Getting your IP house in order

Risk Management, July, 2002 by Flora W. Feng, Matthew J. Golden

For any technology-based organization--and increasingly for all entities--a significant amount of company value resides in nontangible assets, in particular intellectual property, commonly known as IP. An increased awareness of this has influenced the way transactions-such as mergers and acquisitions--are handled. When it comes time for these business transactions, knowing where all the IP pieces are and having this information at your fingertips will trigger the due diligence process by enabling you to quickly address the questions of potential investors, partners and insurance underwriters.

An organization needs to be able to describe its technology and the IP rights that give it exclusivity in that technology, as well as any potential liabilities. It should know the status of any threatened or ongoing litigation concerning infringement or theft of its own IP, or its potential or actual infringement of third party IP. A company should also consider whether its inventions are patentable. Potential investors and partners will want to know how business will develop in the future and whether any planned products or services will require licenses from third parties.

What Are Intellectual Property Rights?

To be able to assess and inventory company IP, you must know where to look. Intellectual property generally consists of patents, trademarks, copyrights and trade secrets. Each of these forms distinct categories of intangible assets and each has unique mechanisms for securing rights.

An inventory should include more than just a list of patent numbers. A company needs to determine whether it does in fact have rights to its IP. Those rights can be owned or licensed, and it is important to know exactly what rights exist, who actually owns the rights, and what rights are owned by the company itself.

Patents. In the United States, a patent for an invention is the grant of a property right to the inventor, issued by the U.S. Patent and Trademark Office (USPTO). Patents are granted on ideas that are new, useful and not obvious. The right conferred by the patent grant is, in the language of the statute, "the right to exclude others from making, using, offering for sale, or selling" the invention in the United States or "importing" the invention into the United States.

In order to obtain patent rights, the invention must be fully disclosed and will be made available to the public, either when the patent application is published or when the patent is issued. In the United States, patent applications are published 18 months after filing, unless the applicant specifically requests nonpublication, and the term of the patent grant is 20 years from the date of filing. Patent rights vary from country to country and are limited to the country in which the patent is issued.

In the process of assessing your company's patent rights, you should first compile a list of all issued U.S. patents and pending applications to which your company has rights. Determine which of those are solely owned by or assigned to the company, which are exclusively licensed by the company and which are nonexclusively licensed or jointly owned by the company.

Then, list all foreign patents and patent applications and determine the ownership rights as described above. Grouping this information with the related U.S. patents or patent applications in patent "families" speeds up the review process during a business transaction.

For all patent applications and issued patents, the company should record the applicable assignments with the USPTO. Properly recording assignments puts third parties on notice of the company's ownership.

The key patents, i.e., those that are most important for the business of the company, should be identified. If these patents are not exclusively licensed or owned by the company, be prepared to explain why it is not a concern or, if necessary, what the company will do to remedy the situation.

Trademarks. A trademark is a word, name, symbol or device that is used in trade with goods to distinguish them and indicate their source. A "service mark" identifies and distinguishes the source of a service rather than a product. "Trade dress," the way a product or service is packaged or presented, may also qualify for trademark protection.

Trademark rights may be used to prevent others from using a confusingly similar mark, but not to prevent others from making the same or similar goods or from selling the same goods or services under a clearly different mark. Trademarks that are used in interstate or foreign commerce may be registered with the USPTO. Trademark rights may also be applied for outside of the United States, and exist for as long as the trademark is in use.

Even if a trademark is not registered with the USPTO, a company still has certain trademark rights in locations where the mark has been used for a sufficient amount of time, such that customers can identify it as a trademark. These rights generally fall under the rubric of common law rights.

As with patent rights, a company should maintain a list of all trademarks registered or pending with the USPTO as well as international trademark rights. Even if no trademark applications have been filed with the USPTO, any marks a company uses should be listed to determine if any common law rights exist, and if there is any possible infringement of third party marks.