Arm 55 Chapter 5 - Intellectual Property And Reputation Risk

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Definition: Intellectual property

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The product of human intelligence that has economic value.

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Definition: Infringement

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The unauthorized use of an individual's intellectual property.

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4 Types of intellectual property protection

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1) copyright: legal right guaranteed by a governmental entity to a person or organization for a period of years to exclusively own and control an original written document, piece of music, software, or other form of expression.
2) trademark: legal right granted by a government entity to an organization to exclusively own and control a distinctive design or set of words that legally identifies a product or service as belonging to that organization
3) patent: the legal right granted by a governmental entity to an inventor or applicant for a limited period to exclusively own and control a new, useful, and non obvious invention.
4) trade secret: a practice, method, process, design or other information used confidentially by an organization to maintain a competitive advantage. (5.4)

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Copyrights

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Automatically applies to all types of original expression, whether the expression is authored in the form of words, musical notes, sculpture, video, or lines of source code in a computer program. (5.5)

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Copyright features

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The important features of copyright are creation, ownership, and duration. (5.5)

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Copyright creation

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A copyright is created when a work meets three criteria:
1) the work must be original
2) the work must be fixed in a tangible medium of expression that is permanently recorded (e.g. paper, video, digital media, etc).
3) the work must have some degree of creativity.
(5.6)

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Copyright ownership

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Copyrights are generally owned by the person (author) who created the work. However, three exceptions apply:
1) when the work was created in the course of the author's employment.
2) when the work was created on commission.
3) when the author sells the copyright.
(5.6)

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Copyright duration

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Copyright act (U.S.) (5.7)

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Risk control measures for copyright loss exposures

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1) notice
2) registration
3) restrictive covenants
4) responses to anticipated defences
5) licensing agreements
(5.8)

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Notice

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To control copyright infringement exposures, many copyright owners have chosen to place a copyright notice on their published works. The notice takes the form of (a circle with a 'c' in it), followed by the year in which the work was published and the name of the copyright owner. (5.8)

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Registration

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To obtain full protection under the law and more significant monetary damages under the applicable statute, a copyright owner should register the work with a copyright office. (5.9)

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Restrictive covenants

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Many companies attempt to control copyright infringement loss exposures by drafting and enforcing restrictive covenants. In this context a restrictive covenant is any provision, clause, or agreement that, on termination of employment or contract, restricts the post-termination activities of the employee or contracting party.

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Responses to anticipated defences

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In some situations, alleged infringers don't deny they copied the works, only that copyright owners waited too long to claim infringement. The legal term for waiting too long to assert a legal right is called laches. Counsel can help the risk management professional determine if the copyright protection has actually been lost because of such a delay. (5.9)

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Licensing agreements

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Copyright owners can grant permission to others to use their copyrighted material. The permission usually takes the form of a licensing agreement. (5.10)

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Trademarks (see 'service mark' and 'trade dress' on 5.11)

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Organizations use trademarks to protect their intellectual property. For example, the Nike phrase 'just do it' or the logo 'the swoosh'. (5.10)

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Features of trademarks

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1) categories
2) creation
3) duration
(5.11)

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Trademark categories

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1) arbitrary mark
2) fanciful mark
3) suggestive mark
4) descriptive mark
(5.11)

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Arbitrary mark

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A word of phrase that appears to have been used randomly. These marks are considered memorable because of their random nature. For example, Hush Puppy shoes is an arbitrary mark in relation to the product it sells. (5.11)

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Fanciful mark

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a word or phrase that conjures up an image that is imaginative. For example, the phrase 'pillow walker' when used to describe a brand of shoe. (5.11)

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Suggestive mark

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Implies certain product qualities. For example, bite-no-more insect repellant. (5.11)

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Descriptive mark

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Describes the product. For example, Luxury Limo Service, emphasizes a product feature rather than distinguishing the product from its competitors. (5.11)

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Trademark creation

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A RM professional should be able to recognize which assts can be protected by trademark law. Trademarks are created when the mark is first used on a product or in product marketing. The business that first uses the mark is considered to be its owner. 2 requirements for trademark creation:
1) the mark must be distinctive.
2) the owner must be the first to use the trademark.
(5.12)

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Trademark duration

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A trademark that has been entered on the USPTO Principal Register is protected for 10 years. (not sure about Canada). (5.13)

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Risk control measures for trademark loss exposures

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1) notice
2) registration
3) searches and watches
4) licensing agreements
5) restrictive covenants
6) enforcement of rights
(5.13)

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Notice

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The trademark owner can obtain additional protection under the law by registering the trademark. Once registered, the mark should be shown with the symbol (circle with 'R' inside). Until registered on principal register, TM should be used with the mark. (5.13)

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Registration

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The symbol (circle with 'R' inside) can be used only if the trademark has been registered. (5.13)

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Searches and watches

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Before a trademark registration is attempted and periodically thereafter, a search should be done to determine if someone else has a similar trademark or service mark or has applied for a similar mark. (5.14)

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Licensing agreements

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Licensing agreements should be carefully drafted before allowing anyone else to use an organization's mark. These marks will address quality control issues. (5.14)

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Restrictive covenants

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Restrictive covenants can be used to protect trademarks in much the same way they are used to protect copyrights. By agreeing to a restrictive covenant, if the other party were to infringe upon a trademark right of the organization, that organization has the additional protection created by the agreement. (5.14)

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Enforcement of rights

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Infringers should be dealt with in a timely manner with a cease-and-desist letter or notification of intent to sue. (5.14)

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Patents

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A patent is a commonly used type of intellectual property protection. A patent is a legal protection and right granted by the federal government that gives its owner the ability to control who makes, uses, sells, or imports for sale his or her invention for a limited period. (5.15)

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Feature of patents

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3 types of patents:
1) utility
2) design
3) plant

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Utility patent

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A patent issued for an invention or a process that has some utility or usefulness. (5.15)

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Design patent

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A patent issued for a design that is new or innovative or that is ornamental or aesthetic in nature. For example, a bottle shape. (5.15)

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Plant patent

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A patent issued for a biological asexually reproducing plant that is new. (5.15-16)

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RIsk control measures for patent loss exposures

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1) notice
2) licensing agreements
3) restrictive covenants
4) freedom to operate
(5.16-17)

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Trade secrets

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If an organization takes reasonable steps to ensure the confidentiality of information about an invention it has devised, the invention can attain the status of a trade secret. A trade secret can be anything that gives its owner an advantage over competitors and that is treated as secret. (5.19) (look up 'reverse engineering)

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Features of trade secrets

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Courts answer questions to determine trade secret status
1) how well is the secret known outside the business that owns the secret?
2) how must of the secret is disclosed to employees of the business that owns the secret?
3) what steps are taken to guard the secret?
4) what is the secret's commercial value?
5) how difficult would it be for someone else to acquire or duplicate the secret? (5.20)

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Trade secret loss exposures

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Several loss exposures are associated with trade secrets. The most obvious is that another entity might honestly recreate an organization's secret invention, process, or method and get it patented. (5.20)

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Risk control measures for trade secret loss exposures

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Because no formal process exists for designating something as a trade secret, the risk control measures associated with trade secret loss exposures focus on maintaining secrecy. These are some of the risk control measures that can be used to ensure information confidentiality:
1) disclose the information only to those employees who need to know the info to perform their job
2) require a sign-in or similar security measure to gain access to the area where the secret information is used or maintained.
3) control any documentation regarding the secret by using a safe, a "confidential" stamp, or a burn bag.
4) require employees to sign a restrictive covenant in the form of a nondisclosure agreement. (5.21)

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Valuing intellectual property

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Unlike traditional forms of tangible property, intellectual property isn't easily inventoried or quantified. (5.21)

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Reasons for valuing intellectual property

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The importance of intellectual property to an organization's identity, market share, competitive strategies, and overall worth make determining its value essential. 6 specific reasons why intellectual property must be properly appraised: (5.22)

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Valuation methodologies

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1) the fair market value approach is the valuation method used by most formal intellectual property valuation reports.
2) the income approach is the most prevalent intellectual property valuation method. It assigns current value to a piece of intellectual property based on discounted cash flows the property would generate over its useful life.
3) the cost approach assigns a value to a piece of intellectual property based on the amount the organization invested in its creation and development. (5.22)

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Reputation risk

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An intangible asset, a key determinant of future business prospects, resulting from a collection of perceptions and opinions, past and present, about an organization that resides in the consciousness of its stakeholders.

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Concepts in managing risk to reputation

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1) reputation as a key asset
2) key risk sources
3) systemic approach to managing reputation risk
4) implementation of risk management for reputation risk
(5.23)

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Reputation as a key asset

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managing risk to an organization's 'reputation asset' involves managing stakeholder expectations and understanding that reputation is subject to both threat and opportunities.
(5.24)

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Key risk sources

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When examining risk to reputation, organizations often consider only the downside, or threat that could adversely affect the company. The upside of risk--leveraging opportunities to enhance reputation--should also be considered. (5.25)

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Systemic approach to managing reputation risk

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A systemic approach to risk to reputation can be examined by studying 'the essential triangle', the mechanism of reputation, and the potential negative impact on reputation. An organization is a dynamic combination of interactions among the organization itself, its message, and its stakeholders' expectations, known as 'the essential triangle'. Reputation can be either enhanced or damaged as a consequence of these interactions. (5.26-27). J&J example 5.29.

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Implementation of risk management for reputation risk

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1) identify, evaluate, and prioritize reputational risks--identify key drivers of risk to reputation, evaluate the tangible consequences of the increase or decrease in reputation as an asset, and prioritize accordingly. (5.30)
2) Develop and implement risk responses--the appropriate response to a risk affecting reputation is contingent on the source of the risk. (5.30)
3) Monitor and report--after risks to reputation have been identified, evaluated, and prioritized and risk responses designed and implemented, risks should be continually monitored by management, who should constantly be on guard for early risk detection so that immediate corrective action can be taken when required. (5.30)