For a company that depends on the confidentiality of its intellectual property, protecting its trade secrets during litigation may be as important, if not more important, than succeeding in the litigation itself.
“Whether the company is a plaintiff or a defendant in litigation, depending on the scope of the case, its trade secret information may be discoverable,” says Joshua E. Liebman, an attorney at Novack and Macey LLP. “In fact, in some instances, a company may be required to disclose its valuable trade secrets to one of its direct competitors.”
Smart Business spoke with Liebman about how to protect trade secrets during litigation.
What are trade secrets?
To paraphrase Section 1(4) of the Uniform Trade Secrets Act — which has been adopted by most states — a trade secret is information that derives independent economic value from not being generally known to other persons and that is the subject of efforts that are reasonable under the circumstances to maintain their secrecy. It is important to remember that both elements must be met for information to be classified as a trade secret.
In other words, although a customer list that is developed over two decades and that identifies particular needs and price points for each customer clearly provides its owner with economic value, it is a trade secret only if its owner takes reasonable steps to keep the list secret.
Why would a party be required to disclose its trade secrets?
Trade secrets will almost always be disclosed by a party prosecuting a claim for either misappropriation of trade secrets or breach of a confidentiality agreement involving trade secrets. In addition to those two obvious examples, trade secret information could be responsive to discovery requests served in any other breach of contract or business tort case.
Generally, courts permit broad discovery and require parties to produce documents and other potential evidence that are relevant to any party’s claim or defense, even if the potential evidence constitutes a trade secret. As a result, a defendant company may not only find itself in a lawsuit that it did not initiate but also in a position where it is forced to produce trade secret information to its competitor.
What can a company do to protect its trade secret information from disclosure?
The first step is to identify what it considers to be trade secret information. Once the trade secrets are identified, the company’s attorney should closely scrutinize the discovery requests to determine whether the trade secrets are responsive to the requests. If the information is not responsive, it does not have to be produced.
If the attorney determines that the trade secret information is responsive to one or more requests, he or she should analyze whether there are proper grounds for objecting to those requests. Objecting on the basis that the information requested is confidential or a trade secret is not permitted. Instead, a valid objection is that the discovery request is overly broad because a complete response thereto would require the production of information that is not relevant to any of the parties’ claims or defenses.
Once an objection is made, the attorneys may try to negotiate a limitation on the discovery request. If the attorneys cannot reach an agreement, then the party that served the request can ask the court to intervene by filing a motion to compel the production of documents or other information.
If a company’s attorney or the court determines that trade secret information is responsive to a discovery request and no objection applies, then the information must be produced. However, the information can be protected through the entry of a protective order, which prohibits the use of the disclosed information for any purpose other than the litigation in which it was produced.
How does a protective order work?
Generally, parties negotiate and agree to the terms of a protective order. In some instances, certain provisions of the protective order may be in dispute and require court intervention.In either case, the court must approve of the terms and enter the order so that it is a court order that can be enforced against anyone who breaches it.
Although protective orders vary, typically they divide protected information into two categories: confidential information and attorneys’ eyes only information. Confidential information usually can be shared with the court (but only under seal), counsel for the parties to the litigation and their legal staffs, expert witnesses or consultants retained by the parties, deponents in the litigation and the parties themselves. Most protective orders require expert witnesses, consultants and deponents to sign acknowledgements consenting to be bound by the terms of the protective order prior to reviewing confidential information.
By contrast, attorneys’ eyes only information generally can only be shared with counsel for the parties to the litigation. Highly sensitive and/or competitive information that a company does not want its opponent to access should be designated as attorneys’ eyes only.
That designation, however, should be used sparingly. It places a heavy burden on the attorney reviewing the information because he or she cannot consult with the client to determine whether the information is relevant, accurate or complete. Accordingly, a blanket attorneys’ eyes only designation likely will invoke an objection to the designation, which may result in loss of the heightened protection necessary for the information that truly is a trade secret.
Protective orders generally require protected information to be returned or destroyed at the end or litigation. A party concerned about its opponent using its trade secrets at the close of litigation should demand a signed verification that all protected information, including electronic and hard copies thereof, has been destroyed.
Joshua E. Liebman is an attorney at Novack and Macey LLP. Reach him at (312) 419-6900 or JLiebman@novackmacey.com.
Insights Legal Affairs is brought to you by Novack and Macey LLP
If your company has created an innovative product or service, you may have considered licensing it. Licensing your technology can provide new opportunities for a company — if you find the right partner.
“If you’re not in the business of making the product, if you are what is called a non-practicing entity, you have to license in order to exploit the technology,” says Philip J. Moy, a partner with Fay Sharpe LLP. “But if you are practicing your technology, if you are making products that are covered by your patent, or utilizing the knowhow to make products in the marketplace, there is always a tension between getting profits on your own goods versus giving somebody else the opportunity to make money you would otherwise make.”
Smart Business spoke with Moy about how to determine if licensing is right for you and how to get the most out of your intellectual property.
How can licensing its intellectual property benefit a company?
The main benefit of licensing your technology is you can derive income from a market segment where you do not operate as efficiently as the licensee. For example, a licensing partner may have a geographical presence in a particular country, and the cost for the you to ship your goods to that country does not compare favorably with having a licensee make them there.
If someone else can do it more efficiently, there is a benefit to letting them do what they do better, and receiving a license royalty because you have the exclusive right to make that technology. Sometimes a licensing partner’s success in a different market can lead to additional success in your original market because the product becomes popular, or you might learn something from your licensee.
What issues should companies consider when negotiating a license agreement?
It’s important to fashion a license so that it is not going to be subject to litigation or disputes. To accomplish this, you have to work hard on defining the licensed product. What does the licensee sell that will require them to pay you royalties?
If you don’t take care to define the licensed product or technology, there can be disputes down the road. When that happens, the only people who make out are the lawyers.
Unnecessary disputes interfere with companies’ mutually beneficial business relationships.
Companies should also consider exclusivity issues. Typically when you grant an exclusive license, the licensor may continue to practice the technology, but often you give up the right to sell products using that technology. The agreement gives the licensee the exclusive opportunity to do that. Then, you are at the mercy of their efficiency and diligence in exploiting your technology. In these cases, you should draft requirements into the license, like requirements for selling a minimum amount of product or incentives for selling more. Whatever the requirements are, they should be appropriate so the licensee can meet them and provide an incentive for them to vigorously practice the technology. You want to make sure the terms allow the licensee to have success and that you can derive income from their success.
How can a company protect itself from license disputes?
With a patent, the easier way to avoid disputes is to define everything that is covered by the claims of the patent. If you license both a patent as well as the technology and techniques that enable the licensee to make the product, you are able to expand the scope of the licensed product beyond the claims of the patent because you are providing additional knowhow and power to create something that the licensee wouldn’t otherwise be able to make.
The more concrete that definition is, the less likely disputes are to arise. Think long and hard about it, because the definition of your licensed product will determine whether you will get any money from the licensee’s activities.
What are the keys to negotiating a successful license agreement?
Unless you are dealing from different levels of bargaining power, and you can impose terms that are distinctly to your advantage, you want to strive for terms that are to the mutual benefit of both parties. That requires stepping into the shoes of the other guy to make sure he’s got a deal that works for him.
You also have to think about what can go wrong and account for it. For instance, making provisions for currency conversion for foreign licensees.
Another key to a successful business arrangement between the two parties is to have a good dispute resolution provision, particularly if the parties are contemplating an ongoing relationship. You don’t want to have to bring a valued business partner to court, so there is a lot to be said for having a step-by-step procedure for dispute resolution.
Typically, start with discussion. If that doesn’t work, go to mediation, where a third-party tries to bring both sides to their senses. Having an arbitration provision to ultimately resolve disputes that don’t cure themselves is appropriate for parties with ongoing relationships, especially as an alternative to litigation, which can be expensive for both parties.
Another issue with patent or technology licenses is the improvements and innovations that often take place due to the license relationship between the two parties. The license should determine who owns those changes.
Philip J. Moy, Jr. is a partner with Fay Sharpe LLP. Reach him at (216) 363-9109 or firstname.lastname@example.org.
Patents, trademarks, copyrights and trade secrets, or intellectual property (IP), have become an increasingly important asset for today’s businesses. In particular, IP provides strategic and financial advantages against competitors in the form of improved business and/or manufacturing processes and new product technology or designs.
The U.S. Patent and Trademark Office (USPTO) indicated the number of patents granted in 2011 (247,713) was the largest since 1963, and as of 2011, there were 1.75 million active trademark registrations. Further, the U.S. Copyright Office indicated that between 1790 and 2009, approximately 33.65 million copyrights were registered.
“While we have seen the number of patent grants and the volume of trademark and copyright registrations increase, in my experience, companies are not appropriately identifying and managing their IP,” says Andrea Gonzalez, CPA, a senior manager at Cendrowski Corporate Advisors. “As a result, companies are missing valuable strategic and economic opportunities.”
Smart Business spoke with Gonzalez about the necessity for companies to identify and manage their IP.
Why it is important for a company to identify its IP?
It is important for a variety of reasons; in particular, it allows a company to fully understand its IP portfolio. Once a company identifies its IP portfolio, it is able to determine the development stage of in-process IP; determine the ongoing cost of its IP development, including whether the company should continue to fund development; assess and critically review the IP’s continuing value to the company; identify potential licensing in/out opportunities; identify potential IP purchasing needs or sales of nonperforming IP; comply with financial reporting requirements; and monitor for potential misappropriation or infringement of its IP.
How can a company identify and manage its IP?
A company can start by implementing a formal process of identifying and managing all IP assets within the company on an annual basis. The first step is to establish a standardized method for identifying specific IP by department or functional area, by the type of IP (e.g., patents, copyrights) and by the type of product it relates to or the process for which it applies. The categories of identification can vary by company depending on the depth and variety of IP assets.
The second step is to implement the formal IP identification process. The implementation begins by interviewing various employees. Employee interviews enable a company to identify all of its in-process and established IP and appropriately categorize by department, type and product/process.
Once all IP is identified and categorized, the company can easily manage its IP portfolio. Specifically, it can perform annual audits of its IP portfolio either internally or via outside IP consultants and implement computerized or automated audits. The audits enable a company to monitor the current status of in-process IP; estimate the useful life and use of its IP; determine its value for purposes of financial reporting, insurance or collateral; and identify potential business opportunities (e.g., licensing in/out, sales, purchases), among other items.
Don’t a company’s financial statement auditors perform this function?
Not necessarily. If IP is self-created, the costs of creating the property are expensed rather than capitalized. As such, there may not be an asset included in the balance sheet for the IP.
Is it also important for a company to safeguard its IP?
Safeguarding a company’s IP is important to maintaining the economic and business benefits previously discussed. It has also become increasingly important because the accessibility of information has never been easier than it is today.
Further, there is an increasing availability of tools capable of obtaining information maintained in electronic environments. Therefore, it is crucial for a company to identify its various forms of IP and work to not only implement appropriate internal security measures but to also work with their legal counsel to ensure the appropriate IP protection afforded under U.S. laws are in place to protect the company’s IP assets. Enterprise risk management extends to IP, as well as ‘hard’ assets.
What if a company suspects its IP rights have been infringed or stolen?
The first step is to contact legal counsel. If legal counsel determines there is an alleged infringement or misappropriation, financial and accounting professionals can be retained to determine the economic damages that may have resulted from the alleged unlawful acts prior to or after a formal complaint is filed with the court.
How are damages quantified if a company believes its IP has been infringed or misappropriated?
There are a number of different methods forensic accountants and valuation analysts use to quantify IP damages. Bearing in mind damage remedies available under the law vary based on the type of IP allegedly infringed or misappropriated, damages may be quantified by estimating a reasonable royalty rate, quantifying the profits the IP inventor would have earned but for the alleged infringement, or by quantifying the unjust enrichment the infringer earned as a result of their alleged misappropriation or infringement.
Andrea Gonzalez, CPA, is a senior manager at Cendrowski Corporate Advisors. Reach her at email@example.com.
Your trademarks are what customers use to recognize your company, your product, and/or your services. Wouldn’t you want to take the necessary steps to protect your hard-earned brand identity? Many businesses, especially startups, do not think about this subject until their products are ready to launch. Some do not consider trademark protection until even later, when they run into a conflict.
If you have reached that point, you are late, says Colleen Flynn Goss, Counsel at Fay Sharpe LLP. “It needs to happen early in the process,” Goss says. “Certainly not when the business is still a ‘shower idea,’ but definitely before your product is well on its way to market.”
Smart Business spoke with Goss about why registering your marks — whether trademarks or service marks — is important for emerging companies, and how to ensure it’s done right.
Why should these companies consider seeking federal registration?
Your trademark is your company and product identity. You may not realize it but as soon as you use your trademark, it’s yours. In the United States, trademark rights are based on use — not registration. This means that the first person to use a mark on a product or a service is considered the owner of the mark for those goods and services. These are ‘common law’ rights, and they are geographically limited to where you are actually selling or offering products and services under the mark.
Let’s say that you lead a startup company based in Northeast Ohio that produces and sells rain gauges in the Great Lakes region. With record-breaking rainfall, your company grows quickly and two years down the road you decide that expanding to the Pacific Northwest might be a good idea. But unbeknownst to you, an Oregon company has been using the same mark as yours in the region for the last year. If you had filed for a federal trademark registration two years previously, you would have been able to stop the Oregon company from using the mark. Instead, you are now entering into costly negotiations to work out a deal surrounding using the mark and selling your product in this new geographic region, or, even worse, re-branding.
So, even though trademark rights spring from use, by spending a relatively small amount of money and federally registering your mark with the U.S. Patent and Trademark Office you can obtain the nationwide right to the mark to the exclusion of later users of the same or similar mark for the same or similar products and services, even if you are not using the mark in every state. Federal registration also grants you other rights including the right to use the registered symbol, ®, next to your mark, which tends to deter others from copying your mark.
How can a company protect the mark it intends to use before actually using it?
As the leader of a startup you might wonder how thinking about federal registration affects you when you haven’t even brought a product to market. You’ve come up with this wonderful idea, kicked it around and it’s beginning to get some traction. But you haven’t used your mark yet. How can you protect yourself going forward against the company in Oregon (or someone right down the street) using your mark before you get a chance to use it?
That is where the ‘intent-to-use’ application comes into play. United States trademark law allows you to file an application to register a mark before you’ve used it. That way, you effectively reserve the mark for those products and services for which you intend to use the mark.
You must still put the mark into use on those products or services before the registration will issue, but the beauty of the intent-to-use application is that the date you file the application will be deemed to be the date you first used the mark. Upon issuance of your registration, the Oregon company that started using the mark one year after you filed your application will be precluded from using the same or a similar mark on rain gauges.
What are the risks of not filing for a federal trademark registration?
Some companies will still say, ‘I have common law rights to use this trademark. I’m not going to bother.’ And they do, but as I mentioned earlier those rights are geographically limited. The ‘great water gauge idea’ has been funded by your family, friends, or personal savings. When the idea blossoms with this infusion of capital and the product is commercialized, the pace at which business moves becomes quite quick. Now imagine that after investing all that time and money, you discover that someone other than the Oregon company has a federal trademark registration for what you thought was your mark and has been using the mark for ten years. That is a financial and timing nightmare that you don’t want to have to deal with. There you are, just about to launch, and all of a sudden you have no name for your product.
What steps can companies take to ensure a trademark is safe to use?
When you’ve had the ‘shower idea,’ and your plan to take that idea and create a company surrounding it is in its infancy, but it looks like it’s going to happen — that’s when you should start thinking about branding.
Think about the brand name — the mark — for your products or services, and the reasonable breadth of products and services on which you plan to use that brand name. You may start off with rain gauges, but plan to move from rain gauges for Northeast Ohio and the Pacific Northwest to smoke detectors in Texas under the same brand name. You should cover all those potential ventures in your intent-to-use application.
Before you file the application though, you still need to be certain that someone else has not already used and/or registered the same or similar mark for similar products. A trademark availability search will determine if there are prior state or federal trademark registrations or common law uses which would impede the use and/or registration of your proposed mark. Once you have determined that the mark is available, if you decide to seek federal registration, you can start the application process and move toward having your federally registered trademark soon after your product goes to market. The application process is fairly straightforward. From application through registration (excluding the availability search) it generally will take from nine to 18 months.
Colleen Flynn Goss is Counsel at Fay Sharpe LLP, can be reached at (216) 363-9132 or firstname.lastname@example.org.
The first and most important thing a company can do to protect its intellectual property (IP) is to identify it.
“A business cannot protect its IP assets if it is unaware of the existence and significance of those assets,” says Robert G. Schuler, director and chair of the Intellectual Property area at Kegler, Brown, Hill & Ritter. “An IP audit is one way a business can identify its IP assets and ensure that proper steps have been taken to protect those assets.”
Schuler also says it’s important to educate your work force on the basics of intellectual property. “It does a business little good if the only ones who are aware of the company’s IP assets are those in upper management. More importantly, an educated work force is less likely to infringe another company’s IP, putting their own company at risk.”
Smart Business asked Schuler for tips on protecting intellectual property.
Why do businesses struggle with identifying their intellectual property?
Companies struggle for two primary reasons. First, when talking about intellectual property, you’re talking about intangible and quite often very abstract rights. It’s one thing to know how many widgets you have. It’s quite another thing to know how many copyrights or trademarks you may be using in the business, because that requires an understanding of what is subject to copyright or trademark protection.
Second, quite often the decision makers at a company are not on the front lines; they’re not actually in the room when various inventions are conceived or when marketing campaigns are developed. They may not be aware of the key IP that is being developed. This disconnect between employees and decision makers can result in a failure to take the proper steps to protect intellectual property and, accordingly, a loss in value to the business.
What areas are commonly overlooked?
It really depends on the business. If your company is heavily focused on technology research and development, you are more likely to be focused on patent or trade secret protection and may not be as focused on issues relating to trademark and branding. Conversely, if your company concentrates on marketing, you may be focused on trademarks and may overlook the value of other key IP assets, such as your trade secrets and know-how.
If I were to pick one category that is most often overlooked, or undervalued, it would be the business’s trade secrets, which comprise the truly confidential information and know-how that gives a business its competitive advantage. The law requires that you take reasonable steps to keep the information secret, and, if there is ever a dispute, the court will scrutinize the steps you took. So someone within the organization needs to be aware of the business’s trade secrets and ensure that appropriate measures are in place, which includes the use of non-disclosure agreements and appropriate IT security.
How can a company identify its intellectual property?
The first step is to have an intellectual property attorney do an audit to identify your IP assets and the steps you have taken to protect them.
The audit can usually be done within a few hours for a small company or within a day or two for a larger company.
Reach out to the attorney early on and he or she can identify who in your company will need to attend the meeting and let you know what those people will need to bring to the meeting.
Make sure all the right people are meeting with the attorney. If R&D is involved, have the head of the division there; if marketing is involved, have the person familiar with all marketing efforts present.
The attorney can also suggest best practices to help a company identify and ‘mine’ its valuable IP assets more easily going forward, which can include training, invention disclosure forms, and appropriate clearance and review procedures for marketing collateral.
How can a company protect its assets?
With respect to trademarks and copyright, if they are important to your business, you need to register them — period. Doing so will significantly enhance your ability to protect them.
In regard to new inventions, processes, and designs, talk to a patent attorney. If they are subject to patent protections, the patent can give you exclusive rights for a certain amount of time and the benefits can be immeasurable.
You also need to think globally. Make sure you’ve taken the proper steps to protect your trademarks in key foreign jurisdictions in which you conduct business. In regard to patent protections, be sure your patent attorney is aware of all countries in which you are making or selling your products so that a proper strategy for protection can be put in place.
How should a company proceed if it is accused of infringing on someone else’s IP?
The most important advice is this: Get experienced legal counsel involved immediately. If the attorney can put together a well-reasoned, researched response out of the gate, you’ll maximize your opportunity to avoid costly litigation.
ROBERT G. SCHULER is director and chair of the Intellectual Property area at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5410 or email@example.com.
Launching a new product or implementing a new marketable idea can be an exciting time. You’ve invested time, labor and money into a promising project, and you’re looking forward to the profitable outcome. But imagine if just days after you launch the product, you receive notification from a company claiming that you have infringed on their intellectual property rights. What happened? And perhaps more immediately important, what will happen next?
Whether it’s for copyrights, trademarks, patents or trade secrets, if a company claims you have violated its legal rights, it is vital that you respond appropriately.
Smart Business learned more from Allan Anderson, a managing partner at Ropers Majeski Kohn & Bentley PC, about what to do if you infringe on another company’s IP.
What should you do if you’ve been accused of IP infringement?
The first notice that you’re going to get is usually in the form of a cease-and-desist letter, and what you don’t want to do is ignore that letter. You want to contact the person that wrote the letter to find out the facts surrounding the accusation.
If they send you a notification with a registered copyright or trademark attached to it and it appears that you might be infringing upon it, then you need to strongly consider what measures you can take to stop the offending activity. When you get a cease-and-desist letter, contact an attorney who specializes in IP to evaluate whether or not the mark that is being claimed to be violated is in fact a valid mark. You want to find out if the company has the registration, if it’s been filed, if it’s current, what the company is saying you’re infringing upon, if you have a legitimate right to sell this product, etc.
Ultimately, you need to decide under the circumstances if this is something you need to fight, or if it’s something you need to comply with. If it is legitimate infringement and you have no defense, then you should cooperate with the noticing party, discontinue any advertisement of the product, account for your sales and come to an agreement with the company.
The best way to deal with these situations is to immediately become involved and address the concerns of the person who is threatening to sue you. By completely ignoring it, it is not a situation that is going to get better with time.
What potential ramifications could you incur by infringing on IP?
On trademark in general, if it’s found to be a willful violation, you could see penalties up to $2 million. If it’s found to be an exceptional situation, the company might be able to get attorney’s fees from you. Otherwise, there are variations between $1,000 and $100,000 fines for infringements. Willful copyright infringement can cost you $150,000 per infringement, but the midrange is about $750 to $30,000. Patent infringement is also a statutory situation, so you can incur fees as well as penalties. So, in evaluating these issues, you have to really make sure that the person that’s telling you to cease and desist has valid IP rights to protect. After a cease-and-desist letter, they could possibly file a lawsuit and seek an injunctive relief — a court order preventing you from selling the product — which could basically shut down your business.
What are your options if you’re found to be in violation of IP rights?
If you’ve got a significant amount of inventory and they want you to return it or otherwise destroy it, sometimes you may just be stuck with it. But if you can cooperate early on, there are circumstances where perhaps the owner of the mark may be willing to grant you a limited license where they would allow a controlled sell-off, permitting you to sell the inventory that you have, but pay the mark-holder a certain amount of your profits to reimburse them for their IP rights.
You’ve got to look very carefully at the basis for the cease-and-desist letter, and the more immediately you respond to it, it gives you more options to try to resolve it or come up with a ‘business solution.’
How can you avoid infringing upon IP rights in the first place?
Evaluate the background of all aspects of your product by checking for a potential violation. Research it heavily beforehand. There’s the option to get something trademarked before putting it on the market by going through the Patent Trademark Office (PTO). There, you may find out there’s a history of that mark already and you can’t get it. But there are services available where you can research the history and see if there’s a prior use or an existing mark that you might violate.
Sometimes it makes more sense to spend a little money in the beginning to avoid spending a lot of money later. They’re usually not that expensive and that’s a good source that you should refer to before going through the expense of launching a big product line that you might ultimately have to shut down simply because somebody didn’t take the time to investigate whether it might be infringing upon someone else’s rights.
Allan Anderson is a managing partner with Ropers Majeski Kohn & Bentley PC. Contact him at firstname.lastname@example.org or (213) 312-2048.
Companies everywhere are going over their budgets with a fine-toothed comb. So where does intellectual property fit in?
Your IP assets are one of the most valuable parts of your business and you should treat them as such, says Steven M. Haas, a partner with Fay Sharpe LLP.
“The overriding factor to keep in mind is that your intellectual property budget should not be considered overhead,” Haas says. “It should be considered part of your overall strategic plan, generating assets for the company.”
Smart Business spoke with Haas about how companies should evaluate the budget for their intellectual property.
What should companies keep in mind when developing an IP budget?
Your IP assets can slow down your competitors and increase their cost and uncertainty, and hopefully provide you with a proprietary market position. Another thing to consider is that banks and financial institutions love to see IP assets for financing, and for mergers and acquisitions. Patents, trademarks and copyrights are all critical assets. Also, by being proactive with your IP you can prevent problems down the road.
Your IP assets can be not only a sword but a shield for you, relative to your competitors.
How should companies determine how much should be allotted to their IP budget?
As your company develops new products and as you work with an outside counsel, it’s important to develop a plan to protect those innovations within whatever budget you can afford. Your outside counsel can certainly help you prioritize. There is no rule of thumb for how much you should be spending on your IP, like a certain percentage of total sales or something similar.
Businesses should keep in mind that these costs are often cyclical. For small and medium-size companies, it’s common for IP costs to ramp up when new products come out. But over time, things even out. There will be a cycle with fewer fees. The costs follow your product innovation cycle.
There are trends in industries where technological advances and customer-driven improvements contribute to a cycle with more fees. The budget for patents in particular is very cyclical for small and medium-size businesses.
What are some tips for controlling your IP budget?
There are several strategies companies can use. First, it's important to have a patent committee or person at your company responsible for interfacing with outside counsel to make sure that you are protecting what you need to protect and not wasting money on things that are no longer important. Depending on the size of the company, most companies have a person or committee that will interface between inventors, engineers and the business units on one hand and outside counsel on the other. That way you have a single point of contact with the firm, preventing mistakes, duplication of effort, and funds being spent where they shouldn't be.
With high turnover at today's companies, it's not uncommon for the patent lawyer/outside counsel to have been there longer than many others at the company, as a constant presence over many years and stages of the company. Rely on that experience.
Another tip: maintaining old patents is very costly. Once you receive a patent you have to pay maintenance fees four, eight, and 12 years after the patent is granted. The fees increase each time, so if a patent is no longer relevant to your product mix, you should cull your portfolio and make sure you are not spending your budget on these items.
Small companies — defined as companies with fewer than 500 employees — can receive a small entity discount from the U.S. Patent and Trademark Office.
What should companies do about international patents?
Foreign patent costs are very expensive. You have to be rigorous in terms of deciding to pursue patents and other intellectual property in other countries. The decision has to be justified by your sales or distribution in that country. You also must have a realistic ability to enforce the patent in that country, because the maintenance costs are so huge.
Most foreign patents require yearly fees, known as annuities, to keep them in effect. Many companies spend too much on foreign protection and ignore new projects, a decision that rarely makes the most business sense.
What are some other tips for patent budgeting?
Try to eliminate layers. Work with the lawyer at your outside counsel who is directly responsible for your matters. If you eliminate layers, you eliminate cost.
For some companies, using the provisional patent application can reduce costs. It is a less formal patent application, with a lower expense, but it can preserve patent rights — temporarily at least.
It's important to be proactive and avoid litigation, which can be extremely expensive from a direct cost aspect and because of the time involved. Work with patent counsel to avoid IP conflicts with your competitors. It can save you tons of money and headaches down the road. The earlier we see these issues, the more we can do to help you design around someone else's patent, invalidate the patent or come up with an alternative way forward.
All companies are very focused on budget right now. Outside firms are very willing to work within a set budget and to provide and build target billing estimates or fixed fees. We are very flexible about working with company's budgets, because that is what companies demand now. So don't be afraid to discuss budget issues with your outside counsel. There is always a plan that works for both the client and the lawyers.
Steven M. Haas is a partner with Fay Sharpe LLP. Reach him at (216) 363-9149 or email@example.com.
For two hours, Tom Reilly sat with Secretary Janet Napolitano, head of the Department of Homeland Security, to discuss the importance of cyber security and how to protect citizens from cyber attack. Today, the threat of cyber attack is an issue that affects more than just big business and government entities, but everyone.
“You read every week about another breach in the industry, whether it’s enemy nation states attacking our power grid, it’s a bank undergoing cyber fraud, credit cards getting stolen or identities,” says Reilly, who is the former CEO of the $181.4 million security and compliance solutions company ArcSight LLC, which was acquired by technology giant HP in 2010. “It’s happening. Clearly the traditional approach to solving security has not worked.”
In light of more high-profile security breaches at companies such as Google and Sony, it is also a problem for which new solutions are plainly needed.
“I talk to a lot of customers who have been investing in security technology for 20 years, spending a lot of money, and yet they still don’t feel secure,” Reilly says.
With technology advancing and changing exponentially, it’s important for companies of all sizes to reevaluate the security measures that they are using to protect their most valuable information, data and possessions.
“What’s interesting is cyber criminals do not distinguish between company sizes,” Reilly says. “They don’t distinguish between industry and they don’t distinguish between countries or public and private sector. They go after the softest target.”
Smart Business spoke with Reilly about how the security landscape is changing for the next decade and what business leaders can do to defend their companies from imminent cyber threats.
For companies that don’t have a risk management strategy, what is the first step in creating one?
I think the first thing is to know, based on your business, what is critical to protect. So if you are a healthcare provider, it’s patient records. If you are utility, it’s keeping up the power grid or protecting customer records. If you are a bank, it’s definitely protecting accounts from account takeover. So you need to identify what is critical to your business that you need to protect. Don’t take just a generic position ? let’s protect everything equally. Protect your crown jewels. Understand where that data, those systems reside and make sure that that data or those systems are well-protected, much more than the rest of your organization needs to be protected.
Which industries are at high risk for cyber crime?
The opportunity in cyber security is a global opportunity, affects companies that are small right up to the largest and it touches many verticals. In every vertical, I can tell you what it is that they want to protect, whether it be intellectual property, it could be financials, it could be customer data, it could be health records or it could be services like the power grids that have to keep power up and phone companies that want to keep phones working.
What are biggest cyber threats?
The most serious risk and the one that can have the most significant impact is one that is called ‘the insider threat.’ And the insider threat is not an attack from outside but it’s an employee in your organization who for one reason or another is a disgruntled employee. Yet you’ve trusted that employee with access to systems and sensitive data. The employee could be disgruntled because they are a poor performer and then they get fired. They could be compromised because somebody is bribing them externally for data, which we come across a lot. Or they could be getting blackmailed, which is also quite common. The insider threat is not only that they have access to the most sensitive information and they can do the most damage, but they are the hardest to detect.
The second area is the theft of intellectual property, and a lot of this is sponsored by enemy nation states who are trying to access intellectual property within companies that have leadership. By stealing intellectual property, you can gain a competitive advantage effectively. Intellectual property could be the designs of a new electric vehicle. It could be the designs of a new plant that’s being built. It could be the spreadsheets that rationalize a bid for a big mining project.
What can companies do to prepare employees for cyber risks?
Continual education is always needed. The reason it’s continual education is cyber criminals are always evolving. They are always introducing new techniques and new capabilities, and they are very, very patient. So they may take six months to a year targeting a specific company to penetrate that company’s network, to get code on there and to have basically sweeper agents that are monitoring what’s happening within a company.
When you start understanding some of these sophisticated things, you suddenly realize that you have to have continual training around what our security policies are, how you provision people to access systems, how you de-provision people when they leave the business. You have to have good rigor in enforcing those policies. You are only as secure as your weakest link. Unfortunately, now the weakest link is not technologies or computers, it’s employees often making inadvertent mistakes and bringing in malicious code into the environment.
How do risk management tools identify cyber security threats differently for businesses than other approaches?
It allows them to measure the amount of risk that they are taking or that they have in their IT environment. And once you can measure risk, you can invest money wisely to reduce or mitigate risk. So we’re changing the discussion from ‘Are you secure?’ to ‘What’s your risk posture?’ You can now look to a chief security officer and say, ‘What’s your risk posture? What’s your risk policy?’ and they can answer that concretely rather than ‘Are you secure?’ which is usually a yes or no. So risk deals with the gray.
What about security intelligence?
One of the assumptions you have to make to really effectively use security intelligence tools is you have to assume that you have been breached and that your network has malicious code or malicious users on it. Your job is to go discover them.
So if you assume that your perimeter has been breached and that either you have a malicious user inside or you have malicious code on your network and you say now I have to go find it, then that’s how you use security intelligence tools. You start listening and monitoring network activity. You start modeling how users use the system for the normal course of business, so that when anomalous use is occurring, it stands out.
How to reach: HP Enteprise Security, (888) 415-2778 or www.hpenterprisesecurity.com
With an estimated 80 percent of the value of S&P companies in their intellectual property holdings, businesses cannot ignore the impact of IP on their bottom lines, their equity value and their day-to-day operations.
Intellectual property law is among the most complex and misunderstood fields of law and represents a veritable mine field for businesses, says David G. Henry, Sr., a member of the Intellectual Property Group at Dykema Gossett PLLC.
“Failing to recognize intellectual property issues as they arise, asking the wrong questions, or acting upon the many myths surrounding the proper handling of IP issues can lead to substantial losses and/or liability for a business, its shareholders and its officers,” he says.
Smart Business spoke with Henry about recognizing intellectual property issues when they present themselves and what to ask IP experts before acting in any material way.
What are patents and some of the myths regarding them?
Patents are legal monopolies that allow owners to prevent all others from making, selling, using or importing patented subject matter, which can include machines, chemical compositions, manufacturing processes and business methods.
There is a common perception that you can protect an invention by mailing yourself a letter describing your invention. However, that does little, if anything, to protect an invention, and relying only on that will destroy any patent rights for failing to file a real patent application. Applications must be filed within one year of the first public use of the invention, its sale or offer of sale, or a description of the invention in a printed publication, among other things.
Another fallacy is that you cannot patent something that is just a new combination of old parts. In fact, most new inventions are merely new combinations of old parts. Assuming that it is impossible to patent your invention, or that patents are easily circumvented and not worth the time and expense (another common misconception), you may miss the opportunity to secure your most valuable asset, perhaps costing you millions of dollars in value.
Finally, many people believe they can get around an existing patent simply by changing or adding something to the patented item. However, patent claims often cover much more than the item shown in a patent, and, if you infringe, it could cost you your business.
What are some misperceptions regarding copyrights?
There is often confusion about what a copyright covers. Copyrights protect the expression of ideas and information, not the underlying ideas or information. Items such as books, software, photos, paintings and recorded music may be protected, while mere information like recipes, mathematical theorems and phone listings may not.
There is a common misperception that if you change someone’s work enough, you can get around the copyright. However, copyright covers much more than just literal, verbatim copying, including the making of derivative works. And admitting that you changed someone’s work to get around the copyright may be an admission of infringement.
There is also the perception that if you pay for a copyrighted article that you own it, especially if you paid to have it made. However, ownership most often results from creating the work yourself or having your employee create it as part of his or her job (a true ‘work for hire’ under copyright law). Companies often make the mistake of thinking that because they paid an independent contractor that they own the end product, but they often do not, absent a contractual assignment of the copyright.
There is also the myth that you only have copyright protection if paperwork is filed with the government, but copyright exists the moment a protectable work is reduced to tangible form. You can be liable for infringing on a copyrighted work for which no filing has occurred.
However, before you can sue for infringement, you must register the work in a timely manner. Registering too long after publication and after an act of infringement can cost you the right to statutory damages and attorney fees.
How do trademarks work?
Trademark protection is for words and symbols that distinguish the goods or services of one vendor from those of all others. Trademark rules protect the public from confusion and makes commerce work. Properly selecting and protecting trademarks will help you protect your reputation and market power, and avoid considerable trouble and expense.
Businesses must know what they do and do not own as a trademark. If the Secretary of State’s office merely says a name is available as a corporate name, for example, that doesn’t necessarily means it’s OK to do business under that name. Too often, companies make the mistake of incorporating under a name that, if used as a brand, may infringe trademark rights of a third party. Some also believe that merely filing an assume name certificate (DBA) creates exclusive rights, but such is not the case.
Concerning infringement: Just changing a spelling or adding a word to an existing trademark often does not protect you. Trademark infringement typically exists if your trademark (however spelled or configured) creates merely the likelihood of confusion as to source, sponsorship, approval or affiliation. Trademark infringement is easier to commit than most think, can be very difficult to spot, is expensive to litigate and is potentially ruinous in terms of wasted reputation investment.
Intellectual property is often a company’s most valuable asset and is easily overlooked, lost or destroyed, or infringed upon. By understanding the value of IP and consulting with experts in the field, you can avoid the potential land mines that abound.
David G. Henry, Sr. is a member of the Intellectual Property Group at Dykema Gossett PLLC. Reach him at (214) 462-6439 or DGHenry@dykema.com.
In today’s competitive environment, noncompete and confidentiality agreements can be critical to maintaining an edge over your rivals.
And failing to have them could put your company out of business should your employees leave and take your secrets with them, says Susan Rowe, a partner with The Stolar Partnership.
“One of the primary assets that most businesses have — which they’ve often spent significant funds to develop — is their confidential information,” says Rowe. “This includes, for example, formulas, proprietary research, customer databases, pricing strategies and other trade secrets.”
Smart Business spoke with Rowe about noncompete and confidentiality agreements, what type of information to include in employee contracts and, if things go awry, what type of evidence is needed to pursue legal action.
Why is it important for employers to address noncompete and confidentiality agreements?
Missouri statutes protect confidential information that is a trade secret. It’s important to have a confidentiality agreement because you can use it to talk to the employee about the importance of protecting confidential information. You can also identify trade secrets and confidential information. If you fully describe what is confidential, the employee can’t later say, ‘I didn’t understand that this was or wasn’t confidential.’ Furthermore, you can include certain protections in addition to the protections that statutes might provide for the employer.
It’s also important to have a noncompete agreement. Absent a noncompete, former employees can leave to join a competitor, with nothing to prevent them from doing so. Even without confidential information, there are circumstances in which an employer doesn’t want someone it has trained — and spent significant resources doing so — to go out and compete against it.
What information should be included in a noncompete agreement?
It’s important for employers to realize that the enforcement of a noncompete agreement is a legal matter. Noncompetes can be expensive to enforce in the courts. Noncompetes undergo a lot of scrutiny in the courts because the law says such agreements are anti-competitive and can only be used to protect certain interests of the employer — such as the customer base or trade secrets.
If you’re protecting client relationships, describe the scope of the relationships and identify which are considered confidential and subject to the noncompete.
Also, be careful about the scope of the agreement in terms of its length and geographic restrictions. The courts typically do not allow for a very broad geographic scope or permit a noncompete to go on for a long period of time.
Finally, include remedies for yourself, such as attorney fees and other provisions, which will protect your business if you have to enforce the agreement.
If an employee signs a noncompete agreement but takes a job with a competitor, what steps can an employer take?
To prevent disputes, give the employee who is leaving or who has been terminated copies of the agreement upon his or her departure.
Employers who employ someone with an existing noncompete with a former employer — and are aware of the noncompete but continue to employ that person nonetheless — run the risk of being sued by the former employer on a tortious interference with contract claim. If you become aware of a former employee, bound by your noncompete agreement, working for a competitor, have your attorney send the new employer a copy of the agreement, thereby putting the new employer on notice that you believe there is a noncompete agreement in effect. Often, this will dissuade the new employer from continuing to employ the person. You can also send a letter to the former employee, reminding him or her of the noncompete agreement and stating that you intend to enforce the provisions. Sometimes that’s enough. Other times, employees will proceed in the face of a noncompete and you will have to go to court to enforce the agreement.
What evidence does a business need to pursue legal action against a former employee whom it suspects has leaked confidential information?
As with any lawsuit, before it is filed, make sure that you have good-faith basis for the lawsuit and see that much of your evidence already in place. If one of your former customers says, ‘Oh, your former employee is calling on me,’ ask that person to send a note or letter identifying the person who has called on the business.
If you think the former employee is talking about your confidential information, ask your customer to write down the substance of the conversation. This allows you to have a statement ahead of time that you can use to support what you will be alleging in the lawsuit.
In addition to noncompetes, what other methods can a business use to protect its intellectual property?
Employers should be mindful of what’s out on the Web. Commentators have talked about employers who have found their former employees disclosing confidential information or engaging in developing relationships with former customers on such sites as Facebook and LinkedIn. When employers find this type of information, they should demand that the former employee stop this conduct or remove confidential materials, or face legal action for failing to do so.
Employees change jobs because they’re dissatisfied — they feel like they don’t have opportunities or that they’ve been treated badly. To prevent people from leaving with confidential information, it’s important to build loyalty with your employees, listen to them when they’re upset and treat them fairly.
Susan Rowe is a partner with The Stolar Partnership. Reach her at (314) 641-5119 or firstname.lastname@example.org.