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By Rudy Hill and Jake Gipson

Intellectual property may be described in a general sense as the opposite of real property – an intangible property right as opposed to something that you can see or hold in your hand. It is this intangible nature that, for many business owners, renders the existence of intellectual property rights and, more importantly, their value, illusory, underappreciated, and misunderstood. This article is intended to identify some common mistakes that business owners make with respect to intellectual property and how those mistakes can be avoided. When managed properly, intellectual property rights can provide important competitive advantages, protect a company’s good will and reputation, and add value in their own right.

Intellectual property rights can take several forms, and four in particular are most useful to businesses. Patents provide their owners the exclusive right to make, use, offer to sell, or sell an invention within the United States or import it into the United States.[1] They do not bestow upon their owner the right to practice an invention, but rather the right to prevent others from doing so. The most well-known type is the utility patent, which protects any “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”[2] For many business owners, the lesser-known design patent, which protects a “new, original and ornamental design for an article of manufacture,”[3] may be equally useful. Trademarks comprise any word, term, name, symbol, or device[4] by which the goods or services of one may be distinguished from the goods or services of another.[5] Typical trademarks may include a word or combination of words, logos used by a business to identify itself, slogans, or combinations thereof. Copyrights protect “original works of authorship fixed in any tangible medium of expression” including literary, musical, artistic, and audiovisual works.[6] And finally, trade secrets constitute “all forms and types of financial, business, scientific, technical, economic, or engineering information” that have been maintained as confidential by their owner and derive independent economic value as a result.[7] Each of these forms of intellectual property can play a role in protecting and strengthening a business, sometimes in combination.

It is no coincidence that support for these differing types of IP rights comes in whole or in part from federal statutes. The founding fathers recognized long ago, in the Constitution, the importance of protecting them: “[The Congress shall have Power . . . ] To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”[8] But businesses must take proactive steps to maximize the benefits they provide.

For those who are thinking that these intellectual property rights are reserved only for the Silicon Valley startups and the Googles of the world, you have already made the first mistake. Every business has intellectual property assets, and every business can take measures to protect and utilize them. We now discuss in turn the most common mistakes that businesses make in failing to do so – failing to recognize and secure ownership of IP, failing to invest in IP, failing to give notice of IP, and failing to leverage IP.

Failing to Recognize and Secure IP

Perhaps the most common mistake occurs at the outset when many businesses fail to recognize IP or take the steps necessary to secure it. This critical step is often overlooked, sometimes until it is too late.

Picture this: a new client calls quite upset. The business owner has just paid thousands of dollars to a consultant to develop new marketing material only to discover that a third party has copied the work. But no problem, the business owner asserts, he paid for the work, so he just needs you to sue for infringement. Or picture this: a client comes to you about a revolutionary new technology developed by an employee that vastly improves the business’s manufacturing process. Excited, the business owner begins to rattle off the possibilities of obtaining a patent to block her competition or to generate an additional revenue stream through licensing. Unfortunately, both business owners may be wrong, and the situation is not all that uncommon.

The critical error in both scenarios is failing to understand that specific rules govern ownership and transferability of IP, and those rules differ between types of IP. For instance, while an employer is generally the author and initial owner of any copyrightable work created by an employee in the scope of his employment,[9] the same is not true of a work created by a consultant or independent contractor – even if the business paid good money for it! Instead, a written agreement is required to vest ownership in the business, either as a work made for hire or through an assignment of rights.[10]

The rules for patents are different. The starting point there is that an inventor – an individual – is presumed to be the owner.[11] That is true even for employees. Generally speaking, unless there is a written agreement assigning rights to the employer or the employee was specifically hired to invent, the employer may have no ownership in the invention.[12]

Businesses are thus well-advised to address and secure ownership from the outset. Most often, this involves implementing policies and procedures that help identify when IP might arise and that put into place safeguards to ensure proper documentation is obtained, whether in the form of employment agreements, contractor agreements, or otherwise. Without this care, fixing ownership after the fact may be impossible or, at the very least, more difficult (and costly) once tangible value has attached to the IP.

The potential pitfalls do not end there, however. Businesses must also understand what is required to obtain and maintain protection. A mistake here can sometimes lead to a complete loss of rights.

A common misunderstanding is how different types of IP arise and the varying importance of the federal statutory schemes to the creation of those rights. While copyright arises upon creation of a work and trademark rights arise from use of a mark, patent rights arise only if an inventor obtains a patent from the federal government.[13] In other words, unlike with other IP, patent rights arise only if an inventor applies for a patent and satisfies various requirements of the Patent Act.

The statutory requirements for obtaining patents create several traps for the unwary. Among others are the dreaded “statutory bars.” If an inventor sells his invention or makes it available to the public (e.g., discloses it without a non-disclosure agreement), a patent may not be obtained unless an application is filed within a year.[14] This disincentive to public disclosure is in notable contradistinction to a trademark, which requires public use to establish rights. A further trap is a delay in the filing of a patent application – even if no public disclosures are made. Under the Patent Act, the first inventor to file, subject to limited exceptions, is entitled to a patent.[15] Thus, an earlier inventor who delays filing can lose not only the right to obtain his own patent but also his right to practice his invention.[16] This system of priority is another characteristic of patents that is markedly different from copyrights and trademarks.

Not to be forgotten, trade secrets present their own obstacles to securing rights. Chief among them is the requirement that the trade secret be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”[17] Unfortunately, there is no bright line rule on what efforts are sufficient. But what is clear is that affirmative steps must be taken.[18] As with other potential pitfalls in the establishment of IP rights, the best advice for business owners is to follow a prescriptive approach that sets forth clear policies and procedures developed with trade secret and other IP rights in mind.

Failing to Invest in IP

Recognizing and securing IP rights are just the first steps of several for the IP-savvy business, however. Further steps must be taken to truly capture and maximize their value. And this often requires an investment on the front end to protect the unique products, processes, and know-how that give businesses a competitive edge.

The first investment decision is the easiest one: All businesses should invest in the policies, practices, and written agreements discussed earlier that will alert them to the presence of potential IP rights, maintain those rights as confidential, and keep them within the business. If IP rights are never realized or captured, there will never be a second investment decision to discuss.

Many businesses can also benefit from policies that promote and incentivize innovation. While employment agreements should do many things to ensure that IP rights stay with the company, they can also provide employees with a vested interest in innovation in the form of additional compensation for confidential disclosures that lead to additional revenues or royalty streams (and perhaps even for the making of such disclosures in the first place, whether or not they later benefit the bottom line). Such benefits encourage both innovation and employee adherence to the IP policies discussed earlier. And in many industries – particularly those where scientists and engineers are on the payroll – their very existence can constitute a material component of employee compensation that aids in attracting top talent.

The next investment decision for the company – and the harder one – is whether to allocate the resources necessary to pursue those rights further through federal registration. For patents, trademarks, and copyrights, there are formal application and registration procedures through federal agencies that, if executed successfully, create (for patents) and enhance (for trademarks and copyrights) the IP rights at issue. The investment cost varies.

Patents typically require the most capital investment. Significant effort is required to prepare a utility patent application, including the drawings and technical disclosure, and the process of filing an application and prosecuting it before the U.S. Patent & Trademark Office (“USPTO”) is incredibly involved and can take several years and tens of thousands of dollars (with no guarantee of a patent ever issuing!). For this reason, patent protection may not be feasible to pursue for all inventions, and care should be taken on the front end to evaluate the potential upside of obtaining patent protection for a given invention before deciding whether to pursue it. And for products or inventions that have unique aesthetic components, businesses should keep in mind the possibility of design patent protection, which is generally simpler and less costly to pursue. Regardless, securing patent protection requires significant investment.

The value of a company’s trademarks and branding can also benefit significantly from investment on the front end. Two types of investments are most common – investment in clearance searches and investment in federal registration.

Clearance searches assess the strength and registrability of proposed new marks and identify potential risks caused by existing uses of similar marks by third parties. When utilized properly, they can help businesses select strong, registrable marks and avoid third-party issues that might otherwise stop the launch of a new product dead in its tracks. Depending on the type of mark under consideration and how crowded the field is, they can cost a few thousand dollars. But the investment can pay dividends through aiding in selection of a strong brand and avoidance of third-party issues.

Federal registration of a trademark also requires investment (both in filing fees and attorney’s fees). It is not required to enjoy trademark rights but, if obtained, it provides the registrant with several enhanced benefits including nationwide rights and key presumptions in litigation. In a similar vein, federal registration of copyrights can unlock some advantages if litigation is later required and, on balance, are the cheapest and easiest registrations to pursue. While not all businesses create fine art, most have websites and some create software, both of which can benefit from federal copyright registrations. Many times, even the artistic components of logos can be viable candidates for federal copyright registration.

On balance, strategic investment in IP including these various modes of federal registration can pay dividends for any business.

Failing to Give Notice of IP

Once a business secures and invests in IP, a critical next step is giving notice of rights. Proper notice is often a critical to recovering the maximum available damages for infringement, and it also serves as an important deterrent to uninformed would-be infringers. Many businesses fall short in this area, however, by failing to satisfy the applicable marking requirements, forgetting to register copyrights, or failing to take other proactive steps for providing notice. These common issues are discussed in turn.

Each type of IP has its own specific marking requirements – and at least one specific way that businesses frequently err in marking.

For patents, businesses often think advertising their product as “patented” is good enough. It is not. The Patent Act sets forth specific requirements for marking.[19] In a nutshell, the product must be physically marked with (i) the word “patent” or “pat.” and (ii) either the patent number covering that article or a web address where the article is specifically associated with the patent number.[20] If this requirement is not strictly satisfied, the patent owner loses all right to recover damages for infringement until actual notice of infringement is provided.[21]

For trademarks, two errors are common: some ineligible businesses use the registration symbol, while other eligible businesses fail to use it. The symbol to indicate that a mark has been federally registered is ® (the “circle R symbol”). This symbol may be used only after a registration is issued.[22] Using the symbol earlier – even if an application has been filed or allowed – is improper[23] and can be the basis for a fraud claim.[24] Instead, before registration (or without a registration), a trademark owner may use the ^TM or ^SM symbol. Once registered, however, the owner should then use the circle R symbol, lest he lose entitlement to damages for infringement of the registered mark.[25]

For trade secrets, there is no statutorily prescribed marking requirement, but the requirement for reasonable efforts to maintain secrecy usually carries an expectation that the business labels the trade secret as “confidential” or something similar.[26] The absence of such a notice may later be used as evidence to defeat the IP claim altogether.

Finally, for copyrights, many businesses fail to include a copyright notice on at least some of their copyrightable works. While the Copyright Act no longer requires such notices to secure rights, these notices are a clear deterrent and defeat any innocent infringer defense.[27] A copyright notice requires three elements: the copyright symbol ©, the year of first publication, and the name of the copyright owner.[28]

In a similar vein, many businesses make the mistake of waiting to register their work with the United States Copyright Office – another way to provide notice of copyright –until after infringement has already begun. Although not fatal, these copyright owners can lose several advantages, including the right to seek statutory damages and to recover attorneys’ fees.[29] These benefits can be quite substantial – up to $150,000 in statutory damages for willful infringement, for instance[30] – and made available for only a nominal registration fee.[31]

Another avenue that many businesses fail to exploit is recording their trademarks and copyrights with United States Customs and Border Protection. For a relatively small fee,[32] an IP owner may record such rights with Customs and employ the full force of the United States government to stop the importation of infringing goods. Where such infringements are likely to come from abroad, this form of notice can provide powerful and cost-effective protection of IP.

Failing to Leverage IP

Of course, investing in IP is a poor investment if it does not add to a business’s bottom line. Sometimes that value is derived from exploiting exclusivity, such as, for instance, prohibiting competitors from offering a similar product or ensuring that consumers recognize a brand as a single indicator of source. Other times, however, the value is more directly monetary. Licensing IP and enforcing it against infringers are two common examples. Regardless of the plan, it is important to understand the pitfalls to protection, enforcement, and monetization.

One common mistake in this area is failing to take action – or delaying action – against infringers. Inaction has consequences, some of which can be dire.

On the most extreme end, the failure to protect trademarks can result in a partial or total loss of rights. This consequence arises from the fact a trademark’s value derives from its ability to signify source. If infringement occurs unabated, a mark’s ability to indicate source is impaired or lost. In the worst case, a trademark “lose[s] its significance as a mark” and all rights are abandoned.[33] But even if all rights are not lost, a delay in addressing infringement can make future enforcement difficult.[34]

Consequences also arise from failing to take action against patent or copyright infringers. Although the Patent Act does not impose a statute of limitations, it does limit the availability of damages. “No recovery shall be had for any infringement committed more than six years prior to the filing” of the claim.[35] The Copyright Act, on the other hand, imposes a three-year statute of limitations.[36] Courts are split on how to apply this statute, but in the Eleventh Circuit, at least in some circumstances, the statute of limitations begins to run when the copyright owner “learns, or should as reasonable person have learned,” of the infringement.[37]

Failing to take action has indirect consequences too. Allowing infringement to go unaddressed encourages more infringement. And that problem is not small. Several years ago, an updated report by The Commission on the Theft of American Intellectual Property estimated that that the annual cost of IP theft to the U.S. economy continues to exceed $225 billion (and is perhaps as high as $600 billion) in counterfeit goods, pirated software, and theft of trade secrets.[38] Well-planned enforcement efforts can reduce the likelihood that a business’s IP becomes part of that statistic.

For IP owners seeking value through licensing, other pitfalls abound. To most lawyers, it will come as no surprise that a written license agreement is strongly recommended. But what may be surprising are the potential consequences of no agreement or an inadequate one. For example, if a trademark owner licenses its mark without proper quality control, it has engaged in “naked licensing.”[39] While that term may sound funny, its consequences are not. If “the license is ‘naked,’” “the trademark is abandoned.”[40] The importance of a thoughtful and well-drafted license agreement – and one that is in turn followed and enforced by the owner – cannot be overstated.

A final area that deserves mention is monitoring. In the world of the internet and sprawling commerce, it is virtually impossible for a business (even a very large one) to singlehandedly monitor for IP infringement. But businesses make a mistake when they ignore monitoring as too gargantuan of a task. Numerous third parties offer various trademark and copyright monitoring services, which can be tailor fit to the IP assets of a business. Among other benefits, monitoring ensures that potential infringement is identified and addressed early, when the costs to action are typically at their lowest.

Leveraging IP to benefit a business’s bottom line may seem too intangible or complicated to tackle, but it is hoped this article provides few concrete suggestions to overcome the inertia of inaction. Otherwise, competitive advantages and real value are being left on the table.

Endnotes

[1] 35 U.S.C. § 271.

[2] 35 U.S.C. § 101.

[3] 35 U.S.C. § 171.

[4] 15 U.S.C. § 1125.

[5] 15 U.S.C. §§ 1052, 1053.

[6] 17 U.S.C. § 102.

[7] 18 U.S.C. § 1839.

[8] U.S. Const. Art. I, § 8.

[9] 17 U.S.C. §§ 101, 201(a)–(b).

[10] Id. §§ 101, 204.

[11] See, e.g., 15 U.S.C. §§ 100(f), 101.

[12] Banks v. Unisys Corp., 228 F.3d 1357, 1359 (Fed. Cir. 2000). There are, however, various ways an employer may acquire some rights, such as through shop rights in a patent or asserting a claim for misappropriation as possessor of a trade secret. See, e.g., Advanced Fluid Sys. Inc. v. Huber, 958 F.3d 168 (3d Cir. 2020) (recognizing that state law governing trade secret misappropriation does not require ownership to establish standing).

[13] Compare 17 U.S.C. § 102(a) (stating copyright exists in “authorship fixed in any tangible medium of expression”) and 15 U.S.C. § 1051(a) (permitting trademark registration by an “owner of a trademark used in commerce”), with 35 U.S.C. § 101 (stating an inventor “may obtain a patent”).

[14] 35 U.S.C. § 102(a)(1), (b)(1).

[15] Id. § 102(a)(2).

[16] See 35 U.S.C. § 154(a)(1) (stating a patent owner has “the right to exclude others from making, using, offering for sale, or selling the invention”).

[17] Ala. Code § 8-27-2(1)(e).

[18] See, e.g., Jones v. Hamilton, 53 So. 3d 134, 140 (Ala. Civ. App. 2010).

[19] 35 U.S.C. § 287.

[20] Id. The Patent Act also provides alternatives when this cannot be done.

[21] Id.

[22] 15 U.S.C. § 1111.

[23] Trademark Manual of Examination Procedure (November 2023) § 906.

[24] Copelands’ Enters. Inc. v. CNV Inc., 945 F.2d 1563 (Fed. Cir. 1991).

[25] 15 U.S.C. § 1111.

[26] Jones, 53 So. 3d at 140 (faulting business for not marking alleged trade secrets as “confidential”).

[27] 17 U.S.C. § 401(d).

[28] Id. § 401(b).

[29] 17 U.S.C. § 412.

[30] 17 U.S.C. §504(c).

[31] See https://www.copyright.gov/about/fees.html.

[32] Customs currently charges $190 to record each copyright and $190 per class of goods to record each trademark. See U.S. Customs & Border Protection e-Recordation Program, available at https://iprr.cbp.gov/s/.

[33] 15 U.S.C. § 1127.

[34] See, e.g., Mr. Hero Sandwich Sys., Inc. v. Roman Meal Co., 781 F.2d 884, 889 (Fed. Cir. 1986) (holding that evidence that “marks have coexisted since 1967 without evidence of actual confusion . . . suggest[s] that the marks are not so easily confused”); Pinnacle Advertising & Marketing Grp. Inc. v. Pinnacle Advertising & Marketing Grp. LLC, 7 F.4th 989, 1005–11 (11^th Cir. 2021) (affirming application of laches to bar claims for infringement after four-year delay).

[35] 35 U.S.C. § 286.

[36] 17 U.S.C. § 507(b).

[37] Nealy v. Warner Chappell Music, Inc., 60 F.4th 1325, 1330 (11th Cir. 2023) (internal quotation marks and citation omitted).

[38] Update to the IP Commission Report: The Theft of American Intellectual Property: Reassessments of the Challenge and United States Policy, The National Bureau of Asian Research (2017) (available at https://www.nbr.org/program/commission-on-the-theft-of-intellectual-property/).

[39] Blue Mountain Holdings Ltd. v. Bliss Nutraceticals, LLC, No. 22-13441, 2023 WL 5164472, at *1 (11th Cir. 2023).

[40] Id.