Patent Attorney John Rizvi discusses intellectual property and how the tax code applies to the sale of ideas, plus experienced Construction analyst Shelly Armato discusses the state of construction and the ups and downs of investing in the construction industry.

Episode Transcript

Intro:

Welcome to the Practical Tax podcast, with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz, LLP, a tax law firm.

Disclaimer:

The information contained in this podcast is based upon information available as of date of recording and will not be updated for changes in law regulation. Any information is not to be considered tax advice or legal advice and does not form an attorney/client relationship. Further, this podcast may be construed as attorney advertising. You should see professional consultation for your individual tax and legal situation.

Chip Franklin:

Hello. Welcome again to another edition of Practical Tax with Tax Attorney, Steve Moskowitz. Steve, when you think about intellectual property ... It's funny. We were talking with an intelligence officer on one of the last shows we did, and I think about when people talk about intellectual property, it is interesting. If you were to purchase something that was intellectual property, if I wanted to purchase a copyright for somebody, does that have all of the same entanglements of a regular sale when it comes to tax and the federal and state governments?

Steve Moskowitz:

When you talk about tax and you talk about entanglements, the answer is almost always yes.

Chip Franklin:

Okay, fair enough. We'll dive into that a little bit deeper. Our next guest is known as the Patent Professor. He's an adjunct professor of patent law at Nova Southeastern Law School in Florida. He's written two books on patents and John Rizvi is nice enough to join us here for Practical Tax with Steve Moskowitz. Hello, John.

Steve Moskowitz:

Hi, John.

John Rizvi:

Yes, how are you? Pleasure to be here.

Chip Franklin:

Great! I love that you have the Patent Professor and it has a little R on there on it. I tried to find that on my computer one day. On a Mac, you got to hold six buttons down at the same time. But let me ask you, do you have to ... and I've heard this before with, I don't know, copyrights or trademarks or patents ... but when you get it done, you have to let people know that you have a patent on it, right? Or the rights to it can start to slip away. Is that accurate?

John Rizvi:

Yeah, so you have to put people on notice. So patents and trademarks are both different. Briefly, a patent protects an idea, like an invention, and trademarks protect brands. Whereas the patents, you would mark the product with US patent number and you'd have a patent number. With trademarks, and I don't know if this is going to show up well on screen, I have a cup of coffee with me-

Chip Franklin:

Starbucks. We see it.

John Rizvi:

Yep. Everyone is seeing the R with the circle around it on the logo. And I don't know-

Chip Franklin:

Gotcha.

John Rizvi:

[inaudible 00:02:28] knows what I'm talking about. For a trademark, that indicates that it's a registered trademark. Now sometimes, you'll see a TM and a TM is putting people on notice that you're seeking rights to that name, but it's not necessarily been granted yet by the trademark office. It's very important to label and put others on notice. Otherwise ... and there's a lot of advantages ... it eliminates the defense of, "I didn't know that was a trade name." For patent cases, there's a defense of innocent infringement. It doesn't get you off the hook as an infringer, but it at least makes it more difficult for a judge to award punitive damages because it makes it look like it's an accident. But if you have your registered trademark every time you have your brand ... You have it on your sign, your website, your business cards, letterhead ... then it makes it really hard for somebody to say that it was accidental. The same thing with a patented product.

Chip Franklin:

Steve, when you have somebody coming to you and they want to start a new business, and they want to name the business, is there a process, a road you send them down to make sure the name they're choosing hasn't already been chosen by somebody else? And this is a question for you, John, in just a second. Do you have to go outside of your market to see if somebody in Omaha or something has that same name?

Steve Moskowitz:

That's why I refer them to somebody like John.

Chip Franklin:

Interesting. Because it's funny ... It's something that is so important, and I bet I'm going to guess that most of the small businesses that we all run into spend an inordinate amount of time trying to come up with a name for their business. And again, that's just one aspect of intellectual property because we see this all the time in Silicon Valley with different type of software that's created, and does it infringe on another? Here's a question for you. If I sue somebody for infringement, okay?

John Rizvi:

Right.

Chip Franklin:

Steve, in the money of what I have to pay to that people, if I violated the law and I had to pay them, would that be tax deductible?

Steve Moskowitz:

Well, we have to see what's happening and we have to be careful because a lot of times penalties are not. When you reach a settlement, a lot of times what you're doing is, "What am I paying for?" And what you want to do is make sure you're paying for something that is tax deductible. That's true if you're on the other side of the lawsuit, "What am I getting? Is it taxable, non-taxable? Is it ordinary income, capital gains?" So these are all things that are negotiated before you actually finalize it.

Chip Franklin:

John-

Steve Moskowitz:

Or should be. Most people don't know because they don't think about the taxes. But when they bring in a tax attorney, it's the first thing we think about.

Chip Franklin:

Well you guys, obviously both being attorneys, I'm sure you cross over your interests all the time. I'm kind of curious about the field of intellectual property. Obviously, it's changed dramatically since the internet, right? I mean, there's probably people listening to us right now that have online newsletters, and they just go to Google Images and grab them and throw them on their page. Is that a worry? Would you advise somebody not to do that?

John Rizvi:

Oh, yeah. It's an absolute worry. Sometimes, the internet is made a lot of things easier, but that doesn't necessarily mean it's made it safer. I think it's made copying so much easier because, as you said, people go to Google Images and they'll right click, save the image, and then use it on their website, and that's copyright infringement. They might be lucky and it might be an image that's part of the public domain and nothing happens, but it's kind of a crapshoot. You're taking a huge risk. It's always better to get permission. Or worst case, if there's an image, it's safer to link to the image than to actually grab the image and put it on your website.

Chip Franklin:

Can I grab something from a government website and put it on there since I pay for the government? Does it belong to me? I'm not being facetious. I mean, does it apply pretty much for across the board? Will the government actually copyright things and trademark things as well?

John Rizvi:

They do. They do. In fact, there might even be patented ideas that's owned by the government. That would not be a safe approach to assume just because it's on a website that ends with .gov, that anything you see there is fair gain. In fact, sometimes they might have stuff on their website that they have licensed from a private individual. So that individual is given rights to the government, but they don't transfer to you. That doesn't mean that some third party sees that image on the government website and gets to take it.

Chip Franklin:

Is intellectual law keeping up with the sweeping changes in technology?

John Rizvi:

Well, the laws are always a little bit behind, and intellectual property's no different. Perhaps it's, in some ways, a lot more behind because things develop way faster online and it's usually years before the laws catch up. For example, when domain names first became available, there were no laws preventing individuals from getting trademark domains. There were 18-year-olds registering things like mcdonalds.com and whatever, burgerking.com, and holding those names hostage, selling them back to the corporation sometimes for millions of dollars.

Chip Franklin:

It happens a lot. I mean, I know there's a friend of mine, Malcolm Nance, who's a regular on MSNBC. Somebody squatted on his name and he looked into it, and it would cost him $10,000 to get it back. You can go to ICAN ... But it was a pretty long project to try to get that back. And I think that for businesses that are starting up, that don't have a lot of money ... We've all seen some businesses like restaurants and they'll put some golden arches there, and I've seen this before. In fact, a famous one here in California, In-N-Out, has that. I don't know if you ever noticed that, Steve, that it kind of has a golden arch to it. And I always wonder to myself that if they kept that up long enough and McDonald's did not come to them and say, "Take that down," would they sort of own it at the same time? Right? I mean, doesn't the person who has that trademark, as I mentioned in the beginning, have an obligation to go out and stop them? A registered trademark?

John Rizvi:

Yes. The term of art in intellectual property, it's called policing your mark. You have to police your mark. You have to look out for instances of infringement. If you don't catch them, that doesn't mean the alleged infringer ends up getting rights to it, but it certainly weakens. It gives them a defense.