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The Voice of Business,
Industry & the Professions Since 1942
North Carolina's largest
business group proudly serves as the state chamber of commerce
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Small
Business
February 2005
Patent
Pending
After you've devised that new
widget, here's how you can
and should protect it.By Allan Maurer
|
Patent certificates line the lobby walls of
MCNC's Research Triangle Park facility |
You
probably
know that Dell is one of the world’s fastest-growing computer companies,
and that it’s building an assembly plant in Winston-Salem. But did you
know that one of the secrets of Dell’s success is its patented
build-to-order business model?
Dell’s method of selling computers is so effective at controlling
manufacturing costs that it can undersell competitors. Its patented
business method even led to a cross-licensing agreement with IBM that
allowed Dell to use some of Big Blue’s own patented technology.
Everywhere you turn in the business world these days you run into a patent
and many of its first-cousins — service marks, trade marks and copyrights.
IBM holds more than 20,000 patents which pull in licensing fees of more
than $1.5 billion annually. MCNC, previously known as the Microelectronics
Center of North Carolina, decorates its lobby walls with framed
certificates of its more than 100 patents.
Yet patents are just as important outside the Fortune 500. Universities
brag about how many their faculty earned helping commercialize something
invented on campus. Patents also can be crucial to the success of small
businesses, which often succeed by bringing to market a new product or an
existing product produced a new way. But without a patent on the product
or process, small businesses are naked to competition from larger rivals.
Patents, trademarks, trade secrets and copyrights on intellectual property
are the currency of the Information Age. And intellectual property — or IP
as it’s commonly known — drives much of the information economy. They are
also the source of controversy, contention and often litigation, as
witnessed by the flap over teenagers sharing copyrighted music over the
Internet.
Today, IP makes the business world go round, but if you do not protect it
properly it will make your head spin. “Patents are an excellent way to
protect your margin and your product,” says Steve Gardner, one of
Kilpatrick Stockton’s 100 fulltime IP attorneys. “It’s almost the only way
to protect yourself from someone knocking off your innovative product or
process, particularly import knockoffs. It’s also one of the things that
legitimizes a business or idea, adding credibility.”
Should You Patent Your Process?
When he was in graduate school, Gardner says, “I thought patents were
reserved for only super innovative high tech things. But I found out
that’s completely wrong. If something is new, useful and not obvious, it’s
patentable.”
That includes many processes born from the Internet boom. Amazon.com
managed to shut down Barnes & Noble.com for a day because Amazon had a
patent on one-click orders. That and other similar lawsuits raised
concerns that the U.S. Patents and Trademarks Office had been lax in
allowing such patents.
Gardner’s colleague, Charles Calkins, says the courts are still working
through a backlog of patent law cases filed three and four years ago.
“What happened during the Internet bubble,” Calkins says, “is that the
patent office takes a while to get up to speed and it allows broader
claims at the beginning of a technology era than at the end. Then the
pendulum swings back and they realize they’ve been issuing patents that
are too broad and look for a happy medium.”
“The PTO has “had a couple of reforms in how they handle business method
patents,” Calkins says. “It led to them being pretty restrictive.”
Kennedy Covington patent attorney Mike Tobin says the U.S. Congress
actually stepped in to allow a specific defense against business method
patents and the PTO “recognized the need to bring in people with
additional skill sets and institute additional reviews that really slows
down these patents coming through the system. It takes from one to three
years for a business method patent to issue.”
Guy Gosnell, a patent attorney in Alston Bird’s Charlotte office, says the
PTO not only hired more examiners, it also has a much greater collection
of prior art than it had a few years ago, which helps improve the quality
of the patents approved, but the second level review now required for
business method patents sometimes results in “applications ping-ponging
back and forth between the first and second examiner.”
One of the reasons some questionable business method patents made it
through the system in the first place, Tobin points out, is that the PTO
was staffed primarily by examiners not particularly qualified to know if
prior art existed for many business method patent applications.
“Before 1998, patentable items were articles of manufacture, compositions
of matter, processes and improvements thereof,” Tobin explains. “If you
had a new boiler tube, you sent it to the PTO and the examiner would be
some guy who had been looking at boiler patents his whole life. After 1998
you started to see patent applications on things like methods of
collateralizing a loan, teaching a janitor to dust or providing an
insurance product. You had examiners with degrees in mechanical
engineering trying to figure out the nuances of an insurance product.”
Calkins dismisses the idea that a patent will make or break most
companies. “A patent may help raise capital in the beginning,” he says.
“But I counsel companies file for a patent quickly, but you’ll be
successful or not before the patent is issued. Microsoft and Amazon were
successful before their patents were issued. Many companies that also
filed patents at the same time no longer exist.”
If a company filed a patent application in 1996, says Calkins, “It may
have been issued by 2000. If you discovered someone infringing in 2000, it
might go to trial by 2002 and through appeals in 2003 and 2004.” That’s
why, he says, “We’re actually at the beginning of seeing the courts rule
on Internet patents.”
“In the technology area,” says Tobin, “things such as computer software
change so rapidly that from the client’s point-of-view, it’s a hard
decision whether to even go after patent protection. It costs a fair
amount of money, you won’t know if you have it for three or four years,
and if you want to assert against someone, it’s costly.”
Many business method patents, Tobin notes, “are pretty easy to do once you
know the concept and you can design around patents. The key advantage may
be getting to market first and being good at what they do as opposed to
keeping others out.”
Karl Sawyer, who heads the IP department for Kennedy Covington in
Charlotte, says the issues small to mid-sized businesses run into with
patents are always the same: cost and timing. “The issue for a small
business is how to get the most bang for your buck. You don’t want to
leave yourself completely unprotected by not filing for patent and
trademark protection, and the clock is running against you in filing.”
Sawyer says the problem is less pressing if the company is only worried
about U.S. protection. “You have a one-year window for that,” he says.
“Few businesses make a big splash with a new product in one year, but it
still gives you some breathing room.”
For a company wanting broader European, Asian, and American protection,
the issue grows more complex, Sawyer notes. “Then, instead of looking at a
$10,000 to $15,000 tab, you’re looking at spending $50,000 to $75,000
before you get much from it.”
That means, Sawyer says, that clients must focus on strategies for patent
protection and it’s the same on the trademark side. You decide if it’s
patentable and if so, which strategies you can follow that buy you some
time and preserve your resources and your ability to file in foreign
countries while you decide. One such strategy, he says, is to take
advantage of the Patent Co-Operative Treaty.
The Patent Co-op Treaty offers world coverage for patent applications.
Nearly all the industrialized countries — with the exception of Taiwan —
have signed the patent treaty.
The filing fee can be $3,500 versus the $1,000 for filing in the U.S.
alone and the attorney’s fee remains the same. It buys you time, about 30
months. Then you have to file individual applications in each country
where you truly want protection.
Avoiding Trademark Trauma
There’s a similar way to globally protect a company’s trademark through
what’s known as the Madrid Protocol. “The main downside is twofold,”
Sawyer says. “You have to base it on the trademark application or
registration you file in the United States, so if that’s attacked and
lost, you lose it all over the world. And, two, for the time being,
Canada, Mexico and none of the other Central or South American countries,
nor Australia and New Zealand are members.”
Filing a Madrid Protocol in all member countries, however, generally costs
less than $13,000, which is considerably more than the cost of just filing
in the States but considerably less than filing individually in each
country. Sawyer notes that if most or all the countries in which
protection is sought are in the European Union, it may be wiser to file an
EU application rather than a Madrid Protocol one.
Raleigh-based Poyner & Spruill attorney Eric P. Stevens says the biggest
group of problems people have with trademarks, service marks and trade
names occur before they have to decide weighty matters such as whether or
not they need worldwide protection. The single biggest problem he
encounters, says Stevens, is that “People come up with some name or mark
for their product or service without going through the right steps to make
sure they have one that’s protectible and that they’re not infringing on
someone else’s rights.”
So, Stevens continues, “They have trouble stopping someone else using a
mark too close to theirs or someone sends them a cease and desist order
because the mark they use is really not available to them.”
That sort of mistake can be expensive in more ways than one, Stevens
notes. A business using a logo that’s similar to yours may dilute the
value and goodwill of your mark. Having to give up a trademark you’ve been
using means buying new business cards, stationery, signs, products, phone
book ads. That’s costly and may confuse your customers.
It’s a bit confusing what sort of name or mark actually qualifies for
trademark registration and which do not. A generic term, for instance, can
never function as a trademark. To quote Stevens, “That doesn’t mean you
can’t call your eating establishment “RESTAURANT” if you’re inclined to
minimalism, it’s just that your chosen name will do you no good in
distinguishing it from those of others. You certainly will never be able
to stop someone else from choosing to employ the name.”
Most descriptive terms also are seldom immediately eligible for trademark
protection. Terms that directly describe some attribute of a product or
service, its intended effect, its qualities, size, shape or color, can
only be legally enforceable trademarks if used consistently over time.
Then, it is said to have acquired “secondary meaning.” Donald Trump
recently said he wants to trademark his “You’re Fired!” line from his
popular television program. If permitted, which is not at all a sure
thing, it would be because of that secondary meaning it acquired through
his use of it on the show.
“Suggestive” marks or names are legally protectible on their first
commercial use, but the dividing line between suggestive and descriptive
are, Stevens notes, “far from bright and easy to see.”
The strongest marks from a legal standpoint, he says, “are arbitrary and
fanciful designations.” Stevens cites Exxon, Xerox, and Apple Computers as
examples.
Gosnell notes, “Most people have an inclination to pick a relatively
descriptive name, which makes it hard to get protection. You’re better off
if you coin a word or phrase and associate it with your company.”
Once you select a suitable and protectible name, the next step is to
“knock out” marks that are unavailable through a quick search, usually via
an online database. If you’re simply looking for a name available in North
Carolina, you can do that via the N.C. Department of Commerce’s web site,
www.secretary.state.nc.us/trademark. For a broader search, the TESS
database operated by the Patents and Trademark Office at www.uspto.gov is
often used. If you plan to market your product or service internationally,
you’ll have to search those markets as well.
Stevens says the comprehensive search his firm conducts generally costs
$480 and an hour or two of attorney time, resulting in a bill under $1,000
for the search and counsel’s opinion.
Completing the application letter and sending it off will cost a total of
less than $2,000 generally, he says. “Those early investments pay
dividends by keeping you from facing a lot of headaches that could pose
real problems and huge costs down the road,” Stevens adds. “Every day I’m
dealing with disputes at the letter writing stage. Most disputes are
resolved short of litigation, but they get resolved by people making
compromises they would be better off not making if they did not have to.”
What About Trade Secrets?
Trade secret protection is another area where doing things right up front
helps, Stevens says. Trade secrets — anything a business owns that derives
value from not being generally known outside the business — usually make
people think of some secret process, procedure or invention, but are
broader than that, he notes. “They can be more mundane,” Stevens says.
“They include business marketing plans, internal procedures, a broad
number of things.”
The key to protecting trade secrets, says Stevens, is establishing
policies and agreements with employees requiring them to maintain secrecy.
Stevens suggests hiring an attorney to craft employee agreements regarding
non-competition clauses because “the law on that is extremely complicated.
You have to evaluate a lot of factors to know if its enforceable at all,
what sort of employment the person is excluded from accepting, and what
sort of geographic area is covered. It’s impossible for a non-lawyer to
negotiate.”
He says the same is true of protecting trade secrets, patents and
copyrights. “Make sure there’s no doubt that the fruits of the employees’
labor belong to the employer, not the employee.”
Copyrights also cause some confusion at times, Stevens says. In
particular, he notes that there are frequent misunderstandings about “work
for hire” agreements. Basically, work for hire includes two things, he
says. “One is work prepared by an employee within the scope of his
employment. The second is work specially ordered for a collective work
such as a compilation, test, or atlas.” He notes, however, “If the parties
sign an agreement that it is a work for hire, the person doing the
commissioning will be considered the author.”
Copyright protection starts as soon as a work covered is begun, but
registering it through the Library of Congress copyright office makes it
possible to collect greater damage awards than one can with unregistered
copyrights, he notes.
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