Friday, 21st June, 2013
Stake your IP claim early on
This year, the US Patent Office received 576,763 applications - 100 times the number filed in New Zealand. And New Zealand sees little IP litigation.
But there have been several cases of New Zealand companies running succesful businesses here, only to find out that expansion into the US is not an option due to the potential for infringement of registered intellectual property (IP) rights held by incumbents in the market.
So, when selecting a new brand, commercialising new technology or even launching an old product or brand into a new market, it's vital to formulate your IP strategy as early in the process as possible.
Here are four simple steps to consider.
Start by knowing your IP position
IP protection can take the form of both registered and unregistered rights. Knowing what IP your business owns and is creating is an important first step in understanding the best way to protect and enforce it.
Take steps to capture your IP early
All too often IP rights aren't captured because simple commercial agreements or policies aren't put in place early enough in the process. A confidentiality or design commissioning agreement that clearly identifies who is going to own what IP arising out of a collaboration, for example, may be all that's required to set the stage.
Understand which IP rights to register
If you have something worth copying, then it's worth protecting. But deciding on the right kind of IP protection requires a good understanding of the types of protection available, as well as the costs and benefits of each type of protection. A well thought-out IP strategy will pay dividends downstream.
Some forms of IP protection are relatively inexpensive and easy to implement. For example, IT system firewalls help protect your trade secrets; non-disclosure agreements (NDAs) can ensure your know-how is not misused and copyright can protect your source code or manuals from being copied.
Trade secret protection may represent a good form of protection in some circumstances, but in others, stronger protection in the form of patents or registered trade marks may be more appropriate. If you are looking to license or sell your IP outright for example, registered rights are likely to be more valuable because they're enforceable against a much wider group. In 2003, Kiwi wine-makers Kim and Erica Crawford sold their KIM CRAWFORD trade mark for $18m+. No stock or plant changed hands, just the brand.
Trade secret protection, on the other hand, is only good against those who know that your information is a trade secret and have obligations to keep it that way. But it doesn't provide any protection against attempts to reverse engineer your idea or product. Nor does it ensure your confidential information won't inadvertently or intentionally fall into the hands of competitors or disaffected employees. In a high profile case involving General Motors, an employee sold trade secrets costing the company an estimated $40m. This is just one example of trade secret theft that is estimated to have cost the US economy $300bn in 2012.
Patents and trade marks aren't just tools used to protect against those who knowingly misappropriate your IP. They can also be used to prevent or deter others from entering your market with very similar products, brands or inventions. But it's important to get the process and the timing right. A patent application must be filed before an idea is publicly disclosed. An application for a similar invention that's filed even a day prior to yours will cause issues for you.
In some industries there's a race to file patents, especially when new legislation makes old ways of doing things obsolete or when other external factors, such as accidents, wars or disasters spur innovation. Since the Christchurch quakes, earthquake damage-related innovations have significantly increased spurring an increase in patent filings in New Zealand. Heightened levels of R&D activity and innovation can however increase the chances of similar inventions being independently created for the same thing. So it's important to be first to register and protect a new idea.
Avoid infringing the IP of others
Even if you choose not to protect your own IP, then avoiding the risk of infringing the IP of others can be equally as valuable to your long-term business sustainability.
New Zealand companies face IP infringement risks on a regular basis. A patent is technically infringed if just one unauthorised product is made that is covered by that patent. Music and images downloaded from the internet and used to promote your own products, can infringe copyright protection - unless you pay for a license to use them. And if licensed, it's important to know the terms of the license as they are often limited in duration, territory or in purpose.
A simple, yet effective way of avoiding IP litigation is knowing that you have freedom to operate (FTO). This is regardless of whether you are going to secure your own patents or not. If you do not carry out FTO searches, you run the risk of launching into markets in which you may infringe another's IP.
A thorough patent search prior to entering a new market can quickly reveal whether there is the potential risk of infringing registered IP rights. It can also provide other, commercially useful information that may inform a different market entry strategy, for example, licensing or partnership opportunities. Most patent databases publish the name and address of the patent owner and the inventor, potentially leading you straight to the negotiation table.
But it's easy to see why FTO may not rank high on the list of risks that are considered by New Zealand companies looking to expand overseas though. We are quite immune from IP litigation cases because the volume of patents and trade mark filings made in New Zealand is very low compared to other countries. This year, the US patent office received 576,763 applications - 100 times the number filed in New Zealand. Even in China, where IP rights haven't always been respected, 1.2 million patent applications were filed, and a staggering 48,000 IP litigation cases were commenced in 2011. This compares with the 6000 patents filed in New Zealand in the same period. The lesson is that having freedom to operate in New Zealand does not guarantee you have the same luxury in other countries.
An edited version of this article was published in the Business Law feature of The National Business Review, 21 June 2013