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What Is Intellectual Property, or “IP”?

Similar to the way the law recognizes ownership rights in material possessions such as cars and homes, it also grants rights in intangible property, such as the expression of an idea or an invention. Laws protect intellectual property in four distinct areas: patent, trademark, copyright, and trade secret, each of which are explained below.

Patents

Patents protect the world of inventions. In its simplest form, a patent is a property right for an invention granted by the government to the inventor. A patent gives the owner the right to exclude others from making, using, and selling devices that embody the claimed invention. See 35 U.S.C. § 271(a). Patents generally protect products and processes, not pure ideas. Thus, Albert Einstein could not have received a patent for his theory of relativity, but methods for using this theory in a nuclear power plant are patentable. Inventors must file for patent protection with the U.S. Patent and Trademark Office.

There are three types of patents: utility, design, and plant. Utility patents are the most common form and are available for inventions that are novel, non-obvious, and useful; that is, “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. § 101. Examples of utility patents include the ingredients of Silly Putty (1949) and the diagnostic x-ray system known as the CAT-Scan (1975).

Unlike copyright and trademark infringement, there are no criminal—only civil—penalties for committing patent infringement. However, there are some criminal and quasi-criminal penalties for certain conduct related to patents.  Moreover, the civil penalties for patent infringement can include an injunction plus substantial monetary penalties, including recovery of the plaintiff’s damages, disgorgement of the defendant’s profits, all of which can be tripled, plus attorney-fee shifting, where the infringement was willful.

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Trademarks

The federal law of trademarks and service marks protects a commercial identity or brand used to identify a product or service to consumers. The Lanham Act, 15 U.S.C. §§ 1051-1127, prohibits the unauthorized use of a trademark, which is defined as “any word, name, symbol, or device” used by a person “to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods.” 15 U.S.C. § 1127. By registering trademarks and service marks with the U.S. Patent and Trademark Office, the owner is granted the exclusive right to use the marks in commerce in the United States, and can exclude others from using the mark, or a comparable mark, in a way likely to cause confusion in the marketplace. A protected mark might be the name of the product itself, such as “Pfizer” or “L.L. Bean”; a distinguishing symbol, such as the Nike “swoosh” or the MGM lion; or a distinctive shape and color, such as the blue diamond shape of a Viagra tablet. Certain symbols like the Olympic rings also receive like protection.

Legal protections for trademarks and service marks not only help protect the goodwill and reputation of mark-owners, but also promote fair competition and the integrity of markets, and protect consumers by helping to ensure they receive accurate information about the origins of products and services.

Must all marks be registered?  No, but federal registration has several advantages, including a notice to the public of the registrant’s claim of ownership of the mark, a legal presumption of ownership nationwide, and the exclusive right to use the mark on or in connection with the goods or services set forth in the registration.  Federal registration also provides the ability to collect statutory or “automatic” minimum damages of $1000 and a maximum of $2,000,000 (if willful) for using a counterfeit of a registered trademark. (15 U.S.C. § 1117(c), Lanham Act Section 35(c).)

Federal criminal law has long prohibited trafficking in goods or services that bear a counterfeit mark. 18 U.S.C. § 2320. In March 2006 the criminal trademark statute was amended to also prohibit trafficking in labels or packaging bearing a counterfeit mark, even when the label or packaging is unattached to the underlying good. Individuals convicted of § 2320 offenses face up to 10 years’ imprisonment and a $2,000,000 fine.

The federal Lanham Act as well as laws unique to each state provide numerous civil penalties for trademark infringement.  See, e.g., Sections 43(a) and (c) of the Lanham Act, 15 U.S.C. § 1125(a) (trademark and trade dress infringement and dilution and unfair competition), and Cal. Bus. & Prof. Code § 17200 (unfair competition).  Infringers found to violate these laws may be subject to an injunction under 15 U.S.C. § 1116(a) and state laws, plus payment of damages and disgorgement of profits, all of which can be tripled where the infringer acted willfully.  Willful infringers may also have to pay both parties’ attorneys’ fees and costs under 15 U.S.C. § 1117(a) as well as punitive damages under state law for common law unfair competition.  See, e.g., Cal. Civ. Code § 3294(a).

Importantly, infringers can be found to be willful simply by choosing a trademark without performing sufficient due dilligence.

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Copyrights

The law of copyright is designed to foster the production of creative works and the free flow of ideas by providing legal protection for creative expression. Copyright provides protection against the infringement of certain exclusive rights in “original works of authorship fixed in any tangible medium of expression,” including computer software; literary, musical, and dramatic works; motion pictures and sound recordings; and pictorial, sculptural, and architectural works. See 17 U.S.C. § 102(a). These exclusive rights include the rights of reproduction, public distribution, public performance, public display, and preparation of derivative works. 17 U.S.C. § 106. Legal protection exists as soon as the work is expressed in tangible form. Copyright law protects the physical expression of an idea, but not the idea itself.

Copyright infringers are subject to serious civil consequences under the federal copyright laws, 17 U.S.C. §§ 502, 503, 504 and 505, including an injunction, impoundment and destruction of the infringing products, actual damages and statutory or “automatic” damages up to $150,000 per instance of infringement, along with an automatic award of the prevailing party’s attorneys’ fees.  See, e.g., 17 U.S.C. § 504(c)(2).  Importantly, the statutory damages and automatic attorney-fee shifting provisions are not available unless the copyright was registered shortly after the work was created or prior to the infringement. Although civil law protects all the copyright owner’s exclusive rights, criminal law primarily focuses on the rights of distribution and reproduction. See 17 U.S.C. § 506(a) and 18 U.S.C. § 2319. Those convicted of criminal copyright infringement face up to five years’ imprisonment and a $250,000 fine. Id.

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Trade Secrets

A trade secret is any secret formula, pattern, device or compilation of information used in a business that has some independent economic value and which is used to obtain an advantage over competitors who do not know or use it. See 18 U.S.C. § 1839(3). One of the most famous trade secrets is the formula for manufacturing Coca-Cola. Coca-Cola was accorded trade secret protection in 1920 because the recipe had been continuously maintained as a trade secret since the company’s founding in 1892, and it apparently exists to this day. See Coca-Cola Bottling Co. v. Coca-Cola Co., 269 F. 796 (D. Del. 1920) (holding that Coca-Cola retained legal title to its formula upon entering a bottling contract because it kept the formula secret).

Trade secrets are broader in scope than patents, and include scientific and business information (e.g., market strategies). However, the information can be freely used if it is obtained or learned through legitimate means, such as reverse engineering. Moreover, if the trade secret is publicly disclosed, it loses its legal protection. There is no system of registration for trade secrets; the existence and validity of the trade secret is proven for the first time when it is infringed and litigated in federal or state court.

Trade secrets are governed for the most part by the law of each state, most of which have adopted a form of the Uniform Trade Secrets Act (UTSA).  See the enactment status map available at:  http://www.nccusl.org/Act.aspx?title=Trade Secrets Act  Under the UTSA, those who misappropriate trade secrets are liable for actual damages plus disgorgement of their unjust enrichment, and these penalties can be doubled, plus attorney-fee shifting, in the case of willful misappropriation.  Under federal law, the theft of trade secrets is punishable by up to fifteen years’ imprisonment and a $500,000 fine if done to benefit a foreign government or agent, 18 U.S.C. § 1831, and up to ten years’ imprisonment and a $250,000 fine in other cases.

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Why Protect Your IP?

Intellectual property (“IP”) is critical to the vitality of today’s businesses and the entire economy. IP is an engine of growth, accounting for an increasing share of jobs and trade. In 2002, the core copyright industries alone were estimated to account for 6% or more of U.S. GDP, and in 2005 the overall value of the “intellectual capital” of U.S. businesses—including copyrights, trademarks, patents, and related information assets—was estimated to account for a third of the value of U.S. companies, or about $5 trillion. Stephen Siwek, Copyright Industries in the U.S. Economy: The 2004 Report 11 (Oct. 2004) (core copyright industries statistic), available at http://www.iipa.com/pdf/2004_SIWEK_FULL.pdf; Robert J. Shapiro & Kevin A. Hassett, The Economic Value of Intellectual Property 18 (Oct. 2005) (overall value of intellectual property statistic), available at http://www.usaforinnovation.org/news/ip_master.pdf.

Intellectual property rights create incentives for entrepreneurs, artists, firms and investors to commit the necessary resources to research, develop and market new technology and creative works. As one court observed, “[t]he future of the nation depends in no small part on the efficiency of industry, and the efficiency of industry depends in no small part on the protection of intellectual property.” Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991). Therefore, effective protection of intellectual property rights is essential to fostering creativity and to supporting our economic and financial infrastructure.

This is a pivotal time for intellectual property enforcement. Market and technological developments have converged to create an environment in which the distribution of both legitimate and illegitimate goods flourishes as never before. As economic freedom expands to more and more countries, their manufacturers and consumers are increasingly interconnected due to advances in telecommunication networks, integrated financial markets, and global advertising.

The interconnected global economy creates unprecedented business opportunities to market and sell intellectual property worldwide. Geographical borders present no impediment to international distribution channels. Consumers enjoy near-immediate access to almost any product manufactured in the United States or abroad, and they are accustomed to using the international credit card system and online money brokers (such as PayPal) to make payment a virtually seamless process worldwide. If the product can not be immediately downloaded to a home PC, it can be shipped to arrive by next day air.

However, the same technology that benefits rights-holders and consumers also benefits IP thieves seeking to make a fast, low-risk buck. Total global losses to United States companies from copyright piracy alone in 2005 were estimated to be $30-$35 billion, not counting significant losses due to Internet piracy, for which meaningful estimates were not yet available. See International Intellectual Property Alliance Submission to the U.S. Trade Representative for the 2006 Special 301 Report on Global Copyright Protection and Enforcement, at 21 (Feb. 13, 2006), available at http://www.iipa.com/pdf/2006SPEC301COVERLETTERwLTRHD.pdf.

Trafficking in counterfeit merchandise presents economic consequences no less severe. It has been estimated that between 5% and 7% of world trade is in counterfeit goods, which is equivalent to approximately $512 billion in global lost sales. U.S. Chamber of Commerce, What Are Piracy and Counterfeiting Costing the American Economy? 2 (2005), available at http://www.uschamber.com/ncf/initiatives/counterfeiting.htm (following links re “Scope of the Problem”). Counterfeit products are not limited to bootleg DVDs or fake “designer” purses; they include prescription drugs, automobile and airline parts, food products, and insecticides. See Stop Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181 § 1(a)(2) (“Findings”), 120 Stat. 285, 285 (2006). As a result, the trade in counterfeit merchandise threatens the health and safety of millions of Americans and costs manufacturers billions of dollars each year.

Whether sold via the Internet or at sidewalk stands on New York’s famous Canal Street, the harm to the U.S. economy from IP theft is substantial. Total losses suffered by U.S. industries due to their products being counterfeited is estimated at between $200 and $250 billion per year, costing 750,000 American jobs. See U.S. Chamber of Commerce, What Are Piracy and Counterfeiting Costing the American Economy? (2005).

Strong enforcement, both civil and criminal, is therefore essential to fostering creativity and protecting our economic security.

Now it is more important than ever to protect your IP from theft and other unfair competition. Contact Roberts IP Law today to protect the most valuable assets of your business.