image of a carefully organized closet

As we get ready for Spring, it is a good time to think about enhancing your organization’s intellectual property protection. This month, I spoke with two groups about “spring cleaning” when it comes to IP protection. The first presentation was to a group of entrepreneurs in various industries. The second presentation, which I did with along with two in-house attorneys (one who works at an area research hospital and the other who works in a late-stage life science start-up), was to a group of business owners, executives, and advisors in the life sciences industry. Interestingly, there were common threads between both presentations, applicable to businesses of all sizes and industries.

Solid NDAs – Avoid Sinking Your Ship!

First, one of the key takeaways was the importance of using appropriate non-disclosure agreements.  Our practice has a heavy emphasis on trade secret litigation and also spends a lot of time guiding clients on non-litigation best practices for trade secrets protection (including with the Sedona Conference on Trade Secrets Working Group and the Licensing Executive Societies team developing standards for protecting IP in the supply chain), which makes me a huge proponent of maintaining the confidentiality of trade secret IP. This is one of those areas where “loose lips sink ships” as the old saying goes (which comes from World War II propaganda for those who are wondering). And yet, at the start of a potential business relationship, when people are excited and feel positively towards each other, it is so easy to skip this step. 

Without an NDA, Trade Secrets May Not Be Protected

One of the in-house attorneys who spoke with me to the life sciences group highlighted the risks of not using an NDA, noting cases she was aware of where information was shared between two parties to a potential business venture and one took the other’s information and applied for a patent on it. Fortunately, the party owning the trade secret had a solid NDA in place and they were able to fix this problem. But without an NDA, it would be much, much harder (and perhaps impossible) to resolve the matter. I wish I could say this scenario was unusual, but I have encountered several of these situations personally and know of many more in caselaw and from other lawyers. 

Every Patent Starts as a Trade Secret

One of the other key things in this area that I think people also forget is that every patent starts off as a trade secret! In fact, because of the competitive advantage that can be gained by being the first to invent – in secrecy – the US Patent Office does not publish patent applications until 18 months after they are filed (there are some caveats to that time frame, but we won’t get into that here). So even if you think you might eventually patent the invention, you should still have a good NDA, especially because there are often trade secrets associated with an invention that do not make their way into the patent. 

NDA Terms Should be Tailored To Your Company’s Needs

Lastly, be careful about the terms of your NDA.  If you are trying to protect trade secrets, there generally should be no time limit on the confidentiality of that information in the agreement. And not every NDA should be mutual – if only one party is sharing confidential information, a one-way agreement might be sufficient. 

Templates – One Size Does NOT Fit All

The second key takeaway is to be careful about templates. As someone who often represents businesses that do not have in-house counsel, I see template problems arise in a few areas. One problematic situation is when clients pull a template from the internet that they think will work for their situation. While there certainly could be good options out there, often things can go horribly awry. I will never forget one client of mine from a few years ago, who was engaging in beta testing of a service for tracking the cleaning of testing equipment for hospitals. The client had a few goals in the beta test, one of which was for the client’s company to own the tracking information so that they could use it in an aggregated manner in servicing clients. I had discussed with him my surprise that the in-house lawyers for the hospital systems had not pushed back on him with that goal. But, as it turned out, the form the client used actually prohibited him from doing the very thing he wanted to do and gave all ownership and use rights to the hospital. The client was a highly educated and successful businessperson who had owned his business for many years. This is a great illustration of how agreements can be complicated, especially when IP is involved. 

When Templates Go Wrong

I have also seen similar issues that arise when clients try to use templates previously provided to them by a lawyer. Often, either the template is outdated or the client makes significant revisions to the template without checking with counsel (often they do this to save costs or because they don’t realize the significance of the changes they are making). This can also lead to many unintended – and unfortunate – consequences. Surprisingly, even the in-house lawyers who presented with me see this with their own in-house clients.

Not Involving Legal Counsel May Save Short-Term, But Cost More Long-Term

Regardless of the size of the company, many businesspeople avoid involving lawyers – even if they are not personally paying for them – because they feel it will slow the process down or the lawyers will tell them they can’t do something. And while all those things can be true – lawyers can be expensive, may slow the deal down a bit and/or may tell the client something they are trying to do is not really possible – the consequences of using agreements that don’t really fit the company’s interests can be vastly more expensive, time-consuming and generally negative for a company in the long run. So, beware templates that are not made for your company, or if you are not using them as intended! 

Paying for IP Does NOT, Alone, Ensure Ownership or Sufficient Rights to Use IP

The third and final takeaway was how important it is to make sure that the business has all the ownership and use rights it needs to the IP it owns (or thinks it owns) or uses, and that it complies with any obligations it might have to others in situations where it is using someone else’s IP. If there is one area of IP that people most often get wrong, I think this is it. One of the biggest issues I see is the fundamental lack of understanding who – by operation of law – owns IP.

For patents and copyrights – which protect, respectively, inventions and “an original work of authorship” fixed in a “tangible form of expression” – the owner is the inventor or author/creator. PERIOD. This fundamental principle can be modified by law in certain narrow circumstances (e.g., for W2 employees who are “hired to invent” for example; or true “work for hire” situations under copyright law (which is not nearly as broad as people think), and certainly by agreement otherwise. 

IP Ownership: Check the Terms of the Agreement

But, if you don’t have a proper agreement covering ownership, including the “right” language for assignments of ownership, and you don’t fall into one of the narrow legal exceptions, you are likely doomed, unless you are able to fix it retroactively or figure out some other creative solution around it. Is that fair, especially, for example, if you “paid for the work” of an independent contractor? Maybe not, but that’s how it works. And do not assume you can fix it later – while I’ve been able to do that in many situations – I’ve also handled situations in which the client had tried to fix it after, but found the other side was demanding much more money than they originally received for example to complete the necessary paperwork. To quote another famous saying, IP ownership is truly one of those situations in which “an ounce of prevention is worth a pound of cure.”

IP Licensed from Universities: Know Your Usage Rights

Even if the concern isn’t about ownership, there are still things to be worried about when it comes to proper IP usage. One of the in-house lawyers noted that this is an area where clients need to be extra careful, for example, if working with IP licensed from universities. Oftentimes the university retains broad usage rights, which could lead to a situation in which the university also licenses the IP to a competitor (pro tip – try to negotiate for exclusive rights!). 

Trademarks: Get and Give Express Permission to Use

The other in-house lawyer pointed out difficulties that often arise with trademarks.  he has dealt with all too many situations in which zealous marketing or salespeople want to list all of the company’s customers on their marketing materials – including using the customers’ logos – but you can generally only use a customers’ name and logo in those situations if you have express permission to do so. And, even worse, upon review of the agreement with the customer, she sometimes finds that the agreement expressly prohibits such use. 

Trademarks: Include Parameters to Revoke Use

Another common situation I’ve seen in my practice is one in which a client (prior to working with me of course) gave permission to their business partners to use their trademarks or logos without making sure that they put parameters on that use, such as the ability to monitor the usage and to force the business partner to stop using the marks in the event it is being used in such a way that impacts the perception of the quality of my client’s goods or services. That kind of de facto license can be considered a “naked” license (yes, that’s the legal term for it!), because under trademark law, to be proper, a license must give the trademark owner the right to regulate the quality of the goods or services being sold or offered in association with its trademarks.  

Studies: Read More About IP and Specific Industries

These are just three of the many pitfalls one can encounter in IP. While IP is important to all businesses, as discussed in this report issued last month by the US Patent and Trademark Office, for example, some businesses have more IP than others. Even within IP-intensive industries, some companies have more of one kind of IP than others, each bringing its own unique legal nuances and requirements. For example, software publishers are IP-intensive in utility and design patents, trademarks and copyrights; manufacturing companies are IP-intensive in utility and design patents and trademarks; professional services providers and retailers are IP-intensive in copyrights and trademarks, while certain stores like grocery stores are usually only IP-intensive in trademarks. The USPTO study does not take into account the importance of trade secrets to all businesses, as shown in a variety of studies, such as this study by the European Commission.  At the end of the day, regardless of its size or industry, there is no business that can overlook having solid IP protection.

IP Spring Cleaning – What Areas of Your IP Closet Need a Careful Review?
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