Why every medical practice should care about intellectual property

As a service provider, you know the name and reputation of your medical practice goes a long way toward the success of your practice. But are you aware that Intellectual Property is one of the most important business assets you have. Intellectual property refers to the legal field that involves protection of creations of the mind and may take many different forms. There are basically four different types of intellectual property and these are detailed in Table 1. More than one type of intellectual property can be used to protect your medical practice. You can have a patent on a drug or device used in a procedure, a trademark on your practice’s name and logo, a copyright on your website content or a publication, and, in some jurisdictions, your patient list may constitute a trade secret.

Table 1:Types of Intellectual Property

Trademarks, Copyrights, Patents, and Trade Secrets

• Trademarks- A Trademark is a distinctive word, name, slogan, symbol, sign, symbol, or combination of these that serves to identify the particular source of products or services and distinguish from other similar or competing products.

• Copyrights – Copyright protection grants exclusive rights of use to the authorship of an original work.

• Patents – Patent protection grants exclusive rights of use to the invention of or discovery of any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof.“Anything under the sun made by man.”

• Trade Secrets –Trade Secret protection grants exclusive rights of use forany formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers.

Trademarks

Healthcare is no longer localized. More and more practices are national or across state lines. Virtually every medical practice, other than those whose name is just that of the owners, should trademark its name. Which is more distinctive? The Children’s Hospital or Komansky Children’s Hospital or Morgan Stanley Children’s Hospital? Urology Associate or the Urology Group vs. Institute for Urologic Excellence? A trademarked name and logo brands all of your products and services, ensures that consumers do not get confused, and protects you from counterfeit products as well as imposters. A trademark allows patients to locate you more easily on Internet and social media platforms. Trademarks are especially important for startups to create brand recognition. Via an “intent to use” designation they can even be obtained for goods and services which your business is planning to offer in the future.

However, the value of trademarks go way beyond use as a marketing tool. Trademarks are a valuable business asset- a source of revenue through licensing, are a crucial component of franchising agreements, and useful for obtaining third party financing.

To Register or Not to Register- Common Law ™ v. Registered Marks ©

Some clients mistakenly believe that because they searched the proposed name of the company when forming their Limited Liability Company (LLC) that they have trademark protection. Without filing for a trademark, all you have is a name for your LLC. There may be some common law rights within a state but clients will have to jump through more hoops to enforce a common law trademark.

A trademark search is the first step to obtaining and filing a trademark registration with the U.S. Patent & Trademark Office (USPTO) to make sure the trademark is not carved out and in use by someone else already. Federally registered trademarks cost very little to obtain and are much more valuable than common law trademarks in that they incontestable after your mark has been registered for 5 years. This is a very valuable asset when selling your practice. Trademark certificates can be valid for unlimited consecutive 10 years periods with a small USPTO maintenance fee.

Rebranding is expensive, time consuming and results in loss of marketing momentum. Filing for a trademark helps to avoid the chance that you will have to rebrand your company to avoid litigation by a registered trademark owner. Filing for a trademark also safeguards against cybersquatting since pursuant to the Anti-cybersquatting Consumer Protection Act (ACPA)^[1], a trademark owner can sue anyone registering a domain name that is similar to yours. The ACPA prohibits the registering, using, trafficking in internet domain names with bad intent to profit from the trademark of another.

Enforcing Your Trademark

2020 saw a fair share of high profile trademark cases. In Romaj Fasteners v. Fossil Group^[2], the Supreme Court addressed the issue of whether “willfulness” is a prerequisite to an award of profits under the Lanham Act. The Circuit Courts were split on the issue. The Supreme Court resolved the issue and decided that willful infringement is not required “innocent infringers” can have their profits “disgorged” for infringing on someone’s trademark. Modern trademark jurisprudence is designed to both protect consumers and brands. The standard for infringement is use of a “confusingly similar” mark.

Enforcing a trademark consists of scanning for and pursuing adverse users and filing a “cease and desist” letter. It is also important to use your mark in commerce so it is not deemed abandoned.

Copyrights

People often use copyrights and trademarks interchangeably but they are really different. Copyrights grant exclusive rights of authorship of original works. If you want to protect a publication, computer software, an entire blog post, your website content that are original works, or a photo you need a copyright; if you want to protect your brand, you use a trademark. Without filing for a copyright, you have no legal leverage against someone who decides to plagiarize your work and passing it off as their own. The better your website is, the more likely a competitor is to copy it. While you can use the © symbol even if you have not filed a copyright, you cannot obtain statutory damages and attorney fees if you sue someone for copyright infringement unless you have filed for a copyright with the USPTO. The USPTO fees are minimal. Copyrights last for the life of the author plus 70 years, so a very long time. Then they enter into the public domain. An annual list is available of copyrighted works entering the public domain. As of 2021, anyone can remix George Gerswin’s Rapsody in Blue in case you are interested.

When you have working agreements with contractors, such as Website developers and software system developers, you need to make it clear as possible who owns what. Be careful with work for hire language. Joint copyright ownership is to be avoided since all owners have equal rights, including the right to commercially exploit the Copyright, provided that the other owners get an equal share of the proceeds. Each party can grant non-exclusive licenses and commercialize the content but must share profits (absent an express agreement to the contrary).

Derivative Works

A derivative work is a work based upon one or more preexisting works. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a “derivative work.”^[3] Derivative works are improvements to what is copyrighted using the background copyrighted material. The original co-owners re entitled to profits form the derivative work. However, issues often develop as to what amount of the derivative was original copyrighted material and how much of the profits need to be shared.

Patents

Patents grant exclusive (monopoly or exclusionary) rights of making, using, selling, offering for sale inventions or discovery of any useful process or article or composition, or any new and useful improvement. If you are an inventor, then you need a patent. However, obtaining a patent is not an easy process and is quite expensive. The great thing about patents is whether you are a small entity or a large company, you still get a monopoly. Patents allow small companies to prevent large companies from competing against them and selling a competitive alternative. If competitors do try to enter the marketplace, you can sue and have them disgorge profits.

Provisional Application v. Full Patent Application- Pros and Cons

A provisional application is like a placeholder which provides a full year before a full application needs to be filed. During that year you can try to license the product and are able to use “patent pending.” The expenses associated with a provisional application are much less than those involved in filing and prosecuting a full patent application. Once a full patent application is filed, the costs can be high for addressing the USPTO “office actions” based on prior art. However, in some cases, like where the technology is rapidly changing, you may want to file a full patent application and seek expedited review. Competitors can only be sued for patent infringement once a patent application matures into a patent. Sometimes a competitor who tries to market the product before the patent issues may later become a licensee and have to pay royalties. It is important to understand that he U.S. is a first to file system rather than a first to invent system. Confidentiality agreements must be carefully crafted. Table 2 details some other features for patents

Table 2. Patenting

Creates a monopoly for 20 years

Utility Patent- product or process

Design Patent- ornamental aspects

Beware of marketing an invention before filing a patent application

Patentability bars exist like public use, printed publication, offers for sale

Can increase profits and prices

Patents are best where there is a large or fairly large market

Trade Secrets

A trade secret is information that a company chooses not to share and is only valuable as long as it remains as secret. If your maintaining some intellectual property as a trade secret, nondisclosure agreements with you contractors, manufacturers, distributers, a well as anyone else who came into contact with he secret. Disadvantages of trade secrets include the possibility someone will discover your secret by reverse engineering or some other process. Trade secret litigation has been on an upward trajectory each year with the healthcare sector seeing one of the steepest increases especially for computer technology, customer lists, proprietary pricing and supplier relationships. A well-thought out analysis is required before you decide to just keep your IP as a trade secret. The advantage is a trade secret is they can last forever.

The elements of a trade secret are found in Table 3. Here it is important to keep in mind that all information that qualifies as a trade secret is confidential but not all information that qualifies as confidential is a trade secret.

Table 3. Trade Secret Elements- 3 Prongs

- Not known or readily accessible by competitors (e.g. if it is posted on the internet);

- Commercial value or provides a competitive advantage in the marketplace; and

- The owner of the information protects from disclosure through reasonable efforts to maintain its secrecy (e.g. marking “confidential”)

Conclusion- Using IP as a Business Asset

Intangible assets, like trademarks and goodwill are of utmost importance when it comes to mergers, acquisitions, sale, licensing and franchising and can dominate the valuation of businesses. SEC filings must correctly reflect the valuation of IP. IP due diligence is mandatory before making a purchase and using a due diligence checklist when reviewing an IP portfolio helps to reach a fair bargain. IP can be offensive (buyer’s side) or defensive (seller’s side). For example, from the seller’s perspective, they must disclose all IP, looking also at the ownership (and any possible third party owners) . If the buyer then uses IP that the seller did not possess, the seller could ultimately be liable if not properly disclosed.

IP creates smart value for your healthcare business and business ventures through valuation which is especially important in mergers and acquisitions. IP licensing can involve significant royalty payments and is central to franchising agreements. Is your business IP protected and being leveraged appropriately?

About the author

Martha M. Rumore, PharmD, JD, MS, LLM, FAPhA is Senior Counsel at Frier Levitt, LLC and Adjunct

Professor, Maurice A. Deane School of Law

[1] 15 U.S.C. § 1125(d).

[2] FKA Fossil, Inc., et al. No. 18-1233, argued Jan 14, 2020- decided April 23, 2020.

[3] U.S. Copyright Act of 1976, Section 101.