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IP in the Boardroom Part III: Executive Oversight

April 23, 2019

As an addition to our ongoing series designed to help board members properly discharge their fiduciary duties in relation to company intellectual property, our next topic is the board’s obligations relating to executive qualification and officer oversight.

It has become well established that in the United States, intellectual property and other forms of intangible assets make up a greater portion, than was the case a few years ago, of a business enterprise’s balance sheet. We do not anticipate this trend ending any time soon and as such, the need for intellectual property proficiency must be a priority for all governing bodies.

Events that compromise intellectual property rights are often treacherous – perhaps occurring daily – often outside of the scope of the board’s oversight purview. Accordingly, good board governance depends upon a ready flow of reliable information from those officers and other senior managers who are involved with the day-to-day use of an organization’s intellectual property, the folks with “boots on the ground.”

When choosing the right CEO and other C-suite officers, the board should consider not only the operational qualifications of the candidate, but also each candidate’s intellectual property (and perhaps technical) acumen, so as to ensure that each C-suite executive is capable of identifying factors and other issues (i.e. mission critical infringement or trade secret threats) that warrant attention by the board.

Just consider the dramatic pitfalls that can easily be overlooked by the untrained or uninformed. Clients are often surprised to learn that an agreement allowing others to use a corporate trademark should contain a quality policing mechanism.

Agreements lacking such provisions (or instances when the provision exists but is not properly invoked) can result in a “naked license,” and as such, the intellectual property owner could potentially lose its trademark rights. And, while patent infringement litigation is rarely overlooked, it is often underestimated. Uninformed companies can find themselves blocked from entire industry segments or obligated to pay large royalties to enter or stay in a market due to patent infringement.

An effective board information system requires the board hiring appropriate people and those people exercising the appropriate judgment regarding information necessary for the success of the company. Part of an effective board information system should include the acknowledgment and communication of relevant information regarding intellectual property issues.

And, to ensure that the information that “flows up” to the board is processed properly, it is crucial that each member of the board possesses the requisite intellectual property expertise. Once informed by an officer of the company of an intellectual property issue, the board members must have enough IP knowledge to decide on the best course for the company. If more education is necessary, the board should seek that knowledge before making critical decisions. This ensures that a board information system is complete and whole.

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Braginsky, Philip Partner and Co-Chair of Intellectual Property Group and Pharmaceutical and Biologics Practice and China Practice Partner and Co-Chair of Intellectual Property Group and Pharmaceutical and Biologics Practice and China Practice 212.216.8065 VCard
Gaynor, Alan S. Partner Partner 212.216.1136 VCard

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