Intellectual Property How to Protect and Maximize Your Company s Intellectual Property HELPING COMPANIES MANAGE RISK
At Travelers, We Help Companies Manage Their Risk The Different Types of Intellectual Property Everyone in business has heard of intellectual property. But many companies do not know exactly what intellectual property (IP) they own, or perhaps do not own, while others are uncertain how to protect and maximize these valuable assets. In this Risk Advisor brief, we discuss: the different types of IP; how IP ownership rights accrue; affixing the proper IP designation; the benefits of registering your IP and how to do so; how false patent marking suits are catching companies by surprise; how using written agreements can protect your IP; and finding infringers of your IP. I am excited to have Christopher D. Newkirk author this article. Chris is a Major Case Specialist in Travelers Business Torts Technology Claim Unit and a former partner and IP litigator in a Minneapolis law firm. Intellectual property is generally a creation of the human mind, such as an invention, literary work, or musical composition. The different areas of IP law are: trademark (including service mark, trade dress, and trade name); copyright; patent; and trade secret. Trademark According to the federal trademark law, commonly known as the Lanham Act, a trademark includes any word, name, symbol, or device, or any combination thereof, used by a person or which a person intends to use in commerce and applies to register on the principal register, to identify and distinguish his or her goods from those manufactured or sold by others and to indicate the source of the goods. Here is an example of a trademark: Mike Thoma, Chief Underwriting Officer of Global Technology at Travelers A service mark is very similar to a trademark but, as the name suggests, identifies services rather than goods. A service mark, therefore, means any word, name, symbol, or device, or any combination thereof, used by a person or which a person intends to use in commerce and applies to register on the principal register to identify and distinguish the services of one person from the services of others and to indicate the source of the services. travelers.com/technology Intellectual Property 1
Here is an example of a service mark: Trade dress is the total image of a product (packaging or design) or business including its size, shape, color, color combinations, texture, graphics, or sales techniques. A product s or business trade dress is the overall impression created, not its individual features. Examples of protectable trade dress include the packaging of Kodak film or the décor of a Dunkin Donuts restaurant. A trade name is any name used by a person to identify his or her business or vocation. Unlike a trademark or service mark, a trade name focuses on a business and the business good will rather than a good or service. A trade name can function as a trademark, however, when used in association with the company s goods or services. Here is an example of a trade name: Travelers Copyright The federal Copyright Act protects original works of authorship fixed in any tangible medium of expression in any of these eight categories: 1. literary works; 2. musical works (including accompanying words); 3. dramatic works (including accompanying music); 4. pantomimes and choreographic works; 5. pictorial, graphic, and sculptural works; 6. motion pictures and other audiovisual works; 7. sound recordings; and 8. architectural works (such works include material on a website, a drawing of a building s design, and a computer program). Patent According to the federal patent statute, any discovery or invention of any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, can be patented. There are limits, of course, and not every discovery or invention is patentable. For example, abstract ideas, laws of nature (such as the law of gravity), and obvious inventions can not be patented. Trade Secret The definition of a trade secret varies slightly from state to state but it is typically defined as information, including formulas, patterns, compilations, programs, devices, methods, techniques, and processes, that: (i) derives independent economic value (actual or potential) from not being generally known and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. travelers.com/technology Intellectual Property 2
How Intellectual Property Rights Accrue The right to a trademark, service mark, trade name, or trade dress is acquired by its appropriation and commercial use. A trademark is used in commerce when it is placed on the goods, their containers or displays, their affixed tags or labels, or on documents associated with the goods as the goods are sold or transported in commerce. Service marks apply to services, which means there are no goods on which to place a mark. A service mark is used in commerce when it is used or displayed in the sale or advertising of services and the services are rendered in interstate commerce (or in the United States and a foreign country.) Copyright law is different than trademark law in this regard. Copyright ownerships vests in the author(s) of the work. The author is generally the party who creates the work and translates an idea into a fixed, tangible expression. A copyright arises and is automatically obtained when the author creates the work. Patent rights are obtained by applying in writing to the United States Patent and Trademark Office (USPTO). These applications are typically complex and lengthy. Five Critical Actions As pointed out, information cannot be a trade secret unless a business or person has taken reasonable efforts under the circumstances to maintain the secrecy of the information. In determining whether a business has adequately attempted to protect its trade secrets, courts examine a number of factors including whether the company: restricted employee/vendor access to the item/information; instructed its employees that the item/information is confidential; required those employees involved with the item/ information to sign non-disclosure agreements; kept the item/information in a physically secured location (i.e., locked file cabinet, key-card-access room, or password-protected computer); and reminded departing employees to adhere to their non-disclosure agreements and to keep the information confidential. A business cannot profit from intellectual property without clearly understanding what a patent, trademark, copyright, and trade secret is and how each differs from the others. Included in this understanding is knowing how IP ownership rights are obtained and establishing best practices to protect those rights. travelers.com/technology Intellectual Property 3
Affixing The Proper Intellectual Property Designation IP owners can help preserve their trademarks, service marks, copyrights, and patents by using the correct designation every time they display their IP. Trademark The trademark notices that owners should use are: for federally registered trademarks or service marks; for trademarks not registered with the USPTO; and SM for service marks not registered with the USPTO. Copyright Owners of copyrighted works can also affix a notice on their works during publishing. The federal copyright law states that a notice of copyright may be placed on publicly distributed copies of works that are visually perceptible. The notice must contain these three elements: the symbol, or the word Copyright, or the abbreviation Copr. ; the year of first publication of the work (unless it is a pictorial, graphic, or sculptural work, with accompanying text matter, reproduced in or on greeting cards, postcards, stationery, jewelry, dolls, or toys); and the name of the owner. Not all copyrighted works are visually perceptible. Songs are a great example. In these situations, the owner may place a notice of copyright on publicly distributed phonorecords of the sound recording. Notice of a copyright in sound recordings must contain these three elements: 1. the symbol (the P stands for phonogram); 2. the year of first publication of the sound recording; and 3. the name of the owner. For either visually perceptible works or sound recordings, the owner must affix the notice in a location that will give reasonable notice of the claim of copyright. For sound recordings, this will be either on the surface of the phonorecord or its label or container. If a notice of copyright appears on the published copies to which a defendant in a copyright infringement suit had access, then that defendant cannot use the defense of innocent infringement. Patent Patentees, like owners of other IP, can protect their rights by giving others proper notice that the article is patented. Patentees may give notice to the public that an article/good/ product is patented by either: fixing the word patent or the abbreviation pat., together with the number of the patent, on the item; fixing to the item or its package a like notice if it cannot be placed on the item. If a patentee fails to provide this notice, he will be prohibited from collecting damages in an infringement action unless he can prove that the infringer was notified of the infringement and continued to infringe. Patentees must be careful however when they mark their articles with a patent notice. Under the federal patent act, anyone who affixes to a product patent, or any word or number stating that an article is patented, when it is actually unpatented can be fined up to $500 for each offense if a judge finds the person intended to deceive the public. (See the next page for a case study about false patent marking.) travelers.com/technology Intellectual Property 4
False Patent Marking Suits Catch Companies by Surprise The potential for false patent marking can become a very expensive problem for companies that own large patent portfolios and sell lots of goods. Such a company must stay constantly aware of when a patent expires so that it can remove all indication from its goods that the patent is still valid. Even if a company was not intending to deceive consumers, its sophistication in technology and the patent process often makes a court less willing to forgive instances of false patent marking. Case Study: A product has been stamped with the word patent and a governmentissued number for years. No one notices when the patent quietly expires. Except someone eager to file suit and collect half the fine paid to the federal government. In September 2010, the Wall Street Journal wrote that such suits are becoming popular in the wake of a federal court ruling that appears to make them much more lucrative. In the past, the fine for falsely marking a product with an expired patent was $500. But on June 10, 2010, a United States Court of Appeals held that companies could be liable for up to $500 for each falsely marked product. According to the Wall Street Journal, a patent suit tracking company has reported nearly 350 lawsuits filed since the decision. In general, the life of a patent is 20 years long enough for everyone involved in a business to lose track of the expiration date. If the court of appeals ruling stands, an outdated manufacturing mold that stamps the patent number on thousands of products could be exposing a company to an unexpectedly expensive fine. However, in at least one case, a company recently successfully defended itself on the grounds that it had no intent to deceive customers. Solo Cup Company was accused of mis-marking 21 billion items, including cup lids for Starbucks. Although the company had discovered the expired patents, it was reluctant to throw out 3,000 manufacturing molds all at once because of costs and disruption to its customers. On the advice of counsel, it proceeded with a plan to replace the molds, one by one as they became worn out, with unmarked molds. Although Solo won the case, defending against lawsuits is always an expensive business, and outcomes are never certain. Companies with patented products should take the case as a cautionary warning, and check their expiration dates. To read the U.S. Court of Appeals ruling, go to: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1547.pdf travelers.com/technology Intellectual Property 5
Registering Your Intellectual Property Benefits of Registering Some intellectual property, like a trademark or copyright, can be valid and protectable even if it is unregistered. But registering a trademark or copyright provides owners important benefits. For example, registering a trademark or service mark with the USPTO serves as constructive notice to the public of the registrant s claim of ownership of the mark. An owner who has successfully registered his mark with the USPTO also receives: an incontestable right to use the mark under certain conditions; a rebuttable presumption of the validity of the mark, the registrant s ownership of the mark, and his exclusive right to use the mark in commerce; the ability to seek costs, attorneys fees, and treble damages in infringement lawsuits; the destruction of the infringing articles; and the ability to litigate in federal court. How to Register Your IP The Lanham Act governs federal trademark registration and allows trademark and service mark owners to pay a fee (typically $325) and file an application and verified statement to the USPTO. The filing is done electronically. In the application, the applicant must state when she first used the mark and when she first used the mark in commerce and include a description of the goods that the mark is connected to and a drawing of the mark. In the verified statement, the applicant must state that she believes she is the owner of the mark, the mark is used in commerce, and that no other person has the right to use the mark. Similarly, a copyright owner can apply online to the United States Copyright Office to register a copyright. The application requires a $35 filing fee and the applicant to provide his name and address, the title of the work, the year in which he created the work, and other preparation and identification information. A copyright owner who registers her work with the United States Copyright Office receives a significant benefit in any subsequent judicial proceeding. A certificate of copyright registration constitutes prima facie evidence of the validity of the copyright and of the facts stated in the certificate. Copyright owners who register their works can also receive statutory damages from an infringer. Patent applications are more complicated than trademark or copyright applications and are often filed by registered patent attorneys experienced in the patent drafting and filing process. A patent applicant must pay a fee (fees range in amount) and provide an oath, a drawing of the invention, and a specification. The applicant must state in the oath what country he is a citizen of and that he believes he is the first inventor of the process, machine, manufacture, or improvement. The specification must contain a written description of the invention and the manner and process of making and using it in a full and clear manner. The specification also must contain one or more claims that point out the specific subject matter that the applicant regards as his invention. travelers.com/technology Intellectual Property 6
Using Written Agreements To Your Advantage Using, adhering to, and enforcing various written agreements can help companies protect and profit from their IP. While no agreement can accomplish everything, businesses should consider using some or all of the following to advance their IP portfolio. Non-Disclosure Agreements (NDA) The purpose of an NDA (also called a confidentiality agreement) is to keep proprietary or trade secret information private. Companies often use these agreements, or insert non-disclosure clauses in other agreements, when dealing with distributors and/or retailers. In addition to identifying what information is to be kept confidential, an NDA should also plainly state who owns the IP rights associated with the product/service and who has the right to enforce those IP rights. Non-Competition Agreements A non-competition agreement prohibits a party from competing with another party in a specific area (usually geographical) for a specific period of time. But the restrictions must be reasonable and courts will not enforce non-compete agreements that eliminate a party s ability to work in the industry. A non-competition agreement can help a business lessen the risk that a vital employee (engineer, sales person, etc.) will take critical information such as processes, customer lists, formulas, or pricing lists to a competitor or a start-up company. Employment Contracts Requiring employees and independent contractors to sign agreements that expressly state that the company owns the intellectual property created from the person s work product is prudent but not always required. In copyright law for example, the employer automatically owns the copyright for any work prepared by an employee within the scope of his or her employment. No written agreement is required. This is not the case, however, when the author, artist, or designer is an independent contractor or creates the work outside the scope of his or her employment. In those situations, and those involving patents and trademarks, a carefully drafted contract can eliminate potential conflicts by clearly, and broadly, defining the person s scope of employment or engagement and assigning all IP rights generated from his or her work to the employer or hirer. Licensing Agreements In a license, one entity grants another permission to use an IP right(s) within a defined time, market, or territory. Often the culmination of complicated transactional negotiations, licenses are typically complex. They usually contain at least the following provisions. Exclusive v. non-exclusive. In an exclusive license, the licensor promises to not grant another license within the same covered scope or field. Most licensors insist on non-exclusive licenses in attempts to maximize sales and distribution channels. Transferable v. non-transferable. A clause stating if the licensee can transfer or assign the license to another party. Revocable v. irrevocable. Can the licensor rescind any of the rights it grants, and if so, under what conditions? Warranties. Licenses often contain multiple warranties and representations including a warranty of title and a warranty that the licensor has a right to license the product. travelers.com/technology Intellectual Property 7
Finding Infringers of Your Intellectual Property Protecting your intellectual property requires detecting (and hopefully stopping) infringers. There are different ways to police your IP rights. However, because of cost concerns, not all are always appropriate. For example, a company may want to monitor use of a key brand or trademark by subscribing to a trademark watch or monitoring service but not do so for less important trademarks. Similarly, and also for a fee, there are copyright monitoring services and patent search firms (companies that conduct field investigations to see if others are using your invention or process.) The internet has made infringing another s intellectual property easier. But the internet is also a useful tool to discover infringers. Performing periodic detection searches utilizing targeted key words on Google or other internet search engines can help you uncover infringement. Did you know? The oldest trademark in the U.S. is for Samson Rope Technologies, Inc. It says this on the company s website: The famed trademark depicting Samson slaying a lion was registered in 1884 and is the oldest active registered trademark in the United States. The company s association with the strength of the biblical character is apt, since its ropes have long been the best in strength and durability. www.samsonrope.com/index.cfm But what should you do if you discover that someone is infringing your trademark, service mark, or trade dress? Infringement weakens your mark because it dilutes the ability of consumers to associate your company as the source of your goods or services. Stopping infringers, therefore, keeps your trademark strong and protectable. This might mean litigation in some situations. But knowing that a third-party is infringing your trademark, service mark, or trade dress, and doing nothing about it, will not normally result in an abandonment of your IP rights. Most courts will not hold that a trademark owner s failure to prosecute infringers means he has abandoned his rights in the mark unless the mark has become so diluted that it has lost all ability to indicate the origin of the goods or services (i.e., your company.) The real issue here is not total forfeiture of trademark rights, but rather keeping them as strong as possible in a crowded marketplace. Monitoring and detecting infringers is the vital first step in doing so. Diligently monitoring intellectual property helps a business detect infringers. travelers.com/technology Intellectual Property 8
Helpful Online Resources United States Patent and Trademark Office: www.uspto.gov and www.stopfakes.gov U.S. Chamber of Commerce Global Intellectual Property Center: www.theglobalipcenter.com World Intellectual Property Organization: www.wipo.int About the Author Christopher D. Newkirk is a Major Case Specialist in Travelers Business Torts Technology Claim Unit and a former partner and IP litigator in a Minneapolis law firm. Global Technology at Travelers provides insurance and risk management solutions to the technology industry. To learn more or read other Risk Advisor briefs in this series, visit us at www.travelers.com/technology or contact your independent agent or broker. The Travelers Indemnity Company and its property casualty affiliates One Tower Square Hartford, CT 06183 travelers.com This document is provided for informational purposes only. It does not, and it is not intended to, provide legal, technical or other professional advice, nor does it amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers. Travelers disclaims all warranties whatsoever. 2010 The Travelers Indemnity Company. All rights reserved. CP-7094 New 9-10