Latest / Encrypted Ambition: Where Ambition Meets Encryption - Inside The Minds Of Disruptors. / Craig Petronella, CMMC RP, IT Cybersecurity and Compliance SME interviews Intellectual Property (IP) Expert Attorney Daniel Shulman

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Craig Petronella, CMMC RP, IT Cybersecurity and Compliance SME interviews Intellectual Property (IP) Expert Attorney Daniel Shulman · Encrypted Ambition: Where Ambition Meets Encryption - Inside The Minds Of Disruptors.

• 0:14
  Announcer: You're listening to cybersecurity and compliance with Craig Petronella. Visit us online at Petronellatech.com.
• 0:22
  Craig Petronella: Oh, good to connect with you, Dan.
• 0:24
  Daniel Shulman: Yes, absolutely.
• 0:26
  Craig Petronella: Tell me more about the better price.
• 0:30
  Daniel Shulman: The better price is a law firm, about 300 lawyers, founded in Chicago in the 1950s. About 200 of our lawyers are in Chicago. We've got offices in LA, San Francisco, New York, DC, London, and Singapore. Our biggest practice groups are our permanent employment labor group. It's probably one of what we're most known for, one of the country's top employment labor practices. We've got an outstanding capital markets group, corporate group, litigation group that spans all kinds of different civil litigation, white-collar criminal litigation. And we've got a practice based on our global transport finance practice, which is our fancy way of saying we help people buy and sell airplanes and helicopters.
• 1:29
  Daniel Shulman: It's a niching practice. And it's a pretty big practice in the group. There are many airplanes and things to be bought and sold and leased and all that.
• 1:40
  Craig Petronella: Oh, wow!
• 1:41
  Daniel Shulman: And I'm not sure how we got into it. I guess legend has it. We had a client in that space and decided to join the firm and practice with them. And it's just grown over the past decade. If you've got a client who wants a private jet or even an airline that's looking to buy a Boeing seven, we're kind of the go-to people for that. I'm in our intellectual property practice, which has 11 attorneys who are all based in Chicago. Full service, intellectual property practice handling every all patent trademark, trade secret, copyright technology. We manage a lot of patent portfolios. If you manage a lot of trademark portfolios, we also do a bunch of litigation. We've got folks that litigate all the time admitted in federal court submitted in the US Supreme Court. So we do it all for our clients. We act very frequently.
• 2:38
  Daniel Shulman: They're outside in-house IP counsel, which is an excellent role because I was in-house IP counsel for a $14 billion consumer packaged goods company for about a dozen years. I am the outside counsel that thinks like the inside counsel, understand what the client needs are. I spent more than half of my career as a client. I think most outside counsels do better prices. That's a great fit for me because we're a medium-sized firm, even though we're in Chicago or not at Chicago rates for some bigger firms. I always thought when I was the client that kind of the medium size, regional the two-thirds of our lawyers in Chicago, those medium-sized firms offer by far the best value. They have as good a lawyer as any other firms that you'll find anywhere else.
• 3:44
  Daniel Shulman: Except you're not paying for the Park Avenue Manhattan real estate. You're not paying for gold plated ceilings in the lobby meant to impress clients, but don't do anything to a judge. And so this is a great kind of sweet spot for an attorney like me. So I love it.
• 4:04
  Craig Petronella: That's awesome. Tell me, where does somebody start with intellectual property? I know what intellectual property is. I think, probably not at the depth that you do. But I'm a small business owner. I have a particular methodology on things, assuming that's intellectual property. What do you recommend that our viewers do? Where do they start? Can you shed some light on that?
• 4:32
  Daniel Shulman: Yeah.
• 4:32
  Daniel Shulman: Intellectual property is all about intellectual property is the legal means by which you make what makes you different exclusive to you. So if you think about it, it's elementary, kind of put it in the supply and demand model. If you're the only one who can offer something, you can charge a higher price. You can make people come to you rather than go to other people.
• 4:59
  Daniel Shulman: So intellectual property is how the legal system and there's different intellectual property aspects, which I'll talk about a second. It's the legal system by which you make sure other people aren't doing the thing that you do. And if you can keep other people from doing the things you do, you can get market share and charge higher prices.
• 5:22
  Daniel Shulman: Intellectual property is essentially a legal monopoly.
• 5:27
  Daniel Shulman: Monopolies are bad because it makes consumers pay higher prices. You can dominate the market and all that. But if you've got something truly innovative and valuable, our public policy is to encourage innovation by rewarding innovation by giving you that legal monopoly. So if you think about intellectual property, it's that way that you build a fence around the thing that you do. If you have a house and don't want people coming up and knocking on your door, you build a fence around it. The same thing. And the more valuable the property, the farther out you build the fence. And intellectual property makes that fence. I think about it in that context. There are lots of ways that you can do that. When you ask people if they have any intellectual property, they shake their heads. They go, No, but I'm sure you do. Because if you didn't, you would do the same thing as your competitors the same way, which you don't.
• 6:28
  Daniel Shulman: Nobody does. But they're usually thinking they don't have any patents. That may be true. But patents are precious kinds of intellectual property because they give you that right to exclude others from whatever it is you've patented. They're expensive to enforce. It's not certain that you'll get one. You have to prove it to the patent office. But that's one valuable method of getting exclusivity and building that fence. If you've got a brand that makes people associate, a particular brand with a particular quality of good or service, and they say, I want that quality. I like that thing that I know what it is every time I get it. Nobody else can offer that. That's how I know I'm getting it from you.
• 7:21
  Daniel Shulman: That's what a trademark is.
• 7:21
  Daniel Shulman: Trading secrets are probably the most common. A lot of these most valuable kinds of intellectual property. And they're the intellectual property that people think about the least.
• 7:32
  Daniel Shulman: But it's the most obvious. Some of the most valuable pieces of intellectual property in the world are trade secrets.
• 7:41
  Daniel Shulman: Coca-Cola's formula. You look at a bottle of Coca-Cola and its ingredients, and those natural flavors and artificial flavors.
• 7:49
  Daniel Shulman: If you know how to do something your competitors don't know how to do, you have an advantage.
• 8:01
  Daniel Shulman: They can't do it. So unlike a patent, you know, we have to prove that it's not obvious and it's novel. A trade secret doesn't have to be novel. A trade secret can be just doing something old but in a new way.
• 8:15
  Daniel Shulman: You don't have to prove that it's novel or not obvious. But what it does is your competitors don't know what you know. You have that head start. And that acts as a fence because, for them to do what you're doing, they'd have to invest a whole bunch of money. That gives you that advantage. So trade secrets can be precious. Because you know something that your competitors don't know, the fences that they have to invest a lot of money to figure out what to do. So even if they could reverse engineer it, that's going to take time and money. And so you have that head start. That head start is a form of exclusivity. And when you ask people if they do the same thing as your competitors the same way, they all say no. Then you say that you have intellectual property. They'll say that they do. You say, Do you know where it is and how you're protecting it? And you get a fearful look on their face. Especially if they're the CEO. Because they don't know that. And it's because Bob in the manufacturing plant knows how to turn the knobs and move the levers on his machine to make the machine run right. Except he hasn't told anybody. He doesn't know that he's creating intellectual property, and you, the CEO, don't know what's going on.
• 9:33
  Craig Petronella: Right.
• 9:34
  Daniel Shulman: And you haven't told your employees. You haven't created this influential IP culture or even encourage people to think about intellectual property that way. What happens if you've got 20 manufacturing plants and you've got that machine in every plant, and Bob didn't tell anybody how to run that machine better? You're losing valuable technology because you haven't encouraged people to talk about their intellectual property.
• 9:59
  Craig Petronella: In the case of Coca-Cola. They're probably using some off the shelf ingredients that anyone can get.
• 10:07
  Craig Petronella: So the science of the trade secret is how they mix it, prepare it, and then the consistency. How do they protect that from Pepsi stealing coke's secret? How do you also protect it from your employees? Maybe somebody gets bribed or exfiltrated that secret? How does somebody go about doing that?
• 10:32
  Daniel Shulman: Coca-Cola would do a couple of things. One is, you have to limit access. It's got to be on a need to know basis, and probably very few people need to know. That's number one. Number two is, wherever that information is stored, it needs to be locked down securely. Yes, it is probably, on a piece of paper in a vault somewhere. Probably not even on a server, not Tronic. In a safe deposit box with Mission Impossible retinal scanning technologies. And then you need your employees to have the lowest hanging fruit. You need employees to have NDAs. Not because that prevents anybody from doing anything. People breach contracts and disclose things all the time. But if you don't have an NDA, a court's going to say you didn't adequately protect your trade secrets because you didn't even do the easiest thing possible.
• 11:42
  Daniel Shulman: It is about controlling the need to know. And then physically controlling access to the information. How many people know it? Probably not many. You disperse the information. So procurement knows what to buy, in terms of ingredients. Knowing what to buy in terms of ingredients doesn't help you. I know the ingredients that might go into chocolate chip cookies.
• 12:14
  Daniel Shulman: But if I mix them up the wrong way, it's going to taste awful.
• 12:19
  Daniel Shulman: Just knowing the ingredients doesn't help you, right?
• 12:21
  Daniel Shulman: Procurement doesn't need to know anything about how it's mixed up.
• 12:25
  Craig Petronella: Circling back to my world. I do cybersecurity and compliance in our world, and I help those in regulated spaces. That's my target. So for healthcare, for example, they're subject to HIPAA regulation. I like to talk about the onion concept, which is layering different things and ingredients together. You spoke about Coca-Cola. Maybe only they had people who might know the ingredients. Still, they don't know the quantities or apply the ingredients in a certain methodology to repeatedly produce the same result. There might be off the shelf components in my world and regulation. There might be a firewall, for example. There might be security software for the endpoint, such as antivirus or anti-malware. There might be encryption. These are freely available things, some of which are open-source, some of which are purchased from commercial software vendors and or hardware manufacturers, and suppose into physical spaces, too. So, we have a know-how methodology trade secret that says that we would want to protect that. How does one go about starting that road when you don't know where to start? What do you recommend?
• 13:56
  Daniel Shulman: That's a great question. If you look at my background, then the top thing is to identify IP. I've helped a lot of clients with this. And there are a couple of things.
• 14:12
  Daniel Shulman: First of all, you're right that it's daunting, and so not to sugarcoat it. But if you've got months, years of worth of know-how, and trade secrets that you haven't documented, it's going to be hard to do an audit to figure out what all those things are. There's too much institutional knowledge. It's too spread out.
• 14:35
  Craig Petronella: But you have to start somewhere, though, right? Let's use me as an example. We've been a business for over 18 years, and I'm sure I have a lot of intellectual property stuck in my brain. And if I don't take the step to start documenting and extracting that out of my head. If I get hit by a bus, my company might cease to exist or be at a significant handicap. As we start that journey, is there some recommended training or methodology you recommend we go through? These are my two novices to come to somebody like you first. Where does somebody start?
• 15:25
  Daniel Shulman: First off, you start from the present. You can always go back and do the past.
• 15:29
  Daniel Shulman: That's labor-intensive. But, as we said, you have to start somewhere. You start with the present. Going forward, starting today, when you discover a new or better way of doing something, you document it. Now, what you do with that documentation is a separate issue. As we said, Coca-Cola has to monitor where that documentation is, where it's held, who has access to it. But it's got to be written down somewhere. So what you do is starting today, you train your employees, first of all, about what intellectual property is, why it's important, you create that culture of intellectual property. Where they are attuned to the fact that they are doing something that is existentially valuable. Starting today, when people think of new things that create value for the company, they document it somewhere. In the old days, you would write it down in a lab notebook. You can figure out how to make sure that that's secure. But you got to start somewhere. So that's number one. You start there. You can incentivize that kind of activity. Now, if you're a smaller company, you might not have something like a patent incentive or invention incentive program. Many bigger companies will have programs where when you submit an invention disclosure. A committee will look at it if you file for a patent, you get some award. One of the exciting things that I found when I was in the house was that there were two reasons that the committee would decide not to file for a patent on something. One was that the invention was just no good. It wasn't all that valuable. It wasn't novel; we figured somebody in on it. The other reason was that the patents are public. It was better kept as a trade secret. It wasn't valuable. It just wasn't worthwhile as a patent because patents have to be disclosed. If you only give awards for things you're going to file a patent on, you're essentially from a value and a culture standpoint.
• 17:34
  Daniel Shulman: You're equating that valuable trade secret with something that has no value at all. And what happens is people stop documenting and submitting to the IP committee. They're precious trade secrets. That's a bad thing. What we did is we instituted a trade secret award, as well as just a patent award, which turned out to be a kind of novel approach to things. I talked to a lot of people, and they don't do that. And then the question is why? Suddenly, people were disclosing things that they knew we probably weren't going to file for a patent on, but they knew that they would benefit anyway. And you're not talking a lot of money, maybe, a couple of $100.
• 18:12
  Daniel Shulman: And it was a rounding error for a big company that had a big r&d budget anyway. But it's essential for the employees.
• 18:20
  Daniel Shulman: That's part of that, managing the IP culture. So that's one right way of where you start.
• 18:28
  Daniel Shulman: You say you're going to implement this program, so that starting today. You're going to get trade secrets. You're going to write those down. The other thing that you do is sending them a questionnaire, two to three pages. And it's not legal ease. It's plain English. And it just asks questions like, What do you do that's different that gives you value? What are the things that enable you to make something better, faster, cheaper? What are the technologies you use that, if your competitors knew, would be harmful to your business? And you don't have one person responsible for getting all of that information. You send that questionnaire out to people who have different touchpoints within the organization. And you don't capture 100%. But if you charge 50%, you're infinitely better than what you were.
• 19:27
  Craig Petronella: Right.
• 19:28
  Daniel Shulman: That questionnaire can be enormously helpful in just helping people level set what they've already got. That's how you kind of attack the past part of things.
• 19:38
  Craig Petronella: Okay.
• 19:40
  Daniel Shulman: I would say it's a combination of a couple of things. One, creating a culture of innovation and intellectual property protection, so people know that it's valuable and are proactive about documenting and disclosing it. Two, making sure that people document, disclose it, and then you secure it. And then, three. Slowly going through a process where you're asking the essential stakeholders to fill out a questionnaire, there's no timeframe. You haven't been doing it for 20 years. It's not like you send it out and saying you need this by tomorrow.
• 20:15
  Craig Petronella: Right.
• 20:16
  Daniel Shulman: People take their time and do it. And you slowly attack the past. If you do those three things, creating a culture of innovation, rewarding trade secrets, disclosing and securing them, and attacking the past with basically a simple questionnaire that you distribute to the stakeholders. You will go a long way towards identifying those valuable trade secrets and pieces of intellectual property.
• 20:49
  Craig Petronella: Fantastic information. So, say you go through the exercise, you incorporate that into your business, your culture, as you suggested. Is the protection mechanism of a trade secret the same as going after a patent?
• 21:02
  Craig Petronella: How do you protect that trade secret or secrets that you've discovered?
• 21:10
  Daniel Shulman: If you infringe a patent, that means that you are practicing the invention that's patented. You can do that you frequently do without even knowing that there's a patent out there. There's no intent involved. You practice the invention. Somebody says that they've got a patent on that, then you go to them and whatever. There is intent, a bad act that is associated with trade secret misappropriation.
• 21:40
  Daniel Shulman: You need to have taken the trade secret in a way. So it was disclosed to you in a way that it shouldn't have been, or you acquired it in a way that you shouldn't have. And then you used it. So to enforce your trade secret, you need to do two things. One, you need to protect it to make sure that other people aren't disclosing it.
• 22:02
  Daniel Shulman: Because if they're disclosing it, then that's where the misappropriation comes from. And then number two, you're going to have to aggressively act against people who misuse it who have acquired it improperly. If somebody reversed engineers, a trade secret, you can't do anything to stop them. That's the downside of a trade secret.
• 22:36
  Daniel Shulman: The only way that you're protecting it is the fact that you're keeping it a secret. So if somebody figures it out, the benefit of your trade secret is you've had a head start. That's valuable. Often, when your trade secrets are the most important invention, and especially where they're easily duplicated, or the outcome is easily duplicated, you have to continue to innovate. The trade secret may only be valuable for a couple of years.
• 23:11
  Craig Petronella: Right.
• 23:11
  Daniel Shulman: Somebody can figure it out. And if you don't continue to develop more trade secrets, you lose that headstart. The name of the game of trade secrets is either you have one of the rare trade secrets like the Coke formula, that is just impossible to figure out reverse engineer known, maybe two people on the entire planet, right?
• 23:32
  Craig Petronella: Right.
• 23:32
  Daniel Shulman: Or you have trade secrets that give you a head start. And you keep innovating to maintain those trade secrets, to maintain that Head Start. If you don't, somebody catches up, and then they pass you. Most trade secrets are not valuable for very long because other people can figure them out. So you continue to innovate.
• 23:53
  Craig Petronella: Excellent information.
• 23:55
  Daniel Shulman: The most important thing you have to protect it. Sure, you have to have NDAs. You have to take steps to protect what a court will look at. And let's back up for a second. Patents come from the Constitution. The Constitution says that the government will award inventors and authors a limited monopoly to progress the useful arts and sciences.
• 24:23
  Craig Petronella: Okay.
• 24:24
  Daniel Shulman: It progresses the useful Arts and Sciences because you have to publish your invention. What is the patent?
• 24:31
  Daniel Shulman: It's a public document. If you post it, other people can learn from it. They can improve on it.
• 24:36
  Daniel Shulman: They can design around it, make something better. I always find it funny when a client will come to me. They'll be highly agitated because the competitor created around their patent as if they did something nefarious and have to explain to them. Now it's the purpose.
• 24:56
  Craig Petronella: Right.
• 24:56
  Daniel Shulman: It's the purpose of disclosing it. It's why scientists publish articles. So the public policy is you disclose your essential inventions. That how science works.
• 25:09
  Craig Petronella: Sure.
• 25:11
  Daniel Shulman: On the other hand, it's tough to protect your trade secrets because we don't like people keeping things secret. The first thing you have to do to protect your trade secret is to take reasonable steps to keep it private. If a court looks and says, I don't care if it was stolen, if you didn't do all the reasonable steps you should have done to keep it secret, we're not going to protect it for you. So those NDAs restricting access, that's the most important first step.
• 25:37
  Craig Petronella: And that goes into our world where our specialty with cybersecurity, layers, protecting digital assets, and things like that.
• 25:43
  Craig Petronella: All fantastic information. My
• 25:48
  question comes to mind: is there some convergence of copyright law and protecting trade secrets?
• 25:58
  Daniel Shulman: Yeah.
• 25:58
  Craig Petronella: I spoke about copyright. I'm sure there's some convergence or some parallel to copyright law. And I'm a novice.
• 26:07
  Craig Petronella: So I don't know what I'm talking about. I'm not a lawyer. But I have written multiple books. And I do have the little copyright thing on there to protect my works. But I'll be honest. I don't know what the depth of that protection is, what it gives me, and all that fun stuff. So as the attorney, please shed some light for us on that.
• 26:28
  Daniel Shulman: Yeah, copyrights are very similar patterns in terms of the protection and the scheme. Copyright exists when you commit your original expression into a tangible medium written down, either on paper and pencil, paper and pen, or encode on a hard drive.
• 26:48
  Daniel Shulman: Somewhere. It's the actual expression. The copyright is infringed when somebody copies that expression. The typical copyright infringement test is, did you have access to the copyright? And is the resulting work product substantially similar? Because I would show copy, you rarely have direct evidence of copy. Mostly, it's access plus similarity usually shows copy. But let's imagine I independently come up with the same expression that you had. I independently write the same book that you did. I'm in North Korea. I had no idea what your book was. I could have never had access to it, and I independently come up with it.
• 27:44
  Daniel Shulman: No matter if it's the same.
• 27:44
  Daniel Shulman: That's not copyright infringement. Because I haven't copied it, I've independently developed it. In that sense, it's a little bit like a trade secret. Most copyrights are published. It doesn't necessarily mean it's public.
• 28:00
  Daniel Shulman: You could have copyrights in your source code for your software. Would you keep it as a trade secret? In which case, your copyright and your trade secret coexist? To the extent that somebody accesses that source code, they've likely and then copies it somehow. They've likely committed to Acts.
• 28:24
  Daniel Shulman: They've trade secret misappropriation if you've protected your source code and copyright infringement. Whereas you can't have trade secret misappropriation and patent infringement because a patent is never a trade secret. So that's kind of the overlap. And copyright is similar to the trade secret. To keep that protection, you have to continue to innovate. Because copyright doesn't protect anything that functional. It will only protect the actual expression, which is important because when you think of software, there are many ways to write code to do the same thing. Your copyright is needed to be refreshed and replenished continually.
• 29:23
  Craig Petronella: Okay.
• 29:23
  Daniel Shulman: I have copyrights and some software, but my competitor writes their code to do the same thing. The copyright only protects the expression and not the ultimate functionality. It's very easy to mimic what your valuable copyright is sort of doing for the end consumer. If I log in and run a program, I don't care what the code says. I just wanted to do something. The copyright doesn't matter. It's I'm buying the functionality, right?
• 30:05
  Craig Petronella: Correct.
• 30:08
  Daniel Shulman: Your copyright probably enabled you. If it was innovative, it helped you to be first in line with that piece of software.
• 30:15
  Craig Petronella: Right.
• 30:15
  Daniel Shulman: When competitors see what it does, they write their code to catch up to do what you do. That copyrights are no longer valuable. So what do you have to do? You have to keep innovating.
• 30:25
  Craig Petronella: Right.
• 30:25
  Daniel Shulman: You have to keep putting new features and functionality to stay away and stay ahead of your competitors.
• 30:33
  Daniel Shulman: That's why every couple of weeks, Apple wants me to update to the latest version of iOS.
• 30:39
  Daniel Shulman: Because they keep adding things, they have to keep doing that if they don't do that. That's the software update upgrade model to why you don't just sit tight.
• 30:54
  Daniel Shulman: The software now could be that you've created something precious, that you've crafted, not that your competitors really can't. And the code is incredibly valuable. Think about Google's search algorithms. You can't replicate it. You're getting better results because of your code. Most software, though, is not valuable in that sense, where the code is that valuable. By having your competitors see your code and see how to do it, you have to make them spend money to compete with you.
• 31:40
  Craig Petronella: Right.
• 31:42
  Daniel Shulman: So your code is both copyrighted and trade secret. The copyright lasts roughly the life of the author plus 70 years. So copyright does go on for a long time. They are often only valuable for a couple of years, especially in the software's high tech world.
• 32:07
  Craig Petronella: Moving beyond the copyrights and saying you've written it down, you've got your ingredients, knowledge, and methodology. You've got the know-how and how to mix those ingredients to achieve the result you're after. What's the next step after the copyrights and protect that trade secret information?
• 32:28
  Daniel Shulman: It's the same thing as it's restricting access, and it's making sure that all of the employees who would potentially have access to it are locked down with non-disclosure agreements. A good number of companies do any kind of product development, and they worked even for their customers. In the course of doing that work, especially if you're a consultant, you are using your trade secrets in connection with joint development with somebody else.
• 33:12
  Daniel Shulman: Where there is a back and forth of know-how, as you're trying to work with somebody who has complementary expertise that you don't have. Beyond just locking up your employees with non-disclosure agreements, it's incredibly important that you document those kinds of relationships the right way.
• 33:33
  Daniel Shulman: People you work with don't walk away from the table with your confidential information and the ability to use it.
• 33:45
  Craig Petronella: Right.
• 33:47
  Daniel Shulman: That's a much more difficult problem. Because something for the development to work, you have to work closely and disclose confidential information. Those joint development agreements we're trying to develop with somebody else are incredibly complicated.
• 34:05
  Daniel Shulman: And the reason is that most development fails. It's risky.
• 34:10
  Daniel Shulman: Probably, only about 20% of the time or less leads to a marketable product. And very often, people engage in those agreements. And they structure the agreements so that the parties share some of the developed intellectual property on the assumption that a product will be developed and it will be a win. And the fact of the matter is, most joint developments between two parties break up long before you get to the point. We launch the product, and it failed. The development fails because somebody backs out. After all, you couldn't get the cost right.
• 34:54
  Daniel Shulman: You couldn't get the materials right. It didn't pan out at the validation stage, so you never get to ramp up and commercialize. So see, you can't do a joint development agreement, assuming that the party will be free to walk away with what they walk away with, and exploit it as if it were a success. And so, very few people do joint development agreements the right way. What they end up doing is they sit across the table from people. They have this free flow of ideas. And then, when it doesn't work, they find that the agreement didn't protect them adequately. That's a whole another topic to go into. But it's a really important one. If you're doing development with somebody, it doesn't have to be a competitor.
• 35:38
  Daniel Shulman: It could be just somebody who's in the market which has an expertise in.
• 35:42
  Craig Petronella: Yeah.
• 35:44
  Daniel Shulman: That's something where you want to reach out to somebody like me, for example, who has thoughts about that and is developed processes for making sure that you do that the right way. So many things go wrong with the wrong kind of joint development agreement.
• 36:00
  Daniel Shulman: Those are all parts of ensuring you're protecting your intellectual property, protecting your know-how, not letting it outside, your four walls.
• 36:10
  Craig Petronella: That can get into licensing. Say a customer comes to us, and we develop an application. And we find a way to do it faster than the way that it was done before. So that's what they're buying.
• 36:27
  Craig Petronella: They're buying the speed, like using Google as an example. So when you type something in Google, you get a search engine result page, a SERP. In this scenario example, we are hired to develop a search engine for a particular client search on scientific factors. And we develop the result or the search engine result page on their custom engine that we are hired to build. And we do it in a few seconds compared to what they were waiting for before. That the value is the speed. Our intellectual property's rate is derived from our know-how and knowledge of configuring that server properly and on the code side.
• 37:12
  Daniel Shulman: Okay.
• 37:17
  Craig Petronella: Maybe, this was a whole another conversation because it goes into a whole another rabbit hole? But it just popped in my mind as far as the question goes. So you sold the project as you're buying this speed from us. Is there a licensing play or a licensing component? Maybe, some or all of it is licensed to them at a fee to use the server? Can you comment on that?
• 37:47
  Daniel Shulman: It is a whole another conversation. So I'll just hit the highlights. But it is an incredibly important conversation for people in the service industry.
• 38:01
  Craig Petronella: Yeah.
• 38:02
  Daniel Shulman: It's more about providing services and products.
• 38:05
  Daniel Shulman: If I hire you to do something for me, write some code, create a product, I'm hiring you for your service. I'm going to own what I pay you for. You're going to develop something for me. I'm then going to own the intellectual property in that thing. By the way, that's not just a service industry issue.
• 38:30
  Daniel Shulman: That is a product, old school, bricks, and mortar business.
• 38:38
  Daniel Shulman: When I was in the packaging world, and a company like Procter and Gamble for a church, and Dwight, or SC Johnson, or Clorox, said they want a new bottle that does X. Coca-Cola wanted a new bottle for Powerade. And they went to ask because we're the bottle design and bottle maker experts. They wouldn't want to own that bottle. So either way, right?
• 39:09
  Daniel Shulman: You can see the customer's motivation. Theoretically, it makes sense. You're going to do something for me. I don't want you to develop it then and sell it to my competitors. What am I paying you for?
• 39:20
  Craig Petronella: That's right.
• 39:22
  Daniel Shulman: Okay. On the other hand, you do certain things embedded in that technology, which are your ordinary tools, the things in your toolbox that you do all the time, that make you who you are and make you do what you do.
• 39:44
  Daniel Shulman: Let's talk about, for example, if Coca-Cola wants a new bottle.
• 39:51
  Daniel Shulman: They say it's got to look like whatever because they've got their branding. It's got to have the specs. It has to have a certain amount of strength. It asked to have a certain amount of temperature because things are hot-filled. It's got to take up a vacuum. So all these bottles are always moving back and forth. There's a lot of specs that go in. And they may have an idea of an overall shape. But that's about it.
• 40:28
  Daniel Shulman: Okay, fine. If I create that bottle for you, I will use my tools in the toolbox to ensure that that bottle performs the way it's supposed to perform. I know how to create panels in the side that takes up that vacuum, without influence, how the label looks when it's wrapped around.
• 40:46
  Daniel Shulman: I know how to make a base that will flex up and down, allowing it to stand up and not end up distorted.
• 40:55
  Craig Petronella: Right.
• 40:57
  Daniel Shulman: I know how to create the threads so that you can use a much smaller cap without creating pressure that pops off because if your threads are really deep, and you need a bigger cap, that's more plastic, and it's more cost.
• 41:12
  Craig Petronella: Right.
• 41:12
  Daniel Shulman: I know how to blow it in a big wheel that blows these plastic molds into bottles very quickly. I know how to do all that. If I agree with you, Coca-Cola, where I say all the intellectual property that I developed in making this bottle for you, you own? How many years more am I in business, when I've just given away all of the know-how that has continuously improved that I've used out of my toolbox? That suicide for a company.
• 41:47
  Craig Petronella: Yeah.
• 41:49
  Daniel Shulman: What typically happens is you'll say, I will give you an exclusive supply, or I'll even let you own the design, just the shape. Anything that would constitute, for example, manufacturing technology, know-how, are things in my toolbox that I'm going to own if I improve on that. I need to know how to make a bottle better for the next customer. If I don't know and don't continually learn how to make bottles better, I will be out of business. You can't have that.
• 42:29
  Daniel Shulman: To your point, though, I might give you a license to that technology so that you can use what I've learned. Especially if you need somebody else to supply you with that bottle. Some of these big companies won't make a sole source arrangement. They're great. It's too risky. So they'll say they need you to put your competitor in business to make this very bottle that you developed for me to have all this IP. You are not going to give your crown jewels to my competitor to compete with me.
• 43:08
  Daniel Shulman: Very often, what you'll do is you'll say, I will license certain technology, I will license patented technology, I'll license that design. And there may be certain know-how that I'm willing to tell your competitor, but not all of my crown jewels. But for me to do that, you have to guarantee me a 70% share of your supply.
• 43:29
  Daniel Shulman: Otherwise, it's not worth it for me. And I can use that leverage because I'm better at creating bottles than my competitor. You want to work with me. But I'm not going to teach them all of my tricks because then they're going to use and compete with somebody else.
• 43:48
  Craig Petronella: Right.
• 43:50
  Daniel Shulman: Anytime you have any kind of agreement with your customers, where you're developing things, the end product, how it appears to the consumer, which is usually more kind of ornamental design.
• 44:00
  Daniel Shulman: That's not really where the secret sauces. That's sort of one end of the dividing line.
• 44:08
  Daniel Shulman: When you think about it, that's what your customer wants. Your customer wants to own but the consumer-facing pieces because that's where they build a brand around. But the back office, how it works stuff, probably doesn't have an interest even though they say they want it, you probably don't need it. And they wouldn't know what to do with it even if they had it. That's where you, as a supplier, have to drive a hard bargain that says, Look, there are certain things I will give you. There are certain things that I won't give you and that I'm going to keep, and those are always going to be mine. No matter if I improve on them in doing this work that you paid me for. The way I'm in business is to get manually learning it better.
• 44:52
  Daniel Shulman: When you explain what they need and why they need it, most customers are sophisticated enough to understand that it's not always an easy conversation that the customer on a lot longer than the salesperson would like. Next thing, you're bled into the next quarter, and they didn't get their deal done.
• 45:13
  Daniel Shulman: But that's a meaningful conversation to have. And it's a very typical conversation.
• 45:22
  Craig Petronella: It has been fantastic. I appreciate you joining and shedding light on some of these topics that my listeners have tons of questions about. Tell us all how to reach you. How do we reach out to you and contact you to get consulting from you and hire you to help them?
• 45:40
  Daniel Shulman: Yeah, absolutely. Thank you. Um, so my email is dshulman@vetterprice.com. Email is the best way to reach me. I have an office phone number, but I haven't been in my office since March. But I am picking up voicemail. So if you want to call me at my office, the number is 312-609-7530. And, of course, Craig, if anybody wants to reach me that wants to reach out to you, I'm sure you can put us in touch. I'm happy to help out with any clients that have questions. And I referred earlier in the talk to that IP questionnaire. Look, if there are clients that are just thinking about the fact that I've got intellectual property, I'm happy to send out that IP questionnaire and do a free 30-minute assessment. So if somebody wants to fill it out, send it back to me. I can help a client figure it out all right.
• 46:59
  Daniel Shulman: Here's some of the low hanging fruit; here are some of the easy things that you should be doing to make some improvements to how you're thinking about intellectual property. And get on a phone call with somebody free for 30 minutes to do that.
• 47:14
  Daniel Shulman: So again, if somebody wants to reach out back to that questionnaire, please, email, call. I'm available.
• 47:29
  Craig Petronella: Awesome. Thank you. And if you want, you can send the questionnaire to me. If they reach out to me, I can give it to them.
• 47:37
  Daniel Shulman: Yeah. Will do.
• 47:38
  Craig Petronella: Thank you again so much. It has been fantastic.
• 47:41
  Announcer: Thanks for listening to yet another episode of cybersecurity and compliance with Craig Petronella. Listen to all of our podcasts on Apple, Google, and Spotify. Visit us online at Petronellatech.com to book a meeting with Craig about your business.