Value Staging Blog

J. Jordan Scott

J Scott Law Firm, Boston
www.jscottlawfirm.com

Intellectual Property is often one of the most important assets that a business possesses.  Particularly in startups or early post-revenue stage firms, the “special sauce” tangible or intangible product developed by the entrepreneur can be synonymous with the net worth of the company.

In scenarios wherein the owner wishes to sell all or part, merge or acquire funding, it is critical to have the intellectual property assets identified, valued and protected. For the buyer or investor, this becomes a key part of the due diligence & risk assessment process.

The term “intellectual property” is broad, covering patents, copyrights, trademarks, trade secrets, and other forms of creative expression.  The purpose of this article is to provide an overview of intellectual property, along with a brief discussion of ways to protect such property.

Patents

Of all intellectual property, patents are the most complex, and arguably the most important.  Any reader who believes they have a patentable invention should consult with a qualified patent attorney at their earliest convenience, as being “first” matters.  In order to secure a patent, an invention must be useful, new and non-obvious to an average person.

Specifically, there are three categories of patents: utility, design and plant.  Utility patents cover new and useful processes, machines, or improvements.  Design patents cover new, original ornamental designs.  Plant patents cover new and distinct varieties of plants.  While any individual is permitted to file a patent application, the law is complicated enough that a professional should be consulted.  It is important to note that nearly all patent lawyers practice solely patent law; due to the highly technical nature of patents there are few general practitioners that handle patents, and any attorney claiming to be such should be viewed cautiously.

Copyright Law provides legal protection to the creator of a work of creative expression created in a tangible medium (books, magazines, websites, etc.).  However, copyright protection is not available for ideas, concepts and algorithms (although a patent may be available).  Technically, copyright protection attaches when the work is created.  However, in our modern, litigious society, it is advisable to seek formal copyright protection within a few months for first publication, and before any infringement.  An important caveat is the concept of “fair use.”  Copyrighted material can be legally used by other parties in certain circumstances, such as for criticism, parody, in a news report, or incidentally.  A qualified copyright attorney will be able to advise when and how fair use should be interpreted.

Trademarks are distinctive words, phrases or logos that identify the source of a product or service.  Trademarks should be formally registered as soon as possible to ensure legal protection.  A qualified attorney will be familiar with trademark law and be able to advise a client through navigating the trademark registration process.

Trade Secrets

One of the most important aspects of intellectual property is that of trade secrets.  Trade secrets can also be difficult to protect, as there is no government agency to register the secrets with, as there are for patents, copyrights and trademarks.  A trade secret is information that has independent economic value derived in part from not being known to the general public, and is also subject to reasonable efforts to maintain its secrecy.  A classic example is the Coca-Cola formula.  Many companies have trade secrets they wish to protect, but as stated above securing protection is not as straightforward as applying to a government office.

In order to fully protect trade secrets, companies must work to maintain this secret.  This can be done in a variety of ways.  All employees and independent contractors should sign a nondisclosure agreement (NDA) that will prevent those individuals from sharing the proprietary information that they have learned.  Nondisclosure agreements are relatively standard and many are found in the public domain.  A company should also safeguard the information by limiting access to those that need it, and keeping any documents (paper or electronic) in a secure location (a physical safe for paper documents; encrypted files for electronic).

With any intellectual property, the important first step is to identify what branch of intellectual property law applies, and then immediately take initial steps to secure legal protection.

Remember: The client can take many of the initial steps, but a qualified attorney should be consulted early on, especially when dealing with a patent or any questions or issues regarding IP protection.

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Note: Value Staging LLC is not a law firm, does not practice law and any guest blog posts are solely the opinion of the author and are not to be construed as legal advice.

Joseph Blank

Principal, Value Staging LLC

So many companies are struggling for survival. Entire industries are suffering. Quick fixes abound. What is the solution when consumer confidence is low, credit markets are tight, revenue is down and investments are losing money?

Trying to fix an entire economy with so many forces at work and thousands of critical success factors to consider is nothing short of daunting. A few things are certain; there is no quick fix, there will be mistakes along the way, groups of people will suffer, some companies won’t survive.

When a company plans for disasters, it is called a business continuity plan. When a company is faced with an unplanned disaster, it is called triage.

When companies in trouble look to prioritize to determine who or what gets cut, what is that process? What are the criteria? Perhaps the discussions look something like:

• We need to reduce operating expenses by 35% across the board
• This division currently operates with 200 people, we need to get that down to 150
• All future expenditures over $5,000 must be approved by the CEO
• Reduce overall production by 25%
• Suspend these specific projects
• Cut these pending programs
• Allocate available funds to these specific areas

There may or may not be a significant amount of analysis and due diligence involved in these decisions, but the end results will most likely have a negative impact on customers and employees.

Take this scenario and apply it to an entire economy. The ripple effect is enormous. Suppliers and customers, producers and consumers, support infrastructure and the non-related businesses that rely on the peripheral opportunities are all suffering at once.

If we look at some of the major causes of the great depression, they include:

• The stock market crash
• Bank failures and lack of credit availability
• A sharp decrease in purchasing across the board
• A breakdown in international trade

While the specific conditions that led to the Great Depression are much different than what we face today, these major causes are with us now.

So how do we not only survive, but take advantage of conditions and grow using Innovation?

If the stock market is a reflection of how the equity market views the future value of an industry and the publicly traded companies within it, then companies need to come up with ways to boost confidence in their future value.

If credit markets have tightened, creditors will be very diligent regarding to whom and for what credit is extended. If the purpose of a loan is to help a company “stay afloat” for a few more months, that is likely a bad choice.

However, if the purpose is to grow revenue and profitability by opening up new markets or taking advantage of a unique opportunity that has been overlooked, these are probably good reasons to extend financing.

While triage dictates that some emergency actions are taken, simultaneous to “stopping the bleeding” is a requirement to significantly improve the long term health and viability of the patient.

This is a very different, but just as important, type of discussion. This conversation looks at:

• What core competencies and skills do we possess?
• What new ideas and opportunities can we generate to leverage these competencies and skills beyond what we have done in the past?
• What specific resources are required to develop and execute these new opportunities?

If this dialogue takes place post triage, the company may find that many of the skills, ideas and resources required to take advantage of these possibilities are now gone!

Harsh conditions don’t have to stifle creativity. In fact, creativity and innovative thinking are more important when threats to survival are looming.

Stated in a recent Industry Week Article entitled: “New Economic Thinking Required: Successful Companies Will be Proactive

• “For starters, a CEO’s pet project should be placed on the back burner so that company resources can be relegated to those initiatives that positively affect the bottom line the fastest. .  “
• “Secondly. . .During a period of downsizing, leadership needs to be more visible as well as effectively communicate what changes are taking place and why. This will cut down on rumor and speculation. . .”
• “Thirdly, the negative impact of the downturn on the top line can be reduced by changing geographic coverage, streamlining supply chains, altering product designs, modifying pricing and introducing new services. Successful leaders and companies adapt to current economic conditions.”
• “Finally, the downturn offers organizations a chance to implement changes that can improve long term profitability. Pushing ahead with a range of productivity improvements should be front and center, including internal Lean and Six Sigma programs. Many times, the positive effects of these internal programs alone are often short-lived high performance workforce improvements and a more flexible process.

In order to effectively make sustainable change, companies should seek out an operating consulting firm to maximize the results from an internal initiative, as well as ensure that these initiatives enjoy long term sustainability. The long term benefits drastically outweigh the costs.”

A proactive approach towards creative thinking and proper planning can help assure survival in this very serious economic downturn. In the words of Albert Einstein, “Imagination is more important than knowledge. For while knowledge defines all we currently know and understand, imagination points to all we might yet discover and create.”

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