An Intellectual Property Strategy For The 90's

1.0 Introduction, Climate, Trends

1.1 Since the birth of the CAFC in 1982 patents and intellectual property rights in general have been strongly enforced. The present trend seems to place ever higher values on intellectual property assets.

a) Manufacturing companies have been hit hard by patent infringement judgments. One of the biggest - Polaroid v. Kodak, 229 USPQ 561 (CAFC, 1986) - 900M in damages - worse yet, an injunction was issued putting Kodak out of the instant film business.

b) Most recently Litton v. Honeywell, Litton awarded $1.2 Billion in damages.

1.2 Now, as never before, every company needs an intellectual property strategy for analyzing and reducing intellectual property risks, and building intellectual property assets.

1.3 Intellectual Property - includes Patents, Trade Secrets, Trademarks, Copyrights and Mask Works. Of these, trademarks, copyrights (and to a lesser extent, mask works) are rights that occur almost automatically, although registration procedures are very important. But because patents depend entirely on government grant and thus require far more insight and effort to create, and because the patent infringement risk is particularly difficult to evaluate and carries such dire consequences, the present strategy focuses primarily on patents. Trade secrets are also important intellectual property properties in themselves, and as the raw material for patents, the present strategies apply to them also.

1.4 Active versus Reactive Strategy - Typically companies have no top-to bottom active patent strategy.

a) Patent infringement issues are normally dealt with on an ad hoc, reactive basis.

b) Infringement is not considered an ever-present risk, as product liability, and the like.

c) Intellectual property assets are not "grown" according to plan, but are allowed to "happen" randomly.

1.5 Strategy and Risk Reduction - Companies, large and small, can dramatically reduce patent infringement risks and grow intellectual property assets by implementing a logical intellectual property strategy.

a) A good strategy requires offensive and defensive components.

b) Both components are equally important, but large manufacturing companies have the most at risk and may choose to emphasize defense (i.e. minimizing patent infringement risks) while small companies may emphasize offense (i.e. obtaining a portfolio of "impact" patents) .

c) The goal of defensive strategy should be to provide freedom to market and avoidance of patent infringement litigation.

d) The goal of offensive strategy should be developing a patent portfolio that effectively suppresses competition in any selected market niche.

1.6 Intellectual Property Audit

a) An IP audit is a complete and comprehensive review of all IP assets and IP policies.

b) It is an important process that should be carried out subsequent to the development of an overall IP strategy.

c) The audit will involve an analysis of nut-and-bolt components of IP policy including employment agreements, processes for keeping and maintaining inventor notebooks, collecting invention disclosures, processes for carrying out infringement studies and the like.

d) The IP Audit may be viewed as a company-wide process for implementing an overall IP strategy.

1.7 Intuitively Understanding Patents - Legal vs. Technical Inventions

a) Patents are property just like real estate, machine tools or automobiles. They can be bought, sold or licensed and can serve as collateral for bank loans.

b) Patents are corporate assets that can have enormous value (or little value) depending on the value of the inventions covered by the claims.

c) Patents are assets that protect "ideas" created by mental activity - hence the name intellectual property.

d) Patents are the vehicle by which mental activity or research can be converted from mere paper reports or computer studies into hard assets having a market value.

e) Legal (i.e. patentable) "inventions" are not necessarily the same as scientific "inventions". Patents can be obtained on technical developments that are very simple (but which may be very valuable) as long as they are not known in the prior art. The standards for obtaining patents are legal, not scientific.

f) Engineers and scientists often have an incorrect understanding of what can be patented. They often overlook broad concepts and set too high a standard on patentability. That is, they often apply technical standards where legal standards should be applied. As a result many potentially valuable corporate assets are lost.

g) Management generally assumes that since discoveries happen randomly, planning a patent portfolio is not possible. This is not correct in that a patent portfolio can be planned to a significant extent. In many technologies, patentable "inventions" can be planned.

h) Software implemented inventions are patentable, and may be the subject of the most valuable patents now and in the future.

2.0 Defensive Strategy

2.1 Early Awareness of Risk

a) This means taking into account intellectual property issues when new products or new projects are first conceived. Intellectual property experts/patent counsel should meet with management/product development team to pinpoint areas of risk and of potential product patent protection.

b) Intellectual property issues are commonly ignored at early stages. Intellectual property lawyers are called in later to pick up the pieces and fight the litigation.

c) The goal should be no infringement litigation if a successful intellectual property defense strategy is in place.

2.2 Management must be educated about intellectual property risks and avoidance of risk so that intellectual property policies can be incorporated into product planning.

a) General training lectures are recommended.

b) Engineering and development personnel should receive training on general intellectual property concepts.

2.3 Seek Freedom to Market

a) The principal goal of an active defensive IP strategy may be thought of as obtaining the freedom to market planned products. Market freedom involves identifying and neutralizing legal (i.e. patent infringement) risks.

b) Anticipatory licensing, design-around, purchasing relevant patents, and evaluating patent validity are all relevant practices.

2.4 Implementation Guidelines

a) Meetings between product development team and intellectual property expert to identify intellectual property issues.

b) Conduct a prior art search of all new concepts early, use data bases, PTO, other resources to identify all possible competitors and patents that pose infringement risks.

c) Evaluate infringement risks; obtain opinions.

d) Engage in anticipatory licensing - i.e. enter into licenses early while they are cheap, before your marketing plans are well known.

e) Change designs to avoid infringement.

f) Question patent validity.

g) Reverse engineer competitive products.

2.5 Be Sensitive To Intellectual Property Ownership Issues

a) A common problem is assuming the company owns all intellectual property (inventions, software, designs, etc) . This may not be true if there is nothing in writing.

b) All employment agreements must have clear provisions requiring assignment of intellectual property rights to the company.

c) Carefully screen departing personnel for knowledge of trade secrets and have them sign non-disclosure agreements.

d) All contracts with outside engineering or software development companies must state who will own the rights to any intellectual property.

2.6 Contracts

Supplier contracts can be a key problem area. Check intellectual property indemnity/warranty provisions. Try to be sure that supplier takes responsibility for any intellectual property infringement.

3.0 Offensive Patent Strategy

3.1 Overview of General Strategy

3.2 An "invention" program should be planned which is based on business needs and relates patent protection to individual products either existing now or planned for the future. The goal of this plan should be to provide a competitive advantage in the marketplace.

3.3 Education of key people of practical patent law as it relates to business strategy is essential.

3.4 A review of current research, future product plans and current product development are important in implementing this strategy.

4.0 Invention Strategy

4.1 Must be active and based on business strategy and product lines as opposed to passive and arbitrary technologies. Invention disclosures should be actively sought in the three categories set out below.

4.2 Basic Inventions - These are inventions of the broadest scope. They relate to totally new products or new areas of technology that are being considered for the future.

a) Patents on basic inventions are coupled to long range business plans (7 to 10 years) . Obtaining basic patents requires early filing. This means filing on broad concepts early in the research and future-product-planning stages. To accomplish this:

i) Plan inventions (i.e. the management/ sales/engineering team should meet with patent counsel to determine what they would like to protect under ideal conditions. The patent counsel should carry out prior art searches and consult with technical personnel to obtain/encourage/develop relevant disclosures.

ii) Assume broad concepts are protectable and encourage patent counsel to determine how they can be protected.

iii) Monitor research projects to determine their direction and objectives to anticipate basic inventions.

iv) Patent attorneys should meet regularly with business planning and new business development division to gain an understanding of future products.

v) These meetings will combine patent and technical expertise at a very early phase in product development, and will result in broad concept disclosures. At least some dominating patents should result.

b) Patent applications should be filed on basic concepts and proposed future products early in an effort to dominate competitors.

c) The trade-off between early patent application filing and maintaining secrecy of new concepts should be evaluated.

4.3 Product Development Inventions- These are inventions of intermediate scope. They may, for example, be relative not to totally new products, but important evolutions in current product lines. These patents relate to intermediate term business plans (3-6 years) .

a) These types of developments may involve reverse engineering of competing products - so knowledge of competitors' patent positions can be important to prevent infringement problems.

b) Patents should be considered on all new equipment models that include new systems and/or new software.

c) Development engineers should be encouraged to make disclosures on features that make a new model superior to other devices on the market - not on abstract concepts of "invention".

d) Sales people should be encouraged to identify customer needs or desires that would make products more desirable, useful, competitive. Patents should be sought on those concepts that appear practical.

4.4 Improvement Inventions - These are inventions of relatively narrow scope that relate to improvements in existing products to make them more reliable, reduce cost, etc. These patents relate to short term business plans (1-2 years) , but many have an almost immediate impact in the marketplace.

a) Engineering and manufacturing people may have disclosures in this area.

b) Appropriate personnel should be educated as to the significance of these types of inventions.

4.5 Types of Inventions - sometimes creative people overlook inventions because they are focused on only one type of invention, for example, electronic systems. Inventions may be electrical, mechanical, chemical, or a combination of technologies. They may encompass hardware, software or a combination. They may be new components or combinations of old components. They may be system, apparatus or process. All fields of invention must be considered.

4.6 Invention Disclosures - It is important that employees are sensitized to the importance of disclosing inventions. A large number of disclosures will provide the patent committee with a range of options in deciding what to patent. This will result in a more effective, more useful patent portfolio.

4.7 Goals - Should be set for obtaining invention disclosures in each of the invention areas set forth in paragraphs 4.1, 4.2 and 4.3. These goals should be based upon the importance devoted to each area and to investment in each area.

5.0 Education

5.1 The patent strategy is based on education of key people.

5.2 Managers need to be educated in the importance of patents and the manner in which they are to be integrated into business plans. Managers will, in turn, provide feedback into any problems raised by efforts to obtain more invention disclosures.

5.3 Research, engineering and development personnel must be educated as to what constitutes an invention, when and how to disclose, and how to work with a patent attorney. Their fears of difficulties must be calmed.

5.4 An interesting lecture should be provided to key managers and another to research, engineering and development personnel at least once per year to keep them active in pursuing patent policy.

5.5 The lectures should be supported by appropriate written materials. I can supply lectures and written materials once the plan is fully organized.

6.0 Implementation of Plan

6.1 The sooner that an organized patent plan is put into effect, the more effective it will be in protecting current projects.

6.2 Information should be gathered on current projects and their importance with regard to company business plans. The education program can begin soon with lectures, etc.

6.3 The start-up phase of this plan may reveal practical procedures that can be implemented as the plan reaches steady state over a period of 1 or 2 years.

6.4 Involve intellectual property experts early, to avoid unnecessary expense later.

7.0 Cost Planning, Benefit Analysis

a) Developing and maintaining a meaningful IP strategy may be viewed as a significant expense by inexperienced.

b) Costs should be weighed against the potential cost of infringement damages or loss of marketing rights through injunction.

c) IP costs should be added to product development costs in setting product market prices.

d) IP assets can be a major revenue source through licensing art. (c.f. Texas Instrument example) .

e) IP assets can be bartered (cross licensed) . This is especially valuable when a naked license would be expensive.

f) IP assets are becoming more important in obtaining bank or venture capital financing.

g) Proper IP rights may mean the difference between entering or not entering lucrative and competitive markets.

8.0 Conclusion

a) A reasoned IP strategy is crucial to any high technology business.

b) The key to a successful IP strategy is proper education and communication, especially combining product and IP planning.

c) IP strategy should have offensive and defensive components of about equal effort.

d) IP costs should be added to development costs.

[1].Gregory J. Maier, Oblon Spivak, McClelland, Maier & Neustadt, P.C., ©1994