What is intellectual property?
Discussions About Intellectual Property
From the fifteenth century, when the first patent systems emerged in Venice, to 1790 when Thomas Jefferson served as the first patent examiner in the United States, intellectual property and the value in encouraging technological progress has been well-understood by governments through granting inventors sole rights to their creations for limited periods.
Intellectual property is a specific set of knowledge-based intangible assets that offers entrepreneurs superior means to create a sustainable competitive advantage and superior economic returns. Although this article is not intended to go into great detail on intellectual property, we have highlighted some key issues that should be understood before engaging the services of an attorney.
The U.S. Patent and Trademark Office (USPTO) received some 375,000 patent applications in 2001. In 2000 it granted 175,983 patents, which amounts to about 633 patents per million people. The three types of patents issued in the United States are utility, design, and plant. Only the original inventor may apply for patent protection. In the case of corporations, for instance, the patent, when issued, is always granted to an individual and then assigned to the corporation. While 11 percent of the 1.3 million patents issued by the USPTO from 1992 to 2001 went to independent inventors, less than 2 percent of these actually show a profit.
Trade Secrets and Confidential Business Information
A trade secret is information that has been maintained in secrecy. It derives economic value from the fact that it is not generally known to the public or to anyone who can obtain economic value from its use or disclosure. Trade secrets can come in a variety of forms, including chemical formulas, patterns, compilations, programs, devices, methods, techniques, customer lists, product designs, employee lists, sales records, and manufacturing processes. Perhaps the most famous is the secret formula for Coca-Cola. It has been tightly guarded for more than 100 years in a security vault at a bank in Atlanta, Georgia.
The USPTO received about 296,000 applications for trademarks in 2000. A trademark is a word, name, phrase, symbol, or design, or configuration of these, that identifies and distinguishes the source of goods or services of one venture from those of another. When granted through the USPTO, trademark registration is good only in the United States. Ventures in the forty-nine countries that have signed on to the World Intellectual Property Organization’s “Madrid Agreement” trademark protocol can register a mark with that organization and receive protection in all signatory countries.
In spite of the current quagmire of disputed rights involving content available on the Internet, including the downloading of music, copyright protection is available to artists and authors. It gives them the sole right to print, copy, sell, and distribute the work they produce. For example, books, musical and dramatic compositions, maps, paintings, sculptures, motion pictures, and sound recordings can all be copyrighted. Such copyrights are protected for a term of fifty years beyond the death of the author.
Licensing Your Intellectual Property
Intellectual property licensing is a $150 billion market. We define licensing as a special form of contract or an arrangement between two parties where one party has proprietary rights over some information, process, or technology protected by a patent, trademark, or copyright. This arrangement requires the licensee to pay a royalty or some other specified sum to the holder of the proprietary rights in return for the permission to use the rights.
IBM has topped Technology Review’s annual Patent Scorecard, which looks at the patenting activity of 150 top companies in eight key high-tech sectors. For nine years through 2001, IBM received 3,454 patents, almost ten per day. IBM owns some 20,000 patents and gets $1.7 billion per year from the licensing of those patents to other vendors. Even individuals can get involved in licensing. From 1954 until his death in 1997, Jerome Lemelson had amassed some 550 patents and earned more than $1 billion on them. Ronald Katz is set on surpassing Lemelson, expecting to make around $2 billion on some forty-six patents.
Managing and Protecting Your Intellectual Property
It is important to strategically manage your intellectual assets like any other vital asset. As Michael Porter writes, “Many firms have squandered technology-based competitive advantages through inappropriate licensing decisions.” And protecting your “crown jewels” from IP theft also requires a significant effort and focused strategy. We suggest that you consider performing an IP audit on a regular basis to maximize protection. In a subsequent Article we will discuss how to handle your IP with potential investors and strategic partners.