Beyond gizmos
by Sarah Brouillard The whir of an assembly line can be hypnotizing.
With Medtronic inventing its latest catheter, 3M introducing its newest line of air-cleaning filters, and a host of other local technology manufacturers constantly pushing their gadgets and gizmos into the marketplace, one could be led to believe all Twin Cities-originated intellectual property is handheld and comes in a box.
But many companies possess intangible assets — software code, mathematical equations, customer lists, sales strategies, and branding symbols — that are just as crucial to their bottom lines.
There are various ways of treating these “softer” forms of intellectual property. Many companies choose to keep their ideas under wraps, holding them as trade secrets. Unlike patents, for which companies must file detailed — and public — information about their inventions with the United States Patent and Trademark Office (USPTO), trade secrets are confidential, often known only to a handful of employees. They’re also relatively inexpensive to guard.
While trade secrets can be protected without lawyers, patents often involve legal and application fees costing tens of thousands of dollars, which can be especially burdensome for strapped small businesses.
Some companies go ahead with their pursuit of a patent application, lusting for the competitive advantages that come from a USPTO-approved and -issued patent — most significantly among them, a 20-year monopoly to make, use, offer for sale or sell their invention.
With the dawning of the cyberspace era, the concept of “invention” has been stretched to include amorphous things — business methods, sales models, and software — that, until recently, weren’t considered patentable. In the 1998 legal case of State Street Bank & Trust v. Signature Financial Corp., an appeals court held that financial software, though made up of abstract mathematical algorithms, nevertheless resulted in “useful, concrete and tangible results,” according to legal documents.
In the past, software could only be patented if it helped to cause a “physical transformation,” such as software used in the manufacturing of medical devices.
Is your product unique?
Investigo, an Edina-based developer of portfolio-management software, has applied for four software patents with USPTO, with a fifth to be submitted by the end of September. All involve business methods that help financial services firms get a better handle on the mountain of data and regulations they often confront, for such tasks as complying with Do-Not-Call laws, supervising the activities of their sales representatives, and monitoring the efficacy of their marketing campaigns.
Patenting was always considered the best route to go, says Tom Rozman, CEO and president of Investigo. The company’s products are widely used, available on the desktops of about 40 customers across the country, so there was no other viable option to protect the ideas behind them, he says.
Minneapolis-based Crompton, Seager & Tufte assisted Rozman and his colleagues in putting together the patent applications. Investigo staffers alone spent about 100 hours over two months on the process. The biggest challenge was determining “prior art” — researching the marketplace to find out if anything similar to their invention already exists.
“You have an obligation to find out what’s out there,” says Rozman. But “you get a pretty good idea when your customers tell you it’s unique.”
Legal fees were in the $10,000 neighborhood. The opportunity costs — the time and salary dollars staff used up to work on the patents — are more difficult to estimate, says Rozman. But the investment, without a doubt, is worth it, he says. The patents are “the basis for the business. It’s absolutely a strategic decision, but one that makes sense, in my opinion.”
Ultimately, weighing such costs against the potential benefits of a patent is the quandary faced by all small businesses, says Dean Karau, an attorney with Minneapolis-based Fredrikson & Byron. “That may be a fair amount of money for businesses that aren’t sure whether their ideas are going to mature into something that’s going to make them a lot of money,” he says.
And businesses need to confront the possibility that their ideas really aren’t that fresh. “People are often off-course,” says Chris Cuneo, an attorney with Minneapolis-based Lommen, Nelson, Cole & Stageberg.
“Everyone wants to have proprietary processes — they want to have something that’s technologically neat and that’s only theirs. But by and large, that doesn’t happen. Even if you come up with something that’s a little bit different … you’re going to find out that it’s closer to being a commodity than you originally thought it was.”
Some companies find there are other risks involved with patenting their intangible intellectual property.
Medisyn Technologies Inc., a pre-market, Minnetonka-based small biotechnology company that develops cancer-fighting drug compounds, possesses thousands of intangible intellectual property assets — processes, algorithms and indices used to describe and evaluate molecules.
President David Land and his colleagues had originally considered patenting such data in 2001. But after consulting a couple of intellectual property law firms — including Minneapolis-based Patterson, Thuente, Skaar & Christensen — they determined the wisest choice was to keep most of their IP assets as trade secrets.
It wasn’t a snap decision. “We wrestled with it, frankly, for more than two years,” says Land. Investors, too, weighed in on the debate, concerned about how to best protect what they felt was breakthrough — and potentially lucrative — technology. But they decided that once a patent was filed, the company’s good stuff would have been fair game among competitors.
“We’d have to disclose too much of what we would call the secret source,” says Land. “The clincher is we wouldn’t be able to detect its use. So once you’ve revealed it in the patent, if someone else goes ahead and uses it internally…the odds of Medisyn being able to detect that would be about zero.”
Not all patent protection was ruled out; the company, in fact, has patents for 26 anti-cancer compounds. “Once we have something visible, we protect it,” says Land.
Details about Medisyn’s products may be part of the public domain, but the mathematics involved to create them stay behind closed doors and tight lips. The company’s trade secrets are so closely guarded that Land himself doesn’t know them; he does, however, have a means to gain access to them in an emergency.
Only two people — the original Spanish inventors contracted by Medisyn — know them. (Even then, “you would need to combine the two to have the full effect,” says Land.) Besides their heads, the trade secrets are housed offsite, in a safety deposit box at an undisclosed Spanish bank.
Small businesses are at high risk for letting trade secrets slip out. Executives of early development companies, including Medisyn, are always mixing and meeting with people both inside and outside of their industry. There’s plenty of opportunity to say something sensitive, however unwittingly.
“You’re out constantly promoting the company, looking to raise funds, explaining what you have to potential investors and customers alike,” says Land. “You don’t want to be in a position where you suddenly trip and reveal something you shouldn’t.”
Keeping employees mum
To get a handle on their trade secrets, companies should “set up mechanisms” to ensure employees keep mum, says Karau of Fredrikson & Byron. “It’s really, to an extent, common sense,” he says. “Create duties within your organization, that your employees know that this is trade secret information.”
For starters, put a pen and paper in front of workers. Confidentiality and non-compete agreements should be signed by all new hires. “You want to get those in place so you don’t bring people into your company, train them up on all your good stuff,” just to see them go out and use their training and knowledge to their own advantages, says Bill Weimer, an attorney with Faegre & Benson in Minneapolis.
Also, create a policy that holds them accountable throughout their employment, says Jim Patterson, an attorney with Patterson, Thuente, Skaar & Christensen. “It needs to be an established, printed policy of the company,” he says. Make it curt, terse, and easy to understand. “You might think the more elaborate the better, but actually, the less elaborate the better. If you have just a simple, straightforward set of procedures, then they’re more likely to be followed.”
By and large, protecting trade secrets is a human resources function, he says. Receptionists and other front-desk personnel should sign-in and escort guests, including seemingly innocuous visitors like mail and package carriers. Overnight, keep sensitive areas locked up and inaccessible to cleaning staff.
At Medisyn Technologies, Land and his staff used training manuals to help them “think about how you would work in a trade secret environment,” says Land. “And frankly, once you begin to adopt a protective mindset, then it’s interesting how your behavior changes.”
Land says he uses “descriptors instead of exact content” when talking about sensitive material. “It’s a methodology that, after you’ve kind of worn that for three to four months, it becomes second nature.”
Peace of mind
Trademarks are a more traditional form of intangible intellectual property that a company can register with the USPTO. A trademark, in business parlance, is a brand: a word, name, symbol, or any combination, used to identify and distinguish the goods of one company from those of another.
Though companies aren’t required to file trademarks with the USPTO — they begin to accrue rights once they use a trademark — doing so reaps benefits. Among them: public notice of the registrant’s claim of ownership of the mark, a legal presumption of ownership nationwide, and the exclusive right to use the mark on or in connection with the goods or services set forth in the registration, according to the USPTO.
Dan Shimek, president and CEO of barbecue-grill and outdoor-fireplace retailer Fire Stone Home Products, and a director for several other diverse Twin Cities companies, chooses to file his trademarks. His latest, which include a fire symbol and restaurant name Enjoy!, were created by a local advertising agency, and are still working their way through USPTO’s approval process.
“First to use” is an important standard in trademark law, so companies should make sure a trademark is available before they start featuring it on pricey brochures and advertisements, says Patterson of Patterson, Thuente, Skaar & Christensen. Small businesses, in particular, may fall under the radar for a couple years, but once they get very successful, “someone might come after you,” he says.
Uniqueness is also crucial. “If I try to set up a shop selling coffee cups and I call it Coffee Cup Shop, I obviously couldn’t preclude somebody else from selling coffee cups under that name,” he says. “But if I set up a coffee shop and call it Plum — well, plums have nothing to do with coffee cups. It’s unique and kind of arbitrary.”
If anything, registering trademarks gives a business peace of mind, says Shimek. “If you use a name, and make it valuable from a branding standpoint,” registering it “protects you from having someone come in and jump on that name
[contact] Chris Cuneo, Lommen, Nelson, Cole & Stageberg: 612.339.8131; chris@lommen.com; www.lommen.com. Dean Karau, Fredrikson & Byron: 612.492.7000; dkarau@fredlaw.com; www.fredlaw.com. David Land, Medisyn Technologies Inc.: 952.475.8084; dland@medisyntech.com; www.medisyntech.com. Jim Patterson, Patterson, Thuente, Skaar & Christensen: 612.349.5740; patterson@ptslaw.com; www.ptslaw.com. Tom Rozman, Investigo Corp.: 952.920.1441; tomr@investigo.net; www.investigo.net. Dan Shimek, Fire Stone Home Products: 866.303.4028; www.firestonehp.com; Bill Weimer, Faegre & Benson: 612.766.7000; wweimer@faegre.com; www.faegre.com.
