Actual reduction to practice: “Requires that the claimed invention work for its intended purpose.”10The 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. …
Constitution of the United States of America, Article 1, Section 8
Next came the Patent laws. These began in England in 1624; and, in this country, with the adoption of our constitution. Before then, any man might instantly use what another had invented; so that the inventor had no special advantage from his own invention. The patent system changed this; secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius, in the discovery and production of new and useful things.
—Abraham Lincoln,“Second Lecture on Discoveries and Inventions”1
Ideas and their expression are valuable assets, but only if you protect your ownership of them. In this chapter we examine how ideas and their expression can be turned into property with tangible value. We will summarize the different kinds of intellectual property and review the process of conceptualizing your property and protecting it. The future value of your ideas and your company probably will depend on how wisely and effectively you do this. Thus, you should know the basics and understand how to work with professionals to get the best possible results.
The World Intellectual Property Organization (WIPO), a specialized agency of the United Nations, defines intellectual property as follows:
Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.
IP is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs.2
One way to protect an invention or idea that you think has value so that others can’t copy it and compete with you is to keep it secret. This can work in theory, but often someone can reverse engineer your innovation and copy it anyway. Similarly, without copyright protection, anyone can copy something you’ve written and try to sell it. Many ideas by their nature must be shared to have value, but sharing raises the problem of securing the value to the creator. Thus, to foster an environment of innovation to benefit society, well before the U.S. Constitution was written, the courts of Old World kings granted monopoly grants on patents and other intellectual property to inventors as an incentive to create and commercialize new inventions. For you the macroeconomic theory of intellectual property rights may be less interesting than the ways in which their protection can be valuable to you, and they can be very valuable indeed.
In an information-intensive economy in which knowledge and innovation increasingly drive value creation, intangible forms of value such as intellectual property are ever-greater contributors to enterprise value:
In 1982, physical assets such as plants, factories, and equipment constituted 62% of manufacturing companies’ market value. Today they represent less than 30% of their market value. … Revenues from the licensing of patent rights have skyrocketed in the last ten years, increasing from $15 billion in 1990 to more than $110 billion today.3
For example, IBM’s aggressive intellectual property effort increased its annual patent-licensing royalties from $30 million in 1990 to nearly $1 billion in 2000. To match that net revenue stream, IBM would have to sell roughly $20 billion worth of additional products each year, an amount equal to one-fourth its worldwide sales.4
Innovators have three forms of legal protection—patents, copyrights, and trademarks—available to them. A patent applies to a specific product, method, or design. A copyright protects the expression of an idea in a fixed medium, such as a written work, a drawing, or a musical score. A trademark protects a name, phrase, or symbol that you might use to identify yourself, your company, or one or more of your products. All these legal protections provide you with a right to control and monetize your ideas and to keep others from taking your ideas and competing with you. Accordingly, they can be a foundation of value creation, but only if you take steps to document and secure your rights.
Competition is a great killer of profits. Aggressive protection of your intellectual property rights is one of the best barriers to competition. Intellectual property (IP) not only is important to your own operating profits, it is a key focus for investors and eventually for anyone considering the purchase of your technology or your company. It can even create for you an option to license5 your patents or copyrights to others for development, manufacturing, and sales.
Intellectual property management also involves taking steps to ensure that you avoid violating others’ IP rights intentionally or otherwise. Infringement damages can be punishing. For example, when the courts found that Eastman Kodak had infringed on Polaroid’s patents for instant cameras in 1990, they ordered Kodak to pay $925 million in damages and shut down its $1.5 billion manufacturing plant, leading to the laying off of 700 workers. Kodak also had to buy back the 16 million instant cameras it had sold, at a cost of $500 million.6 In 2006, BlackBerry maker Research in Motion (RIM) paid $612.5 million to NTP, Inc., a Virginia-based patent holding company whose main asset is a portfolio of 50 U.S. patents, to settle NTP’s claims that RIM was using its patents in its BlackBerry products without a license or payments to NTP.
The field of IP law and litigation is massive, complex, specialized, and subspecialized. It’s not a field for amateurs, and unless you are an experienced patent lawyer, you are almost certainly an amateur. This is one place where you will have to turn to specialists for almost all creation and prosecution of your IP assets. Still, you hold ultimate responsibility for managing your company’s IP matters: assets and liability avoidance alike. That’s why we think you should have a basic understanding of when to think about IP strategy and how to manage your professional help. For one thing, you must start the thought processes and devise the strategies, because only you know what ideas are in your head and where you are trying to go with them.
Further, you have to make the decision to call in the experts when you think you need them, and to know when you need them, you have to know how they can be valuable to you. Thus, in the end you must be responsible for your strategy and your decisions. You must decide direction: what you need to get done and how to do it. You should never let outside experts do this part for you. Although their guidance and execution will be instrumental all along the way, as you work with them effectively and make good decisions, you will need your own grounding in the basics of IP: the different forms, their value, and how to secure that value. This chapter discusses some of those key factors and gives you some direction on where to go for more resources.
Patents confer on their holders the exclusive, government-granted right to prevent anyone else in the country from making, using, selling, or offering to sell the patented product or process in that country. Each country has its own patent laws and its own processes for filing and securing patents. Patents do not grant a blanket right to make, use, or sell a product and its component parts; you are always subject to any prior patents. A patent is also an exclusive right, not an entitlement; that means that you, not the government, must enforce your ownership and exclusivity. If you discover that others are infringing on your patents, you must file a complaint and engage the courts yourself to prosecute the violation, and that can get expensive quickly. In other words, a patent is nothing more than a license to sue infringers.
Although patents and portfolios of patents can be important barriers to competition, they are seldom sufficient to keep determined competitors from finding ways to design around your patents. Aggressive competitors can even build their own portfolios of patents around the edges of your patents as a way to impair your ability to sell in the marketplace. In short, a patent is a tool, not a cure-all for competition and imitation. It’s wise to combine a good IP strategy with aggressive execution and continued innovation to get ahead of competitors and stay ahead.
With some exceptions, the exclusive rights granted by patents issued after June 8, 1995, last for 20 years from the application filing, 14 years from patent issuance for design filings. By law, inventors own the patents on their inventions, but they can assign their patents to others. Only the inventor or inventors or their assignees can apply for a patent. In most countries, the first party to file a patent is deemed to be the inventor, but as of this writing, the United States still recognizes the first to invent as the inventor, not the first to file, although this may be changed in pending legislation. Thus, the courts often must decide who really was first with a claimed invention. A famous aside: For years, Elisha Gray contested the original Alexander Graham Bell telephone patent—one of the most prominent and valuable patents of all time—and there is substantial evidence to suggest Gray indeed invented first.7 Accordingly, it’s critical to maintain incontrovertible documentation of invention at all times. A bound inventor’s notebook with detailed notes, diagrams, and material pages signed and dated by credible witnesses is the gold standard. If you are in any doubt about what constitutes adequate documentation, consult your IP attorney. You should also take a look at good print sources such as Fred Grissom and David Pressman’s The Inventor’s Notebook.8
To be able to patent an idea, you not only need to have a concept, you must reduce it to practice. In interpreting patent law, the courts consider a concept the “formation in the mind of the inventor, of a definite and permanent idea of the complete and operative invention, as it is hereafter to be applied in practice.”9 Reduction to practice is the embodiment of the concept of an invention. The embodiment of an invention can be any of the following:
Actual reduction to practice: “Requires that the claimed invention work for its intended purpose.”10
Constructive reduction to practice: “Occurs upon the filing of a patent application on the claimed invention.”11
“Simultaneous conception and reduction to practice”: “In some instances, such as the discovery of genes or chemicals, an inventor is unable to establish a conception until he has reduced the invention to practice through a successful experiment.”12
Patents can be granted on processes, methods, and materials that are “novel, useful, and non-obvious.” These are technical terms that describe three tests an idea must pass in order to be patentable:
Novelty. Your claimed invention must not exist anywhere else in the world in a patent; it cannot appear in public knowledge, be described in presentations or in a printed publication, or have been in public use or for sale more than one year before the first patent application date.
Usefulness. Your invention must have current, significant, and beneficial use as a process, machine, manufacture, or composition of matter, or as an improvement to one of these. You can find the technical definitions of these terms at the U.S. Patent and Trademark Office (USPTO) Web site (www.uspto.gov).
Nonobviousness. Your invention must not be obvious to a person having ordinary skill in the pertinent art as it existed when the invention was made.
Failure to meet any of these three tests is grounds for denial of an application. In addition, you must be able to provide a written enabling description of the invention in the application. This means that you must be able to reduce your invention to writing—no performances or demonstrations—and describe it so that anyone reasonably practiced in the art is capable of building or doing what you are describing.13
If the idea meets the three patentability tests, it must fit into one of the categories of inventions defined by the patent code as eligible for patenting:
A machine or device
An article of manufacture
A process or method for producing a useful, concrete, and tangible result
An improvement of an invention that fits into one of these categories
The industrial design or ornamental appearance of an object
An invention or discovery involving asexual reproduction of distinct and new varieties of plants
The law sets limits on inventors’ ability to file patent applications:
A person shall be entitled to a patent unless—
(a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or
(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States….14
Any of the stated conditions that prohibit a patent filing or cause it to be denied is known as a statutory bar.
Naturally occurring phenomena such as photosynthesis, abstract ideas such as algorithms not applied to a useful purpose, and laws of nature such as E = mc2 and F = ma are not patentable. Although software code can be copyright protected, it is not directly patentable. However, on the basis of the case State Street Bank & Trust v. Signature Financial Group (1998), the underlying business method or algorithms embodied in software can be patented so long as you can describe the idea in writing and depict it in a process depiction such as a flowchart. Patents have been granted and upheld for mutual fund administration and application programs, process or machine controls, internal or operations programs that direct the handling of data in a computer’s operations, and, most famously, Amazon’s “One-Click.”15 Subsequently, In re Bilski (U.S. Court of Appeals for the Federal Circuit, 2008) created additional confusion over the tests to be applied to determine whether an abstract idea is eligible for patent protection, requiring that a method patent claim must be either tied to a device or transform matter in order to be patentable. On appeal in Bilski v. Kappos (decided June 28, 2010), the U.S. Supreme Court ruled that this was one test but not the only one, leaving unresolved the question of how easily one can patent the ideas and algorithms behind many software and Internet products.
The most common failing of a patent under a statutory bar is that prior art is found to have existed at the time of invention. Prior art can be any information in the entire body of human knowledge, including publications, presentations, an earlier patent, prior use, or sale of the invention. If your invention has already been described or if it would be deemed obvious on the basis of prior art, you won’t be able to obtain a patent. It’s often a good use of attorney dollars to have your IP attorney run a thorough prior art search early in the process. No matter how good you are at searching, your attorneys generally will turn up at least a handful of prior patents and other literature that challenge your claim of originality. You and your attorney then will think about how to draft claims that are novel in light of prior art. Many inventors who declare that they have searched everywhere and found “nothing like” their own invention express dismay when handed a patent or publication almost identical to their own drafts. One of our Dartmouth inventors swore that such a late-discovered patent plagiarized his own description—it was almost word for word in several places—but for the fact the patent was issued a year before he started working on his project.
Perhaps more pertinent, prior public disclosure by the inventor or inventors (i.e., you) is also prior art. Public disclosure means any disclosure of information—a publication, an oral presentation such as a poster session at a conference or in the classroom, or even a conversation—that happens before the patent application that may be considered an enabling description and therefore a public disclosure. In some cases public disclosure of an invention can even be its use, market testing, exhibition, or sale or an offer for sale containing the contents of a claim or the invention products. In some circumstances, you can get a public use exception for experimental purposes or beta testing, but not if you have received any payment. Consult with your experts early before you test the limits on public disclosure. As you will see in the next paragraph, it’s far better to think about this before making the disclosure.
In the United States a statutory bar applies to all public disclosures made more than one year before the date of a first domestic or international patent application filing. Thus, you have a one-year grace period between the date of a public disclosure and your first filing. If you don’t file in that year, you lose the ability to patent. In contrast, the patent law in almost all other countries with important markets sets a statutory bar on public disclosure with no grace period. Patent rights in many foreign countries with sizable markets are often important to investors and eventual acquirers, and so you need to pay careful attention to the public disclosure issue. It’s far too common for inexperienced or careless inventors to make public disclosures in reliance on the American one-year grace period and later regret having extinguished their chances to seek patents in important markets such as Europe and Japan.
Of course you need to be able to talk to people, especially potential investors, about your invention. If you want to talk about your invention before making any patent filings, a simple way to avoid the issue is to make enabling disclosures to others only after they have signed a nondisclosure agreement16 binding them to protect the confidentiality of what you tell them. To be effective, nondisclosure agreements must be legal agreements with defined statutory elements. They must do the following:
Include a promise by the receiver of information to
Avoid unauthorized use or disclosure—use only as intended.
Limit use and disclosure to parties identified in the agreement or obtain written permission to disclose.
Exercise appropriate care in preventing the same [unauthorized use of disclosure] by others.
Describe what information is protected. It’s a good practice to create a schedule or exhibit listing the shared information.
Mark all documents “confidential” and number and label them.
Include a statement preserving your ownership of intellectual property rights, current and future.
Include a reasonable term and expiration.
Avoid ambiguity (e.g., verbal representations).
Some first-time entrepreneurs are so paranoid about discussing their inventions or ideas that they won’t say anything to anyone who doesn’t sign a nondisclosure agreement. Nothing labels you as inexperienced so quickly. Investors seldom, if ever, sign nondisclosure agreements to hear about an opportunity, especially for the first time. Most people will react the same way. Indeed, any investor will tell you that you must learn how to talk about your ideas without impairing your IP rights or putting yourself at risk of theft. Striking this balance is something everyone must sort out for himself or herself. To be sure you are protected on disclosure with respect to the statutory bar, at some point you might consider filing a provisional patent application with the USPTO. It’s less complete but less expensive than a nonprovisional application. We discuss provisional patents and other deferral strategies later in this chapter.
A patent filing has three basic parts: drawings showing an embodiment, a written description, and claims. Patents generally take this form:
Title
Cross-reference to related applications
Background
Summary of the invention
Brief description of the drawings
Detailed description
Claims
Abstract
Drawings
You can find the U.S. filing process at http://www.uspto.gov/patents/process/index.jsp. Note that seeking patent protection requires full public disclosure of the work in detail and therefore precludes maintaining any trade secret protection in the same work. You will have to pay filing fees, which differ depending on the size of your company. Also, if someone other than the inventors plans to own the patent, you will have to go through assignment procedures and filings.
Filing and prosecuting a patent is complicated, lengthy, and time-consuming. Drafting descriptions and claims is a highly specialized process. Sometimes, to save money, inventors will draft most of the claims with some guidance from their attorneys and a final review by the attorneys at the end. This can work, but you should never file all by yourself. Remember, a patent’s value lies not in the grant by the USPTO but in its ability to stand up in court. When you sue for infringement, invariably the defense will challenge the validity of your patent, and so you want everything in your patent to be able to withstand whatever challenges creative lawyers mount against it.
A patent filing must name at least one inventor, and it’s critically important that you name all the inventors. Courts can invalidate a patent for failure to name a coinventor or for naming as an inventor someone who did not contribute to the invention. In addition to your carefully documented inventor’s notebook, you should create a written recital of the relevant facts of invention: who, what, when, diagrams, data, and so on. This not only establishes the date and priority of invention but supports claims of ownership of an invention.
In industry, employees usually agree at hiring to assign work-related inventions to the employer, sometimes all of the inventions they create while employed with the company whether work-related or not, and so in those cases ownership claims are usually clear. In university settings, ownership policies can be more nuanced. Here the circumstances of invention can become crucial in determining whether the university will make a claim to an assignment. For individuals working together there is no substitute for written ownership agreements.
Absent other agreements with different provisions, by law each inventor individually and jointly owns all the rights conferred by the patent. Patents confer two basic rights: a right to practice—to make, use, or sell the invention—and a right to exclude others from doing that. When there are two or more inventors, each individually holds the right to practice and the other inventor or inventors have no authority to prohibit this practice. This means that the inventors could all go their own way and each make and sell the product in competition with each other or license to different companies to do the same thing. The inventors also have the right to exclude others beyond the inventing group from practicing. The right to exclude is the more valuable of the patent rights. Generally, companies want that limited monopoly, not just the right to make and sell. However, when there are two or more inventors, only by acting together can they confer a single right to exclude and anticipate the extra value that brings.
Therefore, the earlier in the process that inventors enter into some kind of cooperation agreement, the better. Often the easiest way to accomplish this is to incorporate and have the inventors create a company by incorporating and assign their patent rights in exchange for shares. Starting a company creates a clear legal structure for sharing the value, making decisions, and monetizing patents, but it needs to be done carefully and with consideration of the tax effects. In the alternative, a simple cooperation and joint IP management agreement can suffice. Universities or corporations that co-own patents routinely enter into these agreements with each other, designating one party to manage the patent, license it on behalf of everyone else, and handle the administration of the license revenues and operations afterward. As with any agreement that involves money, the parties should discuss their interests up front and make sure to create a structure appropriate to the needs and resources of the parties. You will often need professional help for the final drafting. When possible, establish agreements early, when the risks are high and the apparent value is still speculative. People somehow tend to be more reasonable and agreeable when a lot of money is not already at stake.
The USPTO offers the option of filing a provisional patent as a quick, low-cost way for inventors to secure patent-pending status and public disclosure protections without starting the full time-consuming and expensive process of filing a nonprovisional patent. This streamlined and inexpensive option allows you to label your invention patent-pending, talk about it, and test it in the marketplace before deciding if you want to invest in a nonprovisional patent.17 A provisional application contains the following:
Enabling/complying written description
Complying drawings, if necessary
Not required
Approximately $110 for small entities
States that application is provisional
All inventors’ names
Inventors’ residences
Title of the invention
Name and registration of attorney or agent and docket number
Correspondence addresses
Any U.S. government agency that has a property interest
You can convert a nonprovisional application into a provisional one within one year of filing. In some cases the ability to convert to the nonprovisional patent can defer further costs until you can gather more information. This is helpful if you discover a reason not to pursue the present provisional application. Further, the USPTO holds a provisional application on file but does not read it as part of the subsequent nonprovisional filing examination. However, the provisional application can be an important document in court.
Once you file a provisional application, you have 12 months to convert the filing to a nonprovisional patent application with all the normal timelines and deadlines. As long as you convert within 12 months, the priority date—the date of first filing—remains the date you filed the provisional application, thus protecting any public disclosures you made. Keep in mind that you cannot extend a provisional filing. If you fail to file a nonprovisional application before the end of 12 months, you lose your priority date and any protection against public disclosure. If you made a disclosure and let your provisional application lapse, you lose the option to file internationally and the U.S. one-year grace period dates retroactively from the time of your first disclosure made without protection of a separate confidentiality agreement.
There is an additional potential disadvantage to a provisional patent. The contents of the provisional filing must reasonably resemble the final description and claims in the nonprovisional filing. In an infringement case, if the court decides the final description does not resemble the provisional closely enough, it may disallow the provisional filing, leaving you without patent-pending protection between the date of any public disclosures and the filing date of your first nonprovisional filing. If more than a year has lapsed in that instance, the court probably also will disallow your patent on the grounds of public disclosure.
U.S. protections do not apply abroad. Although each country has its own patent laws, there are some treaties that partly aggregate patent filing and prosecution. For example, a single filing at the European Patent Office provides protection throughout the European Union, though this protection is not one universal patent but rather independent national patents enforceable by each national court according to its own national legislation and procedures. Outside of this option, if you want a right to exclude in any specific country, you will have to file directly with that country or group of countries. Under the Paris Convention for the Protection of Industrial Property, 173 member countries recognize a priority date of first filing in any member country and defer their individual national patent application requirements for up to one year.
Filing a first application in one country or under the Patent Cooperation Treaty (PCT) buys you time to make decisions on filings in other countries. Some inventors like to start the process with a PCT filing—the international phase—which you can file with the International Bureau of the World Intellectual Property Organization (WIPO) or with the patent office of any PCT member country. The PCT will publish your application 18 months from the file date. Starting with a PCT filing allows you to work with a unified filing process and delay the more costly and complete national or regional filings, giving you more time to decide how much investment in patenting your invention might be worth. Filing a PCT also triggers a prior art search by the International Searching Authority (ISA), from which an applicant can request a written opinion on the patentability of the invention; this sometimes is important in deciding how much to invest in patenting. A PCT filing is not a patent; only countries can grant patent protection within their borders. You eventually will have to file a national phase—nonprovisional patent applications with all the countries in which you want protection—in accordance with national rules and in the national language. Thirty months after the earliest priority date under a PCT or national filing, the international phase ends and the individual rules and deadlines of the separate countries govern all future proceedings. Translation and filing costs mount quickly with each additional nation. In the end, international patent strategies often depend on balancing how much you can afford with how much you think you need the protection.
Although the technical execution of the patent is primarily your IP specialists’ job, you are always responsible for your IP strategy. The way you make your patent claims is an important and complicated question. Broad claims provide maximum leverage in the marketplace, but they are hard to sustain as the USPTO examines your application or, even worse, if your patent is challenged in court later. Narrow claims are stronger but leave more room for other people to work around the edges. Usually the best strategy is to assemble a portfolio of claims, a combination of broad and narrow.
A second key consideration as you prosecute your application is how to handle confidentiality. Unless your idea can be copied or reverse engineered easily, until you make your idea public, you always have the option to revert to trade secrets rather than filing a patent. Unlike patents, which have a limited life, trade secrets never expire; they can only be reverse engineered or stolen, and in the case of theft, if you take the required precautions, you can have recourse in court; this is discussed below. It is strategically important to decide when your ideas will become public. In most countries and under the PCT, publication occurs 18 months after filing. In the United States, you can keep even your filing confidential until patent issuance if you pledge not to file in other countries that demand publication after 18 months.
Making your patent details public can expose you to damaging scrutiny from competitors. Sometimes well-heeled competitors carefully analyze patent filings for ways to “engineer around” a patent exclusion or to invent around the edges of your patent and file patents of their own. This practice, known as bracketing, may later prevent you from making and selling your invention because you find you need to use technology that they have patented by using your own filing as a guide. Some companies defend against bracketing and engineering around by product clustering, filing not just one patent but a family or portfolio of patents on different aspects of an invention. Inventors often file separate patents for individual components so that if a particular patent or claim has a flaw, they don’t lose all their protection in one infringement proceeding. It is important to pay attention to publication dates and set a strategy that incorporates the pros of protection with the cons of publication. Remember that in patent filing research, you can do to your competitors all the things they can do to you.
Third, the key issue in patent enforcement is infringement. From the moment you first become patent pending, you should think about how you will monitor the industry environment and protect your rights. Preventing others’ infringement as early as possible is not always the best strategy. Sometimes letting a competitor rack up violations and damages gets you more leverage if and when you file a claim. Make sure you talk to your lawyers and other IP professionals early and often. Further, you should think about creating a vigilant internal monitoring system to guard against infringement of others’ patents by your company. Few things can be as distracting and potentially financially damaging as going to court for allegedly infringing on another’s patents.
Finally, sometimes inventors determine that an invention is not worth patenting but still wish to have freedom to operate in using or selling something involving that invention in the future. There is always the worry that someone else will file a patent on the same or a similar invention, and the inventors could find themselves unable to use their own invention. To prevent such a possibility, often inventors deliberately publish their inventions to add them to the prior art, blocking future patenting by others who attempt to incorporate their ideas. Called defensive publishing, this practice essentially involves publishing enabling descriptions or disclosures in such a way that time, date, and content are incontrovertibly documented and publicly available to prior art searches. Scientific or trade journals are one option. With the Internet, useful sites such as the Prior Art Database at IP.com accomplish the same thing.
Under federal law, a copyright grants its holder the exclusive right to prevent others from reproducing and distributing the protected works. The holder alone may reproduce the work, prepare derivative works, distribute copies or recordings of the copyrighted work, and perform or display the copyrighted work publicly. The law provides for recourse and monetary damages for violation of these rights.
A copyright does not protect ideas. Instead, it applies to the reduction of an idea or concept to a tangible medium. To have copyright protection, a piece must be the author’s original work and contain some minimal level of creativity. Words, short phrases, and slogans are not eligible for copyright, although they may be eligible for trademark. Similarly, you cannot copyright ideas, procedures, processes, systems, methods of operation, concepts, principles, or discoveries, although you may be able to patent them. Authors have copyrights over original works of authorship, including the following:
Literary and certain other intellectual works, both published and unpublished
Dramatic and musical works, including pantomimes and choreographic works
Derivative works
Musical recordings
Artistic works
Video and computer games
Software code
Pictorial, graphic, and sculptural works
Motion pictures and other audiovisual works
Sound recordings
Advertisements and commercials
Instruction manuals
Presentations and talks
Data tables, labels, diagrams, and drawings
Databases if originality and creativity are involved
Business plans
Architectural drawing and renderings
Accordingly, copyrights are important to people in media businesses such as print, film, music, entertainment, theater, and the Internet. Writers, artists, composers, performers, photographers, designers, and architects rely on copyright protection for their livelihoods. Under the U.S. Constitution, the author of a work owns the copyright. However, the so-called work-for-hire rule grants employers copyright to works their employees create within the scope of their employment so long as both parties agree in writing that such works will be owned by the employer. Independent contractors also can work under work-for-hire arrangements; however, absent a contract clause so stating, the individual authors own the copyright.
Copyrights remain effective during the life of the creating individual plus 70 years. Work-for-hire copyrights last 95 years from the date of publication or 120 years from the date of creation, whichever comes first. You do not have to register works to own the copyright; copyrights exist upon reduction to a tangible medium. To improve your chances of enforcement and financial recovery for damages, you should mark all materials “Copyright” or © with your name, the year of publication, and “All rights reserved.” If you want to sue for infringement, you must have registered with the Register of Copyrights.18 If you want to rely on statutory damages rather than proving actual damage, pay attention to filing deadlines.
The identity of your company and all the associations that go along with it are an essential component of branding strategy. These can be among your most valuable assets. No one would dispute the value of symbols and logos such as the red and white Coca-Cola logo, McDonald’s golden arches, and the Nike swoosh. The law provides companies with a measure of protection against competitors attempting to confuse identities in the minds of consumers through the use of similar symbols or signals of identity. These are trademarks and service marks.
A trademark is an exclusive right granted to an owner to use a name, logo, or unique design in connection with its goods as an indication of the source of those goods. When certain criteria are met, any identification used to distinguish goods or services from those of competitors can be trademarked:
A word, phrase, or name
A slogan
A design, shape, or symbol
A picture
A device
A product or packaging shape
A sound or musical phrase
A color
A smell
Service marks reserve the same protections to entities that provide services rather than goods. Collective marks are used by cooperatives, associations, or other collective groups (e.g., Rotary International, World Council of Churches). Certification marks are used by persons other than their owners to certify a particular quality (e.g., ISO 9000, Underwriters Laboratories).
A trademark is limited to the class of goods or services with which the owner is associated. Marks must be distinctive in regard to the source of goods or services. Fanciful marks (such as Coca-Cola®) are accepted as distinctive. A descriptive mark may require that you show that consumers recognize it as distinctive.
Trademarks can be registered with the federal government at the U.S. Patent and Trademark Office, but they also exist under common law. In the United States, you use the ™ symbol to assert your common law trademark rights under the Lanham Act. The first individual or company to adopt a common law trademark owns the right and can protect it. Claiming common law ™ protection doesn’t cost you anything in attorney or filing fees, but it limits your exclusive use to the geographic location of the trademark’s commercial use. The first to adopt a common law trademark owns the right and can protect it. Since registration often follows when a product bearing a common law mark proves successful, you’re wise to invest in a trademark search before creating your mark. Careful consideration of distinctiveness is wise at the beginning lest you find your later trademark registration fails on the grounds of infringement or absence of distinctiveness.
You federally register a trademark with the USPTO, which examines the mark for distinctiveness. If the USPTO finds your mark distinctive, you can adopt the ® symbol in place of the ™ symbol. The USPTO gives actual trademark ownership to the first to file in reference to actual use or intent to use. Once registered, the mark’s owner can stop anyone in the United States from future use for the initial registration term of 10 years. A mark does not expire as long as it remains in use and does not become generic. “Escalator, “yo-yo,” “aspirin,” and “cornflakes” once were trademarks but lost their protection when they became widely used and their owners did not take steps to preserve their rights.19 The initial term of federal trademark registration is 10 years, and you can renew indefinitely for 10-year terms as long as the mark remains in use. When a mark is no longer used for a period of over two years, the registration is terminated.
As with other IP, you need to respect trademarks owned by others. Infringement on another’s mark can lead to all sorts of hassles or worse. Many big companies have people assigned to identify potential infringements and act to end them and/or seek compensation.20 Take care to avoid names and logos that are similar to those of others; this includes plays on words or names such as Victor’s Secret (Victoria’s Secret) and South Butt (North Face). These are real examples that led to problems for small companies that thought they were being clever.21
Every business has nonpublic information it uses for business purposes and wants to keep confidential from outside parties, especially competitors. Any such nonpublic information can be a trade secret. Information commonly treated as proprietary and secret includes the following:
Ideas and inventions
Business practices or strategies
Business, marketing, sales, or manufacturing plans
Internal processes, formulations, and communications
Financial information and contractual terms
Lists and contacts
Proprietary software
Formally defined, a trade secret is
(1) any information, including any formula, pattern, compilation, program, device, method, technique, or process, that (2) provides a business with a competitive advantage from not being generally known by a company’s current or potential competitors or readily discoverable by them through legitimate means, and (3) is the subject of reasonable efforts to maintain its secrecy.22
There is no registration, formal process, or time limit for the protection of trade secrets. State trade secret laws provide protection and recourse against improper acquisition and dissemination of secrets provided that you have taken certain customary steps to protect your information. However, these laws protect only against unlawful dissemination, and you must take legal action against the person or persons responsible for wrongly acquiring or disseminating your information.
Under the right conditions, you can look to the courts to protect your interests. You may be able to obtain a court order preventing disclosure or use and even collect monetary damages or, in some cases, punitive damages. Criminal charges are rare. Of course, taking the matter to court is time-consuming and expensive, and it is often difficult to prevail; also, the parties you are pursuing need to have enough assets at risk to make it worth pursuing monetary and punitive damages. Thus, preventing theft of secrets is far preferable to relying on the courts after the fact.
If secret information becomes publicly available by legitimate means, you lose any recourse under the law. The courts do not protect carelessly made disclosures or mistakes. Accordingly, as early as possible, you should create mechanisms and practices restricting access to the information you want to protect. Have nondisclosure/confidentiality language in some kind of document that binds everyone in your company. Most commonly these are employment agreements, independent contractor agreements, board agreements, or confidentiality/nondisclosure agreements.
Further, you should mark all confidential information and restrict access even inside the company. In a court proceeding, the reasonableness of your efforts to protect valuable secrets is an important factor in the success of claims for injunctive relief or damages. Once you have significant value in trade secrets, you should consult with your attorney about developing a trade secret protection program. The program should indicate which information is secret, track employee and other nondisclosure agreements, and define practices for handling the secret information. Defined practices include the following:
Restrict access to those with a need to know.
Label documents “confidential,” “proprietary,” “restricted,” or “secret.”
Create secure procedures to securely store marked materials on-site and track their use. Implement “clean-desk” policies governing confidential materials.
Practice good computing and database security practices: passwords, encryption, and copy/read-only protections. Secure communication lines. Keep personal and business work separate on business computers and networks.
Institute logbooks for visitors and employees using sensitive materials.
Securely destroy unnecessary materials.
Protect access to labs and prototypes.
Take extra precautions when holding internal conversations in public settings or in the presence of visitors.
Former employees are the most common problem with respect to trade secret abuse. To protect against this, many companies require confidentiality provisions and attempt to restrict employees’ ability to work for industry competitors for a period of time after their employment ends with noncompete language in contracts. This area of employment law is complicated. The courts must balance the interests of the company with the fundamental right of an employee to earn a living in the best available setting. Courts will invalidate an agreement they deem unreasonably restrictive. In making such a determination they look to the time limits on the restriction, the geographic scope, and the nature or definition of “employment.” If you need to use noncompete language, consult a lawyer with good background in human resources law because an unreasonable agreement won’t do you any good.
Once established, any form of intellectual property (IP) has the potential to become valuable and make money. Unfortunately, realizing this potential is far from inevitable. IP by itself certainly won’t realize anything meaningful. Whether the idea’s embodiment is now a patent or a copyright, someone has to do something—actually many things—to create, manufacture, and eventually sell the product. That someone might be you, either by choice or because you have no reasonable alternative, or it might be another company because you have transferred access rights to that company via a license or a joint agreement.
Many inventors don’t think about starting companies when they create a new technology. They would rather continue their research in peace, and so they seek a license for their ideas. Licensing, in essence, is renting your intellectual property to someone else so that that person can use it legally while it’s still under patent. A license is a contractual grant that usually confers on the licensee the right to develop, make, use, and sell the subject IP. License provisions usually include the following:
Definitions of the markets or fields of use in which the licensee holds the patent’s right to exclude
Royalty payment, equity grants, or some share of the revenue generated by the product or products containing the IP
Often an advance, a minimum, a royalty, or another cash payment to reimburse for things such as patent costs or cash advances before first sales
Provisions for allocating value among multiple patents in a single product
Sharing of proceeds on sale or sublicensing
Milestone payments to the licensor upon achievement of predetermined objectives such as successful testing, passing regulatory hurdles, and first sales
Commitments to proceed diligently in developing and marketing the IP or relinquish it back to the licensor
Definition of who will prosecute patent filings and pursue infringement claims
Confidentiality and reporting
To maintain more control over future development and the potential financial rewards, some inventors keep their patent rights and build up a company to bring their technology to market themselves. In many cases, though not all, both licensing and building a company are possible. Thus, the first fork in the road that you probably will encounter in thinking about developing an idea is whether you will do it yourself by starting your own enterprise or license it to someone else. There are pros and cons to each approach.
If the IP is developed and marketed successfully, the licensors receive a revenue share.
Licensee does all the work, bears the costs, and takes all the risk.
Licensee generally has the in-house resources and expertise to develop, manufacture, and sell the product.
Licensor’s IP may be only a component of a final product, and so there is no realistic alternative to doing it alone. Licensor is dependent on licensee to integrate the IP into a product, make it, and sell it.
Licensors can focus on what they do best in their job, in their lab, or at home.
Licensor loses control over prosecution and development of the IP.
Revenue share is small. Royalties vary depending on sector and product but generally run 2 to 6 percent. Sometimes licenses grant equity in the licensee, especially when it is a small company or the IP is foundational. Equity can be a much better deal; the licensor benefits from the company’s total future value growth, not just revenue related to its own IP.
Licensing carries the risk of nondevelopment or being “prioritized out.” Not infrequently, companies license a patent to get it off the street so that it doesn’t compete with their own established products. Further, in bigger companies especially, internal competition for investment dollars and priority often means that ideas “not invented here” get shelved.
It’s hard to get a company to give you a good licensing agreement. Most patents expire worthless.
When you start your own company, you begin with total control over development and your team lineup. Control is one of the key drivers to value.
You have 100 percent of the equity to share with a team and recruit investors.
You set the priorities; there is no risk of being sidelined.
You have to secure the team and funding.
You have to learn the business or find the right knowledgeable people and recruit them.
You have no infrastructure and no established market.
You must put an incredible amount of time and effort into the company, often without a guarantee that it will amount to anything.
Both licensing and starting your own company are difficult. There’s no right answer for every invention or piece of IP. The fact is, the more you develop your idea before you take it to market, the more valuable it becomes and the less you face the risk that it will all come to nothing. A licensee is more likely to pick up a working prototype, and with better terms, than just an idea. A product entering the marketplace is far more attractive than a prototype, because you’ve reduced not only the technology risk but the manufacturing and sales risks as well. If you are actually proving significant sales, you’ve almost moved beyond licensing your IP and into the realm of selling a revenue stream and a company. Thus, if you really want to maximize your chance of a financial success from your IP, the early stages of licensing and starting a company begin to look a lot alike: The farther you can take development and remove risks, the more value there is and the higher the chances of success are. It’s all part of the calculus of execution and risk both from your perspective and that of outside investors and potential licensors or acquirers; this is the subject of Chapter 6.
Do you think you have any of the forms of intellectual property in your business? Which ones? (Remember to be creative; it’s not just about patents.)
Have you kept an inventor’s notebook of inventions and good documentation of the circumstances of invention?
Do you think your idea is patentable? If so, test it against the patentability criteria. Do a thorough search of prior art that would preclude meeting the novelty test.
Can you write down a sketch of a plan to protect your property and estimate what it will cost you? (Remember to include time and opportunity cost.)23
1. Lincoln, Abraham, “Lecture on ‘Discoveries, Inventions and Improvements,”’ February 22, 1860, in V Complete Works of Abraham Lincoln, John G. Nicolay and John Hay, editors (New York: Francis D. Tandy Company, 1894): 113; reproduced in Gerhart, Eugene C. Quote It Completely—World Reference Guide to More Than 5,500 Memorable Quotations from Law and Literature. (Buffalo, NY: W.S. Hein, 1998): 802.
2. World Intellectual Property Web site, http://www.wipo.int/about-ip/en/ (accessed September 4, 2010).
3. Rivette, Kevin G., and David Kline, “Discovering New Value in Intellectual Property,” Harvard Business Review 78, issue 1 (January–February 2000): 58–59.
4. Ibid.: 55–56.
5. Licensing can enable you to monetize an invention without having to do all the work of developing, making, and selling it yourself. We address licensing later in this chapter.
6. Rivette and Klein, 2000: 65.
7. Shulman, Seth, The Telephone Gambit: Chasing Alexander Graham Bell’s Secret (New York: Norton 2008).
8. Grissom, Fred, and David Pressman, The Inventor’s Notebook (Berkeley, CA: Nolo, 2008).
9. Hybritech Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1376 (Fed. Cir. 1986) [quoting 1 Robinson On Patents 532 (1890)].
10. Brunswick Corp. v. U.S., 34 Fed. Cl. 532, 584 (1995).
11. Ibid.
12. F. Supp. 740, 742 (S.D. Cal., 1994) [citing Amgen, Inc. v. Chugai Pharmaceutical Co., Ltd., 927 F.2d 1200, 1206 (Fed. Cir. 1991)].
13. The U.S. Patent Act, 35 U.S.C. §112, reads: “The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor of carrying out his invention.”
14. 35 U.S.C. §102, “Conditions for patentability; novelty and loss of right to patent,” (a) and (b).
15. In 1999, Amazon successfully sued Barnes & Noble, claiming infringement on its One-Click purchasing application.
16. Nondisclosure agreements are discussed in more detail in Chapter 13.
17. For more information, see www.uspto.gov/web/offices/pac/provapp.htm.
18. You can find the Register of Copyrights at http://www.copyright.gov/.
19. Bagley, Constance E., and Craig E. Dauchy, The Entrepreneur’s Guide to Business Law (Mason, OH: Thomson/South-Western/West, 2003): 531.
20. Maltby, Emily, “Name Choices Spark Lawsuits,” Wall Street Journal, June 24, 2010: B13.
21. Ibid.
22. Bagley and Dauchy, 2003: 489.
23. Opportunity cost is the cost of other things you could be doing with that time and money. The question is whether they are better spent on the other things or on the IP.