Are you protecting your business’ secret sauce? 3 ways to use legal infrastructure tools to help protect your intellectual property￼by Michelle Bomberger | November 10, 2022
Your business started with an idea that you tirelessly worked to transform into a tangible and original product or service. You have made it unique by building a brand, a proprietary process or a secret sauce that separates you from your competitors.
These intangible ideas and assets we call intellectual property or “IP”. Next to your people, these trademarks, copyrights, patents, and trade secrets are the most valuable assets and must be protected. Starting with your name and the design of your logo trademark.
Let’s look at the company Xerox. Back in the day, they were the leader in photocopying technology which was a big deal before the internet and today’s do-everything office printers. Xerox had a very strong trademark. It was so strong in the industry that it became a verb – “I’m going to Xerox these documents” (like today with Google we say “I’m going to Google it.”).
While this is a great thing because you are so ingrained in your customer’s mind so much so that every photocopy people make is a “Xerox”; but it also creates a significant risk that you’d lose the rights to the mark because it has become a generic term rather than a term tied specifically to your goods and services. (BTW, did you know that Xerox’s story began in Seattle – check it out here: How Xerox’s Intellectual Property Prevented Anyone From Copying Its Copiers | Innovation| Smithsonian Magazine)
To maintain the rights to a trademark, the trademark holder must use the mark continuously in commerce and proactively monitoring use by others to ensure there’s no infringement.
3 ways to use legal infrastructure tools to protect intangible assets and IP
A business must identify what IP assets they own and know how best to protect them using the three key legal infrastructure tools of contracts, insurance, and entity.
Let’s apply the three legal infrastructure tools to Xerox’s situation.
Anytime you allow a third party to use your IP, you risk them tarnishing your brand. These contracts should describe the narrow rights that party has to use the mark and the specific quality, look and feel . It should also include the right of the trademark holder to revoke the right to use the mark.
A contract to manufacture copiers with the Xerox name would have specific quality and use guidelines. A contract to present Xerox as a sponsor or partner would require compliance with certain terms of the relationship and narrow right to use the mark. The goal of the contract is to set clear expectations and provide protections for each party. In this case, protecting valuable IP while allowing the expansion of the brand.
Remember, the purpose of contracts is to set expectations and remove ambiguity. IP is addressed in a number of ways in contracts. Some common contract terms are essential to protection of these assets.
The first is “confidentiality”. Contracts should require anyone receiving information about your business to sign a contract with confidentiality provisions.
A second key term defines the ownership of any intellectual property created under the contract. By default, the person creating the IP owns it under copyright law. If you are hiring a third party to create IP assets, your contracts must specify the work as a “work made for hire” and explicitly assign to you. This step is important for both employees and contractors or vendors who are creating IP for your business.
Third, consider relationships where you allow other parties to use your IP. For example, you may allow a referral partner to use your templates or training tools in their business. These tools are your intangible assets, and you’ll want to control or limit their use of them.
These are just a few terms that re-affirm why written contracts are one of the key risk mitigation tools, even in “simple” relationships. They offer clarity to ensure your intellectual assets are properly controlled for your company’s long-term value.
Our second line of defense is insurance. This is one of those areas where insurance typically does not have a significant role. Some insurance policies may allow a business to make a claim for the misuse or disclosure of assets as “theft” of confidential information by employees or third parties, but these cases can be hard to prove.
You should discuss the IP you have and the value of these assets with your insurance broker to identify what policies could enhance your protection from the misuse of your IP by employees or third parties.
You may seek coverage for reputational damage and product liability, both of which will help you recover from an incident that may tarnish the brand.
For example, Xerox would want to have insurance to help it navigate and pay for a product recall and a public relations incident. It would also require its manufacturer or partner to indemnify it for any damages caused by that third party and to carry insurance that will help cover those costs.
The entity provides you the repository for holding the intangible assets. When you have high value intangibles or intangibles that are used across multiple businesses, it may be beneficial for these high value assets to reside in an entity separate from the operating business. This separation can insulate these valuable IP assets from creditors.
You should also clarify the “ownership” of the IP assets. Typically, these assets are owned by the business and you should take proactive steps to document when the assets were developed and first used by the business. One way to document these activities is with federal and state registrations – typically trademarks (brands), copyrights (content), and patent (inventions) can be protected through registrations and provide evidence, if needed, of your claim to the IP.
IP is a valuable asset of the business. Xerox, of course, protected its IP through federal registration; but Xerox struggled with the term “Xerox” becoming a generic term – “a Xerox machine”. More proactive steps were necessary through contracts, policies of use, and policing.
Intangible assets differentiate you from your competitors and build value for your business, but they require proactive steps using contracts and registrations to protect this value for your business’ future.
Do you have the confidence to GO BOLDLY knowing that your business’ intellectual property assets are protected?
Your trademarks, copyrights, patents, and trade secrets identify your business to customers in its unique space and give you a competitive advantage against your competitors. Your business may not have the same high-profile intellectual property or disputes as Apple, Dyson and Adidas, but your intangible assets or IP assets are essential to establishing your company in the marketplace. Protecting those assets is vital.
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