Featured in Alltop StartUpRoar

Monday, March 21, 2011

Intellectual Property (IP) and Know-how: Defined

This blog will eventually discuss several key issues relating to your technology, including:  selection, acquisition of rights, due diligence, commercial market, time to market, end users, size of market, and much more. The discussion of IP is sufficiently important to the NewCo that it will take more than one article to get the basics down. As such I want to discuss Intellectual Property (IP), Copyrights, Trademarks, and Know-how by first defining what it means to NewCo.  Most important will be the IP with a brief description of the others.  Wikipedia defines these terms as follows:

Intellectual property (IP) is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets, such as musical, literary, and artistic works; discoveries and inventions; and words, phrases, symbols, and designs. Common types of intellectual property include copyrights, trademarks, patents, industrial design rights and trade secrets in some jurisdictions.  Although many of the legal principles governing intellectual property have evolved over centuries, it was not until the 19th century that the term intellectual property began to be used, and not until the late 20th century that it became commonplace in the United States. The British Statute of Anne 1710 and the Statute of Monopolies 1623 are now seen as the origins of copyright and patent law respectively.

Know-how (or knowhow as it is sometimes written) is practical knowledge of how to get something done, as opposed to “know-what” (facts), “know-why” (science), or “know-who” (networking). Know-how is often tacit knowledge, which means that it is difficult to transfer to another person by means of writing it down or verbalizing it. The opposite of tacit knowledge is explicit knowledge.  In the context of industrial property (now generally viewed as intellectual property (IP)), know-how is a component in the transfer of technology in national and international environments, co-existing with or separate from other IP rights such as patents, trademarks and copyright and is an economic asset.

Copyright is a set of exclusive rights granted to the author or creator of an original work, including the right to copy, distribute and adapt the work. Copyright does not protect ideas, only their expression. In most jurisdictions copyright arises upon fixation and does not need to be registered. Copyright owners have the exclusive statutory right to exercise control over copying and other exploitation of the works for a specific period of time, after which the work is said to enter the public domain. Uses covered under limitations and exceptions to copyright, such as fair use, do not require permission from the copyright owner. All other uses require permission. Copyright owners can license or permanently transfer or assign their exclusive rights to others.  Initially copyright law only applied to the copying of books. Over time other uses such as translations and derivative works were made subject to copyright. Copyright now covers a wide range of works, including maps, sheet music, dramatic works, paintings, photographs, sound recordings, motion pictures and computer programs.

A Trademark or Trade Mark or Trade-Mark is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities.  A trademark is typically a name, word, phrase, logo, symbol, design, image, or a combination of these elements. There is also a range of non-conventional trademarks comprising marks which do not fall into these standard categories, such as those based on color, smell, or sound.  The owner of a registered trademark may commence legal proceedings for trademark infringement to prevent unauthorized use of that trademark. However, registration is not required. The owner of a common law trademark may also file suit, but an unregistered mark may be protectable only within the geographical area within which it has been used or in geographical areas into which it may be reasonably expected to expand.  The term trademark is also used informally to refer to any distinguishing attribute by which an individual is readily identified, such as the well-known characteristics of celebrities. When a trademark is used in relation to services rather than products, it may sometimes be called a service mark, particularly in the United States.

A trademark may be designated by the following symbols:
 ™ (for an unregistered trade mark, that is, a mark used to promote or brand goods)
  (for an unregistered service mark, that is, a mark used to promote or brand services)
 ® (for a registered trademark)

Trademarks and Copyrights can be important forms of protection of products or symbols used to recognize a product.  There may be approaches to protecting aspects of computer programs.  But the real bread winners are the IP and Know-how.  IP and Know-how are essential to the success of the company as they are what make NewCo special and provide a moat around the business.  As far as Know-how, it will be a secret as long as you can keep the information secret.  Know-how is the special sauce that goes into your company.  It is something only NewCo knows and now public information is available that a competitor can use to reproduce your special sauce.  For example, try to find out how to make a Coke.  This info has been closely guarded for nearly 100 years. 

The rights associated with the patent portion of the IP help identify markets and potential value. The IP helps keep the competition away for some period of time and provides you a legal monopoly for as much as 20 years.  A patent will define claims which you can use to take an infringer to court and attempt to stop them from making a product you own the rights to.

What is a patent?  Think of a patent as a deed to property, like the deed to your home.  You actually have ownership and rights to keep others out of your home.  You can sell the home, rent it, or just allow the home to just set and do nothing.  It is your home to do with as you please; within the limits of the law.  Patents are similar.  Once the patent issues, it defines the technology or products you have invented and have rights of ownership.  You can develop the technology, license it, sell it, and you have the unique ability to prevent anyone from selling something that is covered by your patent. 

Sometimes when I discuss NewCos with entrepreneurs there is confusion about what a patent does and does not mean to the company.  As just stated, a patent DOES allow you to prevent someone from selling your product.  A patent DOES NOT automatically give the rights needed to sell a product.  When preparing a patent, it is a like blowing a bubble in a rose bush.  You want to blow the bubble as large as you can to fill the empty spaces, but if you blow it too large it will burst.  The first patent issued in completely new field will make every effort to cover as much of the field as possible.  As other inventors file for their new inventions in the field, they will attempt to cover uses, areas, and products not contemplated in the original patent or other issued patents in the field. 

Sometimes companies refer to the original patent as an UMBRELLA PATENT because of its very nature of trying to cover the whole field of a technology area and because it provides very broad coverage.  Assume, you invented and a patented table salt.  Your new patented invention now has a full term before expiration which is like the umbrella covering as much of the space as possible.  As the first patent in the field you attempted to cover the composition (make-up or chemical structure) of salt and therefore have a patent covering Composition of Matter; i.e. chemical makeup.  Uses of the chemical which are claimed in the patent cover making food taste better and preserving food.  Later, one of your competitors discovered the chemical can be used to make a great toothpaste additive and they file a patent for a particular use as toothpaste.  The original inventor never contemplated this use and it was not described in the first original patent.  Also, the use was not something that a person with knowledge of field would consider as obvious.  The patent examiner approved and allowed issuance of a Field of Use patent for salt as an additive to a toothpaste.  The owner of the composition of matter patent would not be able to practice the invention of use as toothpaste without first obtaining the rights from the inventor of the toothpaste, and the inventor of the toothpaste would not be able to sell the product without obtaining rights from the composition of matter patent.  This may sound a bit complicated and it can be very complicated when dealing with technology inventions in areas that have been around a while.  Essentially, these patents Block or Prevent the other inventor from particular uses or applications and each would need to obtain the rights of the other to commercialize the product.

The patent landscape around a product is of such a significant importance, that many BigCos and potential investors will ask the NewCos if they have obtained a Non-infringement Opinion Letter or a Freedom-to-Practice or Freedom-to-Operate Opinion from their legal counsel.  Most often the response to BigCo is No we do not have the financial resources to do that now.  While these are extremely important documents that help provide confidence that you can make and sell the products from your invention, these legal opinions are extremely expensive and most NewCos cannot afford them.  As an example, in a company where I was facing potential litigation with a competitor, it cost $100K to get a Non-infringement Opinion Letter and I received a quote of $500K for a Freedom to Operate Opinion.  We paid the $100K but could not afford the more comprehensive opinion letter.  When first starting out, most companies could not even pay the $100K and would rather spend the funds to advance the technology.  This does not mean the letters are not important, but if you cannot afford them you must try to gather as much information as possible to help address the questions from a potential investor.

To sum up, I want to make several important points:

·       Having a patent gives the right to prevent others from selling a product,
·       Having  a patent may NOT give all of the rights needed to sell a product
·       A patent review of all fields related to your product is needed to identify any blocking IP for your product
·       You will need to acquire rights to any blocking IP and those rights will cost something (a topic to discuss later)
·       You need to have a good patent counsel to help with ALL of your IP issues

As always, I hope you are following along in the series and will feel free to email me with your questions.  The topic of IP is essential to grasp before going further.  This topic will be broken down to small segments. I am not attempting to provide any legal advice nor am I the person to do so.  But, you do need to understand the basics to help direct your next steps in creating a company and talking with your legal counsel.  Once the section on IP is completed, we can discuss technology and obtaining IP right.

Taffy Williams is the author of:  Think Agile:  How Smart Entrepreneurs Adapt in Order to Succeed to via Amazon