Introduction
"It is now an accepted fact of business that intellectual property has emerged as one of the key corporate assets of the 21st century. If legal rights such as trademarks and patents were not available, the huge investments necessary to set a company apart through its brands or innovations – two fundamental requirements for success in today's markets – would not be justifiable." Joff Wild, "Learning from the Nasdaq IP pioneers" IP Value 2004: Building and enforcing intellectual property value. An international guide for the boardroom p9.
The value of intellectual property is recognised by stock markets worldwide. Usually a company's net book value will be significantly exceeded by its market capitalisation. The difference is attributable to intangible assets, including intellectual property.
However, in most cases intellectual property will require careful management before it will become a valuable asset. Intellectual property may have some inherent value, however its real value can only be harnessed through careful use and management of the exploitation process.
This article examines strategies optimizing the value extracted from intellectual property assets.
If you've got it, flaunt it
One of the benefits of having registered intellectual property protection is its deterrent effect. For this reason alone, it is important to place intellectual property notices on your products and packaging.
Registered trade marks should always include the ® symbol. While the trade mark application is pending, you should use the TM symbol to indicate that the mark has trade mark significance. In fact, it is permissible to use the TM symbol even if the sign in question is not the subject of a formal trade mark application. Using the symbol simply tells the public that the business considers the sign to have trade mark significance.
Wherever practicable, products that are protected by patents and/or designs (and their packaging and promotional materials) should be marked with the following:
"New Zealand Patent No. [number]
New Zealand Design Registration No. [number]"
Likewise, if patents of designs for the product are pending, you could use a legend such as "New Zealand patent pending" together with the application number if available.
Even if the product is not protected by registered intellectual property rights, aspects of it may be protected by copyright. Accordingly, an appropriate copyright legend should be used, for example "© James & Wells 2008".
In addition to their deterrent effect, these markings will ensure an infringer cannot argue it is an "innocent infringer". An innocent infringer is a person who did not know and had no reason to believe there were intellectual property rights in the copied product that may be infringed. It is not possible to obtain an award of damages or account of profits against an innocent infringer.
Be careful with your trade marks
A trade mark registration will last indefinitely, provided the mark is used in the appropriate way, and the registration is renewed at the relevant times. In most countries, a trade mark registration will need to be renewed every ten years. However, like any asset, a trade mark owner must take care to ensure that the trade mark registration does not succumb to the effects of poor maintenance and neglect.
The basic mantra in relation to maintaining a trade mark registration is "use it, or lose it". Under New Zealand law, a trade mark registration can be cancelled if the trade mark owner has not used the registered mark for a continuous period of three years. This requirement is similar in most countries, although the length of the non-use period does change and the process for removing a registration from the register differs too.
The trade mark owner must also be careful to ensure that the mark is used correctly, in order for the mark to continue functioning as a badge of origin for the goods or services in question. Genericism is a fate which has befallen a number of well-known trade marks, such as THERMOS, SELLOTAPE, and ESCALATOR. A mark will become generic if, though uncontrolled use, it is no longer able to indicate that the goods or services in question come from a particular source. Once the mark becomes generic, it is free for all to use in relation to the goods or services in question, and any registration for the mark can be cancelled on this basis.
Whereas previously the test for genericism in New Zealand was whether the trade mark had become a common name in the trade for the goods or services in question, the test is now whether the public use the mark generically to refer to those goods or services. Trade mark owners now need to exercise more care than ever before to ensure their marks are used correctly. The difficulty here is how to police and educate the public as to the correct usage of trade marks.
It is important that a trade mark is always used correctly. A trade mark should always be given "trade mark significance" by being distinguished in print from other words, for example, in quotation marks, or in capital letters. Where the trade mark is registered, the ® symbol can be used in proximity to the mark to indicate it is a registered trade mark. The " symbol can be used to indicate that the word or logo is a trade mark, though not yet registered. Also, trade marks should be accompanied by a generic name for the product it identifies to reduce the risk of it becoming a generic term. For example, KODAK® film.
Licensing a trade mark to another business for use on certain products in return for a royalty is a good way of adding profit to the bottom line of a business, by leveraging the goodwill in the trade mark. However, in engaging in this process it is important to ensure any licence agreement contains stringent controls on the quality of the goods or services provided under the trade mark and the ways in which the licensee is permitted to use the trade mark. For example, it is common to require the licensee to submit new promotional materials featuring the trade mark to the licensor for approval before their public release.
In the absence of control over the use or the mark and quality of products and services provided under it, the trade mark may cease to indicate a sole source of origin. In other words, the licensor does not control the quality of the goods to which the mark is applied, and therefore the mark no longer distinguishes goods originating from the licensor. Trade marks that befall this fate are also susceptible to removal from the trade marks register.
Plan to make money from your intellectual property
Often companies will have developed a substantial intellectual property portfolio, perhaps on an ad hoc basis. Having established a portfolio, each item of intellectual property should be analysed to determine how it can be best used to contribute to the company's bottom line.
This analysis involves assessing the intellectual property in light of the company's business strategies, to ensure there is a strategic use for the item. If there is no strategic use, then the intellectual property can be abandoned, which will at least save the company the renewal fees for the remainder of the life of that intellectual property.
Ideally, the analysis as to how the company will extract value from a piece of intellectual property should first be conducted at the time consideration is being given whether to create or protect that intellectual property.
The strategic uses to which any item of intellectual property might be put can be broadly broken into four categories:
- commercialisation by the company;
- storage by the company pending the development of further
technology that will enable the company to commercialise it;
- utilised for strategic positioning; or
- licensing or sale to third parties.
Items (a) and (b) above are self-explanatory. Commercialisation by the company may also include exploitation of the intellectual property through a joint venture.
Intellectual property may have a strategic value to a company, even though it is not being utilised within a company's operations. For example, non-core business patents may be retained because they are broad in scope and might be infringed by competitors. These patents can be used in negotiations in the event the company is alleged to infringe one of those competitor's rights. Certain intellectual property will be kept to make the company more attractive for a potential merger and acquisition.
Licensing intellectual property can make a serious contribution to the wealth of a company. An active licensing programme has the potential to save costs and generate new income streams.
A licence is essentially a contract that grants a person permission to do something that would otherwise constitute an infringement of another person's intellectual property. For example, a patent owner may grant a foreign manufacturer the right to make and sell the patented product in a foreign country. Usually the intellectual property owner receives some kind of royalty payment in return for use of the intellectual property.
All forms of intellectual property, including confidential information (for example trade secrets) can be licensed.
Licensing-in technology involves securing the right to use someone else's intellectual property in your own business. This strategy may be adopted because the intellectual property in question provides a real and desirable competitive advantage, and it would be either very difficult or very expensive (or both) to design around the intellectual property rights. The cost of obtaining a licence to use the intellectual property may be less than the cost of research and development required to design around the intellectual property. The licence may well save R&D expense and/or, due to the company having secured the competitive advantage provided by the intellectual property, generate more revenue through increased sales. The licence also reduces risk, in the sense that the company knows that the licensed intellectual property works.
Licensing-out technology involves granting another person the right to use your own intellectual property, in return for a royalty payment. This strategy involves recognising that the intellectual property owner is not always the person best placed to generate the maximum return on the intellectual property. For example, a particular technology may have numerous applications in addition to the application the owner has in mind for it. The owner may have no experience in these other fields, but can still generate a healthy income by licensing a third party to use the technology in each of these fields.
Similarly, the owner may have no experience in foreign markets, and as such will licence a local company in each foreign market of interest to make and sell the technology.
This form of licensing enables the owner of intellectual property to increase the total potential revenue from the intellectual property, with little if any increase in risk. The majority of risk is borne by the licensee.
Conclusion
Decisions concerning how intellectual property will be used to add value to an organisation should be made before it is actually created, at the point it must be protected by registration and then periodically throughout its life.
Some IP assets will degrade if they are not carefully used. Other assets will produce a return on investment below their optimum rate, unless those assets are actively managed.
There is often a significant amount of unlocked potential residing in IP assets that are only used in-house. An active licensing programme can be used to unlock this potential and contribute directly to the organisation's bottom line.
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.