Protection Without Patent ??

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Enigma311

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Three years ago, I started working for this woman who sold a novelty product to division 1 colleges. The company was small (3 of us total) and it went under after a year (by the way, no patent was filed by this woman for the novelty item). Due to a couple poorly thought out decisions the company went under after a year in business (2003). This prompted a falling out between the woman in charge and me and my other coworker (primarily due to the fact that we never got paid regardless of her countless promises).

This other co-worker and I want to start the company back up (obviously under a different name and with a different business plan). We were wondering if there was any way this woman could come back and sue for some sort of infringement. Do we need even to change a single spec in the design of this product (i.e. size, color, etc)? By the way, I ask this because a lawyer who holds free legal consultations at my university thought that this woman might have some kind of protection, but he wasn't sure

One more really important note: I conducted a prior art search and actually found this novelty product being patented in January of 1987. Therefore, this makes me come to the following conclusions: 1) obviously, we cannot apply for a patent 2) the woman was actually infringing upon this patent when selling the items in 2003, and 3) we should be able to sell our product in January of 2007. Am I correct in these assumptions?
 
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