Intellectual Property — 101: A User’s Guide

Intellectual Property (IP) is a valuable asset class. But what is IP? One answer is that the term refers to a class of intangible assets that are creations of the mind that may have commercial value and are protected by law. A slightly more comprehensive answer is that IP includes original written work, works of art, innovative technologies, and distinctive brand identities.

Defining Intellectual Property

There are four basic types of IP:

Patents protect new inventions, processes, and technological advancements, granting inventors exclusive rights to their innovations.
Trademarks safeguard brand names, logos, and other identifiers that distinguish goods or services in the marketplace.
Copyrights cover original works of authorship, such as literature, music, and software, protecting the expression of ideas.
Trade Secrets include confidential business information that provides a competitive edge, like proprietary formulas or business strategies.

Patents: Safeguarding Innovation

A patent grants the inventor the exclusive right to exclude others from making, using, or selling an invention for a limited period, typically 20 years for utility patents. Patents do not grant an exclusive right to use an invention but rather the right to prevent others from exploiting it.

Not every invention is automatically patentable. To qualify for patent protection, an invention must be:

Novel: The invention must be new and not previously disclosed.
Non-obvious: It should not be an evident improvement over existing products or processes.
Useful: The invention must have a practical application.

Patrick Reilly, Founder of the Intellectual Property Society, Associate Publisher of the Personal Data Journal, also highlights that companies should consider how patent ownership is structured, especially in employer-employee relationships, to avoid disputes over rights.

Trademarks: Protecting Brand Identity

Trademarks protect symbols, names, and slogans used to identify goods or services. They play a vital role in building brand recognition and consumer trust. Trademark strength is determined by its distinctiveness, which can be evaluated using the following criteria:

Fanciful or Coined: Made-up words with no prior meaning like KODAK®.
Arbitrary: Common words used in an unrelated context as in APPLE® for computers.
Suggestive: Indicates qualities of the product without directly describing it as in NETFLIX®.
Descriptive: Directly describes a characteristic or quality of the product and may require secondary meaning to be protectable as in AMERICAN AIRLINES®.
Generic: Common terms that cannot be trademarked (e.g., ‘coffee’ for a coffee brand).

Brian Landry, a partner at Saul Ewing, further explains that businesses should conduct trademark searches before launching a brand to avoid potential conflicts and legal challenges.

Copyrights: Securing Creative Works

Copyrights protect original works of authorship that are fixed in a tangible medium, such as books, music, and software. Protection is automatic upon creation, but registering the copyright offers additional benefits, including the ability to sue for infringement and seek statutory damages.

Allan Grafman, an investment banker with Oberon Securities, emphasizes that many businesses underestimate the importance of copyright protection, particularly in digital content. He recommends that companies establish clear agreements with freelancers and employees to ensure ownership rights are properly assigned.

Trade Secrets: Maintaining Competitive Advantage

Trade secrets consist of confidential information that provides a business with a competitive edge (formulas, practices, processes, etc.). Unlike patents, trade secrets do not require registration, however, they must be actively protected through measures like:

Non-Disclosure Agreements (NDAs): Legal contracts that prohibit parties from disclosing confidential information.
Restricted Access: Limiting access to sensitive information to essential personnel only.
Employee Training: Educating staff on the importance of confidentiality and the proper handling of sensitive information.

Grafman points out that companies often fail to implement adequate safeguards for trade secrets, making them vulnerable to theft and misappropriation. He stresses the importance of clear contractual obligations and internal security policies.

Intellectual Property Valuation: Assessing Worth

Valuing IP is a complex process that involves assessing the economic benefit derived from the IP asset. Common approaches to IP valuation include:

Income Approach: estimates the value based on the present value of future income streams attributable to the IP.
Market Approach: determines value by comparing the IP to similar assets that have been sold or licensed.
Cost Approach: calculates value based on the cost to recreate or replace the IP asset.

Reilly notes that understanding the financial worth of IP assets is critical for transactions such as mergers, acquisitions, and licensing agreements. He noted that failing to properly value IP can result in undervaluation during business negotiations.

Best Practices for IP Protection

To effectively protect intellectual property, businesses should implement the following strategies:

Conduct Regular IP Audits: Identify and assess all IP assets to ensure they are adequately protected and leveraged.
Secure Appropriate Registrations: File for patents, trademarks, and copyrights as applicable to establish legal rights.
Enforce IP Rights: Take legal action when and where necessary against infringements.
Define IP Ownership Clearly: Ensure that contracts with employees, contractors, and partners explicitly state the ownership of IP created during the relationship.

Landry advises that businesses take a proactive approach to IP enforcement, as failing to address potential infringements can weaken IP rights over time. He also suggests leveraging licensing agreements as a strategy to monetize IP without full divestment.

Conclusion: The Imperative of IP Protection

Intellectual property is more than just a legal concept; it is a fundamental asset that drives innovation, economic growth, and corporate success. By adopting a strategic approach to IP management, companies can mitigate risks, enhance valuation, and capitalize on their innovations.

To learn more about this topic view Intellectual Property 101 / IP-What Every Lawyer & Every Client Must Understand. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about intellectual property.

This article was originally published on here.