Trade Secrets

How Does Intellectual Property Add Value to Your Business?

Posted on by Noah Downs

Recently at a networking event, I was asked the simple question: “What do you do?” After responding that I am an “intellectual property attorney,” I received a brief look of confusion, and then the question: “Yes, but what does that mean?” This exchange (which is a frequent occurrence, I might add) illustrates a common issue — many business owners are missing out on the value of their intellectual property, often until it is too late to capture and exploit that value.

Studies referenced by the World Intellectual Property Organization say that 80-90% of a business’s potential value lies in its intellectual property.[1] Imagine being a business owner, earning $100 dollars from a sale of goods, and then leaving $80.00 on the table as you leave. If your business is not identifying, protecting, and maintaining its intellectual property rights, then you are one of those owners.

With this is mind, allow me to illustrate some ways to recapture that value. There are numerous types of intellectual property to protect and exploit, and in the following paragraphs we will deal with three of the most prominent types: 1) Trademarks, 2) Copyrights, and 3) Trade Secrets.

Trademarks

Trademarks are the most obvious aspect of intellectual property, and the most widely known. You see and interact with trademarks every day, whether it be through names (Google, Yahoo), logos (Nike’s “Swoosh”), slogans (McDonald’s “I’m lovin’ it”), or even sounds (Windows’ startup tune). Trademarks serve as an indication of source and quality for the consumer.

Trademarks allow consumers to act on strong preferences on where they shop and what they buy. For example, some people prefer to buy groceries at Kroger, others Food Lion, and still others prefer Wal-Mart. Notice — when you read each of those names, you first recognized the name and then immediately had varying impressions of each pop into your mind, ultimately providing a conclusion of whether or not you would choose to shop there. This all happens in a split second. Each trademark leaves an imprint as to the quality and cost of groceries and the experience of shopping.

Not only do trademarks serve as a source and quality indicator, but they serve as a marker for the brand. This marker is extremely important if you want to sell your business for a profit.

For example, the executives at Facebook (another well-known trademark) probably never said “We want to purchase Evan Spiegel’s smartphone app for $3 billion dollars.” More likely, they sat down and said “We want to buy Snapchat for $3 billion dollars.” The reason Facebook values Snapchat at $3 billion dollars is because Snapchat developed its brand under a now widely-known trademark, and that trademark contains the goodwill of millions of consumers. Anyone can make an app that sends temporary pictures (see Mark Cuban’s CyberDust and Facebook’s Poke), but the value lies in the quality, experience, and goodwill already associated with the Snapchat trademark. Although Snapchat is an international brand, it began as a small app and as a small business. Building a brand begins somewhere — and protecting your trademark from the beginning can be key to building up your $3 billion dollar idea.

Copyright

Copyright is another facet of intellectual property that can easily add value to your business. Many people hear the word “copyright” and think of artistic creations such as books, visual art, or music. But consider how copyright translates into your marketing materials. Many businesses have valuable copyrightable interests in photography, product packaging, websites, commercials, or informational videos, to name a few. Establishing control of these assets through copyright protection allows you to harness the value of your business’s creative marketing approaches.

Additionally, some of the most valuable copyrightable materials include software code and data compilations. Copyrights on software code protect your proprietary information from direct copying and allow your company to stake out a claim in the market. Once your company harnesses control of that share of the market, then you are able to control the dissemination of your software through the marketplace. Because copyrights typically have a long duration, having a copyright for a useful piece of software may be extremely valuable when negotiating with potential customers or business partners.

Trade Secrets

One of the least understood areas of intellectual property lies in trade secrets. Most commonly, trade secrets are secret techniques or devices used by a company in manufacturing its products. You establish a trade secret by guarding a proprietary concept that has economic value simply because it’s not generally known and by taking measures to protect it (for example, through contracts). Many businesses have trade secrets but do not realize that the information they have constitutes a trade secret. If you have developed a unique and efficient way of producing results, you may have a trade secret. Alternatively, if the methods of producing a particular product are known only to your company, you may have a trade secret.

Coca-Cola provides one of the greatest trade secret examples. Coca-Cola tightly protects the formula that gives the distinctive and crisp taste associated with their leading beverage. If they did not protect their formula as a trade secret, then the Coca-Cola brand would not have the notoriety it has now. Other soda producers would be able to precisely replicate and recreate the Coca-Cola taste, thereby eliminating Coca-Cola’s uniqueness. By protecting their trade secret, Coca-Cola retains their exclusive market share which is extremely valuable. Although Coca-Cola is a famous example, every company has something that sets them apart in what they do. What you do to set yourself apart may be a valuable trade secret that you can protect.

Protecting your business’ intellectual property requires more than filing for trademarks, copyrights, and protecting trade secrets. Intellectual property protection requires marking your territory in the marketplace, making sure you have the biggest share you can have, and creating a clear impression of what your company offers to the consuming public. In the modern world, the primary value of a business no longer lies solely in the tangible assets it holds. The true value lies in growing and monetizing the intangible assets, which your company can protect as intellectual property. This turns intangibles into value, which then increases the overall value of your business. — Noah Downs

 

(This is not intended as legal advice. Contact a lawyer for assistance in your particular situation.)

 

[1] Building and Enforcing Intellectual Property Value, An International Guide for the Boardroom, 2003 PriceWaterhouseCoopers.

 

The Defend Trade Secrets Act: Congress Considers a Federal Civil Cause of Action for Trade Secret Misappropriation

Posted on by Mary Witzel

Trade secrets are a form of intellectual property that can consist of any piece of information that has commercial value or gives its owner an advantage in the marketplace.  Their value is directly tied to their secrecy, and their security and value is deeply, and often, fatally, impacted if they are stolen or publically revealed.

Currently, trade secret owners can obtain redress for trade secret theft through two avenues: federal remedies under criminal statutes and the Economic Espionage Act of 1996, and civil remedies available under state law.  Trade secret protection is roughly consistent between states, as most states have adopted a form of the Uniform Trade Secret Act.  Nevertheless, variances exist between state trade secret statutes, and the manner in which trade secret law is interpreted by courts also differs from one state to another.  As a result, a company seeking redress for trade secret theft might obtain different results in the courts of states with identical trade secret legislation.  There are currently no remedies under federal civil law for trade secret misappropriation.

Congress is considering an act to provide federal civil remedies for trade secret theft as an alternative to the relief available to trade secret owners under state law.  In late January, the Senate Judiciary Committee approved the Senate version of the Defend Trade Secrets Act, S. 1890 (the “DTSA”), moving the DTSA closer to a Senate Floor vote.  The current iteration of the DTSA contains the following notable provisions:

  • The statute of limitations to bring a claim under the DTSA will be three years.
  • The DTSA would allow trade secret owners to obtain ex parte seizure orders to recover stolen trade secrets while a full court hearing is pending.  Such seizure orders are only to be granted in “extraordinary circumstances,” upon a rigorous showing regarding ownership of the trade secret, theft of the trade secret, and the lack of harm to third parties should the ex parte order be granted.  Seized materials are to remain in the custody of the court pending a full hearing.
  • Under the DTSA, courts may not authorize the disclosure of trade secret information in litigation unless the trade secret owner is allowed the opportunity to submit the information under a seal describing the owner’s interest in preserving the confidentiality of the information.
  • The DTSA attempts to balance employee mobility against trade secret protection: trade secret owners can obtain injunctive relief to prevent actual or threatened disclosure of trade secrets, provided; 1) the injunction is supported by proof of actual or threatened misappropriation; 2) the injunction does not “prevent a person from entering into an employment relationship;” and 3) any conditions placed on employment are “based on evidence of threatened misappropriation, and not merely on the information the person knows.”  In addition, court orders cannot conflict with state laws prohibiting restraints on the practice of a profession, trade, or business.
  • “Safe Harbor” provisions in the DTSA will shelter whistleblowers who disclose trade secrets in confidence to government officials or in lawsuits alleging retaliation by an employer.
  • The DTSA will require an annual report from the Attorney General addressing overseas theft of United States trade secrets and the role of foreign governments in such theft.

The DTSA will not preempt the body of existing state trade secret law, but instead, will provide an alternative form of relief for business owners whose trade secrets have been misappropriated (particularly those whose business operations span multiple states).  If enacted, it will provide trade secret owners an additional tool to add to their enforcement arsenal.

The DTSA has garnered strong support in both the House and the Senate, and a variant of the DTSA is expected to pass into law in 2016.  — Mary Witzel

UPDATE (5/23/16): On May 11, 2016, President Obama signed the DTSA into law.  Litigants are already availing themselves of the federal civil cause of action created by the Act.  See M.C. Dean, Inc. v. City of Miami Beach, No. 16-cv-21731-CMA (S.D. Fla. May 16, 2016); Bonamar, Corp. v. Turkin, No. 16-CV-21746 (S.D. Fla. May 16, 2016); Universal Protection Services v. Thornburg, No. 2:16-cv-00097 (N.D. Tex. May 19, 2016).