What is one of the top least favorite activities for small business owners? If you guessed litigation, then you would be right. Unfortunately, most report, according to the Small Business Administration that their efforts to resolve disputes outside of litigation do not always work, leaving them with the legal bills. No one enjoys a day in court, and small businesses can be hit especially hard by costs incurred due to litigation, forcing them to scale back their operations and grow down instead of up.
Are there ways that small business owners can avoid the courtroom? You bet. While the tips below won’t work in every situation and for every business, they will certainly help in the prevention of litigation related issues. Experts agree that a proactive approach is always the best, and with that in mind, here is some advice to help maintain such an approach:
Tip One: Maintain and formalize partnerships.
Whether you are starting a venture with a business partner, or selling a stake in your company to a co owner, it is absolutely imperative that you formalize your relationship at the beginning. This will involve meeting with a lawyer to formalize a plan and paperwork.
Detail how you will share the responsibilities of running operations, dividing profits, and resolving disputes. You should also make sure that you have a plan in place in case one of you leaves the firm or dies. This may include a provision stating that a partner’s family members cannot automatically join the firm or sell the stake in the business that they have inherited without the okay of the surviving partner. You should also have a method in pace for determining the worth of the company, such as an outside appraiser, or a specific valuation methodology.
Tip Two: Keep your business strategies secure:
Of course, a partnership with a bigger industry player can help your customer base grow, but it is important to be on the alert for a seemingly friendly corporation that tries to take over your territory rather than make a deal. Make sure that all potential partners sign what is known as a non disclosure agreement, which means that they will promise to keep any information that you discuss with them confidential, and won’t use it themselves. Your lawyer can help you work out details such as how you will be paid, promotion plans, restrictions on where your partner can operate, and how to end the partnership if it is necessary to do so.
Tip Three: Safeguard your intellectual property:
Because of email and Internet, news travels faster than ever, and the high cost of waging a court battle over intellectual property can make or break or a small business. This is why it is essential to protect your intellectually property. One way is to copyright it.
Copyrighting covers books, software, and other original works, and takes only a few weeks to become active. Copyrighting is also a less expensive protection option, costing only about $30, but it is important to remember that unless you register with the US Copyrighting Office, a © symbol will hold very little weight in court.
In order to protect logos, names, and phrases, you must register with the US Patent and Trademark Office. The process will cost about $1,000 and can take as long as a year, but the long term benefits, should you need to prove intellectual property ownership, will be well worth it.
For inventions, patent protection is the best option, although it is also the most time consuming. This process can last two to five years, can cost thousands of dollars, and will likely require the help of a patent lawyer. On the other hand, since the cost of many patent suits can climb well into seven figures or more, it is money well spent.
The following information, provided by Service Corp of Retired Executives (SCORE) can be of further help in protecting your ideas:
10 Steps to Protecting Your Ideas
1. Put all your ideas, notes and drawings in an inventor’s journal, and have it signed, witnessed and dated. Be careful about disclosing your ideas to anyone—use a confidentiality or non-disclosure document when discussing you ideas.
2. File a Disclosure Document Program with the United States Patent and Trademark Office (uspto.gov) This costs only $10 for two years of pursuit of patenting, but it’s not a patent.
3. Conduct a Preliminary Patentability. Search to discover what patents exist like your ideas—and get a patent attorney to render you a Patentability Opinion. There are many ways to conduct the search, including the Patent Depository Libraries on the uspto.gov Web site. File a PTO Provisional Patent Application for one year if all looks good.
4. Make a model, demo or illustration and conduct preliminary market research with end-users. Know the consumers of your product, and listen to feedback. Use feedback to fine tune your project.
5. Investigate intellectual property filings such as utility and design patents in the United States and overseas. Also investigate copyrights, trademarks, service marks and domain name registrations for Web sites. Explore U.S. and international protection options and limitations.
6. Think about the two main pathways to inventing success: entrepreneurship or licensing—how do you want to be rewarded for your great ideas? The pathway you choose will dictate a lot of your actions, and budget.
7. Do not fall prey to invention development/promotion scams, which are prevalent. Check with the Federal Trade Commission (FTC) for a list of these unscrupulous firms. If their promises sound too good to be true, they probably are. Get real professional help and seek the support of legitimate inventor organizations.
8. Investigate competitive products to make your product superior or better priced. Employ brainstorming techniques to evolve and accelerate the marketability of your ideas.
9. Find an inventor mentor—someone who’s done this process before—to provide guidance.
10. Believe in your ideas and persevere, it takes some time and effort to do all this right. Be realistic about your goals.
There are many myths and understanding about patents in the business world today. Here are a few of the most common:
The first thing to do with a new idea is to get a patent.
Wrong. Mere ideas are not patentable. Only useful products and processes can be patented, and you have to be able to describe it with such completeness as to enable others to make or practice and use it.
If my product has not been on the market before, I can patent it.
Wrong. That’s not enough. If it has been described in a prior printed publication anywhere in the world, it is not patentable. Moreover, merely being different is not enough—it has to be an unobvious improvement over what is known to the public.
Having a patent stops others from copying or imitating my product.
Wrong. Patents are not self-enforcing. You have to identify and pursue copiers, and a patent infringement lawsuit takes years and costs hundreds of thousands of dollars, win or lose.
For further small business management advice, be sure to do your research thoroughly, and consult your attorney as well, who will be able to offer you advice tailored to your specific situation and business industry. Your small business is growing, and it is crucial that you take a step back from marveling at the results of your hard work to safe guard your business, ideas, inventions, and other related matters, before any potential litigation issues surface.