An IP Guide for the Corporate Legal Practitioner: IP Theft and the Major Threats to Your Client’s IP
Intellectual property (IP) is the lifeblood of technology companies, often comprising up to 90% of their market value. Protecting IP is not only crucial for safeguarding a company’s innovations but also for maintaining a competitive advantage in the market.
When sitting in the place of a general counsel or chief legal officer, it is your role to navigate the complex landscape of intellectual property threats, and steer your client’s IP strategy so they can maximize the value of their intangible assets. The first step in this strategic regime is understanding common threats to IP and how to approach them.
While there is a great deal of nuance within the threat landscape – with considerations for threat severity, the type of IP in question, the size and goals of the organization, to name a few – the risks your company’s IP faces can generally be seen to fall into a few overarching categories of theft: patent or trademark infringement and counterfeiting, and trade secret breaches.
This is the second installment in our series exploring the various roles a technology company’s legal team can assume, guiding their client’s IP strategy to help optimize the value of their intangible assets. In this article, we’ll shed light on the major threats that can compromise your client’s valuable IP assets and begin to talk about how to address those threats.
Intellectual Property Theft: an Overview
IP theft is a pervasive and ever-evolving threat that can take various forms and originate from multiple sources. With the increasing value of intangible assets and advancements in technology, the scope of IP theft has expanded exponentially, making it challenging to prevent entirely. However, implementing strong IP protections can provide you with solid legal options if your client’s valuable IP is compromised.
Historically, IP theft was often associated with disgruntled or unscrupulous employees or partners who had physical access to proprietary information. In today’s digital age, hostile entities such as market competitors, hackers, or foreign actors seeking an advantage in the global marketplace pose a constant concern for innovation companies. These entities may attempt to infiltrate your systems, steal sensitive information, or gain unauthorized access to your intellectual property.
Patent & Trademark Infringement
In addition to the broader threat of IP theft, specific forms of IP infringement and counterfeiting pose significant risks to technology companies. Patent and trademark infringement, as well as counterfeiting, can have severe negative outcomes that impact a company’s competitive position and financial well-being.
- Patent infringement occurs when competitors attempt to replicate or modify patented technology without the permission of the patent owner, diluting the market potential and value of the original invention. This unauthorized use can result in financial losses for the patent holder as it hampers their ability to capitalize on their innovation.
- Trademark infringement involves the unauthorized use of a brand or a similar trademark that causes confusion among consumers. This can lead to brand dilution, loss of market share, and damage to the company’s reputation. Counterfeiters, in particular, pose a significant threat in the form of fake products under familiar logos that infringe on established trademarks. Counterfeit goods not only erode consumer trust but also result in direct financial losses for the legitimate trademark owner.
Attenuating the risks of infringement and counterfeiting requires a proactive approach and comprehensive IP protection strategies. Key steps should include IP landscape and competitive analyses; regular assessment of the patents and trademarks protecting both new and existing innovations and brands; a regime of enforcement when infringement or counterfeiting are discovered; a robust curriculum of IP education within the company to educate stakeholders and foster a culture of IP awareness; and a close relationship with IP legal experts who specialize in patent and trademark law.
Trade Secret Breaches
Trade secrets play a crucial role in the functioning of a company, and can include methods, procedures, designs, internal software, recipes, or formulations that are essential to a company’s operations or the production of its products or services. While not patentable, they hold inherent monetary value as long as their details or even their mere existence remains confidential outside of their necessary applications within the company.
One of the most significant risks to a company’s trade secrets arises from individuals who work closely with them. Employees, contractors, and vendors inevitably gain access to trade secrets as part of their work responsibilities. Therefore, the agreements governing these relationships must explicitly address the handling of trade secrets during their engagement and beyond.
As acting general counsel or CLO, you play a vital role in drafting, updating, and maintaining the contracts that define the company’s various relationships. These must pay particular attention to the language related to the protection of trade secrets. Non-disclosure agreements (NDAs) and non-compete agreements should be included to ensure there are no compromises to intellectual property and your client maintains perpetual protection of trade secrets even after the termination of the engagement. These contractual measures also create a legal framework of protection that extends beyond the lifespan of patents or trademarks.
Depending on the sensitivity of trade secrets and their necessity in regular business operations, it is prudent to restrict access to only those individuals whose job functions require it. Various methods can be employed to guarantee limited access and combat the theft of trade secrets.
Collaboration between your legal team and the company’s chief security officer and their team is essential. They can identify trade secret assets, assess their levels of sensitivity and vulnerability, and develop protocols for their storage, access, and protection, both in terms of physical plant security as well as the security of digital assets.
IP Theft: Outcomes & Remedies
Copyright, patent, trademark, and trade secret theft can result in competitors quickly replicating your client’s product or service, eroding their market dominance and your competitive advantage. To counter this threat, it is crucial to develop a proactive IP strategy that includes timely patent and trademark filings, monitoring competitors’ activities, and engaging in rigorous IP enforcement to deter potential infringers.
Your client’s IP extends beyond product development and market share. It holds the potential for additional revenue streams through licensing agreements, and it increases the value of the company in financing, mergers, and acquisitions. Failure to adequately protect IP assets can lead to lower valuations during these critical transactions. Moreover, the process of engaging with potential lenders, buyers, investors, or partners exposes the company to increased vulnerability. Implementing appropriate legal protections, such as non-disclosure agreements, confidentiality clauses, and contractual language defining ownership rights, can mitigate these risks and preserve the client’s leverage during negotiations.
To protect your client’s IP from theft, a comprehensive IP strategy is essential. This strategy needs to be aligned with your business goals and should include implementing robust security measures, conducting regular IP audits, monitoring the market for potential infringement, and taking legal action when necessary. By proactively safeguarding your client’s IP assets, you can minimize the risks posed by IP theft and ensure the long-term success and profitability of their technology company.
Intellectual property threats are constantly posing a risk to businesses. Protecting your client’s IP is not a one-time effort but an ongoing commitment. Stay vigilant, adapt to emerging threats, and collaborate closely with your client’s leadership team to develop a robust IP strategy that aligns with their business goals. With a proactive and comprehensive approach, you can successfully navigate the complex IP landscape and secure your client’s future in the ever-evolving technology industry.
This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.