Going in-house with intellectual property: What it means; why you need a strategyAuthor(s): J. MAY LIANGSource: Business Law Today, Vol. 6, No. 4, the corporate counsel (March/April 1997), pp. 36-41Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/23290414 .

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Going in-house with

intellectual property

What it means; why you need a strategy

By J. MAY LIANG

The

famous Coca-Cola trademark is often valued in the billions. And online access to all sorts of material can be a black hole for copyright holders. Are you up to speed on intellectual property for your company?

Intellectual property is not reserved to only computer

software or other high-tech companies. The value of the Coca-Cola secret formula is even higher than the value of

the Coca-Cola trademark. Both these items embody the

very essence of intellectual property. At its most basic, intellectual property consists of the

intangible assets of a company. These assets include

patents, copyrights, trademarks and trade secrets. Because

these intangible assets are most often created in the techni

cal or creative branches of a company, an in-house lawyer is

uniquely situated to provide guidance and advice during the formation process of intellectual property. Furthermore,

by virtue of being in-house, a lawyer can take advantage of his or her proximity to the business units of a company and

educate the business people as to the value and importance

of protecting a company's intellectual property. Intellectual property can be as much of an offensive as a

defensive weapon in a company's arsenal. For many years,

Texas Instrument's legal department was a significant rev

enue-generating business unit for the company. The TI

legal department waged an extremely aggressive patent reg istration and licensing campaign that resulted in TI collect

ing significant licensing fees. If that isn't enough to

persuade a business that intellectual property issues should not be neglected, nothing is.

This part of the corporate world can be both a valuable

opportunity and a never-ending nightmare for an in-house

lawyer. The potential value of a properly administered intellectual property program is immense. On the other

hand, failure by a company to observe the laws with

respect to third-party intellectual property could prove to

be extremely costly to the company in the form of time

consuming and expensive litigation. Patents are the most difficult, time-consuming and

Liang is assistant general counsel at America Online in Dulles, Va.

expensive types of intellectual property to maintain

although they are often the most rewarding as well. By obtaining a patent, the patent holder has a monopoly on

the technology covered by the patent for 20 years. Howev

er, because of such a monopoly, the hurdles for obtaining a

patent are high. In order to receive one, the invention must

be patentable subject matter, useful, novel in relation to the

prior art, and nonobvious from the prior art to a person of

ordinary skill in the art at the time the invention was made. In addition, the filing fees for a patent are relatively high,

especially for foreign patent applications. A comprehensive worldwide patent filing can run a company tens of thou sands of dollars in legal fees. Another concern is that

obtaining a patent is time-consuming. The U.S. Patent Office currently has a one- to two-year backlog in examin

ing patent applications. The first question to ask when considering how aggres

sive and comprehensive a company's patent program

should be, is to ask how the company wants to use its

patent portfolio. Does your client want to use the portfolio

aggressively, in order to generate revenue for the company?

Does your client want to obtain an advantage over competi

tors by preventing them from using similar technology in

implementing certain functions in their product? Does

your company simply want a time-to-market advantage

over its competitors?

Answering these questions will better equip a lawyer in

planning a patent strategy. If a company does not have in

house patent expertise, employing a reputable patent

lawyer or firm for this type of planning is strongly recom mended. Patent law is an extremely specialized area of the

law, and it is better to use an expert who understands both

the nuances of that law and the goals of your company to aid the company in its decision.

Some simple rules of thumb can get you started in your

planning. First, if the product or process that you want to

patent will not have a commercial life of longer than five

years, filing a patent to cover it would not be beneficial to

the company. Given the Patent Office's backlog, it would

not be cost effective to spend almost half the useful life of a

Bl5W March/Airil 1997

Going in-house with

intellectual property

What it means; why you need a strategy

By J. MAY LIANG

This content downloaded from 88.104.174.27 on Mon, 1 Sep 2014 18:10:58 PMAll use subject to JSTOR Terms and Conditions

This content downloaded from 88.104.174.27 on Mon, 1 Sep 2014 18:10:58 PMAll use subject to JSTOR Terms and Conditions

property rights. The concept behind

copyright law is fairly simple — ideas cannot be protected under copyright law, but the expression of an idea can

be protected. For example, the idea of a television show about a group of

emergency room doctors and how they

cope with work and life cannot be pro

tected under copyright law. However, the show "ER" can be protected,

because it represents a specific expres sion of that idea.

Copyright law protects everything from books and music to film and

videotape to computer software. A

copyright owner has the exclusive

right to copy, distribute, make deriva tive works of (that is, modify), pub licly display and publicly perform the

copyrighted work. Under the copy right law, any work that is fixed in a

tangible medium and was created after

March 1, 1989, is automatically pro tected. No copyright notice or registra tion of the work with the Copyright Office is necessary to obtain protection under copyright law.

However, as most intellectual prop

erty lawyers will tell you, a copyright notice is always advisable. By placing the notice on a work, the copyright

owner protects the work against the

"innocent infringer" defense where an

infringer claims that the he or she did not know the work was copyrighted because the work did not contain a

copyright notice.

Registration of a copyright is advis able if you think that the work may be the subject of litigation. U.S. copyright law requires registration of a work before the owner of the work can sue

another party for copyright infringe ment. Registration of a copyrighted work is a simple procedure requiring the payment of a small fee (currently, $20), submitting a registration form and fulfilling the deposit requirements of the Copyright Office (generally, a

copy of the work is all that is required). Because copyright covers such a

wide variety of works, an in-house

lawyer is in a good position to monitor materials that are covered by copyright and to ensure that such materials bear

the appropriate copyright notice. Because the concepts of copyright law

product (at best) in obtaining the

patent and then have very little oppor tunity after the patent issues to exploit

the commercial potential of the prod uct or process. The exception to this

would be if you feel your company would gain a competitive advantage with the threat of a possible patent on the technology in question. (Many a

company has gained a jump on its

competitors with the phrase "Patent

Pending.") Second, filing a patent requires con

siderable time and resources from the

inventor of the patent. If the inventor

is unwilling or unable to spend the time to explain the invention to the

patent lawyer, review the patent as

drafted by the lawyer, and spend addi tional time with the lawyer when the

patent is challenged, then there is no reason to pursue the issue further.

Patents, more than most forms of intel

lectual property, require a significant commitment of time from the inventor.

Third, internal educational efforts are important in having a strong patent portfolio. Convincing both senior

management and the technical person

nel of the importance of a strong

patent portfolio is the key to success in

this area. Educating the technical per sonnel of the kinds of inventions that

might be patentable and implementing a process to cull those inventions for

potential patentable technology is also an important ingredient to managing a

successful patent portfolio.

An in-house lawyer is well situated to discuss and analyze with senior manage

ment and the relevant technical person

nel the various issues involved in

implementing a patent program and to

design a realistic program for developing and documenting potential patentable

inventions that takes into account the

company's culture and idiosyncrasies. Copyrights are probably the most

well understood and the most misin

terpreted of the various intellectual

Business Law 38 March/April 1997

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are fairly straightforward, the educa

tional process is fairly simple. Most

people grasp the concepts quickly and know enough to understand when a

copyright notice is appropriate and

why it is important. The advantage to explaining copy

right law to nonlawyers is also its

greatest disadvantage. Since copyright concepts are easy to grasp, you will

discover how badly some of the law's most basic tenets become misinterpret

ed and misconstrued. The two most

maligned doctrines under copyright law are public domain and fair use.

The doctrine of public domain is

fairly simple — if a work falls into the

public domain, no copyright exists in the work and anyone may reproduce

or distribute the work or create a

derivative work. However, determining

whether or not a work falls into the

public domain is not easy. The term of a copyright is generally 75 years if the owner is an entity (such as a corpora

tion) and life plus 50 years if the owner is an individual. However, for older

works, the U.S. copyright law created a

system of initial and renewal terms for

obtaining the copyright owner's per

mission if the party's use falls under the doctrine of fair use. There are four fac tors that must be taken into considera

tion when determining whether a use

is "fair" or not: • the purpose and character of the

use (that is, commercial vs. nonprofit); • the nature of the copyrighted

work;

• the amount and substantiality of

the portion used in relation to the

copyrighted work as a whole; and • the effect of the use on the poten

tial market for or value of the copy righted work.

With respect to the first factor,

whether the use is commercial or non

commercial, the courts generally have

regarded use for nonprofit purposes

(such as educational) more leniently than commercial use. In fact, commer

cial use of a work is regarded as being presumptively not fair use, although this presumption can be rebutted. In

general, however, tread cautiously in

using the fair use defense if your use is a commercial one.

The second factor takes into account

"Mission Impossible" theme is embod ied in the opening bars of music, and

anyone that excerpted the first 15 sec

onds of the theme would be using the

most recognizable portion of the song. The final factor is to determine the

effect of the use on the potential mar

ket for or value of the copyrighted work. The courts here examine the

economic impact of the allegedly infringing use. The more the use of the

excerpt cannibalizes the copyright owner's ability to commercially exploit his or her work, the more likely the courts will find the use to be infring ing. A parody of a song or literary work is often deemed to be fair use since the parody will rarely significant ly affect the commercial potential of the work. Similarly, a book review that

excerpts a paragraph or two from a

book will also leave the commercial value of the book unaffected.

As you can see, a determination of

whether use of a work constitutes fair

use is a difficult analysis. Both the

Copyright Act and the various court

decisions on this issue have clarified certain points but left others complete

Trademarks can be extremely valuable commodities.

copyright that makes the determina tion of whether a work falls into the

public domain somewhat complicated. In addition, many business people

misinterpret the phrase "public domain" to mean that if a work is pub licly displayed, such work is in the

public domain. Such misapprehen sions are especially prevalent as a result of the explosion of the World Wide Web. Many Internet aficionados see

nothing wrong with borrowing liberal

ly from images and texts of other peo

ple's Web pages under the mistaken notion that since the pages are publicly displayed, the images and text that

appear there are in the public domain. The same logic applies to the doc

trine of fair use. Under copyright law, a

party may exercise any of the copyright owner's exclusive rights without

the type of work that has allegedly been

infringed. The rule of thumb here is that a creative work is granted more

protection than a factual work. This does not mean, of course, that a factual

work is not deserving of copyright pro tection. However, since copyright law does not protect facts, it follows that an

excerpt of a factual work would be more likely to be considered fair use than an excerpt of a creative work.

The third factor concerns how

much of the copyrighted work was

excerpted and how important the

excerpt is to the essence of the copy

righted work. For instance, the musical

theme for the television show "Mission

Impossible" lasts several minutes, and it might appear that excerpting 15 sec onds would not be a significant amount. However, the essence of the

ly muddled. Since very few in-house

lawyers would like being a party to the next fair use doctrine lawsuit, this

defense should be used sparingly. It is important to educate your

clients at all levels of the organization about the basic concepts of copyright. Copyright notices should appear on all

materials, including software pro grams, brochures, instructional materi

als, videotapes, etc. Your clients should

assume that all third-party material is

copyrighted unless clearly indicated otherwise and that any use, reproduc

tion, distribution or modification of such third-party material requires per mission from the copyright owner.

An internal audit should be per formed to determine what copy

rightable material produced by the

company should be registered with the

March/April 1997

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Copyright Office, and a process should be implemented to ensure that the

deposits for such material are turned over to the legal department for regis

tration. In addition, the internal audit

should ensure that any consultants or free-lancers involved in the creation of

such material have signed an agreement

that assigns the copyright in such mate rial to the company. (Under the work for-hire doctrine, materials created by

employees within the scope of their

employment belong to the employer.) Because of the ease of copyrighting

mark may be used in more than one

class, but a trademark cannot be

asserted in classes where it has not

been used (or where no intent-to-use

application has been filed). A trade

mark that is used in one class of goods (such as software) does not prevent

that same trademark from being used

in another class of goods by another

party (such as pianos). For instance,

"Apple" is a well-known trademark for

computers and software. However, the

Lanham Act does not prevent the word

"Apple" from being used by a company

tributed, not only to internal business

people but to any third party who has licensed the company's trademarks.

Furthermore, because a trademark

application can take anywhere from six

months to a couple of years before the mark is granted registration, if a trade mark is only going to be used for a short period of time, the most cost effective approach is to perform a trade mark search to ensure that the mark is

not already being used and then rely on common law trademark rights rather

than going through the time and

Trade secret law is a state-by-state concept.

material, copyright protection should be an integral part of protecting any company's intellectual property. How

ever, the flip side is also true. Because material can be readily copyrighted, it is also easy to infringe a third party's copyright, and steps should be taken at

every company to minimize the risk of this occurring.

Trademarks are another highly visi ble intellectual property. A trademark is a word, phrase or symbol that is used to identify a good or service being pro vided through commerce. Trademarks can be extremely valuable commodities

as they are a way for a company to

establish a corporate identity or prod uct identity throughout the market

place. There are several ways to

establish rights in a trademark. The first method is through use of the trademark

through interstate commerce. The Unit

ed States is one of the few countries

where priority with respect to a trade mark is determined from the date of first use. The second method is to file for a federal registration. The Trade mark Office accepts both applications for marks already in use as well as intent-to-use applications for marks that will be in use in the future.

As with copyright law, the concepts behind trademark law are relatively straightforward. A trademark applies to

specific classes of goods or services as classified by the Trademark Office. A

unrelated to Apple Computer, Inc.,

such as a music store.

Recently, there has been a new wrin

kle to this fairly clear-cut concept in trademark law. The Federal Trademark Anti-Dilution Act was recently passed

into law. The Anti-Dilution Act prohibits famous marks from being used by third

parties even in unrelated goods or ser

vices. What constitutes a "famous mark"

is yet untested in the courts but will cer

tainly be tested in future litigation. The threshold test for any trade

mark infringement issue is whether there is a likelihood of confusion in the

marketplace. If it is likely that con sumers will be confused by the source of a trademark, then the courts will

find that infringement exists. There are many steps that can be

taken internally to be both aggressive about protecting the trademark rights

of a company and to limit the potential for trademark infringement. As with all the other aspects of intellectual proper

ty, education of the client base is one of

the most important components for

success. Business people need to

understand the value that can be creat

ed in trademarks as well as how to

avoid using other people's trademarks.

A process should be set up by which

employees can submit requests for trade mark searches and applications. In addi

tion, usage guidelines for the company's trademarks should be drawn up and dis

expense of a trademark application. Infringement of third-party trade

marks is easier for a company whose

business is in the consumer or retail

area than a company engaged in a spe cialized niche or industry. Consumer and retail businesses should take special care to ensure they are not infringing on

a third party's mark. Every proposed logo or phrase should be subject to a trademark search and clearance proce

dure even if an application is not filed.

Also, a process should be estab lished for investigating and handling any claims of trademark infringement. An in-house lawyer must be fully informed about any constraints —

whether resource or duration — that

may affect the ability of the company to cease use of a mark in the event the

company concludes that the use is

infringing or that the costs of litigating the claim outweigh the value of the use of the mark in question.

Trade secret law is a state-by-state

concept — variations depend on where

your company is located. There are

however, certain common threads run

ning through the laws of all 50 states. The concept of trade secrets is in

many ways more flexible than either

patents or copyrights for the protection of intellectual property. While filing a

patent means disclosing the details of the invention and having a finite dura tion to the patent and filing a copyright

IMfMI1997

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means a finite duration to the copy

right, a trade secret can last in perpetu

ity. This is extremely useful for

companies like Coca-Cola, which owns certain formulas or processes that are

the key to its commercial success. In order to classify something as a

trade secret, the company needs to

treat the technology or formula as con

fidential. This means taking steps such as having employees sign confidentiali

ty agreements, restricting access of cer

tain information to designated employees, disclosing the information to third parties only under nondisclo sure obligations, and password access.

In-house lawyers have a tremen

dous opportunity to take advantage of their position in ensuring that their

companies' trade secrets are adequately

protected. To begin, an in-house

lawyer should work with the human resources department to ensure that all

employees sign their employee-confi dentiality agreements. Requirements

for these employee agreements vary

from state to state, and the in-house

lawyer should make sure that the

employee agreements are enforceable in each applicable jurisdiction.

In addition, any hard copies of con fidential information should be

stamped "confidential" by the company and all nonemployees who are work

ing on the company's premises or with

company confidential information should sign a nondisclosure agreement.

An in-house lawyer should also work

closely with the technical or security units of the company to regularly check

employees' access to restricted or sensi

tive machines or electronic information.

Employees whose job requirements have changed or who have left the

company should have their access to

such information revoked immediately.

Bottom line: If the company fails to take the necessary steps to treat its

information as confidential, it should not expect the courts to do so either. If

the company regards certain informa

tion as confidential, it should take the

necessary steps to protect that informa

tion. If the company doesn't demon strate that it cares, it shouldn't expect the courts to care either.

An in-house lawyer's proximity to and knowledge of the business or tech nical people in a company is a signifi cant advantage when dealing with intellectual property issues. An in house lawyer can take advantage of a

company's strengths while designing an intellectual property program to

minimize the company's weaknesses.

In addition, by educating the business

people and by becoming visible on intellectual property issues, an in house lawyer is well positioned to do some preventive lawyering, by elimi

nating or minimizing potential infringement situations.

Ultimately, the success of an in house lawyer is dependent on his or her ability to educate and convince the

company to protect and value its intel

lectual property assets.

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