New Zealand: Using IP to sustain your business

Last Updated: 7 September 2011
Article by Jonathan Lucas

This article first appeared on the Elelment Magazine website.

All businesses, no matter how different, strive for success in a way that can be sustained. One vital tool with which a business can achieve true sustainability is intellectual property.

What is a sustainable business?

The term "sustainable business" means different things to different people. Originally synonymous with "green business", it has now become associated with a broader concept more aligned with the true priorities of most enterprises. A sustainable business is one that strives to meet commitments to people, planet and profit, the so-called triple bottom line or three pillars.

Crucially, a sustainable business also does exactly what it says on the tin - sustains itself over an extended period. The benefits of fulfilling commitments to the triple bottom line have no consequence if a business has no longevity, and cannot continue providing those benefits.

What is intellectual property?

Intellectual property (IP) refers to intangible ideas and creations of the mind. All businesses own and create IP in the form of goodwill, reputation, trade marks and innovative technology, processes and designs.

Intellectual property also refers to the ownership of such intangible assets in law. IP encompasses copyright, trade marks, patents, designs, and trade secrets.

All businesses own and rely on IP in one form or another. By using IP cleverly a business can become more sustainable in a variety of ways. IP can help a business generate profits over the long term. It can also be integrated into the recognition and reward systems of a business, to positively impact on staff. Finally, IP encourages investment in innovation, which can lead to benefits for the planet.

IP rights and sustainable profit

Out of the three pillars of a sustainable business, IP principally helps to maximise and maintain profits. But by firstly ensuring the profitability of a business, the business will be in a better financial position to look after its people and make decisions that are better for the planet.

A trade mark is a badge of origin that distinguishes products or services of one business from those of another and can be a word, phrase, logo or even a shape, colour, sound or smell. Trade marks can be formally registered enabling a business to prevent others from using the same or similar mark in relation to the same or similar goods and services.

Protecting the use of a trade mark ensures that others cannot trade off the goodwill or reputation established by one company in particular products or services. Therefore customers are more likely to be able to clearly identify that company's products or services from those of its competitors, meaning its profit streams can be protected. Registered trade marks can be renewed indefinitely, giving sustainable protection for a business' brand and reputation.

Patents can give exclusive rights in an invention for up to 20 years. A patent can protect a product, system or technical process provided it is novel and not obvious in view of existing technology.

Protecting new innovations using patents is critical for obtaining and subsequently sustaining the market share won by virtue of the advantage the innovation provides over existing technology.

Trade secrets are pieces of information that are kept confidential to provide a competitive advantage. Well-known examples are the Coca-Cola formula and KFC's 11 herbs and spices recipe. Only information that cannot be easily ascertained (for example by reverse engineering) is suitable for protection as a trade secret.

A trade secret has the potential to be maintained indefinitely, provided sufficient action is taken to keep the secret. This means ensuring staff work on a need-to-know basis and minimising the number of people (usually only executives) who are privy to the entire secret.

Coca-Cola has been able to build an enormously successful business that has endured since 1892. While it has now reached the size that the secrecy of its formula is probably no longer crucial to its market share, secrecy was certainly important in the early days and Coca-Cola would probably not have had sustained success for so long without being able to keep its formula a trade secret.

IP rights and sustainable people

Many forward-thinking businesses use intellectual property to recognise and reward the innovation of their employees. Companies like 3M actively encourage huge levels of innovation by staff at all levels of the organisation by allowing "inventors" to participate in the return generated by the innovations they create. This provides a fantastic opportunity for employees to enjoy rewards many times larger than their usual salary and encourages them to be innovative for the benefit of the company.

Some trade marks show accreditation to a particular organisation or standard, for example, safety standard marks. By conforming to the requirements for such marks and then using them in relation to goods and services, a company can demonstrate care for its customers in a way that is universally recognisable.

IP rights and sustainable planet

Trade marks can also demonstrate certification under carbon emission standards. Again, by conforming to the relative standards and using the relevant certification trade marks, a company can prove its commitment to the environment.

The patent system encourages innovation by rewarding inventors with 20 years of exclusive rights in their invention, which can provide a return on the time and capital invested in research and development. This allows the general knowledge of society to increase, and the state of the art to keep advancing.

Many modern innovations involve technologies that lessen environmental impact. From an altruistic perspective it would be beneficial for such improvements to become industry standards. Patents firstly encourage the innovations to be developed in the first place, but also enable innovations to be licensed quickly and globally so that innovators can realise financial rewards from such innovations while enabling their rapid, widespread use and consequent benefits to society.

IP critical to sustained success

Every business, no matter how big or small, should formulate an IP strategy. Clever use of IP can minimise the risk posed by competitors and open up new markets and revenue streams. The value of intangible assets to a business should not be underestimated. While physical assets like bricks and mortar may come and go, reputation, ideas and relationships will sustain a business for a long time and should be nurtured carefully.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James and Wells is the 2010 New Zealand Law Awards winner of the Intellectual Property Law Award for excellence in client service.

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