The LEAN Accountants

Protect Your Intellectual Property. Here's How.

Do you have a new product or invention that you might want to sell to another company? When you negotiate the sale of rights, take these three simple steps to protect your interests:

  1. File a patent application. 

  2. Make a record of what makes your product unique.

  3. Sign a confidentiality agreement before beginning negotiations.

One court case -- straight out of the "truth is stranger than fiction" department -- illustrates how these steps can protect your company.

In the 1990s, Aldo DiBelardino and Andrew Ive developed a lightweight, tangle-proof, home fire-escape ladder The two men were Harvard Business School students who invented the ladder as part of a product-development course. They filed a patent application and began producing and promoting the "Emergency Escape Ladder" under their Virginia-based firm, X-IT Products LLC.

The team also designed the packaging. The box pictured a boy climbing down the ladder to a woman waiting below. The design was a money-saving family affair: Instead of using professional models, the people featured on the box were DiBelardino's nephew and sister-in-law.

Protecting Trade Secrets - Why You Should Care

Your company probably has security systems in place to prevent theft of computers, machines and products, yet you may not be doing enough to safeguard your customer lists, new product designs and marketing strategies. Manufacturers rank second only to high-tech companies as targets of intellectual property theft.

 

Businesses need to make protection of trade secrets a high priority. The potential loss in terms of competitive advantage, market share and revenue can be staggering.

"American companies and the U.S. Government spend billions on research and development. The benefits reaped from these expenditures can easily come to nothing, however, if a competitor can simply steal the trade secret without expending the development costs."     - Senator Arlen Specter, upon passage of the Economic Espionage Act

Intellectual property thieves can include employees, former employees, on-site contractors, vendors, and foreign and domestic competitors. Hackers operating from remote locations are a threat, but the greater risk comes from people who know your business and are physically present on the premises - especially employees who steal information and sell it to competitors, either while they're still working for you or after they leave their jobs.

In many environments, access to information can be ridiculously easy. For example, employees may have passwords taped under their keyboards or tacked on their bulletin boards. Others may divulge information to personable service technicians who come to repair office equipment. And perhaps no one questions a stranger who walks authoritatively into an empty conference room and plugs into a live Ethernet jack, gaining access to the company's network, and walks out with a stash of financial information.

When intellectual property theft occurs, it may be months before your company discovers it. One company's nightmare started when a contract computer programmer not only stole their new product design, but also trashed computers in an attempt to sabotage development. The act set the company back a year and the information ended up in a competitor's hands.

Many people who steal trade secrets get away with it. Prior to 1996, it was difficult to prosecute such cases, but in that year, Congress passed the Economic Espionage Act. One provision (Section 1832) addresses the theft of a trade secret related to, or included, in a product. The punishment is harsh. A convicted individual can be fined up to $500,000, sentenced to up to 10 years in prison, or both.

Under the law, a trade secret is broadly defined. It includes all types of information that the owner has taken reasonable measures to keep secret and that has independent economic value. For example, financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes.  

Here are just a few tips for protecting intellectual property:

 

• Perform a risk assessment for intellectual property, just as you would for real property.
• Enlist the help of all employees to watch out for suspicious activity. Role-playing possible scenarios, such as someone plugging into an Ethernet jack, can be instructive.
• Carefully screen new employees and contract workers, and require them to sign confidentiality agreements.
• Require delivery people to show more than one form of identification - for example, a company ID and a driver's license.
• Encrypt files and folders so that only authorized people have the "keys" to unscramble the data. That way, if a thief steals a laptop computer, the information would be meaningless.
• Establish levels of access to files and folders. For example, whoever handles the company's financials determines which people or work groups need access to that information, and can restrict their ability to modify or delete information.


 For more information on this post, please contact McKonly and Asbury, LLP's  LEAN Accountants.