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Closing a business deal remotely? Know the risks

By Andrea L. Arndt

The onset of the pandemic has created rapid change in business practices, as companies move from in-person work to offsite locales. Accompanying this change has been a variety of new business ventures, products and services, as enterprising companies and individuals seek ways to bring innovations to the virtual business world.

But in their zeal to bring new products and services to market, are the best practices of the not-so-distant past, when in-person meetings were the norm, being forgotten? This is a good time to remind business deal makers and inventors — especially newer entrepreneurs and start-up companies — to follow a comprehensive check list to protect the ownership of their new products and services prior to disclosing them to a third party.

When business deals are hammered out at in-person meetings, they are typically guided by a detailed agenda, with a series of papers to sign, body language that can be read, and a format that is conducive to conversation, trust building and what-if scenarios centered around the use and ownership of the new product or service.

With these elements largely missing in remote business deals or in the early discussion phases of new opportunities, the situation can be fraught with potential business and financial losses.

Here are just a few of the risks with business deals that are forged solely online through Zoom or other virtual service vendors:

The ability to record and share the online conference, risking the loss of proprietary ideas and confidential information;

The inability to fully know who is on the other end of the online conference, out of sight, perhaps, but viewing and/or listening in on the meeting through a colleague’s access; and

The difficulty of monitoring the number of parties who are receiving information without having signed a non-disclosure agreement.

In industries that are exploding as a direct result of COVID-19, there are numerous ways that propriety innovations can be pirated away. A good example is telehealth. It has been around for years, yet the pandemic has made online access to physicians and healthcare providers an urgent initiative. Companies facilitating these services, whether providing software, electronic medical records, virtual treatment, or another new offering in this space, may find themselves playing catch-up on their IP protection as they race to meet current needs. When a product or service that was not expected to mature for five to 10 years is now seeing record demand, new business risks from competitors can arise quickly.

Best practices for entering into agreements remotely

This is a very good time to introduce a product or service into the virtual business world, as prospective buyers and business partners may be willing to enter into deals more quickly than usual in order to capture a new or growing market segment. Follow these best practices for new business discussions and sealing business deals remotely:

Protect your patent rights for a new product or service prior to disclosing the invention to a third party (e.g., someone interested in purchasing, licensing or financing your product or service). An intellectual property attorney will be able to assess the patent rights of your product or service and may recommend filing a patent application prior to the disclosure. You should consider not only protecting your invention (e.g., so that competitors do not pirate your product or service), but also making sure that you are not infringing any other party’s patent rights. If you skip this step, you risk losing your patent rights in the U.S. and/or foreign countries.

Secure your brand name. You will want to make sure that the name you choose for your product or service is available for use. An intellectual property attorney can conduct a trademark search to: 1) confirm that the name you would like to use for your product or service is not the same or too close to another party’s registered trademark such that there would be infringement concerns; and 2) provide you with an opinion as to the likelihood of success in obtaining a registered trademark to prevent other parties from benefiting from the goodwill of your brand. If you skip this step, you may end up investing time and money into a brand name that you will need to change in the future to avoid costly litigation.

Protect your trade secrets. Before disclosing innovative details of your product or service, have a confidentiality agreement in effect. Confidentiality agreements can be unilateral or mutual. Often times, a boilerplate and/or one-sided agreement is offered; however, the terms do not reflect the best interests of the other party. It is very important to read and understand the terms of the agreement and to what extent, if any, your confidential information is being protected. An intellectual property attorney will be able to draft a confidentiality agreement for you to use and/or review and negotiate revisions of any agreement provided for you to sign.

Protect marketing materials and website. A copyright is used to protect original works of authorship (e.g., designs, books, source code, graphics) and provides the exclusive right for the copyright owner to make, use, distribute, and publicly perform the copyrighted work. Obtaining a registered copyright is generally a fairly quick and inexpensive process. An intellectual property attorney can assist with registering your work with the U.S. Copyright Office. Failing to register your copyright(s) can make it more difficult to prevent people from copying your marketing materials and aspects of your website.

Determine a proper business structure. If you currently have a business, it may be in your best interest to restructure it and/or create a new entity for your product or service. If you do not currently have a business, it may be worthwhile to form one for personal liability, tax liability, and fundraising ability reasons. A corporate/tax attorney will be able to advise you of the business structure options and the tax implications for each. Failing to consider different business structure options could negatively affect the financial stability of the business and/or individual with the new product or service.

In following these best practices, you can take advantage of the plethora of opportunities presenting themselves in these unusual times and protect your interests in an ever-changing business world.

Andrea L. Arndt is a member partner at Dickinson Wright PLLC and has more than 15 years of experience developing and managing domestic and international patent, trademark, and copyright portfolios for startup, midsized, and Fortune 500 companies.

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