Nicole D. Galli, Law Offices of N.D. Galli LLC,

Recently, I had the pleasure of welcoming a group of nonintellectual property lawyers to my firm to discuss the common pitfalls that non-IP lawyers—and their clients—fall into. Drawing from my IP litigation and counseling experience, I have seen a number of recurring problems that could have been avoided or at least minimized if handled differently at the outset. These top three areas of risk include: the absence of an IP strategy; failure to protect trade secrets; and relying on business people or lawyers who are not IP litigators to send out cease and desist letters. These common risks can be mitigated by having a proactive approach to IP protection rather than a reactive, and potentially costly, approach.

Absence of an IP Strategy

The first, and most basic, pitfall or area of risk is when companies do not have a comprehensive IP strategy. Many lawyers, even IP lawyers, are not as focused on this key business and legal consideration as perhaps they should be. In fact, businesses of all sizes can fall short in this area, even very large ones.

As a threshold matter, many companies—and non-IP lawyers—do not even have the most basic understanding of the various kinds of IP and how you acquire or perfect them. Here is a basic refresher. First, there is IP that protects inventions or ideas—that is either a patent or a trade secret. Patents are granted by the U.S. government for 20 years during which the patent owner can prevent someone from making, using or selling a patented device or process. The patented device or process must fall within the scope of “patent eligible subject matter” (as you may know, it is now very difficult to obtain a valid patent on software and business methods) and it must also be new, novel and nonobvious. In return for this protection, the patent owner shares their invention with the public. There is another type of patent called a design patent, which covers the ornamental nature of something (think of the Coca-Cola bottle) as opposed to functional elements (which could be covered by a utility patent). At the other end of the spectrum are trade secrets, which can cover all kinds of inventions, even those that may not meet the requirements for a patent, as well as other kinds of proprietary information such as collections of data or business plans. Trade secrets can last forever but must be kept secret to be enforceable (think of KFC's fried chicken recipe).

There are also trademarks, which protect things like brand names, logos and slogans and a special kind of trademark called “trade dress,” which protects the overall look and design of products and packaging (they are the trademark version of a design patent, and often go in tandem). The primary function of trademarks is as a “source identifier”—they let consumers know which entity is responsible for the particular goods or services. Using a trademark gives you certain common law rights in your particular geographic area and field of use. Trademark registration has additional benefits such as national protection. Trademarks can also last forever (assuming you continue to use the mark and pay the registration fees). Lastly, there are copyrights. Copyrights cover the expression of ideas, but not the ideas themselves. As most folks know, many things are covered by copyright. However, what becomes tricky with copyright for many people is drawing the line between the expression of an idea rather than the idea itself. I see this often with things like flow charts covering a process—the actual flow chart is covered by copyright, which means no one can copy it (exactly or with slight variations), but not the actual process itself (that would have to be covered by a patent or a trade secret).

In practice, these various forms of IP do not stand alone, and most companies need some combination of protection, sometimes even for the very same thing. What do I mean by that?For example, an item of packaging like the Coca-Cola bottle can be covered by both a design patent and trade dress. There is also the trademark “Coca-Cola.” For some packaging, there could also be utility patents or trade secrets on how the packaging works. And if there were a particularly artistic label on the packaging, it might also be protected by copyrights.

The other consideration in IP strategy, however, is really a business one. IP lawyers can tell you what you can protect and how you can protect it—but they cannot alone tell you whether you should protect it. The decision whether to protect IP and how to protect it is one that should be made by business leaders responsible for the IP in question (and perhaps even as high as the C-suite or board in certain situations), in collaboration with their lawyers. For example, IP lawyers can explain whether the scope of the protection you can get with a patent is broad enough to prevent others offering certain products or processes. They can also explain the pros and cons of delaying seeking protection (balancing things like cost versus potential loss of rights) and whether registration would or would not be beneficial for things like trademarks and copyrights in your particular situation. But, ultimately, it is a business decision as to whether and what kind of IP protection best fits within the overall business strategy.

For example, one area where even large companies often pursue IP protection without having a strategy is in patenting. In many companies, individual inventors are incentivized to create and get patents, and companies support that process, but at times there is also not an evaluation of the quality of the patent that can be obtained; and whether patenting of that particular invention meets a business goal. In many small companies, saving on legal fees is of paramount concern and there is a feeling that IP protection can wait or is not as important as other business needs. Yet, many of these same companies are investing heavily in IP in other ways— often building whole businesses or brands around it—but have not taken even the most basic steps to protect it.

Failure to Protect Trade Secrets

One of the biggest areas of IP protection that companies frequently fall short is trade secrets. Trade secrets are often the most misunderstood and under protected forms of IP, yet for many companies, trade secrets can be the most valuable form of IP, even more valuable than patents. Many folks—even lawyers—think that trade secrets are not even IP because some forms of trade secrets cover things like customer information, which can be a valuable intangible asset but is not the same kind of asset as an invention. Further, many business people, especially those with technical expertise of some kind, minimize the trade secret value of certain information because it is based on an application of fundamental techniques in their area of expertise. While it is true that generalized knowledge is not a trade secret on its own, applying that knowledge to solve a particular problem in a particular way or using particular techniques—that can be a trade secret. For example, while it may be standard in data analysis to use algorithms or in a manufacturing process to use certain tools or techniques, the exact algorithms, tools or techniques used, the under in which they are used, when to use some versus others, and the like, are all trade secrets. In fact, in my experience, many companies do not even realize they have extensive trade secret information until after it is misappropriated.

Many (and perhaps most) companies have not spent much time identifying their trade secrets and thus do not have a good sense of what does and what does not need to be protected, let alone where that information resides, who knows it, or what the value of it is. All of those considerations are going to be essential if and when it comes time to enforce a trade secret in litigation, but also are important to know in order to design effective processes for protecting the trade secrets and thus reduce the risk of loss or misappropriation.

Instead, most companies rely simply on NDAs and employment agreements to protect their trade secrets. Studies have shown that the most common threat to trade secrets are insiders—employees, former employees and other business partners—so focusing on those individuals makes some sense. Similarly, companies also rely upon cybersecurity protection, which helps with remaining trade secret threats—hackers and other strangers who might infiltrate a company's systems for nefarious purposes. However, with the dramatic increase in trade secret suits in the last few years (which suggests an increase in trade secret misappropriation), the influx of new laws such as the Defend Trade Secrets Act in the United States and the 2016 directive governing trade secrets protection in the EU, and changes in patent eligibility law that make certain inventions only protectable by trade secrets, the stakes are higher than ever. Therefore, relying on NDAs, employment agreements and cybersecurity measures alone are insufficient to protect trade secrets. Instead, companies need to implement other measures, such as trade secret identification, restrictions on and tracking of trade secret sharing, employee and supplier training, enhanced due diligence on business partners, and other steps designed to embed trade secret protection into the company culture, as part of a comprehensive system for trade secret protection.

Cease and Desist Letters

The last area where I see many clients miss an opportunity to strategically position disputes for resolution is when their lawyers who are neither IP lawyers nor litigators draft and send out cease and desist letters or, even more concerning, when they prepare cease and desist letters (or even responses to cease and desist letters) on their own. There are numerous reasons why having a corporate lawyer, a patent or trademark prosecutor, or a non-IP litigator send out a cease and desist letter is not a good idea.

First, in many cases, sending a cease and desist letter prior to filing a law suit is not always the best strategy. One obvious reason is that it could precipitate a declaratory judgment action in a disadvantageous location. In addition, it may signal that the client is not really serious about the matter or is unlikely to litigate it—even if that is true, one certainly does not want to convey that message when you are trying to get the other side to stop doing something.

Second, if the lawyer (or business person) is not deeply versed in IP, they might miss important claims, make unhelpful admissions or otherwise make statements in the letter that are not helpful to the ultimate case. Also, they may not ask for everything that would be necessary to fully resolve a dispute. Even if an IP lawyer is involved, if that person is not a litigator, they may not be familiar with how to develop a litigation strategy. For example, a common technique litigators use to convey our client's seriousness, but willingness to conduct amicable discussions, is to file a lawsuit but not serve it and then send a “courtesy copy” of the complaint along with the cease and desist letter. There are also optics involved—for example, if the other side discovers through a simple google search that the person sending the letter is not a litigator, they know that the client is not quite ready to litigate and may be inclined to ignore the letter or not take the desired action. Litigators with experience in commercial as well as IP litigation can also provide additional value in these disputes, because we can often see other possible claims or procedural strategies that might be employed to bring the matter to a quicker or better resolution. As an IP and commercial litigator, I am always disappointed when a matter comes to me after one or more cease and desist letters (or responses) have been sent, because that represents a lost opportunity to set the stage and the strategy early, which could result in unintended delays and results, and thus increased costs for the client.

On the other hand, clients and some nonlitigation attorneys may be concerned that bringing in a litigator will necessarily result in litigation. This is an understandable concern; however, in my experience, while some litigators tend to be more inclined to litigate first and talk later, most litigators work to achieve the best result for the client, even if that means not litigating. Thus, that concern can be alleviated by selecting litigation counsel whose style best fits the client's goals, instead of not involving litigation counsel early in the process.

These three pitfalls are not the only important ones. Other areas, such as inadequate due diligence, not monitoring and following up on infringement, and even things like not paying maintenance fees are all things that clients do that can keep IP lawyers up at night, but these three are among the most common pitfalls and in some cases most fundamental for many companies, and among the most easily avoided.

Nicole D. Galli is the founder and managing partner of the Law Offices of N.D. Galli, a business litigation and intellectual property law firm with offices in Philadelphia and New York. Galli's practice focuses on commercial and IP litigation, strategic IP counseling and trade secret protection. She is also the founder and president of Women Owned Law (WOL), the first national networking organization dedicated to empowering and supporting women entrepreneurs in the law. Contact her at [email protected] or 215-525-9583.