Small business must protect intellectual property


In our present knowledge-based economy, small business owners have a tradition of creating innovative products and good jobs and opening new sectors of the American marketplace. “Invent or die” is the motto under which small, innovative, high-tech businesses operate. The most precious asset for such business owners is the newly minted intellectual property that launched their business.

Many owners, however, might lack the knowledge and expertise necessary to prevent the theft of their innovation. Or else, the owners ignore it as they see images of expensive lawyers and distraction of their precious time which competes with raising the needed capital for their new business.

For small innovative companies, the ability to grow and prosper requires more than luck. It hinges upon securing IP protection for their innovation.

Copyright protection does not require a lawyer. Likewise, domestic trademark, trade dress and domain name protections can be achieved relatively cheaply without the aid of a lawyer. To obtain patent protection, however, requires a patent agent or attorney and can be costly.

The U.S. government encourages domestic small business entities to seek patents by offering lower fees for filing and prosecution in the U.S. Patent &Trademark Office. In addition, the USPTO enables them to explore their technological potential and provides incentives to profit from its commercialization.

“Patent or perish” should be the motto of small business entities that are engaged, especially, in high-tech. This does not mean that every idea that comes out of the business needs to be patented. Start with an internal discussion of what ideas have been protected, if the new idea is protectable, and if it is important to your core business.

IP protection and its strategy should be part of the ongoing business plan. Such strategy is vital to securing the financing and investments needed to build and scale the business. Investors view the IP portfolio as an asset and distinguish your business from the others who lack it.

Patents, when properly shepherded through the system, could be the most prized possession of any business. Downstream, they can be used to prevent a competitor from making, using or selling your patented technology without your permission. They can be used to generate income if your business opts to license. Also, your patents could serve as trading material for a cross-license arrangement with others if your own business were to infringe on their patents.

On the other hand, if your business does not wish to share your patented technology with a third party, you should be able to enforce your rights. Patent enforcement, however, is the sport of kings! You need to engage a patent litigation firm. The average cost associated with litigation of a single patent in the U.S. courts is now about $3.5 million. Even after winning, there is no guarantee that a court will grant a permanent injunction against the losing party. You might be asked to settle for money damages and extend a license for a fee.

Many small business owners do not seem to understand that patents (as well as trademarks, trade dress and domain names) are territorial in nature. In other words, even if your business has protected these IP assets in the U.S., they are not automatically protected in other countries. As a result, the small business must develop an international IP strategy to obtain protection in a selected number of foreign countries where your product is most likely to be manufactured or sold.

A lot of the choice comes down to what your business plan calls for. Your business should consult an IP expert and conduct a cost-benefit analysis to see if expanding your IP rights makes sense. Small businesses that export their IP to other countries where it is not locally protected might face rampant theft without any recourse. Even if a small business were to engage a foreign-based manufacturer to build a prototype of the product, motivated by taking advantage of lower overseas labor costs or to investigate the product’s feasibility, it has the potential for theft even if contractual agreements are put in place, as such agreements are generally difficult to enforce in many countries.

It is critical for an innovative business to take steps to safeguard its IP to hone a competitive advantage. Such protection discourages theft by competitors. It provides you the business incentive to commercialize the IP and profit from it.

Legal protection of IP tends to be expensive, particularly in the early phases of the business development cycle when the financial capital is sparse. IP protection is also time sensitive. If it is not protected in a timely manner, it might perish. Despite these pressures, it is well worth the initial investment of time and money. The rewards derived from such asset protection will last for a long time – until well after the expiration of such rights.

T. Rao Coca is an IP attorney consultant specializing in patent licensing. He is a former IP executive of IBM and IGT and now a SCORE volunteer.