Understanding the Various Types of Intellectual Property
Andrew J. Sherman, Partner, Dickstein Shapiro Morin and Oshinsky LLP
Entrepreneurs and leaders of growing companies need to understand the basics of intellectual property law as a precursor to selecting how to best protect their intangible assets, trade secrets and know-how, trademarks and trade names, patents and patent applications, and copyrights.
In some types of businesses, the use of multiple layers of protection is necessary. For example, if you are a manufacturer of semiconductor chips, a type of federally registered right known as "mask work" protection may be available, as well as patent protection, trademark protection for your brands, copyright protection for your collateral marketing materials, and trade secret protection of your distribution channel relationships. The range of intellectual property law protection available that may be included under each of these broad categories encompasses almost anything of worth a company knows, writes, or does.
So how do you decide what’s best for your company? Let’s take a look at the advantages and disadvantages of each category in more detail.
Trade Secrets and Know-How
While trade secrets, considered collectively, often comprise the prime IP asset a company owns, the protection regime for such IP – unlike patents, trademarks or copyrights, trade secret protection – is not based on a federal statute. Trade secrets are unpatented bodies of information that lay outside the public domain. Products, or the way they are made, may be (or at least include) trade secrets. Formulations, such as the concentrate for Coca-Cola, may be immensely valuable trade secrets.
The processes used by an enterprise to make products or to manage itself may qualify as trade secrets. For example, material sources, marketing plans, distribution techniques, customer information, product specification/tolerances, best methods and practices, franchise management protocols, all qualify as trade secrets. Tweaks and modifications to improve equipment, even off-the-shelf equipment purchased on the open market, may qualify, as do the fruits of the R&D operations: blue prints, test results (even unsuccessful test results are protect able), designs, and data bases.
Know-how is a first cousin of trade secrets but far more difficult to inventory as a discrete IP asset. It is an accumulation of information, knowledge, and experience (some of which may qualify as trade secrets, some not) that enables its possessor to achieve practical results which can not be obtained by one not possessing it. Know-how is the essence of what makes a company's most valuable employees valuable. Trade secrets and know-how, unlike patents, may be licensed in perpetuity. The quid pro quo for the licensee's payment is disclosure and access to the technology.
Trademarks and Trade Names
The most basic definition of a trademark (or service mark) is any word, symbol (or combination) that distinguishes the goods (or services) of one business from its competitors. While rights in trademarks are acquired by use, registration certainly makes it easier to enforce those rights. Valuable trademark rights can be easily lost. All that needs to happen is that the proprietor allows the mark to lose its ability to distinguish its goods from competitors’ goods.
Consider the unfortunate history of the formerly protected brands: "aspirin", "nylon”,” zipper", "cellophane", and "escalator.” Most businesses only use their marks in connection with specific goods and/or services. For truly famous or recognizable marks, this opens very attractive collateral marketing opportunities, often referred to as "merchandise licensing" or "character licensing." Trademark proprietors must be careful when licensing to avoid killing the goose that lays the golden egg. Any loss of control by the owner over use of the mark could be fatal.
Patents and Patent Applications
We will assume basic familiarity with patents as a federal statutory scheme that confers upon inventors the exclusive right, for a limited period of time, to make, have made, use, sell, offer for sale, or import anything that falls within the scope of the claims issued by the U.S. Patent and Trademark Office.
Patent license agreements come in many flavors. Some are paid up when signed, some require annual payment, and some a running royalty based on activity. Some licenses are exclusive, some are not. Some licenses permit sublicensing and some do not. One of the most interesting aspects of patent licenses in terms of their value as a revenue stream is how the exclusive right can be divided into discrete fields of use or into geographic territories. A patent owner can reserve for itself the exclusive right to use its patented technology against direct competitors (or in its geographic area of operation) while licensing fields in which it does not compete or operate.
Patent licenses are often part of a "technology" license, which includes technology exchange, technical assistance, and transfers of know how. Patent licenses can also be used to gain access to valuable technology of others through cross licensing, especially where the licensor has a dominant patent position which can be used to leverage valuable rights to improvement technologies developed by others. Companies should, however, be careful that their efforts to exploit their patent positions with respect to certain markets or products to gain a position in other markets or products does not cross the line into impermissible “patent-tying.”
Copyrights are a frequently overlooked IP asset that is of obvious importance when dealing with computer software companies and content providers (such as publishers of music, movies, books, etc.). However, because one of the exclusive rights of the copyright owner is the right to prepare derivative works, copyright is often a valuable adjunct to technology or know-how licenses where the recipient will often want to develop materials (forms, letters, protocols, and best practices manuals.) based on those of the licensor.
By making the company's intellectual assets the focus of its strategic planning, new opportunities are likely to be identified. In summary, there are many different ways to approach intellectual capital leveraging:
- The company's technology might be licensed into non-core, non-competing applications or industries
- Its distribution channels might be used for new products and services which are co-developed with others as via in-licensing transactions
- Its internal software management tools might be licensed to others within the industry (provided that competitive advantage is not lost)
- Its employee training programs might have applicability or uses to third parties
- Its geographic expansion plans might utilize a business format franchising approach in order to preserve working capital.
© 2006 Andrew J. Sherman. All rights reserved.