Intellectual Property Rights

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Editor: Sonya D. Hill
Date: 2012
Encyclopedia of Management
Publisher: Gale, a Cengage Company
Document Type: Topic overview
Pages: 5
Content Level: (Level 4)

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Intellectual Property Rights

Intellectual property is a term used to cover goods and services protected under the laws governing patents, trade-marks, copyrights, and trade secrets. Although the legal rights concerning different kinds of intellectual property are similar in a general sense, they differ specifically in what they protect and in how the particular rights are established. Patents protect an inventor's right to exclude others from making, manufacturing, using, or selling an inventor's invention. Trademarks protect words, phrases, symbols, and designs. Copyrights protect original artistic, musical, and literary works, including software. Intellectual property rights can also encompass trade secrets laws, which protect a company's proprietary and confidential information, such as methods of manufacturing, customer lists, supplier information, and the materials used during the manufacturing process.


A patent is a grant of a property right by the U.S. government, through the Patent and Trademark Office (PTO), to the inventor of an invention. A patent is not a grant of the right to make, manufacture, use, or sell the invention, but rather the right to exclude others from making, manufacturing, using, or selling the invention.

Under the law, anyone who “invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new and useful improvements thereof, may obtain a patent.” Courts have interpreted this language to include nearly anything that could be fabricated. One cannot, however, patent literary works, compilations of data, compositions of music, legal documents, or forms of energy. An invention must meet the test of being “new” under the standards in the law before a patent will be granted. The subject matter of an invention must be sufficiently different from what has been described before in a printed publication of some sort anywhere in the world, or on sale in the United States before the date of the application for the patent. In addition, the invention must not be obvious to a person who has ordinary skill in the relevant technical or scientific area at the time the inventor applies for the patent. Finally, an invention must be determined “useful” before obtaining a patent, although this requirement is interpreted very broadly.

The power to grant rights in patents arises from Article I, section 8 of the U.S. Constitution, which provides that “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.” The first patent law was passed in 1790, and the current law governing patents took effect in 1953. Since the first statute, over 6.5 million patents have been granted. The current statute set forth the subject matters for which patents may be granted and the conditions under which a patent will be issued. It also established the PTO.

An inventor applies for a patent by sending to the Commissioner of Patents and Trademarks a written specification, which is a description of the invention and of the process by which the invention is made and how it is used. The specification must contain one or more claims about the subject matter that the applicant believes constitute an invention. The specification must also be accompanied by a sworn oath or declaration by the inventor that he or she is the original and first inventor of the subject matter of the application. Only the inventor may apply for a patent, with two exceptions: (1) if the inventor has died before applying for a patent, the inventor's estate may do so, and (2) if the inventor is insane, the inventor's guardian may apply for the patent. The application must also include drawings, where necessary, and the appropriate filing fee, which the patent statute and rules have established.

The PTO carries out the patent laws by examining the applications to determine if the inventor is entitled to

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a patent. The office publishes the specifications and drawings of all patents on the day they are issued. It records assignments of any patents to entities other than the inventors. It also maintains a search room for the public to look at issued patents and the office's records.

In 1995, U.S. patent law was changed so that it would conform to the World Trade Organization's Agreement on Trade-Related Aspects of International Property Rights as decided in the Uruguay Round. Applications filed on or before June 8, 1995, have a term of 20 years from the earliest filing date as long as the holder of the patent pays maintenance fees. Applications pending on June 8, 1995, and patents that were in force on this date have the longer term of either 17 years from the issue date or 20 years from the earliest filing date. Design patents, as opposed to utility patents, have 14-year terms. Some patents require the payment of patent fees.

The legal status of business method patents varies from country to country. It is difficult to obtain a patent for methods of doing business in China, India, Mexico, Israel, and most of Europe. Under U.S. patent law, business methods are judged according to the same requirements as any other application. Before the 1980s and 1990s, the PTO stated that business methods were not patentable, but it became difficult to differentiate between technological inventions and business methods when judging applications for computer-implemented methods of doing business. Therefore, the PTO decided that business methods were patentable if they used the “technological arts,” but this position was overturned in 2005.

In 2007, the U.S. Supreme Court made a number of decisions concerning patent rights. These cases were MedImmune v. Genentech, decided 8-to-1; KSR International v. Teleflex, decided 9-to-0; and Microsoft v. AT&T, decided 7-to-1. To many observers the overall result of these cases, in the words of Robert Barnes and Alan Sipress, in the Washington Post, “weaken[ed] the protection given to patent holders, making it more difficult to get a patent and easier to challenge existing ones.”

In 2008, the Supreme Court voted 9-to-0 in Quanta Computer, Inc. v. LG Electronics, Inc. in deciding to limit the reach of patent law regarding the “postsale use” of a product—particularly component parts used in the manufacture of another end product. The court wrote, “The longstanding doctrine of patent exhaustion provides that the initial authorized sale of a patented item terminates all patent rights in that item.”

A patented invention is no guarantee of future commercial success. Statistically, although millions of patents have been granted, the number of successful inventions is minuscule. One avenue of commercialization open to a patentee is licensing his or her patent to a company, or a number of companies, provided he or she is able to locate a firm that is willing to risk investing in a wholly untried product or process. Upon licensing the patent, however, the patent holder cannot demand that royalties from the product continue beyond the stipulated 20-year patent period, nor can the patentee set the product's price or determine its use.


A trademark is a word, name, phrase, symbol, or design, or a combination of these elements, which identifies and distinguishes the source of goods or services. The term trademark also encompasses service marks. Service marks are the same as trademarks except that they identify and distinguish the source of a service rather than a product. Trademark rights are used to prevent others from making, promoting, or selling goods or services which have a name, symbol, or design that is confusingly similar to that of an established trademark. It does not, however, prevent others from making or selling the same goods or services, as long as it is under a different, nonconfusing mark.

There are two distinct types of rights in a trademark or service mark: the right to use the mark and the right to register the mark. These rights arise from either using the mark in actual commerce, or filing an application for registration of the mark with the PTO.

The registration of marks is controlled under the Trademark Act of 1946; the Trademark Rules, 37 C.F.R. Part 2; and the Trademark Manual of Examining Procedure. The act covers not only trademarks and service marks, but also certification marks, collective trademarks, and collective membership marks. The first party who either uses a mark in the course of commerce or business or files an application for registration with the PTO usually has the right to register that mark. A party can use a mark, or establish rights in it, without filing an application for registration. The registration, however, creates a presumption that the party who has registered the mark is the owner of the mark for the goods and services set forth in the registration application, and therefore has the right to use the mark anywhere in the country. This presumption can become important when two parties unintentionally begin using similar marks and become involved in a lawsuit over who has the right solely to use the mark. This is not determined by the PTO, but by a federal court, which has the power to issue an injunction to stop a party from using a mark, and to award damages for a party's improper use of another's mark.

Similarly, the owner of a mark may use the trademark (TM) or service mark (SM) designation with the mark to make it clear that the owner is claiming rights in the product or service so designated. The trademark or service mark designation may be used without the owner having registered the mark with the Patent and Trademark Office.

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If it is registered, however, the owner may use the registration symbol (®) with the mark.

Rights in a trademark, unlike rights in a copyright or a patent, can last for an indefinite period if the owner of the mark continuously uses the mark for its products or services. Federal registrations last for 10 years, but between the fifth and sixth year after the date of the initial registration, the person who registered the mark must file an affidavit with information about the mark and ownership. If the registrant does not file this affidavit, the registration is cancelled. After the initial registration period, the mark can be renewed for successive 10-year terms. Registration of a mark with the PTO provides protection from others using the mark in the United States and its territories, but does not extend to its use in other countries.


A copyright gives an owner of “original works of authorship” the exclusive right to reproduce the work; prepare derivative works based on the copyrighted work; and distribute, perform, or display the work. Copyrights are registered with the Library of Congress Copyright Office. The first Copyright Act was passed in 1790, and it has been revised many times, most recently in 1976. This act sets forth eight categories of works that can be copyrighted. These are as follows:

  1. Literary works
  2. Musical works, including lyrics
  3. Dramatic works, including music
  4. Pantomimes and choreographic works
  5. Pictorial, graphic, and sculptural works
  6. Motion pictures and other audiovisual works
  7. Sound recordings
  8. Architectural works

These categories are interpreted broadly, so that, for example, software is considered copyrightable as a literary work. However, the act does not protect an “idea, procedure, process, system, method of operation, concept, principal or discovery regardless of the form in which it is described, explained, illustrated or embodied in such work.”

The term of a copyright is for the period of the life of the owner, plus 50 years. An entity or person can become the owner of a copyright in two ways, either by creating the work personally, or through owning a work for hire. Works for hire cover situations where an employee creates a work at the request of an employer (and the employer thereby owns the copyright), or where someone commissions the creation of a work, and the party commissioning the work and the creator have agreed in writing that the commissioning party shall be the owner and that the work shall be a work for hire.

In 1988, the United States became a signatory to the Berne Convention, by enacting the Berne Convention Implementation Act. The Berne Convention provides copyright protection for a copyright owner simultaneously in most countries in the world. To become a signatory country, the United States had to amend the Copyright Act to create a copyright in a work automatically upon completion of the creation. Now, as soon as a composer finishes a work or an author writes the last words of an article, there exists a copyright. However, if an owner wishes to sue for copyright infringement, the owner must register the copyright with the U.S. Copyright Office by completing an application, and sending it with two copies of the “best edition” of the work and the filing fee.


Trade secrets are another key example of protected intellectual property. A trade secret, as defined under the Economic Espionage Act, has three parts. The secret must be (1) information; (2) there must be reasonable measures taken to protect the information; and (3) the information must derive independent economic value from not being publicly known. Trade secrets are protected because the knowledge a company has of its product, its developing technologies, and its customer base can sometimes have a significant value. One way to protect this key information is simply to restrict who has access to it.

To get formal legal protection in the form of a patent, trademark, or copyright, a company or individual must provide information about the intellectual property to the appropriate government office. The information thus becomes more widely known. This is not required for trade secrets, which by definition are kept secret. The protection of a trade secret also does not expire, as does a patent, copyright, or trademark.

According to Chico Harlan, in the Pittsburgh Post-Gazette, “Trade secrets are the most powerful, but also among the most risky, form of protection for a company product or formula.” Since a trade secret is closely guarded and available only to a select few higher ups in the company, the information is more protected in many ways than a patent, trademark, or copyright, but there is also a risk that the information could fall into the wrong hands and become a part of the public domain. Once in the public domain, the information would no longer be considered a trade secret and would lose much of its value.

Trade secrets exist in numerous industries, but one major example of a trade secret is the insider knowledge of the formula for Coca-Cola. David Tungate, an associate professor of law at Carnegie Mellon University's

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Tepper School of Business, told Harlan that “The formula for Coke is the most famous trade secret. … Allegedly, only two or three people have access to a safety box where the secret resides.”

The disclosure of trade secrets can be devastating to companies and the law recognizes this by punishing those who steal trade secrets for foreign powers and those who steal trade secrets for economic gain. In 2006, for example, a Coke employee and two others faced federal charges for the theft of the Coca-Cola formula. More recently, in 2010, Chinese national Kexue Huang faced 12 counts of criminal charges for the theft of trade secrets from Dow AgroSciences.

Companies generally take numerous measures to protect their trade secrets. In addition to not disclosing the information widely, companies may run background checks and investigations on employees prior to hiring. Another way in which companies try to protect their trade secrets is through the use of noncompete agreements. These are agreements in which a company requires employees to refrain from working with competitors within a set geographical range or for a limited period of time after leaving employment. While non-compete agreements are considered controversial, most courts will uphold them as long as they are reasonable in scope. A related agreement, called a nondisclosure non-circumvention (NCND) agreement, is also frequently used. With an NCND, a company is able to share insider information or trade secrets with investors, developers, or those who are considering merging or buying out the company, and those who receive the information are barred from using it for their gain without permission.


Because intellectual property is protected and has a tangible value, in certain instances it becomes important to assess the worth of information that is owned. One manner in which this is done is an intellectual property audit. Commonly conducted in the event of an acquisition or a merger, an intellectual property audit can be conducted to determine whether a copyright, patent, or trademark is really owned by the entity that is claiming to own the item. For example, a copyright audit may be done to ascertain whether any consultants were involved in the creation of a copyrighted work and, if so, whether potential issues of authorship could arise.

In a society where information has become an increasingly valuable commodity, intellectual property audits have risen in importance. Today, such audits are a routine part of corporate due diligence and are often conducted by law firms and other professionals who specialize in the field.


Efforts to protect intellectual property became vastly more complicated with the growth of Internet technology in the late 1990s and beyond. On a positive note, the Internet has made it significantly easier for individuals and companies to conduct searches of patent and trade-mark databases, whether they are looking to patent an invention or license someone else's invention.

In the first decade of the twenty-first century, a growing number of technology companies began launching intellectual property licensing programs to turn their accumulated patent bases into revenue. These firms conducted inventories of their patents and identified technologies that were outside the core business, yet still offered some potential for development. They then sought to license these technologies to other firms. IP licensing has proven quite lucrative for a number of large technology firms. IBM, for example, earns over $1 billion per year from its IP licensing program.

The global reach of the Internet has also spurred efforts to harmonize international patent and trademark protection. Several attempts have been made to bring the protection granted by developed and developing nations in line. In 2002, for example, the World Intellectual Property Organization Copyright Treaty (WCT) was ratified by the United States, Japan, and the European Union. The WCT updated the Berne Convention to apply to the Internet age, setting international standards for the protection of literary and artistic works in digital form.

In other ways, however, the Internet has made it more difficult for owners to protect their intellectual property rights. The global computer network has given people greater access to all kinds of creative works, and in many cases enabled them to copy such works without regard to legal protection. “Virtually all creative content can be digitized, even if it was not initially created on a computer, and the Internet has become the primary distribution channel for every kind of digital material,” Jonathan Cohen explained in his article, “Copyright and Intellectual Property in the Age of the Internet.”

The widespread availability of intellectual property in digital form has also led to illegal copying of technology, software, music, and other protected materials. Nowhere has this been more prevalent than in the music and newspaper businesses, where the old business models have been turned upside down, and new questions concerning the “fair use” of intellectual property arise continually. Indeed, some of the Internet's most popular sites (such as You-Tube) seem to thrive on offering copyrighted material.

SEE ALSO Innovation .

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Gale Document Number: GALE|CX4016600149