While it is hardly news anymore that many Ohio businesses are struggling to survive in the bleakest economy since the Great Depression, this is definitely not the 1930s in terms of the protections that businesses can — and should — seek to safeguard their assets.

And we’re not talking about office furniture and buildings. Today’s most valuable assets often fall into the realm of technology, identity and ideas, which can be vulnerable in times of financial struggle.

Jim Gottman is a partner with Dinsmore & Shohl LLP and chair of the intellectual property practice group for the firm. He oversees 35 lawyers who advise clients in all areas of intellectual property law, including patents, trademarks and copyrights.

For those facing a financial crisis, Gottman’s best advice is: See an experienced lawyer.

“One of the first things you would want to do is get with your attorney and have those licensing agreements that are important to the company reviewed,” he says. “See how a bankruptcy may impact those agreements.”

When finding an experienced lawyer, the key is finding a reputable firm with substantial intellectual property experience, advises Robin Harvey, partner and litigation coordinator in the Cincinnati office of Baker Hostetler LLP, one of the nation’s 100 largest law firms.

“If your licenses are the core of your business, you can’t afford not to have lawyers with real expertise protecting intellectual property,” says Harvey, who handles business litigation including securities, corporate and contract cases, as well as the defense of employment cases and mass product liability actions.

Baker Hostetler has 600 lawyers in 10 offices across the country. The firm has a huge intellectual property practice that deals with the needs of owners of intellectual property, as well as those to whom it is licensed — whether it be Fortune 25 firms or local businesses.

When a business is facing dire financial straits, it is hard to overstate the importance of having access to the best legal representation.

“IP attorneys can help clients audit their trademark, patent and copyright portfolios and prioritize their legal budgets so that they can cut costs without compromising core IP assets,” says Lori Krafte, a member in the Cincinnati office of Greenebaum Doll & McDonald PLLC.

Ted Remaklus, a partner with Wood, Herron & Evans LLP, is involved in all phases of the firm’s intellectual property practice, with concentrations in litigation and trademark matters. He says he is seeing the effects of a struggling economy firsthand.

“I’ve been practicing for 16 years now, and I’ve probably seen more bankruptcy issues in the last three years than I did in the previous 13 combined,” Remaklus says.

Krafte notes she is also seeing signs of the slumped economy in Greenebaum’s IP practice. “Advertising revenues are down and so media clients who depend on advertising as a primary revenue source are less active and are conserving their resources,” she says. “On the deal side, the volume of purchases and sales of IP assets is depressed and the deals are smaller.”

For businesses facing dire financial troubles, intellectual property questions ultimately come down to the U.S. Bankruptcy Code and the courts.

Ray Pikna, an attorney with Wood & Lamping LLP, primarily represents clients in federal trial and appellate courts in all aspects of bankruptcy cases and adversary proceedings, with an emphasis in the representation of parties in Chapter 11 reorganization cases and workouts.

He points out that all assets are vulnerable to loss during bankruptcy if a company is unable to successfully reorganize. Although the Bankruptcy Code was amended several years ago to protect licensees of intellectual property rights, it is subject to interpretation by the courts, just like any statute.

“Even when statutes don’t keep up with the times, as may also occur with respect to technological developments and intellectual property, resourceful attorneys usually do a good job of explaining the problems to the court, and the judges usually get it right,” says Pikna, who is chair of the bankruptcy committee for the Cincinnati Bar Association.

“The system may not work for a specific problem or party from time to time, but overall the system works well,” he says.

For businesses contemplating bankruptcy, it is difficult to set protections in advance on intellectual property. But there are a few things a business can do today to protect against an economic downturn tomorrow.

Make sure to have solid confidentiality agreements in place. Take reasonable steps on a daily basis to protect trade secrets: precautions like storing information securely and allowing very limited access help safeguard rights in potential court challenges.

Have employees sign non-compete agreements. They’re not foolproof, but they can be helpful when trying to keep key employees from being drained away by a competitor. If an employee does leave the firm, damage should be minimized if there is a strong confidentiality agreement. These preventions can save a business financial and professional heartache in a tough economy.

“If the company does its homework prior to having financial troubles, it can save itself from potential problems when they do arise,” Remaklus says.

Owners or licensors of intellectual property who face bankruptcy should verify what exactly they own. If a problem documenting ownership is identified, corrective measures should be taken before filing for reorganization, Pikna notes.

If a firm has licensed intellectual property from a business in financial trouble, it should make sure that the license is enforceable before the licensor files a bankruptcy petition.

If the rights that a licensee claims under a license of intellectual property are subject to some condition in order for the rights to mature or become effective, the non-debtor licensee may not have an enforceable license in the intellectual property when the bankruptcy case is filed, Pikna cautions.

“Without an enforceable license in the intellectual property when a bankruptcy case is filed, a licensee will not be able to avail itself of the protections that the Bankruptcy Code provides to licensees of intellectual property rights,” he says.

For many businesses, the willingness to protect intellectual property is tied to the economy. While the last decade has seen an unprecedented surge in new patent and trademark filings, 2009 has seen a substantial downturn according to United States Patent and Trademark Office figures.

Remaklus, who represents clients in the retail, industrial manufacturing and consumer manufacturing industries, says some of his clients have cut research and development budgets in recent months. And companies are being selective in patenting.

But businesses aren’t just struggling with whether or not to pursue a new patent. Current patents carry with them maintenance fees that can make them prohibitively expensive to maintain. The USPTO requires companies to pay patent maintenance fees every three and a half, seven and a half and 11 and a half years after the issuance of the patent. These fees go up at every four-year increment. If it is an international patent, a U.S. business is also forced to pay an annual tax to the country.

Some businesses simply can’t afford it.

Gottman says that, in the end, it’s a business decision.

“I think companies are now being more careful than in the old days when the economy was booming,” Gottman says. “Now they are looking carefully at their patent portfolios and asking themselves if there is a business reason to keep this patent in force.”

Gottman cautions companies looking for ways to cut costs not to be frugal in their intellectual property protections. If they invest in research and development, but not in patenting their innovations, there is much to lose, good economy or bad.

“A company’s willingness to protect patentable innovations is probably a function of their financial situation,” he says.

According to a recent Wall Street Journal analysis, research and development budgets are holding steady in the United States.

“I have seen dramatic cuts, but not in research and development,” Harvey says. She cites a client that recently reduced its workforce from top to bottom by eight to 10 percent but left its entire research and development department intact.

Gottman says he is confident the economy will turn around, and when it does, those businesses that have continued to invest in research and development — and in the appropriate intellectual property protections that go with them — will prosper.

“Those companies that have looked ahead to the period after this recession, I think they’re going to do very, very well, if they’ve continued to invest in research and development and protected the innovations that have resulted,” Gottman says.

So, if businesses still generate innovations, and if lawyers continue to make sure clients protect their business ideas, the American entrepreneurial spirit can still drive profits. And bring hope to a weary economy.

Business Security Means Protecting Ideas, Too
Intellectual property can be a company’s most important asset. It can enhance a company’s profitability by ensuring a product is unique in the marketplace and provides a lucrative revenue stream from licensing.

A company’s ownership of intellectual property can exclude competitors from a market and, at the very least, force them to do their own research.

Jim Gottman, a partner with Dinsmore & Shohl and chair of the firm’s intellectual property group, offers a quick primer in intellectual property:
  • Patents and trade secrets provide a means of protecting a company’s research and development efforts from competitors.
  • Trademarks can identify and distinguish a company’s products and services.
  • Copyrights protect software and written materials.
Gottman notes there is no substitute for the legal protections offered by patents, trade secrets, trademarks and copyrights. The courts honor them, and they secure business innovations and the inherent investment of time and money. But entrepreneurs, inventors and businesses should beware: Timing is critical. Patent protection should be obtained before a new or improved product is disclosed, published or commercialized.

It is a risk every business must take, Gottman says, although the decision about whether or not to obtain patent protections must be made early, sometimes before the commercial viability of the invention is clear. There is a very limited window of protection for new ideas offered in the courts.

U.S. patent laws provide only a one-year grace period from the time an invention first goes on sale or into public use, or is first described in a printed publication. After that grace period, it’s anyone’s game. The invention enters the public domain, and the inventor is barred from obtaining a patent, Gottman says.

In the global marketplace, the time constraints are even more severe, he continues. Every country has its own unique set of national patent laws. And many industrialized countries, including Western European countries and Japan, provide no grace period at all. Businesses interested in obtaining foreign patents should note that action toward securing those rights must be taken early, prior to any public disclosure of the invention.

Safeguarding ideas is as important to a business as a lock on the door. And an experienced attorney can help any size business obtain the appropriate legal intellectual property protections.