ESSENTIALS of Intellectual Property

FPREF 12/13/2010 11:21:42 Page 18 FFIRS 01/12/2011 10:49:45 Page 1 ESSENTIALS of Intellectual Property Second Edition FFIRS 01/12/2011 10:49:46 Page 2 ESSENTIALS SERIES The Essentials Series was created for busy business advisory and corporate professionals. The books in this series were designed so that these busy professionals can quickly acquire knowledge and skills in core business areas. Each book provides need-to-have fundamentals for those professionals who must: Get up to speed quickly, because they have been promoted to a new position or have broadened their responsibility scope Manage a new functional area Brush up on new developments in their area of responsibility Add more value to their company or clients Books in this series include: Essentials of Accounts Payable by Mary S. Schaeffer Essentials of Balanced Scorecard by Mohan Nair Essentials of Business Ethics by Denis Collins Essentials of Business Process Outsourcing by Thomas N. Duening and Rick L. Click Essentials of Capacity Management by Reginald Tomas Yu-Lee Essentials of Cash Flow by H.A. Schaeffer, Jr. Essentials of Corporate and Capital Formation by David H. Fater Essentials of Corporate Fraud by Tracy L. Coenen Essentials of Corporate Governance by Sanjay Anand Essentials of Corporate Performance Measurement by George T. Friedlob, Lydia L.F. Schleifer, and Franklin J. Plewa, Jr. Essentials of Cost Management by Joe and Catherine Stenzel Essentials of Credit, Collections, and Accounts Receivable by Mary S. Schaeffer Essentials of CRM: A Guide to Customer Relationship Management by Bryan Bergeron Essentials of Enterprise Compliance by Susan D. Conway and Mara E. Conway Essentials of Financial Analysis by George T. Friedlob and Lydia L.F. Schleifer Essentials of Financial Risk Management by Karen A. Horcher Essentials of Foreign Exchange Trading by James Chen Essentials of Intellectual Property, Second Edition by Alexander I. Poltorak and Paul J. Lerner Essentials of Knowledge Management by Bryan Bergeron Essentials of Licensing Intellectual Property by Paul J. Lerner and Alexander I. Poltorak Essentials of Managing Corporate Cash by Michele Allman-Ward and James Sagner Essentials of Managing Treasury by Karen A. Horcher Essentials of Online Payment Security and Fraud Prevention by David Montague Essentials of Patents by Andy Gibbs and Bob DeMatteis Essentials of Payroll Management and Accounting by Steven M. Bragg Essentials of Risk Management in Finance by Anthony Tarantino with Deborah Cernauskas Essentials of Sarbanes-Oxley by Sanjay Anand Essentials of Shared Services by Bryan Bergeron Essentials of Supply Chain Management by Michael Hugos Essentials of Technical Analysis for Financial Markets by James Chen Essentials of Trademarks and Unfair Competition by Dana Shilling Essentials of Venture Capital by Alexander Haislip Essentials of Working Capital Management by James Sagner Essentials of XBRL by Bryan Bergeron For more information on any of the above titles, please visit www.wiley.com. FFIRS 01/12/2011 10:49:46 Page 3 ESSENTIALS of Intellectual Property Law, Economics, and Strategy Second Edition Alexander I. Poltorak Paul J. Lerner John Wiley & Sons, Inc. FFIRS 01/12/2011 10:49:50 Page 4 Copyright # 2011 by Alexander I. Poltorak, Paul J. Lerner. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danver s, MA 01923, (978) 750-8400 , f ax (978) 646- 8600, or on the Web at www .copyr ight.com. R equests to the Publisher for per mission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-601 1, f ax (201) 748- 6008, or onli ne at http:// ww w.wiley.com/g o/per mis sions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information abo ut Wiley produ cts, vi sit our web site at ww w.wiley.com. Library of Congress Cataloging-in-Publication Data Poltorak, Alexander (Alexander I.) Essentials of intellectual property / Alexander I. Poltorak, Paul J. Lerner.—2nd ed. p. cm.—(Essentials series) Includes bibliographical references and index. ISBN 978-0-470-88850-6 (pbk.) 1. Intellectual property—United States. I. Lerner, Paul (Paul J.) II. Title. KF2980.P65 2011 346.7304 08—dc22 2010039904 Printed in the United States of America 10987654321 FTOC 12/15/2010 15:16:37 Page 5 Contents Foreword to the Second Edition vii Foreword to the First Edition xi Preface xv Author’s Note xix Acknowledgments xxi About the Authors xxiii Introduction: Setting the Stage xxv 1 The Big Three: Patents, Trademarks, and Copyrights 1 2 The Supporting Players: Other Types of IP—Trade Secrets and Know-How, Mask Works, and Noncompetition and Nondisclosure Agreements 34 3 Protecting the Fruits of Your Research and Development 47 4 Know What You Have (IP Audit) and What the Other Guy Has (Competitive Intelligence) 54 5 What Is It Worth? Putting a Value on Intellectual Property 70 v FTOC 12/15/2010 15:16:37 Page 6 vi Contents 6 Make More Money by Sharing (Licensing) 83 7 Corporate Officers and Directors Beware: You Can Be Liable for Mismanaging Intellectual Property 92 8 Enforcing Your Rights 104 9 The Fundamental Things Apply, As Time Goes By: Intellectual Property in Cyberspace 167 10 The Patent Portfolio and Its Effect on Stock Price 180 11 How the Courts Have Changed the Patent Law 185 12 Patent Reform 209 Appendixes Appendix A: Trademark and Service Mark Application 223 Appendix B: Copyright Application 231 Appendix C: Confidentiality and Nondisclosure Agreement 239 Appendix D: Invention Assignment Form 242 Appendix E: Basic IP Audit Questionnaire 247 Appendix F: Patent Valuation 249 Appendix G: Invention Disclosure Form 270 Appendix H: License Agreements 272 Bibliography 286 Further Reading 287 Index 289 FBETW01 12/13/2010 11:15:3 Page 7 Foreword to the Second Edition he three most important developments in world history, according T to Abraham Lincoln, were the perfection of printing, the discovery of America, and the introduction of patent laws. Printing allowed the widespread communication of ideas across time and space. The discovery of America unveiled a vast continent of resources and had produced a unique form of government where, for the first time in world history, people governed themselves. ‘‘The patent system,’’ Lincoln said, ‘‘added the fuel of interest to the fire of genius.’’ Lincoln’s appreciation of patent laws reflected that of George Wash- ington and the other founding fathers of the United States. The framers of the Constitution, of which Washington was the most prominent, put into that document a simple 32-word provision that has been the foundation of U.S. progress for more than two centuries: The Congress shall have power to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. This is the only place in the body of the Constitution where the word right exists. The rights to engage in free speech, own a gun, peti- tion the government, and not incriminate yourself, among others, were enacted later as constitutional amendments. vii FBETW01 12/13/2010 11:15:3 Page 8 viii Foreword to the S econd Edition In Washington’s first State of the Union message (January 1790), he asked the first Congress to enact patent and copyright laws. On April 10, 1790, the sixth law enacted in the United States was the Patent Act. The eighth law, enacted on May 31, 1790, was the Copyright Act. With that, the first Congress established a national development policy based on stimulating innovation, creativity, investment, and the sharing of knowledge that patents and copyrights facilitate. The genius of Article I, Section 8, is that in authorizing Congress to write the laws on intellectual property (IP) rights, it also encouraged it to change those laws to accommodate the needs of a growing nation. As anticipated, Congress has altered those laws, often wisely but some- times not. The intellectual property rights of the American people represent a golden covenant between society and creative individuals that encour- ages the sharing of their knowledge in exchange for a publicly granted right of exclusive use for a set time. This covenant is the foundation of the American economy.

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