Antoinette M. Tease Montana Patent
The next three issues of Intellections will be devoted to a series of articles intended to provide information to general practitioners concerning intellectual property audits.

IP Audits: Uncovering the Dirty Little Secrets - Part 1

1. Introduction

There are four types of intellectual property-patents, copyrights, trademarks and trade secrets-and every business has some form of intellectual property. Patents protect inventions, and the criteria for patentable inventions are that they must be useful, novel and nonobvious. Copyrights protect original creative works like books, movies, songs, photographs and paintings. Source code for computer programs is also protectable under copyright laws, as is the content of a website. Copyright protects the expression of an idea but not the idea itself. Patent and trade secret laws protect the idea itself.

A trade secret is by definition something that is kept confidential and that would have value to a competitor if disclosed. Unlike with patents and copyrights, there is no government registration process for a trade secret. Trade secret status may be lost if the owner of the trade secret is not vigilant in taking steps to preserve the confidentiality of the information at issue.

A trademark is anything that indicates the source of goods or services. For example, a trademark can be a name or a logo, but it can also be a slogan (like "Patent Law for the New West®"). Unregistered trademarks are afforded some level of protection, but trademarks that are registered with the U.S. Patent and Trademark Office receive heightened protection. For a discussion of the benefits of a federal trademark registration, please click here. Congress recently increased the statutory damages for trademark infringement. For a discussion of this legislation, please click here.

Patents are issued by the U.S. Patent and Trademark Office, and there is no such thing as an unregistered patent (there is no protection for a potentially patentable idea without an issued patent or a pending application). Likewise, although a copyright technically exists from the moment an original work is created, a copyright holder has no right to enforce her copyright unless the work is registered with the U.S. Copyright Office. Thus, an unregistered copyright is a right without a remedy.

The IP audits that I conduct usually consist of half a day of interviews (ordinarily half an hour each) with key personnel. In addition to interviewing top management (the CEO, CFO and President), I also like to interview the managers of the human resources, information technology, and sales and marketing divisions. This enables me to get a comprehensive view of the business and to cover the areas that are most likely to involve some form of intellectual property. The deliverable resulting from the IP audit is an IP audit report that includes a list of action items. It is not unusual for me to work with a client for one to three years after the IP audit to complete the action items included in the IP audit report.

With that background, I will address next the four areas of intellectual property and what we ordinarily cover in an intellectual property audit.

2. Patents

In the area of patents, the questions I ask during an IP audit are directed toward determining whether the
company has any kind of invention that may be patentable. A patentable invention could be anything from a hand tool to a cosmetic product to a business method. If not, then I focus the remainder of my questions on the other types of intellectual property addressed below. If so, then I will ask questions related to both ownership and disclosure.

The default under U.S. patent law is that the individual inventor owns the patent rights to his invention, regardless of whether someone else paid him to develop it. Clients often assume that because they paid someone to write a software program for them or to design a product for them, they own the patent rights to that invention; however, when it comes to independent contractors, the client does not own the patent rights unless the inventor has signed a written assignment of his patent rights to the client. When it comes to employees, the situation is a bit more complicated.

In the absence of a written employment agreement, the employer does not own the patent rights to inventions that its employees develop unless the employee was specifically hired to solve a particular problem, and the invention relates to that problem. The problem with relying on the "hired-to-invent" doctrine is that it is highly fact-specific; the burden will be on the employer to show-through offer letters, job descriptions, etc.-that the employee was hired to solve a particular problem. The far better approach is to have all employees sign a pre-invention assignment agreement as a condition of hiring. Without a written patent assignment agreement, and without evidence to support an argument that the hired-to-invent doctrine applies, the employer will have a nonexclusive right to practice the invention (called a "shop right"). A shop right is a license, however; it does not constitute ownership of the patent rights.

The other issue I address during IP audits is the issue of disclosure. Under U.S. patent law, an inventor has one year after the first public disclosure of an invention to get a patent application on file, or else the invention will be deemed to have entered the public domain. The term "public disclosure" includes publication, sale, offers for sale, and public use. For more information on the one-year grace period under U.S. patent law, please click here. If, as a result of the IP audit, we identify a potentially patentable invention, and we establish that the clients owns the patent rights to that invention, then we must determine whether there is still enough time to file a patent application before the end of the one-year grace period. Going forward, we often work with client to develop timelines to ensure that they will not miss patent deadlines in the future.

With the exception of a few countries, most foreign countries are "absolute novelty" jurisdictions, which means that there is no one-year grace period. If a client is interested in foreign patent protection, then we must ensure that the U.S. patent application is filed prior to any public disclosure. The foreign patent application may claim priority back to the U.S. filing date.

Lastly, even if we are unable to identify a patentable invention owned by the client and for which the one-year grace period has not expired, clients are often interested in monitoring the patent applications of their competitors to ensure that they will not some day receive a cease and desist letter that could threaten the future of the company. We regularly work with clients to identify and monitor competitor patent applications and, where appropriate, take steps to prevent them from issuing.

Patent Law for the New West
The information in this newsletter is provided for informational purposes only and should not be considered legal advice. Please consult a qualified attorney for advice on a specific legal matter.

© 2009 Antoinette M. Tease, P.L.L.C. All Rights Reserved.
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