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The American Society of Mechanical Engineers recently invited me to speak on “Intellectual Property and Business Protection” at a regional conference in Chicago. Rich Beem, the founder of Beem Patent Law, will join me in the presentation. Our basic message has two prongs: First, the failure to invest in effective IP protection can be costly and damaging to any business. Second, entrepreneurs, small businesses and large companies can all benefit significantly by making relatively small initial investments in IP assets. Each point may seem obvious. Yet, 20 years of private practice as an intellectual property lawyer has shown me that businesses of all sizes are alike in at least this respect: they too often fail to make strategic investments in intellectual property protection. This attitude is shortsighted and risky, since IP is often THE essential asset of a business, directly tied to a company’s market value. As many commentators have noted, the growing value of IP assets to modern business can be seen in the aggregate market-to-book value ration of the S&P 500, which has grown from a ratio of 1.4 in the early 1980s to 4.7 by early 2003. A market value nearly five times higher than book value demonstrates the high premium placed on intangible assets. This divergence between book value and market value also illustrates the essential role played by IP assets in value creation. Depending on the IP assets involved, the failure to take early steps to protect IP can have a variety of adverse consequences, including the loss of rights, a weakened ability to enforce rights, increased litigation expense and the lost opportunity to recover damages or attorney fees. Here is a five-step blueprint for an IP strategy to avoid these adverse consequences: 1. One of the first steps any new business should take is to prepare employee contracts with nondisclosure provisions protecting business information and trade secrets. These may include customer lists, methods of operation, formulas, software design, and client secrets and information. The company should also implement a policy for the identification and protection of company secrets, and adopt a practice of exit interviews during which an employee confirms that she has returned all company property and understands her continuing obligation not to disclosure the confidential and propriety information of the company and its clients. 2. As the company begins to develop business methods, software designs or inventions of any type, it should consider if patent protection is available and worthwhile. Consult with patent counsel early in the development cycle to avoid the loss of valuable rights. In the United States, patent protection is no longer available once the invention has been public for over a year. In most of the world, there is no grace period and protection must be sought before the invention is disclosed to the public. 3. Brand protection should also be considered early in the development cycle. File trademark applications based on an intent to use the mark in commerce. Once granted, the rights under a trademark registration go back to the date of filing. Thus, it is possible to establish nationwide rights that predate actual use of the brand. 4. Web site content, product manuals, software and advertising are a few of the types of content common to most businesses. Copyright in such works exists from the moment of creation, yet early registration is required to recover statutory damages and attorney fees for copyright infringement. Consider filing for copyright registration within three months of the publication of such works. It is also advisable to consult early with counsel about the ownership of rights. Even though you pay an independent contractor for the work, the underlying copyright, his work, remains with him unless there is a written transfer of rights. 5. The final step in an effective IP strategy is to conduct an initial audit of IP rights. Most companies conduct a physical inventory and financial review on an annual basis. The same attention, if not more, should be given to the IP assets of the company. The audit should identify the IP assets of the company and confirm they are appropriately registered, protected and maintained. A thorough audit should also consider ancillary issues such as domain name ownership, insurance coverage, license obligations and third-party conflicts. Finally, an effective audit should include an action plan for IP assets with specific measures to build value and improve the bottom line of the company. Once completed, the IP audit should be reviewed and updated on an annual basis. Engineers know that the time and money spent in creating a detailed blueprint can avoid added expense during production. The importance of IP assets to modern business reinforces the benefit of a similar commitment of resources to create and implement an effective IP strategy. Mark V.B. Partridge, a partner in the Chicago office of Pattishall, McAuliffe, Newbury, Hilliard & Geraldson, has helped large corporations, small businesses and entrepreneurs manage IP assets for more than 20 years. He can be reached at [email protected].

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