The CPA Journal

Intellectual Property Primer

By Barry A. Cooper

In Brief

Intellectual Property 101

“Build a better mousetrap and the world will beat a path to your door.” These words are as relevant today as when they were spoken over 100 years ago by Ralph Waldo Emerson. The inventor of today’s better mousetrap need not worry about the world beating a path to his or her door: The door is already open by way of the Internet and global commerce. Intellectual property is more important than ever before, and it is more at risk from infringement and dilution. Patents, copyrights, trademarks, and trade dress—and how they are registered, utilized, and protected—are the better mousetraps of the information age.

In the global information age, intellectual property is becoming nearly as valuable to businesses as more traditional assets. Whether it is the design of a new computer chip, a worldwide beverage brand, or a hit movie, intellectual property—its development, utilization, and protection—can mean the difference between business success and business failure.

The basic building blocks of intellectual property are patents, copyrights, trademarks, and trade dress. What does each one protect? How is this protection obtained? Who owns these rights? How are these rights recognized? What special concerns are raised in doing business over the Internet?

Patents

A patent is a form of intellectual property issued by the United States Patent and Trademark Office (PTO) in the form of a legally enforceable right to exclude others from making, using, selling, offering to sell, or importing the invention claimed in the patent for a certain number of years. A patent does not give its owner the right to make, use, sell, offer for sale, or import the invention in the patent, since there is a possibility that the use of the invention may infringe upon the rights of owners of prior patents. A patent enables the owner to prevent others from making, using, importing, offering for sale, or selling the invention claimed in the patent.

Utility and design patents. There are two types of patents, which cover different aspects of an invention: utility patents and design patents. Any person who “invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new and useful improvements thereof” may obtain a utility patent. Any person who “invents a new, original and ornamental design for an article of manufacture” may obtain a design patent.

A utility patent is what one usually associates with a patented invention. Utility patents may be obtained on mechanical devices (e.g., motors and carburetors), appliances and electrical circuits (e.g., microprocessors), chemical processes (e.g., the process for manufacturing medicines or Teflon), and new genetically derived products. Certain computer software can be patented. Patents have recently been issued for business methods, such as one-click purchasing over the Internet.

A design patent, on the other hand, is directed to the ornamental look of a product. The appearance of Apple’s iMac computer would be protected by a design patent. Other examples include furniture, watches, lamps, and almost any product that has a unique ornamental shape. Because a design patent protects only the product’s appearance, and not the way the product operates, a competitor can often avoid design patent infringement by making sufficient changes in the product’s overall appearance.

Filing a patent application. Applications are filed with the U.S. PTO in Arlington, Virginia. After the application is filed, it is examined by a patent examiner. In addition to reviewing the application for certain formalities, the patent examiner, who is trained in the technology under review, will conduct a search of “prior art” patents and printed publications, which are maintained by the PTO. Only inventions that are “new” or “nonobvious” to a “person having ordinary skill in the art to which the invention pertains” are entitled to patent protection. If the examiner believes that the prior art establishes that the claimed invention is not new or is obvious, the application will be rejected. The patent applicant, usually acting through patent attorneys, has the ability to contest the examiner’s rejection, or to redefine the claimed invention so that it is sufficiently different from the prior art found by the examiner as to warrant issuance of a patent.

An applicant who has filed an application with the PTO has a duty to disclose to the patent examiner the closest prior art, of which the applicant is aware, relevant to the invention. Failure to advise the examiner of prior art may form a basis for invalidating the patent if it is tested in a legal action.

Patent applications should be filed promptly, especially after the invention becomes known. In the United States, applications must be filed within one year after an invention has been in public use or offered for sale in the United States, or within one year after the invention has been described in a printed publication in the United States or any foreign country. All rights in an invention are lost if the invention is made known and a patent application is not filed within this one-year grace period. Many foreign countries are not as forgiving, and corresponding patent applications in those countries must sometimes be filed before the invention is known anywhere in the world. Prudence and foresight are warranted.

The United States now allows for the filing of a provisional patent application, which is not subject to examination by the patent examiner and has less stringent requirements than a formal application. If the formal application is filed within one year of the provisional application, the formal application will gain the benefit of the earlier filing date of the provisional application, with regard to subject matter common to, and adequately disclosed in, both applications. The provisional application is especially beneficial in situations where the one-year grace period is almost expired and preparing and filing a formal application in time would be difficult.

Term. Once issued, a utility patent has a term of 20 years from the filing date. Maintenance fees are due at 3!s, 7 !s, and 11 !s years after issuance. Design patents have a term of 14 years, and maintenance fees are not required. As a rule, once a patent expires, its subject enters the public domain and the invention can be used by anyone.

Patents are not renewable. However, it is not infrequent for companies to obtain additional patents based upon improvements on a basic invention. The improvements must be directed to new and nonobvious refinements of the basic invention, and the applications filed for the improvements must meet the same requirements of any application. Often, a product is the subject of more than one patent, which expire at different times over the life of the product.

Patent marking and discovering the existence of patents. Marking an invention with its patent number often enables maximum recovery of patent damages in an enforcement suit. Such a marking advises the public, and competitors, that a product is the subject of an issued patent. The notice may take the form of “Patent No.—” or “Patent No. Des.—.” “Patent Pending” may be used to indicate that the product is the subject of a pending application. Although rights are not acquired until a patent is issued, such a marking may dissuade others from copying the product.

Patent applications are kept secret, although the United States has recently allowed for the publication of utility patent applications within 18 months after filing. Once a patent has been issued (or an application published), it is available to the public. Issued patents may be searched by number, title, subject matter, inventor’s name, or name of patent owner. Some of this information is available from www.uspto.gov.

It is sometimes difficult to recognize whether a new article or process warrants the time and expense of filing for patent protection. This is particularly true for utility inventions, where the filing expenses are usually significantly greater than design applications. Companies with large research and development or engineering departments usually have a set procedure in place for employees to submit written disclosures of their possible inventions for further evaluation by superiors or counsel. In smaller companies, recognizing what might warrant filing for patent protection is more difficult. Perhaps a general rule of thumb is that any device which would be useful in business and would create a meaningful competitive advantage should be considered as a possible patent candidate.

International protection. A U.S. patent provides protection in the United States only. The United States is a member of several conventions and has signed treaties that enable a U.S. patent application to be adapted for filing in other countries. The patent laws in other countries sometimes differ from those in the United States. For example, certain countries do not have this one-year grace period provision.

Who owns the invention? U.S. patent applications must be filed in the name of the individual inventors. Like other property, patents and patent applications may be assigned, pledged as collateral, or licensed. Many companies have a written policy that requires employees to assign all inventions to the company, especially if the inventions relate to the employee’s duties, or if the inventions were invented on company time or using company resources.

Enforcing Patent Rights

Enforcing a patent against an infringer through litigation is expensive and time-consuming. Many infringement situations can be resolved simply by sending a “cease and desist” letter before actually filing suit. Most litigation is settled prior to trial. Patent litigation is commenced in federal (not state) court, because federal courts have exclusive jurisdiction over matters relating to patent infringement.

If litigation is successful, a patent owner is entitled to recover “not less than a reasonable royalty” as damages for infringement. In certain situations, a patent owner can recover damages based on profits lost as a result of the infringement. If the infringer’s conduct is found to be willful, the court may double or treble the damages awarded. The court may also award the patent owner “reasonable attorney fees” in “exceptional” cases. Prejudgment interest may also be awarded on any monetary recovery. Finally, the patent owner is usually entitled to a permanent injunction, which prevents the continued infringement of the patent.

Importation of infringing products may also be prevented by initiating an action before the International Trade Commission. No monetary damages are available, but if the proceeding is resolved in favor of the patent owner, the commission will grant an exclusion order prohibiting infringing goods from coming into the United States.

Copyright

A copyright is a form of intellectual property protection granted to authors of “original works of authorship.” Copyright protection is available for both published (e.g., sold or leased) works, as well as works in unpublished form. Examples of protectable works include literary works (books, pamphlets), musical works (lyrics and music), dramatic works (plays and other dramatic performances, including accompanying music), pantomimes and choreographic works, pictorial, graphic, and sculptural works (paintings and drawings, jewelry, toys), maps and blueprints, motion pictures, sound recordings (in the form of compact discs, DVDs, or tapes), architectural works, and software programs.

The author (or individual or company to whom the author has transferred the right) is given a “bundle” of copyright rights. These rights include the right to reproduce the copyrighted work, to distribute copies of the work, to perform the work, to display the work, and to prepare derivatives of the work (e.g., translations or abridgments). Copyright rights vest in an author upon creation of the work, that is, when it is fixed in a tangible medium of expression.

Noncopyrightable materials. The copyright law provides that in no case will copyright protection “extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” These types of works are more typically protected by utility patents.

Since copyright protection extends only to works of authorship, various items are not subject to copyright protection, such as titles and slogans, or blank diaries and bookkeeping forms. Purely utilitarian articles, which do not contain any separable artistic component, are also not protectable by copyright. Utilitarian articles that are ornamental in nature are more typically protected by design patents.

Since copyright protection extends only to original works which are fixed in a tangible medium of expression, works which are not fixed, such as a speech which is not written or recorded, are not protectable by copyright. Moreover, works which are merely copied from an earlier work are not subject to copyright protection.

By statute, governmental works, that is, works prepared by employees of the U.S. government within their official duties, are not subject to copyright protection.

Who owns the copyright? A copyright is owned by the author of the work, which encompasses sole authors and joint authors. A corporation or other business entity is deemed to be the author of a work when the work is created by one or more employees of the corporation as part of their business duties.

The law makes a distinction between employees and independent contractors. In the latter case, copyright is deemed to be owned by the independent contractor, even though the contractor was paid to develop the work. Contractual provisions governing ownership of works created by independent contractors are important if the copyright is to be owned by others.

The law makes a distinction between ownership of a copyright and ownership of a material object in which the work is embodied. For example, the purchaser of a painting owns the painting, but does not have the right to make a reproduction of it; this would violate the artist’s copyright, which, unless an agreement to the contrary is reached, is still owned by the artist.

Registration. Even though copyright vests as soon as a work is created and fixed in a tangible medium, it is highly desirable (albeit not mandatory) to register the copyright with the U.S. Copyright Office, a branch of the Library of Congress. Prompt filing of a copyright registration application enables the author to establish a public record of claim to copyright, establishes a presumption that the copyright is valid, and, once the application is issued, enables the author to claim certain statutory damages and attorney’s fees in asserting the copyright against infringers. Registration is also a prerequisite to filing an action for copyright infringement in most circumstances.

The Copyright Office maintains a web page (www.loc.gov/copyright) where copyright application forms can be reviewed and downloaded. Separate forms exist for literary works (Form TX), the visual arts (Form VA), sound recordings (Form SR), and other works.

International copyright protection. There is no international copyright. Nonetheless, the United States is a member of the Universal Copyright Convention and the Berne Convention, by which citizens of the United States are offered reciprocal copyright rights equivalent to those granted to citizens of the signatory countries.

Copyright notice. While no longer mandatory, it is highly desirable for works to include a copyright notice. The notice may take the form: „ 2002 John Jones,” where “2002“ is the year the work is first published, sold, leased, or offered for sale, and “John Jones” is the name of the copyright owner. The year may be omitted from certain works, such as greeting cards, jewelry, toys, and other useful articles. The notice should be sufficiently prominent as to give reasonable notice of the claim of copyright. For works first published before March 1989, a copyright notice remains mandatory.

Term. Currently, copyright protection lasts for the life of the author, plus 70 years. For works where an employer is considered the author, term of copyright is 95 years from the year of first publication, or 120 years from the year of creation, whichever is earlier.

Enforcing Copyright

Litigation to remedy copyright infringement is commenced in federal court. The court (or jury) will be called upon to decide whether infringement has occurred and, if so, whether damages are warranted. If there is an infringement, injunctive relief preventing further infringement is usually granted. Copying is usually established by proving “access” (i.e., the opportunity to copy the copyrighted work) to the copyrighted work by the defendant and “substantial similarity” between the works.

Among other defenses, accused infringers may establish that their work was created independently, establish that the two works are sufficiently dissimilar, or prove that use of the copyrighted work was covered by “fair use.”

If litigation is successful, a copyright owner may recover the actual damages suffered as a result of the infringement, and certain profits attributable to the infringement. In establishing the infringer’s profits, the copyright owner is required only to prove gross revenues; the infringer must prove all deductible expenses. In those cases where actual damages are insufficient or difficult to establish, the copyright owner can opt to recover statutory damages of anywhere from $750 to $30,000, if registration of copyright was timely made. If the infringement is willful, the court may award statutory damages up to $150,000.

The court, in its discretion, may award the prevailing party (the copyright owner or the alleged infringer) its reasonable attorney fees. This is an exception to the general rule in U.S. civil cases, where each side is responsible for its own attorney’s fees. The award of attorney’s fees to the copyright owner is contingent on the owner having timely obtained a copyright registration for the work.

Copyright registrations may also be recorded with the U.S. Customs Service. The Customs Service is charged with preventing works that infringe upon a valid copyright registration from being imported into the United States.

Trademarks

A trademark is any “word, name, symbol, or device” used to identify and distinguish a product or a service from the products or services of others. Examples of well-known trademarks are Nike, Coca-Cola, and Mercedes-Benz. Trademark rights are acquired by use of the trademark on the product or in connection with the service to which the trademark pertains.

A trademark can be the name of an individual, such as Calvin Klein, a made-up term, such as Kodak, an arbitrary term as applied to the product or service, such as Ivory for soap, or a term or phrase that has become associated with a product or service as the result of use and promotion, such as Federal Express. Symbols may also be trademarks, such as the Nike swoosh or the NBC peacock. Internet domain names, such as Amazon.com, may be valid trademarks if the domain name is used to distinguish the product or service of the owner from like products or services.

Registration. Registration of a trademark is highly desirable, but not mandatory. Registration provides constructive evidence of the registrant’s claim of ownership and also is prima facie evidence of the validity of the registered trademark, the registrant’s ownership, and of the registrant’s exclusive right to use the trademark on the products or services specified in the registration.

An application to register a trademark is filed in the U.S. PTO. An application may be filed if the trademark is being used (or there is good faith intention to use) in interstate commerce of the products or services. Once filed, the application is assigned to a trademark examiner, who examines the application and determines whether the trademark presents a conflict with any prior registration or pending application; that is, whether it would be “likely to cause confusion, to cause mistake, or to deceive.”

Certain trademarks may not be registered, or in certain instances may be registered only if the trademark has become sufficiently well-known or distinctive. These include trademarks which are immoral, deceptive, or scandalous; which identify a living individual (unless the individual’s consent is given); which are “merely descriptive or deceptively misdescriptive” of the products or services; which are “primarily geographically” descriptive or misdescriptive; or which are surnames.

If the trademark examiner approves the application, it is published. If no opposition to the application by a third party is filed within 30 days of its publication, a registration will be issued. If the application was filed based on an intent to use, a registration will issue upon proof that the trademark is being used in commerce on the products or services specified in the application. An applicant has up to three years to prove use of a trademark filed on the basis of intent; appropriate requests for extensions of time within the three-year period may be filed for a fee.

International trademark protection. Trademark rights in the United States do not currently extend to other countries. Applications for trademark registration must be filed in the desired country. The European Community provides for the filing of a single trademark application, which, when issued, provides protection in all members of the European Union.

Importance of trademark searches. Before a company begins using a trademark, it is important to conduct a thorough trademark search to determine whether there may be potential conflicts with prior users of the same or similar trademarks. A qualified intellectual property attorney should conduct and evaluate the search. The search should include prior registrations and applications on file at the PTO, trademark registrations in the various states, unregistered common-law uses such as company name listings, and Internet domain names.

A trademark search should also be conducted before incorporation under a corporate name. It is a common misconception that “clearing” a corporate name with a Secretary of State’s office, by which a corporate name is reserved and a corporation is formed, is sufficient to avoid trademark problems. Such corporate clearance is no guarantee that the name will not be challenged by a prior trademark owner of an identical or substantially similar name.

Term. A trademark’s term is perpetual, as long as it remains in use. Federal registration is valid for ten years and may be renewed in ten-year terms indefinitely, provided the trademark continues to be used on the goods or services specified in the registration.

Enforcing Trademark Rights

An action to prevent infringement of a trademark may be commenced in federal or state court. The action may be based on ownership of a federal trademark registration, or based on common-law use rights. The test for infringement is whether or not use of the name is “likely to cause confusion.” Individual states also have laws governing the protection of trademarks and the avoidance of confusion in the marketplace. Famous trademarks are given a broader scope of protection, and federal and state statutes protect these well-known names from dilution, which results from use of the similar name on products or services diverse from those used by the trademark owner. Because litigation is expensive and time-consuming, the decision to commence an action for trademark infringement should only be taken in consultation with experienced intellectual property counsel.

If litigation is successful, a successful trademark owner is entitled to an injunction to prevent continued use of the infringing name, and may also be awarded monetary damages and attorney’s fees.

Federal registrations may also be recorded with the U.S. Customs Service, which is charged with preventing products containing names or symbols that infringe upon a valid trademark from being imported.

Trade Dress

Trade dress is the most elusive of all forms of intellectual property protection since, unlike patents, copyrights, or trademarks, there is no federal statute specifically directed toward trade dress rights. The law of trade dress is primarily based on case precedent.

Trade dress protects the “look” of a product or the packaging for a product. The theory of protection is that a product’s or package’s look may be so well-known that the sale of a competing product or product package with a similar look may result in public confusion and deception. For example, the Supreme Court has ruled that the look of the interior of a restaurant may be protected under the doctrine of trade dress.

To prevail in a claim of trade dress, a claimant must prove that the product has acquired distinctiveness or, in the case of product packaging, that the packaging is either inherently distinctive or has acquired distinctiveness. A product or packaging has acquired distinctiveness if sales and advertising over an extended period of time has caused a degree of recognition sufficient to become associated with a single source. The trade dress claimant must also establish that there is a likelihood of confusion arising from the sale of the allegedly infringing product or packaging. Finally, the trade dress cannot be functional.

Although trade dress should not be considered a first-line defense against intellectual property infringement—patents, copyrights, and trademarks are more direct and practical—trade dress may be helpful when these other tools have been ruled out.

Intellectual Property and the Internet

The Internet has created significant problems in the area of intellectual property, which can only briefly be addressed here.

In 1998, Congress passed the Digital Millennium Copyright Act (DMCA), which clarified that electronic transmission of copyrighted works over the Internet constituted copyright infringement. The DMCA also prohibited the circumvention of technological measures designed to protect online copyrighted works.

Congress has also passed “cybersquatting” legislation, designed to protect a trademark owner when another party has registered a domain name that is identical or confusingly similar to the owner’s trademark for the purpose of selling the domain name to the trademark owner, stealing business from the trademark owner, or redirecting Internet users to another site. The legislation establishes the liability of a domain name owner who is shown to have “a bad faith intent to profit” from a name protected by trademark law.

Patent laws have also been affected by the Internet: Business method patents protect patentable ways of doing business, including ways of conducting business over the Internet.

Implications

Every company should have a system for identifying those areas that may give rise to intellectual property rights. Will the company benefit from protection by utility or design patents? If so, are steps in place to determine whether relevant patent applications should be filed, within the applicable time constraints? If a company is entering a new business or introducing a new product, will that product infringe an existing patent? Is it possible to design the new product to avoid patent infringement?

Does the company create copyrightable works? If so, are all of the copyrights owned by the company, or are agreements transferring the copyright from outside consultants needed? Does the company have a program for registering its copyrights in the U.S. Copyright Office?

Does the company clear names used in its business by conducting relevant trademark searches? Are its trademarks federally registered? Are steps in place to renew these registrations when renewal becomes due?

Answering these questions is the first step in developing a comprehensive plan to protect a business’s intellectual property.