Judie Dziezak09.01.04
One of the most valuable assets a corporation owns is its intellectual property. The term "intellectual property" refers to a body of intangibles that encompasses anything created by the mind, whether it be an invention, a slogan, a price list, a marketing strategy, a client list, or even a jingle. There are three forms of intellectual property-patents, trade secrets and trademarks-and simple strategies for putting some bite into these intangibles. (Intellectual property also includes copyrights, which will not be discussed in this article.)
The following takes a look at two approaches for protecting intellectual property. The first approach concerns protecting sensitive information, including innovations, which can be accomplished via patents and trade secrets. The second approach is directed toward guarding a company's identity in the marketplace via trademarks.
Patents. Some corporations flaunt their patent portfolios, embracing them as indicative of credibility. A patent is a contract between the patent owner and a government. Under the contract, the owner grants the government full disclosure of an invention in exchange for a set of exclusive rights that are akin to a monopoly. Patents on processes, compositions, machines, and articles of manufacture are valid for 20 years from the date of filing a patent application; patents on unique ornamental designs are valid for 14 years from the date of grant. Patents are also granted on plants to those who identify or discover and asexually reproduce a distinct and new variety of plant, other than a tuber-propagated plant or a plant found in an uncultivated state. These "plant patents" are valid for 20 years from the date of filing.
When a patent expires, it falls into the public domain where anyone is free to use the patented invention. Before the patent expires, however, the patent owner can exploit the patent as desired (e.g., by licensing it to others). During the term of the patent, the owner has the "right to exclude others" from making, using, selling, offering for sale, or importing the invention in the country that granted the patent. As property rights, patents can be purchased, sold, and licensed, thus extending their value as revenue sources to the company.
Contrary to common belief, a patent does not grant its owner the right to practice the invention. Instead, a patent owner's rights are contingent upon what other patents the government has granted in the particular art. For example, if "Party A" obtains a U.S. patent on a nutritional supplement and "Party B" obtains a U.S. patent on an improvement to the supplement, "Party B" needs to obtain permission-in the form of a license-from "Party A" to make, use, sell, offer for sale, or import its invention in the U.S.
The process of obtaining a patent generally begins with the patent attorney obtaining key information from the inventor, including dates of particular disclosures such as offers for sale, publications and exhibitions at tradeshows. A patentability search is usually conducted to determine whether the invention has been previously patented or published. Although the patent laws do not require that a search be done, bypassing the search in hopes of lowering costs may lead to needlessly paying for a meaningless application on an invention that is already patented. Or, over the course of the patent application process, the company may pay more because it proceeded without the benefit of information it could have gleaned from the search and the attorney could have used in strategizing on how to craft the application.
If the search yields favorable results, the patent attorney will prepare an application and file it with the Patent Office. In the Patent Office, examiners trained in the art of the invention will examine the claimed invention to determine if it meets a rigorous set of criteria including utility, novelty and non-obviousness. The latter criterion means the invention is not obvious to one of "ordinary skill in the art" at the time the invention was made, in light of the art known at the time. Most rejections made by the U.S. Patent and Trademark Office are for "obviousness." The Patent Office will grant a patent if it determines the claimed invention meets all criteria of patentability. The patent process through the grant of a patent generally takes from about 18 months to three years or longer, depending upon the subject matter of the invention, as certain areas of the Patent Office are inundated with applications.
Unlike other forms of protection, patents preclude others from reverse engineering the patented invention or independently developing it-even if done innocently.
Trade Secrets. Some corporations view their innovations as concepts to be cloaked with secrecy and shielded from the public's view. Under this approach, trade secrets are relied upon for protecting innovations and sensitive information. A trade secret is virtually any confidential information that offers a competitive advantage because it is secret. Each state has its own definition of what constitutes a trade secret. Trade secret law is, however, somewhat harmonized across the country as about 42 states have adopted the Uniform Trade Secret Act. Under this statute, a trade secret includes information or a process that (a) offers a competitive advantage because it is not generally known and is not readily ascertainable by proper means and (b) is reasonably guarded by its owner to protect its secrecy.
A trade secret may be literally any type of information such as unpatented inventions and know-how, or scientific data, new products, formulas, marketing strategies, price lists, customer lists or company-specific information, as examples. As such, even though not all trade secrets are patentable, all patentable inventions may be protected as trade secrets as an alternative to patenting.
To be deemed a trade secret, the information need not pass through a formal application process. Nor does the information need to meet rigorous criteria as required for a patent. Instead, information becomes a trade secret merely by being treated as such. What that means is that the onus is on the owner to treat the information as a secret and to implement security measures to safeguard the secrecy of the information. Unfortunately, corporations sometimes extinguish their own trade secrets by treating the purportedly secret information as just any other information. When that occurs and the information is misappropriated, the corporation's investment in the information may vaporize should the court conclude the information is not a trade secret.
Compared to patents, trade secrets may be protected forever-as long as they are treated accordingly. One serious risk of relying on trade secrets is that others who independently discover or develop the information-e.g., by reverse engineering-are free to use the trade secret information.
Enacted in 1996, the Economic Espionage Act makes it a crime to steal trade secrets. Although the statute was originally enacted to address international espionage conducted by countries, the statute includes a private trade secret theft provision (18 U.S.C. § 1832). This provision penalizes the theft of commercial trade secrets if anyone other than the owner will benefit. It imposes penalties of up to $500,000 and 10 years imprisonment for individuals, and up to $5 million for organizations.
Trademarks. Trademarks are words, phrases, slogans, logos and even sounds that serve to identify and distinguish a manufacturer's or merchant's goods from those of others. Examples of trademarks include LYC-O-MATO® for tomato powder, CoroWise™ for phytosterols, and Antho 50® for bilberry extract. While patents and trade secrets protect sensitive information and innovations, trademarks serve a different role: they protect a corporation's trade identity in the marketplace. To consumers, trademarks confer a sense of the quality they have come to associate with the mark. For example, if a consumer intends to purchase a Nike® product, she knows to look for the "Nike®" trademark. Therefore, trademarks prevent consumers from being confused about the source of the goods or services they are purchasing.
A trademark is used in relation to products. A service mark is a mark used in relation to services. Service marks confer the same protections as trademarks and must meet the same requirements.
Like patents, trademarks are property and may be licensed or sold and thus generate additional revenue. Also like patents, trademarks are territorial in nature-i.e., a U.S. mark is enforceable only in the U.S. International treaties such as the Madrid Protocol, to which the U.S. acceded in 2003, allow one to acquire trademark rights in multiple countries by filing a single application.
Corporations can acquire rights to a mark by using the mark in commerce on actual goods or services. In the U.S., the first person to use a mark in a given territory has a common law right to prevent others from using a similar mark in that territory in a manner that is likely to confuse consumers, regardless of registration. In most foreign countries, however, ownership is acquired by the first to file for registration – not the first to use.
The strongest trademark protection is attained by registering the mark with the federal government. Federal registration creates a presumption that the registrant is the exclusive owner of the mark and is entitled to use the mark nationwide. Registration also allows the mark owner to use the encircled "R"-®-to alert others of the registrant's exclusive rights. Further, the certificate of registration can be recorded with U.S. Customs Service to prevent importation of infringing goods.
How is a trademark secured? The process begins with selecting a mark that ideally does not describe any function or characteristic of the goods or services. After a proposed mark is selected and prior to use, a trademark search should be conducted to determine if anyone else has already developed rights to that mark. Although a search is not required by law, it may uncover information, which could prevent a corporation from inadvertently infringing someone else's mark. In that sense, due diligence in clearing the mark may reduce not only the risk of infringement but also avert wasted time and marketing expenses in promoting an unavailable mark.
If the search indicates the mark is available, the next step is to file an application with the government's Trademark Office. There the application is examined to determine if the applicant has the "right to register" that mark. Note that the Trademark Office does not determine whether the applicant has a "right to use" the mark; that decision is reserved for a court of law in the event a suit, such as an infringement action, is filed. The registration process may take from nine to 15 months until issuance of a registration.
If the Trademark Office determines that the mark can be registered, it issues a certificate of registration. Trademark registrations have a term of 10 years and are renewable indefinitely, provided the mark is used as indicated in the registration.
The following is a checklist of practical tips on how a corporation can protect its intellectual property. This list, however, is not exhaustive and is not a substitute for obtaining legal advice from an intellectual property attorney.
Innovations. To protect innovations, the corporation may do the following:
• Contact patent counsel without delay about freshly developed innovations the company wishes to patent. The attorney can determine patentability and determine the last date for filing a patent application, based on particular activities, for in the U.S., patent protection is available over a certain timeframe and, if not sought during that time frame, expires.
• Do not disclose the information to anyone outside the company until discussing the invention with a patent attorney, as doing so may result in the loss of foreign patent protection.
• After the application is on file, use the informal designation "Patent pending" or "Patent applied for" on the items and processes covered by the patent application, or in related advertising.
• After a patent is granted, apply the patent number on the goods or on marketing and advertising materials for services.
• If another entity is thought to infringe, advise your patent counsel who may be able to terminate infringement by sending a cease-and-desist letter.
Trade Secrets. Because trade secrets may lose their "trade secret" status if not protected, the following are examples of efforts for protecting trade secrets:
• Develop a trade secret protection policy and educate employees about the policy.
• Restrict access to trade secrets to only those employees or agents who need to know the information.
• Mark documents containing trade secrets as "confidential."
• Require new employees and third parties to sign a nondisclosure agreement (NDA) before any confidential information is disclosed to them. NDA's are contracts that obligate the parties to protect the confidentiality of information disclosed to them and permits them to use the information solely for the purpose specified by the agreement.
• Physically lock trade secret information in a safe place.
• Restrict unauthorized individuals (e.g., visitors) from accessing areas containing proprietary equipment and information such as the research laboratory.
• Exercise caution when contemplating hiring a former employee of a competitor.
• Establish a policy of destroying out-dated trade secret documents by shredding.
• Issue passwords to control computer access to trade secrets.
Trademarks. Due diligence must be employed in clearing a mark before adopting it. Also, a registered mark must be used correctly in commerce to maintain the validity of the registration.
• Minimize the risk of infringement by having a trademark search conducted and a trademark attorney analyze the search results, and do this before adopting the mark.
• Use the trademark correctly: Use the mark as an adjective, followed by the generic name of the product or service; do not use the mark as a noun as that may cause the mark to lose its trademark protection; and do not use the mark as a verb.
• Use "TM" with trademarks and "SM" with service marks that are not registered to serve as stop signs, alerting others of your rights in a mark.
• Monitor how the mark is used and do not allow third parties to use the mark for any purpose except pursuant to a written licensing agreement.
One case illustrating how a simple sales-boosting idea that took just minutes to develop qualified as "intellectual property" protectable in the eyes of the law is Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714 (7th Cir. 2003). This case concerns the misappropriation of a trade secret developed by PlayWood Toys, Inc., a Canadian toy company started by Robert Clausi and Scott Moore, which makes hardwood maple toys.
At a toy convention in New York, Clausi and Moore met representatives of Learning Curve Toys, a licensed developer of Thomas the Tank Engine & Friends™ wooden trains. Impressed with the quality of PlayWood's prototypes, Learning Curve's representatives visited PlayWood to explore the possibility of working together. Prior to the visit, Clausi researched Learning Curve to understand how their tracks and trains were produced.
During the meeting, the parties agreed orally to hold each other's information in confidence. Learning Curve's representatives confessed their wooden train tracks were not selling well because they were virtually identical to that of a competitor. They asked Clausi how he would differentiate the two tracks. As Clausi had previously studied Learning Curve's tracks, he suggested constructing the track to make noise and look more realistic. To demonstrate what he meant, he-on the spot-created a prototype with notches carved into Learning Curve's track to produce a clickety-clack sound. Clausi proposed calling the track "Clickety-Clack Track." With PlayWood's consent, Learning Curve took the prototype back to its office.
The relationship dwindled after Learning Curve rejected several of PlayWood's manufacturing proposals. PlayWood then discovered that Learning Curve was selling a new noise-producing Clickety-Clack Track™ train track. In the first quarter of 2000, Learning Curve's Clickety Clack Track™ product yielded $20 million in sales and $40 million for combined track and accessory sales.
Learning Curve ignored PlayWood's cease-and-desist letter and instead sued PlayWood in federal district court, asking the court for a declaratory judgment that Learning Curve owned the track concept. PlayWood counterclaimed, asserting that Learning Curve misappropriated its trade secret. Learning Curve then withdrew its suit. The case went to trial on PlayWood's claim of trade secret misappropriation.
The jury returned a verdict in favor of PlayWood, but the judge declined to enter the verdict because he found that PlayWood did not have a protectable trade secret on the track concept. The trial judge based his ruling upon a common-law test he applied.
PlayWood appealed. On appeal, the Seventh Circuit court considered whether there was sufficient evidence for the jury to find that PlayWood had a trade secret in the track it showed Learning Curve. The appellate court applied two criteria: (a) whether the information was "sufficiently secret to derive economic value" and (b) whether PlayWood took reasonable steps to protect the secrecy of that information. Finding these criteria met, the appellate court ruled that the District Court erred by applying the wrong test.
The appellate court ruled that Learning Curve intentionally misappropriated PlayWood's trade secret and then tried to conceal the misappropriation by creating false evidence of prior independent development (e.g., by filing a patent application on the invention). The Seventh Circuit court remanded the matter to the district court to determine damages.
However, in less than months after the 7th Circuit's ruling of misappropriation, Learning Curve settled the suit with a payment of $11.2 million to PlayWood. (RC2 2003 Annual Report and 10-K.)
This case demonstrates the importance of protecting one's intellectual assets and financial interests and not being afraid to take appropriate actions to redress wrongs.
Intellectual property permeates all aspects of a company's existence-its products, services, operations, marketing and sales. Because these intangibles play a vital role in the growth and development of business, companies today cannot afford to expose their intangibles unprotected for others to pirate. Companies must inventory their intellectual assets, identify which intangibles to protect, and then to obtain legal advice on how best to protect their investments by the most cost efficient means.NW
About the author: Judie Dziezak is the founder of the Dziezak Law Firm, Hoffman Estates, IL. She is a former chemist and food scientist and is now an attorney practicing in intellectual property law. She can be reached at 847-490-5370; Fax: 847-490-5378; E-mail: jdziezak@dziezak-law.com.
***
Editor's Note:
This article provides only general legal information and is not intended as legal advice.
Protecting Information, Innovation and Market Identity
The following takes a look at two approaches for protecting intellectual property. The first approach concerns protecting sensitive information, including innovations, which can be accomplished via patents and trade secrets. The second approach is directed toward guarding a company's identity in the marketplace via trademarks.
Patents. Some corporations flaunt their patent portfolios, embracing them as indicative of credibility. A patent is a contract between the patent owner and a government. Under the contract, the owner grants the government full disclosure of an invention in exchange for a set of exclusive rights that are akin to a monopoly. Patents on processes, compositions, machines, and articles of manufacture are valid for 20 years from the date of filing a patent application; patents on unique ornamental designs are valid for 14 years from the date of grant. Patents are also granted on plants to those who identify or discover and asexually reproduce a distinct and new variety of plant, other than a tuber-propagated plant or a plant found in an uncultivated state. These "plant patents" are valid for 20 years from the date of filing.
When a patent expires, it falls into the public domain where anyone is free to use the patented invention. Before the patent expires, however, the patent owner can exploit the patent as desired (e.g., by licensing it to others). During the term of the patent, the owner has the "right to exclude others" from making, using, selling, offering for sale, or importing the invention in the country that granted the patent. As property rights, patents can be purchased, sold, and licensed, thus extending their value as revenue sources to the company.
Contrary to common belief, a patent does not grant its owner the right to practice the invention. Instead, a patent owner's rights are contingent upon what other patents the government has granted in the particular art. For example, if "Party A" obtains a U.S. patent on a nutritional supplement and "Party B" obtains a U.S. patent on an improvement to the supplement, "Party B" needs to obtain permission-in the form of a license-from "Party A" to make, use, sell, offer for sale, or import its invention in the U.S.
The process of obtaining a patent generally begins with the patent attorney obtaining key information from the inventor, including dates of particular disclosures such as offers for sale, publications and exhibitions at tradeshows. A patentability search is usually conducted to determine whether the invention has been previously patented or published. Although the patent laws do not require that a search be done, bypassing the search in hopes of lowering costs may lead to needlessly paying for a meaningless application on an invention that is already patented. Or, over the course of the patent application process, the company may pay more because it proceeded without the benefit of information it could have gleaned from the search and the attorney could have used in strategizing on how to craft the application.
If the search yields favorable results, the patent attorney will prepare an application and file it with the Patent Office. In the Patent Office, examiners trained in the art of the invention will examine the claimed invention to determine if it meets a rigorous set of criteria including utility, novelty and non-obviousness. The latter criterion means the invention is not obvious to one of "ordinary skill in the art" at the time the invention was made, in light of the art known at the time. Most rejections made by the U.S. Patent and Trademark Office are for "obviousness." The Patent Office will grant a patent if it determines the claimed invention meets all criteria of patentability. The patent process through the grant of a patent generally takes from about 18 months to three years or longer, depending upon the subject matter of the invention, as certain areas of the Patent Office are inundated with applications.
Unlike other forms of protection, patents preclude others from reverse engineering the patented invention or independently developing it-even if done innocently.
Trade Secrets. Some corporations view their innovations as concepts to be cloaked with secrecy and shielded from the public's view. Under this approach, trade secrets are relied upon for protecting innovations and sensitive information. A trade secret is virtually any confidential information that offers a competitive advantage because it is secret. Each state has its own definition of what constitutes a trade secret. Trade secret law is, however, somewhat harmonized across the country as about 42 states have adopted the Uniform Trade Secret Act. Under this statute, a trade secret includes information or a process that (a) offers a competitive advantage because it is not generally known and is not readily ascertainable by proper means and (b) is reasonably guarded by its owner to protect its secrecy.
A trade secret may be literally any type of information such as unpatented inventions and know-how, or scientific data, new products, formulas, marketing strategies, price lists, customer lists or company-specific information, as examples. As such, even though not all trade secrets are patentable, all patentable inventions may be protected as trade secrets as an alternative to patenting.
To be deemed a trade secret, the information need not pass through a formal application process. Nor does the information need to meet rigorous criteria as required for a patent. Instead, information becomes a trade secret merely by being treated as such. What that means is that the onus is on the owner to treat the information as a secret and to implement security measures to safeguard the secrecy of the information. Unfortunately, corporations sometimes extinguish their own trade secrets by treating the purportedly secret information as just any other information. When that occurs and the information is misappropriated, the corporation's investment in the information may vaporize should the court conclude the information is not a trade secret.
Compared to patents, trade secrets may be protected forever-as long as they are treated accordingly. One serious risk of relying on trade secrets is that others who independently discover or develop the information-e.g., by reverse engineering-are free to use the trade secret information.
Enacted in 1996, the Economic Espionage Act makes it a crime to steal trade secrets. Although the statute was originally enacted to address international espionage conducted by countries, the statute includes a private trade secret theft provision (18 U.S.C. § 1832). This provision penalizes the theft of commercial trade secrets if anyone other than the owner will benefit. It imposes penalties of up to $500,000 and 10 years imprisonment for individuals, and up to $5 million for organizations.
Trademarks. Trademarks are words, phrases, slogans, logos and even sounds that serve to identify and distinguish a manufacturer's or merchant's goods from those of others. Examples of trademarks include LYC-O-MATO® for tomato powder, CoroWise™ for phytosterols, and Antho 50® for bilberry extract. While patents and trade secrets protect sensitive information and innovations, trademarks serve a different role: they protect a corporation's trade identity in the marketplace. To consumers, trademarks confer a sense of the quality they have come to associate with the mark. For example, if a consumer intends to purchase a Nike® product, she knows to look for the "Nike®" trademark. Therefore, trademarks prevent consumers from being confused about the source of the goods or services they are purchasing.
A trademark is used in relation to products. A service mark is a mark used in relation to services. Service marks confer the same protections as trademarks and must meet the same requirements.
Like patents, trademarks are property and may be licensed or sold and thus generate additional revenue. Also like patents, trademarks are territorial in nature-i.e., a U.S. mark is enforceable only in the U.S. International treaties such as the Madrid Protocol, to which the U.S. acceded in 2003, allow one to acquire trademark rights in multiple countries by filing a single application.
Corporations can acquire rights to a mark by using the mark in commerce on actual goods or services. In the U.S., the first person to use a mark in a given territory has a common law right to prevent others from using a similar mark in that territory in a manner that is likely to confuse consumers, regardless of registration. In most foreign countries, however, ownership is acquired by the first to file for registration – not the first to use.
The strongest trademark protection is attained by registering the mark with the federal government. Federal registration creates a presumption that the registrant is the exclusive owner of the mark and is entitled to use the mark nationwide. Registration also allows the mark owner to use the encircled "R"-®-to alert others of the registrant's exclusive rights. Further, the certificate of registration can be recorded with U.S. Customs Service to prevent importation of infringing goods.
How is a trademark secured? The process begins with selecting a mark that ideally does not describe any function or characteristic of the goods or services. After a proposed mark is selected and prior to use, a trademark search should be conducted to determine if anyone else has already developed rights to that mark. Although a search is not required by law, it may uncover information, which could prevent a corporation from inadvertently infringing someone else's mark. In that sense, due diligence in clearing the mark may reduce not only the risk of infringement but also avert wasted time and marketing expenses in promoting an unavailable mark.
If the search indicates the mark is available, the next step is to file an application with the government's Trademark Office. There the application is examined to determine if the applicant has the "right to register" that mark. Note that the Trademark Office does not determine whether the applicant has a "right to use" the mark; that decision is reserved for a court of law in the event a suit, such as an infringement action, is filed. The registration process may take from nine to 15 months until issuance of a registration.
If the Trademark Office determines that the mark can be registered, it issues a certificate of registration. Trademark registrations have a term of 10 years and are renewable indefinitely, provided the mark is used as indicated in the registration.
Practical Tips for Protecting Intellectual Property
The following is a checklist of practical tips on how a corporation can protect its intellectual property. This list, however, is not exhaustive and is not a substitute for obtaining legal advice from an intellectual property attorney.
Innovations. To protect innovations, the corporation may do the following:
• Contact patent counsel without delay about freshly developed innovations the company wishes to patent. The attorney can determine patentability and determine the last date for filing a patent application, based on particular activities, for in the U.S., patent protection is available over a certain timeframe and, if not sought during that time frame, expires.
• Do not disclose the information to anyone outside the company until discussing the invention with a patent attorney, as doing so may result in the loss of foreign patent protection.
• After the application is on file, use the informal designation "Patent pending" or "Patent applied for" on the items and processes covered by the patent application, or in related advertising.
• After a patent is granted, apply the patent number on the goods or on marketing and advertising materials for services.
• If another entity is thought to infringe, advise your patent counsel who may be able to terminate infringement by sending a cease-and-desist letter.
Trade Secrets. Because trade secrets may lose their "trade secret" status if not protected, the following are examples of efforts for protecting trade secrets:
• Develop a trade secret protection policy and educate employees about the policy.
• Restrict access to trade secrets to only those employees or agents who need to know the information.
• Mark documents containing trade secrets as "confidential."
• Require new employees and third parties to sign a nondisclosure agreement (NDA) before any confidential information is disclosed to them. NDA's are contracts that obligate the parties to protect the confidentiality of information disclosed to them and permits them to use the information solely for the purpose specified by the agreement.
• Physically lock trade secret information in a safe place.
• Restrict unauthorized individuals (e.g., visitors) from accessing areas containing proprietary equipment and information such as the research laboratory.
• Exercise caution when contemplating hiring a former employee of a competitor.
• Establish a policy of destroying out-dated trade secret documents by shredding.
• Issue passwords to control computer access to trade secrets.
Trademarks. Due diligence must be employed in clearing a mark before adopting it. Also, a registered mark must be used correctly in commerce to maintain the validity of the registration.
• Minimize the risk of infringement by having a trademark search conducted and a trademark attorney analyze the search results, and do this before adopting the mark.
• Use the trademark correctly: Use the mark as an adjective, followed by the generic name of the product or service; do not use the mark as a noun as that may cause the mark to lose its trademark protection; and do not use the mark as a verb.
• Use "TM" with trademarks and "SM" with service marks that are not registered to serve as stop signs, alerting others of your rights in a mark.
• Monitor how the mark is used and do not allow third parties to use the mark for any purpose except pursuant to a written licensing agreement.
A Case in Point
One case illustrating how a simple sales-boosting idea that took just minutes to develop qualified as "intellectual property" protectable in the eyes of the law is Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714 (7th Cir. 2003). This case concerns the misappropriation of a trade secret developed by PlayWood Toys, Inc., a Canadian toy company started by Robert Clausi and Scott Moore, which makes hardwood maple toys.
At a toy convention in New York, Clausi and Moore met representatives of Learning Curve Toys, a licensed developer of Thomas the Tank Engine & Friends™ wooden trains. Impressed with the quality of PlayWood's prototypes, Learning Curve's representatives visited PlayWood to explore the possibility of working together. Prior to the visit, Clausi researched Learning Curve to understand how their tracks and trains were produced.
During the meeting, the parties agreed orally to hold each other's information in confidence. Learning Curve's representatives confessed their wooden train tracks were not selling well because they were virtually identical to that of a competitor. They asked Clausi how he would differentiate the two tracks. As Clausi had previously studied Learning Curve's tracks, he suggested constructing the track to make noise and look more realistic. To demonstrate what he meant, he-on the spot-created a prototype with notches carved into Learning Curve's track to produce a clickety-clack sound. Clausi proposed calling the track "Clickety-Clack Track." With PlayWood's consent, Learning Curve took the prototype back to its office.
The relationship dwindled after Learning Curve rejected several of PlayWood's manufacturing proposals. PlayWood then discovered that Learning Curve was selling a new noise-producing Clickety-Clack Track™ train track. In the first quarter of 2000, Learning Curve's Clickety Clack Track™ product yielded $20 million in sales and $40 million for combined track and accessory sales.
Learning Curve ignored PlayWood's cease-and-desist letter and instead sued PlayWood in federal district court, asking the court for a declaratory judgment that Learning Curve owned the track concept. PlayWood counterclaimed, asserting that Learning Curve misappropriated its trade secret. Learning Curve then withdrew its suit. The case went to trial on PlayWood's claim of trade secret misappropriation.
The jury returned a verdict in favor of PlayWood, but the judge declined to enter the verdict because he found that PlayWood did not have a protectable trade secret on the track concept. The trial judge based his ruling upon a common-law test he applied.
PlayWood appealed. On appeal, the Seventh Circuit court considered whether there was sufficient evidence for the jury to find that PlayWood had a trade secret in the track it showed Learning Curve. The appellate court applied two criteria: (a) whether the information was "sufficiently secret to derive economic value" and (b) whether PlayWood took reasonable steps to protect the secrecy of that information. Finding these criteria met, the appellate court ruled that the District Court erred by applying the wrong test.
The appellate court ruled that Learning Curve intentionally misappropriated PlayWood's trade secret and then tried to conceal the misappropriation by creating false evidence of prior independent development (e.g., by filing a patent application on the invention). The Seventh Circuit court remanded the matter to the district court to determine damages.
However, in less than months after the 7th Circuit's ruling of misappropriation, Learning Curve settled the suit with a payment of $11.2 million to PlayWood. (RC2 2003 Annual Report and 10-K.)
This case demonstrates the importance of protecting one's intellectual assets and financial interests and not being afraid to take appropriate actions to redress wrongs.
Laying the
Groundwork
Intellectual property permeates all aspects of a company's existence-its products, services, operations, marketing and sales. Because these intangibles play a vital role in the growth and development of business, companies today cannot afford to expose their intangibles unprotected for others to pirate. Companies must inventory their intellectual assets, identify which intangibles to protect, and then to obtain legal advice on how best to protect their investments by the most cost efficient means.NW
About the author: Judie Dziezak is the founder of the Dziezak Law Firm, Hoffman Estates, IL. She is a former chemist and food scientist and is now an attorney practicing in intellectual property law. She can be reached at 847-490-5370; Fax: 847-490-5378; E-mail: jdziezak@dziezak-law.com.
***
Editor's Note:
This article provides only general legal information and is not intended as legal advice.
