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 Legal Best Practices
Magazine
Protect Your Idea$
Turning Ideas Into Value - Part V
by Brent C.J. Britton
Published: November / December 2008
Managing the Intellectual
Property Portfolio
Any company accumulating IP
assets and rights should institute internal processes
and controls for ensuring that the company’s innovative
efforts result in maximum value and minimum risk.
Unsurprisingly, this is called IP portfolio management.
Over the past decade, IP has become the subject of
unprecedented attention across nearly every commercial
segment. This notoriety has occasionally impassioned
discussion of the merits of many aspects of the current
IP system. More importantly for innovators, however, it
has also dramatically increased the number of IP
infringement lawsuits being filed, both in the U.S. and
around the world. Accordingly, a company’s IP portfolio
has begun to be seen as an object of strategic and
tactical advantage. To add value and reduce risks, the
IP portfolio must be actively managed.
Unfortunately, all but the most IP-centric companies
tend to manage their IP notoriously badly. IP
mismanagement can decrease a company’s valuation, reduce
or negate its competitive advantage, and increase its
exposure to business risks and
legal liabilities, not
the least of which can originate from disgruntled
shareholders and even the SEC.
This month, we’ll cover a few basic steps in IP
portfolio management. As will become clear, this is
largely a process of documentation.
Documenting the IP
A company’s IP management
begins with actually building the IP
portfolio—collecting and organizing all available
documentation about the IP. This corpus of information
should include indexes, summaries, descriptions, and
actual copies of:
1. all of the company’s IP assets (inventions, works of
authorship, etc.) and IP rights (patents, copyrights,
etc.) and data about their genesis (creator, date of
creation, etc.)
2. all contracts that transfer IP into the company
3. all contracts or instruments that transfer any IP out
of the company or impair the company’s ownership rights
in it
4. all searches,
legal opinions, and analyses regarding
the IP’s availability, validity, or infringement.
Documenting IP
Completeness
Once all information has
been collected, assess the completeness of the IP
portfolio by verifying that each IP asset is protected
by at least one IP right. Verifying at least a
one-to-one mapping from assets to rights ensures that
the true value of the portfolio will be likely to
approach its theoretical maximum.
Remember that many kinds of IP are protectable by more
than one kind of IP right; software, for example, can
conceivably be protected by patents, copyrights, and
trade secrets simultaneously. Thus, while a one-to-one
mapping from IP assets to IP rights is nice, a
one-to-many result is even better.
Documenting IP Ownership
Review the contracts to
verify that all IP assets and IP rights are the subject
of at least one written contractual provision having the
legal effect of transferring ownership of the IP from
its creator to the company, again, in at least a
one-to-one mapping. IP ownership is complex and the
applicable rules can seem counterintuitive. Depending on
the relationship between the creator and the company,
mere physical delivery of, and payment for, an IP asset
may not automatically cause the asset or its
corresponding IP rights to be owned exclusively by the
company. Regardless of the intentions or even awareness
of the company and the creator, the creator may
sometimes retain ownership rights by default under the
law. Title defects such as this represent significant
risks to IP holders.
The IP manager must be meticulous about tracking the
effective dates of IP ownership transfers to ensure that
they have their intended or purported effect. One often
overlooked example involves the use of work-for-hire
agreements versus assignment agreements. A company
cannot be designated as the author/owner of applicable
copyrightable subject matter unless a work-for-hire
agreement is executed by the creator in advance of the
creation of the work. Any later executed agreement can,
at best, transfer only an assignment of copyright from
the creator. An assignment is a complete transfer of
ownership very much akin to a work-for-hire, but with
one critical difference: work-for-hire lasts forever,
but assignments are inalienably revocable by the
assignor for a period starting 35 years, and ending 40
years, after the effective date of the assignment. Check
work-for-hire agreements carefully, therefore, to ensure
they were executed prior to the creation of the works
they purport to govern.
Review all of the company’s out-licenses, security
agreements, and other liens and encumbrances. Obviously,
any exclusive or otherwise significant out-grant on the
company’s primary IP assets or IP rights could
substantially impair the company’s ability to conduct
business.
Documenting IP Status and
Standing
A critical IP management
function is to maintain all IP filings in good standing
and to keep them current on all ministerial requirements
such as the payment of all applicable fees. Important
due dates and filing deadlines should be calendared and
monitored closely. Areas of particular concern here
would be, for example, provisional patent applications
approaching the 1-year anniversary of their filing with
no corresponding nonprovisional application in the
works; an intent-to-use trademark application
approaching the end of its final 6–month extension with
no actual use pending; a registered trademark
approaching its renewal term; and any office action
approaching its response deadline.
Documenting IP Strength
The company’s IP should be
routinely assessed for its offensive and defensive
strength. Offensive strength refers to the capability of
IP rights to be successfully asserted against infringers
in a licensing or litigation context. Defensive strength
refers to the ability of an IP portfolio to ward off
infringement claims from competitors by eliciting in
them the fear of a successful countersuit, as well as
the more obvious extent to which the company’s IP assets
themselves do not, in fact, infringe any third party IP
rights. Determining strength requires significant review
and analysis of the IP assets and rights in the
portfolio, in comparison to the IP assets and rights
held by relevant competitors.
Conclusion
Every year, disappointed
shareholders file more cases claiming that management
has needlessly impaired the value of the company’s IP.
Every year, the SEC brings more charges claiming that
management has made fraudulent public statements about
its IP. Most of the defendants in these cases did
nothing wrong intentionally; they are guilty of nothing
more than cultivating a lackadaisical attitude toward
internal IP processes and controls. The harms they face
could easily have been avoided by a modicum of attention
to the IP management techniques described above.
Brent C.J. Britton is a
lawyer at the Tampa office of Squire Sanders & Dempsey
LLP, a global law firm. He practices intellectual
property and corporate law.
bcbritton@ssd.com
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