Monday, February 4, 2002

Valuing and protecting intellectual property rights

By Russell Beck

Before giving away the keys to your intellectual property, it is important to understand what rights you have and what is the real value of the property. Next, determine the appropriate level of protection you should have as a legal matter and as a practical matter.

Intellectual property includes trademarks, copyrights, patents and trade secrets. Trademarks can be any word, symbol or combination of words and symbols used to identify the source of goods or products in commerce.

Copyright is the right to prevent reproduction of original works of authorship including, for example, software code, fixed in any tangible medium of expression.

Patents are the means of preventing others from making or selling an invention, business methods and certain software routines.

Trade secrets are information that gives their owner a competitive advantage, such as the ingredients in Coca-Cola, as well as secret manufacturing processes.

Like tangible property, intellectual property is an asset that can range from negligible value to great worth. Accordingly, some intellectual property rights are deserving of costly protection measures, while others are not.

Indeed, some rights, particularly in the case of patents, can cost more to maintain than they are worth. Thus, while the range of protections available to a company can be quite broad, the measures that the company should adopt must be informed by the value of the rights to be protected.

A generally accepted method for ascertaining the nature and extent of the rights and risks associated with a company's intellectual property is an intellectual property audit. In general terms, an audit includes an analysis of a company's intellectual property rights, the current level of protection of the property (including any lapses in protection), and what steps, if any, need to be taken to preserve and protect each item of intellectual property (or protect the company from infringing on other owners' rights).

These audits can be performed internally, by an outside consultant or through a combination of the two. Internal audits have the benefit of little to no out-of-pocket costs, but risk lack of familiarity with how to identify, preserve and protect the rights and risks associated with the property.

In contrast, external audits bring an expertise of the law of intellectual property, but require that the external auditors familiarize themselves with the company and its workings.

Depending on the company being audited and the nature and extent of its intellectual property, the costs of an outside audit can range from relatively inexpensive to quite pricey. However, the value of such an audit - including the possible identification of potential cost-saving measures - will likely far exceed its costs.

Once the audit is concluded, the company should have a good sense of its intellectual property rights and risks.

The next step is to put those rights and risks in context. The company must place values - not only intrinsic economic values, but value to the company for other purposes - on the intellectual property.

Like an audit, this function can be performed internally, externally or through a combination of the two. Again, however, depending on the use and centrality of the intellectual property to the company's business, it is generally advisable to have outside experts perform a thorough valuation.

Although quite complicated to perform, such a valuation is not that different from an appraisal of tangible property. Not surprisingly, the cost of such an outside valuation, like an audit, can range significantly.

Based on the information learned from the audit and valuation, the company should be in a position to evaluate what intellectual property is worth maintaining, and which methods of protection and enforcement make sense to adopt.

These methods can range from changes in internal practices, to the filing of forms with appropriate governmental agencies, to the creation of binding non-competition and non-disclosure agreements, to litigation.

Thus, for example, a company may determine that it is not worth spending millions of dollars pursuing and enforcing a patent for a particular invention, but that it is worth spending a few thousand dollars to implement procedures - including the preparation of appropriate non-competition and confidentiality agreements - to keep the invention a secret and to then spend the tens or hundreds of thousands of dollars in litigation fees to enforce those agreements.

In the end, companies need to understand the issues associated with their assets. As with many other matters, an ounce of protection is frequently worth a pound of cure.

Russell Beck is a litigation partner in the Boston office of Epstein Becker & Green P.C., and is a member of the firm's technology group. He can be reached at rbeck@ebglaw.com.