United States: Top 10 Things to Know About IP Portfolios

When framing the Constitution, America’s founding fathers recognized the significance and value of intellectual property and included its protection as a fundamental tenet of the nation’s legal system: "The Congress shall have Power…To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries" (U.S. Const. art. 1, § 8, cl. 8).

Today, intellectual property covers a wide swath of rights in products of the human mind, from movies and songs like "Dr. Strangelove" and "Pretty Woman," to inventions like the Segway® personal transport, to brands and slogans like Coca-Cola® soft drinks and Hewlett-Packard’s "Invent." But for the efforts of creative individuals, none of these familiar artifacts would exist. The commercial value they have acquired is undeniable as well.

IP has become fully integrated within the fields of art, science, commerce and law, yet understanding the overlap and implications of this integration can be challenging. As a basic primer, here are 10 things you should know about IP portfolios:

Ideas are protectable under federal patent laws, as long as the invention is new, useful, inventive and falls within one of the categories of qualifying subject matter. These categories are very broad, covering software algorithms, pharmaceuticals, electromechanical devices, semiconductor chips, manufacturing and business methods, and just about everything in between. Authorship, on the other hand, is the domain of federal copyright laws that protect original works fixed in any tangible medium of expression. Thus, literature, music, drama, photographs, sculpture, movies, recordings and architecture are copyrightable. Trademarks are words, designs and other indicia that identify the source of goods or services. Such marks, sometimes referred to as brands, can be protected by both state and federal laws. Still another type of IP protection is state law protection of trade secrets. In general, any proprietary information that provides a competitive business advantage, and that is kept secret, can be protected as a trade secret. Manufacturing processes and customer lists commonly qualify as trade secrets.

The federal and state schemes for protecting IP, as well as the types of IP protection available for a given property, often overlap. For example, a business owner can obtain state common-law trademark rights in a trademark just by using the mark in commerce. The owner can also file an application with the U.S. Trademark Office to obtain a federal registration and secure additional rights in the mark. Suppose the mark is used to brand a new software product. Since software is a series of lines of code, copyright protection attaches as soon as the code is written. Registering the copyright with the U.S. Copyright Office is optional, but gives the owner leverage against copiers and recalcitrant licensees; registration is also prerequisite to filing a lawsuit. Software may also be patented if the method steps of the algorithm executed by the code are inventive. This gives the owner additional rights against competitors that do not copy the code, but that write new code that performs the same function.

At first blush this may seem strange. It is as if a landowner can keep others from trespassing on his land, but cannot set foot on the land himself. This peculiarity of patent rights becomes clear when you understand that patent rights are negative rights. A patent grants the owner the right to preclude others from making, using, selling, offering for sale or importing an invention. But someone else’s already-existing patent can "dominate" with broader coverage. This can occur when the patented invention is an improvement on an earlier invention. The late-coming owner has the option of waiting until the dominating patent expires, or getting permission (i.e., a license) from the dominating patent owner. Other IP rights are similar, in that the owner can prevent others from using the IP without permission, but typically are not subject to the dominating rights of others. For example, a copyright owner in a song performance can prevent others from downloading and copying the performance over the Internet. Similarly, a trademark owner can prevent others from using the same or a confusingly similar mark to brand the same types of goods in the same geographical territory.

Given the complex, intermingled system of federal and state law protections available for IP, it is prudent to consult a legal specialist in the field prior to product launch or committing to a new branding program. Further, because IP rights are territorial, pursuing and perfecting patents, trademarks, and other forms of IP in the United States and elsewhere can be a costly and timeconsuming endeavor. Accordingly, it pays to plan ahead and develop a comprehensive worldwide strategy for protecting IP at the outset, based on your budget and your business objectives. Planning also ensures that you do not inadvertently lose valuable rights, either through acts or omissions. For example, to win priority contests with rivals, record keeping may be critical in proving first use of a trademark in commerce or conception of an invention. If you lose priority, your rival can prevent you from using what you developed. In another scenario, failure to file a U.S. patent application within a year of a public demonstration of the invention can forfeit the right to get a U.S. patent. And failure to file the patent application before the public demonstration can forfeit patent rights throughout most of the world.

Beyond being careful to protect your own IP, you need to be aware of and respect the IP rights of others. Failure to do so can expose you to charges of infringement and, if the infringement is found to be willful, a court can award increased damages. You can also be required to pay the other party’s attorneys’ fees in particularly egregious cases. So be careful. Understand the various types of IP and conform your conduct accordingly. Educate yourself and your staff. Don’t assume and don’t guess. For example, before launching a new product, conduct a trademark clearance search on the name of the product and a patent search on the function and ornamental design of the product. Do not rely on the notion that "What I don’t know won’t hurt me" or "It must be OK, because everyone else is doing it." Many who downloaded songs over the Internet now find themselves on the receiving end of subpoenas in copyright infringement actions. Avoiding copying a competitor’s goods is a good start, but that often is not enough. For example, ignorance of a patent does not excuse infringement. It is rarely a good idea to ignore or remain ignorant of the IP rights of others. You cannot identify or quantify the risks associated with what you do not know, and when it comes to IP, what you do not know can hurt you severely.

Not everyone respects the IP rights of others. Some, when apprised of your IP rights, will do the right thing and stop the infringing conduct. Others will not, either because they doubt your IP rights prohibit their conduct or because they are willing to fight. An infringer’s response often depends on the remedy you seek. For example, while no one likes to be taxed, your willingness to license the infringer on commercially reasonable terms may entice them into negotiations. A mutually agreeable business resolution may include a partnering, joint development or distribution relationship. Alternatively, if you demand a complete halt to infringing activity and compensation for all prior infringing acts, you may well be in for a fight. If you want that type of relief, you will likely need to sue in court…and win.

In legal services, as in most of the rest of life, you generally get what you pay for. You do, however, have options. In fact, in the patent arena, you have a choice between selecting a patent attorney and a patent agent to represent you before the U.S. Patent Office. Patent agents are not lawyers; however, they have passed a special patent bar exam, just like patent attorneys, to become registered to practice before the Patent Office. While they can draft, file and prosecute patent applications, and even appeal an adverse decision to the Patent Office’s Board of Appeals, they cannot provide legal advice in the area of patent infringement. Other IP practitioners, such as those specializing in trademark, copyright and trade secret law are lawyers. You can also choose to represent yourself, in pro se proceedings, before the Patent and Trademark Office, the Copyright Office or the courts. Given the complexity of the IP laws and the importance of the rights at issue, however, going it alone is not recommended.

IP rights affect almost every successful commercial enterprise, even if your product or service is not technologically focused. For example, IP rights are implicated in choosing names for your business and products, setting up a Web site, and hiring employees and contractors. Knowing that IP assets give you an edge over current and potential competition, investors may expect or even demand them. While a strong IP position cannot guarantee significant commercial success, it can certainly guard any success you have from the hands of your competitors. At the same time, unwittingly running afoul of others’ IP rights can lead to lost opportunities, loss of rights, or worse – a "bet the company" lawsuit that, at a minimum, results in significant resource drain.

Notwithstanding numerous economic theories and models, valuation of IP rights is notoriously difficult and speculative. Absent a revenue stream from a licensing program, it is tough to quantify prospective financial benefits. For example, how do you place a value on a competitor’s delayed market entry and added R&D costs in attempting to design around your patent rights? More difficult is trying to place a value on a potential competitor’s decision not to launch a competing product or deciding not to sue you for patent infringement, based upon your patent rights. IP can be a bit like a security system: you may never know the value of the protection you have procured. That said, recognize that you can extract value from IP rights by, for example, licensing them in fields of use separate from your primary market. Alternatively, if your business plan has evolved, you always have the option of selling unused rights to generate cash. And if all else fails, you can always stop maintaining IP rights and let them pass into the public domain, for the benefit of all.

At the end of the day, you must be savvy about establishing and maintaining a flexible IP portfolio strategy. Work with trusted legal advisors and become knowledgeable about the IP landscape. Recognize emerging business opportunities and the ongoing changes in technology and IP law. Understand how IP rights can give you a significant business advantage by securing your intellectual capital and keeping your competition at bay. Winning in business depends on a confluence of factors, and one factor you should not ignore is the role intellectual property can play. Your competitors won’t.

Goodwin Procter LLP is one of the nation's leading law firms, with a team of 700 attorneys and offices in Boston, Los Angeles, New York, San Diego, San Francisco and Washington, D.C. The firm combines in-depth legal knowledge with practical business experience to deliver innovative solutions to complex legal problems. We provide litigation, corporate law and real estate services to clients ranging from start-up companies to Fortune 500 multinationals, with a focus on matters involving private equity, technology companies, real estate capital markets, financial services, intellectual property and products liability.