Smallbizlady: What are some the primary legal protections available for the average small business?
Jeff Fabian: Some of the most effective methods small business owners can use to protect themselves are also the most simple. These include: using contracts effectively, obtaining trademark protection for names and logos and monitoring trademarks online, obtaining copyright protection for creative works, performing clearance research to avoid infringing on others’ rights, having (and following) written policies and procedures, and maintaining adequate insurance coverage.
The general theme here is that small business owners need to be proactive–rather than reactive–when it comes to protecting their rights and interests.
Smallbizlady: Proactive Legal Protection is expensive. Is it worth it?
Jeff Fabian: As an attorney who works with numerous small business owners, I am very familiar with the sentiment that proactive legal protection is simply not in the budget because the money needs to be spent elsewhere. There are brands to develop and marketing strategies to launch, and if these aren’t successful I won’t need the legal protection anyway. The problems with this approach are that (i) infringement is infringement, regardless of whether the business is successful, and other successful businesses with come after you to protect their rights, (ii) if the business does succeed it will grow larger on other people’s radars, increasing the likelihood that someone will either notice your infringing conduct or seek to compete with unfairly with you, (iii) if you become successful only to find out that your brand and marketing strategy infringe on someone else’s rights, not only are you back to square one, you are also out a significant amount of legal fees (and possibly settlement dollars).
As a result, it is absolutely worth it for small business owners to make the relatively modest investments up front to protect their intellectual property and steer clear of infringing on other parties’ rights. Risk reduction and asset equity are fundamental tenets of sound business growth, and they should be at the top of any start-up or small business’s to-do list.
Smallbizlady: How should a small business owner hire a business attorney?
Jeff Fabian: Small business owners should typically look to small firm and solo attorneys–the fees are going to be much lower, and the level of personal attention will likely be much higher. In choosing an attorney, ask for referrals from people you trust, and be sure to research the attorney online to see whether they have background and experience in your particular area(s) of need. Now more than ever attorneys focus in one or a few areas of practice, and someone who focuses on wills or commercial litigation may not be the best choice if you are looking for trademark protection or contract drafting services.
Smallbizlady: When is it important to use a written contract?
Jeff Fabian: The general rule is that all agreements that can affect your small business’s rights and obligations should be in writing. Do I expect this to be followed? No. But, in general, the best practice is to put all agreements into writing. Two parties may be amicable at the outset, but relationships and goals evolve over time, and if things sour it will best to have the parties’ respective rights and obligations already pre-determined. If you and your business partner or web developer split ways, do you know who gets to keep what? If not, wouldn’t it be nice to know?
Also, certain agreements are required to be in writing in order to be enforceable. For web-based small businesses, one of the most significant areas where this applies is copyright assignments. If you pay an independent contractor to create something for your small business, the independent contractor will retain ownership (and the associated rights, including the rights to license third parties and create derivative works) unless you have a written agreement to the contrary.
Smallbizlady: When should I have a contract reviewed by an attorney?
Jeff Fabian: Contracts presented to business owners should be reviewed by an attorney any time they involve (i) an ongoing relationship, (ii) intellectual property rights, or (iii) some component that could give rise to potential liability. Common examples of contracts that should be reviewed by an attorney include: leases, independent contractor agreements, trademark and copyright licenses, promissory notes, equity transfers, and franchise agreements. Here again, the risk of loss — even if perceived to be relatively remote — is important enough to be taken seriously. Terms that appear to be fairly innocuous on their face can often have significant implications, and many times contracts will create new uncertainties that need to be addressed in order to avoid costly disputes later down the road.
Smallbizlady: When should a small business seek trademark protection?
Jeff Fabian: Trademark law protects the names, logos and other branding components of a business’s identity. While geographically-limited trademark rights arise automatically, federal trademark registration provides nationwide exclusivity (subject to certain limitations). Also, the general rule is that the first to file for trademark protection is the one who will get nationwide rights–even if they started using the trademark after someone else. As a result, small business owners should seek to protect their trademarks through registration as soon as possible.
The USPTO accepts trademark registration applications for new trademarks that are not yet in use in commerce (“intent-to-use” trademark applications). This allows small business owners to protect new brands before they are revealed to the public (and to competitors).
Importantly, failure to adequately monitor and enforce the business’s trademark rights can have significant negative consequences. These can include: loss of control over the company’s image, confusion amongst consumers, and loss of trademark rights altogether. As a result, ongoing trademark monitoring is also crucial for small business owners. What’s more, potential buyers will want to be able to see that the business’s trademark rights have been adequately protected and enforced.
Smallbizlady: What is involved in the trademark clearance and trademark monitoring processes? Can’t I just run a search on Google?
Jeff Fabian: Trademark clearance research and ongoing trademark monitoring are actually complex and complicated processes. In addition to searching Google and the USPTO’s database, comprehensive clearance research will cover numerous (100+) other databases from which claims to pre-existing trademark rights and potential infringers can be identified. Remember, just because someone has not claimed a federal registration does not mean that there isn’t already someone else out there using the mark.
Comprehensive trademark clearance and monitoring research will cover not only the proposed trademark itself, but also a strategically-developed collection of similar and related terms. Also, with regard to the USPTO database, good trademark clearance research will delve into the current status and any official actions with regard to pending applications that might be cause for concern.
Smallbizlady: Why should small business owners register their copyrights?
Jeff Fabian: While trademark rights protect brand identities and other “indicia of origin”, copyrights protect creative expressions of ideas recorded in media. Copyrights protect things like website designs, advertising copy, blog content, video productions, photographs, and musical recordings, to name a few that are relevant to small businesses.
Copyright registration provides several important benefits. Like trademarks, limited copyrights arise automatically upon creation of a protectable work. But, registration (which requires only a nominal filing fee) allows copyright owners to, among other things: put the world on notice of their claim to exclusive rights; obtain pre-calculated “statutory damages” without having to prove actual loss; and, recover attorneys’ fees from infringers.
Smallbizlady: What risks do small business owners face in adopting trademarks and using copyrighted materials?
Jeff Fabian: Adopting a trademark that is similar to one already in use by someone else is infringement–even if done innocently. This is a big part of why small business owners must clear their proposed trademarks before adopting them. In addition to facing the possibility of an infringement claim, adopting a trademark that is too similar to a pre-existing registered mark will generally result in denial of a trademark registration application with the USPTO. Since the registration process can take nine months or more, small business owners want to be confident that their trademark is available before they start pumping time and money into marketing and promotions.
Innocence is actually a defense to copyright infringement; however, business owners are expected to know that works “available” on the Internet are likely subject to copyrights owned by third parties. As a result, small business owners need to be very careful not to copy from pre-existing works. If the business desires to use a song, photograph or other work created by someone else, it should seek to obtain a written license to do so.
Smallbizlady: What other legal risks do small business owners face on a day-to-day basis?
Jeff Fabian: Unfortunately, most small businesses face more potential liabilities on a day-to-day basis than they probably realize. Many of these relate to unintentional and/or unauthorized activity on the Internet–whether by employees, independent contractors, unrelated third-parties, or the business owners themselves. For example, blog posts by employees or hired writers (or forum posts by third-parties) that contain copied content or photographs can give rise to infringement claims. Similarly, comments in social media or on blogs (whether by employees, independent contractors, or consumers or competitors) that suggest that the business engages in illegal practices such as discrimination or price fixing can also give rise to legal claims.
Smallbizlady: What can business owners do to limit their exposure to these types of risks?
Jeff Fabian: Small business owners should have written policies in place prohibiting inappropriate and risky conduct that can give rise to liabilities. In the event of a legal claim, having a written policy in place showing that the business does not engage in or permit the alleged misconduct can have a significant impact on the business’s exposure to liability.
Examples of policies that small businesses should have in place include: Social Media Policies for Employees and Contractors; General Terms and Conditions for Affiliates and Other Licensees; Website Terms of Use and Privacy Policies; and Company/Employment Policies that prohibit things like discrimination and misappropriation.
Smallbizlady: What else can small businesses do to protect themselves?
Jeff Fabian: small businesses should have adequate insurance coverage that protects the business’s assets in the event of a legal claim. Depending on the nature of the business, this can include errors and omissions coverage, professional liability insurance, property and casualty insurance, and general liability coverage.
While not a method of avoiding unnecessary risks and liabilities, business insurance can help keep the business from going under in the event that a significant claim occurs.
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Melinda F. Emerson, known to many as SmallBizLady is one of America’s leading small business experts. As a seasoned entrepreneur, professional speaker, and small business coach, she develops audio, video and written content to fulfill her mission to end small business failure. As CEO of MFE Consulting LLC, Melinda educates entrepreneurs and Fortune 500 companies on subjects including small business start-up, business development and social media marketing. Forbes Magazine recently named her one of the Top 20 women for entrepreneurs to follow on Twitter. She hosts #SmallBizChat Wednesdays on Twitter 8-9pm ET for emerging entrepreneurs. She also publishes a resource blog www.succeedasyourownboss.com Melinda is also the author of the national bestseller Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works. (Adams Media 2010)