Identifying and securing intellectual property

May 14, 2008

Companies can lose out when they fail to timely identify and secure ownership rights in their hard-earned work product.

Businesses, both big and small, can lose valuable property and the commercial advantage that comes with it. To guard against such loss, company officials need to undertake certain disclosure and ownership strategies.

First, business people, especially in small businesses, need to know what it is they are going after.

“Intellectual property” generally refers to the following four distinct property rights: patent, copyright, trademark and trade secret. A patent is a grant by the federal government to an inventor of the right to exclude others from making, using or selling an invention. A copyright is a federal right owned by every author of a work to exclude others from doing certain defined activities in connection with the copyrighted work. A trademark is a federal or state recognition of ownership to a word, logo, phrase or design used to identify and distinguish goods or services in commerce. Finally, a trade secret is a legally recognized right to information that is the subject of reasonable efforts to preserve confidentiality and has value because it is not generally known in the trade.

Ownership of types of IP

A patent grants its owner the right to exclude others from making, using or selling a useful, novel and non-obvious invention. In the United States, the inventors are the presumptive owners of the invention and any corresponding patent rights. If a company’s development team creates a new system or process for making widgets, the individuals in the development team, not the company, are the owners of the invention and any attendant patent application.

In order to “own” the invention, the company will need to obtain an assignment of rights from the individual members of the development team. A company may obtain such an assignment of rights by providing consideration for the assignment or by enforcing rights that may arise under a contract with the inventors or under the state common law.

A copyright gives its owner the exclusive right to make copies, license, and otherwise utilize a literary, musical, artistic, or other expressive work. The author of the copyrighted material is the initial owner of the copyright and may transfer some or all of the rights to others. Examples of copyrightable material include instruction manuals for computer operating systems, or audio and visual recordings and computer software code.

Copyright law in the U.S. provides for several special situations where the determination of “authorship” may affect ownership rights. The most important are “works made for hire.” If a work is “made for hire” within the meaning of the federal Copyright Act, the employer for whom the work was prepared is deemed the author and is the initial owner.

A work may be “work made for hire” under two circumstances. First, if a work was prepared by an employee within the scope of his employment, it is a work for hire. Second, works created by independent contractors, rather than employees, may be works for hire only if two conditions are met: (a) the work must be one of nine specifically enumerated categories of works, and (b) the parties must expressly agree in a written, signed instrument that the work will be considered a work for hire.

A trade secret is an alternative protection scheme for valuable developments that may not otherwise be patentable or for which the public disclosure that comes with patent protection is not desired. A trade secret may consist of any formula, pattern, device or compilation of information used in one’s business that gives the business an opportunity to obtain an advantage over competitors not knowing the secret. Generally speaking, information can be a trade secret if (a) it is not widely known outside one’s business; and (b) the business takes measures to ensure the information remains secret. An example of a trade secret may be a secret recipe for making a perfume or fragrance. As with patents, the company must obtain assignment of rights to the trade secrets from the individual inventors in order to have an ownership interest.

A trademark protects a word, slogan, design, picture or any other symbol that is used to identify and distinguish goods or services in commerce. For example, the term “Coca-Cola®” is trademark of the popular soft drink and identifies and distinguishes the quality of the drink from that of other brands.

Unlike other forms of intellectual property, a company does not need to obtain rights from its employees or independent contractors to obtain ownership of a trademark used to market the company’s goods or services. A company can apply for a trademark in its own name. For example, if the development team that developed the system and method for making widgets also came up with the phrase WIDGET WONDER as the name under which the inventions is marketed, the company does not need to obtain an assignment of rights from the individual team members in order to file a trademark application in its name.

Identifying and protecting IP

Because of their intangible nature, intellectual property rights can be lost if a company does not take steps to identify these rights. One effective approach is to implement policies that mandate disclosure of any potentially useful idea. For example, for patents and trade secrets a company may require that its employees and contractors disclose concepts as part of their jobs and create criteria to identify these concepts during the evaluation process for employees.

Reward schemes are also a tool often used by companies. Rewards may include compensation for disclosing an idea, patent applications being filed, patents being issued and related events.

Failure to properly secure ownership of intellectual property rights can also spell doom for a company. For patents, copyrights and trade secrets, a company will need for its employees and independent contractors to agree to transfer or assign to the company their rights in any invention, development or work that may be protected under those forms of intellectual property. Ideally, this should be implemented via a three-prong strategy.

First, the company should have all employees and independent contractors, at the time of hire, agree to assign their future rights to any protectable work product.

Preferably, all employees and independent contractors should execute contracts covering their specific duties to the employer. Such contracts should include assignment of invention rights and a duty to protect the employer’s confidential information. For copyright purposes, the agreement should specify that the employees, or contractor’s work is a “work made for hire.” A caveat: An employer should investigate state codes limiting the scope of employee assignment agreements and should also periodically review employment agreements for compliance with applicable state laws.

Second, the company should ensure that intellectual property rights are specifically transferred or assigned the moment they arise. For example, a patent application should be assigned by the inventors to the company as soon as possible during the application process so that ownership by the company can be timely secured.

Ideally, the assignment should be executed early in the patent application process and filed with the U.S. Patent Office so that the public can be placed on notice.

Lastly, the company should develop a clear corporate policy that its employees and independent contractors are working for the company and are under a legal and ethical obligation to disclose work product with candor and to assign and transfer all proprietary intellectual property rights to the company. The policy should be included in any employee or worker manuals and posted in common areas to ensure wide-spread familiarity with its scope.

Ozzie A. Farres is an associate in the Washington office of Hunton & Williams. He is a member of the firm’s litigation and intellectual property practice.

Written by Ozzie A. Ferres  |  Filed Under Intellectual Property 

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