Intellectual property (IP) is all around us. The brands, the content, and all human-made physical and virtual objects may have protection in IP. The name of your business, products, or services venture into the realm of trademarks. All images, text, video, audio, and software implicate copyright laws. Anything that is made, used, offered for sale, or imported can be the target of someone else’s assertion of infringement of their claimed patent rights. Even the information that a company acquires during its business can be protected as a trade secret, protecting it against improper means to acquire that information.
The owners of IP often offer products or services that are covered by the IP, and they want to keep the exclusive rights in the market. To do that, they must enforce those IP rights themselves in civil court; outside of pure counterfeiting, governments do not enforce IP rights for you. The recipient of an enforcement action must defend that lawsuit with its costs, distractions, and exposure to damages and injunctions. By understanding these kinds of disputes, professionals may seek solutions to manage their risks.
Trademarks
Trademarks designate the source of goods or services, and they exist to protect the reputation of the business and avoid public confusion. Everyday life is full of trademarks, like the swoosh on Nike shoes, the golden arches of McDonalds, and the name for just about every company and their products.
Multiple companies can use the same trademark if consumers are not likely to be confused. We have seen Delta faucets, Delta airlines, and Delta dental insurance from different entities, generally without confusion. Issues arise when the avenues of commerce make confusion likely, or if the mark is so famous, like Cadillac, that it wouldn’t be fair for others to use it even for different classes of goods.
What happens when trademark rights clash? In the United States, rights mostly go to the first user in the marketplace. A trademark holder may claim that another party is confusing the public with a similar name, only for the accused to respond, “We used it first, so you are the infringer!” Asserting IP rights sometimes carries the risk that the IP asset may be destroyed by its deployment, which makes diligence before accusations essential.
Copyrights
Copyrights accrue to any creators of content and protect the permission to copy or display the materials. Once an author fixes the materials in a tangible means of expression, they have rights under US copyright law but must register the work with the Copyright Office before they can sue for its infringement.
Just because content is available online, the copyright remains held by the creator unless they have contracted otherwise. Social media sites often have terms of service that require the original posting party to have rights, then allow resharing materials that are elsewhere on the site. Commercial uses of online materials generally require negotiating with the rights holder for permission through licenses.
Patents
Patents are granted for inventions that are new, useful, and not obvious. Those inventions may be mechanical, like the better mousetrap. Many current patents are for processes and methods, often implemented using software. These process patents can be more difficult to anticipate and cover workflows or computer programs where the user may not anticipate conflict.
Patents are negative rights, allowing their owner to seek a court order that the infringer must stop using the patented invention and seek damages. You don’t need to have your own patents to be sued for patent infringement; the most vulnerable companies are often those that did not do diligence analyzing their freedom to operate. Any party that makes, uses, offers for sale, or imports something that incorporates a patented invention can be held liable, even if they were unaware of the existence of the patent. Losing a case doesn’t only incur significant damages, it can require the accused to remove the product or service from the market.
Some patent disputes arise between competitors who both seek to serve the same market. They may dispute who had the idea first or how exactly the innovation is implemented. Each may have patents they assert against the other’s products, with a potential to cross-license to keep their own distribution channels. However, some patents can be held by a non-practicing entity (NPE) who is not vulnerable to a counterclaim of infringement and thus less easily persuaded to settle without economic terms. These NPEs, sometimes called “patent trolls,” exist solely to obtain licenses or settlements. Defense strategies can be very different for an NPE claim compared to a competitor’s suit.
Trade Secrets
Trade secret protections attach to information that has value for a business because that information is kept confidential. The secret herbs and spices used by KFC and the formula for Coca-Cola are among the most famous trade secrets, but any company can hold trade secrets in, for example, its confidential customer list. Few businesses would be willing to give their competitors their detailed customer information, and trade secret law protects against unsavory tactics to steal that information. Novel manufacturing methods may be kept secret rather than the manufacturer filing patents on those methods.
Enforcing trade secret rights can help insureds retain the benefits of its research and innovation. However, trade secret law does not protect against reverse engineering or using publicly available information to recreate similar results. Everyone is free to try to make their own recipe for fried chicken or soft drinks or to create a potential customer list of likely prospects. Trade secrets only come into play where the copying party uses improper means to obtain the information, such as computer hacking, physical entry without permission, or inducing an employee to violate their employment or nondisclosure agreements.
IP Conflicts
IP conflicts happen more often than you may think. For example, 3,129 patent lawsuits were filed in the United States during 2023. 1 During that time, 2,492 cases were concluded by settlement or resolution on the merits. In addition to those lawsuits reported, many more patent conflicts can arise through cease-and-desist demands or other correspondence, and possible resolutions are entered into without the need to resort to litigation.
Where cases are resolved prior to court decision, the terms are usually kept confidential. When courts assess damages, the average US damages award in patent cases before appeal was $44 million, an imposing sum for all but the most highly capitalized entities. 2
Each side in an IP conflict faces significant legal costs to stay in the fight. Beyond the usual lawsuit costs of filing, court reporters, travel, and other expenses, the rates charged by experienced IP litigators tend to be near the top end of the billing spectrum. Disputes will often engage on multiple fronts, with separate fights over whether the IP is valid, whether it was infringed, and what value should be placed on any damages.
IP may protect the core differentiator of a company, igniting disputes even when a case generates relatively modest damages. The parties have increased motivation to fight harder if more money is at stake. Where between $10 million and $25 million is in dispute, each side to a patent case spends on average $2.9 million each to litigate through trial. 3 Trademark cases with similar stakes cost each side on average $1.7 million, copyright cases on average $1.4 million, and trade secret cases on average $2.6 million. When the amounts in dispute go higher, so do the expected costs.
The burden of paying for IP litigation can cripple a small to midsize company. Even a division of a larger organization often has its own profit and loss reporting requirements and may be looking at expensive litigation as a detriment to its bottom line. A larger competitor may be willing to outspend their target to force an unfavorable settlement or litigation outcome.
Understanding a business’s IP risk profile is essential to crafting an appropriate risk management strategy. Insurance can help level the playing field in an IP dispute, allowing resolution on the merits. Solutions may be available through specialty IP programs for risks of enforcing the insured’s rights or for defending against others’ accusations of infringement.
This article was first published on IRMI.com and is reproduced with permission.
Copyright 2024, International Risk Management Institute, Inc.
Footnotes
1 Angela Morris, Docket Navigator and IAM Litigation Report Q4 2023, IAM, February 14, 2023.
2 Patent Litigation Report 2024, Lex Machina, 2024.
3 The Report of the Economic Survey, American Intellectual Property Law Association, 2023.
