Protecting your company’s IP by patenting it can be bit like Team NZ showcasing its keel before the first America’s Cup race off the coast of Valencia. In corporate sense, raising the skirt on the company’s most valued secrets for the world to see may indeed mean you’re first to market. But what you’ve effectively done is invite your competitors to play catch-up as fast as possible. That’s why Wes Jones, senior associate with patent attorneys Baldwins, argues it’s sometimes best to protect the longevity of your IP by keeping it under the company hat.
He cites Coca-Cola as crude yet useful example. The realisation that going down the patent path would teach the world its formula convinced the Atlanta-based beverage giant to keep the formula for the world’s most infamous brown beverage trade secret.
The problem is there are times when information can’t be kept secret. So that said, what’s the key to identifying, protecting and then valuing your company’s IP?
The starting point, says Jones, is ensuring you understand what constitutes IP. After all it’s impossible to unearth IP until you know what it is you’re looking for.
Here are 10 tips to understanding and managing IP’s end game.
1 So what is IP?
It’s only by breaking down IP into its main components and knowing what the commercial objectives are that the best protection regime becomes self-evident. Out of the seven main categories of IP the three offering the greatest “protectability” are:
a Patents
Attempt to protect novel concepts relating to product or process.
b Designs
Protect novel features of appearance.
c Trademark registrations
Protect identifiers such as brands or logos which distinguish your goods or services from those of your competitors. For example, someone invents new product and dreams up name and starts using it. That brand then serves to identify and distinguish products or services from its competitors. While brand often consists of multiple images and words meshed together to create specific consumer image, trademark is very specific thing – for example, graphical device or letters – that if registered is given special protection at law.
One of the keys to the “protectability” of that name, advises Jones, is its uniqueness. “Words that are descriptive of the product or service to which they relate are usually bad trademarks,” he says. “Names that are invented with specific non-descriptive purpose – like Kodak, Coca-Cola or Xerox are best and make it easier to protect.”
2 What do patents, designs and trademarks do exactly?
They allow rights to be registered and the proprietor receives statutory monopoly. design can be registered under the Design Act 1953, an invention can be registered in the form of patent under the Patents Act 1953, and trademark can be registered under the Trademarks Act 1953.
A design and graphic elements (such as logo) of trademark may still be protected under the Copyright Act 1994. trademark may also be protected under the law of passing off and the Fair Trading Act, provided it has reputation. However, registered trademark is generally much easier to enforce.
3 Once registered what exactly do these three instruments define?
a The owner’s rights.
b Improve the ability with which the subject matter can be protected.
c Improve the registered proprietor’s ability to charge monopoly prices. On the downside, enforcing these instruments can be time-consuming, costly, and fraught with uncertainty.
4 What other IP instruments are there?
Copyright The property right to control who copies work. Works in this sense don’t include ideas, but rather the expression of an idea. These may include drawings, (including technical drawings) brochures, photographs, compilations, and software. While it has its foundation in statute and creates semi-statutory monopoly copyright the owner’s rights aren’t protected by registration.
Trade secrets, confidential information, trade get-up and unregistered trademarks These rights do offer protection but not the same ease of protection as patents, designs and trademarks. One way of trying to keep product secret is through concept known as “black boxing”. According to Jones this is the art of selling the end result without selling the process. In other words, the product might be in the public domain but what remains secret is how the proprietor has produced the end result. For example, in recognition that commercial secrets go into developing Fonterra’s liquid milk formulations the diary giant is now building premium into the end price.
5 What’s the best way to identify IP?
From Jones’ experience most firms only stumble across their IP when it’s too late to protect. He says the application should be filed before the product is publicly disclosed, used commercially or offered for sale. The key to identifying IP early, advises Jones, is to establish internal procedures that will flag potential opportunities.
He suggests identifying someone within every organisation charged with ensuring IP assets are developed within clear strategy (aimed at maximising the value and payback on assets). “People often forget that follow-up is needed throughout the life of project,” says Jones. “Often things turn into projects that have additional IP – this can be where the most important IP is found. That’s why it’s important to keep all records associated with product development.”
While an invention might be patentable Jones says management needs to decide whether embarking on the patent process makes commercial sense. “There will be times when it’s more prudent to direct available financial resources into gaining market share and trade-name recognition, rather than misdirecting resources into the cost of registration and defending the rights.”
6 What practical steps can companies adopt to help protect their valuable IP?
• Be aware of how various business activities give rise to protectable IP.
• Document the various activities in your business (research, manufacturing, procurement, marketing, human resources) and identify how these give rise to specific IP and how they can be protected.
• Develop ongoing business processes to ensure IP is identified, protected and enforced at appropriate stages.
• Ensure there are written agreements covering IP ownership when hiring contractors.
• Conduct IP audits of the business and processes in place to protect it.
7 What’s the source of many IP disputes over these days?
Many Kiwi firms overlook who owns what when it comes to IP rights. That’s why Jones says it’s important to make it clear with supplier and employment agreements what each party is supposed to be doing. For example, Electrolux in the UK missed out on claiming rights to new connector between the vacuum cleaner and the bag because the man who invented it was only hired to clean not invent. “That’s why it’s important to think carefully about ownership at the outset and catalogue ownership throughout the product development process.”
8 How do you value IP?
The rationale underscoring any IP valuation says Eric Lucas, partner with PricewaterhouseCoopers, is to unearth the premium you can sell the product for due to that brand (or other IP instruments). To ensure you’re selling everything for as much as you can, he says you need to know what it is you’re valuing (brand, trade secrets or know-how).Where the difficulty often lies, says Lucas, is accurately assessing the cash flow the brand will generate. For example, he says, it’s easier to value an established brand than biotech start-up with applications that may never be commercialised. “Management must appreciate that value is transitory. The more ephemeral the idea – the more transitory the value.”
9 What’s integral to any good valuation?
Lucas says it’s getting the right definition of the asset. For example, you’d have to include formulations, brand and the bottle in valuing Coca-Cola, but when valuing trademark like Wattie’s you wou
