What you need to know
One area of great importance, but often overlooked by law firms is Intellectual Property. The stakes are high. These hidden assets can account for more than half the value of your business. And being sued for infringement can put you out of business. It is confusing, misunderstood, and misinterpreted.
Intellectual property has never been more valuable. In 2017, Forbes stated, “Intangibles have grown from filling 20% of corporate balance sheets to 80%, due in large part to the expanding nature, and rising importance, of intangibles, as represented by intellectual capital vs. bricks-and-mortar, research and development vs. capital spending, services vs. manufacturing, and the list goes on.”1
Ocean Tomo, LLC, a leading IP valuation company recently reported, “Between 1995 and 2015, the share of intangible asset market value increased from 68% to 84%. In July 2020… intangible assets [are] commanding 90% of the S&P 500 market value.”2
I speak nationally to business owners, and it’s surprising how many do not even know that they have IP. They have no idea how valuable it is, or that they should protect it. They also do not realize the risks they face by ignoring and unintentionally infringing upon the IP of others. A law firm is a business, it has IP, and you need to protect it.
Most businesses treat IP as an afterthought and lose valuable assets. Someone invents a new product, and they might think about patents. Someone develops a new logo; they might think about trademarks. Or they launch a new product or service and get invited to an expensive lawsuit, because no one checked for infringement.
There are four types of IP:
- Trade Secrets
Every law firm has a trademark, and it can be your most valuable asset. The most important trademark is your firm name. You can also have others, such as product names, logos, slogans, shapes, music, and even colors.
In a January 2022 article, the World Trademark Reporter estimated that Apple’s trademark was worth $355 billion, representing about 1/3 of the company’s market value.3 Other top-valued trademarks include Google, Microsoft, Facebook, Amazon, and Coca-Cola; all worth billions.
An easy way to think of trademarks is anything that identifies goods or services coming from a single source.4 Examples of trademarks are the business name, Nike; the Nike Swoosh logo; the Nike slogan, “Just do it”; the Coca-Cola bottle shape; and the sound of the light saber from Star Wars.
In the United States, trademarks are established through use. This is called common law trademark protection. If you use a “trademark” you automatically obtain rights in the geographic area of use. Although not required, you should use a ™ symbol adjacent to your common law trademark to show that you consider it to be your trademark.
Although common law rights are automatic, you should register your trademarks. Every state has a trademark registration system.5 State registration is good if you only use your mark within the state, but, if you use your trademark in interstate commerce, Federal registration is best.6
Federal registration is important for several reasons:
- It provides a self-policing function by giving notice of the registration. All trademarks are listed on the USPTO website.7 When choosing a trademark, this is typically the first place to check for availability. If your mark is listed, most will avoid it and pick a new trademark.
- Your rights extend throughout the US.
- Your mark can become incontestable after five years, which provides valuable presumptions in litigation.
- You also can use the ® which shows it’s registered with the USPTO.
Law firms typically use the names of the founder(s) as the firm name, but the trend is moving away from this. When the founder(s) names are your trademark, issues are created when registering the name as a trademark with the USPTO. The USPTO is reluctant to register marks that are merely surnames. However, this reluctance can be overcome if it can be shown that the mark has a secondary meaning to consumers. There are also ethical considerations in naming a law firm. A good article on the ethical considerations is found in the May 2021 issue of the Michigan Bar Journal.8
An often-overlooked consideration is who owns the trademark(s). Unless they are assigned to an entity, there can be issues. Bands often run into this issue, and the same consequences can apply to law firms. The band Journey is in a dispute over its name and millions in royalties. Journey co-founders Neal Schon and Jonathan Cain claim the band members Ross Valory and Steve Smith are trying to take the Journey trademark. Who owns Journey’s name is confusing because of how it was handled through the years.
When John Fogerty left Creedence Clearwater Revival he sued his former bandmates for using “Creedence Clearwater Revisited.” They have repeatedly battled in court over the years.
Tragedy can also strike. In 1977, Lynyrd Skynyrd lost Ronnie Van Zant and backup vocalist Cassie Gaines, and others in a plane crash. Ten years later, several of the original band members, and Ronnie’s brother, Johnnie Van Zant, began touring as Lynyrd Skynyrd. The widows of Ronnie Van Zant and Steve Gaines sued for damages and won. Interestingly, the court ruled that at least two original pre-crash members must be in the band for it to continue as Lynyrd Skynyrd.
These same issues can affect law firms. You must plan for these possibilities. Who owns the name is one of the most important decisions you will make. Also, who owns the related trademarks, logos and symbols? Kiss registered their face makeup with the USPTO. They are all owned by Kiss Catalog, Ltd. Slash registered his stage name, as well as the top hat wearing skull and crossbones logo on his debut album Slash R&FNR. They are all owned by Dik Hayd International, (interesting corporate name).
The best approach is to follow the typical business model. All intellectual property is assigned to the business.
Trademarks are commonly owned by a single business entity, typically a corporation. The owners then determine how they control and own those rights. Decisions are made according to the rules and regulations of the business. Disputes regarding who owns the trademark are controlled by well-defined legal standards.
Don’t pick a trademark that will get you sued
You must be careful when choosing a trademark to avoid getting sued for infringement. The test for infringement is whether the marks are likely to confuse consumers. You don’t want to invest resources in marketing and then have to change your name and lose valuable goodwill, and even have to pay damages for infringement.
Every mark should be investigated to be sure it is available. Experienced Trademark Counsel can conduct these investigations to give you the confidence you need to invest in your trademark.
Copyright protection occurs as soon as an idea is expressed in a form that can be reproduced.9 Copyrights are everywhere in business. Examples of copyrightable material include books, blogs, music, videos, brochures, manuals, websites, software, apps, and more.
Copyright protection attaches immediately. You do not have to register your copyright, but registration is important.
- Copyright registration is a prerequisite to filing a lawsuit for copyright infringement.10
- If timely filed, statutory damages can be elected.
- Registration before, or within five years of, publication of the work establishes prima facie evidence of the facts stated in the registration certificate.11 Statutory damages can be very important. Damages for copyright infringement are actual damages, plus the infringer’s profits that are not considered in determining actual damages or statutory damages.12 By electing statutory damages, you do not have to prove actual damages, which can be difficult. Statutory damages are available if you register your copyright within three months of publication, or before the infringement. Statutory damages can range from $750 to $30,000, and up to $150,000 for willful infringement, at the discretion of the court.13 The court can also award attorney fees to the prevailing party.14
Copyright Infringement ensnares many businesses
Copyright infringement is a risk to all businesses, including law firms. Images are particularly problematic because they are ubiquitous and easy to copy and paste. Many people are not aware they are infringing. In my seminars, I often hear people say that they believe images are free to use so long as they do not have a copyright notice. This is wrong, but still a common misconception. In every audience, there are always a few people who have received a letter from a troll demanding damages for clipping images.
Typically, the letter describes the statutory damages available, threatens litigation, and demands payment. The typical demand is between $20,000 and $40,000 per copied image. There are strategies to defend against these charges or to reduce damages, but the better approach is to not infringe. You need to be careful clipping images, as well as any other unlicensed uses like videos, music, articles. etc.
Even if you use licensed images or free image sites, you must be careful. I suggest you keep a file of licenses. Cease and desist letters typically begin with an offer to resolve the matter quickly if you have a license. Having that license can end these matters before they start. If you use images from free sites, they usually have requirements for a licensed use. These normally require attribution of the author and restrictions on commercial use.
In general, to qualify as a trade secret, the information must be commercially valuable, and because it is secret, be known only to a limited group of people, and subject to reasonable steps to keep it secret.
Every business has trade secrets. Every state has trade secret laws, and there is also Federal protection available under the Defend Trade Secrets Act (DTSA).15 Clients need to appreciate their trade secrets and understand the requirements to protect them.
Most law firms will not have inventions to patent, but having a basic understanding does not hurt. There are three types of patents. The most common is a utility patent16 which protects inventions like products or processes. The second most common is a design patent17 which protects the appearance of manufactured products. The least common are plant patents18 which protect asexually reproduced plants.
The most important thing to know about patent protection is that the invention should not be disclosed before filing an application. If it must be disclosed, it should only be disclosed pursuant to a confidentiality agreement. Additionally, the application should be filed as soon as possible, because patent protection goes to the first to file.
An important note in the United States is that you have a one-year grace period to file an application.19 The timer starts when the invention is made available to the public, for example, by public use, being on sale, or being described in a printed publication.20 Once the timer starts, you must file your US patent application within one year. There are no exceptions. Also important to know is that other countries may require absolute novelty, which means you do not get a one-year grace period. The safe advice is do not disclose before you file.
If you need to file in a hurry, you can file a provisional patent application in the United States to establish a filing date. Provisional applications are good for just one year.21 These applications have less stringent filing requirements, and are usually cheaper and quicker to file. They only require a detailed description and a drawing(s) of the invention without the need for claims.
US Patents are granted by the USPTO and require an attorney or agent who is registered to practice before the USPTO to represent the inventor(s) unless they file pro se. To be registered, the attorney or agent must have a technical background (such as an engineering degree) and pass a special exam. Even though an inventor can file themselves, this is a bad idea; akin to pulling your own teeth.
Examples of IP Mismanagement
- A law firm’s webmaster used images clipped from the Internet on the company’s website. They received a letter demanding $40,000.00 for the improper use. Not a good day.
- An investor wanted to invest $5 million in a company, but first he wanted to be sure the intellectual property was well managed. The IP included unregistered trademarks and copyrights. The investor passed on the investment. The company later closed down and never learned why they did not get the needed investment.
- The owners of a business chose a name but did not do any checking. Five years later an international company sued for trademark infringement. To avoid the lawsuit, they had to change their name, losing years of goodwill. A huge financial loss.
- The worst call a patent lawyer gets starts with, “I have a great product, I need patent protection,” and ends with, “It has been selling well for more than a year!” This business has lost its right to file because the invention was sold more than a year before the patent application was filed. This happens a lot. Do not let it happen to you.
With proper advice, all these common problems could have been avoided. It is imperative that you recognize these hidden assets and understand the basics of Intellectual Property law so you can protect your IP and your business. An easy way to recognize the importance of your IP is first, to be aware of it. Then make it part of your asset protection system by holding regularly scheduled reviews of your IP to ensure that you get full value from your creativity.
Typically, law firms are valued by their anticipated billings and client lists. But like any other business, their intangible assets should also be considered. Intangible assets such as their brand(s), website, operating procedures, and marketing materials, can add value far into the future. Existing and potential clients do not just look at legal talent, they look at the overall perception of the firm. Before showing future attorneys, investors, or a purchaser of the firm, these assets should be registered.
Give me a call if you want to discuss these issues further. I have a system, the ReCiPe for Success™ that has worked well for clients over the last 30 years. I am happy to share. Email Bill@IPGuy.com or call at (248)318-7015.
For more than 30 years, Bill Honaker has been helping businesses, ranging from Fortune 100 firms to individual entrepreneurs, to protect their patents, trademarks, and copyrights. A former Patent Office Examiner, he is a partner with Dickinson Wright, PLLC, and author of The Business Owners Guide to Intellectual Property. He’s especially good at keeping clients out of court.
- “How Intangible Assets Are Affecting Company Value In The Stock Market”, Forbes, 2017
- The statutory definition of a trademark can be found at 15 USC §1127
- In Michigan, mark registration is governed by the Trademarks and Service Marks Act, 1969 P.A. 242 as amended.
- Federal registration of trademarks is governed by the Trademark Act of 1946, as Amended, 15 U.S.C. §§1051 et seq. (also known as the Lanham Act)
- The statutory definition of a copyright can be found at 17 USC §104
- Fourth Estate Pub. Ben. Corp. v. Wall-Street.com, LLC – 139 S. Ct. 881 (2019)
- 17 USC § 410 (c)
- 17 USC § 504
- 17 USC § 412
- 17 USC § 505
- 18 USC § 1836
- 35 USC § 101
- 35 USC § 117
- 35 USC § 161
- 35 USC § 102
- 35 USC §102(b)(1)
- 35 USC §111(b)