CHAPTER 5 INTELLECTUAL PROPERTY ASSESSMENT AND RISK MANAGEMENT1

• Jurisdiction: United States

Strategic Risk Management for Natural Resources Companies
(May 2008)
CHAPTER 5
INTELLECTUAL PROPERTY ASSESSMENT AND RISK MANAGEMENT¹
Lynn P. Hendrix
Holme Roberts & Owen LLP
Denver, Colorado

Table of Contents

I. Introduction

II. Attributes of Intellectual Property

A. Trade Secrets

1. Basic Attributes of Trade Secrets

2. Creation and Protection of Trade Secrets

3. Ownership and Transfer of Trade Secrets

4. Security Interests in Trade Secrets

5. Infringement of Trade Secrets

B. Copyrights

1. Basic Attributes of Copyrights

2. Creation and Protection of Copyrights

3. Ownership and Transfer of Copyrights

4. Security Interests in Copyrights

5. Infringement of Copyrights

C. Trademarks and Service Marks

1. Basic Attributes of Marks

2. Creation and Protection of Marks

3. Ownership and Transfer of Marks

4. Security Interests in Marks

5. Infringement of Marks

D. Patents

1. Basic Attributes of Patents

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2. Creation and Protection of Patents

3. Ownership and Transfer of Patents

4. Security Interests in Patents

5. Infringement of Patents

III. Identifying and Protecting Intellectual Property

A. Intellectual Property Audits.

1. Identify Assets That Contain Intellectual Property

2. Types of Intellectual Property Embodied in Each Asset

3. Type of Ownership

4. Title

5. Issuance and Creation

6. Maintenance

7. Rights Granted to Others

B. Protecting Intellectual Property

IV. Protection of Intellectual Property

A. Dealing with Employees

B. Dealing with Independent Contractors

C. Names and Trademarks

1. Trademarks and Service Marks

2. Company Names

3. Domain Names

D. Prior to and During the Deal

1. Trade Secrets

2. Other Intellectual Property

E. Acquisitions and Mergers

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F. Licensing

1. Software

2. Geological and Geophysical Information

3. Restrictions on Assignment

G. Computer Systems

1. Employee Privacy

2. Discrimination and Harassment

3. Disability Claims

4. Disclosure of Trade Secrets and Confidential Information

5. Defamation

6. Internet Usage as a Reason for Termination

7. Recommendations

H. Websites

V. Infringement and Misappropriation Claims

A. Enforcing Intellectual Property Rights

B. Infringement and Misappropriation Claims

VI. Covenants Not to Compete

A. Law of Covenants Not to Compete

B. Application to Covenants Not to Compete

C. Application to the Natural Resources Industry

1. Uses of Covenants Not to Compete in the Natural Resources Industry

2. Cases Involving the Natural Resources Industry

D. Written Agreements

1. General Aspects

2. Reasonableness of Covenants

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3. Drafting Considerations

VII. Conclusion

Exhibits

A. FORM OF EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

B. FORM OF INDEPENDENT CONTRACTOR AGREEMENT

C. ROCKY MOUNTAIN MINERAL LAW FOUNDATION - Form 7 CONFIDENTIALITY AND NONDISCLOSURE AGREEMENT

D. FORM OF POLICY ON THE USE OF COMPUTERS AND COMMUNICATIONS SYSTEMS

E. FORM OF LOGIN NOTIFICATION

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I. Introduction.

Intellectual property can be among a company's most valuable assets, and often gives a company a significant advantage over its competitors. A company's processes, procedures, and methods (including business methods), information, data, products and goodwill (including business names and designs) all embody intellectual property. Intellectual property is intangible personal property, and includes the four categories of trade secrets, copyrights, trademarks and service marks, and patents.²

A company does not have to be on the cutting edge to have intellectual property. Every company has know-how, information, materials, processes and procedures that may be protectable by trade secret, copyright or patent law.

Intellectual property has certain attributes that differ significantly from other types of property, and each type of intellectual property varies significantly from the other types of intellectual property. Unlike real and tangible personal property, intellectual property rights are not only governed by statute, but are generally created by statute, which adds to the complexity of dealing with intellectual property. There is little correlation between the statutes creating the different types of intellectual property. In addition, the laws relating to intellectual property change frequently, and it is important to know how the laws have changed from time to time when analyzing intellectual property rights.

Intellectual property can be owned, or it can be licensed. Licensing is the procedure by which the owner of intellectual property allows another party to use the intellectual property to a limited extent. Licenses are contracts between parties and, to a great extent, are governed by general contract law; but licenses are also subject to the underlying laws establishing the different types of intellectual property covered by the licenses. Certain aspects of intellectual property law cannot be varied by contract. Licenses can place a variety of restrictions on the use and disclosure of intellectual property. Restrictions can be placed on where, when, for how long, how, and by whom the intellectual property can be used. Licenses often provide for compensation to the owner of the intellectual property.

Individual assets may include one or more of the four categories of intellectual property. For example, software may contain trade secrets and copyrightable material, and the process the software implements may be subject to patent protection. Because each type of intellectual property is different, each type of intellectual property needs to be understood and dealt with on a separate and distinct basis.

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Intellectual property law is vast and extremely complex. This paper is intended to alert companies to some of the more basic concepts of intellectual property law and the risks associated therewith. Reference should be made to the various articles, treatises and other authorities cited in the footnotes for a more complete analysis of intellectual property law. Hopefully, this paper will assist companies in identifying the issues and alert them to situations where the assistance of an intellectual property lawyer is advisable. In that regard, the author believes that lawyers with intellectual property experience should be consulted when assessing and managing the risks associated with intellectual property.

This paper will describe the types of intellectual property and discuss the various attributes thereof. It will then discuss how intellectual property audits should be conducted. Finally, it will discuss how a company should protect its intellectual property in various situations, and how to assess and manage the risks associated with the ownership and use of intellectual property.

II. Attributes of Intellectual Property.

A. Trade Secrets.³

1. Basic Attributes of Trade Secrets.

Practically every company has trade secrets. Trade secrets consist of know-how, processes, procedures, information and data that may be protected as a property right under trade secret law, contractually through the use of confidentiality and nondisclosure agreements or through a combination thereof. More specifically, a "trade secret" consists of information, including a formula, pattern, compilation, program, device, method, technique or process that (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.⁴ Generally, this means that any know-how, process, procedure, information, or data can be a trade secret provided it (a) is not generally known and not readily ascertainable, (b) has independent economic value, and (c) is subject to reasonable efforts to maintain secrecy.

Trade secrets arise as a property right under state law pursuant to the Uniform Trade Secrets Act (UTSA),⁵ Section 757 of the Restatement of Torts,⁶ or Sections 39-45 of the Restatement (Third) of Unfair Competition.⁷ The UTSA in one form or another has been adopted in 45 states, the

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District of Columbia and the U.S. Virgin Islands.⁸ Those states that have not adopted the UTSA generally follow the Restatement. In addition, several states have specific criminal statutes covering the theft of trade secrets.⁹

2. Creation and Protection of Trade Secrets.

Trade secrets arise as a matter of law if secrecy is maintained, and appropriate steps must be taken to ensure that employees, business partners and potential business partners with access to trade secrets maintain the secrecy thereof. Confidentiality and nondisclosure agreements, or the lack thereof, can expand or limit the protection otherwise provided by trade secret law. Because the UTSA requires reasonable steps to maintain confidentiality, the failure to enter into a confidentiality and nondisclosure agreement, a poorly drafted confidentiality and nondisclosure agreement or the failure to follow a well drafted confidentiality and nondisclosure agreement, may terminate the protection provided under trade secret law. If the parties are unable to agree upon a formal confidentiality and nondisclosure agreement, ensuring that the party receiving information knows and acknowledges the confidential and proprietary nature thereof and its obligation to maintain confidentiality may be adequate to maintain protection under the UTSA and applicable trade secret law; however, anything short of a written confidentiality and nondisclosure agreement may raise concerns as to the continued availability of trade secret protection and is not advisable.¹⁰

3. Ownership and Transfer of Trade Secrets.

Ownership of a trade secret arises in the...