“It’s an intellectual property world,” said Robert Ryan, partner at Holland and Hart. “Almost any business that you build is going to have substantial intellectual property and the proper protection of it can be essential for having something valuable.”
Intellectual property, or IP, is everywhere. From websites, client lists and software to the recipe of the sodas a company serves in its breakroom. Businesses deal in intellectual property whether they know it or not. Fueled by technology, intellectual property is a growing field and one that’s being added to regularly. With its direct impact on businesses, knowing how to protect intellectual property and not violate the rights of others, has never been more important in today’s intellectual property world.
Nevada on the Front Lines
Intellectual property is a broad term that includes various categories of intangible assets. The bulk of those assets fall into the categories of trademarks, copyrights, patents and trade secrets. However, what qualifies as intellectual property is changing rapidly and Nevada is on the front lines of that change.
“We didn’t think we would see the creation of a new intellectual property right [such as] the ‘right of publicity’ when I was in law school,” said Mark Tratos, founding shareholder of Greenberg Traurig. The right of publicity is an intellectual property law that protects the name, voice, signature, photograph or likeness of an individual. A 2010 Nevada code, NRS 597.790, established exceptions to this right which allows for the entertainment industry to use likenesses under certain circumstances.
“We became the first state to, not only pass a right of publicity statute that exempted television and film production, but we exempted live stage performance,” Tratos explained. “This means that you can get up on stage and have a performance like ‘Legends in Concert’ or ‘American Superstars’ where talents can give a performance of one of their favorite idols from the past and that be acceptable use.” According to Tratos, Nevada was the first to craft that kind of exception because of the state’s entertainment business and its reliance on these types of performances.
“If you go down, right now, to the Strip you can get a hologram of Whitney Houston being performed nightly at Harrah’s,” Tratos added. “How does all of that come about? It’s both the technology and having control over the right of publicity that gives you that opportunity.”
The Offense Defense of IP
Intellectual property requires a combination offensive and defensive strategy for businesses.
“There are really two sides of it,” said Michael McCue, partner at Lewis Roca. “The offensive side is identifying, protecting and enforcing your own intellectual property to ensure that others don’t use it without permission. Then there is the defensive side to make sure that whatever intellectual property you use doesn’t violate or infringe the rights of third parties. Both are very important for all businesses to consider.”
Failing to protect intellectual property can lead to significant long-term financial losses for businesses, especially when considering an exit strategy.
“For example, if you have a new type of software application that you developed for a phone, if you haven’t patented it, what’s to stop anyone else from just copying it?” asked Ryan. “You might have copyrights that will help, but copyrights generally don’t protect function and only protect expression. Somebody can take your idea and the function performed by your software, independently develop their own interface and away they go; you can’t stop them.”
He added, “Patents and intellectual property can be the most essential part of the business for purposes of protecting it and keeping it from being improperly ripped off and having a nice valuation down the road when you’d like to exit, sell or have it acquired.”
In addition, businesses are often not aware of the impact the misuse of intellectual property can have on their organizations. McCue, who has conducted seizures at trade shows in Las Vegas for foreign companies violating his client’s intellectual property rights, said, “It is important to know that, for some types of intellectual property, there is not only potential civil liability, but criminal liability for willful or egregious infringement of someone’s intellectual property. People can go to jail for copyright infringement.”
Even day-to-day business operations can lead to violating another’s intellectual property rights if businesses don’t take care.
“If you do things like attach an audio file to your website or put music on with your advertising and commercials, you’re infringing somebody else’s music if you haven’t secured a synchronization license,” said Tratos. “Most people who run websites don’t pay attention to the fact that the website is full of intellectual property and has to have things done to make sure that it is protected and not infringing on somebody else’s rights.”
Protecting Intellectual Property
The general rule of thumb for intellectual property is that, whoever created the intellectual property, owns it. This presents a unique challenge for business owners with employees.
“If an employee creates something for their employer, within the scope of employment then the employer owns it,” said McCue “But, if you hire a contractor, like an ad agency, to create something for you, the ad agency owns the rights in those materials. Most businesses don’t know that.”
McCue suggests a business create agreements to specifically cover these issues. “You need to have made work to hire agreements or assignment agreements when you work with vendors who create things for your business,” he said. “[This] ensures you either own the rights to what they create for you, or you have the right to use it in any way you wish to change it.”
Contractor agreements are an important addition to protect intellectual property. Ryan explained they, “can be essential so that the contractor doesn’t wind up owning the intellectual property they develop for you and you pay them for.”
In these instances, it’s not always clear who owns what and that creates problems down the line.
For example, explains Ryan, “When you pay a developer to develop software, depending on the circumstances, it is very possible that, if there’s not an assignment in writing, that developer owns the copyrights on what they develop for you, with your funds. That can create nightmarish scenarios down the road.”
However, in Nevada, there are exceptions to this rule. “Nevada is one of the few states that have specific provisions,” said Tratos. “If an employee invents or comes up with something that can be protected as a trade secret, even if they don’t have a contract with their employer, but it relates to what their employer does, then the employer, not the employee, is the owner of that particular invention or trade secret. That makes Nevada unique.”
In fact, Tratos said that standard is so unusual that, “most employers don’t even know it exists. It relates to that area of law that you have to have a registration in order to get any rights out of it. An employee may have invented a new invention and you may start using it in your business and be benefiting from it, but you won’t be able to protect it from being used by others unless you secure a patent registration yourself.”
Because there is no one size fits all, protecting intellectual property is not always a clear task for businesses. One of the main ways of protecting ownership of some types of intellectual property is through proper registrations.
“The difference between each of the intellectual property mandates are that some protections are only available if registration occurs,” said Tratos. “For example, you can have a brilliant idea for a new invention, but unless you take the time to go through the process of securing a patent on the new device or new invention, you will never be able to protect it as an invention.”
Registrations of patents have become a foundation for the gaming industry in Las Vegas. “[Patents] is an area that became fundamental to this city as we figured out ways of changing signs and creating new electronic screens,” explained Tratos. “The entire field of gaming devices and gaming machines are all subject to a lot of patent claims. It has become a very critical part [of business here], but you have to have filed the registrations.”
However, while some types of intellectual property are only protected through registrations, other types of intellectual property, such as trade secrets and copyrights, are protected automatically without necessarily requiring action.
“If a business has confidential information and uses reasonable means to protect the secrecy of that information, then that information is automatically protected,” said McCue. “There is no way to register it. It is automatically protected as long as you maintain the secrecy.”
He added, “Regarding copyrights, once you create something in a tangible form whether you write a song, a book, create a video, take a photograph or write source code, that’s automatically protected as soon as you create it. But, you can register it with the United States copyright office and registration gives you certain benefits.”
Some of those benefits include the ability to sue someone for using copyrighted work or protect property in other states.
“For example, with trademarks and brands the rights are automatic if you are the first to use a brand for certain goods and services on the market. Trademarks or brands are protected by geographic market,” said McCue. “You get rights where you use it. If you register it, you can get broader rights.”
When in Doubt, Seek Counsel
Intellectual property is a complex area of law and one that is changing rapidly.
“We are always contemplating modifications or changes to acts,” said Tratos. “Right now, we’ve been talking about modifications to the copyright act for quite some time. The copyright act has been amended about every 60-65 years and we are late for it because technology has outstripped the current statutes.”
Due to intellectual property’s changing nature and the large margin of error, business leaders are wise to seek expert counsel.
“I think the best approach for any business is to hire an intellectual property lawyer to advise them on what types of intellectual property the business has, how to protect it and also to avoid infringing the intellectual property rights of others,” said McCue. “If a business uses someone else’s brand, even if they don’t know that someone else owns it, or someone’s copyrighted work or infringes someone’s patent, they could be liable for damages and could be ordered to stop doing it.”
McCue cautioned that business might be liable for attorney fees, even if they didn’t know that somebody owned those rights. “I think that is the most common error of small businesses,” he said. “They inadvertently violate third party rights and that could result in them having to change their business name. It could be very expensive or [cause them to] stop selling a particular product.”
Businesses may also consider seeking counsel to evaluate the cost of protecting their own intellectual property.
“It’s easy for a startup to get overconsumed in expenses for protecting intellectual property,” said Ryan. “There has to be a lot of thought given to where they will and where they will not spend money.” He added that a startup may not try to protect intellectual property, even though they could because of the expense or time consumption needed to obtain that protection.
“The very first thing a company ought to do to start protecting its intellectual property is contact an expert and then sit down with them to get an idea of cost to an intellectual property audit and management plan,” Ryan said.
It’s an intellectual property world and it’s getting bigger every day. As technology advances, so does the impact that intellectual property has on businesses. From company websites to marketing campaigns, intellectual property is both an opportunity to increase company value and a slippery slope of error for the ignorant.
For businesses in Nevada, succeeding in today’s intellectual property world means knowing how to protect creativity, avoid liability and when to seek expert counsel.
