What to do when a competitor’s patented product threatens your sales

It’s common that a company’s competitors release a patented product that will have a significant impact on the competitive landscape. It happens often enough that companies need to know what options they have to counter.

“A company cannot always come out with the latest and greatest new invention, so it’s inevitable that at some point their competitors will beat them to the punch,” says John M. Skeriotis, a partner at Emerson Thomson Bennett. “The typical response is to say, ‘Wow, my competitor has a great invention. I guess we need to get out of that product line.’ Most often, staying away is not the best thing for a company. It leaves them with the consequences of a loss of market share, revenue, etc., when there are better alternatives.

Smart Business spoke with Skeriotis about the strategic options companies have to avoid the negative impact from the release of a competitor’s patented product.

How do companies determine the best way to respond to a competitor that has unveiled a patented product the company wants?

The first thing a company should do is review the patent’s history. See what the Patent and Trademark Office found in its search and see what happened in the patent’s history. As is often the case, many things pop out when reviewing the patent’s history that can help a company figure out what is the ideal thing to do.

Once that information has been gathered, companies could choose to design around the product, patent an improvement, challenge the patent or license it.

When should a company design around a product a competitor has patented?

If a company wants to compete, it needs to review its options and to see if it’s possible to design around what was patented. Companies need to hire a patent attorney to review the patent’s history. He or she will meet with the company’s design team or engineers to review what they are thinking and what they are capable of doing in the marketplace that could be an alternative to the patented design.

What should companies understand about patenting an improvement? How does it tie in to possible licensing opportunities?

While it may seem straightforward, it is very difficult to invent an improvement to something already patented. The idea is to invent and patent something that the patent holder wants or needs. That way there may be leverage to negotiate a favorable license or even cross-license one another.

Unless a company knows the patent holder is going to want to grant a license, leverage is necessary to ‘incentivize’ the patent holder to license.

Failing that, there are options in the event that the patent holder doesn’t want to license to the company.

Why would a company challenge a competitor’s patent?

If the patent holder doesn’t want to license, if the license fees are exorbitant, if there is no feasible design around, or if the company has a strong belief that the patent holder should not have been granted a patent, then a company can look to challenge the validity of the patent. The benefit is if the company can find something that pre-dated the invention, then the patent may be invalid or otherwise limited such that a design around is easily feasible. It also gives the company leverage in negotiations.

How might companies benefit from involving a patent attorney as it considers its response?

A patent attorney is the first place to start so that they can review the patent’s history and see where things lie. Quite frankly, hiring a patent attorney is critical to in this process. They should be able to map out a plan to make the patented product while avoiding significant legal issues.

Insights Intellectual Property is brought to you by Emerson Thomson Bennett

Common sense might not apply when it comes to copyright

Copyright, one of the two intellectual property rights explicitly mentioned in the U.S. Constitution, protects the expression of ideas, which can take the form of paintings, songs, movies and photographs, among other things. However, with the proliferation of such works online, many companies fail to recognize the legal implications of copying online material.

Along the same lines, as companies build their web presence, they fail to appreciate and protect their valuable rights.

Smart Business spoke with Dan Thomson, a partner at Emerson Thomson Bennett, about copyright, Fair Use, and the ways in which companies leave themselves vulnerable in this area of the law.

What are the issues businesses commonly encounter with copyright?

Many people falsely believe that anything found on the internet — such as images, videos, articles — are free to use. Using someone else’s work without permission, regardless of how available it may seem, is stealing.

Another area of confusion is understanding who owns what, especially when work for projects like websites and software are done by outside contractors. A common misconception is that hiring and paying a web developer to create your website also provides ownership of the copyright. However, according to copyright law, the copyright is owned by the web developer unless transfer of the copyright is explicitly written into the contract.

When it comes to work produced by employees, the relationship changes the equation. A web developer employed by a company to develop websites holds no copyright for the work they produce. That work belongs to the company. However, if a janitor takes pictures for the company’s website on the side, the company should be sure to have him or her transfer the rights for the images to the company, because taking pictures is not in the janitor’s job description.

How is copyright obtained and what protection does it offer?

A copyright exists as soon as the work is ‘fixed in a tangible medium.’ For example, for a painting, the copyright exists as soon as paint is put to canvas.

Since copyrights exist from the moment the work is created, a company’s copyrightable work is never completely unprotected. The problem comes when the company wants to enforce that copyright.

To actually enforce a copyright in court, and receive damages for a copyright violation, a copyright registration is needed, which is only obtained by filing an application with the U.S. Copyright Office. Registration provides for statutory damages that can be up to $150,000 per act of infringement, as well as attorney’s fees.

What is Fair Use and how does it relate to copyright?

Fair Use and copyright are directly related. It’s a statutory doctrine that allows for certain acts that would normally be considered copyright infringement to be undertaken without violation. This is most commonly the case in journalism, where substantial portions of a copyrighted work may need to be used.

There are four factors that must be weighed in determining Fair Use:

  • The purpose of the use — is it primarily for commercial or noncommercial purposes?
  • The nature of work — is it creative or highly technical?
  • The amount and importance of the work used.
  • The effect of the use of the potential market value of the work.

These factors will all be weighed, and if the factors weigh more heavily in favor of Fair Use, then the use will not be considered an infringement.

Copyright can be a difficult area of the law to understand because some of it may seem contrary to common sense. It’s important that companies understand that there are rules about how copyrighted materials can and can’t be used. Be aware of the issues surrounding copyright law and keep in mind the importance of having language in contracts with third parties that transfer the rights of copyrightable works accordingly.

Insights Intellectual Property is brought to you by Emerson Thomson Bennett

Failure to protect your IP can lead to costly losses

An increasing importance has been placed on a company’s intellectual property (IP), as the disparity between labor costs in the U.S. and those found outside its borders grows.

“Today, companies can source labor anywhere in the world to find the least expensive option. Many American companies are seeing themselves more as places where workers’ brains, rather than their backs, are employed,” says Roger Emerson, managing partner at Emerson Thomson Bennett. “U.S. companies are seeing a competitive advantage in the value of their ideas.”

Despite this shift to a knowledge-based economy, many companies do not realize just how much of what they produce qualifies as IP. Because of that, they often fail to lock up those assets with IP protections, leaving them vulnerable to copycats, or putting them at a significant cost disadvantage in the market.

Smart Business spoke with Emerson about how to identify and protect IP.

Are companies fully leveraging their existing IP to create a competitive advantage?

Many companies that create IP don’t fully understand the options they have, often because they don’t understand how IP works. In most cases, these are good business people who, if given the necessary information, could pick the best option for their company, but they simply aren’t aware of the choices they have.

Businesses often overestimate the cost of IP protection, such the cost to obtain a patent, and therefore don’t consider applying. But a U.S. patent can be obtained for a few thousand dollars.

Companies also often assume an invention isn’t patentable because, in their mind, the innovation seems to be simply the next step. However, if the innovation is ‘novel’ it is patentable, even if the advance seems small in the eyes of the inventor. That’s where an experienced attorney with knowledge of the patent system can help.

How well do companies protect their IP, whether existing IP or IP that is still in development?

Patent law is written with an inherent bias toward granting patents. But there are other factors that determine whether a patent can be secured.

U.S. patent law has deadlines by which a patent application must be filed. If those deadlines are not met, the invention will be unpatentable and will fall into the public domain. For instance, a company may have sold a product for five years without a patent. Then, because of the product’s success and increased value to the business, it decides to protect it with a patent. The company, however, will not be able to get a patent because it waited too long and now the product is part of the public domain.

When is the best time in the lifecycle to pursue IP protection?

It’s best to seek IP protection when the product design is completed and before selling or producing. When the final design is finished, call a patent attorney and start a patent availability search. This will determine the likelihood of securing protection for the idea.

There’s also the chance that the idea has already been protected. If that’s the case, production can’t move forward or the company risks patent infringement.

Companies should budget for patent search — usually less than $3,000 — and possible protection from the start of development as a natural part of the process so as not to be caught off guard by unplanned expenses.

What should companies do to be competitive in a future in which IP has greater value?

Business leadership would benefit from a working knowledge of the basic kinds of IP protections so they can recognize the opportunities and options available for the products being created. That should lead to better decision-making.

Keep in mind that not protecting IP puts the company at a cost disadvantage to its competitors. Any money spent on development is lost without IP protection because the competition is free to replicate the product without the investment in R&D.

Taking steps early on to protect IP gives the company control. Don’t go to market without it.

Insights Intellectual Property is brought to you by Emerson Thomson Bennett