The Steamroller Effect

There is an unnerving trend facing American businesses today: small companies are finding themselves embroiled in legal battles with an alarming frequency. These independent businesses, many of which are small-scale operations that survive on a meager budget, are faced with defending their intellectual property rights- everything from their company name to the items they produce and sell. Legal battles over intellectual property have a varied effect on the general public, who will eventually pay the price of court cases aimed at those who lack the available means to fight back.

In order to understand the current battle, one must first understand what Intellectual Property is. Intellectual Property is defined as “Property that derives from the work of the mind or intellect; specif An idea, invention, trade secret, process, program, data, formula, patent, copyright, or trademark or application, right, or registration relating thereto”. (1) What does this mean in layman’s terms? Intellectual property is an item with commercial value, such as a new purse design, that can be protected by patent, trademark or copyright law.

Many business owners in the United States are surprised to find that Intellectual Property rights originated with the Constitution (Article 1, Section 8, Clause 8)(2), which states that Congress shall have the power “to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

It seems that even the founding fathers felt that we should have the right to exclusive ownership and use of our inventions, as well as the right to reap the rewards gained by granting permission of use to others.

Protection Under the Law

Today, there are three methods through which intellectual property can be protected. These methods include patents, copyrights, and trademarks.

* A patent protects “exclusive rights to a process, design, or new invention”. (3)

* A trademark protects “a name, symbol, or other device identifying a product”. (4)

* A copyright protects “literary, musical, dramatic, or artistic work”. (5)

The cost of enacting these methods of protection can be exorbitant. An excellent example of the fee for protecting your work is the price tag attached to a patent, which can range from approximately $400 to $1,000 or more. According to one law firm, the actual cost to file a patent for something easily described is roughly $2000, while something more complicated can incur a fee up to $10,000. (6)

While filing for a trademark is typically less expensive, the process can still rack up fees in excess of $1,000 to $1,500 per application. (7)

The average start up investment for an arts and crafts business is $9,000.(8) When you take into consideration the requirements on city, county, state and federal levels for business licences, the amount paid out for basic office supplies, the cost to generate a website or other marketing materials, and the cost of ordering the necessities to produce a final product, there is little room left in the budget for filing for these most basic protections under the law.

There is more to the story than just the fees incurred when registering for a patent. Every patent can be challenged, with many leading to trial cases with outrageous amounts of money exchanging hands. As one law firm reports, the average cost of patent litigation through trial can range from $500,000 to near $2,000,000- and that amount is only for one of the constituents! These costs can climb rapidly for high profile cases requiring intensive work by the litigator, as patent attorneys charge roughly $200-$500 per hour.(9)

Importance of Intellectual Property

People often underestimate how essential intellectual property rights can be to a business. The media is rife with examples of battles over intellectual property, which range in severity from questionable copying to blatent theft.

We can look to the recent media headlines for a more in depth view of the problem at hand.

Earlier this year, Nike, Inc. issued a formal apology to “the members of iconic Washington, D.C., hardcore act Minor Threat and frontman Ian MacKaye’s Dischord Records for “the creation of a tour poster inspired by Minor Threat’s album cover””.(10) Why was Nike, Inc. issuing an apology? MTV reports that, “The poster, for Nike’s Major Threat skateboarding demo tour (used to promote its newest line of SB shoes), misappropriated not only the Minor Threat logo, but the imagery from the band’s 1981 self-titled EP and its 1988 Complete Discography.” (10) Sources have not published any further information on the topic.

Another example of this infringement of intellectual property can be found in the case of Margaret Nicole of Manhattan and Abercrombie & Fitch Co..

According to the New York Times, Abercrombie & Fitch Co. was selling a bag identical to those made by Margaret Nicole of Manhattan, and Margaret Nicole of Manhattan owner Nicole Dreyfuss “said that within two weeks, Abercrombie’s lawyer, Frank J. Colucci of the New York law firm Colucci & Umans, agreed to pull the purse and make a settlement.”.(11)

Defending the Store

These stories are, however, unusual. The majority of small businesses do not have the means to fight large companies when their designs are stolen or their livelihood threatened by lawsuit. Instead, they are forced to hand over the results of their hard work to colossal corporations simply because they can’t afford to defend themselves.

The epitome of this instance would be the current litigation brought against the small online retailer Virgin Threads, LLC.

Virgin Threads, LLC was formed in August 2004, and is currently being sued by Virgin Enterprises. As one media outlet reported, “Virgin Enterprises, Richard Branson’s group of companies, has tried to stop others from using the word “Virgin” in names and domain names.”(12)

The complaint documents filed in this federal lawsuit indicate that Virgin Enterprises believes the defendants named, “registered the domain names VIRGINTHREADS.COM, VIRGINFASHION.COM, VIRGINCIGAR.COM, VIRGINPUBLISHING.COM, and I-VIRGIN.COM with bad faith intent to profit from VEL’s VIRGIN mark and with specific intent to mislead consumers.”(13)

The owner of Virgin Threads, LLC, Jason Yang, says this of his current situation, “I had planned to trademark Virgin Threads soon but in November 2004, I was served with the lawsuit and my lawyer suggested that I do not try to trademark the name until after the lawsuit.”

When asked if he intended to bank off the household recognition of the name Virgin, Mr. Yang responded, “No, I never considered Virgin Threads to be similar to Virgin Enterprises in any way. The thought had never crossed my mind.”

While Mr. Yang continues to fight the attempt to shut down his website, the cost of the battle continues to rise. Because of this, the Virgin Threads website features a new department entitled, “Legal Fund”. The unique designs sold in this section help raise money for the defense against Virgin Enterprises, with a portion of each sale going toward the Virgin Threads Legal Defense Fund.

Despite the recent headlines and media attention, the majority of the consumer market remains unaware of these lawsuits and the dangerous trend they represent. Of those who are aware, many do not realize the true effects that will result from these court battles.

If the current bias is allowed to continue unchecked, it will leave the consumer in a precarious situation- staring in the alarming visage of a monopoly. The rising costs of protecting and defending intellectual property, along with the cost to defend against perceived violations, make an extremely hostile environment for small businesses to survive in, while rendering their growth nearly impossible.

With the disproportionate resources available to each category of businesses, it takes only an allegation of infringement to bankrupt many of the so-called “little guys”. This ability by large corporations to remove their competition from the outset leads directly to a dominance in the marketplace.

Marketpace dominance (or more plainly described as a monopoly) has a direct effect on consumers in the form of limited choices and higher prices, something even the famous 18th century English economist Adam Smith recognized when he declared: “The price of monopoly is upon every occasion the highest which can be got.”

The Loss of Small Businesses

With the monopoly in place, consumers are not only limited on their choice of product, but they could easily be forced to pay inflated prices for imported goods.

Many large companies are now outsourcing their labor to other countries. As once media source reports, “Forrester Research estimates that by 2015, as many as 3.3 million US jobs and $136 billion in wages will move not only to India, but also to China, Russia, Pakistan, and Vietnam.”(14)

Can we afford to lose our small companies? Here’s a closer look at what small firms (with 500 or less employees) bring to the United States:

Small firms

* Represent more than 99.7 percent of all employers.

* Employ more than half of all private sector employees

* Pay 44.5 percent of total U.S. private payroll.

* Generate 60 to 80 percent of net new jobs annually.

* Create more than 50 percent of nonfarm private gross domestic product (GDP).

* Are 53 percent home-based and 3 percent franchises.(15)

As these smaller firms close their doors, local economies suffer. Ramifications from these closures can take on a ripple effect, bringing higher unemployment rates and affecting areas of life one might never suspect.

One study purports that, “The social costs of unemployment” can influence everything from mental health to the cost of social programs such as Social Security.(16)

It is clear that we, as a society, need to take steps to prevent the bastardization of our economy in every arena available. We must act to protect our small businesses from extinction.

The current system must be examined and changed to allow small businesses to protect themselves and their intellectual property. Corporations need to be held accountable for their attempts to create a monopoly, and the resource gap must be closed in regards to the legal system.

While there is no simple solution, there are routes that can be taken to meet these requirements. However, those routes will never be opened until this problem has been acknowledged by both the public and the lawmakers.

The time has come for this acknoweldgement. It is time to put an end to this steamroller effect.

Bibliography:

(1) “intellectual property.” Dictionary of Law.

Merriam-Webster, 1996. Answers.com GuruNet Corp. 15 Jul. 2005. http://www.answers.com/topic/intellectual-property

(2) Articles of the Constitution, http://www.house.gov/Constitution/Constitution.html

(3) “patent.” Investopedia. Investopedia Inc., 2000. Answers.com GuruNet Corp. 15 Jul. 2005. http://www.answers.com/topic/patent

(4) “trademark.” The American Heritage® Dictionary of the English Language, Fourth Edition. Houghton Mifflin Company, 2004. Answers.com GuruNet Corp. 15 Jul. 2005. http://www.answers.com/topic/trademark

(5)”copyright.” The American Heritage® Dictionary of the English Language, Fourth Edition. Houghton Mifflin Company, 2004. Answers.com GuruNet Corp. 15 Jul. 2005. http://www.answers.com/topic/copyright

(6) Fees referenced from “What does it cost to get a patent?”, © Copyright 1993-1998 Oppedahl & Larson LLP. [http://www.patents.com/cost.htm]

(7) Fees referenced from “How much does it cost to file a trademark application?”, ©2005 Meyertons, Hood, Kivlin, Kowert & Goetzel. http://www.intprop.com/PatentFAQ_trademarkcontent.asp

(8) “Business Guide – Arts & Crafts”, Copyright © 2005 Yahoo!

(9)”PATENT INSURANCE, IS IT WORTH IT?”, © 2000, 2001, 2002 Bruce E. Burdick

(10)http://www.mtv.com/news/articles/1504875/20050628/index.jhtml?headlines=true

(11)http://www.nytimes.com/2005/06/19/business/yourmoney/19bags.html

(12)http://www.chillingeffects.org/weather.cgi?WeatherID=507

(13)http://www.heratyhall.com/virginthreads.pdf

(14) “A Brief History of Outsourcing”, (c) Terri Kelly, accessed from [http://www.globalenvision.org/library/3/702/]

(15) http://www.sba.gov/advo/stats/sbfaq.html

(16) http://www.solbaram.org/articles/clm502.html


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