Keeping the wolves from the door. That’s what intellectual property law is all about , making sure clients are protected from the moment they dream up, invent or discover some potentially lucrative drug, gadget or gizmo, until they finally reach that Holy Grail , the mighty marketplace.
It’s a very long and arduous process, not to mention expensive, but it can get a whole lot pricier for those who don’t bother to do their homework.
Those wolves will be closing in. Count on it.
That’s the consensus of several San Diego IP lawyers, summing up their jobs as the caretakers of the precious gems that come out of the labs, research facilities and even garages of their clients.
“I don’t know that there is a typical client,” said Drew S. Hamilton, a partner in the San Diego office of Knobbe Martens Olson & Bear LLP, one of San Diego’s first IP law firms. “That’s what makes this fun. Everyone has his own story.
“A client will come to us and they’re looking at a particular aspect of the market, a new invention. Sometimes, it’s all mapped out, they understand in detail the market, the type of competition they’re going to face. Others know they have a great new development, but don’t know how to commercialize it.”
That’s where the IP lawyer comes in.
“When the product is launched, they should have the proper protection, the necessary backing and the proper team of people to make that effort a success,” he said.
As for keeping those wolves from the door, consider this scenario: Hamilton had a major client, with a good patent portfolio, that was approached by a large company , one with patents that covered the same things the client was doing.
“They approached our client,” he recalled. “They wanted royalties of hundreds of millions.”
Earning His Money
So, Hamilton went to work.
“We went around and did some market research on what the competitor’s line of products were,” he said. “We looked at other companies with strong patents and purchased some, built the portfolio up. Now, the client could go back to the company and say, ‘You say we are infringing on your patents? Here is what we have , patents you are infringing.’ A cross-license arrangement was struck, a little bit of horse-trading.”
And that figure was reduced to a “net zero.”
“It turned out to be a win for both sides,” he said.
The moral of this story: “You can go out and purchase patents and take licenses to fortify your position and build that protection around the company,” said Hamilton.
A win-win is exactly how Hamilton likes to see these matters play out.
“When you’re dealing on the transactional side, it’s usually a positive experience for everyone,” he said. “It adds to the real enjoyment of the practice. It’s like being the OB-GYN of the legal profession. They’ve got a great new invention going to happen, you plan out how you are going to bring it into the world as a healthy new entity. When you’re ready for the launch, the new baby comes into the world ready to be healthy and successful.”
But there aren’t always happy endings.
“I had a situation with a company president who had been around for quite a few years,” said Hamilton. “He had a very strong business, with tens of millions of dollars a year in sales. He wanted to move into another segment and expand substantially.”
A company was interested in acquiring them, and it seemed to be a good mix, he said. But then Hamilton got a call from his client.
“He was frantic,” said Hamilton. “They were nearing closure, and, during due diligence, the company that was interested in them found that they didn’t have protection for their IP. They hadn’t seen a need for it, they were comfortable. The deal fell apart.”
The problem: “One of the gems of a product line had been on sale well beyond the time frame for patent protection,” he said. “We tried to salvage other pieces of it ancillary developments and improvements. But they would have been in a better position, and closed the deal, if the proper steps had been taken when needed.”
While the client missed an opportunity, others came along, and the company is now strong and healthy, he said.
“You never want to just give up,” said Hamilton. “But I never quite understand when people have this sense that if they’re making good money, and there isn’t much competition in their market niche, they don’t see the necessity or value of patents.”
Kicking The Tires
A big part of launching a successful product is the ability to line up venture capital, another role of the IP counselor.
While the big pharmacies might not be depending on financial angels, “Two guys in their garage who just invented a new computer chip need a lot of help,” said Dan T. Pascucci, a shareholder with Buchanan Ingersoll PC, who heads the firm’s California litigation group as well as the San Diego office, and who includes IP among his specialties.
“For startups, a patent portfolio is the only asset they have,” said Joseph R. Baker Jr., an IP attorney and counsel with the San Diego office of Buchanan Ingersoll. “It’s important to take that asset and protect it and use it to raise money. We have venture capitalists who ask us to do due diligence , kick the tires of patent portfolios to see if there is gold in it before they pump money into it. We make sure there are no big hurdles in the way to getting the product to market.”
Richard P. Sybert, a partner at Gordon & Rees, LLP and head of its IP group, said that clients with intellectual properties to protect should keep three goals in mind.
The first is marketing. The second is for clients to make sure they have protection in the marketplace. The third is for clients to be aware of the valuable IP assets they have.
“Whatever product or service a client comes up with, you want a name for it , a name that works,” he said. “They should know who else is in the field.”
This is where the advantage of having a registered trademark comes in, said Sybert, because then a firm can claim so-called “second meaning.”
“Consumers associate your mark with goods and services,” he said. “For instance, if I give you the word Kodak, you automatically think of cameras. Why should you? Kodak is a made-up word, but it has secondary meaning, because of the marketing.”
With the secondary meaning nailed down, the trademark also can provide advantages in litigation that companies might not otherwise have, said Sybert.
Coming up with unique brand names also can help discourage claims of being a copycat.
“I’ll have clients who tell me, ‘If the name doesn’t suggest what the product is, why would anybody buy it?’ ” said Andrew D. Skale, a shareholder in the San Diego office of Buchanan Ingersoll, a member of the firm’s commercial litigation section, and a specialist in patent and trademark prosecution and IP litigation. “But no one knew what Yahoo was, and it’s a very powerful trademark. It had no real meaning. Put a dictionary on the wall and throw darts, that’s the best way.”
While protecting patent rights should be a No. 1 goal, he said, “Protecting your trademark should be up there, so you won’t get a cease-and-desist letter, lose your name, good will, and people wonder why you are changing your name. It’s a big marketing snafu.”
Added Pascucci, “As devastating as it is to change a name, having to abandon your profit is worse.”
Mitchell P. Brook, a partner in Luce, Forward, Hamilton & Scripps LLP’s Carmel Valley/San Diego office, handles complex patent and trademark matters, and was on the team that represented Polaroid in a major patent infringement case against Eastman Kodak that ended in an award of $900 million to Polaroid.
He’s also had his share of trademark cases, and warns that even different spellings involving a single letter can end up getting one of the parties into trouble. In one of Brook’s cases, his client, an apparel company called the Boom Club, took on Boo.com, which sold clothing over the Internet.
“We obtained a judgment by default of over $1 million,” said Brook. “Boo.com went bankrupt and didn’t show up.”
The moral: Be very careful when choosing a name. Firms should do their homework.
“Is there a likelihood of confusion?” Brook asked. “That’s the trademark test. There is a series of factors a court will look at price, specialty. Does it sound the same, look the same? Some want to snuggle up to a famous brand. If you’re the owner, you have to police it. You can’t allow the trademark to be diluted, because you can’t recover that. If you allow people to snuggle up close like that, and gain market advantage off your name, once the genie is out of the bottle, it’s very difficult to put back in.”
But don’t just think domestically, Brook warned.
“The economy is increasingly global,” he said. “If you’re planning on selling outside the United States, it’s a good idea to protect your trademark outside the U.S.”
The reason: In the United States, the standard is to have the “first to invent” system, but outside the United States, it’s the “first to file system.”
“If your brand gets successful in the United States,” said Brook, “those outside the country may try to file and extract a settlement from you when you start selling products in their country.”
Big bucks are at stake, he said.
“If you have a successful product, like a medical device, the market for a product like that could be $50 million to $200 million a year, with a huge profit margin,” he said. “If you only file in the U.S., you have secured the largest market in the world, but in terms of gross national product, when you add together the European Union countries, it adds up to more than that. You’re giving up a lot of the market if you don’t protect yourself outside the United States.”
Of course, cost is a major factor for startups, said Baker, especially if they have an eye on a global presence.
“We advise them on how to approach the world market,” he said, “and there are cost considerations. If it’s a small startup, filing patents worldwide can be costly, and a lot of times, they don’t have the money to do that. Part of our counseling is figuring out what countries are most important to them.”
Brook, acknowledging that startups usually need to spend much of their resources on research and development, still can protect themselves globally through an incremental approach to filing patents through the World Intellectual Property Organization. This Geneva-based group administers almost two dozen international treaties dealing with intellectual property protection.
With the added time allotted through this approach, the startups then “usually have a clear idea where their business is going, and where the market is,” he said.
Making sure clients have protection in the marketplace can be tricky if they hope to expand into the foreign market , or even if they don’t, Sybert says. In the United States, firms have 12 months from the date of first public disclosure to patent a property, he added.
But, “If you do business in foreign jurisdictions, you have zero months,” he said. “You have to do it right away. Intellectual property is assuming a larger role in economies and businesses. In my opinion, a lawyer is not serving clients unless, from the very beginning, you make them aware of concerns outside the United States. Even if your company doesn’t do business outside your country, (it) could be faced with imports, or a client might want to go abroad.”
As one of three lawyers in California allowed to practice in Hong Kong, Sybert said: “Everything is connected. There is a web of treaties around the world. All intellectual property is territorial. A U.S. patent doesn’t get you anything outside the U.S.”
Timing can be everything in the IP world.
“It’s a mistake to wait too long,” agreed Buchanan Ingersoll’s Skale. “With the laws in this country, once you publicly disclose an invention, you have a year to file. If you don’t, you are precluded from getting that protection. I have to tell clients, there are ways you can try to get around it, but it will be a much narrower patent.”
Dr. Richard Warburg, a partner in Foley & Lardner LLP’s Del Mar office and an IP specialist and scientist, said that the advantages and disadvantages of expediting a patent depend on a number of factors.
“In the computer business, with the life of computer inventions, you might want to rush,” he said.
But with some industries, such as biotech and bioscience, where drugs can take years to pass muster, it can be a disadvantage to rush a patent, which has a shelf life of 20 years until it expires.
Without patent protection, said Warburg, “the generics can come and you have lost the market.”
It’s not all cut and dried, he said, adding that there are many subtleties in the world of patent law. The more sophisticated venture capitalists, said Warburg, understand this.
Foreign markets aren’t the only potential minefields when it comes to intellectual property. Sometimes, danger is lurking right in the office.
“Every company should have internal programs to protect secrets and confidentiality clauses in employee manuals and contracts,” said Sybert. “Employees leave all the time, and they know trade secrets, so contracts should be written in a way so that confidentiality survives their employment.”
He added that intellectual property lawyers can help businesses avoid lawsuits.
“Sometimes, big companies won’t even know how much valuable intellectual property they have. IP lawyers can help companies mine their IP assets. By setting up protection and registrations and making people aware of what they’ve got, you can avoid lawsuits.”
It all comes down to constant vigilance about domain names, brands, trademarks, and “jealously guarding” their intellectual property, he said.
“It’s a big world,” said Sybert, “with a lot going on out there. The legal aspects of a business should be inseparable from other aspects of business. All too often, clients don’t engage lawyers until they’re in trouble, get sued, or a competitor steals their stuff. We can come in and do battle, but if you do the homework beforehand, it’s a lot easier.”
Fred Hernandez, an IP attorney with Fish & Richardson P.C., says that lawyers in his practice should be true counselors to their IP clients, guiding them on the way to the marketplace.
“Traditional law firms bill on an hourly basis, and typically the rates are high,” he said. “With startups, that’s not a good fit. There is a lot of uncertainty in terms of cost. With a startup, there is a lot of hand-holding, and sometimes clients will be hesitant to call their attorneys, because they’ll get billed. But that’s the worst thing, removing the lawyer as counselor.”
His firm offers certain clients a flat-fee arrangement covering three areas: the formation of a corporation; employment matters, such as creating employee handbooks and agreements; and trademark and copyright matters, each of them priced at $2,500.
But there is no official flat fee established for patent work, because, said Hernandez, there are too many variables. So, he takes a personal approach to setting fees.
“I’ve been working with startups for 10 years now, and I’ve tailored my practice akin to a flat fee, to address the service gap for smaller companies,” he said. “I’m trying to be a counselor, as opposed to a billing machine. I look at this holistically, that we’re in this together. It takes a special patience on the attorney’s side, working toward the future, as opposed to getting a big payoff now.”
On the clients’ side, he said, they should choose an IP lawyer they can enjoy working with over the long haul.
“In the medical field, it’s called having a good bedside manner,” he said. “It’s the same thing with the law.”
Steve Swinton, an IP lawyer with Latham & Watkins LLP, says that non-billable hours should include making an effort to understand the client’s business.
“With rapidly evolving markets, it rarely is safe to assume that market conditions present when the relationship began may still exist only months later,” he said. “IP lawyers should try to schedule regular tours of manufacturing facilities and laboratories. They should consider investing time in their clients through activities such as attending patent committee meetings on a non-billable basis.”
Dr. John Wetherell, a partner in the San Diego office of Pillsbury Winthrop Shaw Pittman LLP, is an IP veteran who also is on the faculty of UC San Diego, where he teaches courses in biotech patent law, strategy and transactions.
“We see ourselves as not merely scribes, but business partners with clients,” he said. “We understand what their goals are, we try to fashion the intellectual property protection around their business objectives. When we look at a patent, that patent is a business tool, as a way to achieve a business objective.”