By Austen Zuege
For general counsel in-house at a company, intellectual property (IP) represents a specialize area of the law in which generalists typically have only limited familiarity. Yet general counsel may still be responsible for overseeing the protection of IP and coordinating with dedicated IP counsel. This requires, at a minimum, some general familiarity with IP to allow for issue spotting. But being a great in-house general counsel involves more than just that. What follows is a guide to core areas of IP and some basic considerations for in-house counsel to enable them to meet or exceed the expectations of business people and look good doing so.
Because this guide is lengthy, use the table of contents links to find particular information of interest.
Table of Contents
- Why IP Matters for In-House General Counsel
- In-House Counsel Roles That Implicate IP
- Overview of Main Types of IP
- Protecting Company IP
- General Considerations
- Acquisitions and Licensing
- Newly-Created IP
- Overview – Patent Rights Lost Without Action
- Identifying Inventions
- Patent Incentive Programs
- Patent Portfolio Responsibilities
- Ownership: Assignments, Transfers, and Obligations to Assign
- Joint Research & Development
- Foreign Patent Protection
- Maintenance Fees and Annuities
- Patent Marking
- Export Controls, Sanctions, and Foreign Filing Licenses
- Taxes and Subsidies
- Domain Names
- IP Docketing and Reporting Systems
- Risk Management and Avoiding Infringement
- Helping Set Policy
- Agreements (with checklists)
Why IP Matters for In-House General Counsel
IP matters in more ways than one. That means there are multiple different ways to quantify its value. For instance, the value of IP can be measured in the following ways, some of them overlapping:
- Balance sheet asset:
- Intangible asset, including reputation/goodwill
- Possible income statement revenue source (licensing, sale/transfer)
- Government subsidies and tax benefits in some jurisdictions (patent amortization, tax reductions, cost reimbursement)
- Soft power:
- competitor deterrence
- investor confidence
- employee morale
- marketing benefits for “patented” products
- Hard power:
- enforcement actions (offensive use)
- may provide basis to challenge or block later competitor IP (defensive use)
- possible basis for right-to-use defense (varies by jurisdiction and type of IP)
- recordation with customs to block importation of infringing goods (varies by jurisdiction and type of IP)
- recordation with online marketplace platforms (for both offensive and defensive purposes)
In a 2020 study of intangible assets as a percentage of market capitalization, intangible assets accounted for about 90% of the market value of Standard & Poor’s (S&P) 500 index U.S. companies in 2020. Corresponding percentages were about 32%, 44%, and 75% for Japanese, Chinese, and European market indexes, respectively. Intangible assets include more than just IP, such as things like the value of agreements/contracts, etc. But IP is a major component of intangible assets. This has greatly changed since the 1980s, when intangible assets represented no more than about 20% of company value.
For in-house counsel, legal commentator Sterling Miller has noted, “Business people love numbers. Smart in-house lawyers know how to speak this language in most everything they do.” He further cites IP as one of the “Big Five value generators” for an in-house legal department. In this sense, protecting, managing, and reporting about IP are ways of answering the question, “what have you done for me lately?” However, there tend to be significant differences between the roles in-house counsel take on with respect to IP in a large organization compared to a small- or medium-sized one.
A general counsel for a small company faces some unique challenges. As Sterling Miller notes, “For many small companies, IP is the crown jewel and if it gets improperly copied or stolen then all the value of the company falls away.” Protecting the “crown jewels” is an obvious priority. But what about other IP? A typical scenario is that a startup company is built around some key invention that gets patented, or a signature brand is developed and trademarked—this will vary depending on the nature of the business. But then focus shifts elsewhere to keep the business going and any further patent, trademark, and other IP protections can almost be forgotten. In that situation, later on, how and when to institutionalize IP programs around new and recent efforts in a growing and evolving business become key questions. This matters a lot for growing small and medium sized enterprises (SMEs). For instance, creating a regular patenting program often seems to become relevant when companies hit a tipping point roughly around $10 million (USD) in annual revenue.
In large companies, such as multinationals, in-house counsel tend to face some of the same issues but their role may be quite different than in a SME. Large companies may have dedicated in-house IP counsel, meaning general counsel plays a much smaller role in day-to-day IP matters. Though all in-house attorneys, including general counsel, face challenges about how to avoid complacency while improving efficiency through policies, procedures, staffing, tools and legal tech, etc. For instance, at large companies with extensive IP assets, the use and management of invoicing, matter management, docketing, and reporting systems can be an in-house legal department responsibility.
In-House Counsel Roles That Implicate IP
In-house counsel will take on a number of different tasks and responsibilities related to IP, including:
- Issue spotting:
- Protecting IP, whether homegrown or acquired
- Avoiding and reducing risk of IP infringement and misappropriation — including minimizing nuisance claims
- Implementing and managing IP-related systems, tools, and legal tech:
- Matter management
- Portfolio maintenance (for IP maintenance/annuity/renewal payments)
- Report generation
- Contracts management
- Negotiating agreements and deals with IP terms or implications
- Identifying and vetting IP issues in contracts with suppliers and customers
- M&A IP due diligence
- Joint development
- Service agreements with vendors (e.g., outsourcing)
- Educating company personnel and answering questions about IP
- Hiring and interfacing with outside subject matter experts (e.g., outside IP counsel)
- Developing long-term strategies regarding business records retention and knowledge management surrounding employee departures and outside contractors
- Implementing legal holds, coordinating discovery requests, and other litigation discovery matters
- Building trust between “legal” and “business”
Many of these tasks will of course involve participation by other employees and departments, such as engineering/R&D and marketing.
Overview of Main Types of IP
There are a number of different types of IP. Before proceeding further it is worthwhile to pause and summarize what sorts of things are implicated when referring to “IP”. The following are brief introductions to patents, trademarks, copyrights, trade secrets, and the rights of publicity and privacy. Not addressed here are data privacy protections, which are not a traditional form of IP. Also, protections for databases per se is not available under U.S. law, so they are is not discussed here. False advertising and related advertising law issues (e.g., the Federal Trade Commission [FTC] Act and state “baby”-FTC acts) can also blend into trademark and right of publicity law, or at least come up along side those other analyses, though such topics are not the focus here.
The basic introductions to the main types of IP are followed further below by discussions about protecting different types of company IP.
Patent law deals with inventions. Patents are granted on the basis of a quid pro quo: in exchange for disclosing how to make an use an invention a government grants the inventor exclusive rights to that invention for a limited time. After the patent expires, the public is then free to use the invention. Obtaining enforceable patent rights requires submitting a patent application and then obtaining a granted patent following an examination to determine if the invention satisfies criteria for patentability.
There are three types of patents in the U.S: utility, design, and plant patents. Some other countries have utility models or petty patents that are not available in the U.S. If someone refers simply to a “patent”, chances are they mean a utility patent. Most patents are utility patents, which cover useful inventions. These include functional aspects of physical products as well as inventive methods or processes, such as manufacturing methods or methods of use.
Some things are not patent eligible, however. Abstract ideas, laws of nature, and physical phenomena are not eligible for patenting. These exclusions tend to arise most commonly in relation to certain types of technology, such as software-implemented inventions and medical diagnosis methods. This tends to be a highly contested area of patent law. But, to put it bluntly, an underlying issue is patent applicants being greedy. Patent eligibility issues often revolve around attempts to obtain “preemptive” claims that exceed the scope of the invention disclosed and inhibit future inventions not yet devised. Patent eligibility issues are often discussed in coded language, using esoteric jargon from patent law. Yet, often, these issues reflect attempts to shift the basic quid pro quo behind modern patent laws in favor of the patentee, in order to obtain a broad monopoly that goes beyond the scope of what the inventor actually invented and disclosed.
Patents are exclusively a matter of federal law in the U.S. There are no state patents. Patent infringement litigation occurs exclusively in federal courts, and the Federal Circuit has exclusive jurisdiction over appeals from district courts in patent cases. However, there are a few issues, such as matters related to patent ownership and assignment and misleading or deceptive patent enforcement, that are subject to state laws.
Patent rights are also territorial. There is no “international” patent enforceable throughout the world. Patentees generally need to obtain a patent in each jurisdiction of interest, and an invention might be freely practiced in jurisdictions where patents were not obtained. However, there is something called the Patent Cooperation Treaty (PCT) system that provides a sort of clearinghouse to coordinate patent application filings in participating countries. But the PCT system still requires obtaining individual national-level patents to have enforceable rights. Additionally, there are regional patent offices in some parts of the world (e.g., the European Patent Office [EPO]), which provide a centralized authority for patent examination. However, regional patent offices still require validation or the like in individual participating countries (including the possibility of one with unitary effect in a select subset of participating EP states). And some European countries participate in a Unified Patent Court (UPC) to also centralize patent enforcement in some (but not all) situations.
Being a “patent attorney” (or non-attorney “patent agent”) authorized to practice at the U.S. Patent Office requires passing the patent bar, and sitting for the patent bar in turn requires having a background in engineering or science. In some other countries, the term “patent attorney” applies to people with technical backgrounds but who are not necessarily attorneys-at-law (for instance, not necessarily barristers or solicitors).
Corporations, as juristic entities, are not permitted to handle U.S. patent applications pro se. Though individual inventors can do so. In-house patent attorneys (or agents) can handle patent applications. But in the absence of an in-house attorney who passed the patent bar, companies generally need to send patent matters to outside counsel.
Trademark law is a subset of the broader law of unfair competition. In the most general terms, trademark law deals with branding. Strictly speaking, trademarks deal with the branding of goods while service marks deal with the branding of services. A key purpose of trademark law is consumer protection. A trademark is meant to provide a source-identifying function. That is, a brand is meant to allow consumers to differentiate the goods and services of one company from those of others in a competitive marketplace. Trademarks serve a reputational function in that sense.
Trademarks are tied to commercial use of a particular mark. Ceasing use (without intention to resume use) leads to abandonment. Trademark rights thus follow a use it or lose it regime. Rights in a mark can even be lost through modifications and alternations, such as a branding “refresh” that results in a new and different mark supplanting the old.
Registration is not required to have enforceable trademark rights in the USA. Enforcement of unregistered common law trademark rights may be possible. This means a company may develop and hold trademark rights even without having a registration, or even if a registration lapsed due to procedural inaction but commercial use continues. Conversely, just because a proposed brand is not formally registered as a trademark does not mean that its use is fair game because someone else may claim prior common law rights.
In the U.S., there are both state and federal trademark laws that exist in parallel. It is possible for a business to have both state a federal trademark rights simultaneously. Though most trademark registrations and infringement lawsuits tend to happen at the federal level. Trademark laws in other countries can vary considerably from those in the U.S. For instance, the U.S. follows a system that gives rights to the senior user (i.e., the first user), whereas many other countries follow a first-to-register approach instead (i.e., registration takes precedence over prior unregistered use). This means trademark registration is even more important when your company operates in foreign countries.
The basic standard applied in trademark matters in the U.S., for both determining if there is infringement and determining if a federal registration can be granted, is likelihood of confusion. This is multi-factor analysis and does not require that the marks be identical or that the goods and services involved be identical. It encompasses more than just counterfeiting. The occurrence of actual confusion among customers is also not required to establish infringement. Conversely, trademark rights do not provide absolute protection against any and all confusion—for instance, a few isolated instances of confusion due to inattention or the like do not create liability and non-trademark use of descriptive terms may still be permissible.
Additionally trademark law encompasses things that are likely to cause mistake or deception as to affiliation, connection, or association with another, or as to the origin, sponsorship, or approval of goods, services, or commercial activities by another. These are areas where trademark law blends into the right of publicity, discussed below.
Dilution due to “tarnishment” or “blurring” represents a distinct right available only for famous brands. Marks that are famous in a general sense—not just in a niche market—have additional protections against dilution of the mark’s fame. The idea here is that people tend to ride the coattails of famous brands and so famous brands are given special rights that are unavailable to ordinary or typical brands.
The Lanham Act, which establishes federal trademark law, also includes a provision that prohibits misrepresenting the nature, characteristics, qualities, or geographic origin of one’s own or another’s goods, services, or commercial activities. This complements the FTC Act and similar state-level “baby” FTC acts that make unlawful unfair methods of competition and unfair or deceptive commercial acts or practices.
Lastly, cybersquatting with respect to Internet domain names is related to trademark law yet has its own distinct characteristics. The essence of cybersquatting is that someone registers a domain name that is identical or confusingly similar to a trademark or service mark in bad faith, without having rights or legitimate interests in respect of that name. Usually these issues arise when domain names are registered that capitalize on existing trademarks to divert customers. But cybersquatting typically excludes situations in which a domain name registrant is making a legitimate use of a term, such as where the domain name has a meaning other than as a trademark in context (e.g., a different meaning in a different language) or where different entities concurrently have trademark rights in different jurisdictions.
Copyright relates to creative works of authorship. The threshold for copyrightability is fairly low. It encompasses text (e.g., articles, books, software source code), photographs, video, musical compositions and recordings, sculpture, and much more. It can also encompass creative works applied to useful articles, but only so long as those creative parts are conceptually separable from the utilitarian/functional parts. This of a sculture that has been made into a lamp, for instance.
However, a copyright is not a monopoly on given subject matter. Instead, copyright is a prohibition against unauthorized copying of protected expression from others’ works. Copyright protection in the U.S. is also considered “thin”, in the sense that it protects only particular expressions and not underlying ideas. This is known as the idea/expression dichotomy. Facts are also not copyrightable. Nor are words and short phrases (but consider possible trademark rights instead). One anomaly, however, is that courts have granted broader protection to fictional characters. Derivative works are ones that add to or modify an existing work, and are also protectable. An example is a translation or a revised second edition of a book. Compilations can also be copyrightable if they exhibit a modicum of creativity — merely alphabetical listings fall short of that threshold, however.
Copyright arises automatically once a work is fixed in a tangible medium of expression. Registration is not required to have copyright. However, a registration (or at least an official refusal of registration) is required to be able to sue for copyright infringement for U.S. works (but not foreign works). A registration thus provides the keys to the courthouse, so to speak. Having a registration before infringement begins or within three months of publication (for a U.S. work) also enables recovery of statutory damages and attorney’s fees, which are potentially game-changers in terms of leverage in infringement disputes.
It is common to describe copyright as a bundle of rights. Under U.S. law, those include the exclusive right (1) to reproduce the work, (2) to prepare derivative works, (3) to distribute copies by sale, rental, lease, or lending, (4) to perform the work publicly (for certain types of works, including streaming sound recordings), and (5) to display the work publicly (for certain types of works).
Ownership of copyright is distinct from ownership of a copy of a work, even the sole or “original” copy. Ownership of copyright can only be transferred by way of a written assignment, and authorized agents can sign a copyright assignment on behalf of the owner.
Where copyright ownership gets very complicated is under the often misunderstood statutory provision for a “work made for hire.” This is a defined term and it does not apply merely because a work is paid for. A copyrightable work prepared by an employee within the scope of his or her employment is deemed authored by and thus automatically owned from the outset by the employer. But when a non-employee creates a work, like an contractor or vendor, the purchaser is deemed the author and thus owner only if (a) agreed to in writing and (b) the work is one of nine (9) types enumerated by statute. This second part causes endless confusion. A written agreement purporting to make something a work made for hire is void and without effect if the work is not one of the nine types enumerated by statute—and chances are it isn’t.
Another complicated area of copyright law has to do with termination rights. These provisions potentially allow an author to undo a prior transfer of rights within a five-year “termination period” window. That window opens after thirty-five (35) years for most modern (1978 or later) works, but instead after fifty-six (56) years for works registered or first published before 1978.
So-called moral rights also may attach to copyrighted works. But these vary by country. In the U.S, they apply only to works of visual arts, and may restrict the ability to remove or destroy a work or delete attribution. This can be a significant consideration if a mural, sculpture, or the like is being installed on company premises—unless waived these rights might prevent removing the work (for any reason, including being dangerous).
There tend to be tremendous misconceptions and misunderstandings about copyright law. It is a type of IP law where general public perception is often out-of-step with the real import of the law. That is to say that people often have ideas and strong feelings about what they think copyright law covers or does not cover, when in fact those views may be completely at odds with the law as it actually exists and is applied. For in-house counsel, this means that there is a high likelihood that company employees (or even executives and owners) may act in ways that create copyright problems, either through ignorance of the law or hostility towards it.
There are three basic elements of a trade secret: (1) it is not generally known to the public (and is not readily ascertainable by proper means); (2) it confers economic benefit on its holder because the information is not publicly known; and (3) the holder makes reasonable efforts to maintain its secrecy. But a trade secret can be just about any type of information.
Examples of trade secrets given in the Uniform Trade Secrets Act (UTSA) are “a formula, pattern, compilation, program, device, method, technique, or process” and the federal Defend Trade Secrets Act (DTSA) definition gives as examples “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes . . . .” Trade secrets can potentially encompass things like customer lists, marketing and distribution strategies, etc.
Trade secret protection principally comes down to what constitutes reasonable efforts to maintain secrecy over commercially valuable confidential information. Such efforts must always involve affirmative acts. At a minimum, you must be able to point to specific protective steps affirmatively taken to guard trade secrets that go beyond normal business practices applied to all business information. There is no defined list of steps that are always sufficient. What is reasonable and sufficient will depend on context. Though there are some typical protective steps that should be considered.
Non-disclosure agreements (NDAs) are one of the single most common agreements in the business world. These can play a role in protecting trade secrets. But an NDA, alone, may not be sufficient. Moreover, the “right” NDA terms in any given situation might vary depending on which side is making more significant disclosures, the lifespan of information to be exchanged, the feasibility of maintaining confidentiality, and more. For instance, should confidential or trade secret materials have to be explicitly marked as such to be subject to an NDA? The answer to that question might vary in different scenarios.
At the broadest level, in-house counsel should help guide overall corporate policy about trade secrets and ensure that affirmative steps are taken to preserve company trade secrets. Additionally, steps should be taken to reduce the risk of trade secret misappropriation claims. This means that any NDA terms that a company agrees to are actually adhered to.
Right of Publicity/Privacy
The right of publicity is primarily a creature of state law in the U.S. Through it is also reflected in the federal trademark laws (the Lanham Act) regarding suggestions of a “connection” or the like with another person. The right of privacy is somewhat like the inverse of the right of publicity. But there are some differences in how they arise and what in-house counsel needs to be aware of.
Misappropriation of a right of publicity is a cause of action recognized under the laws of unfair competition in many if not most states. These laws can vary from state-to-state, and some states may provide only common law causes of action—the Restatement (Third) of Unfair Competition is a helpful resource on common law treatment. Generally speaking, the right of publicity is usually meant to allow celebrities to control use of their likeness, including via endorsements, or their act (in the case of an entertainer’s act or routine). What this means is that the right of publicity may not arise for an ordinary person who is not a celebrity. A famous corporation (i.e., in terms of the business’ corporate trade name) might have similar rights under state or federal law, but usually only where the corporation’s trade name uniquely identifies it. A basic component of right of publicity actions is that they involve someone creating some unique identity (or act/routine) that is unfairly misappropriated without consent—this is not the same a likelihood of confusion between trademarks.
The right of privacy can take different forms, including putting someone in a false light or publicizing private details in a harmful way. A common aspect of right of privacy matters is that the person is not a celebrity but his or her likeness is being used without authorization in a way that intrudes upon their private life or casts them in a disparaging light.
For in-house counsel, the rights of publicity/privacy most often arise in the context of the commercial use of audiovisual materials that depict people without their consent or authorization. A release from someone to use his or her name or likeness is sometimes called a “model release”, though in other industries this might go by other names or be included within another agreement such as a “materials release” in film or TV productions. Bear in mind, however, that having a copyright license is not, alone, enough to clear any right of publicity/privacy issues. These releases and copyright licenses often need to come from different people. For instance, a copyright license or assignment for a photograph would often come from the photographer while the publicity/privacy release would come from the person(s) appearing in that photograph (or a parent/guardian).
Some Further Resources
There are many treatises and materials available for each of the subject matter areas discussed above. A few leading treatises are mentioned here, along with some online resources.
- McCarthy on Trademarks & Unfair Competition
- Patry on Copyright and Nimmer on Copyright
- [there is not currently any single leading patent law treatise to recommend]
- U.S. Patent & Trademark Office
- U.S. Copyright Office
- World Intellectual Property Organization (WIPO)
Protecting Company IP
Protecting company IP is about securing rights when available and desired, and maintaining those rights over their lifespans. There are two ways to obtain IP rights: by creating it or by acquiring it. Acquisitions, including obtaining licenses or purchasing IP assets or that companies that own them, tends to be a fairly deliberate process. But a company may be creating things that could potentially be subject to IP protection without IP being a conscious factor. This is where a bit of knowledge helps. Some IP rights arise automatically under certain circumstances while others require affirmative action. Knowing where action is required and where it is option is crucial for in-house attorneys.
Practice Tip: Think about IP early to avoid waiving potential rights and consider the benefits of pursuing optional forms of protection.
A common mistake is to ignore ownership of IP rights until there is infringement or a big business deal. But cutting corners or forgetting to put IP ownership in writing at the beginning of a vendor or employee relationship can have huge—if avoidable—consequences later on.
For instance, seeking to obtain IP rights from a vendor after the end of the relationship can be difficult. Your company may find itself without leverage to insist upon vendor cooperation or the vendor may simply no longer exist (e.g., requiring dealing with the estate of a deceased freelancer or figuring out where a dissolved company’s assets were distributed). And vendors may opportunistically seek windfalls to assign over IP rights after-the-fact. In worst-case scenarios, the vendor may own the IP and be able to freely commercialize it to your disadvantage, as well as potentially block further independent development by you. Vendors may also be ignorant or misinformed about IP rights in general. Do not assume that the vendor understands potential IP issues or that the vendor’s standard service agreement will adequately or satisfactorily address and allocate IP ownership.
Acquisitions and Licensing
IP rights can be obtained from others via assignment (i.e., a transfer of ownership) or licensing (i.e., authorization to use it without a change in ownership). For many types of IP, assignments must be in writing and/or satisfy other criteria to be valid. Notably, trademark rights are tied to underlying customer goodwill and cannot be assigned apart from that goodwill. You cannot have a “naked” assignment of a trademark without more, namely, the underlying business associated with use of that mark. Licenses should ideally be in writing. However, implied licenses, though generally disfavored, might arise in some circumstances. Most of the time, use of someone else’s IP in a commercial setting requires authorization via a license.
If a business unit is acquired as part of a merger or asset purchase it is helpful to do both IP due diligence as part of the acquisition but also to inventory IP assets after the acquisition is complete. There may be a schedule of acquired IP available. Yet it is possible there is additional IP that should be protected that prior management did not expressly protect or list on a schedule, such as unregistered trademarks, inventions under development not yet patented, and more. An assessment of potential infringement risks is another component that should be considered as part of business unit acquisitions, ideally as part of acquisition due diligence but potentially also as a further effort that follows the formal acquisition.
A company can obtain IP by creating it. However, newly-created IP will not always be owned by a company automatically. IP is created by people. It becomes necessary to look at who those people are and what their relationship is to the company. As will be seen, it often matters whether those people are employees or non-employee vendors/contractors, or if those people had already signed contracts affecting IP ownership. These things vary by the type of IP involved. The laws of local jurisdictions may also alter the default initial ownership of certain types of IP too.
|Type of IP||Default Owner (Subject to Exceptions)|
|Trademarks||User of mark (to designate source)|
|Trade Secrets||Rightful owner|
When employees create things that may be subject to patent rights, the general rule—with some exceptions—is that the employee rather than the employer is the owner. Businesses wanting to obtain ownership of employee-created inventions should consider a written agreement (e.g., employment agreement) that establishes either an obligation to assign inventions (to be followed later by execution of an assignment) or an assignment of an expectant interest in later-conceived inventions.
When it comes to copyrights in employee-created works, the highly confusing “work made for hire” doctrine can apply. This doctrine is defined by statute. A copyrightable work prepared by an employee within the scope of his or her employment is deemed authored by and thus automatically owned from the outset by the employer. But vendors and even “internal” independent contractors do not fall within that definition—see below.
Trade secret ownership is, like so many aspects of trade secret law, not that clearly defined. State laws on this point are fairly consistent but some are more explicit than others about issues involving employees. In general, an employer would have rights to a trade secret developed by employees in the course of their work duties even without an express agreement, though an explicit written agreement is helpful in making that clear where desired.
When a vendor is hired to create something for a company, the general rule is that the vendor—not the company hiring that vendor—is the owner of any associated IP in the absence of a written agreement to the contrary. This may be one of the most common mistakes that companies make: they wrongly assume that hiring a vendor or receiving deliverables from a vendor automatically transfers IP ownership. One of the ways that in-house general counsel can help avoid difficult problems down the road is to watch over vendor hiring and vendor agreements to make sure that IP ownership is allocated as intended. Sometimes it won’t matter if the vendor retains ownership. But things that may be copied and reused by the company in the future, like advertising copy and photographs (especially things appearing on a website), can be a particular source of frustration if not sorted out properly at the outset of a vendor relationship.
When dealing with vendors, business partners, and even customers, trade secret ownership is often highly unclear. For that matter, the exchange of trade secret information outside the company in an of itself presents risks to trade secret protections. When dealing with outside entities, having a written agreement in place to set forth ownership and compliance obligations is important. This is one reason that NDAs are some of the most common types of business agreements.
Joint development or joint research scenarios with vendors or other business partners can create unique circumstances, particularly with regard to patentable inventions (as discussed below).
Overview – Patent Rights Lost Without Action
Potential patent rights in an invention are lost if not proactively pursued. If an invention is commercialized (even in secret), publicly used, or publicly disclosed, those activities by the inventor(s) can act as a bar to patenting in the absence of a timely patent application. In the U.S., a patent must be applied for within one year of any public disclosure, public use, or commercialization of the invention by the inventor—this is referred to as the grace period for U.S. patent filing. In most other countries, there is no grace period and a patent must be applied for before any public disclosure.
The costs to obtain a patent are considerable. Costs to obtain patents in foreign countries are significant too, especially when translations in other languages are required. There is generally a need to work with licensed local counsel in each foreign jurisdiction where patent protection is required.
An important first step is to identify inventions that are potentially patentable. Generally, the key components to recognizing and identifying potentially patentable inventions involve education (i.e., promoting awareness of patentability and any generalized desire to patent inventions) and communication (i.e., actively cultivating awareness of activities that may produce patentable inventions). But there is also a timing component, in that inventions must be sufficiently developed to be “ready for patenting”—vague and inchoate goals and business objectives are not enough. The invention must be sufficiently developed to be able to describe how to make and use it in order to be ready for patenting.
Having some sort of company “invention disclosure” form to allow personnel to confidentially disclose potential inventions in writing is common and worthwhile. Not only can such a form provide a written record of the substance of the potential invention, but it can also be used to gather supporting information about the names of the potential inventor(s), planned commercial release or public disclosure dates, relationships between the invention and business initiatives, and other information that can be useful when filing patent applications and generating reports on company activities. Aside from such forms, which require inventors to come forward on their own initiative, efforts to proactively engage in invention harvesting can be utilized, such as conducting an “invention harvesting” session where potential inventors talk about their ongoing work to try to identify potentially patentable ones. Additionally, key product development stages, such as engineering “design reviews”, can be excellent times to proactively assess potentially patentable inventions.
Invention is often a result of research and development (R&D) efforts. On the one hand, if no effort is being put forward to address technical or scientific problems then patentable inventions will not simply materialize out of thin air. In those situations, there is nothing to patent. Though sometimes inventions do arise “out of the blue” based on a proverbial “light bulb” going off in someone’s head or a “flash of genius” not tied to any particular R&D effort. On the other hand, investment in R&D and the like is no guarantee that any patentable invention(s) will arise. Merely because a development project is expensive does not mean that it will produce any patentable invention. Some development efforts involve only unpatentable routine engineering.
Moreover, patentability might arise at the level of rather detailed technical considerations rather than at the level of overall project organization. Put another way, a project to develop a new product may produce a patentable invention narrowly tied to a particular isolated feature of that product, or a method of making or using a particular aspect of that product, though the overall product in the abstract is well known and unpatentable. Those narrower patentable aspects might not be identifiable at the outset of the project but may arise later.
A legal department disconnected from the activities of an engineering/R&D department will not be able to identify inventions devised by the latter when unaware of the other department’s ongoing activities and projects. Simply expecting scientists and engineers to step forward when they believe they have an important invention may not capture all possibly patentable inventions. Inventors might not have a good understanding of patent law and therefore may misunderstand what can (and cannot) be patented, or they may just be very humble or shy. For instance, an invention may be patentable even if its inventor does not subjectively consider it to be “important” simply because the inventor is applying a personal or idiosyncratic standard of “importance” that does not align with current patent laws. Moreover, companies with R&D departments that normally develop patentable inventions may lead to circumstances in which inventions conceived by personnel outside the R&D department, proper, are overlooked.
Patent Incentive Programs
Programs that incentivize employees to bring forward potentially patentable inventions are somewhat common, at least in medium to large companies. Most often these take the form of a bonus or bonuses paid at certain milestones: filing (or assignment) of a patent application, grant of a patent, etc. Such monetary incentives can generate considerable encouragement for employees to expend efforts to fill out and submit an invention disclosure, which may represent effort above and beyond regular job duties.
However, policies around monetary incentives should be carefully developed to avoid unintended consequences and misconduct. For instance, should legal department staff be eligible for bonuses related to their own patent activities that they themselves also approve and manage? If so, risks of problematic self-dealing and outright fraud could arise. Bonus systems that provide different levels of payment based on the number of named inventors can also give rise to situations in which certain people are encouraged to exclude other actual or potential inventors in order to maximize their own bonus, despite the negative legal effects of incorrectly naming the true inventors on any resultant patent. All this is to say that once monetary incentives are introduced there should be sufficient policies in place to ensure that desires to collect payments do not override duties to comply with the law and company policies.
Non-monetary incentives can also play an important role. Examples include ceremonies in which inventors named on patents are formally recognized by company executives. Sometimes such ceremonies are incorporated into holiday events or the like. Other incentives can include the display of plaques commemorating granted patents in prominent places within company offices.
Patent Portfolio Responsibilities
There are many ways to allocating responsibility for patent in a company. And there is no right or wrong approach, though the most common approaches in larger organizations are to place responsibility in the hands of some combination of engineering and legal departments, or sometimes finance. An in-house legal department may be involved in this decisions, but not always or exclusively. Internal battles over budget allocations are sometimes inseparably from questions of responsibility.
Initially, patent filing decisions, that is, making business decisions about whether or not to pursue a patent on a potentially patentable invention, need to be made by somebody or a group of somebodies. In relatively small organizations, this may inherently fall to the owner or CEO/President/LLC-manager. But in larger organizations an initial question is departmental responsibility, so-to-speak. And often that is a question that hinges on budgetary concerns: whose budget will patent-related expenses come from?
A common approach to patent filing decisions in larger companies is to organize a patent review committee, so that multiple stakeholders are able to weigh in on how and when resources are devoted to patenting. The number of potentially patentable ideas may be greater than the budget to try to patent them all, and a committee (and associated committee guidelines) can present an institutionalized approach toward balancing competing interests, while at the same time relieving any one person from potential resentment caused by turning down any given invention patenting proposal.
But there is more to patenting than simply deciding to file a patent application. There are also decisions to be made during prosecution that can affect the scope of any resultant patent, as well as decisions about paying fees to issue patents and to keep granted patents in force. Someone, or some group of people, must have responsibility for managing and maintaining a patent portfolio of any size. Many of the same considerations as those discussed above with respect to filing decisions apply here, though management or supervision of patent prosecution is difficult to do by committee. Yet certain budgetary considerations related to maintaining a patent portfolio can still be suited to a committee.
Ongoing docketing responsibilities are a key part of responsibility over a patent portfolio. Patenting involves many deadlines and those require docketing. IP docketing is orders of magnitude more involved than typical general litigation docketing. Outside patent counsel will invariably have a docketing system (and associated staff) and can manage docketing on behalf of clients. Larger companies may have an in-house docketing system to manage a patent portfolio, most certainly if there are in-house patent attorneys or agents handling prosecution, but sometimes merely for purposes of generating reports. Docketing systems and report-generating systems often are the same thing, or at least represent two sides of the same coin. But they are expensive. Businesses filing no more than a handful of patent applications per year will find that purchasing and maintaining a docketing system is cost-prohibitive.
Another consideration when deciding who will be responsible is that U.S. patent law imposes certain duties: “Each individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to patentability . . . .” 37 C.F.R. § 1.56(a). The duty of disclosure may necessitate gathering and submitting known prior art, including the patentee’s own activities and prior patents, to the USPTO in an Information Disclosure Statement (“IDS”).
An invention must be found to be patentable in order to obtain a patent. For a utility patent, the three basic requirements are utility, novelty, and non-obviousness. Patents are not available for things that are already known (even if not actively being commercialized by others at present) or that are merely trivial variations on what is already known. Put more simply, there must be some non-trivial technical achievement involved for there to be the possibility of obtaining a patent.
Just because some feature of a product is marketable does not make that feature patentable, and, conversely, patentable inventions may not have any foreseeable marketing value. All of these considerations need to be taken into account in deciding whether or not to proceed with patenting.
It frequently happens that an invention is believed to be novel and patentable but then during examination a patent examiner uncovers evidence (“prior art”) that the invention was already known. There can also be disagreements about patentability, such as a patent examiner taking a different view than and inventor or patent attorney when comparing a claimed invention and given prior art.
Patentability searches can optionally be performed before committing to file a patent application. Because patentability is assessed based on the scope and content of the “prior art”, a patentability search allows for a more informed decision about the likelihood that a given invention is patentable. Though patentability is not always a binary yes/no question, and a patentability search and analysis can help ascertain the likely scope of any resultant patent. For instance, what appears patentable following a patentability search and analysis may be too narrow to justify the costs of patenting from a business (rather than legal) perspective. While the USPTO and the U.S. patent laws do not require any pre-filing patentability search, performing one can help avoid unnecessary patent preparation and filing expenses for inventions that are unlikely to be patentable or not valuable enough to justify patenting costs.
Additionally, the results of patentability searches can help patent practitioners prepare higher-quality patent applications. Rather than blindly guessing at the scope and content of prior art—or ignoring it—the patent application can be drafted with the closest prior art in mind, thereby better highlighting what is patentable about the invention. All too often the patenting process runs aground by focusing almost exclusively on formulating the broadest possible characterization of the invention, whereas patent claims that are too broad to be patentable won’t be granted. A patentability search can help focus efforts on what is feasible and realistic.
Ownership: Assignments, Transfers, and Obligations to Assign
The general rule is that inventions are initially owned by the inventor(s). This means that an invention by an employee alone would normally be owned by that employee, not the employer, int he absence of a written agreement. There are some exceptions to this, including a state law in Nevada giving employers initial ownership of certain employee inventions, and various other countries have laws that may transfer ownership to an employer by operation of law.
Accordingly, an employee usually needs to obtain a written assignment from an employee-inventor in order to obtain ownership of patent rights. U.S. assignments are conventionally only signed by the assignor, though in other countries a signature by the assignee may also be required. Patent assignments (and similar documents such as liens and licenses) can be recorded with the USPTO against particular patents or patent applications—a single assignment document can be recorded simultaneously against multiple patents and/or patent applications. Patent assignments should always be recorded, ideally within three months of execution.
In the U.S., there is no requirement that assignments be notarized, though notarization or alternatively a witness signature may be desirable. Confirmatory assignments, quitclaim assignments, corrective and nunc pro tunc assignments are used in various scenarios, sometimes specifically to facilitate recordation. In other countries, assignment requirements may vary, and other countries may have much more stringent requirements regarding notarization (or legalization), disclosure of consideration (e.g., explicitly indicating the price paid), etc.
It is common for employment agreements to include obligations to assign future inventions developed in the course of the employee’s job duties. However, such terms are governed by individual state (or foreign) laws regarding employment and invention assignment requirements (if any). For instance, some obligations to assign inventions conceived after the end of employment have been found to be void as prohibited non-compete agreements.
Whether a given contract creates an present assignment of legal rights or instead creates only an obligation to assign (and mere equitable rights) can hinge on the particular language used. A present assignment should use present tense terminology such as “hereby assigns”. Obligations to assign future inventions can use future tense language like “shall assign”.
Practice tip: when patents are assigned as part of some other agreement, like a broader asset purchase or the like, consider preparing a separate assignment document as an attachment to allow recordation apart from the other provisions.
Moreover, assignments and obligations to assign are treated as part of contract law, generally subject to state (or foreign) law. This means there are generally requirements for there to be adequate consideration for an assignment or obligation to do so. Mere continued at-will employment may of may not constitute adequate consideration—states are split on that question. These things need to be considered and it may be necessary to make an express payment to provide consideration for an assignment or obligation to assign. Such payments can potentially dovetail with patent incentive bonus programs. Signature requirements may also fall to state (or foreign) law, meaning that in order to be valid and enforceable electronic signatures may need to comply with applicable digital e-signature laws (like UETA). Applicability of the federal ESIGN act provisions for patent assignments has not yet been established by courts.
Another odd but potentially significant issue with ownership (and licensing) has to do with community marital property laws. If an inventor-employee, inventor-contractor is married, that inventor’s spouse might have an automatic interest in an invention conceived during the marriage as a matter of state or foreign community property laws applicable only to married persons. Community property states include California and Texas. Consider the need to obtain the signature of a spouse to encompass all potential spousal rights if an inventor is in a community property jurisdiction.
Joint Research & Development
In any joint development or joint research scenarios, the parties should agree in advance about who will own any resultant inventions. For instance, joint ownership of any inventions could be agreed to in advance. In the absence of a prior agreement, one party could obtain sole ownership of a patent, which could limit the other party’s future business plans even though they partly funded the development. Indeed, in the absence of any agreements at all ownership of any inventions that arise from such joint development efforts will vest with the individual inventor(s) and not either company. If an important invention does arise, efforts to negotiate a license or assignment after-the-fact may be subject to outrageous demands seeking a windfall. Such concerns can be avoided by reaching an agreement before the joint efforts begin.
Also, joint development might rely on certain “background” IP. Agreements may need to establish licenses or other access to pre-existing IP necessary to commercialize and/or use jointly developed technology.
Guidelines for preparing joint development agreements are beyond the scope of the present guide, though for now it is sufficient to note that funding of joint research does not by itself affect ownership of patent rights—although equitable “shop rights” may provide a limited ability to use another’s invention in certain circumstances. Moreover, rights of priority in joint development situations are legally distinct from ownership.
Foreign Patent Protection
Patent rights are territorial and a U.S. patent will not provide protection abroad. If patent protection in multiple jurisdictions is desired, such as for a product that will likely be released internationally, then patent protection needs to be pursued in each desired jurisdiction. Because most other countries lack a filing grace period, this means it is important to consider patent protection before any commercialization or public disclosure of a new invention. Failing to do so may bar patent protection in many countries.
So, patent applicants must generally decide if foreign patent protection is desired and, if so, where. The most important criteria are where the market(s) for the invention will be and where the patentee is likely to be active. Foreign filing can quickly become expensive, particularly when translations are required.
There is no such thing as a “global” patent enforceable around the world. Patent protection must be pursued in each and every jurisdiction where protection is desired. There are some slight exceptions, in that there are some regional patent offices that allow for centeralized filing and examination, like the European Patent Office (EPO) and the African Regional Intellectual Property Organization (ARIPO), and the PCT system allows for a centralized initial filing and preliminary examination procedure (later followed by national or regional phase filings). And regional enforcement of certain European patents is potentially possible through the Unified Patent Court.
Patent applicants can claim “priority” to an earlier patent application when pursuing foreign protection under various treaties. Usually, foreign priority must be claimed by filing foreign application(s) within a year. One distinct advantage of the PCT system is that filing a PCT international application allows for only a single application to preserve foreign filing rights in all WTO member states while deferring for up to 30-31 months from the earliest priority date decisions about which individual countries or regions will be entered, thus deferring many foreign filing costs for a considerable time.
A foreign filing license may be required before a patent can be pursued abroad. This is a requirement of U.S. patent law and failure to comply can bar patenting in the U.S. Foreign filing license secrecy review happens automatically for applications filed with the USPTO or USPTO and the PCT Receiving Office, or can be expressly requested prior to a first filing elsewhere. Some other countries have foreign filing license requirements, or require domestic filing before any foreign application can be filed. In general, these questions turn on where an invention was made or conceived. When inventors in different countries collaborate to jointly conceive of an invention, foreign filing license requirements can be more complicated. It cannot be assumed that the location of the headquarters of the employer-applicant will control with regard to restrictions on patent foreign filing.
Maintenance Fees and Annuities
Patent offices require payment of periodic official fees to keep a given granted patent or pending patent application in force. In the United States, there are escalating “maintenance fees” due at 4 years, 8 years, and 12 years from the grant of a patent in order to keep the patent in force. Failure to pay any of these maintenance fees will cause the patent to lapse or expire. In other countries, yearly “annuities” must be paid to keep a granted patent or pending patent application in force or active. These fees vary by country, for instance, some countries require payment of annuities while a patent application is pending while others (such as the U.S.) require such payments only upon and after grant of a patent.
Regardless of the specific requirements, failure to pay an annuity will cause a patent or application to lapse, expire, be withdrawn, or become abandoned. Patent owners can and should review their patent portfolio and make decisions about which maintenance and annuity fees are worthwhile from a business perspective.
In the United States, marking patented products with the applicable patent number(s) can provide “constructive notice” to potential infringers. Failure to mark (including a failure of a licensee to mark) may result in the loss of the ability to seek back damages for infringement. 35 U.S.C. § 287.
It is important that any patent marking effort complies with legal requirements in order to be effective. Some patent owners accept the potential loss of past damages in order to avoid the burdens associated with patent marking. Though patent marking can have a deterrent effect against some would-be infringers, and back damages that can accrue through marking might have substantial value in some instances.
When U.S. patent protection has been applied for and a patent application is still pending, products can be marked as “patent pending”. A “patent pending” designation carries no enforceable legal weight but does serve as a “copy at your own risk” warning that may help discourage would-be infringers.
U.S. law also has provisions against intentional false marking. 35 U.S.C. § 292. In general, products should be marked as “patented” only when an applicable U.S. patent has in fact been granted or “patent pending” only when a corresponding application is indeed pending.
Export Controls, Sanctions, and Foreign Filing Licenses
Export controls, sanctions, and the like limit the transmission of certain technical data and/or limit or prohibit certain dealings with particular countries or persons. Such export controls and the like do not arise from patenting as such, but given that inventions may deal with protected information and may involve foreign disclosures, these provisions do have an impact on patenting activities. These various restrictions generally fall into two categories: those based on the technological subject matter and those based on the country or person involved at the receiving end.
Most of the technology-based controls are meant to protect military technology for purposes of national security, though such determinations can be esoteric. For instance, dual-use export controls restrict export of technical information about things with potential civilian or military uses. The catch is that you have to understand possible military use even if you develop and sell something only with civilian use in mind–one famous example was that popular consumer video game consoles were implicated on the basis that their circuit boards could be repurposed and used in missiles. “Re-export” of information that originated abroad can also apply. And a “deemed” export can occur if someone physically located within the U.S. who is not a citizen or green card holder receives the invention.
The United States has by far the most restrictive export controls at present, though other countries may have similar restrictions.
Sanctions against individuals and countries are really a financialized form of warfare. But the use of such sanctions can implicate global patenting efforts, including paying foreign patent offices, foreign law firms, and foreign patent searching service providers.
First-filing requirements and foreign filing licenses are a separate but related consideration. Some jurisdictions require inventions made there to have the first patent application filed there, and/or to obtain a foreign filing license before filing for patent protection abroad. If there are foreign inventors this is an important consideration. When inventors in different jurisdictions collaborate these considerations might require more detailed analysis and action, possibly to obtain one or more pre-filing foreign filing licenses. Some countries allow applicants to make certain determinations themselves while others require a government agency to review the substantive patent application disclosure and make a determination.
Taxes and Subsidies
In the United States, businesses can potentially amortize the costs associated with obtaining a patent for tax purposes. In other countries, various tax incentives or subsidies may be available related to patenting efforts. Some companies will place ownership of patents (and possible other IP too) with a holding company. This is sometimes done for tax purposes—though doing so may make higher “lost profits” damages recovery unavailable. Patent owners should consider tax implications and incentives (e.g., government subsidies) with regard to patent ownership. The present discussion is informational only and is not intended as tax advice.
Trademark rights can arise through commercial use of a mark to identify the source of goods or services, provided that the mark is sufficiently distinctive. Trademark registration is not required to have enforceable rights in the U.S.
Avoiding Abandonment: Use It or Lose It
Because trademark rights are usually tied to commercial use, ceasing to use a mark (without sufficient intention to resume use) may result in abandonment of rights. Under U.S. federal trademark law, abandonment is presumed after three (3) consecutive years of nonuse. It is possible for rights to be partially abandoned for some goods or services but maintained for others, depending on the nature of ongoing use. Generally speaking, this means trademark rights follow a use it or lose it regime, at least in the U.S. But it has to be the right use.
In order to maintain trademark rights, use needs to be proper and consistent use as a trademark. Trademarks (and service marks) function to identify the source of goods or services. In order to do so, the distinctiveness of the mark must be preserved. A mark that becomes the generic name for the goods or services themselves will lose protection. Therefore, a mark should always be used as an adjective that modifies a noun and never as a noun or as a verb. A helpful approach is to always couple use of a mark with an appropriate generic term immediately following the mark. For instance, “EXAMPLE widgets” represents proper use of the mark EXAMPLE together with the generic term widgets.
Another helpful exercise to determine if usage is proper is to insert the word “brand” immediately after the mark (along with a generic term). If the wording still reads appropriately, in English, then usage is likely to be proper. For instance, “Buy EXAMPLE brand widgets” still reads appropriately. But “Please EXAMPLE brand me those things” reads awkwardly because the mark is being improperly used as a verb. Beyond just a theoretical exercise, the word “brand” can also be inserted into actual commercial usage this same way.
Marks should also be used prominently. This means the mark should be used in such a way that consumers would understand that it functions as a trademark (or service) mark and identifies the source of the goods or services. Consider where the mark is placed in relation to other text, graphics, or the like. The mark should grab the attention of consumers and not be buried in other text, too small to see, etc.
Although not legally required, a helpful technique is to distinguish the mark from nearby text using all capital letters, boldface or italic font, underlining, quotation marks, color, or other stylized format. A trademark symbol can also be used to distinguish the mark from surrounding text. These aspects of the appearance and presentation of the mark help to convey a commercial impression of the mark as indicating the source goods or services rather than in a generic or merely descriptive way.
A mark is a specific indicator. So usage must be consistent. If a logo is changed or word(s) are modified that materially alter the mark (so as to no longer create essentially the same commercial impression) then it is possible that rights in the mark could be challenged or lost, or renewal of a registration refused. Spelling (and punctuation, if any) should always be the same. A “refresh” of branding can lead to loss of rights in previously-used marks when it materially alters the commercial impression given by the mark. This is frequently a concern for graphical logos.
Also, do not pluralize or singularize a mark by adding or removing an “s”, and do not use a mark in a possessive form (unless the mark itself is possessive or a non-trademark use as a company name or trade name is involved). For example, LEVI’S® for jeans should not be changed to “LEVI” because the mark includes the possessive “‘S”. Such changes do not reflect proper usage.
It is recommended—but not legally required in the U.S. to maintain rights—to include an appropriate trademark symbol with use of a mark.
Use of the trademark registration symbol ® immediately after a mark is permitted and encouraged for any registered mark, though it must not be used for an unregistered mark. For instance, a registered mark can be identified as “EXAMPLE® widgets.”
The symbols ™ (for trademarks used with goods) or SM (for service marks used with services) can be used even with unregistered marks. For instance, an unregistered or registered trademark can be identified as “EXAMPLE™ widgets.” If there is doubt, or a given use of a mark encompasses both goods and services, use of the ™ symbol might be preferred because it is more widely recognizable.
An appropriate trademark symbol should be used with the first and/or the most prominent use of the mark on the goods, their packaging, or given advertising materials (such as a single web page or single print ad). It is not necessary to continually use trademark symbols with each and every instance of the mark on the same item. On the other hand, there is no legal penalty for unnecessary use of trademark symbols. Though over-use of trademark symbols may simply be less aesthetically pleasing in some circumstances.
Failing to use a trademark symbol does not result in the loss of U.S. federal trademark rights. However, such a failure may limit recovery of monetary damages. When a mark is federally registered in the U.S., either use of a symbol (or accepted alternative) or actual notice to an infringer is required in order to recover profits and damages for infringement.
Marketing staff will not always understand the legal significance of proper trademark usage. In-house counsel should make efforts to review and verify such usage periodically, especially for important brands. These efforts are important even if a mark is not registered.
In order to obtain a U.S. federal trademark registration, use of the mark in (interstate) commerce is usually required. Though it is possible to pursue an intent-to-use (ITU) trademark application before use has begun, with a later showing of use prior to registration (within no more than approximately three years). For a domestic U.S. company, it is normally required to establish use of a mark before any federal registration can be granted. However, an important exception is that U.S. trademark registrations that claim priority to a foreign application or registration can be initially obtained without a showing of use—subject to later cancellation if use has not begun in the U.S. after three (3) years of registration.
One requirement for federal registration is providing one or more specimens of use. A specimen is basically evidence to corroborate an assertion that a given mark is being used with particular goods or services. Often one of the most significant efforts involved in applying for a trademark registration is obtaining suitable specimens. Not everything will be acceptable as a specimen.
State-level registrations are possible. However, these may be of limited value compared to a federal registration. If a federal registration is obtained, that is usually sufficient in most circumstances. Nonetheless, if use of a mark is happening only within one state, it would likely not be eligible for federal registration and a state-level registration might still have some benefits.
Although distinguishable from trademark law as such, when a business operates in multiple states it may be necessary to register as a foreign corporation and/or register a trade name as an assumed name under state laws.
A trademark docketing (and reporting) system may be important if a company holds many trademark registrations. Though for smaller portfolios, with no more than a few dozen trademarks, it may be more cost-effective to rely on outside counsel to handle docketing and prepare reports.
Having a trademark registration is not an absolute defense against infringement allegations in the U.S. (though sometimes it is in other countries). Yet registering trademarks can sometimes help to minimize the risks of contentious trademark disputes. Also, having a trademark registration can also allow it to be recorded with customs or with online marketplace platforms. Thee benefits of such recordations will vary depending on the type of goods involved, but they can sometimes be significant.
Foreign Rights and Registrations
Trademark rights are territorial and rights in the U.S. will generally not provide protection abroad. Trademark laws in other countries sometimes significantly differ from those in the U.S. For instance, in many countries trademark registration is highly important and there may be little or no rights available from mere use. This means that failing to register a mark in a foreign country might allow someone else to register it and deprive your company of the ability to control or use that mark—sometimes even a distributor or outsourced manufacturers.
In China, for example, “OEM” manufacturing exclusively for export can be considered trademark use in China. Therefore, even if no domestic Chinese sales are occurring, having a Chinese trademark registration can help avoid manufacturing and supply chain disruptions caused by a trademark dispute.
The Madrid Protocol system allows for a semi-centralized process for extending a “basic” trademark registration or application in one country to other participating ones. Madrid extensions have various advantages and disadvantages compared to filing directly in individual jurisdictions. Suffice it to say that it is worth knowing that this is an option that may provide costs savings under some circumstances when trademark registration is desired a multiple countries.
Trademark rights can potentially last indefinitely as long as the mark is still in use. However, registrations must be expressly renewed periodically to stay in force. typically, renewals are at ten-year intervals, though the U.S. effectively has a further declaration of use requirement at five years of registration that is like a renewal. Renewals often involve submitting a certification of use (or in rare circumstances a statement of excusable nonuse) and accompanying evidence. Planning for renewals includes both docketing deadlines and collecting evidence to use as a specimen of current use.
Gray Market Goods
There are also some aspects of trademark law that are unique to “gray market” goods. These are goods sold abroad, usually at a lower price point, imported into the USA without the trademark owner’s authorization (and possibly contrary to a licensing/distribution agreement). U.S. courts have adopted rather harsh views on this practice that might someday be challenged but should be taken into account if gray market branded products are involved. This issue can be particularly significant if there are different quality characteristics of goods sold in different countries under the same brand. For instance, think of a beverage that is sold under the same brand name but with different flavors in different countries.
It is possible to record a U.S. federal trademark registration with Customs and Border Patrol (CBP). Such a recordation allows CBP to help block importation of counterfeit and infringing goods into the USA. However, CBP recordation requires having a valid registration on the Principal Register and further requires periodic renewal of the customs recordation. It is also possible to provide product identification (Product ID) guides, product test kits/tools, and other online or in-person training to CBP to aid in the identification of suspect goods by customs field agents at ports of entry. CBP recordation to block importation is a significant exception to the general rule that trademark owners have to police infringement themselves.
Some other countries also allow for customs recordations of a trademark registration to block importation of infringing goods, or in some cases possibly also export. These laws and the level of realistic government action vary widely.
Domain names are used as addresses on the Internet. They connect a visitor to a web site server using easy-to-remember strings of characters (easier to remember than IP addresses). Domain registrations occur through various individual registrars that manage registrations of domain names for top-level domains (TLDs)—such as .com, .net, .org, and the like—on basically a first-com, first-served basis.
Who “Owns” What?
Registration secures control of a given domain name against any latecomers seeking to register the exact same one, but such registration by itself does not by itself establish absolute rights. Registration is not true “ownership” in the domain name outright but merely a contractual right more like a lease that allows you to control which server and web site the domain name resolves to (somewhat like assigning a phone number to a particular phone). It is more accurate to talk of holding domain rights than of owning domains outright.
When a domain is registered, the indication of the registrant determines who holds the rights, as well as who is bound to required contractual terms, including the Uniform Domain-Name Dispute-Resolution Process (UDRP). Specifically, a corporate entity holds domain registration rights only if that corporation’s legal name is currently present in the “Registrant Organization” field of the registrar’s records. This makes it critical to accurately complete that field. Even inadvertent errors and omissions can change who is considered to hold the registration.
When domain registration is left to a lower lever employee, he or she may intentionally or unintentionally make him- or herself the registrant. This can even happen out of sheer ignorance about the significance of filling out the “Registrant Name” and/or “Registrant Organization” fields. Similarly, when a vendor handles registrations, such as a web site designer or IT service provider, the vendor may list itself (or its employee) as the registrant, and thus the holder of the domain rights. This might be benign and might be easily remedied by raising the issue with the employee or vendor—assuming you recognize the issue. Though in some situations it can lead to an employee (or ex-employee) or vendor holding a domain registration hostage.
Also, registration information can be changed after initial registration. So it is also possible for someone with nefarious motives, or acting through incompetence, to later change rights holder information resulting in loss of rights to the domain registration, or at least potential disruption. This is commonly referred to as domain “hijacking”.
Even if legal proceedings might ultimately provide for the return of control over the domain name, such situations can lead to tremendous disruption in the interim—including taking down a company web site from a URL where it has existed for many years.
Domain registration is thus mainly about control of access to the registration’s information and technical settings. Anyone with login credentials with a registrar’s portal can potentially change registrant name or contact information, change the login credentials, transfer the registration to another person or entity, or redirect the domain to resolve to a different web site. Conversely, anyone (including an employer) lacking those login credentials cannot make changes to reflect the “true” or “correct” holder. Accordingly, it is recommended to consider implementing best practice procedures to protect domain registrations, particularly in larger organizations, such as following “A Registrant’s Guide to Protecting Domain Name Registration Accounts” (SAC 044) and “Measures to Protect Domain Registration Services Against Exploitation or Misuse” (SAC 040).
Also, there is an intersection with trademark law under the banner of cybersquatting that limit which domains can legitimately be registered. Domain names are subject to cancellation or transfer away if (i) the domain name is identical or confusingly similar to a trademark or service mark in which someone else has existing rights, (ii) where you have no rights or legitimate interests in respect of the domain name, and (iii) your domain name has been registered and is being used in bad faith. Other another provision, cybersquatting occurs by (i) registering, trafficking in, or using a domain name that is identical or confusingly similar to a distinctive mark (or dilutive of a famous mark) at the time of registration of the domain name (ii) with a bad faith intent to profit from that mark. Cybersquatting can also lead to monetary damages.
This is to say that any registration that constitutes cybersquatting does not establish any permanent rights in that domain. For instance, if someone else has registered in bad faith a domain name that incorporates your trademark, it may be possible to have that domain registration cancelled or transferred to you. The more famous a brand, the more likely that scammers will try to capitalize on it. This can sometimes turn into situation like “whack-a-mole” where as soon as a scammer’s cybersquatting is shut down another instance of cybersquatting pops up somewhere.
Also bear in mind the concept of “reverse domain name hijacking”. This describes situations of trademark owner overreach and abuse legal processes to seek transfer of a domain in which the registrant has legitimate rights. Basically this is about bad faith accusations that rely on a hope that the registrant will be unable to defend itself. For instance, concurrent rights in different jurisdictions, generic or descriptive meanings (possibly in another language), the possibility of multiple interpretations of a string of characters in a domain name that do not all include a trademark, and other bases for legitimate rights may exist. A trademark owner does not have absolute rights to block any occurrence of their trademark or similar terms in domain registrations.
Rather than reply on legal proceedings to transfer an illegitimate domain registration after the fact, it can sometimes be helpful to proactively register such domains and hold them. Consider also registering domains with variations on your brand and mark, such as:
- Typographical errors and misspellings
- Phonetic equivalents and alternate spellings (such as British vs. American English)
- Abbreviations and acronyms
- Transliterations or translations into other languages
- Added or modified punctuation (such as dashes between words)
- Added or synonymously substituted generic, descriptive, or disparaging terms such as geographic, corporate, or good/service terms (e.g., for EXAMPLE BRAND, the domain names “EXAMPLEBRANDusa” or “EXAMPLEBRANDcompany” or “EXAMPLEBRANDwidgets”)
- Alternate TLDs that may have meaning in connection with your mark, such as country-code TLDs (ccTLDs) or gTLDs with letters that make up part of your mark or that have generic, descriptive, or disparaging meaning when used in connection with your mark (e.g., “time.com” versus “ti.me” domains or “blueovergray.com” versus “blueovergray.law”).
Of course, there are limits on what is cost-effective to register and maintain in this manner as a purely prophylactic measure. The incremental cost of one more defensive domain registration is small, but can add up in total given the range of possibilities.
Relatedly, consider locking up social media handles and account names based upon or incorporating your trademark(s). Here again, it may be easier to do this defensively than to have to take legal action after the fact.
There is one nice thing about copyright law that may be helpful in practical terms. Copyright attaches automatically to the author when a new creative work (e.g., text, photo, etc.) is fixed in a tangible medium of expression. Registration is not required for copyright to exist. But copyright is also independent of possession of a copy of a work—even the “original” or sole copy—so copyright ownership does not automatically flow from buying or paying for something.
Copyright is generally thought of as a bundle of rights. This really means that the copyright owner has exclusive control over a number of different uses of a copyrighted work. These include the rights: (1) to reproduce the copyrighted work; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.
The copyright laws are full of special definitions. Therefore, before action based on merely a superficial (mis)understanding of the law, or what appears in a single given section of the U.S. copyright laws, always check for a special definition in 17 U.S.C. § 101 and potentially also consider statutory exceptions and/or special treatment by courts. For instance, implied licenses can represent important limits on exclusive rights that are very context-specific. There are also a number of special carve-out exceptions (e.g., television rebroadcasts by hotels, performances as part of church services) and limited moral rights only for works of visual art. The U.S. copyright statutes are full of a patchwork of special-interest provisions that sometimes provide for different treatment of certain highly specific situations—these might expand or shrink the scope of the copyright owner’s rights.
Yet if there is one thing to remember more than anything, it is that a copyright is not a monopoly on given subject matter or underlying ideas or facts but rather is a prohibition against unauthorized copying of protected expression. As such, whether copyright protection matters a lot or a little will tend to vary depending on the nature of the types of works that a business ordinarily generates. For instance, employees of a business may generate countless emails that contain text that is technically copyrighted but of essentially zero market value. On the other hand, materials that are highly visible and are attractive to others who might copy them—think of prominent photos used for marketing purposes—might have significant competitive value.
In practical terms, the most significant task for in-house counsel with respect to copyrights is to ensure that ownership of important works resides where intended.
Under the oft-misunderstood statutory provision for a “work made for hire”, a copyrightable work prepared by an employee within the scope of his or her employment is deemed authored by and thus automatically owned from the outset by the employer. But when a non-employee creates a work, like an contractor or vendor, the purchaser is deemed the author and thus owner only if (a) agreed to in writing and (b) the work is one of nine (9) types enumerated by statute. This second part causes endless confusion. A written agreement purporting to make something a work made for hire is void and without effect if the work is not one of the nine types enumerated by statute—and chances are it isn’t. This means a company does not own the copyright in a vendor-created work merely because it was paid for (although that often provides an implied license to use it as intended). Even a vendor assurance that the client company will own the works is not sufficient if not in the form of a written assignment.
In terms of prioritization, think about the types of works that are most likely to be copied without authorization (i.e., infringed). Consider things like web site materials that can be copied with a simple click. For instance, online catalog images of products might be copied by someone running a bait-and-switch scam, or even used by a competitor to denigrate the products. If those (or other things) are likely to make someone mad enough to want to do something about it, then being able to trace a chain of title in the copyright will be important.
Copyright registration is optional. But securing a U.S. registration within three (3) months of publication or before infringement begins allows for potential recovery of statutory damages and/or attorney’s fees. The availability of such remedies can be significant in some contexts. That is because valuation of copyrighted works can be difficult, and the cost of litigation may exceed the amount of provable actual damages. Just think about how the valuation of fine artworks is completely irrational, then extend that to extend that to minor works by relatively unknown artists with delusions of grandeur. Yet for other types of works (think of computer program source code) the value might be more readily quantifiable.
Another possible benefit of copyright registration is that it provides acknowledgement that a valuable work exists. This may help quantify the intangible value of a business for M&A activity and the like. Having a schedule of registered copyrights may provide a kind of recognition that there are specific works with a chain of title to the company.
There is a cost associated with copyright registration, however. For a given work, those costs are small compared to the cost of obtaining a patent or even a trademark registration. Yet they can add up. There are some forms of group registrations available to register multiple works together. But the Copyright Office limits their availability, mostly based upon grudging concessions in the face of special-interest lobbying by photographers, etc.
Copyright registration is fairly easy and anyone can potentially do it. That is because it is a mere registration process rather than substantive examination process like patents or trademarks, so there is less intensive scrutiny and back-and-forth prosecution involved. It is the sort of thing that an in-house general counsel could conceivably do without the aid of outside counsel. Also, non-attorney employees could handle applications for registration. Inadvertent minor errors in copyright registrations are not fatal to having enforceable rights. Of course, supervision by those with relevant knowledge of copyright law can still be helpful, particularly when registrations are pursued only infrequently and there is a significant learning curve to contend with.
A copyright registration can be pursued at any time during the term of copyright. However, a registration only provides a presumption of ownership if pursued within five (5) years of publication of the work.
Copyrights may have international enforceability. It may not be necessary to register a work in foreign countries to still have enforceable rights there.
Even for unregistered works, it is possible and often desirable to utilize a copyright notice. The notices inform the public that a given work is protected by copyright. This can potentially eliminate an innocent infringement defense. These can also give rise to copyright management information (CMI) removal claims if infringers copy a work and remove or modify the copyright notice. In-house counsel can help ensure that these are used and used properly. For this guide to understand how to properly utilize copyright notices.
Trade secret rights can attach to information that derives economic value from not being generally known and not being readily ascertainable so long as you take reasonable measures to keep it secret, meaning the existence of trade secret rights depends on the affirmative steps you take to maintain secrecy. Trade secret rights may have international enforceability.
There are some ares where trade secret issues are more common. One important area of concern is where an idea or product is pitched to your company by a vendor under an NDA but your company ends up selecting a different vendor or later develops its own comparable solution. It can also be a challenge to reign-in salespeople who obtain confidential customer information under an NDA, when commissions, sales quotas, and the like may create tensions with NDA compliance. Another area of significant concern involves employee mobility. Employees departing to work for a competitor or the hiring of a new employee away from a competitor can be lightening rods for trade secret disputes.
Protecting Trade Secrets
Determining what steps must be taken to protect a trade secret will depend on the circumstances and the nature of the information in question but principally comes down to what constitutes reasonable efforts to maintain secrecy. Such efforts must always involve affirmative acts. At a minimum, you must be able to point to specific protective steps affirmatively taken to guard trade secrets that go beyond normal business practices applied to all business information. Conversely, any attempt to assert that all business information is a trade secret is overreaching that will not be accepted by courts.
To restate the obvious, remember that trade secrets must have been kept secret. In this sense, you cannot “un-ring a bell” and later claim as a trade secret something that was not kept secret in the first place or was publicly disclosed at some point. It is possible to abandon trade secrecy protections. So whatever protective measures are put in place they must actually be followed.
Also keep in mind contractual duties to protect others’ trade secrets. This most commonly arises when an NDA or other agreement is signed that involves receiving trade secret information, such as from a vendor, joint development partner, etc. Also be aware that contractual obligations to maintain confidential information may go beyond what trade secret law requires by default.
Example Affirmative Measures to Maintain Secrecy
Common affirmative measures to protect trade secrets include the following. But, alone, any one of these steps may be insufficient.
Contracts such as non-disclosure agreements (NDAs) or confidentiality clauses inserted in other types of agreements can help establish trade secret status while allowing necessary personnel access to information. And such agreements may benefit from further terms defining or otherwise acknowledging that certain types of information qualify as enforceable trade secrets. Think about having a standard NDA form available, and consider protocols about who is authorized to sign them and when. Bear in mind, depending on which party is likely to provide more confidential information, a “strong” NDA might not always be the most desirable.
Confidential materials can also be marked as such to explicitly make clear trade secret claims. Marking can be especially important where materials are exchanged under an NDA. More generally, make sure recipients of trade secrets understand applicable secrecy requirements.
Access to trade secret materials can also be limited, which can help minimize risks of accidental or unintended disclosures. Departing employees should also be cut off from access to trade secret materials. Computer/IT systems and physical spaces containing trade secret information should be secured and protected from unauthorized access.
Lastly, an employee or executive could be appointed to oversee protection of some or all trade secrets. This might be someone in the legal department. But it may make sense to have a non-attorney more closely involved in the particular subject matter to have this responsibility.
IP Docketing and Reporting Systems
Given that IP is one way that in-house counsel can demonstrate its value to a company, there is usually a need to get a handle on what IP the company actually has in order to make it visible across the organization. This involves to separate but related areas: (1) docketing and (2) reporting. Though a key question is often whether it makes sense from a cost/benefit perspective to try to handle these things in-house or to instead rely on outside counsel.
Docketing is a crucial part of IP portfolio development and management. The number of dates that attach to IP matters can be staggering for large portfolios. Litigation docketing protocols and systems are not really comparable. Patents and trademark registrations, in particular, require docketing systems to coordinate prosecution—the process of securing formal protection through relevant government bodies—as well as to maintain those patents and trademark registrations over their lifespans. For patents, this means paying maintenance fees (in the U.S.) or annuities (in foreign jurisdictions). For trademark registrations, this means renewals. Missing an important deadline may mean permanent loss of rights, or at least official late filing surcharges and unnecessary extra effort.
Copyright registrations might be docketed. But there tend to be fewer deadlines associated with securing copyright registrations because the U.S. follows a registration system rather than an examination system as with patents and trademarks. This means copyrights undergo a far less rigorous screening and there is not the same amount of back-and-forth with the Copyright Office as there is with the U.S. Patent & Trademark Office. Renewals are not required in the U.S. Therefore, there is typically less need for a formal copyright docketing system as there is for patent or trademark ones.
An in-house docketing system requires both some sort of tool to manage deadlines, keyed to all possible jurisdictions where rights will be pursued or secured, plus staff trained to use it. Docketing staff must be knowledge and reliable to handle making new docket entries and removing deadline dates upon completion. Docketing is typically handled by a paralegal. It is the sort of task that requires more knowledge and training than a lower-level assistant will normally posses.
To the extent that business people care about where IP budget spending is going, and they always will, the ability to report about the contents and status of an IP portfolio is important. If an IP docketing system is available, it often will include some functionality to generate reports. Though the quality and flexibility of reporting options can vary considerably from one docketing system to the next.
Docket management systems might be locally-hosted or operated on a Software as a Service (SaaS) or Platform as a Service (PaaS) basis. Cloud-based SaaS/PaaS tools may have smaller-upfront costs and do not require as much in-house IT support and hardware, but a trade-off is that they can have larger long-term costs and may decrease your leverage with the vendor. For example, SaaS/PaaS systems might risk losing access to data (e.g., the vendor may cut off access during a payment dispute) or may make transferring data to a different platform difficult. It is a good idea when procuring these systems to inquire a about database formatting and data migration support. Vendors like to lock you in to their proprietary system but as a customer is can very much be to your advantage to think about such things before purchasing a given system or service, which may revolve around questions of how exportable your data is in a given system.
Reporting is sometimes possible by taking raw data and dressing it up for presentation to C-suite executives or a corporate board, for instance. Sometimes slightly more manual report generation may be more cost-effective that a relatively expensive docketing system that is used only infrequently due to the small size of an IP portfolio. Similarly, a more bare-bones docketing and reporting system might be sufficient if it can output raw data that can be manually formatted in a more readable and visually-pleasing manner. The adequacy of reporting systems will very much depend on what reports you want and the level of detail and bells-and-whistles.
Because reporting is important to maintain (and justify) IP-related budgets, it makes sense to have stakeholders involved. It could be that other departments play significant roles in populating data in a database or otherwise providing data used for reporting. Keep in mind that that IP reporting also is a way to show that the legal department is earning its keep.
Risk Management and Avoiding Infringement
In general, IP litigation is expensive. Taking reasonable steps to avoid accusations of infringement or misappropriation is often worth the effort—assuming that your company is not consciously or willfully infringing, that is. Though just from the standpoint of reducing the odds of nuisance claims and to avoiding making your company a target for “troll” litigation, some basic measures may help reduce headaches and in-house legal workloads in the long term.
There are many potential pitfalls when if comes to copyright infringement risks. Despite best efforts, it is unlikely that in-house counsel will ever be able to completely eliminate the risk of a copyright infringement claim arising. There are simply too many opportunities for employees to stray from the bounds of the law and company policies. And no amount of education or supervision will every completely eliminate those possibilities. That said, in-house counsel can and should take steps to reduce these risks where possible. For many companies, the benefits of those efforts may be greatest with respect to marketing and advertising, especially where online and social media platforms are involved or mass media campaigns. Though other areas to watch include agreement terms (especially where vendors or contractors are brought in to create materials) and the possibility of indemnity or insurance policies to address inadvertent or “innocent” infringement.
When it comes to nuisance copyright claims, keep in mind that 2021 data showed that the average total cost of a “small” copyright infringement case with less than $1 Million at stake, through trial and any appeal, was over $1 Million. In other words, the average litigation costs exceeded the value of the underlying infringement claim. Let that sink in. One reason is that a copyright owner who registered the work before infringement began, or within three months of publication, can potentially recover attorney’s fees. So the dynamic here is that trollish copyright owners (and their attorneys) might be incentivized to pursue trivial claims based on the possibility of fee shifting. They often use the cudgel of litigation costs to try to extract windfall settlements, and might refuse to back down in the hopes of fee recovery.
Also, the potential for statutory damages often leads copyright owners to greatly overstate the value of an infringed work. One of the most significant issues in copyright litigation, and in the context of initial demand letters too, is the tendency for copyright owners to advance obnoxious damages and valuation theories. Such tactics are highly related to the questionable use of potential litigation costs as a cudgel.
A few copyright troll attorneys have been sanctioned or convicted for their nefarious activities. But despite those few high profile examples, others still persist. Copyright troll attorneys can be maddening to deal with because they often stubbornly refuse to act rationally or take relevant facts into account. The possibilities of Rule 11 sanctions or professional discipline are not a strong deterrents in practice. But, frankly, the problem of copyright trolling is sometimes not the lack of any legitimate infringement claim but that the troll is seeking to recover amounts that are disproportionate to the real value of the infringement damages—although they just as often will settle early for a nuisance-value amount. As such, in-house counsel should practically expect to have to make a decision about a nuisance value settlement over a copyright infringement claim at some point.
There is also an old saying in the music business: “when there’s a hit, there’s a writ.” In other words, success can put a target on your back and tends to bring people out of the woodwork seeking to take their cut. Keep that in mind. Even if you do everything right, success may give rise dubious claims of this sort. But, also, just because you managed to get away with something that technically was copyright infringement (perhaps innocent infringement) when your business gained little or nothing from it does not mean you will avoid a legitimate infringement claim when the same or similar activities gain prominence and are highly successful.
Whenever copyright ownership does not arise from new original creation by an employee within the scope of his or her job duties, a license or comparable authorization is needed. Always. There can be implied copyright licenses, but those are disfavored in general and should not be presumed. Independent creation is also a defense to an infringement claim, but it requires, well, actually independently creating your own work.
When hiring vendors or obtaining materials via a vendor or business partner, it is important to track copyright authorizations. A situation businesses frequently encounter is that authorization is simply assumed, or archives of authorization (i.e., record-keeping) are left to the whims of individual employees. Copyright trolls and nuisance-type copyright infringement claims are sadly common. Responding to such claims is made more difficult if records of past authorization (or evidence of circumstances that support an implied license) have been lost or were never kept in the first place. Things can also get sticky when there may be a license, express or implied, but usage later expands beyond authorized boundaries.
Take a close look a corporate insurance policies and their exclusions. Copyright infringement claims are sometimes covered. This may be as part of “advertising injury” provisions. Though willful infringement is often excluded. Coverage for vicarious liability may also be important in some circumstances where your business might be seen to benefit from the infringing actions of others. But these kinds of policy provisions vary widely. Depending on the nature of your company’s business, seeking out copyright infringement coverage may be highly worthwhile. Having an insurance policy can sometimes take away some of the threat of protracted litigation. As a result, insurers may be able to quickly negotiate settlements with copyright trolls.
Copyright licensing happens all the time and may be a suitable way to obtain rights to use a given work. There are certain “mechanical” licenses available by statute in the music context. And there may be rights clearinghouses that exist for certain types of works to facilitate licensing. But once again copyright provides a patchwork of provisions.
The Digital Millenium Copyright Act (DMCA) includes, among other things, a notice and takedown provision for alleged online copyright infringement. Essentially, certain online service providers can avail themselves of a safe harbor against copyright infringement liability for materials that their users/customers post online if they comply with a takedown notice alleging infringement—among other requirements. A user who believes he or she was wrongfully accused can potentially send a counter notice. At that time, the accuser has 10-14 business days to sue or the provider must restore the material. An advantage of this system is that if an infringing work is discovered online, a DMCA notice is potentially a low-cost avenue to have it removed. A copyright registration is not required to send a DMCA notice. However, not all countries have a DMCA-like provision in their copyright laws.
If your business operates and an online service provider, look into the compliance requirements for the DMCA safe harbor. Among other things, this requires specifying a “designated agent” to the Copyright Office. Compliance can be very important to avoiding liability for user-posted materials.
A related approach for takedowns of infringing material are notices to domain registrars and web hosting companies. For web sites hosted in certain other countries this might be the only available option short of litigation.
Mark Selection and Clearance
The best way to minimize trademark infringement risks is to take such risks into account when selecting new branding. Conducting a trademark clearance search and analysis before adopting new branding is the best way to avoid infringement disputes. It is also beneficial to conducting a legal review of advertising to screen for potential trademark risks, as well as other concerns such as false advertising. Sometimes potential disputes will shake out when attempting to register your own mark, but obtaining a registration is not a defense to a charge of infringement in the USA (though it is in some other countries).
Trademark rights generally go to the senior user with respect to particular goods or services. This means many marks are already taken by others, and limits the universe of marks freely available for your business’ use at the time of adoption. If your business’ mark creates a likelihood of confusion with an existing mark, the prior user will have superior rights. There can be a likelihood of confusion even if there are differences between the respective marks or goods/services, and evidence of actual confusion in the market is not required.
Geographically separate but otherwise similar uses of trademarks can sometimes coexist. Although businesses operating on the Internet tend to encompass wide geographic areas of use without much opportunity for separation. Moreover, a prior user might consent to coexistence in some circumstances—often subject to certain conditions to avoid confusion, such as agreements limiting the scope of the goods/services with which a mark is used. In general, the possibility of coexistence or consent is very context-specific and cannot simply be assumed to be possible.
Registration of an Internet domain name or a corporate name (trade name), or both, does not alone establish any exclusive rights in a brand or mark under trademark law. Business people and marketers will frequently misunderstand this distinction and assume that such non-trademark registrations obviate any trademark concerns. They do not, particularly because even slight differences of a single character may permit a domain name or corporate (trade name) registration even though the trademark infringement would still arise under a likelihood of confusion standard.
The key is to use care when selecting a mark to avoid having to later re-brand, which becomes more burdensome over time. Identify and evaluate potentially conflicting existing marks as part of initial candidate mark selection. In doing so, consider all jurisdictions and scenarios under which your business plans to operate, including likely future expansion as to goods/services and geographic areas. Incorporating a legal review into initial mark selection is perhaps the single most important thing that in-house counsel can do.
It is not unusual for a first-choice mark (and second-choice…) to be already taken or simply not be protectable. The reality is that if a mark seems really great someone else has probably already considered it too and may already be using it—particularly for marks with descriptive or suggestive qualities. Often marketing people are drawn to weaker marks that “sell themselves” and require less up-front investment to create an association in customer minds from scratch, yet those incentives apply to everyone and can lead to a mad scramble for rights in such legally “weak” marks and associated messy disputes in legal gray areas.
It can be helpful for legal counsel to intervene with marketing efforts to ensure that a trademark clearance is performed before marketing personnel, executives, or other employees become too emotionally attached to a candidate mark that it becomes difficult to change course in the face of legal risks. One way to avert that is to work with marketing personnel to develop a list of multiple candidate marks, where feasible, so that some or all of them can undergo legal review before anyone falls in love with any single one.
A trademark search can be performed an many different levels of completeness and thoroughness. In other words, the scope a trademark search can vary. There are two primary types of searches to consider:
- Knockout/preliminary search – limited in scope (e.g., prior federal registrations and applications only); and
- Comprehensive search – broader in scope; ideally seeks to identify potentially conflicting prior unregistered uses, state registrations, domain name registrations, and potential foreign priority claims too
Knockout searches might be sufficient to evaluate the chance of success of registering a mark that is already in use—such that any infringement complaints would have already surface, in theory. Comprehensive searches, of some sort, may be more appropriate for wholly new branding. Of course, the risks involved tend to be proportionate to the intended scope of use. A “house” mark that will be used to identify all of a company’s goods and services, or a mark that will be used in an extensive advertising campaign tends to merit more thorough searching.
However, any search results require legal analysis to be worthwhile. That is to say that conducting a search and obtaining a list of search results is merely the first step in a process that further requires a likelihood of confusion legal analysis that compares any prior marks against the proposed mark.
It is beneficial to have advertising undergo legal review prior to release. While such review should generally cover a number of different concerns, including false advertising, right of publicity/privacy, copyright, special considerations for regulated industries, and more, trademark issues should be among them.
The first trademark issue to consider is proper usage of your own marks. This is about maintaining rights in your own mark. Use your mark(s) consistently, as a source-identifying trademark (as an adjective rather than a noun or verb), and use appropriate symbols (®, ™, SM) or comparable trademark identifications (“Reg. U.S. Pat. & Tm. Off.”).
The next trademark issue to consider is any usage of someone else’s mark. While comparative advertising is permissible, and nominative fair use may apply, usage of someone else’s trademark should receive particular scrutiny. Use of comparative advertising has marketing benefits but also tends to heighten the risk of a legal dispute under trademark and/or advertising law. To minimize such risks, make sure statements are not false or misleading (including implied meaning), material information is not omitted, comparisons are fair (and not “apples to oranges”), and material support for claims is documented before making them. Consider also the context, and avoid anything that makes a competitor’s trademark more prominent than your own, or otherwise may confuse consumers.
A disclaimer may be helpful but is not a get-out-of-jail-free card and use of one will not undo otherwise false, misleading, or confusing content. Accordingly, it may be helpful to ignore any disclaimer as part of an initial legal review.
Also think about what you would think if the situation was reversed. That is, what if your competitor was using your trademark in the way you plan to use your competitor’s mark? Would you have concerns?
In general, have a procedure to allow for legal review before advertising is released. Consider extending the same or similar protocols to social media, which are really just another form of advertising anyway. As part of these review procedures, make sure that appropriate documentation is created and maintained. For instance, ensure that sufficient record-keeping occurs to preserve any licenses, authorizations, releases, support for claims, and the like.
Insurance policies may cover trademark infringement. This may appear in a general business insurance policy as part of “advertising injury” coverage. However, there may be exclusions and the scope of coverage varies. For instance, willful infringement is often excluded, and sometimes highly narrow express definitions are used to limit coverage. Reviewing insurance coverage for trademark coverage can be important, especially for SMEs, particularly when the policy obligates the insurer to provide a defense.
Patent avoidance or patent clearance can be generically referred to as establishing freedom-to-operate (FTO). Most businesses do not want to become embroiled in patent lawsuits accusing them of infringement, given the typical costs of defense. The only way to have confidence that there will be no significant risk of infringement is to proactively perform an FTO search and analysis of patents with regard to a proposed product or process, ideally prior to any commercial launch or release and/or whenever new features or new versions of the product. In general, the range of options may be greater if you find a potentially problematic patent before it finds you.
It is important to recognize that FTO analyses and patentability analyses are distinct and addressing one does not provide a definite answer to the other. Having your own patent, for instance, will provide you with exclusive rights in the claimed invention but your own patent does not provide an affirmative right to practice your invention. Some patents are “subordinate patents” that cannot be practiced without authorization to practice at least one “blocking patent”. For example, say you have a patent for a bucket with a handle; someone else’s patent to a bucket would be a blocking patent with respect to practicing the bucket-with-handle invention even though your invention for adding a handle was a patentable improvement on the prior bucket patent.
Obtaining a competent (and timely) opinion of counsel regarding another entity’s patent can potentially negate charges of willful infringement to avoid enhanced damages by evidencing a good faith state of mind, and a non-infringement opinion of counsel can potentially help establish a complete defense to charges of active inducement of infringement by negating the scienter requirement. However, there is no affirmative obligation to obtain (or rely upon) an opinion of counsel.
If a problematic patent is identified, another strategy is to proactively challenge it. Limited pre-grant submissions (or observations) against pending application may also be possible. The mechanisms to contest a patent in the U.S. are very much a patchwork of different types of proceedings that allow for only certain types of challenges at certain times.
Lastly, licensing or acquisitions are another significant risk mitigation strategy. At times, acquiring another company to obtain their patents may even be a viable strategy. But these things tend to hinge on negotiation and leverage. There is no provision for compulsory patent licenses under U.S. patent law, but in some other countries compulsory licenses are available.
Helping Set Policy
In-house counsel will likely take a key role in crafting company policies with legal implications. That includes policies related to IP, whether informal and “cultural” or as formal written policies. These will generally fall into two categories: protecting company IP and reducing risks of infringement.
Policies around protecting IP will involve establishing roles and responsibilities for IP matters, such as for patent approvals. Sometimes that may mean forming—and participating in—committees. It may also mean intervening in budget allocation discussions to educate and advise decision-makers.
Some of the most important areas where in-house counsel can intervene is to influence how approvals and supervision occur to reduce risks of infringement liability. For instance, lower-level employees might be assigned tasks that involve obtaining copyright licenses or distributing or displaying copyrighted materials online via official company web sites or social media accounts yet some sort of training and/or supervision may help avoid major liabilities that could arise from such activities. Other examples include intervening to ensure that contract terms are reviewed for IP implications and establishing protocols for IP clearance (legal review) before actions are taken like launching a new brand or new product.
Particularly for SMEs, reviewing (or obtaining) insurance coverage related to IP infringement risks may be significant. Although patent infringement insurance exists it is rarely obtained. However, “advertising injury” provisions in general business policies may address non-willful trademark and/or copyright infringement (subject to various possible exclusions). Proactively weighing in on the need to consider IP issues when procuring insurance coverage as part of overall a risk management strategies is another sometimes overlooked area where general counsel can have an impact.
When preparing, negotiating, and reviewing agreements, it is important to account for possible IP issues. This can include commercial contracts, vendor supply or services agreements, employment agreements, and more. Any given agreement—including oral and implied agreements—can potentially implicate the need to protect company IP, the need to secure authorization to use someone else’s IP, and the need to allocate risks associated with IP infringement or misappropriation.
The following checklists address some general considerations. These considerations are IP-specific ones that supplement the usual considerations for any contract. These are meant to be ancillary to more general contract matters but do not provide advanced-level treatment of complex IP-specific agreements or contractual terms.
Allocating IP Ownership and Rights of Use Checklist:
- Which party (really) owns the relevant IP at the outset?
- Potentially differentiate between “background” IP that pre-dates the agreement and “foreground” IP that will subsequently be developed under the agreement.
- Make sure you understand the default ownership rules for the particular type(s) of IP in the relevant jurisdiction(s).
- Consider reps & warranties or express obligations around assertions of ownership that might be incorrect or invalid or that simply cannot be verified with reasonable certainty.
- Consider limits on what the other party can authorize or grant.
- For instance, consider the need for a release of right(s) of publicity/privacy when using a person’s name or likeness in addition to a license or other authorization to use a copyrighted photo, video, or the like. The copyright owner may not have authorization to grant a release of a right of publicity/privacy of the depicted person too.
- Do you need to obtain ownership by assignment or other agreement, or need to obtain a license?
- Consider dependencies of foreground technology on the other party’s background IP (e.g., a pre-existing blocking patent).
- Think about possible expanded future activities. A buyer’s leverage to seek transfer of IP ownership or a license may decline or evaporate over time, and is usually greatest before a project formally starts.
- When receiving IP ownership by assignment/transfer, consider the possibility of a license back. The scope of such a license back could be narrow or broad. A transfer of ownership with a license back may be easier to negotiate than various alternatives.
- Consider using a schedule of IP assets and/or a discrete exhibit/annex that provides an IP assignment (or license) that is suitable for public recordation with relevant authorities apart from the rest of an agreement. Sometimes these take the form of a confirmatory assignment (with accompanying schedule, as needed).
- Would having a non-confidential confirmatory license be beneficial? If so, consider creating one as an appendix to the main agreement.
- Will copyright termination rights be an issue in the future?
- Do you need to grant a license to others for your IP?
- If a trademark license is involved, U.S. law generally requires that a quality control provision be included to avoid the potential for abandonment of trademark rights.
- Do you need a right to audit licensee payments/royalties?
- Is jointly developed IP involved?
- If so, consider clarifying ownership and rights of use. Joint development can raise many significant and complex IP ownership issues, including mutual rights to use related IP that might end up being solely owned by only one side.
- Are there any “surprise” assignment or license terms buried somewhere? Be careful and diligent in reviews.
- Are there any other agreements already in place that affect IP ownership (e.g., preexisting contractual obligations to assign)?
- Are certain terms potentially unenforceable or void under applicable local law (e.g., employment law or antitrust law)?
- Is adequate consideration provided in exchange for obtaining rights by assignment or license?
- Continued at-will employment may not be sufficient consideration under certain circumstances in some jurisdictions.
- Consider obligations to cooperate later (e.g., to correct of defects in signed documents).
- Will confidentiality terms be helpful? Will they obstruct reasonable efforts on either side, such as to work with vendors, distributors, and/or customers?
IP Risk Management Checklist:
- How much control will you have over circumstances that could lead to future IP infringement allegations?
- Is an IP infringement indemnity appropriate?
- For instance, indemnities against copyright infringement may be worthwhile when hiring a vendor to create copyrightable work(s) because the vendor is often the party with knowledge and control over how the work is created and what might incorporated through copying.
- Is an insurance policy in place that impacts IP infringement liability? Should there be?
- Is an IP infringement indemnity appropriate?
- If you have a license, is its scope adequate? And are you likely or reasonably able to stay within the scope of the license over time?
Obligations and Follow-Up Checklist:
- Have important dates been docketed?
- Consider termination/cancellation rights (and associated timing windows), notification requirements (such as periodic royalty payments and reporting), agreement renewal, etc.
- Should a license or security interest be recorded? Recordation of a license or less detailed confirmatory assignment may allow for public acknowledgement of rights to assure customers and/or distributors
- Have any underlying rights lapsed or their term ended?
- Have any underlying rights been found invalid or cancelled?
- Consider the possibility of formally challenging licensed IP rather than continuing to pay ongoing royalties, for instance.
If anything, hopefully this guide leaves readers with at least a high-level appreciation for the complexity of IP matters and some ability to spot issues as they arrive and proactively plan for certain contingencies. In some situations, in-house general counsel will need to know when to bring in outside counsel. But many IP issues can be handled in-house, whether by in-house IP counsel or by generalists.
Austen Zuege is an attorney at law and registered U.S. patent attorney in Minneapolis whose practice encompasses patents, trademarks, copyrights, domain name cybersquatting, IP agreements and licensing, freedom-to-operate studies, client counseling, and IP litigation. If you have patent, trademark, or other IP issues, he can help.