THIS ARTICLE APPEARED IN THE NASHVILLE BUSINESS JOURNAL AND THE MEMPHIS BUSINESS JOURNAL.
Intellectual property – we’ve all heard of it, but how exactly is it defined? And how does it apply to a business? Read on for a primer on all things intellectual property, including why it’s important for small businesses or companies on a budget, and how to strategically build an intellectual property portfolio.
What is intellectual property?
Intellectual property refers to intangible creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce. Generally, all companies own some form of intellectual property.
Why is it important?
Intellectual property rights and registrations allow companies to protect their core business and research and development activities, while creating a stronger negotiating posture for cross-licensing and counterclaims. Intellectual property rights and registrations also allow a company to block competitive products, dissuade potential entrants and clear a technological path for future market share.
Protecting your company is just one of the benefits of registering intellectual property – it also allows you to build value. Intellectual property is counted as an asset when determining the value of a company and can even be used as collateral for a loan.
What types of intellectual property should a company consider protecting?
There are four general categories of intellectual property:
- Trademarks: Trademarks identify the origin or source of goods and/or services. Company and product names, logos and taglines are trademarks of the company that can be protected via registration with the United States Patent and Trademark Office (USPTO).
- Patents: Patents grant exclusive rights to exploit inventions for a period of time. Novel processes and/or compositions created by a company may rise to the level of patentable inventions that can be registered with the USPTO or may constitute trade secrets of the company.
- Copyrights: Copyrights protect original creative expressions or works of authorship. Text, artwork, designs or combinations of these items created by a company are copyrights which can be registered with the United States Copyright Office.
- Trade secrets: Trade secrets are commercial information strictly guarded in secrecy having economic value to a business.
What happens if you don’t protect your intellectual property?
If you don’t protect your intellectual property by conducting the necessary searches or applying for applicable registrations, your company is at much greater risk of infringement, meaning a third party could prevent you from using your intellectual property, such as your name or logo. Alternatively, you may not be deemed the owner of the rights in your website or other work product created for your company by independent contractors, even if the work is paid for by the company.
If the opportunity arises to sell your company or seek investment, not owning or having valid and enforceable protection of company intellectual property can negatively affect, and potentially even crater, a transaction.
What steps should a company take to protect its intellectual property?
Regarding trademarks, companies should conduct searches to determine if the proposed trademark is available for use and protection. Searches of Google and the USPTO database can initially be conducted to determine if confusingly similar common law trademarks and/or federal trademark registrations exist, followed by comprehensive searches conducted by a third-party vendor.
If the search results present low risk, federal trademark applications should be filed to protect the trademarks. If the search results present high risk, new names, logos or taglines should be considered, so those can be used and protected by the company.
The process for patents is similar. New, useful processes, compositions and/or designs may be patentable. Searches should be conducted to determine whether prior art exists, which would prevent the company from using or protecting the invention.
If the searches present low risk, patent applications can be filed to protect the invention. The patent prosecution process is costly both in time and money, so we recommend assessing the commercial value of the invention and consulting a patent attorney with experience in the invention’s technology space before proceeding with filing an application.
Your work is under copyright protection the moment it is created and fixed in a tangible form, but copyright registration provides the greatest protection and is required to bring a lawsuit to enforce the copyright. Companies should consider filing copyright applications for original works of authorship, such as source code, artworks and designs.
Finally, if commercial information isn’t patentable but has economic value, a company should consider keeping it as a trade secret. Trade secrets are cheap and, in principle, do not expire but can be easily lost, thus information must be strictly guarded in secrecy to be considered a trade secret.
What agreements should a company have in place to protect its intellectual property?
Companies should use non-disclosure agreements or confidentiality provisions in their agreements with third parties to ensure that any intellectual property shared with the third party remains company intellectual property and cannot be copied or exploited by the third party.
The intellectual property rights in any work(s) created for the company by an independent contractor belong to the independent contractor unless expressly assigned to the company in a written agreement. Thus, companies should enter into an agreement with independent contractors before the work begins. The agreement should contain present assignment language to ensure the intellectual property rights in the work is properly assigned to the company.
While most work created by employees of a company belongs to the company as “work made for hire,” companies can further protect themselves by including intellectual property provisions in their employment agreements which assign all work to the company, whether considered a work made for hire or not.
What advice would you give a small company just starting its business?
Invest in intellectual property on the front end. We regularly see small companies that have failed to protect their intellectual property and are unable to speak to potential acquirers about the strength or validity of intellectual property. Without protection and enforcement of intellectual property, acquirers are generally unwilling to accept the risks associated with obtaining another company’s intellectual property.