Focus On: Intellectual Property (IP) Law

Utah Industry Leaders Discuss Problems and Solutions

Utah Industry Leaders Discuss Problems and Solutions
The Focus On series looks at a different industry each month offering first-person insight from local executives into some of the challenges each Utah industry faces. In this installment, Business Connect hears from local Intellectual Property (IP) attorneys.
 
 

Protecting Your IP on a Budget
By Rand Bateman
BATEMAN IP LAW GROUP
One of the biggest challenges small to mid-sized companies have is sizing their Intellectual Property (IP) protection. Some companies give little thought to protecting their IP until it is too late and their rights have passed. Others are so concerned with protecting their IP that they consume an excessive part of their funding chasing down IP protection while starving their company of funds needed for marketing, sales and growth.
 
Protecting IP in the United States is a relative bargain, as it covers a market of roughly 300 million people. For a young company, a U.S. patent may be enough to protect its technology. If it has additional money for IP, it may decide to further protect the technology in the United States with continuation, continuation-in-part or divisional applications, or may try to protect the core technology overseas. In many situations, patents in foreign countries will provide a much smaller ROI. If it costs as much to obtain a patent in Sweden as the U.S. and the Swedish market is one-tenth the size of the U.S., is it worth the money?
 
Due to the expense of foreign patents, clients should determine what their budget can afford and which markets are most important. Obtaining patents in all of Europe may cost $60,000 to $100,000, while priority targets such as the U.K., France, Germany and Italy may cost one-fifth as much while protecting about 40 percent of the European market.
 
The hierarchy we work on with our clients is generally as follows: 1) Protect the market — usually the U.S. first and other countries in which you expect sales to be high; 2) Protect manufacturing countries. If the product is commonly made in Japan or China, it may be worthwhile to obtain patents there — even if there is no meaningful market in those countries. The patent will help you to stop infringement at the source, rather than trying to track down where it is being sold; and 3) Protect where the competition is. If your competitor is headquartered in a particular country, you may want to obtain protection there to make it harder for them to compete. It also makes a statement to their customers that you want their business.
 
 

An End to Business Method Patents?
By Kory Christensen and Jared Cherry
Stoel Rives LLP
If a client asked a year ago whether methods for doing business were patentable, the answer would have been an emphatic “yes.” We were routinely obtaining such patents for our clients. What a difference a year makes. The rehearing of “In re Bilski” by the Federal Circuit has the realistic possibility of banning new business method patents and invalidating thousands of patents already issued.
 
In 1980, the U.S. Supreme Court stated that patent protection extends to “anything under the sun that is made by man,” the only exceptions being laws of nature, natural phenomena, scientific principles and abstract ideas. In 1998, the Federal Circuit decided that business methods were not abstract ideas, but were patentable if the method yields a “useful, concrete and tangible result."

The Federal Circuit’s decision has always been controversial. The ruling was tailor-made for the booming e-commerce industry. However, critics argue that the decision has robbed the public domain of ideas, overburdened the Patent Office and subjected companies to the risk and expense of litigation. One often cited example is the Amazon.com “one-click” patent. Amazon convinced a court to issue a preliminary injunction against Barnes & Noble, forcing it to add a “second click” to its ordering process.

The Federal Circuit’s decision to rehear “In re Bilski” suggests that the court will modify its earlier precedent. While the court could eliminate business method patents, a less dramatic move might be to ban “pure” business method patents, requiring the method to be performed by software. We have routinely written our business method patents using software terminology. Interestingly, so did Amazon’s attorneys.

The stakes in this controversy are high, and an appeal to the Supreme Court is likely regardless of the result. Inventors of new business methods have reason to worry. In 2006, Justice Kennedy stated that some business method patents are of “potential vagueness and suspect validity.” What does this mean to companies wishing to pursue such patents? Our advice: make sure to file software claims and ask us again in a few months.
 
 

Are You Really Protecting Your Company’s Secrets?
By Jeffrey J. Droubay
Parsons Behle & Latimer
Over the past two decades the workforce, from executive levels on down, has become increasingly mobile. This mobility has made it progressively more difficult for companies to protect their trade secrets and other IP, as the employees who possess those secrets may likely defect to a competitor at some point. To combat this problem, many companies now require key personnel to sign non-compete agreements.

What many companies do not realize is that their standard non-compete agreements may be unenforceable in some or all cases. Courts have always disfavored such agreements and will not enforce them when the restrictions that they place upon employees are onerous or unnecessary. For example, a two-year, worldwide non-compete agreement may be appropriate for the vice president of international sales at a software development company. However, such restrictions may be completely unnecessary and, hence, unenforceable, when applied to a programmer or developer. Because they do not understand the state of the law, many companies are both surprised and terrified to learn that the non-compete agreement signed by a defecting employee is overreaching and, thus, unenforceable, and that its trade secrets and other IP are now in the possession of a competitor.

Parsons Behle & Latimer stays abreast of developments in this rapidly changing area of the law. We also recognize that each non-compete situation must be evaluated on its own facts — a one-size-fits-all non-compete does not work. Additionally, we have been at the forefront in advocating that Utah courts adopt the “Inevitable Disclosure Doctrine,” which can function as a surrogate non-compete obligation when an employee has not signed an enforceable non-compete agreement. By arming ourselves with the requisite knowledge, and advocating for employer-friendly legal standards, we have found success in helping our clients protect their valuable secrets.
 

Early IP Audits Maximize Company Value
By Brett L. Foster
Holland & Hart LLP
Today, the value of IP, an “intangible asset,” is becoming a dominant balance sheet feature in determining the value of a company. Large companies’ in-house counsel, familiar with IP issues, protect their IP thus maximizing the value of the company. What can small and mid-size companies that cannot afford in-house counsel do to ensure their IP is identified, protected and valued as a company asset?

This is an important question for companies whose business model is to grow the company to make it an attractive target for acquisition. It is equally important if it is your goal to grow the company and maintain ownership. Holland & Hart’s IP attorneys often assess the value of a patent or an IP portfolio in connection with a proposed merger or acquisition. In an “IP audit,” we identify four types of intangibles that companies should protect as valuable company assets:
 
Patents
As you develop great ideas for new products, new methods or new ways of doing business, ask the question, “Is this something we should patent?” Talk to a patent attorney early in the game. If you wait too long, you can forfeit your patent rights.
 
Trade Secrets
Companies with valuable trade secrets, such as the formula for Coca-Cola, can enjoy the benefit of the trade secret, as long as it is kept a secret. Controlling access to the information and binding employees through confidentiality agreements are important steps to take, but many companies fail to do so. Consult a lawyer to ensure that your trade secrets are properly protected.
 
Trademarks
Federal registration of trademarks, such as words, names or symbols, gives expanded rights and remedies. An IP audit should judge whether the company’s trademarks are adequately protected.
 
Copyrights
A certificate of registration for any copyrighted work — a creative element fixed in a tangible form of expression — is necessary to enforce rights and provide statutory remedies. An IP audit should consider whether copyrighted material of a company has been adequately protected.

Recognizing the value of intellectual property and protecting it is a must for any successful business. Addressing these issues early with an IP lawyer is money well spent.


IP Development Projects: Managing Ownership Expectations
By Gregory M. Hess
Parr Waddoups Brown Gee & Loveless, PC
Software and other development projects invariably raise issues about which party will own the IP in the deliverables. Developers typically prefer to own the IP and grant licenses, while the hiring parties typically expect outright ownership. The issue is further complicated by the fact that: 1) Developers usually use preexisting code or other technology, especially if they have specific industry expertise; 2) Developers’ sales personnel want to quote the most competitive prices possible and often rely on the fact that preexisting technology will be used to reduce overall cost; and 3) In-house attorneys for the hiring parties may not become involved until late in the process, they are usually tuned into the ownership issue, and they typically do not want to spend significant time reviewing and negotiating agreements. As a result, the timing of projects can be adversely affected, ownership expectations can clash, significant attorney time can be spent negotiating agreements, and client relationships can become strained.

The solution is to manage ownership expectations from the outset and draft development agreements that facilitate quick review and completion. Sales personnel can be trained to address the ownership issue up front and explain the cost savings that can be achieved by using pre-existing technology and granting licenses rather than ownership, while giving the client the option to own the deliverables at a higher project cost. Written proposals can address the same issues, even to the extent of containing different price quotations for ownership and licensing options.

Finally, the proposed agreements can be drafted with licensing and ownership options built in, with terms protecting both parties’ ownership of their own preexisting material, such that the parties need only indicate which option — licensing or ownership — applies to the project. This approach benefits all parties.


Treating IP as an Asset
By Kenneth E. Horton
Kirton & McConkie
A company’s IP should be viewed as an asset to invest in, much like a building, a plant or capital. And like other investment decisions into assets, the investment decision for an IP asset requires a cost-benefit analysis. Aside from the cost of procuring the IP asset, another cost involves leveraging that asset to support the bottom line. In other words, the company can typically stop someone from using its technology that you have patented — but at what cost? It took a certain amount of capital to get that asset; but now it will take additional capital to effectively leverage that asset, whether that leverage is through negotiation, litigation, licensing, monetizing, or securitizing the IP asset, or even using the IP asset as the basis of a strategic alliance. But when an IP asset is successfully leveraged, the benefits to the bottom line well outweigh the costs.

Such a view requires the IP lawyer to advise the client with two goals in mind: The first — and short-term — goal of obtaining the asset and the second — and long-term — goal of leveraging that asset. But often, the long-term goal is sacrificed because of the hustle and bustle of focusing on the short-term goal. Thus, the IP lawyer needs to keep a long-term focus not only in his mind, but also in the mind of his client.

Keeping this long-term focus is not always easy, though, because sometimes IP lawyers lack the needed business perspective. In certain instances, this deficiency results from the IP lawyer not having the required business knowledge. In most instances, though, this deficiency results from the client not providing such a perspective to the IP counsel. Thus, the client should always provide a proper business perspective to its IP counsel. And where that focus is not provided, the successful IP counsel will extract that perspective from the client.
 

Software Agreements: Pause Before You Accept
By Tadiana W. Jones
Durham Jones & Pinegar
In these days of downloadable software, businesses and individuals often click and accept the terms of a software license without considering carefully the terms they are agreeing to — sometimes without even reading the terms. However, end-user license agreements (EULAs) may be more negotiable than you think.

If the software program is free or low-cost and has thousands of users, your chances of changing the EULA are vanishingly small, and it probably simply must be accepted if you want the software. It is almost a given that, no matter what the software does wrong, damages claims will be limited the amount you paid for the program. However, you still should review the EULA for truly unacceptable terms, such as clauses allowing adware or spyware to monitor and share information about your use of the software or the Internet, or that require you to use third-party software that is undesirable or subject to a separate EULA (which you should review; again, don’t assume you must accept it as is). Open source software EULAs also may be problematic, depending on your use of the software.

If you are paying a significant amount for a software program, you should have a licensing attorney review the EULA (whether a signed contract or electronic “clickwrap” form) and request appropriate changes. We often negotiate clauses such as testing and acceptance periods, functionality warranties, indemnification for infringement claims, anti-malware warranties (for viruses, Trojan horses, etc.); exceptions from limitation of liability clauses for confidentiality breaches, intentional harm, and indemnification, etc. The cost of such a review and negotiation may pay for itself many times over in future saved costs.

 
Developing and Educating the Next Generation of Entrepreneurs, Scientists and Engineers
By Rick D. Nydegger
Workman Nydegger
Entrepreneurship is a critical part of the U.S. economy. According to the U.S. Small Business Administration, small firms represent 99.7 percent of all employer firms; employ about half of all private sector employees; pay more than 45 percent of total U.S. private payroll; generated 60 to 80 percent of net new jobs annually over the last decade; create more than half the U.S. non-farm GDP; hire 40 percent of all high-tech workers in the U.S.; and produce 13 times more patents per employee than large firms.

Unfortunately however, science and engineering education in the U.S. is not keeping pace with the demand for a workforce equipped with the high-tech skills needed to sustain this kind of entrepreneurial spirit. The National Science Board recently reported that U.S. grade school students continue to lag behind internationally in science and math education. And the number of computer science majors in the fall of 2007 was half of what it was in the fall of 2000 (15,958 compared to 7,915), although the decline appears to have leveled off since 2006.

At Workman Nydegger, we are working to forge stronger partnerships with many of our state’s major universities and other organizations in an effort to help students and young people realize the opportunities and importance of developing entrepreneurial skills and of gaining the educational skills in math and science so critical to entrepreneurship. We sponsor the Utah Science Olympiad, hosted by Weber State University; the state-wide Utah Entrepreneur Challenge business plan competition; and serve as a “Founder” level sponsor of the BYU Marriott School of Management’s Center for Entrepreneurship and its business plan competition. We also support a variety of University of Utah scientific symposia, organized by such institutions as The Brain Institute and the College of Science including the College of Science’s “Science at Breakfast” lecture series and “Frontiers of Science” program.

The ideas and spirit of entrepreneurship of today will serve as the catalyst for solving many of the problems now challenging us. Areas as diverse as development of new sources of alternative energy, feeding the impoverished of the world, improving our health and overcoming diseases through newly developed pharmaceuticals, biotechnology breakthroughs, new medical device technology and treatments, and a myriad of other improvements resulting from the explosion in scientific and engineering information will ultimately serve to improve our quality of life in many areas.

But this means that now more than ever before, there is a need to educate and train the next generation of entrepreneurs, scientists and engineers who are so vital to the spirit of entrepreneurship. Both the private and public sectors need to be more actively engaged in efforts to promote entrepreneurship, development of innovative problem solving skills and education in math, science and engineering, at all levels of education.


Connecting the Dots of Intellectual Property
By Barbara K. Polich
Ballard Spahr Andrews & Ingersoll, LLP
The value of many businesses lies with their IP assets. Many companies may either not be aware of or take full advantage of resources available to protect IP. When considering the need to protect IP, most companies turn to the statutory protections provided for patents, trademarks, trade names, copyrights and domain names. Yet, considerable protection can be obtained by utilizing one or more of several agreements designed to provide protection to intellectual property.

Non-compete and Non-solicitation Agreements
Non-compete and non-solicitation agreements are intended to prevent current or former employees or prior owners from competing with your business or soliciting your employees, clients, or suppliers. A non-compete agreement must restrict competition in a manner reasonable as to both time and geographical area.

Confidentiality Agreements
Confidentiality agreements should be employed to protect all information deemed to be confidential and can be used with employees as well as a variety of others who interface with the confidential information you possess such as vendors, contractors or licensees. Typically, confidentiality agreements do not have any time restrictions.

Non-disclosure Agreements
A non-disclosure agreement reflects its name and prevents the disclosure of information provided by one party to another. Each individual who has access to the information must execute the agreement so that it can be personally enforced against that individual. It is equally important to detail the information provided pursuant to the non-disclosure agreement so that there is a complete and reliable record in the event of enforcement.

Invention, Work for Hire and Assignment Agreements
The fact that an individual is an employee when that individual creates IP is not sufficient to insure that the creation belongs to the employer. Rather, as a condition of employment, it is significant that agreements are in place that recognize that any IP created by the employee will belong to the company and/or will be assigned to the company.

Use Agreements
When allowing use of IP by a third party, the parameters of the authorized use (such as duration and purpose) should be documented. This is often accomplished in a licensing agreement.

Generally, the agreements discussed are not costly to have counsel prepare, and undoubtedly they will afford significant protection for your intellectual property.
 
 

Real Estate Listings in the Information Age
By John Rees
Callister Nebeker & McCullough
Traditional boundaries around the IP legal practice have been shattered. We do not think about IP when pursuing a real estate transaction, but that is changing. Until only a few years ago, real estate brokers contributed listings to a multiple listing service, which then published a book of listings in a local geographic area. Because it was not easy to copy and distribute the entire book of listings, the real estate industry was not overly concerned about protecting the listings included in the book. However, with the advent of the Internet, the public display of all real estate listings, and the easy distribution and copying of listings, multiple listing services and real estate brokers have become keenly aware of the value of real estate listings, as well as the protectible elements of those real estate listings.

Under copyright law, original works of authorship are protected. Real estate listings include original elements such as photographs, drawings, remarks and virtual tours. The owners of copyrightable elements have exclusive rights to publicly display, distribute, copy and create derivative works of those elements. There are many people inside and outside of the real estate industry who want access to listings so they can draw traffic to their own Web site, market their products and services, and create new markets for their businesses.

At Callister Nebeker & McCullough, located in Salt Lake City and Sugarhouse, we work extensively with multiple listing services in their unique industry to help them understand IP concepts as they apply to real property. We make significant contributions to the industry and help the industry as a whole to understand IP rights and concepts as applied to real property.


Recruiting and Retaining a Highly Skilled Workforce in a Flattening World Economy
By Christopher Wight
Brinks Hofer Gilson & Lione
The Internet is responsible for a paradigm shift in the world economy, expanding access to information, opening new markets and establishing economic relationships not previously possible. While the flattening of the world economy has altered how businesses identify and utilize external resources, these changes are also beginning to alter how businesses acquire, develop and retain human resources — namely, employees, which are the primary fuel that drives the worldwide economic engine.

Brinks Hofer Gilson & Lione, one of the largest IP law firms in the country, has responded to the growing demand for highly experienced and technically proficient legal talent by hiring a team of local Utah-based attorneys and establishing an office in Salt Lake City. Although it is common for firms to expand geographically in order to meet the needs of its customers and clients, it is perhaps less common to expand geographically for the principal purpose of acquiring expertise.

As a result of Brinks’ expansion to Salt Lake City, it has not only added experience and technical expertise to the firm’s global operations, but has also enabled its Utah-based attorneys to develop and maintain highly specialized legal practices that keep skill levels high and costs down. For example, Brinks’ Salt Lake City office includes several attorneys who specialize exclusively in the field of pharmaceutical and biopharmaceutical patents and software patents and assist some of the largest companies in the world with their IP law issues.

Brinks has also become more proficient in its use of technology-based communication tools, including e-mail, Web conferencing, Web-based document sharing, VPN connections, patent and trademark docketing and client-accessible extranets, to facilitate seamless communication among geographically separated team members. As part of a large firm with a global reach, we benefit by having access to a large team of attorneys and support staff who have expertise in a broad range of technical and legal disciplines, which improves our ability to provide efficient and cost-effective legal services to our clients worldwide.

Our successful experience integrating individuals from geographically separate locations into collaborative working teams may foreshadow developments in other industry sectors as Utah responds to its shortage of creative talent in the information technology and health care industries. These problems will require creative solutions that accommodate a changing paradigm in the world economy. As the world economy flattens, so will solutions to business problems in the local Utah economy.