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Intellectual Property Audit: Finding ways to limit liability and create value

Whether you know it or not, intellectual property is a part of your business. By taking a thoughtful approach, and making a modest upfront investment, you can limit your exposure to potentially damaging claims against your brand and business AND identify ways to monetize these frequently overlooked intangible assets.

Failing to identify and properly manage intellectual property can create liabilities, compromise protection, and hinder future opportunities. Common misconceptions and misunderstandings about intellectual property lead to failures to identify intellectual property and related issues.

Many times we hear clients say, "We don't invent things, so we really don't have any intellectual property issues." This is a narrow and incorrect view of intellectual property and its importance in your business.

The fact remains that "intellectual property" (or "IP") is much more than "a better mousetrap," or "just the patent" on that mousetrap. If you take some time to understand the "what is" of IP, you will soon see how a properly managed "IP portfolio" is a valuable part of most successful organizations.

A Brief Overview of some IP types: (Trademarks, Trade Secrets and Copyrights)

Paramount to understanding how intellectual property, or "IP", is involved in your business or organization, is a general understanding of the various types of intellectual property. The legal community typically splits IP into four categories: Copyrights, Trademarks, Trade Secrets and Patents (an area beyond the scope of this article). All forms of IP, except for Trade Secrets, may be registered with the federal government. In fact, often a failure to register will result in the owner of the copyright or trademark missing out on valuable IP rights.

Trademarks. Trademarks are words, names, symbols, devices, colors or any combination, used to identify and distinguish the goods/services of one seller or service provider from those of others. A trademark indicates the source of the goods/services.

Trademarks are what some people may refer to, or think of as "brands." Trademarks can also include logos, slogans, and packaging used to identify the source of a product or service. Think of the name "Coca- Cola," the image of Pillsbury Doughboy, or the slogan "Just say Sela" and you have identified a trademark.

Trademark rights can vest without federal registration, based upon your use of the mark in commerce. There are substantial advantages to a federal trademark (or service mark) registration, and it is less expensive than many people think.

A few of these advantages are: national notice of ownership, ability to enforce ownership rights in the mark in federal court; legal presumption of ownership of the mark; and use of the U.S. registration as a basis to obtain registration in foreign countries. Once you register a Trademarks, however, you should take care to properly "manage" it so you do not inadvertently lose the valuable rights granted by the mark.

If you are less ambitious, you can also register your trademark at the state level. These filings are a little less expensive, yet still add value to your IP portfolio as well. However, state filings only protect your mark within the borders of that state. In a contentious situation (including in litigation) with someone claiming your state mark "infringes" most savvy IP practitioners prefer (everything else being equal) the federal trademark filing to the state filing.

Copyright. Copyright protects original works of authorship. Copyright protection can attach to various types of "works" such as: writing, architectural drawings and photographs. Copyright also applies to more expressive works, such as music, sculptures, paintings and films.

Contrary to popular belief, copyright does not protect ideas in general. It protects the specific expression of those ideas. Generally, copyright vests in the author of a work and exists from the moment a work is created in a "fixed medium" or "fixed form," usually for the entire life of the creator, plus an additional 70 years.

Registration of copyright with the federal government is voluntary. Like trademarks, registration offers significant advantages. This includes the ability to bring an action to enforce your copyright and increased damages and attorney's fees in an enforcement action.

Trade Secrets. Trade secrets are formulas, processes, designs, instruments or information, such as customer or price lists, which are not generally known to the public. Trade secrets give an individual or business an economic advantage over their competitors or customers. Think the Coca-Cola formula or KFC's "11 herbs and spices" recipe.

Trade secrets are generally referred to as "confidential information" and the owner's rights in them are derived from their confidentiality. Rights in trade secrets are protected by statute, but the owner's rights are lost if the information is not properly protected or made available to the public.

Trade secrets are generally protected by internal information controls. These include contractual means, such as the use of confidentiality, non-disclosure, employment or subcontractor agreements. Smart businesses do more than simply rely on contracts. They also protect their trade secrets by including more mundane types of security such as locks on file cabinets, password protection on computer files, and restricting access on a "need to know" basis.

Intellectual Property Liabilities

Often, without knowledge or even an intent to do wrong, businesses, organizations and people use intellectual property without properly securing ownership or rights to use the intellectual property. When this happens, lawyers say that an "infringement" of the IP has occurred. Unfortunately, ignorance of intellectual property laws and mistaken or misplaced belief of ownership are not defenses to an infringement action.

Intellectual property infringement can have dire consequences. For IP owners who have properly registered their trademark or copyright, the law permits substantial statutory damages against "willful infringers." The law also includes fee shifting provisions such that the party who infringes will have to pay the IP owner's attorneys fees (assuming the IP owner prevails in litigation). The law also permits judicially-ordered destruction of products or property incorporating the infringing use.

As noted above, ignorance is not a defense. In addition, "defenses" such as the infringement was non-commercial (e.g., "But we didn't make any money off the infringement"), the infringement only used a small portion of a larger work or that the infringement was perpetrated by a third-party (e.g., "Our web designer put it on there.") will generally not bar or limit your liability for infringement.

Many times, infringement occurs based on the misguided belief that the company or organization has rights in the intellectual property, when in fact they do not. Many examples of possible liabilities can be found in nearly every business, no matter what the industry.

For example, infringement can arise based on content contained on a website, use of a trademark which is similar to another mark, posting and sharing photos, articles or drawings publicly or within the organization, or even music played on your telephone's "hold" line, or in the lobby of your business. It is important (and wise) to identify and deal with potential intellectual property liabilities as soon as possible.

Unsecured Intellectual Property

Failure to properly secure or manage intellectual property rights can greatly decrease the owner's protections or the value of the IP. In some situations it may even result in a loss of IP rights.

To avoid this, a prudent business owner periodically reviews their IP portfolio. Failing to do so is perhaps akin to building a warehouse, placing your goods inside it, then not installing locks on the doors.

In addition to protecting your intellectual property against use or theft by competitors, securing and managing your IP can increase the value in the property. Clearly defined title and rights in all intellectual property greatly increase its value and marketability for future sales, licensing, revenue and your business' bottom line.

The IP Audit

One way to "put locks on the doors" is by conducting an intellectual property audit. Audits do not follow a fixed format, can serve many functions and can be tailored to meet your business or organization's particular needs. Audits can be broad enough in scope to cover the entirety of a business' operations, or specifically tailored to a specific department, product or acquisition.

Through a carefully designed audit plan, a business should be able to identify any intellectual property affecting or owned by the business. After identifying the intellectual properties involved, the next step is to identify any current or future rights or liability issues related to the IP. Based on this information, a clear plan can be developed to:

1) secure any intellectual property currently owned by the business;

2) create systems and procedures for identifying and protecting intellectual property;

3) eliminate any intellectual property liabilities; and

4) create systems and procedures for identifying and avoiding future liabilities.

Conclusion

Intellectual property is all around us. It is intertwined in every business and its importance and value to businesses will only continue to grow.

An IP audit is a necessary and important management tool, which allows businesses to minimize and avoid potentially costly infringement actions, protect their own intellectual property and grow, maintain and create revenues from their intangible assets. By gaining a clear picture and control of your organization's intellectual property, you can count on future growth, peace of mind and better security for your business.