New York Franchise Law Blog : Franchise Lawyer & Attorney Charles N. Internicola, Providing National Representation of Franchisees and Franchisors

If you are a successful franchisor or entrepreneur (of a non-franchised business), chances are that you place great priority on the development of your "intellectual property" such as your trademarks, trade designs and innovations that may be the subject of a patent. While successful business owners and entrepreneurs are great at innovating and creating "intellectual property", sometimes, mistakes are unnecessarily made respecting the protection of your "intellectual property.

When evaluating the development and protection of your intellectual property, the following are some factors that you should be aware of and considering as you manage your critical intellectual property assets:

Intellectual property is a "Two-Sided Coin" and is not limited to just "One Thing".  That is, your view toward your intellectual property assets should be expansive and involve the recognition that you are not just limited to "trademarks" or "patents".  Many of the key intellectual property assets that comprise your business may be afforded an array of protections involving trademarks, patents and a  broad array of "common law" protections associated with "trade secrets", "customer lists", "production sources" and other confidential components that drive your business.  The key is to properly structure your legal approach to these assets and afford them the maximum protection possible.  For example:

- Have your key employees with access to confidential information about customers and production sources signed limited but enforceable confidentiality agreements;

- Do you review with your corporate counsel the current usage of your trademarks to ensure that your trademark registrations are current and that supplemental applications are not warranted;

- Have your production sources signed off on confidentiality agreements respecting key components or processes involved in the production of your proprietary products and supplies; 

-Have you evaluated key product designs to determine whether or not your product may benefit from a "design patent.

As you are certainly aware there are many more issues and considerations concerning the protection of your intellectual property assets.  However, the basic and extremely limited point I wish to convey that the creativity that you put into developing the unique intangible assets that drive your business should also be applied toward the active management and protection of these assets.  Set a plan and actively discuss the protection of these critical assets with your corporate counsel. 

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The licensing of Intellectual property serves as one of the most fundamental rights granted in the franchisor / franchisee relationship.  Successful franchises and franchisors require strong trademarks (and sometimes, patents) that are both recognized by consumers in the marketplace and capable of protection under federal and state law.  When a franchise is granted, the franchisor undertakes a serious responsibility and obligation to defend and preserve the marks that it is licensing.  

When a franchisors trademark is challenged by a competitor or third party, the franchisor must vigorously defend its interests, and indirectly, the interests of its franchisees.  When counseling and advising clients as to intellectual property planning and litigation strategy, the potential purchase of "Intellectual Property Infringement Defense Insurance ("IPIDI") is sometimes raised as a means of defraying what may be substantial legal fees typically incurred in IP litigation.

What is IPIDI - basically it is an insurance policy that covers your legal fees in the event that you are sued for infringing on the trademarks or patents of a third party.  The exact nature of this insurance varies between insurance companies and will be defined by the express terms of the proposed insurance agreement.  So when considering this insurance and comparing premiums, it is critical to have your lawyer evaluate the express terms of the proposed policy.

Should IPIDI be Considered by Franchisors - Yes, but it is critical to recognize that this insurance is typically limited to only those instances where you are sued and not where you are suing a competitor for infringing on your trademarks or patents.  Also, remember that this policy only covers "legal fees" and if you lose the lawsuit (i.e., found to have infringed a competitors IP, insurance will not cover monetary awards or judgments issued against you.

Some of the Important Factors to Consider - When considering this form of insurance, you should discuss with your franchise or business lawyer some of the following issues:

• Does the policy exclude declaratory judgment lawsuits;
• If the policy excludes "intentional acts of infringement" from coverage, how does the policy define "intent;
• Does the policy require frequent opinion letters from legal counsel as to the subject trademarks and patents;
• How does the premium compare to historical and possible future IP "defense" legal fees. 

Like any insurance, Intellectual Property Infringement Defense Insurance does not offer a complete solution, but, depending on the terms of the policy and the cost of the premium, should be considered as a supplement to your intellectual property strategy and planning.

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