Management Guide to Intellectual Property for State Departments of Transportation (2015)

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95 This chapter presents some examples of how a state DOT might manage potential IP assets. The scenarios provided cover patents, trademarks, copyrights, and trade secrets. These examples are not exhaustive, but they provide valuable insight into how IP management may be practiced for a particular IP asset. 10.1 The Work Zone Alert Water Curtain: Patent A state DOT maintenance unit has funded research to develop new technologies and innova- tions to make work zones safer for its work crews. The contractor working for the state DOT has developed what seems to be an effective approach to addressing this problem. This new technology projects safety alert messages onto a water curtain. The water curtain projections are non-intrusive, do not impede the traffic flow, and are very effective in calling the attention of a driver to the safety messages. The technology borrows from the techniques that are often used at light shows. After seeing and using the product in a demonstration, the state DOT has decided to adopt and implement this product for use in its work zones. Additionally, the contractor sees oppor- tunities for this product in other markets and for other purposes. The contractor has submitted a disclosure document discussing the technical details of the technology and the product to the program manager at the state DOT. Additionally, the contractor has approached the state DOT regarding options that would allow the contractor to use this technology for other opportunities. The R&D that resulted in this technology was supported by state funds only; no federal funds were used. There are no Bayh-Dole implications and restrictions. Per the language in the contract, the state DOT owns the ownership right to the technology and product; therefore, the option to pursue IP protection also lies with the state DOT. • Option 1. The state DOT could decide to relinquish the rights to the contractor in exchange for a non-transferable, irrevocable, paid-up license to use the technology in the state’s transportation- related activities, and the contractor could then pursue IP protection via a patent. If the state DOT takes this option, it will have freedom to use this technology on future transportation projects with no additional IP-related cost. • Option 2. Alternatively, the state DOT could dedicate the technology to the public domain, which would allow the contractor or anyone else to use the technology for free. This option may create new competition for the contractor, thus dis-incentivizing the contractor to invest in this potential innovation, because the future economic opportunity is now limited. C H A P T E R 1 0 IP Management Application Examples

96 Management Guide to Intellectual Property for State Departments of Transportation • Option 3. The state DOT also could pursue IP protection and subsequently license the IP to the contractor and others in exchange for royalty payments. In this scenario, the state DOT would have the responsibility for commercializing or managing the commercialization of this technology through licensing and other IP management activities. This option may add more cost in the short run but could prove to be profitable in the long run. The state DOT is interested in managing some of its IP as a new revenue stream. Because the state DOT has been approached by the contractor regarding options for using the technology, there may be an opportunity for licensing the technology for a royalty fee. Some key questions for the state DOT to consider are: • Should the state DOT pursue IP protection and then license? • What is the cost-to-benefit of this strategy? Having received the disclosure, the state DOT needs to perform due diligence. This includes considering the expected costs of patent protection, which include initial filing fees and prosecution, maintenance fees, allowance fees, costs of reviewing potential prior art, and any potential future marketing or litigation expenses. Two of the state DOT’s goals are (1) to manage its IP for the public good and (2) to maximize taxpayer value. Economic development may fall within those goals. Therefore, licensing IP to the contractor seems to be a suitable option. After a comprehensive due diligence and evaluation of the technology, it seems that the technology is something that is new, useful, and patentable. In this case, the state DOT decides to pursue patent protection. After filing the nonprovisional patent application with the USPTO, the state DOT can open dis- cussions about licensing the technology to the contractor. A number of licensing options are avail- able (as briefly discussed in Chapter 6 of this Guide). The license can be exclusive or non-exclusive, limited to a specific geographical area or by field of application, and be given in exchange for a royalty or be royalty-free. When considering a royalty, it is important to identify the royalty base— that is, whether the royalty will be calculated on net, gross, or a pre-determined annual payment. In this scenario, the state DOT negotiates an exclusive license with the contractor that gives rights to all geographic territories and fields of application. Having conducted a market review of royalty agreements of similar technologies, the state DOT establishes a royalty rate of 5 percent based on gross sales of products embedding the technology. The state DOT reserves march-in- rights and gives the contractor the right and support to take legal action against any potential infringers. Anticipating that a patent will be granted on the technology, should a future legal case be brought to invalidate the patent on the technology, the state DOT agrees to work with the contractor to bring these issues to a resolution. One key assumption in this scenario is that the patent application has been filed but no patent has yet been granted. The assumption is important because the state DOT is acting proactively in pursuing commercial opportunities for its IP. If a patent is not granted, however, details of the patent applications will remain public—so the value of the technology as an IP asset will be lost. The risk that a state DOT would need to recognize is that the cost of obtaining a patent may not be recovered via licensing or other opportunities. This risk must be considered in the cost-benefit analysis when evaluating dispositions for technologies and outcomes from state DOT-funded R&D or other activities. If the licensed technology is successfully commercialized and generates income, the state DOT also must decide how this new revenue will be used. The revenue could be placed in a general fund, used for other activities (including other economic development activities), or passed back to the taxpayers as a refund.

IP Management Application Examples 97 Had the state DOT relinquished ownership rights to the contractor, the contractor could have received financial gains without any compensation to the state DOT. In terms of maximizing taxpayer value, this may not have been the most desirable strategy. 10.2 Now That’s How to Drive: Trademark A state DOT has launched a new campaign to educate new drivers on good driving skills and practices. The public communications (PC) unit within the DOT has developed a catchy slogan for its marketing and promotions campaign: “Now That’s How to Drive.” The PC unit has submitted the slogan to the legal department to verify that this slogan is not being used by any other organization, and that it has not been trademarked. The results of the trademark search were negative, and the slogan has been approved for use in this new campaign. In this scenario, the state DOT decides to move forward with federal registration of a trademark for the slogan. The state DOT could have made the decision to use the slogan without seeking trademark protection, but they consider this campaign a significant investment. The state DOT wishes to ensure that any potential assets that could be helpful to this campaign are protected, if possible. Several other state DOTs seeking to launch similar initiatives are interested in using this slogan. They would like to license the trademark from its owner. As fellow state DOTs, they hope to negotiate for a royalty-free agreement. The owner of the trademark decides to create a boilerplate license agreement for other state DOTs. In this agreement, any interested state DOT will receive a royalty-free license for use of the slogan as it pertains to their safe-driving-skills initiatives. If a state DOT desires to use the slogan for any other initiative, however, there will be a $1,500 fee for each other use. In this case, imposing a royalty for uses other than safe-driving initiatives operates less as a strategy for obtaining revenue and more as a disincentive to use of the slogan in other ways, thus protecting the distinctiveness of the mark. As a result of this strategy, it is anticipated that the widespread adoption of the slogan will increase all motorists’ awareness about the importance of learning and practicing safe driving skills. In this scenario, the widespread use of the slogan and its popularity have gained the interest of certain private and commercial entities. The state DOT has been approached by a golf-club and golf-ball manufacturer regarding using the slogan as a part of their new product’s promotional campaign. What should the state DOT do? The marketing value of a trademark lies in how it is perceived by the consumer. The state DOT must consider whether they would like individuals to think of safe driving and/or golf equipment when they hear the slogan. Of course, licensing the trademark could create an additional revenue stream, but it could devalue the intent of the trademark especially as it relates to transportation and transportation safety. It will be the responsibility of the state DOT to protect the value of its trademark and to police the use of it. The intent of IP management is to implement strategies to maximize taxpayer value. There will undoubtedly be trade-offs as a DOT attempts to define what maximizing taxpayer value really means on a case-by-case basis. 10.3 Sharing the Road with All Stakeholders: Copyright A state DOT traffic unit has documented several best practices on sharing the roadway. The final report may have value for many stakeholders including motorists, pedestrians, cyclists, and others. Some of these best practices have been gathered from surveys and interviews, new ideas

98 Management Guide to Intellectual Property for State Departments of Transportation and thoughts of the authors, and other published works. Although fair use may apply to much of the work included in the state DOT’s document, the state DOT has been careful to cite all works from which they extracted material and has requested copyright clearance for works that they believe to be copyright protected. In this scenario, all copyright holders contacted have granted permission for use of their materials without charging a royalty. (If any of the copyright owners wanted to be paid a royalty, the state DOT would then have to decide whether to keep the material in its report and pay the requested royalties or to take the copyrighted material out of the state DOT’s publication.) Because the state DOT’s overarching desire is to release the report to the public domain, there is no need to allocate resources to monitor the use of the material. The state DOT elects to take a common-law copyright and places the copyright notice on the final report. It has decided not to register the copyright with the federal government. The finished report is made available online to anyone who would like to download it for free. If a hard copy is requested, a flat $5.00 fee is charged per copy, primarily to cover the costs of reproduction and mailing. Although the state DOT has decided not to officially register a copyright on this material, a nominal revenue stream has been created from any hard copies requested. Given the ubiquity of digital publishing and digital document sharing, the revenue stream is unlikely to be significant at any time. Had the state DOT chosen to register its copyright in the material and to aggressively monitor any potential infringements, it would likely have needed to allocate some resources to track the use of the publication, thus accruing additional IP management costs. Similarly, had the owners of copyrighted material being reproduced in the state DOT’s publication insisted on receiving royalties for the use of their material—and had the state DOT elected to keep the material in the report—resources would be needed to ensure that the necessary royalties were paid. Copyrights are very easy to infringe unintentionally, especially because the limitations on fair use are easy to misunderstand. This scenario highlights the importance of requesting copyright clearance on any material that may belong to others. Taking the proper steps to verify copyright permission—and knowing whether a royalty is expected—helps ensure that publication does not come with a costly surprise. Failure to secure copyright permissions when they are needed could result in infringement claims once a document or report is made available to the public, even if the publication is made available online and free of charge. 10.4 A Method for Predicting Icy Roadway Conditions: Trade Secret A state DOT has issued a request for proposals for the development of a decision-support system for predicting icy roadway conditions. Ideally, this decision-support system will provide forecast data regarding when a road will become icy, when it may defrost, what the current conditions are, and other helpful information that may impact traffic flow. The state DOT would like to use this information both to manage its winter maintenance activities and to share the content (the forecasts) with motorists. It is expected that motorists will be able to use the information to make more informed decisions about travel during inclement winter weather. One bidder has submitted a proposal that includes a fairly detailed description of its trade secret algorithms and methodology for making predictions and forecasting roadway conditions. The bidder has requested that this information be kept confidential and guarded as an organi- zational trade secret.

IP Management Application Examples 99 Given the number of proposals that the state DOT receives each year, the absence of controlling federal regulations, and variations across state laws with regard to trade secrets, it is essential that a state DOT have policies in place to guide decisions about managing proprietary IP it may receive as part of a bid or proposal—particularly if the proposal contains self-identified trade secret information. Questions the state DOT may consider include: • What responsibilities, if any, does the state DOT have for keeping the contractor’s trade secret secure? • Are the state DOT’s regular safeguards for proprietary proposal information sufficient, or are additional safeguards needed? For example, – Should the state DOT monitor and track all the individuals with access to the proposal? – Must all proposals be marked “secret” (or in some other way that signals the information is not to be shared). – If available in electronic form, should the proposal be transferred only as a password-protected document? – How will copies of the proposal be safely discarded after the contract has been awarded? If the contractor’s proposal is judged to best meet the purposes of the state DOT, care also needs to be taken in developing the contract. Here the goal is to eliminate uncertainty and reduce the likelihood of potential future disputes. What rights to the existing IP does the contractor wish to retain? What rights to any new IP adapted or developed under the state- funded contract will the state DOT acquire? Are federal funds part of the funding stream, and how will that affect licensing? Ideally, the contract will clearly address which rights in the IP remain with the contractor and which rights and interests (e.g., license) will be taken by the state DOT. (To review pertinent details and issues relating to trade secrets, see Chapter 5.)