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Innovation," Duquesne Business Law Journal 6, no. 2 (Spring 2004): 241-266

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 Managing Intellectual Property Rights: The Cost of
Innovation
I. INTRODUCTION

Intellectual property rights have become one of the most valued

assets for a competing business. The protection of that intellec-
tual property is critical to obtain funding for any venture, and ul-
timately for the formation of success. Consequently, intellectual
property provokes heightened economic awareness.1 Patents,
trademarks, copyrights, trade secrets, and trade dress link to form
valuable assets. The possession of intellectual property generates
vast rewards. However, intellectual property also generates risk.
Merely acquiring intellectual property rights may not grant a
noteworthy advantage to a holder of the right.
Companies that appropriately manage intellectual properties
rights while assessing exposure risks create improved opportuni-
ties to cultivate protect and exploit their intellectual property as-
sets.2 A logical intellectual property strategy can dramatically
reduce intellectual property risks and may indemnify such risks.
Many companies recognize that intellectual property assets gen-
erate a competitive economic advantage.3 Fundamentally, intel-
lectual property management is the single best economical tool for
any aggressive company, and is essential for a business to gain
and maintain a competitive advantage in today's economy.
Consciousness is a critical ingredient for a competent manage-
ment strategy. It is important to be aware of what the company
owns, and how others perceive this ownership. With respect to
intellectual property, a company's state of readiness influences the

1. WILLIAM LANDES & RICHARD POSNER, THE ECONOMIC STRUCTURE OF

INTELLECTUAL PROPERTY LAW 1 (Harvard University Press et al. eds., 2003).
2. In 2002, more than 8,000 intellectual property cases were commenced in United
States District Courts. See IP CASES COMMENCED IN U.S. DISTRICT COURTS 1993-2002
(FTI Consulting 2004). Available online at
http://www.fticonsulting.com/ip/presentations/ip-chart/slideOO10_files/slideOO02.htm (April
2, 2004).
3. BRENT D. BEA, YOU SAY YOU WANT A REVOLUTION? ASSESSING STRATEGIC OPTIONS
FOR MANAGING INTELLECTUAL ASSETS FLOWS IN THE INFORMATION SECTOR, (La. St. Univ.
ed., 2003), citing C. LEADBEATER., THE WEIGHTLESS SOCIETY: LIVING IN THE NEW ECONOMY
BUBBLE. (Texere ed., 2000).
242 Duquesne Business Law Journal Vol. 6

behavior of its competitors.! If a company is obviously not aware

in an up-to-date manner of all of its intellectual property assets,
this will make competitors more likely to be predatory.! Aware-
ness requires defensive responses and attention to the company's
state of affairs pertaining to assets and risks. This creates oppor-
tunities for a company to act aggressively.
Information and knowledge management play an increasingly
important role in the development of sustainable competitive ad-
vantage. The company that is truly aware of what it holds is less
likely to lose it, or to do things that might inadvertently prompt
competitors to raise opposition toward its conduct. All forms of
intellectual property provide a company its value and identity. 7
Nevertheless, patents, trademarks, copyrights and other means of
intellectual property protection are only proprietary if compli-
mented with strategic management and assessment of rights and
risks.
In January 2004, the United States Federal District Court held
that Purdue Parma patents, protecting its painkiller Oxycontin,
were invalid. This enabled drug maker Endo Pharmaceuticals
Holdings to sell a generic version of the drug.8 Purdue, a pharma-
ceutical company based in Stamford, Conn., sued Endo for patent
infringement in 2000. Endo filed an abbreviated new drug appli-
cation with the Food and Drug Administration to sell a generic
Oxycontin, designed to treat moderate to severe pain. In a 50-
page opinion, U.S. District Judge Sidney H. Stein found that al-
though Endo violated three closely held Purdue patents on the
drug, Endo proved by clear and convincing evidence that the pat-
ents were unenforceable due to Purdue's inequitable conduct be-
fore the Patent and Trademark Office during the prosecution of
the patents in suit.9 In other words, Purdue Pharma allegedly
deceived the United States Patent and Trademark office."° As a

4. GLENN S. BACAL, RISK REDUCTION STRATEGIES FOR INTELLECTUAL PROPERTY

OWNERS, § 2.1 (E-Commerce Law 2001).
5. See supra.
6. BEA, supra note 3.
7. See BACAL, supra note 4.
8. Purdue Pharma L.P. v. Endo Pharms., Inc., 2004 U.S. Dist. LEXIS 10 (S.D.N.Y.
2004)
9. See id.
10. The duty of candor is placed upon the inventors and any individual substantially
involved in the preparation or prosecution of the patent application. See 37 C.F.R. § 1.56.
All those substantively involved in the preparation and prosecution of a patent application
must disclose to the Patent Office all information they are aware of that is material to the
Spring 2004 Managing Intellectual Property Rights 243

result, companies such as Endo Pharmaceuticals are not barred

from marketing a generic equivalent of the drug. The judgment
sent Endo shares surging $2.86, or 15%, to $21.98 on that same
afternoon of trading on the NASDAQ Stock Market."
Intellectual property rights are not physical objects. They are
intangibles and cannot be warehoused like physical goods. Intel-
lectual asset management includes managing intellectual property
rights within a broader commercial and corporate context. A stra-
tegic business interlaces the processes of creation, protection, and
exploitation of such rights. 3 Failure to properly manage intellec-
tual property assets is measured in terms of opportunities lost and
the uncertainty and expense resulting from needless litigation. 4

II. UTILIZING INTELLECTUAL PROPERTY: THE VALUE OF

PROTECTING COMPANY ASSETS

An expanding intellectual property market has created an inevi-

table rise in increasingly complex and expensive litigation, with
far-reaching ramifications." Companies that utilize and develop
their intellectual property generate huge potential for exploiting
their bona fide assets. Intellectual property can either protect or
jeopardize a company's bottom line.'6 Intellectual property man-
agement begins with evaluating ownership rights, and a prag-
matic approach of assertive protection toward anticipated dilem-
mas.
The term intellectual property has both legal and non-legal sig-
nificance. In a business usage, the term intellectual property of-
ten refers to inventions, creations, and secrets that have a value in
production and in the marketplace." Essentially, the invention,
creation, or secret distinguish the competitive edge or valuable

examination of the application. Id. See also, Critikon Inc. v. Becton Dickinson Vascular Access,
Inc., 120 F.3d 1253, 1256 (Fed. Cir. 1997).
11. See, e.g., Endo Pharmaceuticals Holdings Inc (ENDP) basic quote chart, available
at http://www.finance.yahoo.com. (March 4, 2004).
12. BEA, supra note 3.
13. ZAID HAMZAH, INTELLECTUAL ASSET MANAGEMENT: MANAGING THE LEGAL RISKS,
1-3 (Intelligent Enterprise Asia ed., 2002).
14. PETER ROUSE, STRATEGIC APPROACH: STRATEGIC MANAGEMENT OF INTELLECTUAL
PROPERTY, 2-3 (Rouse & Co., Int. ed., 1998).
15. KIMBERLY K. CAUTHORN, INTELLECTUAL PROPERTY RISK ISSUES 1 (Marsh Inc. ed.,
2001). Available online at http://www.marsh.com (April 2, 2004).
16. JOBY HUGHES, ET AL., INTELLECTUAL ASSET MANAGEMENT (Marsh Inc. ed., 2002).
Available online at http://www.marsh.com (April 2, 2004).
17. HOwARD C. ANAWALT & ELIZABETH E. POWERS, IP STRATEGY: COMPLETE
INTELLECTUAL PROPERTY PLANNING, ACCESS AND PROTECTION 1-6 (West Group ed., 2003).
244 Duquesne Business Law Journal Vol. 6

company asset. A legal definition of intellectual property contains

much narrower specific elements of legal protection. Problems
arise when inventions, expressions, ideas, secrets, market recogni-
tion devices, and other creations of human intellect are assigned
legal aspects of property rights under applicable law.18 A company
must be knowledgeable about the laws governing intellectual
property in order to effectively create, manage, transfer, exploit,
and enforce its intellectual property rights.19 National and inter-
national laws govern intellectual property rights. The World
Trade Organization2" defines intellectual property rights as the
rights given to persons over the creation of their minds. Such
laws give the creator an exclusive right over the use of that crea-
tion for duration of time.2 1
The laws governing intellectual property cultivate innovation by
regulating the copying of inventions, identifying symbols, and
creative expressions.2 2 In the United States, these laws encom-
pass four separate and distinct types of intangible property, as
protected through patents, trademarks, copyrights, and trade se-
crets, which collectively are referred to as intellectual property.
The laws classify intellectual property rights into diversities,
such as copyright and industrial property. Copyright protects the
rights of authors of literary and artistic works. 2 Industrial prop-
erty protects distinctive signs such as trademarks24 as well as
property designed to encourage innovation, including inventions,
industrial designs, and trade secrets. Companies catalogue intel-
lectual property through portfolios in terms of what it is, whether
and how it is protected. While this classification step is crucial,
businesses often fail to be exhaustive enough as they implement

18. See id., at 1-7.

19. JUDITH L. CHURCH, INTELLECTUAL PROPERTY ASPECTS OF CORPORATE
ACQUISITIONS 326 (The American Law Institute ed., 2003).
20. The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO agreements,
negotiated and signed by the bulk of the world's trading nations and ratified in their par-
liaments. The goal is to help producers of goods and services, exporters, and importers
conduct their business. See http://www.wto.org (March 4, 2004).
21. World Trade Organization, TRIPS- WHAT ARE INTELLECTUAL PROPERTY RIGHTS,
Geneva, Switzerland at http'//www.wto.org (March 4, 2004).
22. LAURENCE R. HEFTER & ROBERT D. LITowrTz, U.S. DEPT OF STATE, PROTECTING
INTELLECTUAL PROPERTY 1 (2004).
23. Examples of copyright protected work include books, movies, musical compositions,
paintings, etc. See 17 U.S.C.S. §§ 101 et seq. (2004).
24. Trademarks are signs that distinguish goods or services through business goodwill.
Spring 2004 Managing Intellectual Property Rights 245

it.25 The types of intellectual property created by the company will

dictate exactly what types of protection procedures to utilize. In
order for a company to profit from an intellectual property, it is
necessary that the property receive legal protection to provide sta-
bility, value, and validity.26

A. Patents

As granted by the United States Patent and Trademark Office,

a United States patent provides protection for novel and useful
processes, machines, manufacture or compositions of matter."
The most conventional form of a patent is the "utility" patent,
which includes electrical, mechanical, and chemical inventions.2"
As society has developed and progressed, patentable subject mat-
ter has become more liberal, compiling the patentability of living
matter, 29 software,' ° and business methods.31
The United States Patent and Trademark Office mandates key
statutory requirements for patentability, specifying that an inven-
tion be novel32 , useful33 , and non-obvious.3 4 An inventor or busi-

25. ROUSE, supra at note 14.

26. AMERICAN INTELLECTUAL PROPERTY LAW ASS'N, HOW TO PROTECT AND BENEFIT FROM
YOUR IDEAS (2002). Available online at http://www.aipla.org (March 4, 2004).
27. See 35 U.S.C. § 101; See also, 35 U.S.C. § 154(a). Patents grant the exclusive right
to make, use, offer or sell your invention.
28. In addition to utility patents, design and plant patents also protect patentable
subject matter.
29. Diamond v. Chakrabarty, 447 U.S. 303 (1980). The phrase, "anything under the
sun made by man" was taken from congressional report to be Congress' intent for § 101.
Such wide scope of patentable subject matter is taken right from the expansive terms used
in the statute, "any new and useful process, machine, manufacture, or composition of mat-
ter." Id.
30. In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994). Software patentable as part of ma-
chine: A general purpose computer that is programmed to carry out a particular task be-
comes a new machine that is patentable subject matter under 35 U.S.C. § 101.
31. See State Street v. Signature, 38 U.S.P.Q.2d 1530 (D. Mass. 1996), 149 F.3d 1368
(Fed. Cir. 1998). The repetitive use of the expansive term any in § 101 shows Congress'
intent not to place any restrictions on the subject matter for which a patent may be ob-
tained beyond those specifically recited in § 101. Id. The court put to rest the notion that a
business method exceptions exists under § 101, stating, "methods of doing business ...
claims should be treated like any other process claims." Id.
32. "Novelty" is defined under federal statute as, "Not every useful invention is pat-
entable. Section 102 prescribes the doctrine of anticipation by requiring novelty of inven-
tion." See 35 U.S.C.S. § 102 (2004); In re King 801 F.2d 1324, 1326 (Fed. Cir. 1986). (A
claim anticipates if comparison of the claimed invention with a prior art reference reveals
that every element in the claim under attack is shown or described, organized, and func-
tioning in substantially the same manner as in the prior art reference.); Knapp v. Morss,
150 U.S. 221, 14 S. Ct. 81, 37 L.Ed. 1059 (1893). (Anticipation is most easily understood as
the converse of infringement).
246 Duquesne Business Law Journal Vol. 6

ness files patent applications with the United States Patent and
Trademark Office, which then evaluates the patentability of the
applied-for invention. The applicant and examiner engage in a
written back-and-forth dialogue regarding the scope of the appli-
cation and other issues. This is an important procedure which
protects intellectual assets. Once granted, the patent provides the
owner the right to exclude others from making, using, selling and
importing a product that is covered by the utility patent. This
right extends for 20 years after the filing date of the patent appli-
cation.35 It is important to recognize that this protection is one of
exclusion, granting a company's innovations value and validity.

B. Copyrights

In addition, the United States government provides intellectual

property protection36 for an original work of authorship in literary,
audio-visual, and other works of expression as a copyright.37 The
owner of a copyrighted may exclude other from reproduction, dis-
tribution, publicly performance, publicly display, or preparation of
derivative works.3" However, copyright protection does not cover
ideas, procedures, processes, and systems, methods of operation,
concepts, principles, facts, and discoveries. Hence, copyrights only
protect the original and creative way an idea or procedure is ex-
pressed."

33. "Utility" is defined under federal statute as, "Whoever invents or discovers any new
and useful process, machine, manufacture, or composition of matter, or any new and useful
improvement thereof, may obtain a patent therefore, subject to the conditions and require-
ments of this title." See 35 U.S.C.S. § 101 (2004).
34. "Obviousness" is defined under statute as, "A patent may not be obtained if it con-
tains only obvious differences from prior art." See 35 U.S.C.S. § 103 (2004); Graham v.
John Deere Co., 383 U.S. 1, 17, 86 S. Ct. 684, 15 L.Ed.2d 545, 148 USPQ 459, 467 (1966).
(Obviousness is a question of law based on findings of underlying facts relating to the prior
art, one skilled in the art, and objective considerations).
35. Design patents grant a right of exclusion, for 14 years, and protects the way an
article looks. See 35 U.S.C.S. § 171 (2004).
36. In the United States, copyright protection derives from the United States Constitu-
tion, which requires original works of authorship to be protected by copyright. The current
(and exclusive) source of this protection is the Federal Copyright Act of 1976. See 17
U.S.C.S. §§ 101 et seq. (2004).
37. Copyright is a bundle of rights that may attach when an original, work of author-
ship, is fixed in a tangible medium of expression. See 17 U.S.C.S. § 102 (2004).
38. Copyright protection grants exclusive rights: to reproduce the copyrighted work; to
prepare derivative works; to distribute copies; to perform the copyrighted work publicly; to
display the copyrighted work publicly; to perform the work (sound recordings) publicly by
means of digital audio transmission; and moral rights. See 17 U.S.C.S. § 106 (2004).
39. 17 U.S.C.S. § 102(b) (2004); See also, Feist Publications, Inc. v. Rural Tel. Service Co., 499
U.S. 340 (1991). Copyright won't protect the compilation of facts unless the form that they
Spring 2004 Managing Intellectual Property Rights 247

A creative work is protected through a copyright from the mo-

ment they are fixed in a tangible medium of expression." Unlike
patent protection, registration with the United States Copyright
office is not required. Nevertheless, a registration of a copyright
provides the following additional benefits: (1) registration is a
prerequisite to filing a copyright infringement suit; (2) registration
before infringement entitles the copyright owner to statutory
damages and attorneys' fees; (3) and registration provides evi-
dence of the ownership of the work at issue.4 Identifying copy-
rights and the rights associated with them assist in the manage-
ment of a company's intellectual property portfolio.4 2

C. Trademarksand Unfair Competition

Trademark and unfair competition law consist of legal rules
that protect the trade identity associated with a company's goods
and services marketed and retailed.43 In the United States, actual
use of the mark in connection with the sale of goods and services
establishes ownership, at least with respect to geographic area of
use.44 A trademark can be classified by the following types: arbi-
trary, fanciful, suggestive, descriptive, and generic terms.45 Gen-

are presented in is sufficiently creative to warrant protection. Baker v. Selden, 101 U.S.
99 (1879). The Supreme Court concluded that blank account-books are not the subject of
copyright; and that the mere copyright of the blank books did not confer an exclusive right
to make and use account-books. Id.
40. For works created after January 1, 1978, the term of a copyright for a work created
within the scope of the author's employment, or otherwise that is a work made for hire, is
95 years from the year of first publication or 120 years from the year of its creation, which-
ever expires first. For works authored by an individual, the copyright term is the life of the
author plus 70 years. See 17 U.S.C.S. § 302 (2004).
41. You must register your copyright with the U.S. Copyright Office before you are
legally permitted to bring a lawsuit to enforce it. You can register a copyright at any time,
but filing promptly may pay off in the long run. See 17 U.S.C.S. § 411(a) (2004).
42. ANAWALT & POWERS, supra note 17 at 1-9.
43. A trademark is a word, symbol, or phrase, used to identify a particular manufac-
turer or seller's products and distinguish them from the products of another. See 15
U.S.C.S § 1127 (2204).
44. Assuming that a trademark qualifies for protection, rights to a trademark can be
acquired in one of two ways: (1) by being the first to use the mark in commerce; or (2) by
being the first to register the mark with the U.S. Patent and Trademark Office (PTO). See
15 U.S.C.S. § 1127 (a) (2004).
45. "...nothing herein shall prevent the registration of a mark used by the applicant
which has become distinctive of the applicant's goods in commerce. The Commissioner may
accept as prima facie evidence that the mark has become distinctive, as used on or in con-
nection with the applicant's goods in commerce, proof of substantially exclusive and con-
tinuous use thereof as a mark by the applicant in commerce for the five years before the
date on which the claim of distinctiveness is made." See 15 U.S.C.S. § 1052 (2004)_(specifi-
cally the Lanham Act § 2(t), as amended).
248 Duquesne Business Law Journal Vol. 6

erally speaking, arbitrary, fanciful, and suggestive marks are dis-

tinctive. These marks bear no or little relationship to the actual
goods and services, and trademark laws creates relatively broad
scope of protection. The United States only grant owners of de-
scriptive marks upon proof that consumers associate the name of
the mark with the goods and services provided by the owner of the
mark. Generic terms are simply words are offered no trademark
protection because they have become part of the everyday lan-
guage. Registration of marks with the PTO, however, provides the
following additional benefits: (1) constitutes nationwide construc-
tive notice to others that the trademark is owned by the party;46
(2) ability to bring infringement suits in federal court to seek at-
torneys' fees, damages, and import restriction remedies;" (3)
prima facie "incontestability," at which point the exclusive right to
use the mark is conclusively established; and (4) valuable docu-
49
mentation for obtaining or retaining Internet domain names.
Trademark laws provide owners judicial remedies to prevent
others from using confusingly similar marks and from stripping
off the identifying source and replacing it with different marks.
Trademarks provide protection for an unlimited length of time."
Common methods for losing trademark rights include: (1) stopping
use of the trademark, (2) allowing the trademark to become ge-
neric, (3) failing to prosecute infringements, (4) improper licensing
of the rights, (5) improper assignment of the rights, (6) and mak-
ing a significant change in the quality or character of the goods or
services."

46. See 15 U.S.C.S. § 1072 (2004).

47. See 15 U.S.C.S. § 1121 (2004).
48. See 15 U.S.C.S. § 1065 (2004).
49. ANAWALT & POWERS, supra note 17.
50. The duration of a federal trademark registration is 10 years, with 10-year renewal
terms. However, between the fifth and sixth year after the date of initial registration, the
registrant must file an affidavit setting forth certain information to keep the registration
alive. If no affidavit is filed, the registration is canceled. See 15 U.S.C.S. § 1058 (2004).
51. See. e.g., Major League Baseball Properties, Inc. v. Sed Non Olet Denarius, Ltd.,
817 F. Supp. 1103 (S.D.N.Y. 1993). (A trademark is abandoned when its use is discontinued
with an intent not to resume its use.); Dawn Donut Co., Inc. v. Hart's Food Stores, Inc., 267
F.2d 358 (2d Cir. 1959). (Trademark rights can also be lost through improper licensing or
assignment.); Kellogg Co. v. National Biscuit Co., 305 U.S. 111 (1938), Bayer Co. v. United
Drug Co., 272 F.505 (S.D.N.Y. 1921). (Trademark rights may also be lost if they become
generic in use.)
Spring 2004 Managing Intellectual Property Rights 249

D. Trade Secrets and Confidential Information

A trade secret is any information that can be used in the opera-
tion of a business or other enterprise and that is sufficiently valu-
able and secret to afford an actual or potential economic advan-
tage over others. Trade Secrets have protected some of the most
commercially successful inventions. A trade secret or confidential
information has an indefinite life if it can be kept secret and confi-
dential.53 A court decides whether a piece of information qualifies
for trade secret protection by examining a variety of factors, most
of which deal with how well-known the information is to the gen-
eral public and what steps were taken to protect its disclosure.
Trade secrets maintain ethical standards of business and fair
competition, and avoid the dissemination of useful information
without the fear of losing competitive advantage. Trade secrets do
not involve a lengthy or expensive registration process, and last
for as long as the secrets last unlike most other intellectual prop-
erty, which have a defined life span. In essence, trade secrets pro-
tect reasonable expectations of secrecy with vigilance."

III. INTELLECTUAL PROPERTY RIGHTS AS A PRIMARY TOOL OF

ECONOMIC POLICY

Intellectual property rights are primarily a tool of economic pol-

icy, and their objectives, scope and procedures have rightly at-
tracted a wide range of economic analysis over the past quarter-
century. In fact, the intellectual property system is a crucial part
of a country's economic infrastructure. The system enhances,
strengthens, and advances technology in a sustained manner
while it prioritizes and allocates financial resources and fosters
the movement of knowledge across borders.56
Intellectual property, as it concerns human capital and creativ-
ity, has become the critical intangible that drives the development

52. § 39 Restatement of the Law Third, Unfair Competition, was issued by the Ameri-
can Law Institute in January, 1995.
53. AMERICAN INTELLECTUAL PROPERTY LAW ASS'N, supra note 26.
54. ANAWALT & POWERS, supra note 17 at 1-9.
55. RUTH TOWSE, ET. AL., THE ECONOMICS OF INTELLECTUAL PROPERTY: 93 ARTICLES,
DATING FROM 1934 TO 1999 (W.R. Cornish, ed., University of Cambridge, UK) (2002).
56. RONALD C. WANGLIN, A PRIMER ON INTELLECTUAL PROPERTY INSURANCE, (Bolton &
Co. 2004), citing FRED WARSHOFSKY, PATENT WARS: THE BATTLE TO OWN THE WORLD'S
TECHNOLOGY (John Wiley & Sons, 1994).
250 Duquesne Business Law Journal Vol. 6

of ingenuity.57 For businesses, intellectual property rights serve as

"market differentiators" that increase the overall value of a prod-
uct or service.5 8 For example, 35 U.S.C. § 154(a) grants a patent
holder an exclusive right to exclude others from making, using,
offering or selling the patented invention. 9 Where a patented fea-
ture is a "market differentiator," the patent owner in essence has
captured the significance of the product, quantifying the value,
and exploiting its value in the marketplace." This offers the pat-
ent holder a significant advantage on economic capture, allowing
for better market utilization.6 1 As a powerful engine for economic
growth, intellectual property rights intimately connected with the
innovation process providing for an incentive to develop technol-
ogy ad infinitum."
Intellectual property litigation results in tremendous costs to
both the parties involved and society as a whole.63 In infringement
suits, preserving intellectual property rights exhibits a significant
financial risk to companies. Economics performs a key function in
the decision to preserve and protect intellectual property. Com-
panies must evaluate the potential value of their intellectual
property rights as against value and the costs of securing, enforc-
ing, and maintaining that right6.

A. Value of a Company's Intellectual PropertyRights

A company's value depends on a relationship between many dif-

fering needs and resources. The value to one company may be of
no value to another. The value of information is derived from its

57. GARY M. HOFFMAN, TURNING YOUR INTELLECTUAL PROPERTY ASSETS INTO CASH 2
(The Computer & Internet Lawyer, Vol. 20, Issue 10) (2003).
58. JOBY A. HUGHES & KATE L. BIRENBAUM, INSURING INTELLECTUAL PROPERTY RISKS:
CREATIVE SOLUTIONS ON THE CUTTING EDGE (Practicing Law Institute, 1999).
59. A valid patent confers upon its owner the right to exclude others from making,
using, or selling the patented invention. 35 U.S.C.S. §§ 154, 173 (2004). This exclusionary
right, as opposed to an affirmative right to practice the invention is a subtle but very im-
portant distinction in analyzing the perils associated with intellectual property. Id.
60. HUGHES & BIRENBAUM, supra note 58.
61. See id.
62. GIANCARLO MOSCHINI, PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS,
working paper 01-WP 275 (Iowa St. Univ., 2001).
63. From 1990 to 2002, the top 20 most significant awards or settlements of suits aris-
ing from intellectual copyright, trademark, and trade secret protection totaled in excess of $
2 billion. In 2003, patent damage awards were in excess of $1.5 billion. Available at
http://www.fti-ipmatters.com/resChartStat.htm (March 4, 2004).
64. LAURENCE R. HEFTER & ROBERT D. LITOWITZ, U.S. DEP'T OF STATE, PROTECTING
INTELLECTUAL PROPERTY 1 (2004).
Spring 2004 Managing Intellectual Property Rights

utility and scarcity. 5 There are certain obvious factors that con-
tribute to the potential value of the intellectual property, includ-
ing the potential value of exclusive or other rights, assignments,
or licenses, cross-licenses, enforcement against infringers, and as
collateral for securing financing." Properly valuing intellectual
property assets requires an assessment of the pace at which the
market values and devalues the assets, the cost of developing sub-
stitute intellectual property to fulfill market needs, royalties paid
for similar assets, the market recognition of the asset, and the cost
of marketing that asset. Intellectual property protection is a
multi-dimensional problem, with legal, financial, and technologi-
68
cal aspects that companies must be responsive to review. Maxi-
mizing the results of an intellectual property examination will ne-
cessitate determination of the most constructive approach to take
in order to capitalize on a company's intellectual property assets. 9

B. The Awareness of Intellectual Property Benefits

Most companies have an agenda of maximizing available re-

sources to obtain the greatest value for each dollar spent in hope
to build and maintain a successful and prosperous business. 0 One
dynamic benefit of intellectual property rights is that possession of
such rights facilitates the creation or improvement of innovation
because third parties are not able to misappropriate the innova-
tion without legal consequence. This enables the owner to reap an
economic advantage over its competition.7 Properly protected in-
tellectual property can allow a company to be the sole provider of a
particular product or service, and can prevent competitors from
copying the company's achievements. A competitive advantage
typically translates to market share, increased profitability and an
increased business valuation. In addition, economic strength,
value, and viability of a business depends on a variety of factors,
including the advantages and disadvantages over the competition,

65. BEA, supranote 3.

66. HEFTER & LITOWITZ, supranote 64.
67. ROUSE, supra note 14.
68. THOMAS R. FOWLER, THE IMPACT OF TECHNOLOGY ON INTELLECTUAL PROPERTY
RIGHTS 40 (The Technology Review, 2001).
69. MARY J. HILDERBRAND, ET AL., KEY STRATEGIES FOR SUCCESSFUL INTELLECTUAL
PROPERTY MANAGEMENT § 3 (Metropolitan Corporate Counsel, 2003).
70. Intell. Prop. L. Bus. Law. § 17.3.1.
71. LANDES & POSNER, supra note 1.
252 Duquesne Business Law Journal Vol. 6

efficiency of exploiting intellectual property into the market, and

the attentiveness of assets for capitalization.2
The company may also have intellectual property that does not
provide a significant competitive advantage, but still increases the
value of the company's business. If the company has invested lim-
ited resources in developing intellectual property, it makes sense
to protect all of the fruits of that labor, even if the ideas and prod-
ucts never make it to the market via the company's business. By
developing a portfolio of intellectual property, the company posi-
tions itself for licensing, sale, use, or non-use of intellectual prop-
erty rights and simultaneously builds additional assets for the
business. Patents, trade secrets or know-how that the company
owns, but cannot fully exploit may be a significant portion of the
total value of the company's business. "
A company's failure to maximize the value of its intellectual
property is rarely intentional, but rather occurs when companies
become less attentive to the ownership, protection, and economic
opportunities of its intellectual property.74 Every company should
understand the opportunities intellectual property provides if
properly harnessed, and they must be made aware of the dangers
that intellectual property presents if ignored.

C. Ignoringand Neglecting the Risks Associated with Owning

IntellectualProperty

Intellectual property rights procure valuable opportunities for a

company by providing a competitive advantage while increasing
the value of the company's business. In addition, ignorance or ne-
glect of intellectual property rights can present inherent dangers
to the vitality of the company's enterprise by failing to take full
advantage of its assets." In addition, competitors may inadver-
tently harvest unearned and uncompensated fruits of the labor,
and in some circumstances terminate any further proposed in-
vestment.76
The most common danger of ignoring intellectual property is the
loss of business opportunities, because businesses carelessly pass

72. EDWARD J. HOWARD, MAXIMIZING THE VALUE OF YOUR INTELLECTUAL PROPERTY

(TechNews, Vol. 7, Issue 1) (2003).
73. Intell. Prop. L. Bus. Law. § 17.3.1.
74. Intell. Prop. L. Bus. Law. § 17.3.1.
75. Intell. Prop. L. Bus. Law. § 17.3.2.
76. MARY J. HILDERBRAND & JACQUELINE KLOSEK, THE INTELLECTUAL PROPERTY DUE
DILIGENCE: A CRITICAL COMPONENT OF RISK MANAGEMENT (Goodwin Procter LLP, 2003).
Spring 2004 Managing Intellectual Property Rights 253

up opportunities without attentive review as to whether those op-

portunities are worth pursuing." Unfortunately, companies that
neglect their own intellectual property will in return neglect the
intellectual property of third parties, and liability for inadequately
considering the intellectual property rights of other should be
great concern.78 Infringing the intellectual property rights of oth-
ers may result in a financial dilemma. A company may have to
waste capital on products which must be pulled from the market,
while accumulating exorbitant legal costs which could have been
avoided and loss of market share. v9 The penalties for infringement
can be severe, and ignorance of the law is never a valid defense. A
company must avoid infringement at all costs and find a prag-
matic approach to operate within safe practices.
A business that ignores or neglects intellectual property, both
benefits and risks, creates adverse consequence resulting in a
plethora of problems that are often expensive, embarrassing,
avoidable, or just plain off target. Often times, a company may
neglect or ignore intellectual property as it remains hidden and
untapped potential, which may only come to light by virtue of a
sale, public offering, or other business venture." It is far easier,
and less costly, to take a assertive role by avoiding intellectual
property risk issues rather than reacting to the issues at they
arise."'
When evaluating risk exposure, a businesses perils exist in
terms of legal expenses and value lost. When an intellectual prop-
erty right owner enforces their rights, the cost of the legal ex-
penses create exposure risks costing a company a great deal of
money. More importantly, perils exist with issue of ownership.
Good title of a company's intellectual property is essential to
maximizing value because title issues expose risks that deplete or
eradicate property value. 2

77. Intell. Prop. L. Bus. Law. § 17.3.2.

78. LEwIS LEE & J. SCOTT DAVIDSON, MANAGING INTELLECTUAL PROPERTY RIGHTS 65
(John Wiley & Sons, 1993).
79. Intell. Prop. L. Bus. Law. § 17.3.2.
80. DIANE DALEY, INTELLECTUAL PROPERTY AUDITS, (The Law Brieflet, Vol. 1, Issue 1)
2001).
81. Intell. Prop. L. Bus. Law. § 17.3.2.
82. HILDERBRAND & KLOSEKsupra note 76.
254 Duquesne Business Law Journal Vol. 6

D. Monitoring and Identifying Existing and New Intellectual

Property
A company's awareness of intellectual property generates many
business opportunities, and in return the company can avoid ex-
pensive problems. Implementing an intellectual property protec-
tion program requires identifying and protecting those intellectual
property rights that the company already possesses, including
patents, trademarks, copyrights, trade secrets and trade dress.83
In identifying a company's intellectual property, each innovation
should be dissected, matching each to the appropriate protection,
as granted by law.
Logically, it is necessary and desirable for a business to protect
every particular piece of intellectual property."' Economically, a
company cannot obtain protection for everything. After matching
products and services with the appropriate intellectual property
protection, a company can perform a cost-benefit analysis to de-
termine whether securing and maintaining intellectual property
protection for each of the identified pieces of intellectual property
is warranted. 5
In identifying intellectual property, a company characterizes
what it is, whether and how it is protected, and whether third par-
ties have rights. Companies often fail to exhaust this screening
procedure and overlook the real potential of intellectual assets.
Nevertheless, once all existing intellectual property has been iden-
tified and appropriately protected, capturing new intellectual
property rights developed by the company warrants just as much
supervision and control. It is a review of corporate standards and
procedures for the documentation and protection of intellectual
property assets. 8

E. IntellectualPropertyAwareness Resulting from Company

Policiesand Procedures
Intellectual property awareness, implemented through company
policies, promotes thorough security in a company's intellectual
property." An efficient way to avoid the loss of valuable intellec-

83. Intell. Prop. L. Bus. Law. § 17.4.1.

84. Intell. Prop. L. Bus. Law. § 17.4.1.
85. Intell. Prop. L. Bus. Law. § 17.4.1.
86. Intell. Prop. L. Bus. Law. § 17.4.2.
87. ANDY GIBBS & BOB DEMATTEIS, SHAREHOLDERS HOLD CEO's RESPONSIBLE FOR
INTELLECTUAL PROPERTY VALUE (John Wiley & Sons, 2002).
Spring 2004 Managing Intellectual Property Rights 255

tual property rights is through employee education. A company

should brief an employee about its policies, procedures and prac-
tices in the field of intellectual property.88 The information dis-
seminated to employees should include an explanation of the im-
portance of intellectual property to the company's business and a
description of the measures the company is taking to protect its
intellectual property. 89 A team approach to reviewing and evaluat-
ing an intellectual property portfolio provides enhanced security,
as intellectual property assets will properly reflect the scope and
focus of business ventures. ° Policing and protecting intellectual
property rights serve as strong management strategies. In addi-
tion, businesses realize the importance of a more aggressive strat-
egy by utilizing the legal system to enforce their intellectual prop-
erty rights, therefore shielding and cultivating company assets.9 1
Consistently monitoring third party's intellectual property can
perform a vital role in avoiding infringement. Business competi-
tors are most likely to have the intellectual property of great in-
terest. If a company is aware that an intellectual property is pro-
tected, the business can take preventive measures to avoid in-
fringement while determining the direction and strategy of the
competition.9 2 Companies should monitor potential infringements
by others and enforce their intellectual property rights through
stringent devices, such as cease and desist letters or litigation.
Otherwise, they face the risk that their intellectual property
93
rights will gradually weaken from misuse by a competitor.

IV. THE IMPORTANCE OF INTELLECTUAL PROPERTY RIGHTS AND

DUE DILIGENCE

Before a company enforces its intellectual property rights, it is

crucial that the company understand the nature of the suit, and
the certain expectations that exist, because intellectual property
suits are notoriously long and expensive. Seventy-six percent of

88. GIANNA JULIAN-ARNOLD & JON L. ROBERTS, EMPLOYMENT AND INTELLECTUAL

PROPERTY ISSUES: A FIVE PART SERIES: PART THREE, (Roberts Abokhair & Mardulla, LLC
Newsletter, Vol. 2, Issue 9) (1998).
89. Intell. Prop. L. Bus. Law. § 17.4.2.
90. HOwARD, supra note 72.
91. HUGHES & BIRENBAUM, supra note 58.
92. Intell. Prop. L. Bus. Law. § 17.4.2.
93. HILDERBRAND, ET AL., supra note 76.
256 Duquesne Business Law Journal Vol. 6

patent suits settle,94 but not before each side incurs more than $1
million95 in direct legal fees and indirect expenses." Even the
most minute infringement cases can be quite costly. It is crucial
that the company be made aware of the severity of infringement
cases, and only proceed with attentiveness.
Companies often stumble into litigation dilemmas because intel-
lectual property due diligence was not performed in the course of
acquiring and protecting intellectual property rights." Intellec-
tual property due diligence, includes a thoughtful and pragmatic
investigation into what a company owns, what it should own and
what known competitors own. It is one of the more reliable ways
to reduce the risk of being ensnared in third party disputes, espe-
cially in areas with lots of uncharted territory."8 Intellectual prop-
erty due diligence is necessary to avoid costly mistakes and prop-
erly determine the value of business transactions involving intel-
lectual property rights.
By executing intellectual property due diligence, a company
seeks to obtain information to establish rights and ownership, and
if any restrictions subsist. An intellectual property audit helps in
determining financial decisions toward investment. These audits
are about assessing and managing risk, remedying problems and
moving towards implementing best practices.' °° If due diligence is
properly conducted, it will likely cost capital. Nevertheless, the
consequence of not implementing or performing a sound due dili-
gence plan becomes much more expensive. The cost proper due
diligence is likely to pale in contrast to the costs of litigation."'
Conducting and administering intellectual property due dili-
gence requires identification of the proper persons, including at-

94. KIMBERLY A. MOORE, JUDGES, JURIES, AND PATENT CASES - AN EMPIRICAL PEEK
INSIDE THE BLACK Box, 99 Mich. L. Rev. (2001).
95. The legal fees for the average litigant, who usually settles after discovery, are about
$1 million. The figure of $1 million derives from the American Intellectual Property Law
Association Report of Economic Survey 1999, which found a median amount for litigating
through discovery of $800K
96. VERMONT SAMPSON, THE ECONOMICS OF PATENT LITIGATION, PART 1, as cited in
BRUCE BERMAN, FROM IDEAS TO ASSETS: INVESTING WISELY IN INTELLECTUAL PROPERTY
(John Wiley & Sons, 2002).
97. Intell. Prop. L. Bus. Law. § 17.4.3.
98. BACAL, supra note 4.
99. MICHAEL J. GALLAGHER, I.P. INSURANCE OvERVIEW, The Intellectual Property
Update, Vol. 2, Issue 4 (2002).
100. BRAD LIMPERT & ALI SAMIIAN, CONDUCTING AN INTELLECTUAL PROPERTY AUDIT
AND IP DUE DILIGENCE (Intellectual Property Summit, 2002).
101. GALE R. PETERSON, PATENTS, COPYRIGHTS, TRADEMARKS AND LITERARY PROPERTY
COURSE HANDBOOK SERIES (Practising Law Institute, 2003-04).
Spring 2004 Managing Intellectual Property Rights 257

torneys and non-attorneys, whom provide, obtain, and maintain

the information in a collaborative manner to execute the goals of
due diligence. 01 2 It enables business to examine all facets of their
enterprise including ownership, valuation, and the right to exploit
intellectual property. A proper audit involves the examining not
only the financial information of a company but also assessing the
company's key assets. By determining the status of intellectual
property rights, a company may use the audit as a necessary pre-
cursor to establishing reliable mechanisms to identify potential
intellectual property, and any possible defects affecting the rights
of the property so that remedial steps may be taken to perfect the
rights.' 3
Proper due diligence protocol facilitates accomplishment of cer-
tain goals. Confirming a company's ownership and chain of title,
through valid registrations, records and contracts, play as an in-
valuable tool to exploit and protect intellectual property assets.
Many companies hang onto intellectual property assets that have
little or no continuing value, even though there is a cost in main-
taining many such assets.0 4 Due diligence affords the opportunity
to realize frozen assets, and dispense or exploit them as decided.
Most importantly, regular diligence puts the company in a better
position to make better decisions, including a better grasp of a
cost-benefit analysis.' A company should conduct intellectual
property due diligence anytime an idea is contemplated and espe-
cially when an acquisition, merger, or substantial investment is
considered.
Preparing for intellectual property due diligence requires sub-
stantial advance organization and planning in the event of a sig-
nificant corporate change, such as a merger, acquisition, or signifi-
cant stock purchase, thus creating an impact on the ownership of
intellectual property. 'o Normally, a potential purchaser may con-
duct an intellectual property due diligence strategy to guarantee
that the company or company asset has proper title and value
which the purchaser can exploit. A company can call for internal
due diligence to ensure that they are discharging their duty of

102. WILLIAM A. TANENBAUM, INTELLECTUAL PROPERTY DUE DILIGENCE 73 (Intellectual

Property Legal Opinions, Insight Press 1997).
103. DALEY, supra note 80.
104. BACAL, supra note 4.
105. See id.
106. LISA M. BROWNLEE, INTELLECTUAL PROPERTY DUE DILIGENCE IN CORPORATE
TRANSACTIONS (IP Due Diligence in Corp. Transactions, 2003).
258 Duquesne Business Law Journal Vol. 6

care to the shareholders, or in preparation of merger discussions.

Proper due diligence creates steps for a prospective purchaser 10 or
completed. 7
seller in evaluating whether a transaction should be
A company must stress the importance of implementing sound
08
due diligence in any investment, merger, or acquisition decision.
Decisions can no longer be made based solely upon a good business
plan.09 For mergers and acquisitions, the process of due diligence
involves detailed analyses of the business or business assets being
acquired." While a target company may have a patent portfolio,
trademarks, trade secrets, copyright protected works, or even un-
protected commodities, the evaluation of the business' intellectual
property plays a vital role in giving value to the business. In addi-
tion, a company may identify weaknesses or potential liabilities.
Conducting due diligence may involve a company identifying and
locating assets of the target, ascertaining the nature and scope of
the target's claimed rights, evaluating the validity of the target's
rights, evaluating potential infringement claims, and analyzing
any third party rights. 1" ' Nevertheless, the nature and scope of
intellectual property due diligence varies greatly depending on a
company's motives arriving from particular transactions or proce-
dures.
Intellectual property due diligence activities can be quite exten-
sive. It is critical to tailor due diligence for each specific situation
- this is necessary to ensure that due diligence is an efficient,
value-added activity."' Due diligence is much more than merely
gathering and listing information. The key to success is being
able to quickly determine which inquiries are likely to bear fruit,
which problems will have a real impact on the valuation or opera-
tion of the target, and how to craft reasonable solutions to the
problems that are identified. Moreover, a business often overlooks
inquiry."1 3
contract arrangements in the company's due diligence
It is essential for the company to properly set out a contractual
relationship between itself and other to further protect and exploit
the company's intellectual property rights.

107. BRUCE BERMAN, FROM IDEAS TO ASSETS: INVESTING WISELY IN INTELLECTUAL

PROPERTY 375 (John Wiley & Sons, 2002).
108. GALLAGHER, supra note 99.
109. GALLAGHER, supra note 99.
110. TANENBAUM, supra note 102 at 68-69.
111. HILDERBRAND & KLOSEKsupra note 76.
112. LIMPERT & SAMIIAN, supra note 100.
113. LIMPERT & SAMIIAN, supra note 100.
 Spring 2004 Managing Intellectual Property Rights 259
V. EXPLOITING INTELLECTUAL PROPERTY RIGHTS FOR PROFITS
Intellectual property is an asset. Therefore it can be bought,
sold, licensed, exchanged, or gratuitously given away like other
forms of property. 114 Exploiting the intellectual property rights
owned by the company may present the most profitable and stra-
tegic techniques of proficient management. The owner of intellec-
tual property rights has the right to prevent the unauthorized use
or sale of the property. A company should examine contracts, not
only to look at licenses and assignments of intellectual property,
but also employee agreements which may require employees to
turn over intellectual property and not to compete with the com-
pany after termination of employment." 5

A. Agreements ControllingIntellectual PropertyRisks Rewards

A company that recognizes intellectual property rights as valu-
able assets must make certain it owns these rights generated
through business conduct. Creating employee contracts obligates
the employee to keep business' proprietary information confiden-
tial, and to disclose to the business all creative ideas made during
employment related to the interests of the company." 6
Some companies fail to tell their employees about intellectual
property policy. Even worse, some do not establish contractual
relationships with employees over the ownership of created and
developed innovations."' If these covenants are not established,
employees frequently assert ownership of the ideas over company
ownership." 8 The company must establish and explain its intel-
lectual property policies to its employees. Such policies will typi-
cally relate to the disclosure of ideas to others outside the com-
pany, the use of IP owned by others, and the ownership of IP de-
veloped by company employees. " '

114. LAURENCE R. HEFTER & ROBERT D. LITOWITZ, U.S. DEP'T OF STATE, PROTECTING
INTELLECTUAL PROPERTY 1 (2004).
115. LESLIE LOTT, TAKING STOCK OF AN INTELLECTUAL PROPERTY INVENTORY: HOW TO
CONDUCT AN INTELLECTUAL PROPERTY AUDIT (Lott & Friedland, P.A., 1998).
116. STEVEN J. HULTQUIST, INTELLECTUAL PROPERTY TECHNOLOGY LAW, BUSINESS
GUIDE FOR ESTABLISHING AN INTERNAL INTELLECTUAL PROPERTY ADMINISTRATION
FUNCTION, Intellectual Property Technology Law Notes, Vol. 2, Issue 2 (2000).
117. ROUSE, supra at note 14.
118. See id.
119. ANDREW BECKERMAN-RODAU, THE CHOICE BETWEEN PATENT PROTECTION AND
TRADE SECRET PROTECTION: A LEGAL AND BUSINESS DECISION, Suffolk University Law
School, 84 J.P.T.O.S. 371 (2002).
260 Duquesne Business Law Journal Vol. 6

1. NondisclosureAgreements

A nondisclosure agreement is a contract in which the parties

promise to protect the confidentiality of secret information or
2 ° In
company know-how that is disclosed during employment.
addition, this agreement may be made between two parties during
a business transaction. These agreements can be mutual agree-
ments, where both parties are obligated to maintain secrecy (i.e.
business negotiations), or they can be unilateral agreements,
where only the receiving party becomes obligated to maintain se-
crecy (i.e. employee contract).'' The use of nondisclosure agree-
ments has become almost ubiquitous in business, particularly for
high-tech industries. A nondisclosure agreement can be used to
protect any type of information that is not generally known. The
creation of a nondisclosure agreement is really the creation of a
confidential relationship.'

2. Noncompete Agreements

Noncompete agreements protect companies from losing valuable

trade secrets and employees. The agreements act as a written
promise by an employee not to compete with the employer, or take
employment with a competing business, for a specified length of
time.'23 A noncompete agreement is either a separate agreement
or clause in an employment contract, as an employee may sign a
noncompete agreement as part of the terms associated with the
employment contract. 124 A noncompete agreement applies to con-
fidential information related to the business of the employer.
If one of the company employees has access to sensitive business
information or trade secrets, a noncompete agreement will prevent
an employee from disclosing this information to competitors. If an
employee with access to trade secrets leaves, either because the
employee quit, has been fired, or works with other competitors, he
could take confidential information and use it to his personal ad-
vantage. The employee and the competitor reap the fruits of the

120. STEVEN ELIAS & RICHARD STIM, PATENT, COPYRIGHT & TRADEMARK: AN
INTELLECTUAL PROPERTY DESK REFERENCE 47 (NOLO, 5th ed., 2002).
121. RICHARD STIM & STEPHEN FISHMAN, NONDISCLOSURE AGREEMENTS: PROTECT YOU
TRADE SECRETS & MORE, 3 § 5 (NOLO 2001).
122. JERE M. WEBB, A PRACTITIONER'S GUIDE CONFIDENTIALITY AGREEMENTS, (Stoel,
Rives, Boley, Fraser and Wyse Articles), available at
http://www.estoel.com/resources/confidentialityagreementguide.pdf (March 4, 2004).
123. ELIAS & STIM, supra note 120 at 26.
124. STIM & FISHMAN, supra note 121 at 7 § 2-15.
 Spring 2004 Managing Intellectual Property Rights
company's labor. A properly drafted noncompete agreement can
keep this from happening. A noncompete agreement is difficult to
enforce. The courts frown upon enforcing such agreements be-
cause they restrain an individual's right employment. 21 5 Neverthe-
less, a properly structured agreement that imposes reasonable
time and geographic restrictions, averts the possibility of losing
confidential information.

B. Assignments
Intellectual property law provides for the transfer or sale of
rights by an instrument in writing.'26 An instrument that trans-
fers absolute rights refers to an assignment and may transfer the
entire interests associate with the given intellectual property."7
The assignment can be a transfer of all rights of exclusivity in the
property, an undivided portion, 128 or of all rights within a specified
location.29 An assignment of a patent, for example, is a transfer of
sufficient rights so that the recipient has title to the patent. The
assignee, when the rights are assigned to him or her, becomes the
owner of the rights and has the same rights that the original
owner. A company may never want to use its intellectual property
rights for a given product. Nevertheless, they may exploit the in-
tellectual property right through an assignment. A company may
transfer all rights to a third party for pecuniary value, usually
done through a lump sum. But once an assignment has been re-
corded, all rights reserved with the company are exhausted. 3 °

C. Licensing
There are only two means of conveying intellectual property
rights: assignments and licenses."' Assignments and licenses are

125. BONNY L. GEORGIA, NONCOMPETE OR NOT?, Network World (August 13, 2001).
126. For instance, in patent law, 35 U.S.C.S. § 261 (2004) states that applications for
patent, patents, or any interest therein, shall be assignable in law by an instrument in
writing. The applicant, patentee, or his assigns or legal representatives may in like manner
grant and convey an exclusive right under his application for patent, or patents, to the
whole or any specified part of the United States. Id.
127. ANAWALT & POWERS, supra note 17 at 2-31.
128. For example, a patent owner may convey a interest in the patent rights, and
retain ownership in the other interest. See, 37 C.F.R. § 3.1 (2004).
129. For example, it is common knowledge in the intellectual property industry that a
property right owner may assign rights to a certain geographic proximity in the United
States.
130. ANAWALT & POWERS, supranote 17 at 2-36.
131. ANAWALT & POWERS, supra note 17 at 2-27.
262 Duquesne Business Law Journal Vol. 6

the functional equivalent of "lease" and "sale" for the transfer of

tangible property. Typically, a business will make arrangements
to license its intellectual property rights, authorizing a third party
to use those rights in exchange for monetary consideration. Nev-
3' 2
ertheless, the owner retains the ownership of those rights.
A license is written authorization to use the intellectual prop-
erty. An inventor usually authorizes a developer to manufacture
and sell the invention in exchange for paying the inventor royal-
ties. 33
' The license grants permission to use an intellectual prop-
erty right within a defined time, context, market line, or territory.
A license may be exclusive' or non-exclusive.'3 5 The term of a li-
cense is the length of time as specified in the contract, and may be
longer or shorter than the duration of the intellectual property
protection. 3' 6 An exclusive license is "exclusive" as to a defined
scope where the licensor promises that he or she will not grant
other licenses of the same rights within the same scope or field
covered by the exclusive license."' However, the owner of rights
may grant any number of nonexclusive licenses of the same rights,
while still retaining title.'
Licensing provides a means for an owner of intellectual property
39
to exploit markets which may not otherwise have been available.
A license is generally defined as a waiver of right, granted by a
licensor to do an act which, absent the permission, the licensor
would otherwise have a right to prevent.4 4 A license is a contrac-
tual agreement that the owner will not sue the licensee for in-
fringement if the licensee exploits the claimed rights as protected,
as long as the licensee operates within the bounds of delineated by
the license agreement."'

132. See id.

133. RON IDRA & JAMES L. ROGER, PROFIT FROM INTELLECTUAL PROPERTY 45 (Sphinx
Publishing, 2003).
134. This means the licensee is the only one who may use the intellectual property
rights being granted.
135. This means the licensee may, at his discretion, disperse his granted rights to others
through separate licenses. In addition, the licensor may grant a license to multiple licen-
sees.
136. IDRA & ROGER, supra note 133.
137. J. THOMAS MCCARTHY, McCARTHY'S DESK ENCYCLOPEDIA OF INTELLECTUAL
PROPERTY, 2ND EDITION, The Bureau of National Affairs, Inc., Washington, D.C. (1996).
138. IDRA & ROGER, supranote 133.
139. MICHAEL D. FOLKERTS, BASICS OF INTELLECTUAL PROPERTY LICENSING (Biebel &
French, 1999).
140. See id.
141. MANUAL OF PATENT EXAMINING PROCEDURE, U.S. DEP'T OF COMMERCE PATENT &
TRADEMARK OFFICE 300-2 (2003).
 Spring 2004 Managing Intellectual Property Rights 263
VI. NARROWLY TAILORING INTELLECTUAL PROPERTY INSURANCE

The cost and risk of intellectual property litigation can be exor-

bitant,1 2 and continues to increase. Unfortunately, underwriters
only provide a few standard insurance policies to protect a busi-
ness' intellectual property. Nevertheless, insurers have developed
policies tailored to the needs of companies concerned about these
risks, providing a range of protection.' Intellectual property cov-
erage protects companies for copyright, trademark or patent in-
fringement claims arising out of the company's operations. It pays
the defense costs and any judgment up to the policy limits.'" A
company's needs and objectives dictate the types of intellectual
property coverage chosen. There are three basic types of policies:
defense, indemnity, and offensive policies. "5 First, a defense and
indemnity policy provides liability coverage, including damages, in
the event of an infringement suit. Secondly, a company can apply
for insurance coverage under a solitary defense policy, referred to
as "defense cost reimbursement insurance." "6 This coverage does
not indemnify damages under a contract, but just for the cost of
defense. Finally, some companies feel it is necessary to buy insur-
ance designed to reimburse the insured for legal expenses associ-
ated with pursuing an infringement party. This offensive policy,
also known as "infringement abatement insurance" or "enforce-
ment coverage," can effectively exploit the intellectual property
rights while diminishing the expensive risk of litigation costs. "7
Although this is not a consummate list of coverage, the insurance
industry allows companies to tailor their policies for effective cov-
erage and risk allocation.
Companies can grapple with different methods for protecting
their intellectual property. It is clear that insurance, as a risk
transfer, becomes a familiar strategic technique for any manage-
ment agenda. However, businesses are often unsure about what
kind of protection is available, and what type of protection they

142. In August of 2003, the Northern District Court of Illinois awarded $ 521 million in
the patent case Eolas Technologies v. Microsoft. 274 F.Supp.2d 972 (N.D. Ill.
2003).
143. STANFORD E. WARREN, JR. & KENNETH T. EMANUELSON, INTELLECTUAL PROPERTY
COVERAGE: ARE You NAKED? International Risk Management Institute (2001).
144. ROBERT FLETCHER, CURRENT AND FUTURE TRENDS IN TECHNOLOGY INSURANCE
COVERAGE LITIGATION 350 (Intellectual Property Management for Corporate Counsel,
Conference Reports 1999).
145. GALLAGHER, supra note 96.
146. WANGLIN, supra note 56.
147. See id.
264 Duquesne Business Law Journal Vol. 6

actually need. This growing realization has also led to aggressive

attempts by large corporations to utilize the legal system to pro-
tect and cultivate market share.
Intellectual property insurance is an excellent way to protect
your business from the very real possibility of intellectual property
litigation. 149 Most importantly, intellectual property insurance can
serve as the basis for including intellectual property on the bal-
150
ance sheet as an asset that can be valued at the insured value.
Intellectual property is taking its proper place as a valued asset
on company balance sheets. In fact, valuing and utilizing intellec-
tual property as an asset without protecting it can be worse for a
business than not valuing it at all. A companies' strategic ap-
proach for protecting their intellectual property should include
risk transfer and risk management. No one would question that
insurance is an important part of any asset protection plan for the
hard assets of an entity. For insurance purposes, a company must
evaluate its risk exposure in terms of legal expenses and value
lost.'"' Intellectual property insurance coverage may not make
sense for every company. However, a company's intellectual prop-
erty insurance portfolio might prove to be its most valuable asset
because it permits enforcement and exploitation of its intellectual
property rights. Often, the right level of insurance protection
52
may
between survival and mortality.
mean the difference
Once the economic risk is underwritten, the business effectively
uses insurance as a vehicle to spread the risk of enforcing or de-
fending of claims."' Insurance provides companies the necessary
tools to make prudent business decisions. A successful business
utilizes attained knowledge to transfer risks, thus generating bet-
ter decisions based on the understanding of the value of intellec-
such property.
tual property, instead of the costs of protecting

148. HUGHES & BIRENBAUM, supranote 58.

149. EDWARD F. O'CONNOR, INTELLECTUAL PROPERTY LAW AND LITIGATION 203 (Ameri-
can Bar Association 2003).
150. GALLAGHER, supra note 99.
151. HUGHES & BIRENBAUM, supra note 58.
152. WARREN & EMANUELSON, supra note 143.
153. HUGHES & BIRENBAUM, supra note 58.
154. See id.
Spring 2004 Managing Intellectual Property Rights 265
VII. CONCLUSION
The owner of intellectual property is entering a new era. The
courts, the accounting and legal professions, and the insurance
industries are more willing and able to recognize the value and
associated risks of intellectual property. The owner of intellectual
property must become increasingly savvy and more educated
about the value of his portfolio, and more educated about the best
ways to manage and transfer risk associated with that portfolio.
Armed with this knowledge, an owner of intellectual property will
approach business, marketing, licensing, negotiating and litiga-
tion decisions from a position of knowledge and power.

Joseph Richard Falcon