New Zealand: Ask the Expert – Intellectual Property 101

Last Updated: 19 August 2012

JAWS answers two common questions around IP protection.

"I have heard if I change a product by 10% then I won't infringe any intellectual property rights in it. Is this right?"

No, this is not correct for any type of intellectual property. There is no rule in either legislation or case law to the effect that changing any particular "percentage" of a design or product will avoid infringement1. What exactly is 10% of say the design of a chair anyway?!

Each type of intellectual property2 right has its own test for infringement.

The general test for infringement of copyright (which protects literary, artistic and other works, including designs for industrial objects) is whether the infringing work takes a "substantial part" of the copyright work. You might think this is as hard to determine as figuring out whether 10% has been taken! The courts are ultimately charged with determining whether, for example, a product is sufficiently similar to a copyright drawing to be considered an infringement. The courts have ruled that in relation to "substantiality", the qualities of the part of the copyright work that is taken is a more important consideration than how much of the work is taken. For example, if a product takes that part of a design which provides its essential distinctive character, then it may well amount to copyright infringement, even though that part is a relatively small section of the overall work.

There are two other key limbs in relation to copyright infringement in addition to substantiality. The infringing work must be objectively similar to the copyright work, which essentially means overall it must appear to be a copy; and there must be some causal connection between the infringing work and the copyright work, which means some actual copying of the copyright work must have occurred. The need for a causal connection means that copyright will not be infringed if the similarities in the works are purely coincidental, i.e. there was an independent design path. For this reason, you should be careful to keep all working drafts of new designs, so that you can prove an independent design path if another business ever alleges you've copied.

It's also important to note that copyright, unlike patents, protects only the appearance of the product, not the underlying ideas.

Similar concepts apply with respect to registered designs, for which the infringement test is "substantial similarity". Like copyright, a registered design protects only the appearance of a product, not functionality. However, in contrast to copyright, a registered design does not require actual copying to have occurred - that is, if I independently designed my product and it coincidentally looks substantially similar to a registered design, then it will still infringe that design (whereas it wouldn't infringe copyright).

In relation to patents, which can protect the ideas or functionality behind a product, the test for infringement is whether the infringing work takes every "essential integer" of any valid "claim" of the patent. At the end of every granted patent there is a list of numbered claims, which define the scope of the patent rights. Each claim contains a number of components, called integers. For example, a claim to a ball point pen may look something like this: "a writing implement comprising a substantially cylindrical container capable of retaining a marking fluid, which fluid in use is dispensed from a valve located at an end of the container, by engaging the surface of the valve against a writing surface". The essential integers include the cylindrical container, the marking fluid, the valve and actuation of the valve by engaging it against the writing surface. If a copycat product manages to avoid taking one of these integers, then it will not infringe the claim. If it takes all of these elements, and also includes other elements - then it still infringes the claim. It also doesn't matter in the slightest what each pen actually looks like. In the patented pen, the valve might be a ballpoint, while in the infringing pen, the valve is a conical nib that is depressed to release ink; the container might be a long slender container, or a short stubby container. The patent3 claim protects the concept of an ink filled tube with a valve to release ink only when being used for writing.

This highlights the difficult job that a patent attorney has in describing in words what is new about the invention4, without including any extraneous elements that are not strictly required for the invention to work.

"What is your advice regarding the strategy of spending money on being first to market rather than on patents?"

Being first to market could potentially be a valid strategy if you have sufficient marketing and sales budgets to quickly saturate your market. That could potentially be achieved in New Zealand, where we have relatively small markets that are easy to reach.

However, trying to rely on a first mover advantage in larger markets, such as the US, Europe, or even Australia, will be far more difficult because the marketing budgets required to effectively achieve this would be enormous, well outside the reach of even a well funded start-up. Consider a market like the United States, incumbent competitors would see your unprotected product doing well in say California, and could very quickly and easily copy it (potentially using their larger R&D budgets to create even better versions than your own product) and then use their significant marketing budgets to kill you throughout the rest of United States (and probably also in your market of California).

If you had patent protection for your product, you would have at least some chance of creating value from your product development - for example, by licensing one of these competitors to manufacture and market the product in the United States in return for royalties.

There may also be certain markets or market structures where there is really only room for one quickly established player, for example auction sites. Trade Me set up quickly and grew its user base to such an extent that it didn't make sense for e-Bay later try to enter New Zealand, which for them would be a very insignificant market, and try to overcome the inertia that may have prevented Trade Me's established users from making the switch.

If you can find a market in New Zealand with a similar suitable structure, then perhaps a "first to market" strategy might work for you too.

Footnotes

1 Refers to the commission of a prohibited act with respect to a patented invention without permission from the patentee. In New Zealand, the Deed of Letters Patent confers on the patentee a monopoly to make, use, vend or exercise the invention in New Zealand. Performing any of these acts without the permission of the patentee will amount to an infringement if the patent is current and in force. Permission will typically be granted in the form of a license. Remedies for infringement can include an injunction to restrain further infringement, payment of damages suffered by the patentee as a consequence of the infringement or payment by the infringer of any profit he/she/it made by virtue of the infringement, and legal costs.

2 Refers to the commission of a prohibited act with respect to a patented invention without permission from the patentee. In New Zealand, the Deed of Letters Patent confers on the patentee a monopoly to make, use, vend or exercise the invention in New Zealand. Performing any of these acts without the permission of the patentee will amount to an infringement if the patent is current and in force. Permission will typically be granted in the form of a license. Remedies for infringement can include an injunction to restrain further infringement, payment of damages suffered by the patentee as a consequence of the infringement or payment by the infringer of any profit he/she/it made by virtue of the infringement, and legal costs.

3 A proprietary right in an invention which provides the owner with an exclusive right for up to 20 years to make, sell, use or import the invention. In exchange for this monopoly the patent is published so that others can see how the invention works and build on that knowledge. The patented invention may also be used by the public once the patent lapses.

4 The product of the creative process of inventing. In intellectual property law "invention" is a legal term usually describing patentable subject matter. Under current New Zealand legislation that subject matter includes any manner of manufacture which is new and involves an inventive step. However, certain types of invention are excluded from patentability. They include inventions which are contrary to morality (for example weapons of mass destruction) and methods of medical treatment (on public policy grounds that such methods should be available for health practitioners to use to the benefit of all society).

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 & Wells Intellectual Property, three time winner of the New Zealand Intellectual Property Laws Award and first IP firm in the world to achieve CEMARS® certification.

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