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Book Antiqua
 The Virtual Lawyer
V             A Legal Affairs Newsletter Devoted to the Business of Computer Technology
Arial
f75 Pearl Street   Portland, ME 04101   [phone]   FAX [phone]   [e-mail]
Times New Roman
 1995 David P. Crocker and Associates
y)                         March-April 1995
Century Schoolbook
c0 Trademark Registration: Essential Complications
ast issue, we examined the
underlying law of U.S.
trademarks.  We discussed
trademark types and looked
*2$briefly at the legal protection pro-
vided by the common law and the
Lanham Act, the everyday name
*2"for the federal trademark statute.
This month, we will assume that
you have decided to undertake
*2 Lanham Act registration for your
proposed mark.  What are the
necessary and indispensable
*2 steps to achieve your goal?  The
*2!steps are several, and you should
undertake each thoroughly be-
fore moving to the next.
I.  Looking for the Grail: the
    Search Process
*d!  Designing and developing a logo
can be an expensive process.
Companies typically employ an
design firm if they do not have
*2 in-house design talent to create
*2!an acceptable mark.  Before going
*2"to the expense of fully developing
*2#a mark, it is well to do a prelimi-
*2!nary search to determine the ini-
*2!tial usability of the mark.  Such
preliminaries usually involve a
cursory search by one of the
trademark research firms
(Thomson & Thomson and Core-
*2 search, for example) and a brief
*2!review of manufacturers' directo-
*2!ries to discover marks that might
*2!be confusingly similar to the one
*2 under consideration.  The regis-
trant should satisfy himself by
*2!means of a "screening" search be-
*2 fore committing the resources to
perfect a mark completely.
*2   Once perfected, the registrant
should undertake a full search
*2 before the registration process.
*2"This search should investigate all
*2 trademarks registrations and ap-
*2"plications at the federal level as
*2!well as in the individual states.
Because a trademark is estab-
*2 lished by use, the search should
also include common law trade-
marks as well as tradenames.
The search should be made
*2 within the international product
*2!classes in which the mark will be
used and should include classes
*2"that constitute a  "natural expan-
*2$sion" of the product line.  The reg-
istrant should scrutinize the
search results systematically:
 Is the proposed mark similar in
*2!sight, sound or meaning to exist-
*2!ing marks?  If the answer is yes,
*2!are the marks being used for sim-
ilar goods or services?  If the
*2"goods or services are as different
*2 as dog food or luxury cars, then
*2#probably there is no cause for con-
*2 cern.  If the proposed mark is a
*2 coined mark, then the registrant
should take into account the
strength of the mark, its fame,
*2"length of use and use in advertis-
 What is the number and close-
ness of other marks in the
*2!search? If there are many similar
*2!or third party marks, then proba-
*2 bly there is probably no problem
because this tends to indicate
that consumers are making
In this Issue of TVL:
I"Trademarks . . . . . . . . . . . 1
Ideas as Collateral . . . . . 2
*3 Finance Corner . . . . . . . . 3
*3$War Stories  . . . . . . . . . . . 3
*3'InfoBits   . . . . . . . . . . . . . .4
proper distinctions in the mar-
*2    ketplace.
 Analyze the sophistication of
potential purchasers of the
*2#goods or services involved.  If the
goods are mass marketed and of
the sort quickly purchased off
*2 the shelf, then similarities may
present more of a problem.
  Remember: the common law
*2 section of the search is just as
important as the registration
*2!section.  An injunction may issue
for infringement of a common
*2    law mark.
II. Federal Registration: Hurry
     Up and Wait
*d   Once the federal trademark ap-
plication is filed, the file is
routed to a Trademark Examin-
*2"ing Attorney to determine its ini-
*2!tial registrability, which is is-
sued about three months after
filing.  The applicant must ad-
dress any objections raised
within six months or the regis-
*2 tration will be considered aban-
doned.  If the Examining Attor-
*2"ney makes a final rejection of the
mark, then the applicant may
(Continued on page 2)
Feature Article
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f75 Pearl Street   Portland, ME 04101   [phone]   FAX [phone]   [e-mail]
Book Antiqua
The Virtual Lawyer
(tm)  March-April 1995

Page 2
The Virtual Lawyer
Century Schoolbook
,-The Virtual Lawyer welcomes your comments and
*'9suggestions concerning form, content and future articles.
*'/All comments and suggestions should be sent to:
David P. Crocker, Esq.
75 Pearl Street
Portland, ME 04101-4168
Voice: [phone]
FAX: [phone]
!E-Mail: [e-mail]
The Virtual Lawyer
j%(tm) (ISSN 1079-9079) is a bi-monthly
,7electronic newsletter published by David P. Crocker and
*';does not constitute legal advice or a substitute therefore.
*':For detailed legal advice, contact David P. Crocker at the
*'2address above.
1995 David P. Crocker. All rights
*'8reserved.  Permission is hereby given to distribute this
*'7newsletter provided the copyright and trademark notices
are attached.
The Virtual Lawyer
T    (tm) is a
trademark of
David P. Crocker.
5appeal to the Trademark Trial and Appeal Board, which
*26is an administrative body within the Patent and Trade-
*22mark Office (PTO).  Grounds for rejection include:
*d9
 The mark does not function as a trademark to identify
*29the goods or services as coming from a particular source.
 The mark is immoral, deceptive or
Courier New
scandalous.
 The mark disparages or falsely suggests a  connection
*21with persons or institutions that does not exist.
*d7
 The marks simulates the flag or coat of arms or in-
*2:signia of the United States or a state or municipality, or
any foreign name.
  Is merely descriptive.
*d8  Once approved, the mark will be published in the Offi-
*26cial Gazette, a publication of the PTO.  Other parties
*2<have thirty days to object to registration of the mark.  Ob-
*29jections are heard before the Trial and Appeal Board.  If
Times New Roman
Trademark Registration
(Continued from page 1)
(Continued on page 4)
3*s a technology entrepreneur, you know bet-
*2#ter than anyone that your company
*2*patents, copyrights and trademarks are its
/most important assets.  Well, guess what?  Your
*22company
s creditors know they
re important assets,
*21too.  They can be used by your company as collat-
*22eral to secure debt financing from banks, or, in a
*23nightmare scenario, be seized by the same creditors
*25to pay off debts.  In the world of secured financing,
*20items of intellectual property are classified as
general intangibles.
  In order for your ideas to be-
*24come a lender
s collateral, the creditor must follow
*27strict procedures to
perfect
 its interest in the col-
*2.lateral.  Here
s a rundown of the high points:
Patents.
&Creditors have a choice: they can per-
2fect a security interest under the Uniform Commer-
*21cial Code or they can take a mortgage of a patent
*2/and record it with the Patent and Trademark Of-
*23fice.  The Patent Act
s recording statute covers on
assignments,
grants,
 and
conveyances
 and for
*22these transfers, it establishes priorities only as
*21against later purchases and mortgagees.  An ordi-
*24nary security interest does not fit into these cate-
*26gories because it does not constitute a transfer of an
*24ownership interest in a patent.  Although a creditor
*20can take a mortgage of a patent, such a mortgage
/makes the creditor the true owner of the patent
*23(and exposes the creditor to patent-related litiga-
*26tion).   A simpler way is to perfect a security inter-
*22est under the UCC.  Such a filing will protect the
*25creditor against subsequent security interest, but it
*20will not protect the secured party against prior
*2/mortgagees or assignees or against future mort-
*23gages or assignments.  It
s a small price to pay to
*21avoid exposure to patent invalidity actions, how-
ever.
Trademarks.
Federal trademark law follows
2patent law closely.  A creditor may take a UCC se-
*2/curity interest in a trademark and the UCC pro-
*24vides priority rules in all situations except as be-
*2*tween prior
assignments
 of the trademark
*2.recorded with the PTO.  A secured party should
*2,record evidence of its interest with the PTO
*24(usually a duplicate original of the security agree-
*25ment).  If the debtor defaults and the secured credi-
*28tor wishes to sell the mark, it can only do so if (1) it
*20owns the mark, and (2) it transfers the goodwill
*2-with the mark.  The security agreement itself
*20should contain two very important provisions: an
*23irrevocable power of attorney allowing the creditor
*20to execute an assignment, and the collateral de-
*21scription should include
all goodwill associated
 the mark.
Copyrights.
$  If a copyright is federally regis-
2*tered with the Copyright Office, a secured
*2-creditor should perfect a proper UCC security
*2    interest
and
a security interest pursuant to
2+the Copyright Act of 1976.  Under the Copy-
*20right Act, a party may record its security docu-
*2$ments with the Copyright Office.

g'Your Ideas: Somebody Else
s Collateral?
Arial
f75 Pearl Street   Portland, ME 04101   [phone]   FAX [phone]   [e-mail]
Book Antiqua
The Virtual Lawyer
(tm)  March-April 1995

Page 3
Century Schoolbook
Business Plans: Get It Right
to Get the Cash
k+very aspiring entrepreneur knows (or should
*2+know) that a properly crafted business plan
*2/is essential to attract serious capital, right?
0In spite of this common knowledge, however, many
*25business plans are of poor quality.  A poorly drafted
*22business plan can scuttle an entrepreneur
s chance
*21of obtaining essential capital and will guarantee
*21only unfavorable attention for its authors.  Just
*22what are the essential elements of a good business
*24plan?  Hold on to your hatpins, here is a rundown of
the primary points.
General Points.
    ! The business plan should be con-
cise, focused, well written and
easy to understand.  On the
cover page, the company and
*2"key officers should include a rep-
resentation and warranty as to
*2!the accuracy of the plan, stating
that the plan has been prepared
4in good faith and does not contain any untrue state-
*24ment of material fact.  Avoid valuation estimates of
*2!the company in the business plan.
Executive Summary.
 This should be a
five-
1minute
 overview of the key points of the plan to
*22enable investors to gain a quick sense of what the
*23company is about.  It should include information on
*21the company
s origins, the product and the unique
*25technology it represents, the market potential of the
*21product, the management team, five-year financial
*22forecasts,  and the amount of capital desired. The
*2/summary should be written carefully to grab the
*25reader
s attention. It should be written with convic-
tion and should be convincing.
Company Description.
   This should describe the
/company
s origins, history and goals and should
*21convey a flavor of the company culture and ethic.
*21Describe the company
s principal objectives, both
*22long term and short term and relate these specific
*2!goals to the requested financing.
Key Management Team.
  Venture capital types
0always look carefully at the management team put
*23together by the founders.  Competence is the indis-
*20pensable and indefinable quality without which a
*22business cannot succeed, and without which it will
*20not obtain financing.  Each key member should be
*22described, with resumes included in an appendix to
*2.the plan.  The commitment of each key employee
*2 should be evident to the reader.
Description of the Product.
  The company should
5certainly describe its product with an eye to identi-
*23fying its relation to potential new markets.  Don
*20forget, however, to indicate how the product can
*20perform against competing products and penetrate
Capital
Corner
2existing markets.  In the technology business, the
*23success of any product depends on its edge over the
*21technologies employed by competitors. Any product
*21description will demonstrate an awareness of com-
*20peting technologies and the unique strengths and
*2#weaknesses of each such technology.
Marketing.
&  This section will demonstrate to the
+potential investor that the company and its
*2.founders well and truly understand the market-
*21place in which they hope to compete and how their
*22products fit into the market.  The ideas being de-
*25scribed my be positively brilliant, but they will re-
*25ceive short shrift without substantial commercial vi-
*22ability.  Any analysis should include a hard-edged
*21look the competition, potential purchasers of the
*21product and projected market penetration, includ-
*2#ing proposed distribution channels.
Corporate Organization.
Describe the principal
2investors, employee salary structure, employee in-
*2*centives, and managerial responsibilities.
Financial Projections.
  Include a full set of stan-
/dard statements, monthly for the first year and
*21quarterly thereafter.  Identify all major assump-
tions in any projections.
Appendices.
   These should include financial
4statement forecasts, resumes, detail technical prod-
*2@uct information, market studies, etc.
Times New Roman
+}y5ow for the bedtime story.  Most everyone has at least
*20a vague sense that recording telephone conversa-
*24tions to which one is not a party violates some law,
?right?  You bet it does.  It can be  a violation of the Federal
*2<Wire Interception Act (and similar state laws). This author,
*27while representing a Chapter 11 bankruptcy trustee some
*28years back, was offered by another attorney tapes of al-
*29legedly incriminating telephone conversations between the
*24former CEO of the bankrupt company and the company
*2$venture capitalists.  The proffering
*2!attorney represented the bankrupt
*2$company
s founders.  These tapes, he
*2!said, would prove that the former
*2#CEO was conspiring with the venture
*2%capitalists to steal the company from
*2&his clients.  After politely declining
*2=his offer, he apparently made the same offer to other parties
*2:involved in the case, also without success.  Eventually he
*2>and his clients sued the venture capitalists (for $63 million)
*2<in federal court.  His clients
 electronic propensities then
*2<became public and the marshmallow fluff hit the fan.  All of
*2:us attorneys to whom he tried to offer the tapes were sub-
*28poenaed, deposed and eventually had the rare pleasure of
*2>testifying in his civil wiretapping trial (a miserable experi-
ence).  The moral: don
t record
 other folk
s conver-
4sations without their knowledge and consent. And Mr.
*28Tapes?  Against all odds, he avoided personal damages.
Williams v. Poulos
1, 11 F.3d 271 (1st Cir. 1993).
Stories
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f75 Pearl Street   Portland, ME 04101   [phone]   FAX [phone]   [e-mail]
Book Antiqua
The Virtual Lawyer
(tm)  March-April 1995

Page 4
(In the Next Issue of The Virtual Lawyer:
Basic Software Copyrights
 Evaluating Venture Capital
 Choosing a Business Entity
 War Stories
Times New Roman
David P. Crocker
  Attorney and Counselor at Law
 Entrepreneurial Ventures
 Corporate & Commercial
Representation
 Technology Development & Licensing
 Intellectual Property
*q$ 75 Pearl Street, Portland, ME 04101
*9! [phone] FAX [phone]
*9#  E-Mail: [e-mail]
Century Schoolbook
:there are no objections, the mark will be registered about
*2Atwelve weeks from its publication in the Official Gazette, if the
*2=mark is currently being used in commerce.  If the mark is not
*2=currently used in commerce, then the PTO will issue a "notice
*2;of allowance" about twelve weeks from the publication date.
*29The applicant then has six months to use the mark in com-
*2?merce and file a "statement of use" or file for a six month ex-
*2?tension.  Upon full registration, the mark will be published in
*2<the PTO "principal register" of trademarks.  Once the regis-
*2?trant receives full federal registration, he may give notice of
*24the registration by using the
 symbol or the phrase
*29"Registered in U.S. Patent and Trademark Office" or "Reg.
U.S. Pat & Tm. Off."
III. Benefits of Registration
?  As we have seen, while federal registration is not absolutely
*2Anecessary for protection, it does confer specific statutory bene-
*2%fits for registrants.  These include:
*d8
  The right to sue for infringement in federal court.
*dA
 The recovery of profits, damages and costs in a federal court
*2=infringement action and the possibility of treble damages and
attorney's fees.
Prima facie
1 evidence of the validity of the registration and
,the owner's exclusive right to use the mark.
*d>
 The right to deposit the registration with Customs to stop
*24the importation of goods bearing an infringing mark.
*d@
 Constructive notice of claim of ownership, thereby eliminat-
*2(ing good faith defenses to infringement.
Conclusion
>  While the process of developing, searching and registering a
*2<mark can be time consuming, the benefits outweigh the incon-
*2>venience, particularly if the potential for product popularity
*2<and profit are high.  The registrant should follow the steps
*2@discussed here carefully, for the penalties for infringement can
be severe.
Courier New


Trademark Registration
(Continued from page 2)
InfoBits
Interesting Intellectual
Bric-a-Brac
); Under the Computer Fraud & Abuse
Act (18 USC
 1030), anyone who
accesses
federal interest computer
*2%without authorization, or who exceeds
*2+his authorized access, even if only to
*2'the computer,
 can be criminally prose-
*2(cuted and receive up to a year in prison
*2(for the first infraction.  What is scary
*2%about this statute is that it defines
federal interest computer
 as (among
*2(other things)
a computer
which is one
*2(of two or more computers used in commit-
*2*ting the offense, not all of which are lo-
*2&cated in the same State.
  Translated,
*2'this means that if you, in State A, use
*2&your computer and modem to explore be-
*2%yond your authorization in a bulletin
*2(board or other computer in State B, then
*2'you have violated the statute.  Groovy.
*2)
 Trade secret litigation is apparently
*2)alive and well.  Recently, a federal dis-
*2)trict court judge ordered Autodesk to pay
*2'Vermont Microsystems $25.5 million as a
*2)reasonable royalty for loss due to use of
*2$its trade secrets by a former VM em-
*2!ployee.  The former employee used
*2$knowledge acquired at VM to help his
*2$new employer, Autodesk, to construct
*2$new CAD software.  Under the Uniform
*2(Trade Secrets Act, a claimant may obtain
*2'actual and punitive damages, injunctive
*2'relief and royalties from the offending
*2&parties.  Many states have adopted the
*2(UTSA and it should be written into every
employment agreement.
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David P. Crocker

Law Office of David P. Crocker

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