YOUR INTELLECTUAL PROPERTY ASSETS
Intellectual property encompasses a wide array of intangible products, ranging from symphonies to cell lines, and from computer chips to corporate logos. The various branches of intellectual property law are designed to protect innovators' rights to these intangible rights. The premise is simple-innovators will have no incentive to create if their work can be freely copied and used.
Intellectual property laws reward innovators with certain exclusive rights to their work including, in some cases, the right to preclude others from using their work. These rights make innovation economically rewarding, which in turn fuels more innovation. In recent decades, the pace of technological change and fierce competition in this marketplace have increased the value of intellectual property dramatically. The Coca-Cola trademark, for example, has been estimated to be worth three billion dollars worldwide.
Be aware that intellectual property rights are generally governed by national rather than international laws. This means that every country has a unique set of rules governing each form of intellectual property.
PATENTS
Patents are available only for inventions which meet the statutory requirements of novelty, utility and "non-obviousness." There are three types of patents:
- utility patents, which protect processes, machines, articles of manufacture or compositions of matter;
- design patents, which protect ornamental designs for articles of manufacture; and
- plant patents, which protect plants that are asexually reproduced.
Mere ideas or abstract mathematical principles such as algorithms can never be patented, but software which applies algorithms as part of a process can be patented. Patents have been issued to protect rights in such varied items as cat toys, cell lines, geodesic domes and inventory tracking systems.
The holder of a patent has the right to exclude others from making, using or selling the patented invention in the country where the patent was issued. In order to obtain such broad protection in the United States, however, the patent holder must include the best method of practicing the invention in the patent application, and the patent application is published if the patent is issued. The patent covers only the particular aspects of the invention claimed in the application.
The Patent Office carefully reviews each claim and may require changes before it approves the patent. The process of negotiation with the Patent Office can take months or years. The process can be expensive. For example, a U.S. patent application can cost anywhere from $10,000 to over $100,000 in fees and legal expenses. In addition, a U.S. patent will be denied if the invention is disclosed to the public more than one year before the date that the patent application is filed. (For this purpose, "disclosed" means that the invention was publicly used or sold in the United States or was described in a written publication anywhere.)
The duration of a utility patent is generally limited to 20 years from the date on which the patent application was filed. The duration of a design patent is 14 years from the date on which the patent is granted. Upon expiration of a patent, the technology or process passes into the "public domain." This means that the innovator loses his exclusive rights, and anyone has the right to make, use or sell the invention.
While a patent offers a great deal of protection for the inventor, it may be possible for others to "design around" a patent-making their own invention just different enough to avoid liability for patent infringement, but still capitalizing on the disclosed knowledge. In order to avoid this result, some innovators choose to protect their inventions as trade secrets instead of seeking patent protection.
Patent rights are limited to the jurisdiction in which the patent is granted. Each country generally requires a separate patent examination and registration, although a single filing in the European Patent Office will provide protection in a number of European countries. In addition, the World Intellectual Property Organization (WIPO) has established a central filing system which issues advisory opinions that are considered by the many participating countries as a part of their patent application process.
In most foreign countries, patent applications are published 18 months after filing of the original base U.S. application, even if the patent is never issued. Publication of information about an invention, or the invention itself, prior to the filing of a patent application will preclude the issuance of a valid patent in many foreign jurisdictions.
TRADE SECRETS
Trade secret law can protect any information, including formulas, patterns, software, compilations, devices or processes, which is not generally known to others and which confers an economic advantage on the holder of the trade secret, provided that the party claiming the trade secret has taken reasonable efforts to maintain its secrecy. Trade secret law may protect inventions which do not meet the standards of novelty, utility and non-obviousness required for patent protection or may be used by inventors who do not wish to make the disclosure required by the Patent Office or to have their rights expire after 20 years. The recipe for Coca-Cola, for example, has been protected as a trade secret for more than 100 years.
Because one of the requirements for a trade secret is that the owner must take reasonable steps to protect it, a business which relies on trade secret protection for its intellectual property must implement a trade secret protection program. Employee non-disclosure agreements are an integral part of such a program, but this alone is not enough. Measures must be taken to restrict access to information and to keep filing and computer systems secure.
Trade secret law does have several drawbacks in comparison with patent law. Most importantly, trade secret law does not allow the owner of the secret to prevent others from using the information if they are able to develop it on their own. For example, if a manufacturer independently developed a soft drink formula which was identical to the Coca-Cola formula, the manufacturer would be free to use the formula.
Trade secret laws vary from country to country. Some countries have no trade secret laws, but most countries recognize a contractual right to protect confidential information.
COPYRIGHTS
Copyright law protects any original work of authorship as soon as it has been fixed in a tangible medium of expression, even if a device (such as a television or computer) is required to discern the work. The copyright owner not only has the exclusive right to copy the work, but also the exclusive rights to distribute, modify, display or perform the work.
The duration of copyright is quite long. A U.S. copyright expires 50 years after the creator's death in the case of an individual creator, and on the earlier of 75 years from publication or 100 years from creation in the case of a corporate creator.
Copyright protection is the easiest intellectual property protection to obtain. An author is not required to register his copyright, or to include a copyright notice on his work, to perfect his copyright in a work. However, the presence of a copyright notice will defeat a defense of innocent infringement. While registration is also not required, additional rights and privileges are extended to creators who register their works with the Copyright Office. For U.S. copyright owners, this includes the right to sue for copyright infringement.
Registration with the Copyright Office within three months of publication, or prior to an infringement, entitles the creator to recover attorneys' fees and statutory damages if any copyright rights are infringed. Federal copyright registration is simple and inexpensive. Registration generally takes a few months and requires only a $20 filing fee, and the Copyright Office will expedite those applications that are filed in anticipation of an impending lawsuit for an additional $200 fee.
Copyright law plays an important role in the protection of computer software. It prevents partial or wholesale appropriation of source code, object code, documentation and packaging. It may also protect certain aspects of the user interface.
Most countries belong to either the Berne or the Universal Copyright Convention, and have therefore agreed to protect copyrighted works of U.S. authors to the same extent that they protect similar works by local authors.
TRADEMARKS
Trademark law serves two important functions in our economy. First, it allows companies to associate unique marks with their products and services and to prevent others from using those marks on similar products or services. Second, trademark law allows consumers to be sure of the source and quality of a product or service.
Although most trademarks are names, words or graphic designs, trademark law can also protect distinctive colors, odors, packaging and sounds. Examples of unusual trademarks include the shape of the Coca-Cola bottle, the particular NBC sound of three chimes, and the pink color of the Owens-Corning Fiberglass Corporation home insulation. The strongest trademarks are arbitrary or fanciful, including made-up words such as "Kodak" or "Exxon."
In the United States, trademark ownership depends on who uses the trademark first, and registration is not strictly necessary. However, registration provides important benefits. For example, registration of a trademark with the U.S. Patent and Trademark Office provides the registrant with the exclusive right to use the mark nationwide. Without federal registration, rights accrue only in the geographic areas where the mark is actually used. It is also possible to reserve nationwide rights to use a trademark prior to its actual use anywhere in the United States by filing an intent to use application. Federal registration of trademarks generally costs less than $2,000 in fees and associated legal expenses.
Thorough trademark searches are essential in order to minimize the risk of investment in trademarks and corporate names that are unavailable. It is important to be aware that reservation of a corporate name with the Secretary of State for a particular State will not secure rights in that name. It also provides virtually no protection against an infringement claim by a third party with prior rights to the same or a confusingly similar name.
Protection for a mark lasts for as long as the mark is used in commerce, provided that the term does not become "generic." Companies with well-known marks, such as Coca-Cola, Kleenex and Xerox, invest significant amounts to prevent them from becoming generic. Failure to "police" the use of a mark by third parties can also result in a loss of trademark rights.
An issue related to trademark is the registration of domain names for use on the Internet. Domain names are registered on a "first come, first served basis," but are subject to challenge by anyone who has a U.S. or foreign trademark registration which predates the domain name registration. When a company selects a potential trademark, it should determine whether the mark is also available as a domain name and, if so, register the domain name as soon as possible.
Most foreign countries grant trademark rights to the first person who registers the trademark in that country, rather than the first person to use the trademark. Registration on a country-by-country basis is generally required to ensure international trademark rights. However, the European Community Trademark Office provides the opportunity for registration of trademarks in the Community nations through a single filing.
MASKWORKS
Responding to widespread piracy of semiconductor chips, Congress adopted the Semiconductor Chip Protection Act in 1984. This act protects the three-dimensional design of chips of two or more layers, including microprocessors, RAMs, EPROMs and gate arrays. The owner of a registered U.S. maskwork has the exclusive right to manufacture, distribute or import the work.
Registration of maskworks is handled by the Copyright Office. The filing is simple and inexpensive-around $10. In order to obtain maskwork protection, the creator must register the work within two years of the date of its initial commercial exploitation. Protection lasts for 10 years, well beyond the useful lifespan of most chip designs.
Most major industrial countries have enacted maskwork laws which provide similar protection to the Chip Protection Act. A separate registration in each of these countries is generally required.
CAPITALIZING ON YOUR INTELLECTUAL PROPERTY ASSETS
Once your intellectual property assets have been identified, there are a myriad of ways to capitalize on them. The following lists just some of the ways in which a company might capitalize on its intellectual property assets:
The choice of the appropriate strategic relationship will depend upon a number of factors, including:
- Type of intellectual property
- Cash requirements
- Market expertise
- Technical expertise
- Development stage
- Distribution channel
- Financial resources
- Control
Second Sourcing, Cooperative Marketing, Teaming and Cross License Agreements are typically used where each party seeks to maintain its independence, but needs an arm's length relationship with another party for a specific purpose. For example, a Second Sourcing Agreement is appropriate where a company needs to ensure its customers that there is an alternate source of supply for its products. A Cooperative Marketing Agreement is used when two or more parties combine solely for marketing purposes to sell their products. Teaming Agreements are frequently used by vendors to bid together on a contract which requires the products or services of more than one vendor. Cross License Agreements are used by companies which seek to avoid patent litigation by licensing each others rights to their respective patent portfolios.
A variety of contracts may be used for product sales through distribution channels. Distributor Agreements typically are used with business-to-business distributors, while Dealer Agreements are used with companies that distribute directly to end users. OEM and VAR Agreements are used when the reseller will be adding value, in the form of hardware (OEM) or software and/or services (VAR) to the product prior to resale. It is important to characterize each relationship correctly in order to avoid channel conflict and possible price discrimination, or most favored customer problems. Issues involving exclusivity grants in certain geographic regions have also become quite complex with the growth of the Internet as a distribution vehicle. With no geographic borders on the Internet, it has become impossible to limit on-line sales to geographic territories.
Development and Licensing Agreements are used when one company contracts with another party to develop a product for it. If the two parties work together to develop a product or technology, they may enter into a Joint Research and Development Agreement. Key issues in such agreements include the contributions which each party must make, criteria for performance and acceptance, and ownership of resulting intellectual property.
Technology Exchange Agreements may be used for parties which will be working closely together to accomplish a mutual objective. Such a technology exchange is sometimes structured as a Joint Venture, which may even involve the formation of a separate corporate or partnership entity to accomplish the mutual objective. Issues presented by such relationships include management control, termination, each party's respective rights to the work product of the joint venture, as well as antitrust issues presented by such combinations.
A large company which enters into a relationship with a smaller technology company may also want to invest in the company and/or negotiate the terms for a future acquisition of the company. Issues involved in an Equity Investment include separate voting rights, board seats and other financial covenants, and the potential conflict between the equity investment and future financing options.
Issues involved in the negotiation of a potential Merger may include resolving the conflict between a significant equity investment and off-balance sheet financing (a company which owns more than 20% of another company's stock must show its share of that company's profits or losses in its income statements). In addition, a company's acquisition of more than 20% of another company's equity may preclude a tax-free reverse triangular merger in the future, and a company's acquisition of more than 10% of another company's common stock or equivalents will preclude pooling accounting treatment in the event of a subsequent merger.
*article courtesy of Cooley Godward