Legal Update - June, 2003
Understanding and Protecting Intellectual Property – Part I

Intellectual property ("IP") often ranks among the most important and valuable of all business assets. It frequently plays a crucial role in enabling companies to maintain a competitive advantage over their rivals. The licensing of valuable IP rights also can generate significant revenue. In today's fast-paced, technology and information-driven business world, there has never been a greater need for businesses to have a carefully crafted strategy for protecting their valuable IP assets.

Important rights can be forever lost or jeopardized when companies fail to proactively protect their valuable IP assets. Nevertheless, for many savvy business professionals, the subject of IP is a fog of confusing legal concepts. To help dispel some of the confusion, our June and July updates explain the basic attributes of the four principle forms of IP, as well as some appropriate measures that companies should take to protect each. In this update, we review two forms that can last forever - trademarks and trade secrets; - while in the July update, we cover two forms that have finite durations - patents and copyrights.

Trademarks

In marketing parlance, a trademark is known as a brand name. In legal parlance, a trademark is any word, name, symbol or device (or combination of any of these) used to identify and distinguish one seller's goods from those of others. A service mark identifies and distinguishes the services of a company from that of its competitors, rather than goods. Trademark rights are created by the adoption and use of a mark in commerce. Trademark or service mark selection should be handled with great care, for a company must choose a mark that does not so closely resemble that of a prior user as to create a "likelihood of confusion." Before adopting a mark, experienced legal counsel should be consulted, and a thorough trademark search should be conducted for conflicts. The advice of legal counsel should be sought early on not only to minimize the risk of adopting an infringing trademark, but also to advise on the "strength" of any proposed marks. Some marks are "weak" and best avoided, such as those that merely describe a product's function, quality or character; for example, the name SUPER TAN for a sun-tanning lotion. Such "descriptive" marks are ordinarily refused registration on the Principal Register of the U.S. Patent and Trademark Office ("PTO") for trademarks. Experienced counsel can suggest stronger, distinctive marks that will be better suited for federal registration and legal protection.

To fully protect and expand one's rights, whenever possible a company should obtain a federal registration for its trademarks and service marks used in interstate commerce. Even companies that have not yet begun using a mark may apply for federal registration so long as they have a bona fide intent to use the mark in commerce, but proof of later use will be required for registration. Federal registration on the PTO's Principal Register gives trademark owners a number of significant benefits, including:

1. the owner has the right to use the distinctive ® federal registration symbol with the registered mark;
2. the registration gives constructive notice of a company's claim of ownership that eliminates any defense of good faith by an infringer claiming that it "innocently" adopted the mark after the registration;
3. the registration provides a presumption of validity of the registered mark, the company’s ownership of the mark, and the registration, as well as the owner’s exclusive right to use the mark in commerce;
4. after five years of continuous use, the registration may become incontestable - conclusive evidence of the owner’s exclusive right to use the mark anywhere in the United States, subject only to certain, very limited defenses; and
5. the right to sue in federal court for infringement.

Trademarks are extremely valuable IP because, unlike patents and copyrights, they can last forever -- if they are properly used. Unfortunately, companies frequently do not know how to properly use trademarks and service marks. Scores of cases show how companies' own improper advertising or labeling contributed to the loss of valuable marks. In other cases, companies failed to encourage and police the public to treat their trademarks as the designation for a particular brand of product. Instead, they allowed their trademarks to "go generic" -- to become the name for a type of product or service which, under the trademark laws, is fatal. Indeed, there are many examples of once powerful marks that have been transmuted into generic terms, including Aspirin, Escalator, Cellophane, Nylon, Thermos, and Trampoline. FVLD has developed a workshop entitled The Ten Commandments of Proper Trademark and Service Mark Use to help organizations avoid this kind of disaster.

Trade Secrets

Trade secrets are protected principally under state law. For example, the Illinois Trade Secrets Act defines a trade secret as information, including technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data, or list of actual or potential customers or supplies, that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. Some examples of trade secrets include the Coca-Cola formula, compilations of customer preferences, and strategic marketing plans.

Trade secret protection, including the right to seek an injunction against actual or threatened misappropriation or to recover damages for a misappropriation, does not require any government registration. Nonetheless it is imperative that companies take certain steps if they wish not to forfeit the important protection from wrongful misappropriation that the law affords to trade secrets. For example, trade secrets should only be disclosed to key company employees on a need-to-know basis. Companies should obtain written non-disclosure agreements under which each key employee who will have access to trade secrets agrees to preserve their confidentiality and not to disclose the company’s trade secrets and confidential information. Companies should further strictly restrict access to trade secrets by, for example, pass-word protecting computer-stored trade secret or confidential information. Any trade secret information that is on paper should be kept under lock-and-key in secure file cabinets or in a safe. Another good practice is to have materials constituting trade secrets bear a clear notice restricting use and disclosure. Companies should also require written non-disclosure agreements from all suppliers, business partners and any other third-parties to whom any trade secrets or other sensitive proprietary or confidential information will or may be disclosed.

Funkhouser Vegosen Liebman & Dunn Ltd. publishes updates on legal issues and summaries of legal topics for its clients and friends solely for general informational purposes. They do not constitute legal advice, nor are they intended as a substitute for obtaining legal or other professional advice based upon specific factual circumstances or issues. We welcome comments or questions. If we can be of assistance, please call or write Glenn Rice, 312.701.6895, , Jon Vegosen, 312.701.6860, , or consult with your regular FVLD contact.

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