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Law Tips: 5 Fatal Legal Flaws Your Software Company Startup Should Avoid (Page 1 of 2)

Bob Zeidman is president of Software Analysis & Forensic Engineering Corp., a sort of software "detective agency" based in Cupertino, Calif. 

The company developed its own software tool, CodeSuite, for comparing source code and executable code to detect plagiarism, pinpoint copyright infringement, highlight trade secret theft, and measure intellectual property. 

In addition, Zeidman teaches engineering and business courses throughout the world, and has recently finished a book,  "The Software IP Detective's Handbook: Measurement, Comparison, and Infringement Detection," that's likely to become the defacto text for software IP infringement issues. 

Finally, Zeidman has up-close and personal experience: As a software entrepreneur, he's been ripped off. 

So, we figured he'd be a good guy to go to for help with the legal pitfalls that all software companies -- especially the young ones -- must navigate. Here's his rundown of the top five legal mistakes most entrepreneurs make:

Mistake #1: You don't apply for software patents.

"I work with entrepreneurs and have gone through the process myself," Zeidman says. 

"Years ago, I went to lecture at Stanford and listened to a guy say that software patents didn't really matter, so I abandoned my patents and spent the money on marketing. But that industry [where I held software patents] became a multibillion-dollar industry." 

Zeidman lost part of his value, but not all; more on this later.

"People seem to have one of three attitudes," says Zeidman. "They think that patents are not valuable; they think they  don't have anything patentable -- and they're usually wrong; or, they opt to get a provisional patent, which is basically a dump of everything along with documentation that says, Here's the date I came up with this.

"I'd recommend that you don't get a provisional patent. You're telling the world how you created your software, and then you have only a year to get the real patent. If you don't get around to it, you lose the right to get a real patent. 

"A patent is a very easy way to secure value in the company. Even if the company doesn't succeed, you still have something of value. 

"When I start a new company, one of the very first expenditures I make is to hire a attorney to help me get me a patent. It will cost $10,000 to $15,000, but it increases the protection of your invention. It also helps with getting funded. 

"I started patenting my business ideas as well as software, and there are companies that will buy the patents. I got not insignificant value from my patents.

"I only do U.S. patents, and that's all I'd recommend, mainly because other countries can be very expensive. If you have the U.S. covered, you have the most important market as far as the value of your patent."

Mistake #2: You don’t register your software copyrights.

"A lot of people just don't think about," Zeidman says. "To register is around $35, so you really can't make a financial argument for not doing it. 

"For a screenplay or novel, or you have to give out the entire thing to get a copyright. But for software, you can leave out most of your software and still get a copyright -- you can file just very minimal pieces of it. 

"You can copyright just the binary, because it's considered a derivative work of the source code. But normally, you want to register source code because it's stronger. 

"If you want to sue someone for copyright infringement, you have to register the copyright. You can register up until the day you file your lawsuit. However, if you register in advance of the lawsuit, and then you win, your damages are tripled. 

"The government doesn't want people to wait to file; the earlier it's registered, the easier it is to prove who owns the software."

If you have several software products, how many copyrights do you need to file? "If all products are in one package, you should only need one copyright," says Zeidman. "But if you sell them independently, you're going to need one for each. 

"The tougher question is what happens when you revise the code. For the answer to that, I'd talk to an attorney. You can make changes that are not substantial, but there's not a really clear definition of 'substantial.' So, if you're not sure, spend the $35 on another copyright."

Once again, Zeidman says copyrights in the U.S. are sufficient for most companies. "The U.S. has the best laws for protecting intellectual property, and it's the biggest market," he says. "Even foreign companies will generally bring their cases in the U.S."

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