Expert Columns

Uncovering and Leveraging Your Hidden Intangible Assets: Part 2

By:  Andrew J. Sherman

Dickstein Shapiro Morin & Oshinsky LLP

and

Chief Educational Office

Grow Fast Grow Right Enterprises, LLC

Editors Note: Andrew J. Sherman is a Partner in the Washington, D.C. office of Dickstein Shaprio Morin & Oshinsky LLP and is co-founder of Grow Fast Grow Right Enterprises (GFGR), LLC, a provider of educational and advisory support to growing companies. In addition, Sherman led the upcoming GFGR Business Growth Strategies Event on Wednesday, Jan. 25, 2006 at the Jane S. McKimmon Conference and Training Center on the campus of North Carolina State University in Raleigh, NC. For more information or to register, visit http://www.growfastgrowright.com.

In the last article, we looked at strategic ways to uncover and harvest valuable hidden intangible assets, but it is also critical to understand how the law protects these assets. In this part 2, we look at the four primary branches of intellectual property law.

Understanding the Various Types of Intellectual Property Under the Law

As an entry point into the strategy of leveraging IP assets, an appreciation of the different types of assets and their licensing characteristics is useful.  The corporate intangible asset inventory may include trade secrets and know-how, trademarks and trade names, patents and patent applications, and copyrights. In situations involving semiconductor chip companies, a type of federally registered right known as "mask work" protection may also be involved. The range of intangibles that may be included under each of these broad categories encompasses almost anything of worth a company knows, writes or does.

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 Patent & 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 not. Some licenses permit sublicensing; 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.”

Trademarks and Trade Names

The most basic definition of a trademark (or servicemark) 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 happen is that the proprietor allows the mark to lose its ability to distinguish its goods from competitors goods. Witness "aspirin", "nylon","zipper", "cellophane", and "escalator".  Most businesses only use their marks in connection specific good 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" which we discuss below.  Trademark proprietors must be careful when licensing to avoid killing the goose that lays the golden egg.  Any loss of control by the proprietor over use of the mark could be fatal.

Copyrights

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, best practices manuals, etc.) based on those of licensor.

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 protectable), designs, data bases. etc.  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 make 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.