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Intellectual Property Rights - What's Important to Procurement?

Author(s):

Ernest Gabbard, J.D., C.P.M., CPCM
Ernest Gabbard, J.D., C.P.M., CPCM, Allegheny Teledyne Inc., Pittsburgh, PA 15222

84th Annual International Conference Proceedings - 1999 

SUMMARY. In our modern, high-tech business environment, intellectual property (I.P.) rights can determine a company's success or failure. This paper will outline the essential elements of each of the primary intellectual property rights with which the procurement professional must deal, and summarize the legal requirements for protecting these rights. It will also outline a plan for establishing and maintaining a comprehensive procedure for dealing with each type of I.P.

TYPES OF INTELLECTUAL PROPERTY. All forms of intellectual property law afford the owner with legal protection against unauthorized use of intellectual property by another person or entity. The significant types of intellectual property (I.P.) which are legally protected in the U.S. (and to some extent elsewhere) are: a) patents; b) copyrights; c) trademarks; and d) trade secrets.

While volumes have been written about each type of I.P. and related laws, let's summarize the essential elements which are relevant to the procurement and contracting professional.

PATENTS: A patent provides an inventor the right to exclude others from using, making or selling the invention for a specified period of time (usually 20 years). It effectively creates a "monopoly" for its owner during that period. This protection is not available until a patent application is filed with the U.S. Patent and Trademark Office (USPTO). If your company or a supplier to your company infringes on a patent, legal remedies are available to the patent holder. Patent protection varies considerably in other countries, so caution is imperative in foreign countries to guard against infringement (product duplication). The purchasing professional must ensure that patented products or the drawings/specifications for such products are not inadvertently compromised by failure to assert the company's patent rights in a P.O./Contract.

COPYRIGHTS: This form of I.P. is more common in the procurement environment, and includes the following categories:

  1. literary works, musical, dramatic or choreographic works (with words)
  2. picture, graphics, sculpture
  3. audiovisual works (including movies)
  4. architectural works
  5. computer software

The last category is the most frequent one with which the procurement professional deals. Computer software "piracy" has become a major problem for many companies, and can result in significant liability.

Copyrighted material may not be copied/reproduced, or used in any manner prohibited by the copyright holder. Copyright protection is generally afforded for the life of the creator, plus 50 years. Unlike patents, the copyrighted material need not be registered to obtain protection. The creator need only mark the creation with the word "copyright," or use the (c) symbol and the year of publication. However, registration does afford prima facie evidence of ownership in the event of a dispute. Procurement and contracting personnel should ensure that their company adequately protects supplier's copyrighted material, as discussed below. They must also protect their company's copyrighted material by properly marking copyrighted materials which are provided to suppliers.

TRADEMARKS: Any unique word, name, symbol, device or combination thereof may be protected by trademark laws. Registration of the creation is not required; however, registration is recommended. Trademarks are regulated by both federal and state laws. However, state laws are quite diverse in substance and coverage. Therefore, registration with the USPTO provides universal protection in all 50 states. The creator should always use the symbols "TM" or (r) when trademark protection is asserted. Federal trademark protection is initially afforded for 10 years, if the owner complies with certain requirements during that period. Trademark protection outside the United States is quite diverse and nonexistent in many countries. Therefore, procurement professionals must be particularly careful in the international environment, since "counterfeiting" is common in some areas.

TRADE SECRETS: This type of I.P. is perhaps the least obvious, and yet, sometimes most valuable to a company. It may include any "information, including a formula, pattern, compilation, program, device, method, technique, or process that derives economic value from not being generally known or readily ascertainable by other persons" (Uniform Trade Secrets Act). As may be noted, this is very broad, and often includes information which a purchasing professional may provide to a supplier to manufacture a product or perform a service which is unique to the purchasing company. There is no federal law for trade secrets protection, and state laws vary considerably. Most state laws provide no fixed term or duration for protection. The critical issues in trade secrets protection are to: 1) clearly identify all items as "confidential" or "proprietary"; 2) limit access within the company; and 3) require a clear non-disclosure agreement (NDA) with any supplier or other third party who is granted access.

Now that we have defined and outlined the various types of I.P., let's turn to the practical side of protection of either your company's I.P., or your supplier's I.P. Such intellectual property may be in the form of drawings, specifications, hardware, software, etc.

PROTECTION. As may be concluded, the procurement professional must ensure that his/her company's I.P. is adequately protected when provided to a supplier, and/or that a supplier's I.P. is adequately protected when provided to his/her company. Such protection should initially be in the form of a proprietary information non-disclosure agreement (NDA). This is essentially a stand-alone contract under which both parties agree to protect each other's I.P. Such agreements should include at lease five (5) essential elements:

  1. Define the information to be protected in as much detail as practicable.
  2. Establish the standards of care to be required of both parties to protect the information.
  3. Agree to the length of protection to be afforded by the agreement.
  4. List any exceptions that might be granted. Examples:
    1. The receiving party already possesses the information
    2. The information is disclosed through no fault of either party.
    3. The information was or is released to others without any restrictions.
  5. Agree on the remedies to be provided in the event of a breach of the NDA.

Examples:

  1. Liquidated damages. The parties agree on the specific dollar value of the intellectual property up front and agree that this will be the amount owed to the other if there is a breach.

  2. Actual damages. The parties agree that the amount of recovery for a breach will be based on the actual economic loss suffered by the non-breaching party.

This type of agreement must be accompanied by a clear company policy requiring all employees to safeguard the I.P. of their company and their suppliers. The purchasing professional can be the catalyst for such a policy, and certainly should set the example for others in ensuring protection of intellectual property rights.


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