill bonuses. Merrill's new owner, Bank of America, tried to stop the embarrassing disclosure.

Eventually, Cuomo and Bank of America reached a deal in which the identity of the bonus recipients would be kept confidential pending a court ruling on whether Cuomo could publicly release the information.

One argument Bank of America made in favor of confidentiality was that information regarding what Merrill and it pay their employees, including bonuses, is trade secret property.

The court shredded Bank of America's contention. Key Merrill and Bank of America officials testified they didn't know of any company policy prohibiting disclosure of compensation information.

Bank of America had circulated a message to employees asking them to keep their compensation confidential but never enforced the policy. It never had employees sign an agreement to keep the information confidential.

Bank of America admitted it was permissible for employees to disclose their compensation to prospective new employers.

In the end, the court held Bank of America hadn't taken reasonable steps to keep its compensation information confidential, so it wasn't a trade secret. Thus, Cuomo was free to publish the information as he pleased.

Eight days after the ruling, the Wall Street Journal ran a list of 25 senior Merrill employees who just recently quit to pursue other opportunities.

It's fairly obvious Bank of America's fight to keep the bonus information confidential was an after-the-fact regret for failing to focus on the sensitivity of the information and failing to protect it.

Yet, that's the way it is with many trade secret cases. No one sees the crisis coming, so taking legal precautions to protect sensitive information just doesn't happen.

Excuses abound. It's a hassle. It's a distraction from making money. It will cost money, such as lawyers' fees, that the business doesn't want to spend.

Then, like a thief in the night, the crisis hits. Often a formerly trusted employee leaves to join a competitor, or a contractor proves to be a double agent.

Then the company flails frantically to try to reclaim the sensitive information - such as the computer product's source code, the list of key customer contacts, or the internal cost-to-manufacture information.

But it's too late. In the blur of everyday events, the company never took reasonable steps to guard the information. So it can't be pulled back as a trade secret. It's gone.

One of the strongest memories I have of my honeymoon is the ubiquitous recorded announcement in the London subway system to "Mind the gap!" My wife and I heard it so many times that we began parroting it to each other.

While that announcement referred to the gap between the subway and platform, it now comes to mind because of calls I get from advertising agencies looking to vet for trademark problems the material they produce for their clients.

Before I explain this gap, here's the bottom line: Advertising agencies frequently create new trademarks for their clients, and often no one checks to make certain that using those new trademarks will not get the client in trademark infringement trouble.

Advertising agencies are trademark-generating machines. They might create a new name for a business, or for a product or service. They might create a slogan to promote a product or service. They might design a new logo for a company or for one of its products or services. Each of these is a trademark.

It isn't the advertising agency's job to check its work for possible trademark infringement. It doesn't have the legal expertise to do so. If it tried to do this vetting in-house, it would be engaged in the unlicensed practice of law. Also, ad agencies don't want to assume any liability for any trademark problems arising from their work.

This means responsibility for clearing any trademarks in the agency's work falls to its client. Yet, except for sophisticated clients, such vetting usually does not occur.

Ad agencies hesitate to raise the issue. Raising the fact that the customer needs to do its own legal research to see if it can legally use the agency's work product might ruin the vibe of the agency-client relationship.

For that reason, many agencies either don't raise the issue or bury it in the fine print of the contract with the client. I've written such contracts for agencies, and, at the agencies' request, I've put in language saying trademark issues are the sole responsibility of the client.

Who reads this fine print? My guess is few people do. The client contact who signs the contract with the advertising agency often is in the marketing department, not the legal department. If the client is small, it probably doesn't have a legal department.

clearance issue but stays mum, and the client doesn't appreciate the need to conduct trademark clearance.

I've been in the client's shoes. When I founded my law firm, I hired a local branding firm to create a logo for it. I loved the first concept. Yet, when I did trademark clearance research, I discovered the logo was too similar to one used by a similar law firm. If I had adopted the logo, my firm would have been a trademark infringer.

While many ad agencies duck the trademark issue, some noble ones don't. Sometimes an agency will seek to hire my firm to vet a new trademark the agency wants to present to its client. Sometimes the agency wants to build into its bid proposal the cost of having my firm clear the agency's work for trademark concerns.

I appreciate such agencies being proactive, but, unfortunately, one should not run trademark clearance through an ad agency.

Trademark clearance analysis is legal advice, which needs to be protected by the attorney-client privilege. The analysis might find a risk of trademark infringement or other legal problems.

If you get sued for infringing someone's mark, you don't want to be forced to divulge that your lawyer warned you and you proceeded anyway. That could be a ticket to having to pay damages to the plaintiff.

Yet, generally, you'll lose the attorney-client privilege if you let anyone other than the client have access to the lawyer's advice. If you let the ad agency see the advice, doing so could destroy the privilege. That's because the agency isn't the client - the company that does the advertising usually is.

Here's what should happen: The agency needs to tell the client (not just in fine print) that the client should have the agency's work vetted for possible trademark concerns. This should occur whenever a new business name, product name, service name, logo or promotional slogan is being created.

Then the client should not whistle past the graveyard. If trademark infringement occurs, the client can be forced to stop all usage of the offending trademark. It could be forced to run corrective advertising. It could be required to pay damages, such as all the profits it earned from sales of the offending product or service, plus (potentially) the tripling of those damages, plus (potentially) the other side's legal fees.

Published in the Richmond Times-Dispatch
June 22, 2009

Beware of the Asian Domain Name Registration Scam

If you own a domain name, watch out for the Asian Domain Name Registration Scam.

Many domain name owners have received emails from what appear to be Asia-based companies offering to protect you from having Asian versions of your domain names registered by a stranger.

This is a scam intended to get you to massively overpay for the registration of domain names you may not need. And it’s based on a lie.

Whois Directory

First, here’s some background: When you register a domain name, the contact information you provide is entered into the “whois” directory.

You usually can use whois to see who owns a domain name. You can find whois on the top page of domain name registrars, such as GoDaddy.com or Register.com.

For example, I own the domain name LeadingEdgeLaw.com. Whois lists my ownership and provides contact information for me, including an email address.

Some malevolent actors datamine whois and contact domain name owners to try to perpetuate scams. They send email (and sometimes snail mail) notices giving the impression you need to pay them (at inflated prices) to keep your domain name registrations or to prevent other harms.

How the Scam Works

In the Asian scam, the purported name of the perpetrator changes over time. The latest version I’ve seen is “Worldwide International Domain Registration.” Some other versions have been “Asia Domain Name Registration Limited,” “China Net Technology Limited,” “China Internet Network Approve Organization,” and “Beijing Inveis Network Information Technology Co., Ltd.”

While this name will change again, you can see the pattern.

Folks who track this issue don’t know whether a single bad actor is perpetrating this scheme or whether it’s a copycat fraud.

The scam email states, or sometimes just implies, that you need to pay the sender right away to register certain Asian-related domain names that are similar to your existing domain names or, otherwise, a person named in the email will be permitted to register them. The email usually is written in poor English.

The scammer is lying. The person named in the email as the prospective domain name registrant is fictional. The scammer has no knowledge of an attempt to register specific Asian domain names.

For example, a scam email might try to induce me to register LeadingEdgeLaw.cn through the scammer. “cn” is the top-level domain name for domain names affiliated with China.

While the scam email (so far) doesn’t state registration pricing, those who have played along report the pricing is far higher than what you’d pay to register the same domain names with a reputable firm.

You can register domain names from any of a large number of domain name registrars. They each sell out of a common pot of domain names. You don’t have to deal with the scammer to get not-yet-registered domain names you want.

Here are two things you can do to avoid these scams: First, if you pay extra for “private registration” of a domain name, then the scammer cannot use whois to link you with a domain name and contact you. Yet, if you put up a website at your domain name, it might use the contact information on that website.

Second, keep a record of the companies from which you register domain names. If the entity soliciting you isn’t the company you registered with, the solicitation almost certainly is a scam.

Domain Names You Should Buy

While you shouldn’t buy from scammers, you should register domain names that approximate your company’s name, the names of its flagship products and services and your company’s primary domain name.

You can register domain names for about $10 a year. That’s nothing compared to what you’d pay an attorney to try to pry away a troublesome domain name from a bad actor.

Of course, because each situation is unique, your preemptive domain name registration strategy must be tailored to your situation.

Why Do It?

Why do this? You should do so to keep others from registering and using copycat domain names to harm you. Here are some examples of potential threats:

Published in the Richmond Times-Dispatch
July 27, 2009

New and Improved! Google AdWords Now Accepts Brand-Name Advertising

In May, Google made an important change to the type of advertising it permits in its AdWords program. You’ll now see more informative advertising concerning name-brand goods and services.

AdWords ads are those “sponsored links” you see when you perform some Google searches. Advertisers bid to have their ads displayed when specific terms are searched. For example, if I sell swim goggles online, I might bid for my ad to appear whenever someone searches for “swim goggles.”

You bid by offering to pay a certain amount per web-surfer click on your ad. Google determines how high your ad gets listed in the “sponsored links” based upon your per-click bid multiplied by how Google rates the quality and relevance of your ad.

Before Google changed its program, it permitted you to buy an AdWords ad that keyed off someone else’s trademark – a product name, service name or manufacturer name – but prohibited you from putting that trademark in the body of your ad if the trademark owner blocked such inclusion.

For example, if you are an unauthorized retailer of Finis swim fins, you could buy an AdWords ad that keys off a Google search for “Finis” but you could not mention Finis in your AdWords ad over Finis’ objection.

Google now permits the mention of the trademarks of others in AdWords ads in three circumstances.

What Google now permits has long been legal under trademark law. It’s legal to use the trademark of another in advertising without the permission of the trademark owner in many situations provided the use doesn’t falsely suggest a connection with the trademark owner or otherwise deceive.

Yet, Google could have gone further in what it permits. Here are other types of uses of the trademarks of others that are generally legal but remain banned by Google’s new policy:

Will social networking sites face username-squatting problems as big as the ones caused by cybersquatting? That’s just now coming into focus.

Cybersquatting occurs when someone registers, uses or traffics in a domain name with a bad-faith intent to profit from someone else’s trademark. For example, it would be cybersquatting if I somehow obtained the domain name Speedo.com and tried to sell it to Speedo for a profit.

But what about similar activity involving usernames on social networking sites, such as Facebook, Twitter and LinkedIn?

Those sites don’t check credentials when issuing usernames to new registrants, so there are problems. Yet, due to the nature of these sites, the problems are easily solvable in theory.

First, here’s some background on what social networking sites permit regarding usernames.

Many people can have the same username on Facebook. Presently there are seven people called “Tom Smith.” You have to examine each profile to find the right person.

Facebook recently allowed individual users to create readable URLs based upon their usernames. For example, Sarah Palin apparently registered the URL www.Facebook.com/SarahPalin. (I say “apparently” because you have to examine profiles closely to discern whether they are fans or fakes.)

This URL capability enables you to enter someone’s Facebook page directly into your browser rather than searching Facebook. Also, this allows you to advertise a memorable Facebook URL.

Organizations (as opposed to individuals) with pages on Facebook also can get readable URL’s, but an organization must have at least 100 fans to qualify.

When you register for Twitter, you create a unique username. It appears Sarah Palin’s Twitter username while she was Alaska Governor was AKGovSarahPalin.

The URL for your Twitter page on the Web is recognizable and, thus, advertiseable. The URL for that Sarah Palin Twitter page is http://twitter.com/AKGovSarahPalin.

You are supposed to register under your real name with LinkedIn. There can be many people with the same name. There are zillions of Tom Smiths. Thus, you have to scan the company and hometown information to find your man.

As with Facebook, you can edit your LinkedIn profile to a readable URL. For example, it appears Sarah Palin has two LinkedIn accounts and edited each one to a readable format. One is http://www.linkedin.com/in/sarahpalin.

Each site purports to take measures to attack username squatting – someone trying to cash in on someone else’s trademark or fame.

Each site claims it will investigate and may act upon unauthorized and inappropriate uses of trademarks and famous names. Each site claims it may revoke any username at any time for any reason.

Of the three networks, Facebook is the most visibly concerned. It included trademark protections when it launched readable username URLs this spring. It provided trademark owners an early-bird period to request protection of their trademarks in the new URLs before they launched. It has a complaint procedure tuned toward registered trademarks.

Yet, try searching on Facebook or Twitter for a household brand such as McDonalds. You’ll get many hits. Some obviously aren’t created by the company – fan pages, gripe sites, etc. Yet, it’s hard to tell whether some sites are official.

In theory, a brand owner ought to be able to clean up this confusion easily by revoking misused usernames.

They have reasons to care. These sites are each U.S. companies. They can be sued in U.S. courts for trademark infringement. They should want to protect their reputations, particularly with potential advertisers.

One wonders why Facebook and Twitter appear to be the wild west of trademark misusage. Perhaps celebrities and brand owners have been indifferent or hesitant about policing their marks in such environments.

Yet, as those networks grow further in importance, eventually celebrities and brand owners will push for a cleanup. At the least, brand owners will want to squash any phishing and other online fraud perpetuated in their names. Also, many will want to protect their online reputations.

Even if you aren’t interested in social networking, you may wish to register with each site ASAP in order to get a recognizable URL (in the case of Facebook and LinkedIn) or username (in the case of Twitter). Eventually your participation in these networks might become professionally or personally necessary. The longer you wait, the harder it will be to get a recognizable URL or username.

This is especially important for business pages on these sites. Two organizations can have the same name without infringing upon each other’s trademark. DELTA is a trademark for both an airline and a faucet manufacturer. But only one company can own the domain name www.Delta.com (the airline got it). And there can be only one www.Twitter.com/delta (someone in India snagged it). As of this writing, it appears no one has yet claimed www.Facebook.com/Delta.

Published in the Richmond Times-Dispatch
September 28, 2009

Corral Potentially Troublesome Domain Names

It costs about $10 a year to register a domain name. How much will it cost your business to chase down a domain name it wishes it had registered but didn’t?

Key takeaway: Your business should register as many variations of its domain name as it can afford, because the legal fees to recover a misused domain name will be exponentially higher than the registration cost.

Cost of Doing Nothing

According to a 2009 survey by the American Intellectual Property Law Association, the median cost of litigating a small trademark case (less than $1 million at stake) is $300,000. The median cost of just getting through the discovery phase (exchanging documents and taking depositions) for a small case is $175,000.

If you have to sue to recover a domain name from a bad guy, often you claim a particular form of trademark misuse called cybersquatting, which is registering, using or trafficking in a domain name with the bad faith intent to profit from another’s trademark.

The AIPLA doesn’t produce separate statistics on cybersquatting cases. These cases often are cheaper than regular trademark infringement cases. Still expect to spend $10,000 just getting a lawsuit filed and a minimum of $125,000 to try to case.

Sometimes you can retrieve a domain name through an arbitration process established by the Internet’s governing body – the Internet Corporation for Assigned Names and Numbers. Expect to spend a minimum of $25,000 on that process.

Thus, even if you can retrieve a domain name by just filing a lawsuit – if the defendant rolls over immediately – you’ll spend 1000 times the annual cost of registering a domain name.

You should you register a bunch of domain names to try to prevent these problems:

How many domain names should you register? You’ll have to weigh cost against risk. Once you set your budget, consider deploying the following allocation of your registration budget:

Domain names in many but not all country-code TLDs can be registered by anyone through popular domain name registrars such as GoDaddy.com. Register your flagship domain name in the country codes that are likely to matter to your business.

Select the domain name variants to register based upon the nature of your business. Nevertheless, consider these ideas:

You can’t possibly register every domain name that might cause you problems in the hands of a malefactor. Still, if you protect the high-value targets, you will increase the chance that any misbehavior will not damage you enough to compel you to spend many thousands of dollars in legal fees to address the problem.

Will Trademark Deadwood Block Your Branding Plans?

I hope you’ll find this column to be like beef jerky – a little dry, but meaty and satisfying.

A federal appeals court recently handed down the most significant decision in years concerning trademarks. Here’s the upshot: Trademarks that should be available for registration – for new products or new services – will be unavailable because of blocking “deadwood” on the federal trademarks register.

Some background is necessary. You get trademark rights just by using a trademark in commerce. Registration only strengthens your rights.

For example, if I open a hotdog stand called “Farmer’s Fantabulous Franks” in downtown Richmond, I’d have a common-law trademark from the moment of my first sale, provided no other food vendor in the area was using a similar name.

I could stop someone else from later opening a nearby eatery with a name that’s confusingly similar. “Palmer’s Fabulous Franks” couldn’t be used.

I also could federally register the name of my business – my trademark – and strengthen my legal position. I would be reserving my right to use my trademark throughout the U.S.

Generally speaking, with a federal registration, I also would be able to stop anyone anywhere in the U.S. from using a confusingly similar trademark for the same or similar goods, provided that competitor started using its trademark after I applied for mine.

For example, if someone in Portland, Oregon later gave his hotdog stand a similar name, I could shut him down if and when I expand to Portland, and perhaps sooner.

Registration also creates a presumption that you have a valid trademark, which comes in handy if you have to enforce it.

In addition, registration puts the world on notice of your trademark ownership. It’s entered in an online database of the U.S. Patent and Trademark Office (www.USPTO.gov).

But I can’t federally register my trademark if there’s already a confusingly similar registration for similar goods and services.

For example, I’m blocked if there is already a federal trademark registration for “Farmer’s Fabulous Franks.” Indeed, I’d be taking a big risk just by using my desired trademark.

But what if the owner of the blocking registration hasn’t been truthful with the trademark office?

Until recently, the rule applied by the trademark office was that, if you misrepresented to the trademark office your use of your trademark – by claiming you were using it on particular goods when you should have known you were not – you lost your ENTIRE trademark registration.

For example, if you claimed you put your trademark “Hyperbrown” on toasters and grills but in fact only put it on grills, you could lose your entire trademark registration – for toasters and grills.

You could reapply for a proper registration. You would still have your common law, local trademark rights. But your registration is voided.

This is called fraud. By penalizing trademark registrants for misrepresentation, you incentivize them to be meticulous when proving trademark usage to the trademark office.

A federal appellate court just changed that rule. You can still wipe out an entire trademark registration due to fraud. But now, you have to prove the trademark registrant willfully misrepresented its trademark usage to the trademark office, and you must do so with clear and convincing evidence. That’s hard to do.

Holders of large trademark portfolios hated the old rule. They felt they didn’t know if they had latent defects in their trademark registrations that might undo them in legal battle.

Even if you can’t prove fraud, you can still get the trademark office to eliminate from the coverage of another’s trademark registration the goods it didn’t brand with its trademark. You could get the registration of “Hyperbrown” edited to remove toasters, but the registration for grills would remain.

But where’s the downside now to misrepresentation? Why be careful to check use of your trademark on every good and service you claim in your trademark registration application?

In most cases, the worst that will happen is you’ll lose only unneeded parts of your trademark registration. It’s like giving someone a 50-cent fine for running a toll booth charging 50 cents.

Incentives shape behavior. Many companies that invest in trademark registration now have less reason to be meticulous.

This means the federal trademark register will have more “deadwood” than otherwise – trademark registrations that cover goods and services that should not be covered. Fewer trademarks will be available for folks looking to brand new products and services.

You could mostly fix this problem by requiring that trademark registration applicants prove usage of their trademarks on every good and service claimed in a registration application. But many will complain about the expense and hassle of doing so. It will be hard to make such a change over substantial resistance.

Thus, while this decision is dry and technical, its impact upon the availability of trademark registration could be profound.

Over the years I’ve noticed there are several points I’m always passing along to new inventors about patenting. Here are the four biggest ones.

1. What a Patent Isn’t. A patent doesn’t entitle you to produce anything. It’s just a right to exclude everyone else from making, using or selling the invention described in your patent. Even with a patent, you may need the permission of others to make your product because your product might be covered by both your patent and someone else’s.

For example, suppose you were the first to invent putting a handle on a bucket and you got a patent on that invention. That doesn’t mean you can make and sell buckets with handles. Someone else might own the patent on a bucket, so you may need to purchase a license from that patent holder in order to make and sell a bucket with a handle.

2. Don’t Wait Around. There is a natural economic tendency to wait and see if an invention has legs before hiring a patent attorney, because patenting is expensive.

Yet, you have a limited time to apply for a patent. In the United States, doing any one of three things with an invention generally starts a one-year period in which you must apply for patent protection or lose your patent rights. These three things are (1) describing your invention in a printed publication, such as on a website; (2) selling or offering to sell your invention; or (3) using your invention publicly.

If you wait more than one year from any of those events, you can’t get a U.S. patent on your invention. Worse yet, generally speaking, doing any of those things will immediately kill your ability to get a patent in most foreign countries.

Always be paranoid you are taking too long to apply for a patent. The law concerning these time-bars is deep and constantly evolving, so often you cannot be certain of exactly how much time you have left to apply. Also, sometimes the act of a third party, even an act unknown by you, can start the one-year clock.

Thus, get thee to the Patent Office as soon as possible. If feasible, keep your invention confidential, and away from commercialization and public usage, until you apply for a patent.

3. Be Wary of PPA’s. Something called a “provisional patent application,” or “PPA” for short, is known as a “poor man’s patent” in some quarters. With a PPA, you can file with the U.S. Patent Office a mere written description of your invention and then take up to a year to file a complete patent application. The lore is a layman can prepare and file his own PPA or do so with minimal assistance from a patent attorney. You can save money and buy time.

For example, you might want to test the market for your invention but you’re concerned about missing the one-year deadline discussed above for filing a timely patent application. That’s a perfect situation for an inexpensive PPA, right?

Maybe not. In order for a PPA to buy time, it has to fully describe every element of what you will claim in a patent application. Whatever you leave out of the PPA isn’t saved from the one-year filing rule discussed above.

Often the details of an invention don’t get fully fleshed out until a patent attorney writes a patent application. The collaboration between inventor and patent attorney tends to produce completeness, clarity and detail. Whatever detail is left out of a PPA is not preserved by the PPA. Thus, a PPA sometimes fails to achieve its purpose – to buy time and prevent loss of patent rights.

A low-cost PPA may be all that’s in your legal budget. If so, filing one may be better than filing nothing. Just realize you’re taking a risk.

4. Patenting is Expensive. It usually costs $5000 to $15,000 in legal feesto have a patent attorney prepare and file a U.S. patent application. And that’s just the start of the expense.

You’ll also have to pay more (perhaps much more) than $1000 in fees to the Patent Office over various stages of application prosecution. You’ll almost certainly have to fight through initial rejections, which may cost a couple or more thousand dollars in legal fees per rejection to overcome, if they can be overcome. If your patent is allowed, you’ll have to pay substantial fees to the Patent Office at certain times during the life of your patent to keep it in force.

Sometimes buying an hour or two of a patent attorney’s time will help you ascertain whether patenting is worth the cost. Just realize patenting isn’t cheap.

Our economy increasingly depends on intellectual property, such as patents. Yet, the patent operation of the U.S. Patent and Trademark Office (“USPTO”) is in dire straits.

As of the end of September 2009, there was a backlog of over 700,000 unexamined patent applications. The average time to get a first response from the USPTO to a patent application was 25.8 months. This time has risen for at least four straight years.

It takes back-and-forth with the patent office to get a patent. The average time from patent application to eventual patent issuance was 34.6 months, and that time also has risen for at least four straight years. That time is even longer for key technology sectors – 42.7 months for communications technology and 40.7 months for computers, software and information security.

The recession made things worse. The USPTO is funded entirely by user fees paid in patent and trademark matters. Filings were down in 2009, which caused the USPTO to take in less revenue than expected. The USPTO had to freeze the hiring of new patent examiners and to cut non-essential costs to the bone. Even still, it faces a projected financial shortfall in 2010.

While more money alone cannot fix the patent woes of the USPTO, it will be difficult for the USPTO to fix its application backlog and application pendency problems without more of it. The USPTO needs to hire more patent examiners but it cannot afford to hire them.

That’s where Congress just made the problem worse. To understand why, one must understand “unintentional fee diversion.”

As I mentioned above, the USPTO is entirely funded by fees paid in patent or trademark matters, such as application fees. Congress does not give the USPTO any other money.

Yet, Congress sometimes does not allow the USPTO to keep all of the fees it collects. Instead, Congress sets a limit on the fees the USPTO can keep to fund its operations. Congress takes the rest for the general treasury.

Congress usually estimates how much the USPTO will probably take in during a budget year and gives the USPTO permission to keep only that much. If the USPTO takes in more than expected, it has to fork over the difference to the general treasury. This is the “unintentional fee diversion” – fees paid to the USPTO for patent or trademark services can be diverted to the general treasury. That happened frequently until several years ago.

The problem is that fees are paid to the USPTO for work to be done. Fee division means the USPTO still has to do the work for which the fees are paid but it’s denied the fees themselves.

The USPTO took in about $1.9 billion in fees during the 2009 federal fiscal year, which ran from October 1, 2008, through September 30, 2009. Fee payments to the USPTO tend to track the economy. Thus, if we are coming out of the recession, USPTO revenue should be higher for the 2010 federal fiscal year.

Yet, Congress budgeted only $1.887 billion for the USPTO for its 2010 fiscal year, which is a little LESS than what the USPTO brought in during its 2009 fiscal year. Unless the economy stays in recession, USPTO fees will exceed that budgeted amount and will be taken from the USPTO.

Worse yet, the USPTO has been pushing for ways to increase patent fees to pay for its projected budget shortfall for fiscal year 2010 and to attack its patent application backlog and pendency problems. The patent community has begun to grudgingly concede that patent fee increases are needed to fix those problems.

It takes a consensus in the intellectual property community to get Congress to do anything regarding intellectual property. Yet, when Congress skims money from the USPTO for other purposes, it destroys the consensus to raise fees. Why raise fees if the increased fees may not be available to the USPTO to solve patent problems?

Congress needs to end fee diversion altogether. The USPTO should be allowed to keep all of the fees it receives. After all, those fees are paid for work to be done. Also, if the USPTO must live off of less than Congress budgets when the USPTO’s fee receipts are down, why should it not keep the extra fees when its fee receipts are higher than budgeted?

You mayask why Congress hasn’t ended diversion. It’s simple – power. Congress likes to control money and to spend it as it pleases. Unfortunately, that’s causing our intellectual property system to suffer.

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