Surprisingly, many companies do not have a coherent IP strategy. A strategic IP plan can help an export firm unlock the true value of its assets and protect both brand and products in offshore markets. By Yoke Har Lee.
Warwick Lightbourne doesn’t sweat over trying to cover every slice of intellectual property (IP) his company, Clinical Technology, creates or owns. Instead, he focuses on protecting only the essential IP, either through trademarks or patents.
For innovation that is really worth sealing up in the IP vault, Clinical Technology had in one case protected an IP way in advance of the actual product’s launch. The company was so certain of the value of the product, it moved to protect it ten years before the product was finally launched, Lightbourne says.
“Once you have decided on trademark and brand protection, go through the essentials; look at your priorities and necessities. We go for essentials, be it trademark or patents,” he adds.
Clinical Technology makes a range of sports injury products, for pain relief or rehabilitation. Its flagship brands are Percutane® and Traumitane®. It also has a range of injury management solutions, under the Thermastrap® and Elastrastrap® range.
Another strategy Lightbourne’s company has taken is operating and trading only in what it considers ‘safe’ markets. This means essentially missing out on the world’s most interesting market – China.
For Lightbourne, operating in markets which lack integrity adds unnecessary complications to conducting business offshore. His company has thus far focused on building inroads into Scandinavia, UK, US, Norway, Sweden and Singapore – taking on good agents and distributors as pathways into these markets.
For Waikato-based manufacturer Simcro, IP strategy is centred around one main principle – that of getting the maximum return for money invested for IP safekeeping. Simcro makes animal healthcare injection systems, such as drenching equipment.
Chief executive officer Will Rouse says the company takes the risk-reward approach when it comes to getting its innovation protected. “We first ask if there’s true novelty (in the creation) and a wide application. If that is so, we definitely want to own that piece of IP. That’s the key driver of whether we spend money on owning IP.”
The company has also developed a sort of symbiotic relationship with a few global animal healthcare companies, leveraging upon the latter’s deep pockets and global reach in its development and subsequent manufacturing of products.
Rouse says this relationship allows Simcro to focus on what it does best: innovation. Sometimes in developing a product, Simcro might decide to let its global partner own the IP while Simcro chooses to focus instead on seeking rights as the sole manufacturer and not own the IP. On other occasions, it may seek to own one component of the IP for the product which it had designed or developed.
Not easy to DIY
Intellectual property lawyers say developing a strategic IP strategy is critical for the sustainable growth of a company. Yet, many companies do not have a coherent IP strategy, often filing IP protection on an ad hoc basis.
Philip Thoreau, a patent attorney and partner at Baldwins Intellectual Property, says getting protection for IP is definitely not a “do-it-yourself” undertaking.
“Companies may, for instance, spend between $30,000 and $100,000 developing a brand and a marketing campaign, yet they scrimp on proper IP protection.” He says such an oversight could mean a company spending ten times more fixing a problem rather than investing to engage professional help.
Filing trademarks for instance, can give wide protection. Once filed, a trademark remains the right of a company, with coverage extending to all the countries covered under the Madrid Protocol, which New Zealand became a part of in December 2012. This makes it more efficient and economic for Kiwi companies seeking IP cover across the globe. On the flipside, it also makes it easier for foreign companies to seek trademark protection in New Zealand.
A company needs to use the trademark within three years of it being filed in one country to have the rights activated – and a trademark needs to be renewed every ten years.
“One of the benefits of a trademark is that it goes on forever once it is registered,” says Thoreau. “The Shell symbol, for instance, is one of the oldest trademarks registered in New Zealand; first registered in the 1880s.”
Ring fencing and unlocking intangible assets
Thoreau notices that many companies don’t understand why they are protecting their trademark. “It is a common misconception that you hold the trademark for you to ring fence where you want (or intend) to trade. But the whole strategy of trademark protection is not about ‘What do I want to do?’ but ‘What I want to stop others from doing?’.
“We have to take the strategy as an offensive way of protecting your brand. It is about how to minimise your weakness, how to stop your competitor from unfairly benefiting from your business that the brand protection provides,” Thoreau adds.
Many businesses also fail to notice that a strategic IP plan can help a company unlock the true value of its assets.
Kate Wilson, IP strategist and a partner at James and Wells, says more often than not, business people think of IP only as an ‘add-on’ – not part of a company’s overall growth strategy. Kiwi companies still trail behind their more savvy counterparts in terms of realising the worth of their intangible assets – which typically represent about 80 percent of the company’s assets.
Intangible assets extend beyond patents, brands and trademarks. “One example is the people side of things. Businesses aren’t thinking about ‘What can I do to protect my intangible assets when key personnel walk away?’
“It is not just the big inventions, but little things you can protect. Sometimes, it is these little things which give you your sustainable income,” Wilson says.
Examples of little, but crucial, things are: ensuring key employees are happy in their jobs; having proper reward schemes to keep key personnel happy; making sure knowledge is documented and protected; and making sure there are safeguards in place to protect employees who leave from walking away with the knowledge.
In some cases, no matter what you do and how well you protect your IP, copycats still have a go at your business.
A bathroom product manufacturer tangled in a legal war with what he claims is a copycat of his product says: “We honestly looked at what we have done, and asked ourselves if we could have done anything better. The answer is ‘no’.”
His company has sued the alleged ‘copycat’ and the process has been long, tedious and exhausting. “It is horrible in terms of time and resources trying to defend the business’s IP.” He requested anonymity as the case is ongoing.
Watertight distributorships protect brand, product
A prized brand, trademark or a key market segment can be easily lost without watertight distributorship agreements in place when a company seeks agents for offshore markets.
Exporters should be aware that in some markets, such as Europe, they can be hit with claims for costs by their distributors when they decide to terminate the distributorship agreement, says Mark Hargreaves, a partner at AJ Park.
“We have had clients being hit with significant penalties when trying to terminate an (distributorship) agreement,” he says, adding that Kiwi companies may be blindsided to the fact that in Europe agents and distributors can claim costs related to termination.
In instances where there are tough agreements in place, termination rights are indeed tough, therefore exporters face higher risks associated with the costs involved. He advises exporters to phase out the termination over time.
Exporters seeking offshore market presence should also be mindful of not losing brand control – especially in markets where trademark legislation awards ‘first to file’ rules. In such places, the law recognises the first party to file a trademark, even though you may have been using the trademark or already own it in your country.
Hargreaves also cautions exporters to be mindful when giving distributors the right to use their trademarks, by being specific in the agreement as to how the trademarks should be used. “You want to ensure you have quality control over how they (distributors) use the trademark – the domain, the company, the name; make sure you detail how these can be used.”
And when distributors are accorded the right to make product improvements or changes, exporters should make sure the agreement captures how this should be managed and who ultimately owns the intellectual property for the changes, he says.
Exporters must also be cautious about whether distributors should be given the right to take action against infringements on intellectual property rights, Hargreaves adds.
“In some countries, distributors can take action against infringements. You don’t want distributors to be suing people without your ability to control that,” he says.
Don’t get too zealous about offering too much of your intellectual property when seeking new markets offshore. It pays not to be tempted to offer too many rights or too many regions to a single distributor. Start by offering one state or region, with specific performance targets, before expanding the distributor’s coverage.
Also, don’t jump into bed with the first partner who comes along. “Often, exporters don’t do enough due diligence, then find poor performance (from distributors),” says Hargreaves.
“Don’t lock yourself into any arrangement for too long. Keep the flexibility for you to change. If you are giving exclusive regions, make sure you have built (into the contract) sales targets for the distributor to maintain this exclusivity.
Protecting software IP
New Zealand is moving in line with the school of thought that computer software programs must be more than just a set of clever codes to be patentable. This realignment came with proposed changes announced in May this year, in the Supplementary Order Paper No 237 (Patents Bill).
The changes mean that it will not be possible to “to obtain a patent for an invention that involves or makes use of the computer program if the sole inventive feature is that it is a computer program,” the Parliamentary Counsel’s website states.
Kate Wilson, patent specialist and a partner at James and Wells says there has been erroneous interpretation of the SOP. “Despite what has been reported, New Zealand hasn’t banned software as inventions.”
What has changed is that New Zealand’s approach to legislation in this area is now more in line with the European framework but diverts from our past alignment with Australia.
“I think this (change) is a retrograde step. If you are an innovative company, you want to protect what you create. The changes don’t give protection to innovative Kiwi companies,” says Wilson.
She adds that companies must then decide what they want to achieve with software development and how this would fit into their business model. This would then decide how a company protects its IP and whether patents would serve to protect or stifle innovation.
The global community has been polarised for a while over whether software by itself should be patentable. In New Zealand, Orion Healthcare, a company providing software-based systems for healthcare management, is not too fussed about patents for its software, believing more on its ability to innovate quickly.
“Most of the time, softwares are built on accord of cumulative work, on other people’s work. It is not as if you are working on a breakthrough,” says CEO Ian McCrae. “You are taking existing codes and making them better. Software companies want the ability to innovate; we don’t want to be tripped up by spurious patent claims.”
Patents, he says, should be reserved for profound breakthroughs, something which takes years and years of research and development. In contrast, software advancements are built on incremental models.
Martin Goetz, the first person in the US to be awarded a software patent in 1968, is in favour of allowing patents for software, provided it answers the right question, according to a column he wrote for the Wall Street Journal. His company, Applied Data Research, was the first company to market a software product.
The paper quoted Goetz saying: “The reason this controversy has gone on for so long is because this is the wrong question to debate. A much better question would be, ‘Should an invention that is patentable when described as part of a digital circuit (hardware) be equally patentable when described as stand-alone software?’
Brian Love, a law professor teaching intellectual property and patent law at Santa Clara University School of Law, who wrote against patents for softwares, said patent stockpiles are not only costly but harm small companies. In the US, over 400,000 software patents are in force, making it impossible for entrepreneurs to determine whether they might infringe on one (according to the Wall Street Journal).
McCrae says, although competitors or copycats might try to introduce similar products to Orion’s, the company’s ongoing development gives it between six and 12 months lead time in being first to reach the market with innovative new products.
Yoke Har is an Auckland-based business writer.