OWNING YOUR INTELLECTUAL PROPERTY

By: Michael H. Trenholm and John W. Holcomb

Intellectual property is an asset that is often overlooked by many companies that are not involved in the traditional high tech industries. However, intellectual property rights often comprise an effective barrier to competition from lower priced adversaries and thus should not be overlooked by any business.

Virtually every business owns some form of intellectual property that provides a competitive advantage. One commonly overlooked intellectual property right is a company’s trade secrets. Trade secrets include virtually any knowledge that is not generally known and has value as a result of being not generally known. For example, knowing the person in a large organization that you must talk to in order to complete a sale may constitute a trade secret if your competitors don’t know who this person is. Alternatively, knowing the source of low cost or higher quality materials for manufacturing may also be a trade secret if your competitors don’t know of the same source.

The problem that many companies have with trade secrets is that they don’t take adequate steps to keep the trade secret a secret. Employees move from company to company often in the same industry. A former employee who is aware of the customer list or the source of materials may not hesitate to share this information with their new employer which reduces the competitive advantage you may have in the market place.

So what can you do ? Some simple practical steps to take is to ensure that all employees are aware and agree that certain confidential information is owned by the company and is trade secret of the company. Having employees sign employment agreements acknowledging their ongoing obligation to keep things confidential, even after termination of their employment is one such step. Similarly, periodically reminding employees of their confidential obligations, particularly when they are leaving is also helpful in deterring former employees from giving your trade secrets away.

Clearly marking customer lists, plans, etc. as confidential and proprietary to the company is another step that should be taken to ensure that your trade secrets are not inadvertently lost. Under California law, knowingly receiving information which is a trade secret constitute misappropriation and is actionable. Marking documents that contain trade secret information is a simple way of placing your former employees on notice to not disclose the information and it also places the recipient on notice as well that use of the material may constitute misappropriation of a trade secret.

Intellectual property rights also exist in advertising materials, brochures and instructions. Any expression, written, drawn or otherwise is generally subject to copyright protection. However, companies must take appropriate steps to ensure that the company owns these rights and that these rights are easily enforceable.

As a general rule, the author of the copyrighted work is the owner of the work. If the author is a full-time employee of the business who created the copyrighted work in the normal course of their employment, then it is possible that the business owns the copyrights in the work under the work for hire doctrine. With smaller businesses, however, problems can arise as to whether the employee was creating the work in the normal course of their employment as writing advertisements or software applications may not be the normal thing for a particular employee. As such, it also behooves a business to make sure that the employee is obligated to assign, in writing, any copyrighted work created by the employee during the course of their employment.

A further difficulty that businesses have with copyrights is when the copyrighted work is created by an independent contractor. It is very common for businesses to hire outside advertising people to come up with advertising copy, logos and the like. Similarly, it is also very common for businesses to hire outside consultants to write custom software applications. In these circumstances, the independent contractors owns the copyrights an the business simply owns the final work as ownership of a copyright is distinct from ownership of the material object that embodies the work (See, 17 U.S.C. § 202).

In this circumstance, the business may find that the independent contractor may provide the copyrighted work to competitors or may prevent the business from making modifications to the copyrighted work. One of the exclusive rights that a copyright owner has is the right to make derivatives of the original copyrighted work (See,17 U.S.C. § 106(2)). An updated version of software or advertising copy is arguably a derivative of the original work and can constitute an infringement of the copyright owner’s rights.

Hence, it is important when hiring independent contractors that either the copyrights be assigned to the business or that there is a clear agreement defining what rights the business owns in the copyrighted work. Further, if there is an assignment of the copyrights, the assignment must be in writing and expressly assigning the copyrights (See,17 U.S.C. § 202).

Businesses should also get in the habit of registering their copyrights. It is not necessary to register copyrights with the U.S. Government but it is highly desirable to do so. Copyright rights are created the moment that the expression is “fixed in a tangible means of expression” e.g., written down, stored etc. However, before you can go to U.S. District Court and enforce your copyright, you must have a valid copyright registration. Also, if you have filed your registration before the infringement took place, you can potentially recover increased damages and attorneys fees.

One last issue for businesses to consider with respect to intellectual property rights is making sure that the business owns the patent rights to any inventions developed by the employees during the scope of their employment. In general, the inventor is presumed to be the owner of an invention and not, necessarily, the employer.

While there are some limited exceptions to this general presumption, it is strongly recommended that businesses include in their employment contracts a provision that all inventions created by the employee during the scope of their employment are assigned to the business.

However, in California, any employment agreement seeking to assign patent rights must comply with the requirements of California Labor Code § 2870 and § 2872. This requires the employee be notified that the assignment of ownership rights in the invention does not pertain to inventions that, among other things, was developed outside of the employees scope of employment and are unrelated to the employer's business.

Also businesses should be aware that if they are interested in seeking a U.S. patent on an invention, they must do so within 1 year of the invention being offered for sale, described in a printed publication or used in public for its intended purpose (See, 35 U.S.C. § 102(b)). If the business is interested in pursuing foreign patent applications then the business should file their U.S. patent application prior to any public disclosure as most of the foreign countries that represent significant markets for U.S. businesses do not have the same one year grace period as the United States.

As this article demonstrates, there are numerous pitfalls that can befall a company that does not take adequate steps to secure ownership of their intellectual property rights.