A general overview of intellectual property, what it is, and how to monetize it.
No matter what type of work a business conducts, it is important for every entrepreneur or small business owner to have at least a basic understanding of intellectual property, and the rights and benefits granted by it. Some businesses may acquire IP rights as an incidental side effect of their business, while others base their entire revenue stream on it. Regardless of the business model, most businesses own some form of intellectual property, and properly protecting and monetizing such IP can have a substantial impact on its success. Therefore it is important that business owners take the proper steps to identify and protect their IP.
This Intellectual Property Starter Guide is meant to serve as a general overview of intellectual property, including:
- What intellectual property is;
- The different types of intellectual property;
- How a business can identify and protect its intellectual property;
- Issues of ownership and preventing unauthorized use;
- How a business can monetize its intellectual property.
The following information is not meant to be comprehensive, but a general reference guide to help business owners become familiar with the basic concepts of intellectual property.
WHAT IS INTELLECTUAL PROPERTY
Intellectual Property (commonly known as “IP”) refers to a broad category of property rights, pertaining to works of creativity such as inventions, art, other creative expressions. Though a creative work can be expressed physically, the underlying work itself is typically an intangible product of the mind. That is why it is known as “intellectual” property, and why it is distinguished from other forms of physical, tangible property such as cars, houses or money. Though IP differs from more traditional forms of physical property, it may be owned by an individual or entity to the same extent as physical property.
TYPES OF INTELLECTUAL PROPERTY
The area of intellectual property law generally applies to 4 different categories of legally recognized property rights: (1) copyrights, (2) patents, (3) trademarks, and (4) trade secrets.
Copyrights, patents and trademarks form the basic tripod of intellectual property, as they are more commonly well known. Though just as important, trade secrets are protected by different methods than other IP, and so are typically less prevalent to the public. Copyrights, trademarks and trade secrets are sometimes referred as “soft IP” which is distinguished from the “hard IP” of patents. The terms “soft IP” and “hard IP” do not refer in any way to the level of difficulty, importance or sophistication involved with any form of IP. Rather, the terms merely distinguish conceptual and information driven creations, from the traditional notion of mechanical or physical inventions.
A copyright protects works of creative authorship, such as writings, drawings, photographs, architecture, music, software, movies, and much more. The purpose of a copyright is to provide protection for creative works, and allow its creator to benefit from those works. A copyright grants the owner the exclusive rights to use, copy, distribute or sell the copyrighted work.
Examples: company photos & videos, company website, software & algorithms, employee handbooks, policies & procedures, or other proprietary documentation.
How to Protect a Copyright: Copyright ownership is granted the moment the creative expression is fixed in a tangible medium (ie. when the photo is taken, when the book or code is written, etc.). However, even though rights are technically granted, if another person starts using your work without permission, the primary issue will be actually proving who created the work first. Because of this issue of proof, it is generally a best practice to register copyrights with the U.S. Copyright Office. Doing so puts the world on notice and establishes conclusive proof of copyright ownership. In addition, a registered copyright may also entitle you to statutory money damages against those who infringe upon the work.
Copyright Registration & Costs: To register a copyright, it must be filed with the U.S. Copyright Office. The cost is relatively inexpensive, and can range from about $35 and up. The review process takes approximately 6-8 months, and if approved, registration will be issued. You should consult with a copyright attorney to assess any potential copyrights you may have.
A patent applies to inventions or processes that are new, useful and non-obvious. There are 3 types of patents: (1) utility patents, (2) design patents, and (3) plant patents. Utility patents are granted for processes, machines or compositions of matter. Design patents are granted for aesthetic manufacturing designs. Plant patents are granted for different varieties of plants. A patent grants the owner the right to exclude all others from making, using or selling the patented material.
Examples: mechanical inventions, devices, manufacturing processes, mobile apps, chemical formulas, functional designs.
How to Protect a Patent: Patent protection is granted upon registration of a patent application. Patents can be extremely beneficial to a business, and if properly monetized can be its sole source of income. However, patent filing is typically the most expensive and lengthy type of IP registration, often taking 18 months to several years. Because of the registration timeframes, it is unfortunately common that an invention will have become obsolete in the marketplace by the time registration is obtained. For any entrepreneur or business owner contemplating patent protection, it is important to consult with a patent agent or attorney to start the process as soon as possible.
Patent Registration & Costs: To register a patent, it must be filed with the U.S. Patent & Trademark Office. The filing fee itself is relatively low, however, most of the expenses involve the preparation and examination of the application. From start to finish, a patent may cost around $3,000 to $15,000 with a smaller firm, or may cost upwards of $50,000 for a more complex application with a larger firm. The current minimum wait time for application review is approximately 18 months.
A trademark is a unique identifying mark, used in connection with the sale of goods or services. A trademark may be a word, logo, phrase, melody, or other identifying symbol. The purpose of a trademark is to distinguish one seller from another, thereby allowing the seller to benefit from their brand and good will, and enabling buyers to easily determine the source of goods or services they are buying. A trademark does not prevent others from selling a similar product, but does prevent others from using a confusingly similar mark on similar products.
Examples: brand name, company logo, company colors, slogan.
How to Protect a Trademark: The distinguishing characteristic of a trademark is that it must be used in connection with the sale of goods or services (ie. a logo stamped on the product, packaging, truck, etc.). Once registered, the owner will have exclusive rights to use that mark with the specific products being sold. Even if a mark is not registered, the owner may acquire “common law” rights from the first date of use. But, as with copyrights, when dealing with cases of infringement, the primary issue is proving who started using the mark first. Therefore it is a best practice to register all applicable trademarks with the USPTO. Doing so puts the world on notice and establishes conclusive proof of trademark ownership.
Trademark Registration & Costs: To register a trademark, it must be filed with the U.S. Patent & Trademark Office. A mark must be filed within one or more specifically identified classes of goods and services. Filing costs are approximately $225 to $325 per mark, per class. The review process takes approximately 6-8 months, or longer if any issues are flagged. If no issues are raises, or if such issues are overcome, registration will be granted as of the date of filing. However, if the application is rejected, the waiting time and filing fees will be lost. Therefore it is typically best practice to consult with a trademark attorney to conduct a proper search and filing strategy at the outset.
Trade Names: A trademark should not be confused with a trade name, which is merely the name of the business. This distinction is critical, as a trade name in itself cannot be registered or protected as a trademark. A trade name only becomes protectable as a trademark when it is actually placed on or used in connection with the goods or services.
4) Trade Secrets
A trade secret is proprietary and confidential information that gives a business a competitive edge. Trade secrets can include information, techniques, programs, formulas, strategies or processes. If a business properly maintains its trade secrets, they have the right to prevent others from using or disclosing the information.
Examples: customer lists or account information, proprietary formulas, manufacturing processes, techniques, marketing strategies.
How to Protect a Trade Secret: The key to trade secrets is secrecy. In order to maintain and protect a trade secret, the information (1) must have commercial value, and (2) the business must take reasonable steps to keep the information a secret. A business may maintain secrecy by limiting access to the information, making sure the information is generally not known, or implementing confidentiality agreements for all those who may encounter the information.
Tip: Confidentiality Agreements should be included in all Employment Agreements to ensure that all employees protect the company’s trade secrets.
Registration: Trade secrets differ from other intellectual property rights in that they are not registered. Registering a work publicly discloses that work to the world. Thus, the key to trade secret protection is not registration, but maintaining its secrecy.
Trade Secrets vs. Patents: Maintaining information as a trade secret, is essentially an alternative to patent protection. The key to trade secret is secrecy, whereas the key to patent protection is public disclosure. Many processes or inventions may be protected either by patent or trade secret, and there are different considerations in choosing which is preferable (ie. duration of rights, efforts to protect, etc.) The ultimate decision of which method to use, will depend on the particular goals, strategies and preferences of the business.
HOW TO DETERMINE INTELLECTUAL PROPERTY OWNERSHIP
The first issue of intellectual property is determining what rights exist. The next issue is determining who actually owns those rights. If someone independently creates and registers a form of IP, the issue of ownership may be fairly straightforward. However, if a business collaborates with or hires another to create the work, there may be confusion as to who actually owns the IP. Fortunately, with a little knowledge and planning, confusion of ownership may be minimized or avoided altogether.
Tip: The main take-away from each example below is that a clear agreement in place at the outset can help avoid complications and confusion down the road.
Employees: The general rule is that, all work created by an employee for their employer belongs to the employer. Thus, any IP an employee creates, if created in the scope and course of their employment, belongs to the employer. It is important that employers and employees understand this dynamic, so as to avoid questions of ownership. Such issues can be easily addressed in an employment agreement.
Independent Contractors: The general rule is that, all work created by an independent contractor belongs to the independent contractor. Thus, if a business hires an independent contractor to create any form of intellectual property (ie. website, photograph, content, etc.), by default the independent contractor owns the underlying IP. Businesses usually intend to own the work they hired someone else to create, but without a separate agreement in place, that would not be the case. This issue can be easily remedied by executing an assignment agreement with any contractor being hired, wherein the contractor transfers full ownership rights for anything they create during the project.
Joint Works: A joint work is any creative work prepared by 2 or more people, with the intentions that their work be combined into a single work. The general rules is that, joint works are owned equally by all parties that create it. However, when many people are collaborating and sharing ideas, sometimes it’s not clear who created what, or whether they actually intended it to be a joint work. When collaborating with others on projects that can potentially result in IP rights, it is important to have agreements in place that defines everyone’s roles and intentions. Ownership of joint works can be established at the outset by a number of agreements (such as contractor agreements, or joint development agreements), depending on the intentions of the parties.
HOW TO PROTECT INTELLECTUAL PROPERTY FROM DISCLOSURE
When intellectual property is registered, is it publicly disclosed to the world, and rights are granted to the owner. However, sometimes it is crucial to protect the secrecy of the IP. Two prime examples are: (1) preventing disclosure of an idea when pitching it to others, and (2) preventing disclosure of information maintained as a trade secret.
Such secrecy may be maintained through a non-disclosure agreement (commonly known as an “NDA”) or confidentiality agreement. Both of these agreements generally protect against use or disclosure of sensitive information, and the terms are often used interchangeably. However, they may be used in slightly different contexts.
1) Preventing Disclosure Before IP is Created
Many entrepreneurs may have a great idea for a creative work or invention, but do not have the resources to develop it independently. Many such individuals seek out investors or business partners to help develop the idea. However, the idea itself is not protectable as intellectual property until it is actually created. Therefore, the challenge they face is how to disclose their ideas to potential investors or partners without the idea being stolen. A common solution to this problem is to have the parties sign a non-disclosure agreement.
Non-Disclosure Agreements: A non-disclosure agreement is a contract where the parties agree not to disclose or use any of the information exchanged. NDA’s are commonly used by individuals sharing their IP ideas with others, as a way to prevent the other party from using or disclosing the idea. The idea is still not protected as intellectual property, but is instead protected by contract. Although there are no absolute guarantees that one person will not steal another’s idea, if they do, the NDA can be enforced to seek monetary compensation.
2) Preventing Disclosure of Trade Secrets
There are many forms of company information that the company may prefer to keep secret. Such information may be protectable as IP, and kept as a trade secret, while other information may not rise to the level of IP, but still gives the business a competitive edge if kept secret. Regardless of its need for secrecy, all such information will have to be accessed or used by at least some employees in order to properly run the business. Therefore it is necessary that there are confidentiality agreements in place to ensure that anyone who comes into contact with the material will maintain its secrecy.
Confidentiality Agreements: A confidentiality agreement is an agreement where the parties agree not to disclose or use any confidential information, except as authorized. Confidentiality agreements are more commonly used for employees, business partners, or joint developers, where there will be an ongoing exchange of confidential information. The parties involve are typically granted authorization to use the information as necessary to engage in the business relationship. This allows all parties involved to freely exchange sensitive information without the fear that it will be misused.
Tip: Confidentiality provisions should be included in all Employment Agreements, Independent Contractor Agreements, and Joint Development Agreements, to ensure that all such parties do not misuse the company’s confidential information.
HOW TO MONETIZE INTELLECTUAL PROPERTY
Selling Directly: Intellectual property rights generally grant the owner exclusive rights to use that IP. The most straightforward method for a business to monetize its intellectual property is simply to produce and sell the underlying materials. With properly protected IP, a business can enforce its rights against others, and prevent others from producing or selling those materials as well.
Example: If you have created a new widget product, you can manufacture that widget, sell it to consumers directly, and generate your own revenue.
Assignment: An assignment is a transfer of ownership from one to another. Another way for a business to monetize its IP is to legally transfer (“assign”) ownership to another business, in exchange for some form of monetary compensation. This is essentially the equivalent of selling your property. Once the IP is assigned, the original creator no longer has any rights to the IP, and the buyer becomes the legal owner of the IP. Such a transaction can be done through an Assignment Agreement.
Example: If you have created a new widget product, you can sell the widget concept to another business in exchange for monetary payment. That business in-turn will manufacture and sell the widget to their customers.
Licensing: A license is where an owner grants another permission to use their property. Businesses that want to monetize their IP, and retaining ownership, may license those rights to another business in exchange for royalty payments. This is essentially the equivalent of renting or leasing your property. Once IP is licensed, the original creator still retains full ownership, but has merely granted permission to another to use that IP. Some licenses are “exclusive,” which means the owner cannot license the IP to any other, or use it themselves. Other licenses are “non-exclusive,” which means the owner can keep licensing the IP to other businesses. Such a transaction can be done through a licensing agreement.
Example: If you have developed a new widget product, you can grant another business permission to manufacture and sell it to their customers, in exchange for your receiving royalty payments for every unit sold.
As with most areas of law, the area of intellectual property is expansive and highly detailed. This article only is intended to provide a general overview of the different types of intellectual property rights, and discuss some of the issues that entrepreneurs, startups and small businesses should consider when growing their business. Each category of IP has its own considerations, nuances and requirements, which may vary depending on the specific circumstances of any business venture. If you have any questions about intellectual property, or how to protect your IP rights or enforce them against others, you should consult with an intellectual property attorney. Contact Kohler Legal today for a free consultation with a San Diego IP lawyer, (619) 880-6655.