Intellectual Property Protection: An Example of What Is at Stake for Small Business
In the early 2000s, Commerce Electronics Corp. (CEC) noticed that its European sales had begun dropping for no apparent reason. CEC, a small maker of control panels for high-end kitchen appliances, was perplexed because Europe had always been a predictable source of revenue. Soon, CEC discovered that a Chinese company was counterfeiting its products, going so far as to print CEC's name, address, and catalog number on the fake control panels. As a result of the counterfeiting, CEC estimates that it has lost approximately 10 to 12 jobs so far and $1 million in annual revenue, a lot for a small company.
Companies like CEC have a lot to lose from infringement of intellectual property rights (IPRs). They suffer lost sales, they pay to replace the defective fake counterfeits, they may be sued for personal injury from the defective counterfeit products, and perhaps most damaging of all, the goodwill and reputation of the company, often developed over many years, are eroded.
This course is designed to help small businesses take steps to protect themselves against the type of losses that CEC and many others have suffered as a result of IPR infringement within the United States and abroad. Although this course is designed for small businesses, the information presented is useful for all businesses, large or small.
Economic Growth
According to the 2006 Economic Report of the President:
- IP accounts for approximately 1/3 of the value of U.S. corporations
- U.S. IP may be worth more than $5 trillion
- In 2003, IP and IP support industries represented over 17 percent of the U.S. gross domestic product
Introduction to IPRs
Success in today’s global economy is increasingly dependent upon effective identification, protection, and enforcement of intellectual property (IP) assets. In fact, IP-based businesses and entrepreneurs today drive more economic growth in the United States than any other single sector. Many small businesses are only now becoming aware of the nature and extent of their assets and the extent to which those assets may be protected by one or more types of IPRs.
Unfortunately, as technology advances have made the large-scale copying and distribution of pirated and counterfeit goods easy and inexpensive, theft of IP has become increasingly widespread. Today, piracy, counterfeiting, and other theft of IP assets pose a serious threat to all U.S. businesses.
Given the significant threat of IP theft to both the success of individual companies and the economy as a whole, protection of IP assets is critical whether you are a major multinational firm or a single-person, home-based business. While some smaller businesses may be quick to dismiss the protection of IP assets as "something only bigger companies can do," the failure to identify, protect, and enforce IPRs can mean the difference between a business's continued existence as a company and its closing.
Defining IPRs
IPRs are rights that pertain to creations of the human mind. Individuals, corporations, or other entities may claim them. IPRs typically give the owner of the IP the exclusive right to control use of the creation for a certain period of time. Laws governing IPRs are intended to stimulate innovation and creativity, ensure fair competition, and protect consumers.
IPRs include the following:
- Copyrights and related rights
- Trademarks (including geographical indications)
- Patents
- Industrial designs, integrated circuit designs and plant varieties
- Trade secrets
Refer to Module 3 for more information on these various forms of IP.
Example of How IP Protection Can Help a Small Business Succeed
In 2001, Solartex, Inc. (Solartex), a small solar energy reseach and development company, invented a fabric that absorbs solar energy and converts it into thermal energy. Winter clothing made from the fabric is both extremely lightweight and very warm even in the coldest temperatures.
Prior to disclosing its invention to the public, Solartex applied for and was granted patents for its revolutionary fabric in the United States and overseas. Solartex adopted the brand name "Suntex" for its fabric after a thorough search of trademarks in use throughout the world. It immediately filed applications to register the Suntex trademark and an associated logo in the United States and throughout Europe, Asia, and Central and South America.
After its launch, Suntex fabric was an immediate worldwide sensation. Because Solartex had obtained patents for the fabric at home and abroad, it was secure in its position as exclusive manufacturer and supplier of solar energy fabric. The company quickly grew and expanded. Solartex's trademark registrations for the Suntex name and logo in the United States and overseas allowed Solartex to effectively protect and control the Suntex brand and image as the company's sales increased.
In 2006, Solartex was sold for $500 million. The company's high valuation was based primarily upon sales of Suntex fabric and the IPRs associated with that product. If Solartex had not taken steps to carefully protect its IPRs in Suntex at the outset, the fate of the company would likely have been very different.
Importance of IP Protection to Small Business
Recent reports, such as those showing that small businesses now produce 13 to 14 times more patents per employee than large companies, demonstrate the critical role that small businesses play in innovation and the success of the U.S. economy. Protecting the IP associated with their innovations is critical to small businesses on a number of levels. IP can enable a small business to:
- Reap profits from its ideas and creations and from licensing its rights
- Preserve a market niche and thereby compete effectively with larger companies
- Establish and grow its reputation and goodwill in the marketplace
IP can also:
- Enhance the worth of a small business in the eyes of investors and financing institutions
- Raise the value of a small business in the event of a sale or merger
Click here for an example of how intellectual property can help a small business grow and succeed.
Vulnerability of Small Businesses to IP Theft
Protecting valuable IP assets is particularly critical for small business owners, and it is also particularly challenging. Effective protection of IP can be difficult for small businesses because they often lack:
- Experience in protecting IP, which may result in small businesses entering markets without taking adequate precautions against IP theft
- In-house legal expertise (or even an outside attorney, especially one with IP expertise)
- Financial resources to engage in protracted IP litigation or to undertake large-scale anticounterfeiting and antipiracy operations
In addition to lacking the resources and expertise of larger companies, small businesses are also particularly vulnerable to IP theft because they often do not have other product lines to fall back on in the event that an IP asset is stolen.
Module Summary
You have now completed the Introduction to IP Protection module. The next module will enable you to better assess the nature of IP assets that your business may possess. It will also provide you with information about steps you can take to catalog and valuate those assets.