Protect Your Information
The how and why regarding business information and intellectual property for laboratories
Ira Rosenau
In modern American business, protecting advantageous information through intellectual property filings and restrictive contracts has become essential for survival. Having spent 20 years as a commercial attorney in Philadelphia, Pennsylvania, and 4 years as Keystone Industries' dental president and general counsel, the author has been fortunate to develop a unique perspective on the areas where dental business operations intersect regularly with legal issues. Every dental business, large or small, needs a functional understanding of how to make smart business decisions about protecting confidential information and intellectual property (IP).
All dental laboratories, regardless of their size or complexity, have valuable business information that needs to be protected. Many managers may not even realize how much confidential information their laboratory wrestles with every day. The real issues facing laboratories are how to take appropriate protective steps that are scaled to the laboratory's business and finances, and how to best protect its business information from misuse.
This article provides an overview of some economical protection strategies, focusing on three ways to ensure the business's information is not misused:
• protective steps within the business;
• contracts: restrictive agreements with employees and third parties; and
• intellectual property filings: patents and trademarks.
To help illustrate the issues, this hypothetical situation will be considered throughout. Dave's Dental Lab (DDL) has developed a unique sleep apnea appliance based on years of experience, work, design, and development called "SnoreStop." One of DDL's key employees on the SnoreStop development was Larry Labtech. DDL wants to commercialize the product and partner with several dental companies to bring the product to market. Pete's Production Center (PPC) intends to hire Larry Labtech away from DDL to work in Pete's sleep apnea department.
What Is "Confidential Information"?
Essentially, confidential information is any knowledge that derives business value by virtue of not being generally known by outsiders. It encompasses a wide range of intelligence—specialized manufacturing techniques and processes, formulas, customer and supplier lists, material selection standards, costs, pricing and profit information, business plans and strategies, and inventions, for example.
Every laboratory and production center has important information it wants to protect from disclosure to its competitors, such as its customers, sources of materials, and costs of manufacturing. Dave's Dental Lab would not want PPC to know how it designed SnoreStop, what design options worked or did not, the raw materials selected, or the go-to-market partnership and pricing strategies. The potential for Larry Labtech to share such proprietary information with outsiders, and the detrimental impact on DDL, has to be planned for by the business.
Protective Steps
Without spending a lot of money, there are some simple and essential steps laboratory managers or owners can take to protect confidential business information. First and foremost, limit employee access to critical business information on a need-to-know basis. Any proprietary documents—customer, supplier, and price lists; financials; formulations; business plans; etc—must be marked "confidential." For highly confidential or trade secret information, further restrict access through steps such as installing secure computer and file passwords, or maintaining records in locked filing or storage cabinets. Before discussing confidential information with outsiders, secure the exchange through a non-disclosure agreement (NDA). Each laboratory operator should also protect the laboratory from unscrupulous workers by having all employees sign an agreement with restrictions and protections established for the business. These should include provisions that prohibit the employee (during and after employment) from: soliciting the laboratory's employees and customers; disclosing or using confidential information to which they had access; and competing with the business in the future.
Contracts
It is wise to spend a few dollars on lawyers to help the laboratory establish good, protective contracts. They could save the business 10 times the money later on if a dispute erupts.
First, for any employees, it is prudent to have a few key documents in place to prevent them from intentionally harming the business. Every laboratory should have a basic employment handbook setting forth the business's rules and regulations. Similarly, basic employment agreements should be used. They do not have to be very long or too complex. They should, at a minimum, contain restrictions that:
• prevent laboratory employees from using or disclosing confidential information at any time (during or after employment);
• prevent workers from soliciting other employees or customers away from the business;
• assign to the business all rights to the inventions or intellectual property developed by the employee; and
• prevent employees from competing with the laboratory business during or after employment (enforceability of a non-compete clause depends on applicable state law and the facts of each case).
If a current or former employee attempts to use the laboratory's confidential information, steal customers, or otherwise harm the business, these contractual provisions will provide the latter with ammunition to protect its valuable information from misuse.
Second, for outsiders, it is critical for a laboratory business to have standard NDAs in place before disclosing confidential information. These agreements will be the primary shield for the business when dealing with third parties (potential partners, suppliers, customers, collaborators, and auditors). If the laboratory makes a disclosure unprotected by an NDA, then the business runs the serious risk of losing control and protection over that important business information.
Consider the example of Dave's Dental Lab. Assuming it has a proper employment agreement with Larry Labtech, DDL will be armed with contractual protections to stop its former employee from disclosing the SnoreStop design and development information to Pete's Production Center. If Larry Labtech and PPC implement their plans for using Larry in the sleep apnea group, they are at risk of being sued for breach of contract, tortious interference with contract, trade secret theft, and several other claims arising from DDL's protective employment contract.
Intellectual Property Filings and Trademarks
Some dental laboratories and production centers are heavily involved in developing processes and products for the dental market. Such inventions or branded products may need to be protected by patent and/or trademark filings. For example, DDL needs to consider seeking patent protection for SnoreStop so that years of design work cannot simply be stolen by a sleep apnea competitor like PPC. To protect its valuable and unique product branding, DDL also should consider seeking a trademark on SnoreStop to prevent another business from launching a confusing knock-off called "SnoreStopper."
Many businesses, including dental laboratories, have cultivated valuable name recognition over years of relationship-building and product portfolio growth. Think about the industry name recognition some dental laboratories and production centers have developed over many years of service and brand-building: Argen®, Core3dcentres®, NDX® (National Dentex), and Oral Arts®, to name a few. Most people in the dental industry immediately recognize these company and brand names, which these businesses developed over many years of service, advertising, trade shows, philanthropy, and other goodwill-building efforts. They developed significant value around their trademarked brands and filed for trademark protection.
Trademarks put the world on notice that a specific business claims ownership of a mark in a certain category of goods or services that it intends to use and protect from infringement by competitors. Trademarks can apply to unique words and logos, but they have to be uniquely tied to the business or product. In commerce, the ™ symbol is used before a trademark is granted and registered officially; ® is used after registration, thus permitting the filing of a federal lawsuit against copycats and infringers.
A company like DDL likely would consider a trademark infringement action if PPC launched a competing sleep apnea device called SnoreStopper. The key issue in a trademark action focuses on whether or not the alleged similarity of the two competing marks (covering similar goods or services) would likely create confusion among consumers about which company was providing the goods or services. If consumers of sleep apnea devices are shown to likely be confused by which company is selling SnoreStop and which company is selling SnoreStopper, then DDL would probably win the trademark infringement action against PPC.
One recent real-world example saw Dental Laboratory A pursue a trademark infringement lawsuit against Dental Laboratory B, alleging that the name of B's zirconia infringed the federal trademark previously registered by A. In that case, the likelihood of confusion among consumers was low. The court found that "a ‘reasonably prudent' dentist can be expected to exhibit a relatively high degree of care and knowledge when purchasing dental crowns," and that there was no trademark infringement because "taken as a whole, the dissimilarity of the marks … along with the expertise of the consumer base, far outweigh the similarity of the products and their existence in the same marketplace."
Patents vs Trade Secrets
The holder of a patent essentially obtains a monopoly on the invention for 20 years (starting upon the application filing). However, the patent owner is required to disclose fully all material information about the invention so that someone skilled in that area can replicate it based on the disclosures.
Some businesses opt not to file a patent application, which discloses everything about the invention, and choose instead to protect the invention as a "trade secret." A trade secret involves a heightened level of confidentiality achieved when a business takes significant steps to keep its information under wraps. (The best known example of this is the formulation for Coca-Cola, which has been a trade secret for over 130 years.) By electing to maintain secret formulation for processes, the company avoids having to tell the world how to make the invention. Unlike a patent, after 20 years, the technology remains secret and cannot be used by competitors in the marketplace. However, the risk of not seeking a patent is that if someone else figures out the secret to that invention on their own, it leaves the original company without protectible intellectual property.
The choice between protecting an invention as a trade secret or filing for patent protection is not an easy decision. First, the strategic decision has to be made: disclose everything to get a 20-year monopoly, or try to keep it a secret and run the risk that someone else develops the invention independently. Second, patent costs are significant, both in filing and legal fees. Generally, a US patent application of average complexity costs approximately $25,000 to $30,000 over several years. It will require even more if the patent holder intends to police the marketplace. According to the 2017 Economic Report of the American Intellectual Property Law Association, a patent infringement action with up to $10 million at stake usually averages approximately $2 million in legal fees and costs.
There are three primary reasons to obtain a patent. First, the creator intends to have an invention monopoly that they will police and enforce. Second, they want to defend their invention against competitors filing a patent and suing the original creator for patent infringement. Third, the creator has an interesting marketing story to tell around their unique invention. If the product developer is not going to leverage a patent for one of these reasons, then they should seriously consider whether the effort, cost, and full disclosure of the invention is worth it.
Conclusions
All dental laboratories have valuable business information that needs to be protected. Businesses should be prepared for the day they may need to enforce their intellectual property rights, whether against employees, third parties, or competitors. Good documentation practices and informational strategies can be achieved efficiently with some planning, forethought, and basic contractual protections.
About the Author
Ira Rosenau
President and General Counsel
Dental Division
Keystone Industrie
