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In the new economy, intellectual property often constitutes the crown jewel not only for technology-related companies, but also for companies that simply use technology to make their own businesses more effective. Every business — whether high-tech or low-tech — should conduct periodic audits to identify whether they have created innovations that should be protected as intellectual property. Once the innovations have been identified as intellectual property, it’s critical to obtain patents for them and then police these patents by identifying and prosecuting companies that infringe them. PROTECTION AT A PRICE Unpleasant as it may seem, litigation is often the only way to protect intellectual property. In some respects, litigation is a necessary evil. On the one hand, if a company does not protect its intellectual property, it ultimately will lose its exclusive right of control over that intellectual property. On the other hand, a company’s efforts to protect its rights through litigation can be very expensive. A relatively recent example brings this latter point home. Rambus, a chip design company in Los Altos, Calif., not too long ago reported earnings of $8.2 million for its second fiscal quarter, excluding one-time charges. Yet, Rambus’ legal fees during this same period were $7.3 million, stemming largely from litigation in different intellectual property cases involving Infineon Technologies, Micron Technology and Hyundai. Incredibly, Rambus’ legal fees almost equaled its earnings during its second quarter. WEB INCREASES THE STAKES EXPONENTIALLY Domain names, which can constitute Web addresses and brand names, are a form of intellectual property that is especially hot these days, according to a survey by Net Searchers International, a domain name registrar that also sells products and services designed to help manage domain names. Of 4,000 intellectual property specialists in the U.S. and Europe who were surveyed, 90 percent said they have experienced domain name infringement and are reporting increases in other types of online abuse. The report says that copyright infringement involving appropriation of material by Web sites such as Napster has risen 105 percent during the past three years and counterfeiting of intellectual property such as popular brand names has increased an astounding 1,650 percent. As a result, 74 percent of survey respondents said they are “concerned” or “very concerned” about online infringement. Furthermore, 88 percent of respondents now spend more than 10 hours a week dealing with Internet intellectual property issues, and they expect to become even more involved with online brand protection. And with new top-level domains such as .biz and .info now coming down the pike, problems will likely be compounded as people vie to register names in these new domains that might infringe on the trademarks of others. CREATING A COST-CONSCIOUS ENFORCEMENT STRATEGY Obviously, while companies want to protect their intellectual property, they do not want their legal efforts to outstrip their ability to make decent earnings. It is critically important that companies actively work with their legal advisers to pick the proper battles, create realistic litigation budgets and plans and keep legal costs under control once litigation has commenced. Where appropriate, some companies may also be able to negotiate creative billing arrangements with counsel. In some circumstances, the agreement could call for counsel to be paid a predetermined amount, plus a financial incentive if certain case results are achieved. In other circumstances, it could be agreed that counsel will be paid a hefty percentage of any ultimate recovery on a contingent basis. (Law firms usually must become quite convinced of the ultimate potential success of a case to choose this option.) Or a blended rate could be established, saving the client money by having both senior and junior lawyers on a case bill at the same rate. Finally, a law firm might be paid on a flat-fee basis, although this transfers quite a bit of risk to the firm. Where appropriate, when there is a true possibility of resolving an intellectual property case short of formal, full-scale litigation, an alternative means of dispute resolution, such as arbitration or mediation, should be considered. These methods are much less formal than the process of going to court and involve fewer procedures and less discovery of facts, which can be costly. At times, core issues can be resolved fairly expeditiously and efficiently through these means. Still, some companies do not want to sacrifice their full day in court. In those instances, companies may opt for nonbinding dispute resolution. The problem is that nonbinding methods of dispute resolution can actually increase legal costs. While the process is informative and efficient, a party dissatisfied with the result can simply start the process over again in court. WORK WITH COUNSEL The bottom line is that intellectual property stakes are supremely high. To resolve IP disputes and to keep them in check, companies must find counsel they can trust and work with both productively and economically. Eric J. Sinrod is a partner in the San Francisco office of Duane Morris, where he focuses on technology and litigation matters. His Web site is sinrodlaw.com and his firm’s site is Duane Morris.Mr. Sinrod may be reached by e-mail at [email protected]

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