The growth of e-commerce and technological advancements changed the way companies are valued. Tangible assets such as land, buildings, and equipment once made up the lion’s share of a business’s worth. Today, some estimate that intangible assets, i.e., intellectual property, comprise upwards of 90 percent of S&P 500 companies’ value.
While the shift away from tangible assets has been something of a boon for startup ventures, intangibles can be more vulnerable to theft. Entrepreneurs would be well-served to decide on the best type of business — sole proprietorship, Limited Liability Company, or Corporation — to protect these assets from copyright infringement, hackers, and competitor theft. If you are considering forming an e-commerce business or worry about your intellectual property, these are ways to safeguard it.
What Counts as Intellectual Property?
The items that count as intellectual property have grown substantially, and not all of them can be listed on a balance sheet. Part of the issue involves the inability to place a dollar amount on sometimes elusive items. That being said, intangibles tend to drive stock values, which demonstrates that they are critical to an outfit’s overall value and profitability. These are commonly recognized intellectual property assets.
- Patents: This type of property is filed with the U.S. Patent and Trademark Office. Having a registered patent allows innovators to market their ideas or inventions. A patent might involve the design of a machine, medication, plant variety or computer program, among other things. In the hands of a competitor, knowing how to create a better program for e-commerce fulfillment could give them an edge.
- Copyrights: People who author or create original materials enjoy exclusive rights. That means others cannot duplicate or mimic things like books or song lyrics without approval. Copyright infringement can result in significant losses for book- and music-selling platforms.
- Trademarks: A trademarked product possesses an ® symbol, giving the company exclusive rights. Those rights help augment an enterprise’s value. When trademarks are not adequately protected, the company’s value can slip.
- Franchises: It’s important to keep in mind that a franchise provides more than the right to conduct business under a certain moniker. A franchise typically defines certain parameters that other franchise holders cannot transgress. This may include selling a product online and within a designated distribution area. If others are selling the same goods and services you pay a premium for, your online company loses money.
- Trade Secrets: An e-commerce operation may develop certain practices that distinguish it from others. Commonly known as “trade secrets,” companies spend heavily on research and development to do things better and more cost-effectively. That makes them valuable assets.
Things such as digital content and newly-minted algorithms are increasingly being recognized as intellectual property. These are high-value targets for hackers who can sell them on the Dark Web.
The shift to internet-based businesses has opened global markets and opportunities for innovative people who know how to provide better and more cost-effective products and services. Unfortunately, your success attracts slackers who would rather take advantage of your hard work by pilfering off your intellectual property.
Ways to Protect Your Intellectual Property
According to the Federal Bureau of Investigation (FBI), the U.S. economy suffers upwards of $600 billion in intellectual property losses annually. That figure is reportedly higher than the gross domestic product of 36 of the 50 U.S. states. If you are about to start an e-commerce venture, these are ways to avoid getting stung by unscrupulous individuals.
1: File an Official Business Type in Your State
Business professionals enjoy greater legal protections when they turn a new idea or side hustle into a formal business entity. Taking the steps to search for a unique name and filing the paperwork with your state can prove taxing without assistance. Once the right entity has been filed, you enjoy personal, business, and intellectual property protections. This breakdown of commonly used business entity types highlights their importance.
Sole Proprietorship
This business type is typically used by people who want to present their side gig as a formal business. Doing so helps individuals increase customer confidence. However, a sole proprietorship does not insulate you from civil liability because the owner and enterprise are one and the same. This type of business provides little, if any, intellectual property protection.
Limited Liability Company
An LLC continues to be the most popular option for e-commerce businesses. This agile entity allows its owners to flow company revenue through their personal IRS filings, avoiding double taxation. Forming a Limited Liability Company also offers wide-reaching protections. One of the caveats that some savvy entrepreneurs employ involves patenting, copyrighting, and trademarking intangible assets under the business. That adds a layer of corporate and legal protection.
Corporations
Forming a corporation offers many of the same protections as an LLC. You can also register trademarks as corporate assets. However, these entities pay business taxes before you pony up, again, on your earnings.
2: Protect Your Trademark
Always file a trademark application with the United States Patent and Trademark Office before launching an online business. Once it has been confirmed, it’s essential to place a trademark symbol ® on products, materials, and the content you use to promote the brand. In your press releases, include a trademark symbol next to the name you have a legal right to protect.
It’s also prudent to monitor the internet for trademark infringements. Notify any parties who may have inadvertently used the trademark. Keep in mind that a trademark generally lasts for 10 years, and you can renew it for another decade.
3: Protect Trade Secrets
Protecting a trade secret poses a significant challenge for digital operations. The first step involves shielding your “special sauce” from internal and external threats. Internally, consider requiring employees with access to your trade secrets to sign non-disclosure agreements. Although non-compete agreements are losing steam because of court rulings, it may be worthwhile to include a clause regarding trade secrets for company protection.
Improved cybersecurity measures remain the best defense against digital thieves. Hackers relentlessly pursue digital assets, knowing they can be sold and resold on the dark web. That being said, security protocols such as two-factor authentication and zero trust architecture currently lead the pack. The first requires legitimate network users to input a code sent to a secondary device in order to log in. The latter restricts access to areas of the network that store sensitive digital assets.
4: Double Up on Intellectual Property Registrations
There may be opportunities to file copyrights, trademarks, and other officially recognized protections through multiple sources. Screenwriters, for example, can copyright their works using the U.S. Copyright Office’s Electronic Copyright Office.
Movie and television writers also have the option of additionally protecting their intellectual property rights by registering works with the Writers Guild of America Registry, offered through the Screen Writers Guild. It may seem redundant, but doubling down helps prevent inadvertent infringements and proves persuasive if you need a court-ordered injunction.
5: Acquire Domain Protection
The domain you use to operate an online business is a core asset or piece of intellectual property. When startups conduct a domain search using a reputable platform, only unique options are available. That doesn’t mean someone cannot transfer the domain or wreak havoc with the Domain Name System. For a modest fee, the domain hosting company usually provides protection against online interference.
Defending against theft or misuse of these seemingly intangible assets is no different from locking your car or installing a home burglar alarm system. Intellectual property drives revenue, the value of an online business, and it needs to be protected.
