In my practice, I have many opportunities to educate business people (as well as lawyers and business advisors) on intellectual property (IP). The myths and misconceptions about IP are seemingly limitless. Even the basic terminology and definitions are confusing for most. For example, a few weeks ago, a lawyer asked me for help with a copyright matter when it turned out it was really a trademark issue (which is NOT at all the same thing!). Fundamentally, for most people, including non-IP lawyers, IP is just “stuff” they know is important and needs protection, but they have no idea how the protection works or the distinctions among the different forms of IP.
For those who deal with IP every day, the complexity is what makes it fun. However, for an ordinary person and non-IP lawyer, IP likely gives them a headache. Here, I’ll shed some light on common IP misconceptions and mistakes that businesses – even well established and sophisticated ones – make when it comes to IP and how to prevent them.
First, let’s clarify the types of IP protection available:
Trademarks are words, logos, colors, shapes, packaging, and the like that identify the party responsible for the good or service. Think of the Golden Arches of a certain fast food chain or the red soles of luxury shoes. Everyone knows what restaurant I am referring to – and many know the maker of the red-soled shoes (Christian Louboutin, for those unfamiliar with them).
Copyrights protect “original works of authorship fixed in any tangible medium of expression.” Copyrights don’t protect ideas themselves, but rather the expression of those ideas such as in a movie, book, song, photograph, brochure, training manual, or website.
Patents give the owner of an invention the right to exclude others from making, using or selling their invention for twenty years. However, surprisingly to most people, patents do NOT give the owner the right to do anything with the invention. Also, as many inventors learn the hard way, not every new idea is patentable and not all patents will ultimately be upheld as valid. The invention needs to be new, useful and non-obvious, but can’t be so broad that it covers things that can be done by the human mind or otherwise exist in nature. These exclusions can include a mere computerization of a process, as well as many pieces of software and business methods, such as a coaching or training process.
Trade secrets are information, such as a formula, method, process or program, used by a business that are kept confidential and provide economic value to the business because others do not know about it or use it. Key benefits of trade secrets are that they can protect IP that is not patentable and can last forever, unlike patents. The risks of trade secrets are that you cannot prevent someone from independently developing and using the same information as your business and secrecy is often very hard to maintain.
Now that we have a fundamental understanding of the four pillars of IP, what are some of the common mistakes or pitfalls I see businesses make?
1) Lacking a comprehensive IP strategy. Small companies often claim they can’t afford IP protection (yet typically base their entire business and/or brand on it!), or that it is something they can worry about “later.” Large companies often operate in silos, with no one developing an overall IP strategy to protect the assets of the entire company. A comprehensive IP strategy would typically involve management level personnel, in collaboration with legal counsel, developing the company’s strategic goals for IP and a process for ensuring that IP protection efforts are in line with those goals. Failure to have a strategy can result in important IP being overlooked and not adequately protected, and some IP being registered that ultimately adds little value to a company’s bottom line.
2) Adopting and registering a Trademark without consulting an IP attorney. Companies, especially startups, often come up with a concept or product without an understanding of IP or the landscape in which their business is operating. For example, a company will adopt a brand name or trade or service mark without consulting with an IP attorney who can advise on whether that name/mark is available or whether someone else has prior rights to that name or trademark. In the case of registering a trademark, while businesses can file their own trademark applications with the USPTO, often they then face refusals by the Trademark Office (sometimes on grounds which can be fatal to the application), oppositions by prior rights owners or the realization that they do not have the necessary protection for their use of the mark that they thought they had (e.g., they didn’t cover the right products). These mistakes can result in costly legal disputes and registration proceedings down the road (and often not far down the road).
3) Developing an invention and using or selling it without the proper clearance. Similarly, it is important to consult with an IP attorney about your inventions. Even if you intend to keep your invention as a trade secret, it is critical to get a “freedom to operate” opinion from a patent attorney, especially if you plan to file a patent application (again something that you should never do yourself!). Patent infringement cases are notoriously expensive and time consuming and can stop a business dead in its tracks. Knowing early on what else is out there related to your invention can help you “design around” the “prior art” (in other words, create something that falls outside the scope of inventions that already exist), which will avoid litigation and potentially make you more competitive in the market.
4) Failing to ensure ownership of copyrights and inventions. Even sophisticated companies do not take the necessary steps to secure ownership of their invention or copyrighted material (such as website designs, software, training manuals, etc.). This is especially important when working with independent contractors or third-party business partners who have access or may contribute to your business’s IP. Both inventions and copyrighted material are first owned by the inventor/creator and require complete legal documentation to transfer ownership to someone else (such as an employer or other business). While employees may (but not always) have pre-existing duties to transfer ownership to their employers, that’s never true for independent contractors and joint venture partners, where agreements to transfer ownership are necessary. In addition, when multiple parties (including independent contractors) are involved in developing IP, companies need to be clear about who brings what IP to the table, and who owns what IP that is created during the collaboration. I’ve had multiple cases where one collaboration partner tries to obtain a patent on the other party’s IP, which can be an expensive undertaking to resolve when the relationship is left murky and documentation between the parties is scarce or nonexistent.
5) Failing to properly monitor and enforce your IP. Many IP owners only find out by chance that someone is infringing upon their IP rights, and due to the expense of litigation, they often avoid taking legal action to enforce their IP rights even when they become aware of infringement. While IP litigation can, undeniably, be costly, failing to enforce your IP rights can cause bigger problems, both in the market place (where competitors can overtake your market share or create brand confusion) and even legally. A failure to enforce trademark rights, for example, can lead to the loss of a trademark. Good examples are names like Aspirin and Escalator, both of which were originally trademarks but are now generic. On the flip side, there are quite a few names that are used generically but are still registered trademarks like Band-Aid or Q-tips, which demonstrate the power of enforcement. (Brand owners can sign up for relatively inexpensive “watch” services, that help companies monitor their marks.) Having invested, sometimes significantly, in obtaining IP protection on the front end, it makes good business sense to take the steps necessary to maintain the value of the investment on the back end.
A recent study showed that “intangible assets” – largely IP – represent approximately 84% of the S&P 500 companies’ value, up from 68% 30 years ago and 17% 40 years ago. Regardless of the size of the business, few can dispute that IP has significant value for most if not all businesses. It is thus very important that everyone – not just IP lawyers – understand what IP is and how to best protect it.