Why should a company have an IP strategy?
Recently we were delighted to contribute this expertise on IP strategy to a recent intellectual property supplement in The Times.
Intellectual Property (IP) makes up a significant proportion of a business’s value. An IP strategy puts a legal framework around what are often intangible assets and makes the protection, enforcement and valuation of these assets much easier and more quantifiable. Companies demonstrating IP sophistication and management consistently out-perform their markets and competitors.
But surprisingly few companies ask themselves how they measure up against market peers or comparable companies, or against the practices of the leaders of IP companies and define their policies and future plans accordingly.
Many of us are unaware of the financial and commercial value that Intellectual Property gives us. This means that our companies and our products and services are often unprotected and the sales value of our business is far less than it could be. IP rights not only put your company above your competitors, but also considerably increase your value multiplier when you come to sell your company or seek investment.
Companies should remember that the only way to protect an ‘idea’ or a new concept is under an obligation of confidentiality. All employees should be working under binding employment contracts that include watertight obligations of confidentiality. Any third parties involved in concept innovation (be they external designers or potential suppliers or tooling manufacturers) should also be signed up to a confidentiality agreement or non-disclosure agreement (termed an NDA).
This will protect the idea.
The next thing to consider is ‘who has come up with this idea?’ If it is an employee of the business, acting in the usual course of his/her employment, the company will then own the idea. This is the position at law, but you should ensure your employment contracts contain valid IP assignment clauses that bring all IP securely into the ownership of the business.
Research & Development
It is important that at the research stage, you look into third party rights and carry out a freedom to operate search. There is little point in spending time and money on a concept that is protected by a third party. Initial patent and registered design searches using a reliable patent attorney, together with an internet search and a review of competitor activities, should give you the comfort that you need that the road ahead is clear and will not lead you straight into a dispute. Freedom to operate searches will need to be conducted in every territory in which you plan to trade – otherwise you may find that your product has to have a different brand name in particular territories where a third party is already using the name.
Research should also include a review of what IP rights subsist in the product together with research into a protection budget – look into how much it will cost to protect your new product. An ‘instant drinks cooler’ could potentially comprise significant intellectual property rights as follows:
- The concept will need to be protected by confidentiality pending any IP registrations
- Any ‘new’ technology could potentially be patentable
- The design could have enough ‘eye appeal’ to merit a registered design
- If not, the general shape could have unregistered design rights
- The CAD drawings and product manual (together with the website that features it) will have copyright and should be marked with the © [name of owner] [date created]
- The brand name could be registered as a trademark. Once registered, the brand can feature the ® symbol.
When you start to carry out R&D activities, remember that pretty much everything you are developing could have IP. It is really important that you keep documents evidencing a creation trail. Lots of IP rights fall under ‘first to create’ rules of ownership and being able to establish that you came up with it first, can be critical. Keep all documents confidential and ask yourself the question of whether or not anything needs to be patented at an early stage. Ensure any third parties are signed up to an IP assignment so that all IP is owned by the business.
Remember, that R&D activities carry tax incentives and a reputable accountancy firm will be able to assist you in making a claim.
At this point, when you know that you are going to continue with the development of the product and take it to market, you need to start to think about your IP strategy for this product. The choice of legal protection will depend on a number of factors such as the nature of the asset, the manner in which it is to be exploited, the countries in which it is to be sold, the shelf life of the competitive advantage and so on.
Are you going to protect it, if so how? Have you got an NDA in place with any relevant third parties? Does it contain an inventive new step in technology that could benefit from a patent? Does it have aesthetic appeal and a particular look that could warrant a registered design? What is the brand name going to be? Have I made sure that all the design drawings contain a copyright notice? In which territories am I going to operate?
All of these IP rights (with the exception of copyright, which arises automatically in anything transcribed to material form, provided that it is original and not copied and involves a degree of skill in its creation) are territorial and will need to be protected in each territory where you plan to trade. If you are trading in Europe, you will need to register in Europe (remembering that after Brexit, you will need separate UK registrations). But your EU registrations won’t protect you in other territories – they may prevent other traders importing into the EU, but they won’t be enforceable in the US, for example. Some IP rights such as trade marks, can be obtained as you go forward, but others, such as patents and registered designs must be applied for when the product is new and novel; once disclosed on the open market, there is only a very limited timeframe during which you can still apply for protection. You must think ahead and plan your protection strategy before putting products into the market.
It is then really important that you have transparency on the lifetime protection costs – patents, for example need to be topped up as they progress and have renewal fees; trademarks need to be renewed every ten years. Having clarity on these costs and building them into your budget will help you going forwards.
Tooling and manufacture are critical times in a product’s journey to market. It is important that tooling is owned by the business – otherwise, the manufacturer will own the moulds and, in the event of dispute further down the line, you may have difficulty getting them back.
Manufacturing agreements need to be very clear on the IP ownership position – manufacturers should only be granted sufficient rights to enable them to manufacture the products, for a defined product for a defined time and for a defined number. Consider what happens to products which are not up to standard or which overrun – they should all come back to you to dispose of as you think fit?
Commercialisation and exploitation
Most of the IP work is now done and your protection strategy should be in place. But there are still considerations to be kept in mind – packaging can attract IP rights, if the design is novel; branding features on packaging, so ensure that it mirrors the trademarks that you have registered and not something which is different.
Commercialisation agreements, such as supply contracts and distribution contracts, should all address IP rights and should all be clear that all IP rights remain vested in the owner. Be careful when dealing with distributors in new territories where you are not protected – ensure that there is a prohibition on the distributor registering the IP rights to be ‘helpful’ – this is all well and good whilst the relationship continues but is difficult to unravel once it is terminated and it is the distributor that has built up the goodwill in a particular territory. Sound legal drafting of contracts is so important.
Keep a look out for competitors copying your product and enforce your IP rights wisely. Think about what you want to achieve with your protection – do you want to have a monopoly position and be the only company selling the new cooler? Or are you happy for third parties to help you sell it, but under the terms of a proper licence that generates income for you? Is it imperative that the cooler is sold with your brand name on it? Or do you want the product out there and will permit third parties to sell it as their own (particularly if their brand name is already established) but again, under the terms of a proper licence that generates income for you? Whatever your position, legal work of this nature is costly. There are insurance products out there that cover IP disputes and can be a huge help in terms of payment of fees.
Hopefully by the time you have got to the end of this article, you will realise the importance of considering your IP – having knowledge of what rights your business has, how you can protect them and how to exploit them are all part of having a comprehensive IP strategy.
If you have any queries relating to intellectual property generally or would like to talk someone about an IP strategy please contact Laura Trapnell.