Actively Manage Your Intellectual Property Portfolio
The primary kinds of intellectual property (IP) are:
- Utility patents (these protect a device, a function, an artificial molecule, etc.)
- Design patents (these protect an ornamental design)
- Copyrights (these protect works of authorship, drawings, art, movies, songs)
- Trademarks (these protect consumers from being sold items that mislead the consumer about who made the item; for example, you cannot have Coca-Cola Sneakers)
- Trade secrets (these are protected against theft, but not other people coming up with the same idea)
There are several other varieties of IP (such as “moral rights” in certain countries, plant patents, state law trademarks), but they are less critical tools for a business — particularly an early stage business.
The first thing to understand is that there are bright lines defining the legal status of the various types of IP, but the underlying IP itself can cross multiple categories. A fun example — one that wouldn’t be possible today because recent cases have clarified that games are almost never patentable — is the game Monopoly. At one point, it was covered by a utility patent, a copyright, and a trademark — all three of which granted a monopoly on Monopoly. Software is covered by copyright, but can also be patent-eligible (note that software patents are currently very complicated in the US). A design eligible for design patent protection can also have a related copyright. A trademarked logo is also protected by copyright. In other words, overlap between IP types is very common.
Get a patent lawyer who understands the big picture (or teach the lawyer the big picture):
The problem with many IP lawyers is that they lack the big picture that the client has. Patent lawyers often think the pinnacle of success is calling the client and saying “we got a notice of allowance!” What they don’t say — because they don’t know the client’s business well enough — is “we got claims allowed that cover X, Y and Z”. As Judge Giles Rich (former Chief Judge of the Federal Circuit Court of Appeals) famously observed, “the name of the game is the claim”. In other words, you can have the greatest invention supported by the greatest patent application and still get nothing of value if the issued claims have limitations to them.
For example, if I invented the internal combustion engine and prototyped its use for transportation on motorcycle, a patent lawyer might assume that I want to patent my primary use case only — motorcycles. The claim might read (translated to non-lawyer English) “An apparatus, comprising an internal combustion engine operably connected to a two-wheeled bicycle”. As far as the patent lawyer is concerned, mission accomplished. The client came to the firm with an invention and the firm obtained a patent for the client. As far as the client is concerned, though, they have paper-thin protection. What happens if the best use of the engine is four or more wheeled vehicles? What about using the engine to turn a turbine and make electricity? Patent lawyers typically think of their job as “getting the patent issued” with the assumption that the client’s business will benefit from any patent. They are wrong. In order to infringe a patent claim, one must infringe every element of the claim. If I use an internal combustion engine to power a sea plane, the patent claim would not provide any protection.
Define your strategy based on your end goals:
Your attorneys do not know your business plans better than you do. In fact, they might not understand the business side of your innovation at all. They aren’t operating an entity in any field other than law (typically), so they don’t have the experience of actually using an IP portfolio in a business setting. By contrast, entrepreneurs know what they have, have an excellent idea of what they plan to do in the near term, have a pretty good idea of mid-term goals, and have a firm idea about their exit strategy.
There are several common exit strategies, each with different IP requirements.
Investment: One exit strategy isn’t a true exit: It is bringing in investors and monetizing (i.e. selling an interest in your company or product). This can range from venture capital to crowd funding to going public. In this case, your IP strategy needs to show investors a few things.
(1) “We’re Innovators”: We have good, innovative technology (so good that the patent office thinks we deserve a patent!);
(2) “We own our innovations”: We have taken steps to protect our technology (i.e. patents and trademarks);
(3) “We understand copyright”: To the extent we rely on software or other works of authorship in a tangible form including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture, we recognize their value and have registered copyrights to protect them.
(3)(a) Software audit: Be prepared for a “software audit” that will confirm you own the software you use. This means you need to be able to identify which portions of code you or your employees wrote (you should have a copyright assignment in your employment agreements, but normally you will own the copyright of works done by employees as part of their job); you need to be able to identify which portions of code were written for you by third parties, such as independent contractors — and you need to show a contract assigning those copyrights to you; and you need to be able to identify which portions of your code use software with open licenses and to show that you are in compliance with those license terms (beware that some open licenses can “infect” other portions of your code with copyright (or “copyleft”) issues, so you would be wise to check with a lawyer before using that code).
(4) “We understand branding and trademarks“: A pending or registered trademark shows that we know the importance of branding, and signals to investors that they are buying into a company with valuable branding and goodwill.
Sale of the Company:
This is probably the most frequently desired exit — a clean exit for cash or stock. Sometimes the buyer will want to hire on the creators of the company. All of the same factors in the “Investment” section apply here.
Sale or License of IP:
This is where many companies hit a speed bump on their way to the exit and need IP counsel. Let’s take ExampleSearch, Inc. as an example. ExampleSearch has developed a new search technology that uses a pulse oximeter and a webcam to read biofeedback for search results and feeds that data into an AI engine that is able to identify how a user feels about the search results and modify the algorithm to return search results users feel good about more often. Leaving aside the mess that is United States patent eligibility (read this brief to learn about the mess), we assume that ExampleSearch is able to get a patent in the biggest ten global economies. ExampleSearch intends to keep operating, but needs to raise money and does not want to give up equity. ExampleSearch uses a patent broker to monetize the IP. ExampleSearch will need a “license back” to be able to keep using their technology if they do sell it (a license back can save you a lot of headache — or even a trip to the Supreme Court). All the purchaser really cares about are the “We’re Innovators” and “We own our innovations” elements discussed above. ExampleSearch needs to use a lawyer to make sure that they can continue to practice their own invention after selling it, or to limit licenses in a way that allows it to continue to operate. It is not uncommon to sell geographically or area-of-practice limited licenses.
We Want to be Huge:
Many entrepreneurs (particularly those in the age range where brain circuitry for risk analysis is still developing) want to own their company and ride it to gigantic Google/Facebook-like success. While “defensive IP” is of some importance in a company sale situation, it is critical in a “I’m building my company into a monster” situation. Companies looking for this non-exit will want to get legal advice about the impact of joining patent risk mitigation groups, such as RPX, Unified Patents, or LOTNETWORK. It is inevitable that a big enough company will eventually infringe somebody’s IP. If that IP owner is a non-practicing entity, patent risk mitigation groups might help. If that IP owner is a competitor, having an IP portfolio that can be traded (i.e. cross-licensed) is crucial. If your company is sued for infringement, a common out for both parties is to cross-license their IP (and sometimes exchange money if one party’s portfolio is more valuable than the other party’s portfolio).
We Want Insurance Against Failure:
A well known cautionary tale about how the superior technology can fail is the competition between VHS and Beta video tape. Beta was the superior format, yet VHS eventually dominated the market and put Beta under. Even if your company has the best product, marketed in the best way, your company could fail. However, your patents and other IP can make that failure less painful by allowing you to recover some of, all of, or more than your initial investment. Consider the ExampleSearch example above. If Google decides to simply outcompete ExampleSearch, they could literally devote billions of dollars to a rapid development cycle and be on the market and competing with you in days. Sometimes this kind of thing happens under a theory called efficient infringement. However it comes about, having issued (or even pending) patents allows you to approach the infringer (probably after partnering with an entity with enough money to be able to sue the tech giants without being destroyed by the legal fees) and seek (preferably through negotiation, but frequently through litigation) recovery for infringement of your patents. This provides a parachute in the event that a giant company tries to push you out of the plane this way.
Grow Your IP Consistently With Your Exit Strategy:
Exit strategies change, so the safest path is to follow all of the IP protection pathways. However, IP protection doesn’t come cheaply for small companies and independent inventors (spending $100,000 to get a patent issued in the major economies may be no big deal to a trillion dollar company, but catastrophic for a small company). In this case, you need to speak with an IP strategist to help you prioritize how to spend your IP budget.
Get an IP Strategist:
An IP strategist is somebody who can help you determine how much money to spend and what to spend it on when it comes to efficiently and effectively obtaining IP protection. An IP strategist needs to understand what can be protected (a determination that is a heavy lift requiring legal training for US patents), the cost of that protection, and the business value of that protection. In addition to understanding the legal side of IP, the strategist needs to understand your business needs, your cash flow and projections, your exit strategy, your competitors, and the existing IP landscape (you don’t want to crash into a wall of patents a competitor holds).
Those who read this blog regularly will know that we don’t use it to expressly direct people to us. Of course we hope that customers come to Coleman & Horowitt because they like the content, but this is the first time I am expressly suggesting talking to us. I’m breaking my “no express self-promotion” rule because there are very few people who have the expertise to provide IP strategy advice.
As an inventor (closing in on 250 issued patents), an entrepreneur (sold companies and patents, licensed patents — many times but all subject to non-disclosure agreements) and a lawyer, I am one of the few people with the expertise in all of the requisite areas. You want an advisor who has walked in your shoes, who has the hard experience that comes with IP entrepreneurship, and who understands how IP fits your goals. I’m sure there are others out there with the requisite expertise, but they are few and far between.
Gary S. Shuster is an inventor and technology lawyer. He provides representation to clients in the development, licensing, sale and funding of new technologies and business enterprises, the protection and enforcement of intellectual property and trade secrets and the prosecution and defense of complex commercial and intellectual property litigation. Learn more about Gary here.
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