Capitalizing on Intellectual Property

No matter what your line of business, your family business has intellectual property and it is worth protecting – In 1886, while working in the basement of his parent’s home, John Stith Pemberton developed the formula for a medicinal beverage made from wine and coca leaves which he marketed and sold as a pain reliever. For years, Pemberton and his family-owned business went to great lengths to maintain the secrecy of this simple formula. After a series of reformulations and a number of acquisitions, Pemberton’s beverage became what we now know as Coca-Cola, and because the secrecy of this formula was painstakingly maintained, that formula became arguably the most valuable piece of intellectual property in the world today. Even if the goal of your family-owned business is not to be the next Coca-Cola, whether you are selling products, offering services or just holding assets, the intellectual property you develop can be a significant source of value and you should be taking steps to both identify and protect it. What is Intellectual Property? In legal circles, intellectual property is divided into four primary categories, namely patents, trademarks, copyrights and trade secrets. In the real world, intellectual property is simply the ideas, creations, source identifiers (such as names, logos, web addresses or slogans), processes or other intangible assets of the company which have economic value. It is important to understand each legal category and what you as a family business owner can do to maximize value with regard to each. Patents and Trade Secrets Patents are the most obvious and prominent form of intellectual property. The right to patents is derived directly from the U.S. Constitution and allows the patent holder to prevent another from making, using or selling the patented invention for a limited period of time. The inventor publicly discloses all aspects of the invention (or design, in some cases) in exchange for a twenty-year monopoly, which allows the inventor to prevent others from commercially making, using, selling, importing, or distributing a patented invention without permission. However, at the end of this 20-year period the invention is said to be “in the public domain,” which means that anyone can use or make the invention with no defense by the inventor. The cost of obtaining a patent can be anywhere from $15,000 to $80,000. From a business perspective, the up-front cost means that the inventor has to determine whether the invention is going to have economic value beyond the 20 year period and whether filing the patent is worth the cost – both short and long term. Trade secrets are effectively the free alternative to patenting. A company owns a trade secret in any product or process which derives economic value because it is not known to the public. A trade secret has no duration and involves no filing but requires proof that the business has taken adequate steps to maintain the secrecy of the invention or process. These steps could include employee confidentiality, security of facilities and networks and other common sense measures to ensure your ideas are not leaked to the public. In short, if the invention has limited long term value and/or can be easily reverse engineered, the company should consider patenting. Conversely, if the invention can be kept secret and will continue to have value after the twenty-year period, it should be maintained as a trade secret. Copyright A copyright protects any original work of authorship fixed in a tangible medium. In other words, a copyright is the right you maintain in anything you create that is written, drawn, or otherwise recorded. The author of such a work acquires copyright protection which prevents direct copying of the work merely by virtue of creation. However, additional rights can be obtained by registration. All businesses should consider inserting copyright notices and obtaining copyright registration of marketing materials, publications and sensitive data. Trademarks All businesses have trademarks and all businesses should take steps to identify and protect their marks. A trademark is any logo, mark, slogan or emblem that your family owned business uses to identify its products or services. In addition, any unique attribute of your business, such as the shape of a product, a jingle, packaging or even a color can be a trademark. In other words, a trademark can be claimed for virtually any feature that is so distinct that customers associate a specific product or service with the feature. Like copyrights, the owner of a mark acquires protection through any use of the mark in commerce. However, additional rights and protections can be obtained by federal registration. Conclusion Intellectual property is an integral part of any family business. As such, it is essential that you not only understand intellectual property, but also take affirmative steps to protect these intangible assets.   Bradley Tubbs is an associate in Davis Wright Tremaine’s business and tax practice. He represents clients in mergers and acquisitions, corporate financing, and joint ventures. Bradley can  be reached via email at bradleytubbs@dwt.com or by phone at 206.757.8004.