Common IP mistakes made by businesses
Intellectual property, including patents, trademarks and copyrights, plays an important role in business. Most businesses own trademarks, and works that may be protected by copyright, including their Web sites, advertising and architecture. Some businesses conduct activities that result in patentable inventions. Businesses also use intellectual property developed and owned by third parties. Yet businesses often fail to protect their intellectual property and fail to obtain the necessary rights to use third-party intellectual property. The consequences of this can range from the loss of rights to infringement lawsuits. This article discusses ways to avoid the most common intellectual property mistakes that businesses make.
Failure to clear rights
Failing to clear rights is the most common intellectual property mistake. If the business names a product, service, etc., a trademark search should be conducted to ensure that the name is not already used by another for the same or similar services. Trademark searches are relatively inexpensive; trademark litigation is not. Trademark litigation costs can potentially be avoided by routinely spending a few thousand dollars to clear trademarks before using them.
Businesses should also ensure that outside advertising and marketing firms clear rights for intellectual property that they use in advertising or promotion. For example, if an advertising agency takes photos at the business location to use in an advertisement for the business, the rights of publicity of persons depicted in the photos may be violated. The business should ensure that its advertising agency has procedures for clearing intellectual property that it uses in creating ads for the business and should obtain indemnification.
Failure to investigate accusations
The first encounter that management is likely to have with a third party asserting intellectual property rights is receipt of a letter claiming infringement. Ignoring infringement accusations may lead to enhanced liability. For patent infringement, the business may be a “willful” infringer, leading to increased damages and an award of attorneys’ fees to the patentee if the court deems the case to be “exceptional.”
Counsel should promptly be informed of infringement allegations. This can help limit damages that arise from infringement. Moreover, it may be possible to settle disputes without litigation by promptly addressing infringement accusations.
The on-sale bar
Businesses often fail to seek patent protection in a timely manner. In the United States, there is a one-year period from public disclosure or economic exploitation of an invention in which to file a patent application. If the application is not filed within the one-year period, the right to apply for a patent is lost. In foreign jurisdictions, there is no grace period. Thus, a business should engage patent counsel as early as possible to prepare and file a patent application.
Failure to adopt policies
Ownership of inventions is an issue ignored by many businesses. In the United States, an invention is owned by the inventor unless it is assigned to the business in writing. Employees likely to invent as a part of their employment duties should execute a written agreement to assign inventions to the employer. In the absence of such agreements, the invention belongs to the employee. Nevada is an exception. By statute, inventions conceived by an employee in Nevada in the normal course of employment are owned by the employer. By the time management becomes aware of the value of the employee’s development, the invention has already been conceived. At that point, the employee may have no obligation to assign it to the company. The employee may have left the company, making it even less likely that an assignment to the company may be obtained.
If an employee creates a copyrightable work within the scope of employment, then the work may be considered a “work made for hire” and the employer would own the copyrights, absent an agreement to the contrary. Whether a person is an employee or independent contractor depends on several factors. It is not always clear whether a person is an employee or an independent contractor for copyright purposes. It is prudent to have contractual provisions governing copyright ownership of works created by employees and independent contractors.
Failure to protect and police
Intellectual property is a valuable asset worthy of as much protection as physical assets. Yet many businesses fail to protect them or fail to enforce their rights.
Businesses that fail to obtain patents for their inventions may lose potential licensing revenues. They may also lose competitive advantage by not excluding competitors from using those inventions.
Businesses that fail to protect trademarks may lose the ability to do so and ultimately lose the value of their brands, harm their goodwill and reputation, and confuse customers. Some businesses register marks in their home state, ignoring federal or foreign registrations, thus potentially limiting their ability to expand and advertise in other markets.
Failure to register copyrights forecloses recovering attorneys’ fees from infringers and election of statutory damages of up to $150,000 for willful infringement. Although copyright protection is not dependent on registration, registration fees are low and registration is a prerequisite of filing an infringement action. Thus, businesses should at least register their most important works.
Businesses can avoid these common mistakes, or at least reduce the risk of making them, by implementing both offensive and defensive intellectual property policies and procedures and educating employees. An intellectual property audit can be conducted to identify the intellectual property owned by the business, determine the appropriate level of protection and enforcement, and determine whether the policies and procedures implemented by the business are adequate. In addition, outside law firms are generally willing to conduct training sessions to educate managers and employees on identifying intellectual property issues, which is the first step to avoiding these common mistakes.
Ken D’Alessandro is a partner with Lewis and Roca and is based in its Minden office. Contact him at 321-3451 or email to KDAlessandro@LRLaw.com.
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