Teaming with a Large Company to Pursue Government Contracts? Watch Your Small Business' Intellectual Property!
In the current recessionary economic climate, there is one customer that is arguably still spending a lot of money to receive goods and services – the U.S. federal government. For many small businesses trying to team with government agencies, the best approach may be to team with a larger company that can supplement your small business' skill sets, and provide leverage and credentials you may not yet have acquired. In pursuit of these contracts, it is vital to pay attention to your small business’ intellectual property (patents, trademarks, copyrights, trade secrets).
By encouraging teaming of large government contract firms with small businesses, government agencies can benefit. Government agencies fulfill their goal in carrying out the principal tenet of the original Small Business Act (1953) – to encourage and develop small business growth. By consolidating their buy requirements with a single contractor, government agency buyers of goods and services can reduce their administrative burden, program management costs and risks, all while expanding opportunities for small business that result in overall increased competition and the fostering of innovation.
So, what’s in it for the large firms? Well, both small and large companies benefit from teaming. While a small company can tap its larger counterpart’s knowledge, experience and purchasing power, the larger firm gains access to small business set-aside opportunities. For example, by partnering with Service-Disabled Veteran Owned Small Businesses (SDVOSB), large firms can access one of the hundreds of monthly set-aside contracting opportunities for which they would otherwise be ineligible to compete. Also, partnering with a small business can enhance a large business’ relationship with various federal contracting agencies as many struggle to meet their set-aside goals. The mutually beneficial relationship of the teaming arrangement results in a highly-efficient and diversified team capable of winning new business and providing excellent customer service to the government.
Regardless of the mechanics of a large government contractor-small business teaming arrangement, smaller firms – simply because they are small and are eager for new business – have to be vigilant about their intellectual property rights. For example, unbeknownst to many small, high-tech firms is that Section 52.227-11(k)(3) of the Federal Acquisition Rules makes it illegal for a large firm to require a small business it is partnering with on a government contract to give up any IP rights as a precondition to working on the contract. Thus, there is a statutory framework that levels the playing field in negotiations with large firms. This statutory level playing field, however, only applies to patent rights. For a small firm’s innovations protected by trade secret, copyright or trademark, extra vigilance is required when negotiating such agreements to preserve these forms of IP rights.
Business Law News Bites
Here is a quick summary of some interesting blogs I have read this week on a variety of business law topics that may be of interest to Virginia businesses:
Brian Hill, of the Employer Lawyer Report, analyzes how Facebook’s new privacy controls will impact the employer-employee relationship. According to Hill, these new privacy control measures could make it more difficult for employers who use Facebook to monitor their employees.
Robin Roberts, of the Startup Lawyer Blog, provides some guidance on how equity should be divided amongst co-founders of a startup company. The primary method described by Roberts is to base the equity split on an assessment of the past, current, and future contributions of each co-founder. Regardless of the method used, Roberts advises that co-founders make the equity-split determination quickly and that they consider vesting founders’ stock over a period of time.
Joshua Heslinga, of the Virginia IP Law Blog, writes that it makes good business sense to enforce your patents before they are reexamined by the United States Patent and Trademark Office (USPTO). As Heslinga notes, the timing of a reexamination decision (where a patent is reexamined by a patent examiner to verify a patent’s validity) can be a crucial determining factor in the outcome of a patent litigation case. If a reexamined patent is determined to be invalid, then that will almost certainly result in the dismissal of a pending patent infringement litigation action.
Joel Greenwald, of the Overtime Advisor Blog, details potential issues an employer may face for having employees work through lunch. According to Greenwald, employers that require "non-exempt" staff (e.g., receptionists, data entry clerks, administrative assistants, secretaries, billing clerks, customer service representatives, etc.) to work during their unpaid break time could face substantial liability under the Fair Labor Standards Act (FLSA). Under the FLSA, non-exempt employees must: (1) be paid for every hour they work; and (2) have all hours worked count towards their potential overtime pay. The website for the Virginia Department of Labor and Industry has a good FAQ section on wage payment issues in Virginia.
Michael Stocker, of the Eyes On Wall Street Blog, discusses a proposed bill by Senator Christopher J. Dodd (D-Conn.), Chairman of the Senate Banking Committee, that would overhaul the U.S. financial system. Senator Dodd’s financial reform plan bill would, among other things, consolidate bank regulators, create a consumer financial protection agency, and impose new restraints on exotic financial instruments and credit rating agencies.
How Does Intellectual Property Affect Your Business?
In today’s knowledge economy, intellectual property (copyrights, patents, trademarks, trade secrets) can play a tremendous role in the success of a small or medium-sized business. By gaining a better understanding of trademarks, trade secrets, copyrights, and patents, and how they affect your business, you can effectively manage these tools and use them to your advantage.
Trademarks help you protect the name of your business, products and services. Perhaps the most important asset of any business is its name. Your business name and that of your products or services establish your reputation. Therefore, it is important to protect that name and reputation by applying for trademarks and registering them with the United States Patent and Trademark Office.
Trade secrets also play an important role in your business. Trade secrets include secret recipes, formulas, or manners in which you conduct your business. For someone owning a bakery or manufacturing a certain type of food, the recipe you use should be kept secret in order to ensure that no one can replicate your products. A trade secret can also be process that saves money over known processes.
Copyrights and patents generally relate to creations of the mind. Those in the service businesses will probably not require a patent or a copyright to do business, nor should they worry about the copyrights and patents of another. On the other hand, those who create or develop products for manufacture or sale will probably need to consider obtaining copyrights to protect their writings or other expressions of ideas and patents to protect and enforce their rights to manufacture, use or sell an improved product or service.
Let’s look at Richmond-based company, Reynolds Metals Company (recently acquired by ALCOA). The company, now commonly known for its food storage supplies and containers, was founded in 1919 by R.S. Reynolds, as tin foil supplier for cigarette and candy companies. Shortly after its creation, the company turned its sights towards using thin aluminum foil for food storage. By 1926, Reynolds Metals was producing the first high-speed, gravure-printed foil, aluminum bottle labels, heat-sealed foil bags for foods and foil-laminated building insulation paper. Since then, the company has invented countless food storage devices and has become a household name in America. It currently holds hundreds patents and has a plethora of trademarks and trade secrets. These patents, trademarks, and trade secrets protect Reynolds® brand innovations. Without doubt these patents, trademarks, and trade secrets have aided Reynolds in the success in establishing itself and positioning it among America’s successful companies.
What Is Intellectual Property?
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No matter what product your business makes or service it provides, it is likely that your business is frequently using and creating a great deal of intellectual property. So, what is intellectual property? Intellectual property, sometimes referred to by its initials, IP, refers to creations of the human mind that are protected by one or both of state or federal law in a fashion similar to real property (land) or personal property (an automobile). Inventions, literary and artistic works, business secrets, and symbols, names, images, and designs used in commerce are all considered intellectual property. The four forms of intellectual property are patents, copyrights, trademarks and trade secrets.
- Patents provide the right to exclude others from making, using and selling or offering for sale an invention that has been patented.
- Copyrights protect an expression of an idea reduced to a tangible form. For example, a work of art, this blog on intellectual property, a statue or a photograph is protected by copyright.
- A trademark protects a product or service by its name in such a way as to avoid confusion in the marketplace of the source of the product or services.
- A trade secret refers to a secret that one might use in their trade or business but which would provide an unfair advantage to another if taken. An example is the process and formula for making a special soda beverage or a recipe for cookie dough.
These four components all make up what is known as intellectual property. The Constitution defines what may be protected by federal law, namely, patents, copyrights and trademarks. Trademarks may also be registered in a state and both trademarks and trade secrets are regulated by state law. One can only register a copyright or apply for a patent through the federal government and can only enforce their registered copyright or issued patent in federal court. Though it may seem abstract at times, it is important to note that intellectual property is just as valuable as tangible property and is regulated by the federal and governments in this manner.
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