Intellectual Property and Your Firm’s Valuation
By Tom Cramer
There are few people who are not aware of the story of the “locked away formula” for Coca-Cola. In fact, the whole story is now a major exhibit at the World of Coca-Cola in Atlanta, Georgia.
What few realize, however, is how the formula for one of the world’s most ubiquitous products has been protected – and remains secret – after more than 100 years. The formula is what is today generically referred to as Intellectual Property. Specifically, the formula for Coca-Cola is a trade secret, and it is this fact that has given it protection far beyond what would come from other forms of intellectual property protection.
An Increasingly Critical Element of Your Business
The entire field of intellectual property has expanded to one of international importance. It is a battleground of global proportions that affects trillions of dollars of corporate wealth. However, intellectual property issues are vital to many small to mid-sized firms. The ultimate valuation of your business may well turn on how well you have identified, curated, and protected the intellectual properties you develop and utilize.
The World Intellectual Property Organization defines Intellectual Property as, “IP refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names, and images used in commerce.” This definition is further refined by identifying copyrights, patents, trademarks, and trade secrets as the primary form of IP. (Two other areas, Geographical Indications and Industrial Designs, may pertain to your business).
While generally lumped together, each of these four primary areas of IP provides different levels of protection and requires different steps by those who seek to control them as owners. The core reason to focus on IP protection is to allow an individual and/or a firm to gain recognition and/or financial benefit from their “creations of the mind.”
Understanding the Distinctions
If you have not focused on this topic in the last few years, it is well worth your time to do so. That is for offensive (protecting your assets) and defensive (not being subject to claims from others) reasons. As the importance of and value of IP continues to grow significantly, the legal battles being fought are frequent and costly.
Driven by growing concerns over corporate espionage and international protection of IP, Congress passed the most comprehensive legislation in generations in 2016 with the Defend Trade Secrets Act. While there are a number of protections provided, it should be noted that the legislation also criminalizes many previously “innocent” acts that were dealt with as civil matters.
For you as a business owner, this means two things. First, no matter your size, you have significant new protections to protect your IP. This includes having the U.S. government intervene on your behalf. Secondly, it creates new liabilities for you as an owner if you hire individuals or seek out and use IP that is owned by another firm.
The courts have aggressively litigated and expanded the scope of the DTSA since its passage. In doing so, they have found some companies liable for the information brought to them when hiring individuals from competitors, even if there was no intentional theft or overt action taken.
The Two Sides to Managing IP
These trends and realities make it essential for all company owners and managers to proactively evaluate their company IP position from both perspectives.
First, you may have more materials and concepts that are subject to protection than you realize. This is especially the case in the area of trade secrets, where you invest in and develop proprietary methods of business and operations. However, it is vital to proactively protect these secrets and all IP or it becomes part of the public domain and valueless to you.
Secondly, your firm must ensure that it follows the right processes and procedures to never wrongfully use the IP of another firm or individual. The consequences of doing so, inadvertently or on purpose, especially post-DTSA, are potentially catastrophic.
Contact your attorney today to discuss this issue and seek out further insights on the best way to be on top of the intellectual property issues for your business.
