By Gordon Arnold
Arnold & Knobloch, L.L.P.
Time and again, we see serious business situations that just didn’t need to happen; and, while not all problems can be avoided, “forewarned is forearmed.” It costs a lot more to fix a problem than to avoid one. There are a lot of inexpensive, basic things a business can do to reduce risk and increase its value.
We are often asked to identify the top few things that businesses need to know to protect themselves and their intellectual property. The issues could be broken down a lot of different ways — and though no list is complete – we usually refer to our Top Four:
(1) It’s All About The Brand,
(2) Know What Your Intellectual Property Is,
(3) File Applications Early, and
(4) Watch Your Competitors and Know You Are Being Watched.
Lack of knowledge in these areas makes businesses lose value, at best; and, sometimes, the business itself is lost. We’ll address each one, briefly, below.
It’s all About the Brand
Studies show that the multiple that companies receive over their book value depends on their intellectual property – that is their brands, know-how, patents, copyrights, etc. Also, those studies show that it is the brands that cause the highest multiple. Patents expire, confidential information (at least most of it) leaks out, employees leave, but the brands continue. To protect and enhance their business, organizations need an intellectual property strategy that is driven by how the plan for each type of IP affects the long term health of the brands — as well as shorter term cash flow and profits.
Know What Your Intellectual Property Is
If you don’t know what you have, you can’t protect it; you can’t count it; you can’t take inventory of it. Organizations go through elaborate efforts to know where their hard assets are. They have GPS locators on vehicles. They have automated inventory systems with two-dimensional bar codes and RF tags on shipped goods, but very few companies know what their intellectual property even is – much less how to use it to increase profits, reduce risk, or cuts costs. In short, they don’t know how to increase the value of the brand.
Some companies will say that they have no intellectual property. They are wrong. Every company has IP. They have web sites, advertising copy, photographs, trade secrets, customer lists, logos and other trademarks, etc. They usually have a number of inventions that are of great potential value, but they don’t have a system to identify them early enough to make intelligent decisions about them. They have licenses to use software or other products, but the managers of the company do not know what the terms of the licenses are. For example, they don’t know if the licenses terminate when there is a change of control of the company. Some do, and that affects the price they might receive when they try to sell their company.
An intellectual property audit, of some sort, is important for all organizations. Those processes identify the copyrightable works that should be registered; they give the management an efficient process to use in branding, and they are a key in keeping confidential information from being misappropriated. Intellectual property audits make due diligence easier in an acquisition, and they reduce surprises that change the value of some transactions.
Patents are used to keep competitors out of some markets, but that is somewhat rare. More often, a patent portfolio gives an organization a “marketable distinction” between their product and someone else’s. Just about any invention has some form of competition. Inventions address needs that customers have, but that same need may be addressed by some other product or process. Likewise, the customer may decide that the need is not so drastic that it needs to be met at the price of the invention. So the “competition” in some cases is that the customer simply keeps doing what it has done before.
Additionally, a patented invention gives an advantage to a business’ sales people. First, there is the natural assumption that the government considers the invention to be so new, so un-obvious, that it granted a patent on it. Secondly, no direct competitor wants to be seen a copyist; it is not good marketing, and it can get them sued for patent infringement. Not only does having a patented product help sales, patents make an organization appear advanced, smart, and sophisticated. These are all images that help the brand of the organization.
A patent portfolio may also be important in more complex situations. The leaders of standards organizations are those with the most relevant patents. Joint ventures and other partnering agreements are easier to craft when you have patents than when you do not. Importantly, if you are successful, it is likely you will be in a dispute with a competitor. Maybe you hired a new employee and their former employer believes there are trade secrets at stake; maybe you have a new product and the competitor accuses you of patent infringement. If you are in a purely defensive position, settlement of the dispute can be difficult, and it is not likely you will receive your attorney fees – even if you win. On the other hand, if you have a portfolio that the competitor may infringe (or may secretly want access to), settlement negotiations are much easier.
Copyrights can be very important, especially if the right copyright work has been done, early. When people take trade secrets or other confidential information, they usually make copies, violating not only the trade secret laws but also committing copyright infringement. A copyright case may be much easier, and cheaper, to prove than a trade secret case, but a copyright registration with the Copyright Office is necessary. Also, if the registration is not filed soon enough, the copyright owner may be precluded from obtaining its attorney fees and some measures of monetary damages.
These same issues apply to trademarks, trade secrets, and other forms of “intellectual capital.” In the end, if you don’t know what you have, then you can’t do the things you need to do to protect your business and increase the value of your organization.
File Applications Early
Some forms of intellectual property require an application, like patents. Others are protected, to some extent, without a registration. However, sophisticated organizations make conscious decisions about what applications to file, and what not to file; and they do it early in the product development and marketing process. Importantly, they revisit those decisions, periodically, to prune back branches of the portfolio that are not worth a future investment. That frees up funds to invest in new projects that have greater potential.
There are deadlines in the patent application process that organizations need to heed, and there are other deadlines in the trademark registration process and the copyright registration process. These deadlines are reviewed, budgeted for, and met, in an IP portfolio management process. If you don’t file your applications early enough, you may lose an opportunity to have attorney fees awarded to you, certain measures of monetary damages, and even an entire patent portfolio.
Watch Your Competitors and Know You Are Being Watched
Your competitors are filing patent applications, trademark registrations, copyright registrations, lawsuits against departing employees, etc. In short, they are doing all they can to protect their intellectual property. Do you want to know what, specifically, they are trying to obtain?
You can review public records that will let you know a lot about what is going on, but you have to look. For example, most patent applications are published 18 months after they are filed at the Patent and Trademark Office. Some are published sooner, and you can search for them by the name of the inventor, the name of the assignee, and just about any other term you would like to. Patents usually take more than 18 months to issue; so knowing there is a patent that may cause a problem, ahead of time, is valuable. It gives you the ability to make changes to your product or process, if that will allow you to compete without infringing; and it gives you the time to gather evidence to challenge the patent, if you can’t design around it.
Likewise, trademark registrations are published for opposition after the trademark examiner decides to issue a registration, but you have to be watching to file the opposition proceeding before the time for opposition expires. Cancellation proceedings can be filed also; and trademark infringement litigation is still another avenue to address a trademark infringer.
Of course, this cuts both ways. Before spending a lot of money adopting a brand or investing in a domain name, trademark searching — for others who might sue you if you go forward — is a good idea. You don’t want to receive a cease and desist letter, be sued, or named as a respondent in a UDRP Domain Name Arbitration, just because you didn’t look at the public documents.
These are just two examples of the ways you can watch your competitors and you will be watched by them. Whoever watches best will have an advantage.
Build the IP budget and protection strategy around the brand; it gives you the biggest multiple. Audit your IP so you know what to protect — and where not to spend scarce dollars. File applications before the deadlines expire, or let them expire as a conscious budget decision; but don’t let ignorance cause a loss of valuable rights. Finally, use the public information to keep an eye on your competitors, and remember that they will be doing the same.
If you would like to learn more about these issues, contact Arnold & Knobloch at 713-972-1150 or visit our site at www.arnold-iplaw.com.