Idaho Business Review IBR
Brad Frazer wants to help Idaho companies protect their intellectual property and avoid “leaving money on the table.”
A member of Hawley Troxell’s business and finance group, he also chairs the firm’s internet and intellectual property group. Frazer has shared his expertise in the field through articles and lectures at Boise State University and Northwest Nazarene University.
With a legal career spanning three decades, Frazer has extensive experience with some of the Treasure Valley’s biggest names in technology. In 1997, he accepted an in-house position as senior intellectual property counsel with Micron Electronics, Inc., and remained there through the company’s merger with Interland, Inc. (now Web.com), then the nation’s largest Web hosting company. He eventually became deputy general counsel for Micron Electronics, Inc., and Interland, Inc. From June 2003 to February 2006, Frazer served as deputy general counsel to MPC Computers, LLC, in Nampa.
He recently sat down with the Idaho Business Out Loud podcast to pass on his tips regarding intellectual property. This transcript has been edited for length and clarity.
To start off, can you tell us a little bit about yourself and your practice?
Sure, I’m Brad Frazer. I’m a partner at the Boise law firm Hawley Troxell. I’m a Boise native, one of the few, and I have been at this firm since 2007. I practice intellectual property law, internet law and information technology law, so today’s discussion on intellectual property is squarely within my practice areas.
To give us an overview, what is intellectual property?
Intellectual property is contrasted from other kinds of property that the law considers. In general, there are three kinds of property. There is real property, what you think of as dirt. You build your house on real property. Then there’s personal property. Those are things that you can move off of the dirt like a car or shoes or a television. Those two things, real property and personal property, are tangible. You can touch them; you can move them; you can physically place them in your closet if you wish.
And then the third kind of property the law considers is called intellectual property. It doesn’t really exist in three-dimensional space, hence intellectual. And in the intellectual property realm, we typically refer to four different kinds of intellectual property: patents, trademarks, copyrights and trade secrets. And they’re all very different and they all do very different things. And just like you might use a fence to protect real property, where you might use a security system to protect personal property, we use intellectual property to protect things like ideas and inventions and brands and movies and pictures and things like that.
What is the main thing that you want Idaho businesses to know about their intellectual property?
I think the main thing I’d like them to know is that intellectual property is a form of money. It can be monetized, and what I find sad is that many times Idaho businesses will leave money on the table because they’re not taking value of their intellectual property. An inventor in a startup business will have an idea for a new product or service, but they won’t apply intellectual property principles to protect it, and thus if they don’t protect it, it’s very difficult to monetize it, to make money off that idea. So the main thing that I want them to know is this phrase: “Intellectual property is found money.”
If an Idaho business is cognizant of identifying its intellectual property and taking steps to protect it, that business will make more money than if it does not do those things.
What do you mean by saying that Idaho businesses are leaving money on the table by not exploiting their intellectual property?
By that I mean that, let’s assume that a company is getting ready to be sold and let’s assume that they have arbitrarily valued the business at $5 million. And they haven’t taken cognizance of any intellectual property — they haven’t filed any patent applications. They haven’t protected their copyrights or their trademarks or their trade secrets at all. And so when they go to sell the business, the buyer will offer them $5 million because they have not taken cognizance of their intellectual property, and a buyer will get value for intellectual property.
So, if the business is valued at $5 million with no intellectual property, let’s contrast that with a company that has protected its intellectual property. That same $5 million business will be worth $20 million if they protect their intellectual property. And I know this experientially because I’ve done it time and time and time again. I’ve bought and sold businesses for clients, businesses that have IP and businesses that don’t, and the business that has IP is worth more money. So if you want to sell your business for $20 million instead of $5 million, then protect your IP.
Identify and protect your intellectual property. And when we say IP, we of course mean intellectual property.
So, when you mention protecting IP, what exactly does that mean? What are you protecting it from?
I assume, Liz, you at some point in your career you studied econ, right? So you may remember from econ 101 the notions of supply and demand. When you can create a limited supply of a product, you effectively create a monopoly. Intellectual property is a kind of lawful monopoly.
So what we’re doing is we are creating barriers to third persons using it without your permission. Specifically, when we protect IP, we file and get patents, we file and obtain registered trademarks, we file and obtain registered copyrights, we protect trade secrets with non-disclosure agreements. Those are the protection modalities — registering copyrights, registering trademarks, getting issue patents, protecting NDAs with trade secrets.
When you do those four things religiously, what you’ve done is effectively create a monopoly. So even though in the United States we have a law called the Sherman Antitrust Act, which prohibits monopolies, this is a huge exception to that. Intellectual property law allows you to have a lawful monopoly.
That’s what I mean by protect is to employ the laws of the United States and other countries to create a lawful monopoly, so you’re the only one who can make, use, sell or trade in a particular product or service or idea.
Can you give us some examples of how Idaho businesses can make money with their intellectual property?
Sure, so let’s assume that you have an idea for a new product or service. Let’s assume that you have an idea for an invention that expedites the process for washing a dog. So, you have a warehouse and you hire personnel and you build this prototype. And you start building and selling your dog washing machine. If you don’t protect it at all, the moment you announce the very first one for sale on the internet or at a trade show, your competitor will see it, and what will they do? They will steal the idea because they can, right?
Conversely, if you, before you make it public, if you protect all of this intellectual property, file patent applications, file trademark registration applications, register copyrights, protect NDAs, get domain names, obtain social media, do all the steps that we recommend before you launch, then when you launch, a competitor has a much more difficult time stealing your idea. And thus, you can make more money because you’re creating barriers to entry that otherwise do not exist.
So intellectual property creates typical barriers to entry. For example, the classic example of a barrier to entry is it’s expensive to build a nuclear power plant. So, it’s difficult for people to jump into the business of making nuclear power plants. An automatic dog washing machine is not a nuclear power plant. You have effectively no barriers to entry, so IP creates barriers to entry and thus when you create limits on a competitors ability to steal your idea, you can sell it for more money or make more money from it.
So it’s much more practical to act proactively than reactively and have to act once someone has already taken that idea?
That’s right, Liz. It’s trite, but it’s true. You can pay me now or you can pay me later. And if you pay me later, you’ll pay a lot more money. We’ve talked about a dog washing machine. Let’s assume you call it Bubble Bark.
So, Bubble Bark is your brand name for your dog washing machine. Great. But you do not for whatever reason protect the brand name as a trademark. You don’t protect the domain names Bubblebark.com, Bubblebark.net. You don’t protect #BubbleBark, @BubbleBark on Twitter. You just don’t do any of that, because you didn’t think about it, right?
So, then your competitor sees your Bubble Bark washing machine or dog washing machine and they steal it, and they go out and they file trademarks and domain names and social media on Bubble Bark.
Then you come to me a year later and go, “Brad, what are we supposed to do? My competitor has obtained all of this stuff all around my brand Bubble Bark.” We can fight and get it back. As opposed to doing it at the beginning where you spent maybe $500 dollars, you wait a year and you do it later, you’ll spend $50,000 trying to get it back from your competitor. So, you bet, way better and cheaper to do it first.
Do you have substantial grounds to get it back if it wasn’t registered to begin with?
You may. Intellectual property law in the United States gives some advantage to the person who thought of an idea or is first to use a trademark. But the law has evolved to say that the better rights go to the person who has registered their trademark or filed a patent application. So you have some rights if you don’t do those things, but they’re not necessarily substantial rights. So, we can kind of limp along and try to get those things back retroactively, but far better to be proactive, as you said.
So, the second person who takes it and patents it definitely would pose a much bigger threat than anything else?
Right. That’s exactly right.
You also mentioned the importance of brand. How does building branding come into this intellectual property discussion?
You know, if we were having this discussion 15 years ago, I would say you have to go out and file a patent application on your new idea. But in 2019, I now say to clients, “We’ll talk about a patent, but first talk about the importance of brand.” Because it’s immediate and it’s cheap.
So let’s continue our Bubble Bark hypothetical, right. Let’s assume that you have an idea for a dog washing machine, and you come up with the name Bubble Bark before I did anything like developing a prototype or hiring employees or running a building or getting a warehouse or finding a Chinese manufacturer or any of that. Before I did any of that, I would secure my rights to the brand because that’s immediate and cheap. I would also think about filing a patent application, but I would do the brand stuff first and there’s a specific order to it.
So, I would say, Bubble Bark, let’s protect it as a trademark. There are things that we do with a government agency called the United States Patent and Trademark office to protect Bubble Bark as your trademark. We go out and we secure all of the domain names, Bubblebark.com, .net, .org, .info, .us, .co, .ca. There’s a list of 20 that you should have. A couple hundred bucks there, the trademark might cost you $500, couple hundred bucks in domains.
Then we go out and you obtain all the social media: Facebook.com/BubbleBark. Start Tweeting it @BubbleBark, start Instagramming it @BubbleBark, I mean just hashtag BubbleBark on Twitter, on Instagram and on Pintrest. And the reason is because it’s immediate, it’s easy, it’s cheap and in 2019, people give actually more value for brand than they might for a patent for a whole host of reasons that we don’t have time to discuss today.
So, when someone comes to me, 15 years ago I would’ve said let’s file a patent application on BubbleBark, on your invention. That’s an awesome invention, an automatic dog washing machine. Let’s file a patent. In 2020, I say, “Cool, let’s talk about the patent tomorrow. Today, what I want you to do is go out and do these specific things: file a trademark registration application, get all the domain names, get all the social media nailed down and do it today, because it’s immediate, it’s cheap and it’s easy. Brand.”
The other reason is because in 2020 a sophisticated buyer of your business or your idea is going to pay you money for brand that they wouldn’t have paid you 50 years ago.
But let’s talk a little bit more about the importance of identifying and owning your intellectual property. This is the one thing that Idaho businesses forget to think about as part of their IP strategy. So, I’ve been very glib: register trademarks, file patent applications, register copyrights, get all this stuff. Underlying that is the assumption that you actually own it all, because if you don’t own it, you can’t protect it.
So, let’s talk about how you own intellectual property. In the United States, the law is very specific about how you own stuff. When you have the title, you have evidence of ownership of a car. You paid for it, thus you own it, right? Intellectual property law doesn’t work that way. Intellectual property law almost doesn’t care about who paid for it. Your playground sense of fairness since second grade is if I pay for something, I should own it. Right? That seems logical. Intellectual property law doesn’t care.
Intellectual property law that says you’ve got to do more than just pay. You’ve got to get pieces of paper in place to ensure that you own the IP.
Any Idaho business who wants to monetize its IP has to make sure it owns it. Do you own all of your inventions? Do you own all of your ideas? Do you own all your pictures, video, media, web content? Do you own all the source code that runs your computers? Do you own all that? And many times, the answer is no because they just haven’t thought it through.
How do you proceed from that point if you identify a certain liability in that ownership?
Intellectual property law requires you to identify the human being who authored or created the thing. So let’s assume we’re talking about computer software. You come to me and you say, “Hey Brad, I had this great new computer software program that I want to put on the Apple Store and Google Play, and it’s awesome. It’s an app for your iPhone or your Google Android device that tells you where the nearest dog washing facility is.” And so you think to yourself, you hired a coder to come and write that out. You gave that coder $15,000 to write the app, and they give you the source code.
Well, you come to me and you say, “Brad, let’s go. We want to license this. We want to sell this code I wrote.” The first thing I’ll ask is, “Do you own it?” And the answer will be, “What do you mean? We paid for it.” You now know the answer to that. Is payment relevant to the ownership calculus? No.
So what we have to do is go back and identify the human being who authored the code or took the photograph or sculpted the clay or invented the thing. We have to say, “Here, coder Susan. You wrote this code for the dog washing app. Sign this piece of paper.” And if Susan signs this piece of paper that says, “Susan transfers the rights to the intellectual property,” then they own it. Otherwise they don’t.
If you go back to her a year later then she’s going to say, “Oh, you know what, gosh, if you want to own it, that’s another 25 grand. I never contemplated that you would own it when I wrote the code. I never gave away my code.”
That’s also very important for creators to know. Not just the buyers, but also the sellers.
When I teach copyright law to a group of creators or content creators, authors, photographers, I always say to them, “How many of you, now after this discussion, how many of you own copyrights that you didn’t think you owned?” And everybody raises their hand, because they never signed a piece of paper giving ownership of photographs, that code, that clay sculpture. They never signed a piece of paper, and the person who bought it from them is relying on that incorrect old playground notion of “I bought it, I paid for it.”
So, you’re right. It’s a very good point for content creators, photographers, videographers, sculptors, coders. They should know that unless they sign away their rights, they continue to own the IP. But there is an exception I have to tell you about. The exception is that if you’re an employee then your employer owns the IP as a general rule. But many times these aren’t. This is a gig economy, right? Everybody’s an independent contractor, so most IP is created not by employees but by gig economic contractors, and those are the people that you have to get the rights from.
Can you boil this down to one thought to leave our listeners and readers with?
Sure, I think that I would encourage them to remember that if they don’t identify and own their intellectual property, they will leave money on the table. If they try to sell their business, they’ll sell it for less. If they ever need to go get venture capital or a seed round, they’ll get less money. If they ever want to try to protect their idea from someone stealing it, they won’t be able to and all of those have severe economic and business consequences.
So my bottom line thought is to be cognizant of you intellectual property. Identify it, own it, protect it, monetize it. Those are the four steps.
