Fighting Words

Growing ranks of litigants are putting price tags on ideas.

To the list of venues where intangible property has tangible asset value, add this one: The federal court system. Emboldened by Congress’s creation in 1983 of what many lawyers have come to view as a patent-friendly federal appellate court, and by a 1996 Supreme Court decision giving judges more power to decide patent cases before sending them to juries, inventors and corporations are more willing than ever to take intellectual property claims to court. Also spurring the activity: a clutch of high-profile, high-stakes cases over the past decade, such as Polaroid v. Eastman Kodak, Honeywell v. Minolta, and Fonar v. General Electric, which have shown that intellectual property lawsuits can swamp balance sheets.

“As our economy becomes less manufacturing oriented, intellectual property becomes a much more important asset and represents a great deal of what shareholders have given a company to invest,” says Christopher J. Steffen. A private investor and former vice chairman of Citicorp/Citibank NA, Steffen was chief financial officer of Honeywell in 1993 when that company won a $96 million judgment against Minolta for infringement of Honeywell’s patented auto-focus technology for cameras. With that victory, Honeywell was able to wrangle licensing deals with other major camera manufacturers that netted it around $400 million in additional income, for a total of approximately half a billion dollars.

With consequences like that at stake, finance executives can’t afford to leave the caretaking of intellectual property to their general counsel alone.

“It’s very much a team effort, and the CFO has a role to play,” says Jim Horstmann, chief financial officer of $90 million LaserMaster Technologies Inc., in Eden Prairie, Minnesota. “Especially at companies that can’t afford to throw money at all their intellectual property, the CFO needs to work with the general counsel and some heavy-duty research-and-development people to pick and choose what they think is likely to be a product down the road and is defensible, and throw their resources at that.”

Got a Million to Spare?

CFOs must discriminate in protecting intellectual property — trademarks, patents, brand names, copyrights, and trade secrets — because that protection doesn’t come cheap. LaserMaster’s operating subsidiary, ColorSpan, recently spent more than half a million dollars in legal fees to prosecute a trade-secret claim related to ink products it makes for its wide-format inkjet printers. ColorSpan alleged that privately held Sentinel Imaging, of Greenland, New Hampshire, had stolen part of its market for consumables by hiring two former ColorSpan employees who imparted trade secrets and customer information. The hefty legal fees it paid to prove that point didn’t include the company’s internal costs (principally executive time), which Horstmann says were “huge.”

For its expenditures, ColorSpan won $2.2 million in damages last October after a jury agreed with its version of events — almost exactly two years after the suit was filed.

Sentinel is seeking to have that judgment set aside, and, while awaiting the judge’s verdict, hasn’t paid the money but has resumed sales of the consumable products over which the case was fought. While LaserMaster is mulling other legal maneuvers against Sentinel, its efforts so far have been extraordinarily costly for a company of its size.

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