From the get go, according to attorney Tally Eitan, a start-up must deal with a plethora of legal issues. Form of company, classes of stock, founders' ownership, tax consequences, investment(s), intellectual property, and technology transactions are examples of questions that a start-up cannot toy with. Tally has provided Enable with seven items that start-ups cannot neglect. But first, as a continuation of our roadmap on intellectual property protection, Enable provides an overview of two tools that can help protect your innovations - provisional patents and non-disclosure agreements.

Provisional Patent Applications - Cost Effective

Since June 8, 1995, the US Patent and Trademark Office (PTO) has offered inventors the option of filing a provisional application for a patent. A provisional patent lets you file for US patent protection without a formal patent claim, oath or declaration, or any information or prior disclosure. It allows you to establish an early effective filing date for a conventional patent application, and allows the term "Patent Pending" to be applied - all of this without having to spend the time and resources involved in filing a conventional (non-provisional) patent.

Benefits of Provisional Patent Applications

The primary advantages of a provisional paten are:

• Provides simplified filing with a lower initial investment.

• Gives one full year to assess the invention's commercial potential before committing to the higher cost of filing and prosecuting a conventional application for patent (see below).

• Establishes an official United States patent application filing date for the invention.

• Gives one year's authorization to use a "Patent Pending" notice in connection with the invention.

• Enables immediate commercial promotion of the invention with greater security against having the invention stolen.

Cautions

While provisional patents have certain advantages, you must also consider various issues before deciding on filing for one. For example, the benefits of the provisional patent cannot be claimed if the one-year deadline for filing a conventional application for patent is missed. In addition, provisional patents cannot claim the benefit of a previously filed application, either foreign or domestic. You must also keep in mind that the disclosure of the invention in the provisional patent should be as complete as possible.

If you want to obtain the benefits of the filing date for a provisional patent, everything that you later claim in the conventional patent must be supported in the provisional patent application. The conventional application for patent must have one inventor in common with the inventor(s) named in the provisional patent in order for the patent to benefit from the provisional application's filing date. Furthermore, amendments are not permitted in provisional applications after filing, other than to make the provisional patent comply with applicable regulations.

Two Warnings

There are two factors you must take into account when filing for a provisional patent. The first is that, while a provisional patent lets you assess the commercial potential of the invention for one year prior to filing for a conventional patent, it may preclude patenting in other countries. The second is that, if you do not take any further action following the filing of the provisional patent, the application will automatically expire 12 months after the filing date.

So please check with a patent lawyer before filing a provisional patent.

Non-Disclosure Agreements

A typical Non-Disclosure Agreement (also known as a "Confidentiality Agreement" or an "NDA") is used when someone with an unpatented idea shows it to another party, and wants that party to maintain as confidential any information he/she learns about the product as a result of the meeting.

While NDAs provide protection, you must always consider that they are costly to enforce and that it is often difficult to prove that someone who signed the NDA actually stole your idea. During the initial phases of working on your new idea, you will generally not need to reveal your idea to anyone. Find a way to talk to people about your idea without ever telling them exactly what it is or how it works. Never give away the essence of your invention, unless you absolutely have to - in which case you should use an NDA.

For example, use the NDA as a tool once you have progressed to the point where you have done everything you can do on your own, and absolutely need a professional to assist you with the next phase. You may need to hire a professional prototype maker to help you develop a working model of your product. However, while you are in the initial phase of "shopping" for a prototype maker, you do not need to reveal all of the details about how your product works, nor is it necessary to have the prototype maker sign an NDA.

In the shopping phase, find out what kind of experience the prototype maker has, what successful clients they have had, examples of their work, what their fees are, how they charge, what forms of payment they accept, how long a typical project takes, etc. They do not need to know what your product is in order to answer these basic questions - and there is no reason to provide such information - even under an NDA.

Tally Eitan's Seven Legal Commandments for Start-ups

1. Incorporate in the right place. You only get one chance to get this right. Where to incorporate the company is a critical question, as the tax consequences derived from it are substantial. The place of organization requires pre-planning, since changing the place of incorporation during the life of the company is an expensive and complicated move.

2. Founders - specify relationships and roles from the start. Founders often neglect to establish their respective rights: ownership, compensation and termination. These questions should be dealt with in writing (and better earlier than later).

3. Protect thy patents. Learn whether and how patents can play into your strategy and help you protect and increase the value of your technology.

4. Develop brand strategy. The name of your company has considerable impact on your image. Spend effort on selecting and designing your company's name. Make sure the name you choose is available and do clearance searches. Learn more about protecting your brand name (through registrations and use).

5. Balance wisely between secrecy and disclosure. Divulge information under non-disclosure agreements. Remember that over zealous protection may turn the other side away. Balance is essential between "not telling" and giving enough information to entice your potential business partners.

6. Technology transactions are your future. Funding agreements are often followed by development, OEM, beta, JV, manufacturing, distribution, licensing, and M&A agreements, to name a few. Strategy, negotiation plans, and an understanding of intellectual property issues must be ready before you start dealing with a third party. Do not transfer lengthy agreements without having an understanding with your partners.

7. Get professional help - but be thrifty. Make sure to obtain the best help money can buy. Consultants, accountants, law firms, and Venture Capitalists have a lot of international experience and can provide good support. Consult others but retain final decision making. Make sure the costs fit a planned budget. Legal expenses should be carefully controlled.

In keeping with commandment number 7, next week we begin dealing with which professionals starts-ups should use, and why. Special thanks to Tally Eitan, founder of the firm Eitan, Pearl, Latzer & Cohen-Zedek, for her contribution to Enable.

Published by Israel's Business Arena on 9 November, 1999

Michael Neuvirth is the CEO of IPbanking, a company that uses creative and conventional techniques to help inventors, early stage entities and mature companies maximize the value of their Intellectual Property. He has over 15 years of experience in the high-tech business arena as an Intellectual Property Attorney, Entrepreneur, CEO, VP Marketing, Investor and Strategic Advisor to numerous companies. He has developed business and strategic plans that have helped a wide-spectrum of high-tech companies raise the investment they needed. Michael is a member of Phi Beta Kappa. You are welcome to email Michael with any questions you may have about Enable.