Intellectual Property Rights As Important Business Assets

By Andres F. Quintana, Esq. and John M. Houkom, Esq. Quintana Law Group, APC www.qlglaw.com

One of the most overlooked intangible assets for small and midsized businesses is the intellectual property (IP) generated in those businesses. In today's highly competitive global economy, a business' success depends more and more on the protection and growth of its IP assets. In fact, IP-based businesses and entrepreneurs drive more economic growth in the United States than any other single sector. Regardless of their market share, industry or location, virtually all businesses possess some form of protectible and valuable IP. This IP can take shape in a multitude of forms - e.g., inventions, name brands, customer lists, business plans, slogans, visual and literary works, identifying symbols, and creative expressions, just to name a few. Because IP assets are so valued, the federal and state laws grant businesses four separate and distinct types of IP protection - namely, patents, trademarks, copyrights, and trade secrets. These laws are intended to protect businesses from the unauthorized copying and use of these assets. Businesses, thus, should proactively consider an IP-protection strategy to ensure that these assets are not compromised. Similarly, businesses should be careful not to infringe on the IP rights held by others.

What is a Trademark?

The most obvious form of IP is the trademark or service mark. As a company grows and flourishes, it usually does so because its goods or services are recognizable and distinctive. With that in mind, it is the best practice to register for a trademark or service mark even before distributing goods in commerce. However, that is not always what happens, and, in fact, the use of a mark in commerce by itself is sufficient to create a protectible mark. However, distributing goods or services without registering a mark with either the federal or state government (depending on the scope of the business) carries an inherent risk - someone else may have already registered or used the mark, and the new use might actually infringe on that prior use.

With that risk in mind it is the most prudent practice to conduct a search to determine if that mark is already owned by another entity before using the mark in commerce. At a minimum, that search should be conducted before applying for a trademark. Trademarks and service marks can be registered with either the federal government, through the Patent and Trademark Office. That search should be conducted by counsel, as there are some legal issues as to when a registered mark precludes that or a similar mark's use in a different, distinct area of commerce.

What is a Copyright?

Another, related source of protection for IP is the copyright. Copyright is the exclusive right of the creator, or subsequent copyright holder, to reproduce a creative work. This includes such diverse works as writings, music and even architectural plans. Although copyright protection attaches as soon as the creator puts pen to paper and creates a tangible expression of an idea, the owner must register their copyright in order to pursue a lawsuit for infringement. Moreover, if someone infringes your federally registered copyright, the statute provides for substantial damages as well as attorneys' fees. For these and other reasons, some businesses should consider registering many of the creative works they produce. In addition, because of the minimal cost of registering a copyright, it is a good practice for a business to consider registering its distinctive mark or logo for a copyright as a graphic work.

What is a Patent?

Another type of IP protection is the patent. In the United States, a patent is a right granted by the government, upon application, and in exchange for a complete disclosure of an invention. A patent grants to the applicant the right to exclude others from making, using or selling the claimed invention for a limited period of time. Inventions, physical designs and the adaptation of earlier designs are all protectible as patents. Unfortunately, the registration of patents is not as simple, quick or inexpensive as the copyrights or trademarks discussed above. On the other hand, once a patent has been registered, it protects the design itself, regardless of the packaging or marks associated with it. Registering a patent involves a long process of examining prior art, and fully and accurately describing the patent in a way acceptable to the Patent and Trademark Office, and to complete this procedure, you must use an attorney admitted to practice patent law. Even if the company decides not to register a patent for a new invention (because, among other things, that registration publishes the details of the invention), a patent and prior art search should be done by a qualified attorney to ensure that the new design does not infringe on anyone else's prior rights.

What are Trade Secrets?

The fourth type of IP protection is are trade secrets. A trade secret can be any information that derives independent economic value from not being generally known or readily ascertainable. Among the things that can be trade secrets are a formula, pattern, compilation, program, device, method, technique, or process. Moreover, so long as a business takes reasonable measures to protect its information, and if the information is valuable because it is kept secret, courts will recognize that information can be afforded protection as a trade secret. For example, courts have found "trade secrets" to be machining processes, business plans, bid specifications, stock-picking formulae, customer lists, pricing information, and non-public financial data.

In some ways, trade secrets can be the other side of the patent coin - some businesses chose to staunchly protect their trade secrets so as to avoid their disclosure to any unauthorized personnel, rather than publish their formulas, programs or the like. An attorney can help you determine whether it is your businesses' best interest to rely on the riskier but less expensive trade secret protection, which has no time limit so long as the secrets are reasonably preserved, or the more expensive, but safer, patent method, which discloses the information allows others to use it after the patent has expired.

Does Your Business Insurance Cover IP Litigation?

This is an important question for every small and midsize business. One of the most common types of business insurance policy is the commercial general liability (CGL) policy. The typical CGL policy provides coverage for "bodily injury," "property damage" and "personal and advertising injury" to a third party that occurs during the policy period. Generally speaking, courts have found that coverage applies only for those offenses specifically enumerated in the definition of "advertising injury" and committed directly in connection with the insured's advertising activities. Furthermore, courts have also generally concluded that the required advertising activity must be directed at a broad audience. In addition to the CGL, there are several other types of insurance policies that may provide some degree of intellectual property coverage. However, there is little specific case law relating to these other types of policies. To minimize business risk, small and midsize businesses should review their insurance policy and understand the scope of their coverage, as the costs in defending even a baseless IP-related lawsuit can put extreme stress on a business.

Why IP Rights Matter

The IP legal landscape can be diverse, complex and sometimes treacherous. While every successful business is vulnerable to unauthorized copying and use of their IP assets, small and midsize businesses can be at a particular disadvantage because they lack the resources and expertise available to larger corporations. Small and midsize businesses may also often lack the familiarity with the process of protecting their IP assets. This same unfamiliarity may make small and midsize business more vulnerable to potential IP-infringement accusations and litigation. However, protecting a business' IP assets can be a short, straightforward process or a long, complicated one, depending on the type of IP protection sought and the unique and diverse IP needs of a business. Since timing is indeed everything in IP, a business should be proactive in formulating their IP strategy. Thus, a business should consult with an attorney highly familiar in IP matters who should ensure that the multitude of different IP issues have been considered, including some of the issues not covered in the brief survey above. Similarly, to minimize the risk of infringing or misusing someone else's IP rights, businesses should regularly consult with their attorney when, for instance, they hire certain employees, launch promotional campaigns or develop new products.

ABOUT THE AUTHORS

John M. Houkom and Andres F. Quintana are attorneys at the Quintana Law Group, APC. They may be reached at andres@qlglaw.com and john@qlglaw.com, respectively. For more information about QLG, please visit www.qlglaw.com.

About the Author

Andres F. Quintana, Esq. is a principal at the Quintana Law Group and was selected by Los Angeles Magazine as a "2006 Rising Star", recognizing him as one of the top up-and-coming lawyers in Southern California.

As an experienced trial lawyer, Mr. Quintana practices in all areas of general civil, commercial and intellectual property litigation and arbitration, including appeals.