While the U.S. economy was once driven by manufacturing, our society is becoming more and more driven by intangible assets. Foremost among these is intellectual property (IP) rights and chances are that one or more of your clients hold such assets. Understanding and valuing these clients’ businesses require understanding IP rights.

IP rights are generally comprised of patents, copyrights, trademarks and trade secrets each of which is explained below.
 
Patents

A patent has often been described as a legal monopoly; although it is really a right to exclude others from making, using, offering for sale, selling, or importing the patented invention, whether it be a product or a process. See, e.g., White Mule Co. v. ATC Leasing Co. LLC, 540 F. Supp. 2d 869, 890 (N.D. Ohio 2008) ("patents create legal monopolies"). The life of a patent varies by type. For a utility or plant patent, the term is 20 years from the date of application. For a design patent, the term of patent is 14 years from the issue date.

Companies usually acquire patents either from their employees’ inventions or by purchasing issued patents. Patents are issued to individuals, who often assign the patent to someone else, like a company. Often, companies have agreements that require an employee to assign patents from their inventions to the company. Where the company purchases an issued patent from someone outside the company, the company will typically compensate the seller.

Someone infringes a patent by making, using, offering for sale or selling something covered by the patent in the United States or by importing a covered device into the United States. The patent owner can sue an infringer for damages (e.g., a reasonable royalty or in some cases lost sales) and an injunction prohibiting further infringement. Knowledge of the patent is irrelevant to the determination of infringement. Knowingly infringing a patent, however, can lead to enhanced damages.

A patent has a written description of how to make and use the invention, followed by one or more claims. The claims are the property right. Each stands on its own, meaning that if, for example, a device is covered by only one of several claims, it is covered by the patent.

Although the U.S. Patent and Trademark Office issues patents and those issued patents are presumed valid, an infringer can challenge the validity of a patent in court. Usually, defendants in patent infringement cases argue the patent is invalid because the claimed invention is not novel or new, over the prior art. For example, if someone were to get a patent over a table, the defendant likely would introduce tables or publications describing tables from before the inventor filed the application as evidence that the invention was not new.

When thinking about the true value of a patent to a company, there are several ways to look at that value. One way is to consider that the patent may provide protection, a legal monopoly, over a product made and sold by the company. In that case, assuming the patent is strong (likely to survive a validity challenge) and broad enough to cover simple workarounds for the company’s product, the patent may be sufficient to stave off any competition on that product, allowing the company to charge a higher price.

Another way a patent may add value to a company is as a source of licensing revenue, either from the company’s competitors or from others who are not. There is no requirement that the patent owner practice the patent. In other words, a patent owner need not actually manufacture or sell products covered by the patent. In fact, some companies exist simply to exploit the value of patents by demanding licenses or by suing infringers who will not pay for a license.

Copyrights

A copyright protects “original works of authorship.” This can include the written word, artistic expressions and other intellectual works. A copyright generally provides protection to creators of original works of authorship and gives the owners exclusive rights to reproduce, perform or display the copyrighted material. Examples of material protected by copyright would be books, songs, articles and photographs. Copyright protection tends to be most valuable to companies that produce such things. A copyright owner can stop others from doing what the owner has the exclusive right to do, such as copying or distributing it.

Copyright protection is much longer than patent protection. How long it lasts for a particular work depends on a number of factors, including whether it has been published and, if so, the date of first publication. Generally, for works created after January 1, 1978, copyright protection lasts for the life of the author plus 70 years. The term is different for anonymous work, a pseudonymous work or a work made for hire or for works published prior to 1978. A number of factors can affect the length of the term.

Trademarks

A trademark protects words, names, sounds or other symbols that distinguish goods or serves from those manufactured or sold by others. A trademark can be perpetually renewed if it is being used in commerce.

Trademarks are valuable in that they allow a company to prevent someone else from, for example, passing off its goods as the trademark owner’s goods. It can also be useful in acquiring an Internet domain name if the name registered is the same or confusingly similar to the mark.

Trade Secrets

Trade secrets can generally comprise any information that gives a business an advantage over its competitors. The most-widely used example may be the secret formula for Coca-Cola® (this brand name is of course an example of a registered trademark as well). It could also include a computer program used to price certain commodities or a customer list devised from extensive market research.

Trade secrets can differ from patents in an important respect. A patent must be applied for and obtained from the U.S. Patent and Trademark Office, which means that the information regarding the patent will be publicly available. A trade secret, however, is kept just that — a secret. Indeed, a trade secret’s value to a company is in its secrecy. If competitors cannot figure out the secret, the company can derive value from it.

However, trade secrets work differently than other IP rights. Generally, the law does not protect the secret itself, but rather protects it from being “misappropriated.” That means if the company does not protect its secret, but allows it to slip out, the company may not have the right to stop someone from using it.

Conclusion

All of these IP rights can be bought or sold. In fact, it is becoming more and more common for companies to be selling their patent portfolios.

Valuing these assets can present difficult challenges and is a separate column unto itself. But the first step is to understand the different types of IP rights your client might possess and how they can capitalize on those rights. This will become more and more common as our society continues to outsource traditional manufacturing and production and our economy is further driven by the assets more commonly found in the ongoing information age.

Jason M. Rosenthal, Esq., is the managing partner of Schopf & Weiss LLP, a national business litigation firm based in Chicago. Todd H. Flaming, Esq., his partner, focuses on intellectual property and technology litigation. For more information, please contact Rosenthal at 312-701-9300 or visit sw.com.