On-Demand: Managing, Monetizing & Protecting Your Intellectual Property (Part II)

April 05, 2022

By Graham Rogers and Nicole Zakowicz

Join us as we discuss specific strategies that corporations or private businesses can undertake to protect your intellectual property.


Transcript

Nicole Zakowicz:Good morning, or I guess good afternoon to some as well. My name is Nicole Zakowicz. I am a director at EisnerAmper. I have spent the last about 20 years working in the damages area specifically with intellectual property damages. Graham?
Graham Rogers: Hi everybody. My name is Graham Rogers. I'm a partner at Eisner Advisory Group. I'm also the firm's leader of our intellectual property services. So my area of expertise is in valuing intellectual property, all types of intellectual property, and also in the determination of damages and intellectual property matters. Jake?

Jake Wharton:Thank you, Graham, thank you, Nicole and greetings everyone. My name is Jacob or Jake Wharton. I'm a partner with Womble Bond Dickinson in our Winston-Salem North Carolina office. I am an intellectual property litigation attorney and have been doing all types of intellectual property litigation for a little over 20 years now as well. And I look forward to speaking with Nicole and Graham today about this interesting topic.
Graham Rogers: Okay, so let's start with trademarks. Jake, I'll throw this to you. What have you seen in your practice regarding kind of strategies and trends that plaintiffs seek when claiming trademark misappropriation?
Jake Wharton: So, I think from a very high level, when a company is both assessing whether they need to assert their trademarks, or if they're at the so-called receiving end of a trademark litigation, what I've been seeing for quite some time is that the majority, but not all of trademark cases don't necessarily include a monetary damages component. This stems from the fact that trademarks are an intangible like all the intellectual property we're talking about today.

But at the same time, it's the injunctive relief that the plaintiff is often seeking. So that takes the form of a court order, ordering the defendants to stop using the mark. And when we have those early discussions with a company about whether to police and assert their trademark rights, one of those early conversations is always going to be, what are you going to get out of this? Is this something where you just need to protect your turf or is there monetary damages that could be had based on the infringement that were seen in the marketplace?
Nicole Zakowicz:Okay.
Graham Rogers: With respect to the damage’s aspect and trademark case damages for those that are seeking the litigation for damages purposes, you're usually able to calculate damages associated with actual damages, which is also referred to as lost profits, the disgorgement of profits. And then more recently, with regards to damages, we've seen more and more of a reasonable royalty. Jake, I don't know we talked a little bit offline about that. What were your thoughts on the reasonable royalty side and those clients who are seeking reasonable royalties?
Jake Wharton: I think it's becoming more prevalent in trademark cases. And if you have an established royalty rate, if you're a John Deere or if you're a major sports organization or even a collegiate entity, you're going to have outgoing licenses with all of those licensing rates readily available. What's been interesting is to see cases where you're not a licensor, you're not necessarily licensing out your trademarks. But yet when someone comes in and starts infringing and using your trademark, I think that is a great model to also include in your damages analysis if it fits, if it makes sense. So you really got all three of those arrows in your quiver, the actual damages, the disgorgement and the reasonable royalty.
Graham Rogers: So, with regards to reasonable royalty, I mean, what we're seeing is, like I said, a rise in damages experts seeking reasonable royalties. And the interesting thing, like you said Jake is how they're calculating that. Now, from my experience in doing reasonable royalties specifically in patent cases, there's something that will probably talk about with regards to the patents, but that's a Georgia-Pacific analysis, which is a famous patent case that laid out factors to consider with regards to identifying a reasonable royalty.

And what I have seen is the courts, some of the courts are not real sure how to handle reasonable royalties, other courts have gone the way of the factors associated with the Georgia-Pacific analysis aren't necessarily the specific to patent cases. They can be applied on any kind of licensing negotiation to try to figure out the relative strengths of the parties in a negotiation.
Jake Wharton: Yeah, I agree with that, Graham. I think the federal courts are comfortable importing that rationale and reasoning from patent infringement cases into trademark cases. But I want to go back to two components of the title of our presentation here is monetizing and protecting. And I guess to drive home my point that I wanted to make earlier is sometimes you're going to do one of those, but not both.

And that was my point earlier, is as a trademark, as a brand owner, a lot of your brand management, I think you need to budget for policing and enforcement. And only part of the time, is there going to be any sort of monetary return on that? Let's just say nine times out of 10, you're sending out demand letters, you're enforcing your rights. Maybe there's someone who's filed a trademark application that pops up on your watch service and you need to oppose them at the trademark trial and the appeal board.

Well, the trademark trial and the appeal board can't even award damages. I mean, they don't have any legislative authority to even award any sort of money whatsoever. It's only when you get to the federal courts where you're looking at that analysis of pursuing damages and then that's when, of course companies need to talk to both you and me about what does this look like going forward. And of course, it's always better to do that as early on in the analysis as possible.

Nicole Zakowicz:Okay. And we had talked offline about this and probably in my 20 years of doing damages, I've dealt with corrective advertising once. But you had spoken about kind of the importance of considering it Jake. And can you talk a little bit about that?
Jake Wharton:Certainly. So you have your straightforward trademark infringement case where someone else is using your mark or something similar to your mark. A related strain of litigation so to speak is the unfair competition and false advertising. The classic form is where you're comparing your product to someone else's and you do so in an inappropriate, untruthful or misleading way.

And one component that you can seek from the court is corrective advertising. And that I think, it's something that's going to impose monetary burden on the defendant and should the court award it, it's going to require them to pay for that sort of advertising. I think it's appropriate in those circumstances where there is misleading information in the marketplace.

One area where we have seen it where it doesn't necessarily involve a lot of heavy lifting are disclaimers, and that's something we often seek. Again, it's a non-monetary component, but it's another form of protecting your trademark, your brand that may come in the form of just a small disclaimer and small print at the bottom of packaging or a website.

Or in one or two instances, we've had a defendant be required to impose a popup window immediately when you go to their website, at least for four to six months, sometime period so that to the extent there was damage out there, hopefully you've corrected it in the marketplace. But it's specialized for those situations where there's some form of unfair or misleading statements that are out there, not just your straightforward trademark infringement.

Nicole Zakowicz:Okay. I think we touched on cancellation of trademark registrations and that being a strategy. Graham, do you want to talk anything about, I think we talked about damages issues as well.
Graham Rogers: We did, and I talked a little bit, I probably jumped the gun and talked a little bit about the types of damages. But one of the damages for those cases that are actually seeking damages is disgorgement of the defendant's profits. And so I think there's been some question with how the courts have handled that. I think it depends on which court you're in.

But I've seen anywhere with disgorgement of profits, I've seen anywhere between a net profit and an incremental profit and a calculation of disgorgement of profits. But the other thing to keep in mind is one thing that the courts have had some difficulty doing is it's supposed to be that the profits attributable to the infringement.

And so, for those cases that are seeking damages when you get down to a profit level, whichever profit the plaintiff is going to be requesting whether it's net or incremental or somewhere in between, the last thing that needs to be considered is what's the, basically apportioning profit to the value of the trademark or what the trademark is contributing to the sale and developing those profits. Jake, I don't know if you have any thoughts on that.

Jake Wharton: Again, I go back to the approach that when you're enforcing your trademark rights, it may be a zero-sum game for you. But you look at the market, is this competitor who's the defendant, are you competing with them in the marketplace? And if the answer to that is yes, a clear, yes, then I think actual damages is what you lead with.

Because you can make the argument that for every unit that they sold with the infringing mark on it is one that you could have sold. It'll depend on the facts, but if you're in that market where you're competing head to head, actual damages are going to be one of the things you lead with. If you're not, if you're not going to have that one-to-one lost sale, then apportioning, I think is where all of the action is at and has been quite a bit lately in my experience.

And I think it is a very powerful tool that plaintiff trademark owners bring into litigation. Because as you said, the defendant's profits must be attributable to the infringement, but as you and I have discussed Graham, and I think in our professional experience as well, courts are readily connecting a funding of liability with attribution to the profit.

So if you're selling widgets and you change from Acme to ACE and the plaintiff is ACE widget company, they're going to obviously go for actual damages. But even if you were in two different parts of the country and nobody knew about the respective marks, they're still going to go for a discouragement of profits and say, "Look, the only reason you made those sales is because you slapped ACE on that widget. And therefore, we get all of your profits."

And the way that the Lanham Act, the trademark statute's set up is all the plaintiff has to do is come in and show revenue and then the burden shifts the defendant to identify and specify to an evidentiary standard that there are reasonable expenses and costs that can be deducted. And that to me seems to be where the battle of the experts always is. It may move the line significantly.

I think sometimes when the plaintiff's expert comes in and says, "Here's your revenues," and then the defendant's expert comes in and says, "well, you got to take out all these costs and expenses," and then usually what you see is that reply report that says, "no, you took out way too much." It should be this number versus this number. And that spread can be quite a bit. So that's where you get into the battle of the experts on the disgorgement of defendant's profits. But it seems to be a perennial or constant issue in cases even when there's not that one to one competition.

Graham Rogers: Yeah. And just to reiterate Jake's point about the expert's role in this, I was involved in a trademark matter, very large retailer. I was on the defendant's side and the large retailer was the defendant and the plaintiff's expert, the sales that were in question were about a billion dollars’ worth of sales. And the plaintiff's expert literally got up and said, "Sales are X," and sat down and then it became totally the burden on the defense side to verify whatever the revenues that were put up.

But then, like Jake said, go through all the costs associated with trying to get down to the appropriate profit level. And then that final step, which is attributing whatever profits left over, attributing to the trademark itself. And so I would say from an expert standpoint, the burden on the defense experts is a little bit more difficult than it is on the plaintiff side.

Nicole Zakowicz:Okay. And just to wrap it up, we did have a question that I think can relate to an earlier point, Jake, and we'll move on to patents after this. Do you think it's better to file such claims under trademark infringement or torts claim such liable per se?

Jake Wharton: Yeah. Such as a liable type claim. Standard trademark infringement is probably going to be your best route. If you have protectable trademark rights, when you get into business disparagement type claims, there's usually a little bit higher standard of proof, and you have to prove actual damages in that instance.

So you have to go back to that scenario where you've actually lost a sale, and that sometimes can be hard to do. Whereas under the trademark laws, you have the disgorgement of defendant's profits, even if you've never lost a single sale. So there's a different standard of proof, and there's a different damages model. So the traditional trademark claims are favored in those situations.

Nicole Zakowicz:Okay. And on that note, why don't we move on to our first polling question? And Bella, I'll turn that over to you.

Bella Brickle: Polling question number one. Have you or your company ever been involved in trademark litigation in any capacity? A, yes or B, no. As a reminder, in order to qualify for your CPE certificate, you will need to remain logged in for at least 50 minutes and respond to three out of the four polling questions. And we will give everyone about 45 more seconds to get your answers in.

Graham Rogers: So, Jake, we didn't talk about this, but just to question, I don't know if this is an easy, short answer for you or not, is there a certain type of IP litigation that you prefer or do you enjoy them all or what's your personal thought?
Jake Wharton:I like the ones where we win. But no, Graham, I actually really enjoy trademark litigation. But patent and copyright, they're all different and I think that's really important for people to understand. But if I had to pick one, I would say trademark litigation.

Bella Brickle: Alrighty. I am now going to close the poll and share the results.
Nicole Zakowicz:That's interesting. Okay. Well, let's move on to patents and let's first talk about design versus utility patents. And Jake, again, I'm going to throw this to you. Have you seen a trend or consulted with your clients on strategies in protecting their products with the different types of patents?

Jake Wharton: So generally speaking, there are two major types of patents. There's a third type, plant patents that nobody ever talks about, and we're not going to here today. But your utility patent is your better mouse trap. Yeah, it can be a method, but then there's also design patents and for those who aren't familiar with design patents. It's really a misnomer because it is meant to protect the aesthetic appearance of an article of manufacturing.

In the rest of the world, they don't call it a design patent, they'll call it a different type of product registration or some type of registration that covers the appearance of the item. And I should mention that appearance can include such things as graphical user interfaces. Non-tangible items as well also fall within the purview of design patterns. The other important distinction between the two.

And for those who are involved in applying for, and what we call prosecuting patents, that is the back and forth with patent and trademark office. For those who are involved in that, you know how time consuming and expensive it can be, especially when it comes to utility patents. Depending on what art group you're in, you're looking at anywhere from 12 to 24 or, or more months before you even get a first response to your office action.

Design patents on the other hand are defined by the drawings that you submit and are often examined and you get a response from the office within six to eight months, maybe 12 months. But it's relatively quick and a lot less expensive to prepare and file. So one of the considerations that any business inventor or entity needs to take into consideration is the lifespan of the product.

If you work in a faster moving industry, everything from tech to fashion to home design, it may not make sense for you to obtain a utility patent on something that's going to be designed around, replaced within two to three years if it takes you two to three years to get it. Now, a design patent on the other hand, if you can apply for it and get it within 8 to 14, 16 months, and you've got patent pending and then you list your patent number on it, it can be a marketing tool. It can be a deterrent to those who would copy your product.

So they're very different vehicles, but they're both called patents. What we have seen and been recommending more lately is to, even for those companies that make more utilitarian items is to consider a design patent. Because as we'll talk about here shortly, it opens up a few more potential damage avenues. So those are the conversations we've been having. Some of the more obscure design patents that have led to larger monetary awards have included interior engine parts. And that's not something that everybody sees every day, but yet they still had a design patent on it and were able to enforce that, get an injunction and obtain some monetary relief as well.

Graham Rogers: So Jake, just real quick, I've been involved in some design patents, but they've been primarily in the furniture industry. So you're seeing design patents in all forms of industries all across the board?

Jake Wharton:So, we are I can think of manufacturing equipment, definitely with fashion. There's always been a lot of activity on what those stitches look like on the back of everybody's genes. And like I said, even interior component parts can be subject to a design patent application. You can sort of push the envelope because whatever you're claiming in the design patent must be the aesthetic appearance of it.

And if you're basically claiming a utilitarian item, you're going to run into the functionality doctrine and the patent will be invalid because you're claiming something that's entirely functional. So to your example, Graham, the entire sofa let's say, or the entire chair, obviously the legs hold it up, the back supports you and those are useful features, they're required features.

But you may have designs applied to those and the overall combination of those still warrants design pattern protection. So we would look at a company's portfolio and determine what components are there that are likely to be copied by someone else. This is especially true in disposable or one use type industries, we would look at that for design and patent protection.

Graham Rogers: So on the damages side, we talked a little bit about reasonable royalty under the trademarks and I mentioned that there's a famous case that we refer to as the Georgia-Pacific or Georgia-Pacific factors which help you identify reasonable royalty. But with regards to lost profits, there's also another famous case on most profit side that practitioners in the area need to be aware of and need to make sure that they analyze it correctly and appropriately.

And those are referred to as the four Panduit factors, again, Panduit being a famous patent case. And those four factors, see if I can do it for memory, one is the demand for the product, the second one is, are there any non-infringing alternatives? The third is the marketing and manufacturing capacity to make the sale. And then the fourth one is can they actually be quantified and did you quantify them correctly?

So to be able to get lost profits, the courts need to make sure that you meet, the plaintiff were to meet all four of those factors. If you don't meet all four of those factors, then what the court, or what the statutes say is there's no less than a reasonable royalty, which again is laid out by the Georgia-Pacific factors. But there are other types of damages as well that you don't see as often, for example, price erosion.

And then I guess, a different design patent is design patent can also get unjust enrichment, I think. And that's what you were referring to Jake when you were saying the design patents actually may be able to get the defendant's profits, if you realize from an unjust enrichment.

Jake Wharton:Exactly. It's the disgorgement of their profits. And it's a separate statutory section just for design patents that allow for the disgorgement. So with the utility patents that's not a damages theory that's applicable or available. Folks may remember the Apple, Samsung battles from a few years ago, I guess eight or so years ago when the Supreme Court gave us a little more direction on this.

And what's interesting is the courts are still sort of sorting this out. But when you have a design patent on just a portion of a product, in that case, it was the phone face and the rim around the face, was Apple entitled to all of Samsung's profits for all of the components or for just those components that made up the infringing appearance?

And for a long time, you got everything and the Supreme Court changed that in 2016, I believe and now we've got a multifactor test that the courts are still sorting through to determine what components are attributable to the infringement, what are the damages on that? But again, having that disgorgement of profit damages analysis available to you is yet another avenue to obtain monetary relief.

You can still pursue lost profits and a reasonable royalty with design patents as well. I would say, and Graham, I'd love to hear your thoughts on this, that unlike a lot of the trademark cases where I think we see a lot more litigation with less perhaps at stake. By the time you or I are involved in patent litigation, given the expenses associated with that, we're usually talking about a significant amount of damages involved in these cases.

And that's going to be, I think, dictated in part by how much resources the patentee can put into litigation. And I mean, you don't normally see the hundred thousand dollar patent infringement case, there's usually a couple more zeros on the end of that.

Graham Rogers: Yeah. I agree. I think that, especially when you see a lot of the patents, I mean, believe me, there are very large companies that get patents and then there are very small companies even inventors that get patents.

And so when it's a big company versus a big company, I mean, yes, there's still a lot of dollars involved there, but the big companies can maybe afford to see those cases through to fruition because they don't want to give maybe their arch competitor an advantage in a marketplace where they have to give up some market share or something. On the other hand, when you're looking at a medium or small company, the patented item maybe their one and only product. And so it's kind of a bet the company type of litigation.

And obviously that can be very good if the small, medium size company wins but also very, very costly associated with all of the fees associated, your fees, whoever's looking at it from the expert standpoint all the way through a trial and an appeal and everything else, that can get extremely expensive. And I think we touched on this Jake in one of our phone calls, but it makes me think of, do you have any thoughts or comments on insurance for these smaller or midsize companies and how they may be able to fund their litigations?

Jake Wharton: Yeah, so I think insurance is more applicable to trademarks so I might jump back to that. But I think even if you're a small to midsize company, everyone has probably heard of patent trolls. And what has been going on, I think in an increased rate is these so-called non practicing entities or NPEs sending out these demand letters.

And so even if you don't find yourself 14 to 16 months into the sport of kings, patent infringement litigation and working with people like yourselves and Nicole to go through these, you still need to be reasonably familiar with them because if you get a troll letter coming in, I think it makes sense to reasonably assess what's my exposure here? They're making a demand of maybe 75,000.

And what these trolls do is they whittle it down so they know that you're going to end up paying $25,000 because it costs more to hire lawyers and defend the lawsuit than it does to just write them a check. And it's an fortunate development, but it is going on repeatedly. I mean, I would imagine that multiple participants in today's call have had some interaction with patent trolls, and what's been, I think, an increase in the marketplace.

Now, several states have passed legislation to combat that. And I know we've got listeners from around the country and perhaps around the world, but North Carolina's anti-troll statute was just upheld as constitutional. And we've seen that in Oregon, we've seen that in a couple other states. And what those do is require the patent troll to bring it in faith and in some instances, even put up a sizable bond, up to a half a million dollars to proceed with litigation.

So there are some tools out there to help with that. But typically insurance isn't available to the patent infringement defendant. There are specialized insurance policies out there. My understanding is they're very expensive. I have operated under one of them before. It did work, but I think there's a pretty hefty premium to get patent infringement insurance.

Now turning back to trademarks or any form of advertising, and this applies to copyright too, which we haven't talked about, but will, most commercial general liability insurance policies include an advertising injury clause. And if you infringe someone else's trademarks or engage in copyright infringement to a certain degree, you may be able to tender that as a claim and get coverage.

So that's something that I think anytime you're on the receiving side of a copyright or a trademark infringement claim, you need to talk to your broker, you need to talk to your insurer and see if you have potential coverage there. The related or analogous situation in these patent infringement situations is if you are a manufacturer that obtains components from multiple suppliers, depending on the scope of the patent infringement claims, you may have an indemnification claim that flows up stream to one or more of your suppliers.

They have either by contract with you or an implied warranty of merchantability to deliver to you non infringing products. So even if you're, like I said, at the receiving end of some of these things, there's several different options that you need to consider so you're not running up the bill yourself and you may have help from others.

Graham Rogers: And you mentioned NPEs, non-practicing entities. From a damages standpoint, if you're involved in a case with an NPE, that by definition knocks out the fact that they can claim lost profits. So there's only seeking reasonable royalties, but depending on the product, depending on the magnitude of sales of that product and also depending on whatever the royalty rate is, damages associated from a reasonable royalty can also be very significant. And which is, I think why the NPEs have been successful over the years and continue to go after litigation because if they can get, as the statute says, no less than a reasonable royalty, that number can still be significant.

Jake Wharton: Yeah. I've seen some extraordinary situations where a portfolio of tech patents maybe applied for in the late '90s, early 2000s. They filed continuation application after continuation application. Some of the latest filed patents in that family may have expired even a couple years ago. But this portfolio got picked up by a monetizing agency and they're going out and asserting it against everybody they can while there's still some time left.

And just because the patent expired doesn't mean they can't seek damages still. They can go six years back from suit. So if there's still term left in that six year period, these NPEs are still going after it. So you may get a demand letter on patents that expired two years ago and you still may be subject to a reasonable royalty rate.

Nicole Zakowicz:Okay. Why don't we move to our second polling question? Bella, I will turn it over to you.
Bella Brickle: Great. Thank you. This is polling question number two. If you or your company have ever filed for a patent, what type of patent did you seek? A, utility, B, design, C, both utility and design or D, never filed for a patent. As a reminder, in order to qualify for your CPE certificate, you will need to remain logged in for at least 50 minutes and respond to three out of the four polling questions. Once again, we'll give everyone about 45 more seconds to submit their answers
Nicole Zakowicz:While everyone's submitting that, Jake, I see a question coming in relating back to trademarks. It says are out of court settlements common among litigants in a trademark case and which industries are mainly involved in trademark infringement?

Jake Wharton:I've seen trademarks across.
Nicole Zakowicz:And I guess in your-
Jake Wharton:Yeah. Are out of court settlements common? Yes. Statistically speaking, 90 plus percent of all federal cases settle out of court. And I think that percentage goes a little bit higher for intellectual property cases. That lumps all IP together. But as far as which industries are involved, they're all involved. Everything from food to airplanes, to medicine, pharmaceuticals, they're all involved and trademark litigation.

Graham Rogers:And I would even add high tech and low tech. All companies pretty much have some form of intellectual property.
Bella Brickle:All right. And I have closed the poll and shared the results.
Jake Wharton:That's interesting.
Nicole Zakowicz:Yeah. Okay. Now, moving on to our third form of IP copyrights. And for this one, I think an interesting thing that came out of our earlier conversations offline was when you think of copyright, at least from a damages perspective, we automatically start looking at actual damages disgorgement. But some of the, I guess, a hot topic, or a more less thought about from the damages perspective are statutory damages. So if, I guess Jake or Graham, if either of you want to talk about just strategy behind seeking statutory damages versus your typical actual or unjust enrichment.
Graham Rogers:Yeah. Jake, why don't you start and I can chime in?
Jake Wharton:Yeah. So I think as far as hot button topics go, the statutory damages comes up in the context of what we refer to as copyright trolls. Just like we've seen patent trolls, there's this whole new breed of copyright trolls that are out there. And they're using sophisticated technology to hunt down infringers and impose what can be significant monetary demands under statutory damages.

To avail yourself to statutory damages as a copyright owner, you must have at least applied to register the work with the copyright office before the infringement began. There's a small little exception into that which most likely doesn't apply. But generally speaking, the idea here, the legislative intent is to encourage authors to submit their works for protection.

And if you do so and obtain your registration before the infringement begins, you're entitled to select statutory damages up until the time of judgment, which really keeps a defendant on their toes if you've got all of these damages theories available to you. The traditional statutory damages for copyright infringement as shown on the slide there starts at 750 and goes up to 30,000 if there's willful infringement, it goes up even more.

And then what is a tool that we've seen imply or used more often lately under the Digital Millennium Copyright Act, there was a new statutory damages added, and this applies to basically two different forms of actions. One is circumvention of some form of copyright protection and the other is removal of what's known as copyright management information.

That's the Ⓒ 2022 Graham Rogers is the copyright claimant on the photograph for the painting or website or whatever. And depending on how many copies are made and how many times that CMI was altered or removed, what we've seen these copyrights trolls doing is starting out at least the statutory minimum, but often arguing for the statutory maximum and then applying a multiplier to it.

Just briefly I'll explain what they're doing is there's photographers, several well known as trolls who basically bait the marketplace with their work and unsuspecting individuals right click, copy these photos, use them on websites, use them in social media and then they're able to, I think use reverse image searching to find where their works are being used and then they work with a plaintiff's firm to send out on mass demand letters.

When it comes to musical works, there's some pretty sophisticated AI and bot searching that I think is going on to find works that are being associated with primarily videos in social media and websites. So this is an area where we've seen a lot of action lately, and it's just a reminder that you need to get clearance and permission to use your pictures, the music.

If you're working with an outside vendor, you want to check to make sure they're taking the proper precautions and ideally you've got some form of indemnification to and through them if they build your website and then build it with an infringing photo or photos.

Graham Rogers: Yeah. I think Jake, I think it's a couple things from the damages side. I think that statutory damage is even more potentially appealing. First of all, outside of statutory damages when you're looking at copyright infringement from a damages standpoint, again, you have actual damages that you can see and you can ask for loss profits. And then there's disgorgement of profits available again, which compete potentially the large dollar value.

But this idea that these companies are being able to basically send AI or bots around trying to find infringement, and when they do, I think the other thing that the courts, at least what I see is the courts have kind of struggled with at this point is what is a copy. And so the question becomes if you used an image or you used the song, let's just say image for a second and you put it on maybe a business card or something that's mass produced is every single time that you created an image on a business card and given it out, is that an infringement or is it only one infringement? And I don't think the courts have fully made up their mind yet.

Jake Wharton: No. And that goes for the removal of the copyright management information as well. So that's where these trolls, I think get creative and try to apply a multiplier to these statutory numbers. And this is definitely an area where insurance may provide coverage because the advertising injury clause insurers are getting smarter and tighter with those policies.

And some specifically exclude, some will even go so far as to say, we are specifically excluding any intellectual property litigation, but then there's an exclusion to the exclusion that talks about except if it's within your advertising. And then the argument usually becomes, well, of course my website is advertising. I don't do this just for fun, this is our window to the world. This is how the world sees us, it's all advertising.

And we've had that argument for commercial enterprises, we've had it for collegiate sports programs. Obviously it's to promote the program, it's a form of advertising. So to the extent that anyone's receiving the demand letters on that, you definitely should turn to your insurer. I don't want to leave out actual damages as well as far as defendant's profit. I've been involved in at least one case where the defendant's profits for over a million dollars and they were disgorged.

So it's very possible that you're getting into some very significant figures still even outside of statutory damages. Now that typically involves a mass produced product like you're talking about Graham. You have to have that number of copies so to speak. In this instance, it was furniture and it had been on sale for multiple years and it included 20 some pieces. So there was a lot of product sold over a longer period of time.

Graham Rogers: So we've been involved in a couple of software copyrights. So outside of image and music, where else are you seeing copyrights?
Jake Wharton: Those are the two main ones. Software copyright litigation is very complicated and involved because of the analyses the courts do to compare the protected work and the allegedly infringing work. There's a little bit of a push within the fashion and home furnishings industry to obtain copyright protection on designs. You're getting into this gray area of both trademark trade dress registration, design patent, coverage, and copyright coverage feasibly applicable to the same product.

And that's a function of these rights arising from divergent original sources, going back to everything from the Venetians to the Greeks deciding what's important to protect as well as our founding fathers enshrining it into the constitution. So I think there's a little bit of movement in that home furnishings, at least in my experience, the home furnishings and the fashion industry. I've seen some more copyright action there

Nicole Zakowicz:Just to make sure that we stay on track, I want to go to our third pulling question. And Bella, I'll turn it over to you.
Bella Brickle:Great. Thanks Nicole. So this is polling question number three. If you or your company have been involved in a copyright litigation in any capacity, were statutory damages an issue? A, yes, B, no, or C, never involved in copyright litigation. As a reminder, in order to qualify for your CPE certificate, you need to remain logged in for at least 50 minutes and respond to three out of the four polling questions. And I will give everyone about 45 more seconds to get their answers in.
Graham Rogers: Jake quickly, I see a question that came in. What's the best way to inexpensively handle a trademark infringement when first a verbal contact has been made to alert the other party to stop using it, and they ignore the request?
Jake Wharton: So, before we escalated that type matter, we would try to send another communication. If the first communication came from the company, maybe an outside law firm, sending the letter would have a little more gravitas and impact.

One of the tools we've used lately, depending on the form of the infringement, if they have a website or they're on Amazon, let's say or eBay, and the infringements going on those platforms, you could look at some form of abuse complaint to those platforms to try to get their products off or submit it to the registrar or website host if their domain name itself includes the infringing trademark. Those are all low cost tools that are available to sort of put a pinch on somebody before you escalate the matter.

Graham Rogers: And one quick thing to add on to that. So one thing to keep in mind with regards to the value of your IP. If you are a part of part one, I think I mentioned in part one that the value of your IP is only created and sustained as long as you're willing to enforce your IP. So doing nothing really is not an option. I think the answer is if you want to maintain your IP and maintain the value of it, you've got to do something.

Jake Wharton:And that's especially true with trademarks because lack of policing and use by third parties can erode your rights significantly.
Nicole Zakowicz:Okay. And kind of latching on to the last webinar, part one of this series, when we talked about IP inventory and the importance of that, let's talk about trade secrets and what are some best practices for protecting trade secrets that either of you have seen.
Graham Rogers:So, from my perspective with regards to, I think I talked about when we were talking about doing an inventory in the last session. Brainstorming and identifying the IP, the trade secrets and attaching it to a person are extremely important. And then when that person moves on within an organization, whether they either get promoted to another position, or maybe they leave the company, the question is what happens to that IP?

Does it get severed from an ownership perspective? Does it get transferred on to the right person the next time? And I think with regards to a lot of the trade secrets, a lot of it can be protected by legal documents. And Jake, this is where I'll let you kind of take over, but joint venture agreements or non-disclosure agreements, or even employment agreements, I think are where a lot of trade secrets can be protected.

Jake Wharton:Yeah, I can't tell you how many times we get the call or communication from a client about, "Oh, our top three tech or science people just left and went to a competitor. I'm sure they're going to use our trade secrets. What can we do?" And my first question to the client is, "Well, what are your trade secrets?" And there's kind of this, well, it's the thing we do, and it's not well defined.

And sometimes some of the knowhow is not necessarily defined, it's not written down in a protocol or document. But your suggestion to do an inventory, especially when it comes to trade secrets, I think is just absolutely critical. If you have onboarding employment agreements with your employees that include the proper confidentiality and reasonable non-compete clauses, that's going to go a long ways.

But really the significant threshold issue in these trademark or trade secret cases is what is the trade secret and have you taken reasonable steps to keep it secret, including everything from password protection to encryption, to only having need to know access? Those are all the types of things that courts will look at.

Graham Rogers: Yeah. And then with regards to damages, this is probably trade secrets is probably the most difficult to work with from a damages standpoint, because there's not necessarily real good definition on how you would go about value in the trade secrets. And plus, these trade secrets tend to be so, for lack of a better word, so intangible that it makes it difficult sometimes to determine the damages.

But what I've seen a lot in the trade secret damages aspect is damage analysis having to do with the head start. So by having the trade secret, it gives you a six month head start as a competitor or maybe a two year head start. And when we're talking about potentially a delay damage, that can be quantified. So I don't know, Jake, have you seen any others? The other one I've seen is a diminution of value, even a reasonable royalty. But I think delay is probably the one I see the most often.

Jake Wharton:I was just going to say, I agree with Graham on that. I know we need to get the last question in, so I'll let that go.
Nicole Zakowicz:Okay. I'm going to turn the last polling question over to you, Bella.
Bella Brickle:Great, thank you. This is polling question number four. Does your company annually update employment agreements to ensure that your trade secrets are protected? A, yes or B, no. And as a last reminder, in order to qualify for your CPE certificate, you need to remain logged in for at least 50 minutes and respond to three out of the four polling questions. And this is the fourth polling question. So I'll let this stay open for about another 40 seconds so we can get everyone's answers in.

Graham Rogers: So I think, I mean, we're coming to the end here. If you've got any questions that you may have already submitted and we didn't get to, we will get back to you offline and answer any questions. And then also if you think of any questions that you want to submit to Jake or Nicole or myself, please feel free to send us an email with a question. We'd be happy to get back in touch with you, but we'll see what the results of this poll are.

Jake Wharton: That's encouraging. I'm glad to see that the majority by a little bit are taking those steps. To the others, I recommend doing so. A little bit goes a long way on those agreements in court, by the way.
Graham Rogers: So Jake, is there anything else? I know we're up at the top of the hour, but is there anything else Jake, that you can think of that maybe we touched base offline that we didn't address or should we just see if there's any questions come in or you have any final thoughts?
Jake Wharton: Well, I mean, given the topic here is managing monetizing and protecting your intellectual property. And I think you said it, if you didn't say it on the program, I know we talked about it earlier, is you don't know what you have to protect until you figure out what you have to protect that inventory be it annually or quarterly, it's just absolutely critical. And you could be increasing the value of your company quite a bit by taking a little bit of time and resources to ascertain what your IP is and how you can do a better job of protecting it. All set.
Nicole Zakowicz:And Bella, we'll turn it back to you. Thank you everyone.

Transcribed by Rev.com

About Graham D. Rogers

Graham Rogers is a Partner in the Financial Advisory Services Group and serves as the firm’s Intellectual Property Services Leader providing IP valuations and IP damages calculations in all types of IP litigation matters.

About Nicole Zakowicz

Nicole Zakowicz is a Managing Director in the Financial Advisory Services Group providing financial consulting and forensic accounting services to attorneys, public and private corporations, insurance companies, and governmental agencies.

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