The Handbook Of European Intellectual Property Management

This page intentionally left blank i This page intentionally left blank ii The Handbook of EUROPEAN INTELLECTUAL PR...

Author: Adam Jolly | Jeremy Philpott

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The Handbook of

EUROPEAN INTELLECTUAL PROPERTY MANAGEMENT

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The Handbook of

EUROPEAN INTELLECTUAL PROPERTY MANAGEMENT

Developing, Managing and Protecting your Company’s Intellectual Property

ADAM JOLLY & JEREMY PHILPOTT In association with

London and Philadelphia

Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publishers and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors.

The views expressed in this book are those of the authors and are not necessarily the same as those of the European Patent Office or Kogan Page. The opinions expressed in the book should not be relied upon as formal legal advice, and proper legal counsel should be sought in relation to intellectual property matters. First published in Great Britain and the United States in 2007 by Kogan Page Limited Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road London N1 9JN United Kingdom www.kogan-page.co.uk

525 South 4th Street, #241 Philadelphia PA 19147 USA

© Kogan Page and individual contributors, 2007 The right of Adam Jolly, Jeremy Philpott and the individual contributors to be identified as the authors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. ISBN-10 ISBN-13

0 7494 4988 8 978 0 7494 4988 9

British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Jolly, Adam. The handbook of European intellectual property management : developing, managing, and protecting your company’s intellectual property / Adam Jolly and Jeremy Philpott. p. cm. ISBN-13: 978-0-7494-4988-9 ISBN-10: 0-7494-4988-8 1. Intellectual property–Europe. 2. Intellectual property. I. Philpott, Jeremy. II. Title. KJC2636.J65 2007 346.2404’8–dc22 2007016444 Typeset by JS Typesetting Ltd, Porthcawl, Mid Glamorgan Printed and bound in Great Britain by Thanet Press Ltd, Margate

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Contents

List of acronyms Foreword

xxxix xli

Part 1 A more efficient market for ideas

1

1.1

Europe’s IP architecture Laurent Manderieux, L Bocconi University, Milan The European Union – but not only the European Union 4; The new EU-wide integrated IPRS: big success and much use 5; Partly integrated rights: harmonized rights can sometimes be of real help to companies 6; The European Patent Organisation: a convenient European alternative route for obtaining patents 7; What about the future? 8

3

1.2

The strategic role of IP in European business Ed Round, Marks & Clerk

14

1.3

IP in the knowledge economy Bo Heiden and Ulf Petrusson, CIP From blocking to building block 21; Managing (intellectual) assets, property and capital 22; The transformation to knowledge-based business models 23; A framework for developing knowledge-based business models 24

21

1.4

IP and open innovation Hélène Raybaud and Yves Morel, Schlumberger Open innovation: the new equation of globalization 26; Open innovation at Schlumberger 28; IPR and open innovation 28; In conclusion 30

26

 xviii CONTENTS

________________________________________________________

1.5

Managing patents as assets Lars Kellberg, Novo Nordisk Getting the most valuable patents 32; From core technology to marketing claims and unique selling points 34; Securing freedom to operate through an enhanced bargaining position 35; Successful execution is at least as important as designing the strategy 35; Drafting patent applications for worldwide protection 36

32

1.6

Europe’s different IP cultures William Bird, Bird Goën

39

Part 2 Acquisition of IP rights in Europe

47

2.1

Patents Peter Indahl, International Patent Bureau Integrate the filing strategy with your business plan 53; Your company size and position in the market 53; The patent offices available in Europe 54; Substantive examination or pure registration 55; The first filing: national or European 55; The first filing: international 56; Quality of the first filing 56

51

2.2

Trade marks Gabriella Modiano, Modiano Josif Pisanty & Staub All roads lead to Europe 57; National filing system 57; The international trade mark system 60; The CTM system: Europe’s unitary answer 60; A unitary (and unique) weapon against potential infringers in the European Union 61; The (positive) fate of historical national trade mark applications: the creation of ‘seniority’ 62; A single market: use in few countries, valid in 27 states 62; The expansion of the CTM in an evergrowing Europe 62

57

2.3

Copyright in Europe Jan Nilsson, Ström & Gulliksson Intellectual Property Consulting Copyright protection 65; Legal provisions 66; Rights to a work under copyright protection 66; Free use of works 67; The copyright symbol © 67; Legal measures against infringers 67; UK copyright law 68; French copyright law 69; New developments 69

65

2.4

Designs Elisabeth Murray, Mathys & Squire What is a design? 72; Legal protection for designs in the European Union 72; Protection of designs under the Community Design Regulation 73; Rights obtained under the Community Design Regulation 73; Taking action against infringement 74; Benefits of registration under the Community Design Regulation 74; Applying for registration 74; When to file 75; Third parties’ rights 75; Summary 76

71

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 xx CONTENTS

_________________________________________________________

2.5

Utility models Italian Patent and Trademark Office

78

2.6

Trade secrets Ruth Soetendorp, Centre for Intellectual Property Policy & Management, Bournemouth University What is a trade secret? 81; How does a trade secret differ from confidential information? 84; What information can constitute a trade secret? 85; How does the law protect trade secrets? 85; International recognition of trade secret protection 86; Trade secrets and confidential information – some practical suggestions 87

81

Part 3 Commercializing IP in Europe

93

3.1

Innovation rights 98 Jean-Louis Somnier, Novagraaf Technologies Innovation: a holistic view, going beyond technology alone 100; Entering Europe with an innovation: options for IP rights (IPR) protection 100; IP protection of an innovation: a critical business decision 101

3.2

Building an international knowledge business Christina Nordström, Swedish Patent and Registration Office ClimateWell 103; Elekta 105

103

Feature: international innovation Italian Patent and Trademark Office

107

3.3

IP and proof of concept 109 Dan Richardson and Dr Paul McEvoy, Technology from Ideas, and Cathal Lane, Tomkins & Co Environment and people 109; Sourcing ideas 110; Selection/filtering 110; Development 112; Key activities 113; Sale 115; Summary and future trends 115

3.4

Business–university collaboration Lawrence Cullen, UK Intellectual Property Office Purpose 118; The Toolkit 118; Using the Toolkit 124; Use of the Toolkit 125; Recent updates 126; Collaboration in Europe 126; The future: business-to-business model agreements 126; Conclusion 128

3.5

Managing IP in collaborative ventures 129 Martin A Bader, BGW AG Management Advisory Group Collaboration = dilution of intellectual assets? 129; Collaborative success factors 130; Conclusions 133

117

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 xxii CONTENTS

________________________________________________________

3.6

Licensing as a growth strategy in Europe 135 Martin Sandford, Licensing Executives Society, Great Britain & Ireland Risk perspective 135; Intellectual property (IP) 136; What is a licence? 137; Licensee selection 137; Common pitfalls – what can go wrong 137; When would licensing be inappropriate? 138; Conclusions 138

3.7

Innovation support in the new Europe Éva Bakos and András Haszonits, Hungarian Patent Office Situation of Hungarian SMEs according to the VIVACE Survey 2006 140; Economic incentives for innovation and the application of IPR 143; The VIVACE programme 145; Conclusions 145

139

Part 4 Technology and patents

147

4.1

Creating a patent position in Europe Alan Senior, J A Kemp & Co The building blocks 154; Litigation 155; Building a position with the blocks 156

152

4.2

European patents: differences from the United States Timothy J May and Beth Z Shaw, Finnegan Henderson Introduction 163; Filing and prosecuting patent applications in the United States and Europe 164; Post-grant procedures 166; Litigation/ enforcement 167

163

4.3

Prior art searching 169 Dean Parry, Patent Seekers It’s a complex system 169; The standard route to gaining a patent 169; How does a patent office process your patent application? 170; Common misconceptions 172; Light at the end of the tunnel 172; A few helpful suggestions 172 Feature: Assisted patent searches 175 Professor Heinz Muller and Dr Alban Fischer, Swiss Federal Institute of Intellectual Property

4.4

Portfolio building Sue Scott, Abel & Imray How to develop your filing strategy 179; In which countries should you file patent applications? 180; The value of different types of claim 182; Claim types: a pharmaceutical case study 182; Portfolio review 185; Conclusion 186

179

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 xxiv CONTENTS

________________________________________________________

4.5

Patent exceptions John Brunner and James Warner, Carpmaels & Ransford Medical inventions at the EPO 188; Computer software at the EPO 189; Patents for plant and animal varieties at the EPO 190; Summary 192

187

4.6

Patent clearances Micaela Modiano, Modiano Josif Pisanty & Staub European opposition: a single procedure and a single result 195; Third party observations: steering prosecution at no cost 196; Double attack 196; Summary 197

194

4.7

Patents on a budget 198 Keith Loven, Loven & Co Do you have an invention? 198; Do you need a patent? 200; Decide on a sensible patenting strategy 201

Part 5 Creative and digital rights

207

5.1

Issues in European copyright Andrew Yeates, Sheridans The benefit of flexibility for copyright 209; To harmonize or not to harmonize, that is the question 210; Gowers Review of Intellectual Property 211; Summary 213

209

5.2

Copyright and the digital economy Emanuel Meyer, Swiss Federal Institute of Intellectual Property

215

5.3

Digital policy management Mark Isherwood, Rightscom Defining the problem 221; Digital policy management 222; Some DPM building blocks 223; Standards development and interoperability 224

221

5.4

Digital distribution and Creative Commons Paula le Dieu, Magic Lantern Productions Copyright – the Swiss army knife of distribution tools 226; Creative Commons – some rights reserved 227; Magnatunes 228; DRM – the sledgehammer of distribution tools 228

226

Part 6 Brands and trade marks

231

6.1

236

Taking products and services to market across Europe Brian Morgan and Esther Gottschalk, Marks & Clerk Before a launch 237; After a launch 238

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CONTENTS xxv 

6.2

Managing brand and design portfolios in Europe Silas Brown, Briffa Trade mark protection 241; Registered designs 242; A balance of risks 243; Conclusion 244

240

6.3

Building a strong (European) trade mark Sofia Arenal, Mewburn Ellis LLP Selection 246; Registration 248; Beyond registration 250

246

6.4

Defending brands Lisa Lovell, Brand Enforcement Awareness 252; Intelligence 254; Enforcement 255; Periodically revise your IP enforcement strategy 255; The benefits of implementing a consistent IP enforcement strategy 256

252

Part 7 Company knowledge

261

7.1

Intellectual assets management Iain Russell, Intellectual Assets Centre The knowledge gap 263; Why is this important to businesses? 263; Why are these assets ‘hidden’ and does it matter? 265; Why focus on IA management and what does it encompass? 265; How to manage intellectual assets 266; How to measure and communicate value 267; Which approach should be adopted? 269; What about the future? 269

263

7.2

Inventions by employees Walter Holzer, GMX

270

7.3

IP and the web 274 Silas Brown, Briffa Trade marks on the web 274; Master of your domain 275; Digital content on the web 276; Conclusion 278

7.4

Database rights Robert Lands, Finers Stephens Innocent LLP The database right 281; The British Horseracing Board case 282

280

Part 8 IP as an asset

285

8.1

287

Valuing IP, intangibles and goodwill Kelvin King, Valuation Consulting Relevant accounting standards 288; Corporate governance 289; IPR and the valuation expert 289; Methods for the valuation of IPR 290; Conclusion 292

 xxvi CONTENTS

________________________________________________________

8.2

Brand valuation David Haigh, Brand Finance Approaches to ‘brand’ valuation 295; Steps in an economic use valuation 296; ‘Existing use to existing owner’ 297; Conclusions 297

294

8.3

The monetization of intellectual property Guido von Scheffer, Stephan Lipfert and Juliane Ostler, IP Bewertungs AG (IPB) General questions 299; The capital market’s view of R&D 300; Intermediates and external IP logistics 300; Patent value funds (PVF) 301; Alternative commercialization options – patent live auctions 302

299

8.4

Patent evaluation Poul-Erik Nielsen, Danish Patent and Trademark Office Patents as a strategic weapon 305; Substantial content of IPscore 2.0® 306; Evaluation methodology for IPscore 2.0® 306

305

Part 9 IP and corporate finance

309

9.1

Raising finance through IP Hugh Dunlop, R G C Jenkins & Co IP assets from early-stage investment to IPO 311; Raising seed capital 312; Beyond seed capital – venture capital 314; Summary of IP assets 316

311

9.2

Investors and IP risks Peter Finnie, Gill Jennings & Every LLP A risk management approach to IP 318; A structured approach 319; IP strategy 321; Conclusions 322

318

9.3

IP and acquisitions Omar Baki, Ann Danared, Barry Franks, Anders Holmberg and Peder Oxhammar, Brann Patentbyrå AB Important questions 324; Levels of analysis 325; Due diligence process 327; The due diligence report 328

323

9.4

IP and private equity Malte Köllner, Triangle Venture Capital Group

329

Part 10 Selected IP jurisdictions

333

10.1

335

Germany Christoph de Coster, Taylor Wessing Split court system in patent matters 335; Prosecution proceedings –

_______________________________________________________

CONTENTS xxvii 

almost harmonized 336; Enforcement of patents 336; Nullity actions 339; Conclusion 339 10.2

The United Kingdom Jacqueline Needle, Beck Greener The cost and incidence of patent litigation 340; UK litigation procedures 342; Is the cost of enforcement a reason to avoid protection? 343; How to avoid litigation 344

340

10.3

France Christian Nguyen van Yen, Marks & Clerk

346

10.4

Italy Gabriella Modiano and Micaela Modiano, Dr Modiano & Associati Using available rights 351; Litigation speeded up 351; Looking to the future 352

350

Feature: Changes in the Italian IP system Italian Patent and Trademark Office

354

10.5

Spain Miguel Vidal-Quadras Trias de Bes, Amat i Vidal-Quadras Advocats Changes in the regulations related to IP 356; Changes in litigation regulations and judicial proceedings 357; Changes in the IP agents 358; Conclusions 358

356

10.6

The Nordic countries Annelise Holme, Holme Patent A/S Denmark 360; Finland 364; Sweden 364; Norway 365

360

10.7

Benelux Bernhard Kügele, Novagraaf (International) and Pieter de Ruijter, Novagraaf (Netherlands) The Netherlands 367; Belgium 373; Luxembourg 373; European Patents 373; Cost 374; Court proceedings 374; Trade marks in Benelux 374

367

10.8

Ireland Olivia Catesby, Tomkins & Co

377

10.9

The accession states 380 Michael Blakeney, Queen Mary Intellectual Property Research Institute, University of London Accession 380; Former Communist countries 381; Case studies 382

 xxviii CONTENTS

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Feature: IP in Slovenia Janez Kukec Mezek, Slovenian Intellectual Property Office Part 11 IP protection

384 393

11.1

Litigation strategies for European IP registered rights 395 Georgie Collins, Bevan Brittan Pan-European patent injunctions – past, present and future 395; Community Trade Marks and Community Design Right 397; The future: COMPAT, EPLA and the Enforcement Directive 397; Considerations when deciding where to litigate 398; Checklist of key strategies for a claimant 398; Checklist of key strategies for a defendant 399

11.2

Differences in patent litigation Nigel Stoate, Simon Cohen and Matthew Burman,Taylor Wessing The legal system 403; Disclosure 403; Evidence 403; Cost 404; Duration 404; Legal aspects 405; EPO proceedings 405; Conclusion 406

11.3

Opposition at the European Patent Office 407 Alan MacDougall and Chris Hamer, Mathys & Squire What challenges can be made 407; How to build a case 408; Once you have built a case, what next? 408; What is needed to file the opposition 409; What happens after filing the opposition 409; How long it takes and how much it costs 409; Help with an opposition 409; Can you get an award of costs? 410; What happens to a European Patent when an opposition is pending 410; Can you appeal the decision? 410; What happens after filing the appeal 410; Can you appeal the Board of Appeal’s decision? 410; Tips for opposition/appeal strategy 411

11.4

IP insurance 413 Matthew Hogg, Kiln Inherent risks of IP 413; IP value 414; Risk and insurance 414; IP defence insurance 415; IP enforcement insurance 415; IP value insurance 415; Open source compliance insurance 417; Final Rewards 417

401

Appendix 1 History, organization and procedures of the European Patent Office Appendix 2 The Office for Harmonization in the Internal Market Appendix 3 IP offices

419 425 428

Index of advertisers

433

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Acronyms

AIPPI

Association Internationale pour la Protection de la Propriété Intellectuelle BOIP Benelux Office for Intellectual Property BVA brand value added CBI Confederation of British Industry CDR Community Design Right COMPAT Community Patent CTM Community Trade Mark DCF Discounted cash flow DDPAF Association of Danish Patent Agents DPM digital policy management DREL Digital rights expression language DRM digital rights management DTI UK Department of Trade and Industry ECJ European Court of Justice EEA European Economic Area EPC European Patent Convention EPLA European Patent Litigation Agreement EPO European Patent Office EUCD EU Copyright Directive FICPI International Federation of Intellectual Property Attorneys FMV fair market value GATT General Agreement on Tariffs and Trade GPL general public licence HABU highest and best use HPO Hungarian Patent Office IA intellectual assets IAM intellectual asset management

 xl ACRONYMS

IAS IASB IC ICM IFRS IGE INPI IP IPCG IPM IPO IPR LES LESI LMA NPV OD OECD OHIM OUR PCT PE PHARE PRV PVF R&D RDA ROI SIAE SIPO SRL SRPC TPM TRIPS TRL UIBM UKIPO USPTO USTR VC WIPO WTO

_________________________________________________________

International Accounting Standard International Accounting Standards Board intellectual capital intellectual capital management International Financial Reporting Standard Swiss Federal Institute of Intellectual Property French National Intellectual Property Office intellectual property Intellectual Property Crime Group (UK) intellectual property management initial public offering intellectual property right Licensing Executives Society Licensing Executives Society International Lambert Model Agreement net present value Opposition Division of the EPO Organization of Economic Cooperation and Development Office for Harmonization in the Internal Market other useful resources Patent Cooperation Treaty private equity Pologne, Hongrie Assistance à la Reconstruction Economique Swedish Patent and Registration Office patent value funds research and development regional development agency (UK) return on investment Società Italiana degli Autori ed Editori Slovenian Intellectual Property Office system readiness level Schlumberger-Riboud Product Center technological protection measure Agreement on Trade-Related Aspects of Intellectual Property Rights technology readiness level Italian National Patent and Trademark Office UK Intellectual Property Office US Patent and Trademark Office US Trade Representative venture capital(ist) World Intellectual Property Organization World Trade Organization

Foreword

Creativity takes many forms, protected by different intellectual property (IP) rights, often working in synergy. Certainly the patent system is suitable for some of the innovative activity in Europe, though not all of it. The European Patent Office has the authority to grant patents on behalf of over 30 member states in Europe – but only patents. If all the innovation and creativity in Europe is to be harnessed and commercialized, then other IP rights should be used, and other institutions must provide support. National IP offices still remain best placed to respond to the needs of their local industries and entrepreneurs in delivering a complete spectrum of IP services. Many imaginative programmes to raise awareness and provide advice have been developed by national IP offices, and their experience has been shared and transferred between partners working together through the European Patent Organization. As the European Patent Office celebrates its 30th year, we can reflect on many fruitful collaborations between the member states, working together to improve the innovation culture of Europe. In parallel, the member states of the European Union have achieved great success in establishing Community-wide rights for trade marks and designs, administered by the Office for Harmonization in the Internal Market (OHIM). In this spirit of partnership and cooperation there is ceaseless pursuit of streamlined procedures to thereby cut costs in acquiring and enforcing IP rights. The enlarged European Union is now bigger than the United States of America and Japan combined. Such a large market needs to be free from internal barriers, so it is crucial for the process of IP harmonization to continue so as to ensure economic prosperity. We have come a long way in 30 years, which can only serve to encourage us as we face the challenges of the future. Alison Brimelow President, European Patent Office

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1

A more efficient market for ideas

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1.1

Europe’s IP architecture

IP in Europe remains a work in progress, reports Professor Laurent Manderieux, L Bocconi University, Milan.

For business operators, the European intellectual property (IP) environment is still a ‘work in progress area’. Yet, even in the absence of a one stop shop, many opportunities can be grasped at the level of the continent, by cleverly using the incomplete but expanding toolkit offered by European legislators. Europe’s mechanisms, although sometimes excellent for business and easy to use, are still often hidden by red tape. To better catch all opportunities offered by the features of the European IP system, it is necessary to fully understand why and how Europe’s IP integration system has evolved and is still being built. Thirty years ago, whereas some industry sectors were already integrated in Europe, IP laws, procedures and practices were left to national authorities. Each country had its own rules for each IP right (IPR) (patent, trade mark, industrial design, copyright), and this represented a cumbersome complication for business operators in search for easy procedures. It was becoming more and more clear that this bundle of national procedures was slowing down the innovation potential and competitiveness of companies in Europe, in particular compared with the US environment, where operators could enjoy a single Federal IP system applicable to most IPRs. Like any government, European governments dislike abandoning any kind of sovereignty. However, pressure from European industry and economists forced them to consider a European harmonization of IP law.

 4 A MORE EFFICIENT MARKET FOR IDEAS

______________________________________

The European Union – but not only the European Union The European Union is the main actor in European IP integration, but it is not the sole one. Indeed, governments quickly abandoned the option of creating a comprehensive and global European IP system: because of the slowness of EU law making, they rather had to accept the need to proceed step by step as soon as the political climate permitted advancement in one field or another, mostly within the EU structure but sometimes aside from it.

The EU ‘ASAP’ approach In conceiving its IP agenda with a view to boost competitiveness, the European Union had to opt for a multi-directional/multiple-speed method of work. It did so in:  creating more IPRs, useful for business and for research labs, and rendering stronger the existing rights;  acting in all IP fields: trade marks, copyright, patents, etc, but acting only as and when possible;  accepting that it was not the sole IP integration body on the European continent.

A weak EU legal mandate which is being enhanced EU legislators face a major pitfall: IP was not referred to in the treaties founding the European Union, and has not been included in subsequent treaty revisions. As a result, any ‘supranational IP’ has to be the product of a legal construction still in progress. Legislators can only use non-IP-specific provisions of the EC treaty (mainly Arts 308 and 95) as a basis for their IP Regulations and Directives. This is of course not ideal, and regulation also relies on political declarations, such as the EU Charter of Fundamental Rights of 2000, which declared IP to be a protected freedom (Art 17.2), and the EU Lisbon Declaration of 2000 and Barcelona Declaration of 2002, establishing target objectives for boosting Europe’s research activities and competitiveness. Fortunately, this relatively fragile mandate for action is being greatly reinforced by the consistent approach of the European Court of Justice (ECJ) (since Case C-35092: Spain v EU Council [1996] I- E.C.R. 1985 on the term of patents), establishing that on most IP issues, the European Union is empowered to unify and harmonize as it may decide. Still, the European Union could not always progress in unifying or even simply harmonizing rights: on several important issues it had to leave to national governments the task of signing separate arrangements aside from the Union. This happened in particular for granting patents, for which a European Patent Convention (EPC) was adopted.

Three levels of integration As a result business operators in Europe face three levels of European IP integration:

______________________________________________

EUROPE’S IP ARCHITECTURE 5 

1 Full integration (with single rights granted and enforceable across the European Union): mostly for trademarks and designs. 2 Partial integration /harmonization under the EU aegis: mostly for copyright. 3 Partial integration /harmonization under the aegis of the European Patent Organisation: for patent granting. So why bother discussing the issue further if there is such apparent IP disorder? Simply because, despite the imperfections of the present European IP landscape, the existing integrated IPRs and even often the partly integrated IPRs are so convenient and so useful for business operators, and bring such significant savings, that it really is worth looking at them in detail.

The new EU-wide integrated IPRs: big success and much use The masterpieces of IP integration: trade marks and designs EU Regulations creating the Community Trade Mark (CTM: Regulation 40/ 94) and the Community Industrial Design (Regulation 6/2002) have met with real success, as they established IPRs which are key to business companies and much used. Both enable operators to obtain a single EU trademark or a single industrial design right, which is valid and easily enforceable in the 27 EU countries. National marks and designs do survive in parallel but in case of conflict, the EU-wide right is always superior to the national right. There is a single procedure for obtaining and defending rights for all countries, which is safe and inexpensive. As a result the growth rate of these EU IPRs has been remarkable.

Cheap, safe – and always EU-wide It should be underlined that in the European IP architecture a fully integrated IPR is always under the aegis of the European Union: that is, the right is a single one, granted for the whole European Union (all its 27 countries in one right), applicable and enforceable EU-wide. If the right is judged void or invalid, it is cancelled by an EU court for the whole European Union. Such categories of IPRs can be only created by an EU Regulation. EU Regulations apply without any further validation by national parliaments. An integrated EU IPR is therefore very strong and useful to business.

Beyond marks and design: domain names, IP enforcement and geographical indications In addition to the successful CTM and the EU design, fully integrated IP legislation relates to:  preventing cybersquatting using the domain name ‘.eu’ (Regulation 733/2002);  fighting counterfeiting and piracy, thanks to a Regulation (1383/ 2003) on the enforcement of intellectual property rights, mostly during customs operations;


______________________________________

 protection of geographical indications, a subject of importance but of less direct concern to most business companies. In summary, there are not many EU integrated activities, but they are useful to business and often easy to handle.

Partly integrated rights: harmonized rights can sometimes be of real help to companies Whenever full integration is not yet mature, European national laws can still be drawn closer to each other, and this is what lawmakers have tried to do many times over the past decades. Harmonized IPRs are still governed at national level and remain national IPRs, but the related national laws differ only marginally from one country to another. Harmonized IP policies and rights are either governed by the EU system, or for patents only, mostly by the European Patent Office (EPO), a specialized organization created by the EPC to facilitate patent granting.

EU harmonization: the Directive as a legal tool Under the EU system, an EU Directive is the tool used to bring closer the IPRs governed by national laws. Contrary to a Regulation, which unifies rights, a Directive is never directly applicable. It always has to be translated into a national law within a certain time by each of the 27 national parliaments. The Directive may contain various optional provisions, and sometimes Directives contain dozen of options/exceptions. For example, the EU Copyright Directive offered to national legislators more than 20 different options. If a Directive contains too many options which are left to each national legislator, then EU harmonization remains an unrealized dream. Directives often cover items that are unrelated to each other: they can be of key importance, or of a less central nature.

Masterpieces: the copyright-related legislation For businesses, the main Directives that have created harmonized legislation and a useful, clear EU legal environment are:  the Database Directive (1996/9), establishing sui generis rights for protection of new databases that cannot be protected by copyright;  the Directive on the Legal Protection of Computer Programs (1991/250), establishing the key principle of protection of computer programs in the European Union by copyright law;  the Directive on the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society (2001/29), commonly called the EU Copyright Directive or EUCD, paving the way to copyright protection of the digital environment in all EU countries.

______________________________________________


Chess games: the Directives on enforcement and on biotech Sometimes, rather than creating a right, the European Union finds itself in need of strengthening existing rights through harmonizing Directives. This has happened in two cases in this broad field. One concerns enforcement: constitutional complications and disagreements between governments did not permit the European Union to adopt any Regulation that further reinforced Regulation 1383/83 against counterfeiting. The EU decided to limit its ambitions, in only adopting supplementary Directives, starting in 2004 with Directive 2004/48. The second instance involved biotechnology. By enacting a Directive on Biotechnological Inventions (1998/44), the EU Member States intended to promote the growth of the biotech industry in Europe. On the contrary, the Directive was a source of friction for a decade between the European Union and its Member States as a result of differences in the national laws implementing it.

The EU deadlock on patents This issue is even more problematic. The EU law-making machinery was and is still completely blocked on one key issue for business: the Community patent. Such a tool would be extremely convenient for business, as it would reduce patent granting and litigation costs, and streamline patent procedures in general, just as the CTM does for trade marks. Unfortunately, negotiations have been continuing for more than 30 years and there is still no effective EU consensus. At present issues relating to the translation of patents into national languages are blocking any creation of an EU-wide patent right. Several countries want their language to be an official one for patents, and at the same time, if too many translations are compulsory, operators would find no cost advantage over the present system, and thus they would show no interest in the new system. Also several states have reservations on how to establish an EU-wide jurisdiction which could decide on questions regarding an EU-wide patent right. Fortunately, a substitutive mechanism for patent granting exists outside of the EU structure: the European Patent Organisation system, which is growing on its own.

The European Patent Organisation: a convenient European alternative route for obtaining patents Because of the self-evident need from the business world for a simple Europe-wide patent system, a few European member states created the European Patent Organisation in 1973. Most countries of the continent progressively joined them, and nowadays the organization includes all EU members and several additional countries key to inventors, such as Switzerland and Turkey. Therefore, the EPC is not EU legislation, and the European Patent Organisation is not a body of the European Union. Basically, patents can still be granted by each country through a national procedure but thanks to the European Patent Organisation, companies can alternatively follow a convenient route to obtain national patent protection in numerous European countries through a


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single centrally administered procedure. The centralized procedure may cover some or all of the countries belonging to the European Patent Organisation, has contained costs compared with a multiple use of national routes for the protection of an invention, is efficient, takes place in only one of three official working languages (English, French, German), and allows the granting of patents of high quality. There is also a centralized opposition procedure immediately after grant, which facilitates challenges to new patents before they proliferate into a bundle of national rights. The European Patent Organisation system still has several shortcomings. Once a ‘European patent’ has been granted by the European Patent Organisation, its ‘European’ character evaporates as its unitary form ends. The patentee needs to file costly translations of the full patent at the national patent offices of every country in which protection is to be enjoyed, and to renew annually patent rights in each State according to the various national applicable fees. The patentee is also subject to the jurisdiction of national courts for patent disputes (including licensing disputes), and to decisions from courts that diverge from one country to the other. In particular, each country has its own case law, and its own legal system, which in some cases is based on common law (as in the United Kingdom) and in others on civil law (as in Italy). In summary, patent granting is easier in Europe thanks to the existence of the EPC, but this system remains incomplete, as it does not govern the entire life of the patent, which remains subject to national formalities, legal systems and courts.

What about the future? In Europe, trade marks and industrial designs are now widely integrated. Thus the next big integration challenges are for patents and copyright. In particular, there is urgency for patents: protection for the same invention in, for example, the eight largest EU markets still costs on average five times more than in the United States, largely because of the translation costs.

Who will first fully integrate the European patent landscape: the European Union or the European Patent Organisation? To date it is unpredictable what will happen first, and when. There might be a political ‘miracle’ or a big trade-off (such trade-offs have paved the history of the European Union). The European Union could adopt a ‘Regulation establishing a unified Community Patent’, with a single jurisdiction which can decide on questions regarding EU-wide patent rights, and a cost-effective language regime. Alternatively, solutions to the EU deadlock might be found outside the EU legal framework, by further refining the European Patent Organisation system and reducing the impact of its current weaknesses: the translation burden for patents granted, and nationally judged litigation. Over the last decade, the EPC member states have actively worked on two potential solutions. The first is the London Agreement of 2000, which would oblige EPC states to waive, entirely or largely, the requirement for translations of European patents to be filed in their national language. However, to become effective, this agreement has

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to be ratified by a quorum of EPC member states. This condition has still not been met, although it is regularly announced as imminent. The second possible solution is the European Patent Litigation Agreement (EPLA), which would establish a central European Patent Court for the EPO member states, working mostly in English, French and German, and empowered to handle patent infringement and revocation actions at a Europe-wide level instead of a national level. The EPLA is still in draft form. An EU single patent system and an enhanced EPC system would in the end have many similarities for their end-users. What is important for these is an advance in patent integration in Europe. Despite the success of the EPC, patenting trends in Europe, even if positive, remain unimpressive compared with those of the United States, Japan and north-east Asian countries.

Will EU copyright remain an open agenda? Copyright is the other main field of IP rights that remains either largely not integrated in Europe, or still too imperfectly harmonized. The current Directives contain good fundamental principles, but also too many à-la-carte options and exceptions. This is slowing down the creation of a vast EU market for the copyright industries, certainly to the prejudice of EU consumers’ interests, and most likely to the disadvantage of copyright industries in Europe. In this respect, the step-by-step harmonization approach is likely to remain slow. In particular, the economic interests of different states cannot easily be reconciled, and differences between continental Europe’s authors’ rights system and the British-influenced copyright system complicate harmonization projects.

How and when will the ECJ further contribute to streamlining IP? Many hopes can be placed on the ECJ. Its integration role will have to be further tested and will probably increase over the next few years, including a better determination of the boundaries between IP legal harmonization and other EU harmonization processes (the internal market, unfair competition, internal and external trade policy, promotion of EU R&D, consumer protection). Indeed such issues have served too often in the past as a pretext to hamper IP law-making.

One last word of caution: of course EU IP law applies only in the European Union and its Member States Even if the Union has a comparable market size to the United States, IPRs do not necessarily function in the same way in the United States as in the European Union. For example, EU trade mark law is different from US trademark law, although a skilled trade mark lawyer can always find bridges to cleverly combine the advantages of both legal environments, to maximize the success of the mark. And in patent law in Europe, the inventor who is the ‘first to file’ an application is the one entitled to the patent, whereas in the United States it is the person who is ‘first to invent’ who is entitled to the patent, even if a later inventor was the first to file.


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A word of encouragement Despite its current limits, European-wide IP offers an expanding and successful IPR protection toolbox. Remarkably positive statistics are clearly inviting all innovating business operators to join those, from Europe and from outside Europe, who already massively use Euro-IPR tools, in order not to miss the opportunities for better and more cost-effective IPR protection in Europe.

Laurent Manderieux is professor of intellectual property law at L Bocconi University in Milan, Italy. In addition to his IP teaching and IP research activities at Bocconi, one of the most prestigious and high-ranked universities in Europe, Laurent Manderieux acts as a senior intellectual property expert for various international organizations and governments. He is a visiting professor/lecturer on intellectual property law in universities and training institutes in many countries of Europe, the Americas, Asia and Africa, and was for many years an official and senior official at the World Intellectual Property Organization (WIPO) in Geneva, Switzerland. In particular, as head of WIPO Public Affairs and Media Relations, he took charge of training and information for government officials, lawyers, researchers, scientists and business circles (in this capacity he prepared training material and IP publications, and made up to 100 presentations per year). Before joining WIPO, he worked for the Food and Agriculture Organization of the UN (FAO) in Rome, Italy, and at the European Union HQ in Brussels. He has visited some 110 countries, and works in French, English, Italian, Spanish and German. For further information contact: [email protected] or [email protected]




1.2

The strategic role of IP in European business

Ed Round, a partner at Marks & Clerk, reviews how IP is moving from the silo to the core.

Intellectual property (IP) has rightly been seen for many years as a vital business tool. However, its place at the heart of business strategy has not been so well established. It is frequently reported that IP is a crucial element in the financial performance of a business. Although various factors influence the exact figures, there is no doubt that the majority of the value in European business is represented by intangible assets, of which IP rights (IPR) form a key element. This is borne out by surveys over at least the last 15 years, which have looked at the disparity between the net value of reported assets of publicly listed companies, and their market capitalizations. Certainly, a figure of 70 per cent would be conservative. The importance of IP to European business is underlined by the continuing interest of major commentators in the subject. The Economist Intelligence Unit, as recently as January 2007, published a survey of European firms in which it noted that: The challenge for European firms is to align their business and IP strategies more closely. This involves building their IP portfolios to protect potential market opportunities around specific technologies, as well as collaborating with other organizations to make their innovation processes faster and more efficient.1

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THE STRATEGIC ROLE OF IP IN EUROPEAN BUSINESS 15 

From much of the evidence in that survey, it is reassuring that top European businesses are starting to learn the lessons. However, threats remain from markets outside Europe. As industrial capacity shifts from the developed world to developing economies, it becomes fundamental that European business identify its core value as being in intangible assets. To take an example, patents are legal rights which are intended to reward innovation in all fields of technology. In essence, they provide a monopoly for a finite period, to allow an innovative business to establish an income stream to the exclusion of competition. They offer a key business tool to businesses in many sectors. However, for many years European businesses viewed patenting activity as rather a technical issue, either to be dealt with as part of Group Legal, or as an adjunct to research and/or product development. At this level, patents cannot be used to protect the business as a whole, as neither of these two locations can have a sufficiently wide overview of the strategic interests of the business. All too often, patents were seen as prizes to be awarded to successful inventors, rather than as valuable business tools, to be used thoughtfully as part of the way in which a business goes to market. These attitudes were still very much present at the time of publication of KPMG’s 2002 survey on IP, ‘Intellectual gold’.2 In that survey, it was found that only a quarter of European respondents had designated boardlevel responsibility for IP. In such an environment, how can strategically consistent decisions be taken on such matters as enforcement (whom to sue, and how), licensing (how much to offer, and when to say no) and patent abandonment? The difference in attitudes to IP in other parts of the world could not be more stark. Japanese businesses, particularly in the electronics sector, have long identified IP as being a key to success, and have used the global patent system masterfully to achieve corporate objectives. By securing patents in key areas of technology, such businesses were able to establish a level playing field with, in particular, European and US competitors. This enabled them to open up licensing streams and to gain access to complementary technology on a cross-licensing basis. This could not have been achieved without genuine vision. It is no coincidence that such companies have board-level responsibility for IP strategy, and this has long been the case. A study based on surveys carried out as long ago as 1992 showed that, on average, Japanese companies resourced their internal IP teams better than US or European equivalents, in some cases by an order of magnitude or more.3 Further, Japanese businesses placed their IP functions more centrally and strategically, and IP matters were regularly discussed at company board meetings. Anecdotally, I would note that the situation has not changed since that study was published in 2000. Likewise, trade marks, which are essential if a business is to distinguish itself from another, are often developed in silos: one part of the business designs and develops the brand, while another deals with the question of protection and enforcement. Much time and resources can be wasted if a brand is developed without reference to the legal aspects of IP, such as whether the brand is available for use, or whether it can be registered successfully and thus gain full legal protection. A business with an effective IP strategy will identify this problem and set up a process to deal with it.


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Having board-level thinking in place has significant benefits for all other boardlevel decisions. For example, the decision to purchase another business is informed by IP considerations. Is the target in control of its own IP or is there more to the deal than meets the eye? An IP-aware board would be able to digest such issues and make effective decisions. In a similar vein, it would be inconceivable to sit on a board without the ability to interpret a financial report. Why is it accepted that a board member can sit without appreciating IP information, when IP forms such a significant part of a business? This perhaps arises from the historical treatment of the IP function as a cost centre, rather than an investment or even a profit centre. Moreover, IP has traditionally been treated as an off-balance-sheet item, not to be apportioned a value in the accounts of a business, and not to be reported with any sense of certainty to the shareholders. This perhaps explains the apparent lack of attention to IP at board level. Increasingly, though, IP must be seen for what it is – an asset like any other. One key driver to this has been new reporting standards, including IFRS3, which remove the automatic amortization of goodwill and of certain IP rights, and instead look much more intelligently at the actual value that can be apportioned to intangible assets on the balance sheet. This not only requires increased skills from accountants and auditors, but must also impose greater expectations on directors to understand the nature and treatment of assets set out in accounts they are being expected to approve. Since the markets, shareholders and regulators are now demanding more and better information about the assets of a business, it is essential that the directors, who are entrusted with achieving return on shareholders’ investment, must understand how value can best be extracted from the key assets of the business. The conclusion must be that a business can only manage its assets effectively when management processes are properly aligned with the strategic direction set by senior management: that is, the board of directors. This is self-evident for tangible assets, for financial resources and indeed for human resources, all of which normally have board representation, ideally by specialist directors. It should also therefore be clear to a business that regards itself primarily as a knowledge-based organization that board-level strategic management of IP is necessary if full value extraction is to be achieved.

Notes 1 Economist Intelligence Unit (2007) The value of knowledge: European firms and the intellectual property challenge, [Online] http://www.eiu.com/site_info. asp?info_name=eiu_Qualcomm_Value_of_Knowledge (accessed 4 April 2007). 2 KPMG (2002) Intellectual Gold [Online] http://www.zerospace.info/Results%20 KPMGs%20European%20Intellectual%20Property%20Survey%202002.pdf.pdf (accessed 4 April 2007). 3 Granstrand, Ove (2000) Corporate management of intellectual property in Japan, International Journal of Technology Management, 19(1–2).

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THE STRATEGIC ROLE OF IP IN EUROPEAN BUSINESS 17 

Marks & Clerk is a leading group of patent and trade mark attorneys with an associated firm of IP lawyers, Marks & Clerk Solicitors. With an expanding network of offices, it is able to provide a full range of integrated IP services, covering patents, trade marks, designs, copyright and domain names. Further details: www.marks-clerk.com Ed Round is a chartered patent attorney and European patent attorney at Marks & Clerk, London. Further details: [email protected]




1.3

IP in the knowledge economy

In the knowledge economy, IP is more than just a property right, argue Bo Heiden and Ulf Petrusson at CIP in Gothenburg.

There is a common misconception that intellectual property (IP) is synonymous with the knowledge economy. While IP is very much associated with knowledge, most discourse on the subject is in relation to the industrial economy, not the knowledge economy. In particular, the main discussions centre on the use of intellectual property rights (IPR) as a means to protect or block others from producing physical products. For example a patent is commonly defined as a negative right to prevent the actions of others, or as a monopoly right for the manufacture and sale of products in an industrial context. This point of view is heavily influenced by a traditional regulatory view of IPR, which focuses on property rights from the perspectives of the administrative arena, where attorneys communicate with governmental agencies (such as patent and trademark offices), and the judicial arena, where disputes are settled by lawyers through courts of law. While important, these perspectives are just part of the management of IP in the knowledge economy.

From blocking to building block In order for industry to transform itself into knowledge-based business, it is essential that the focus on IP shift from the administrative and judicial arenas to the business arena. When IP is viewed broadly as intellectual assets packaged as value propositions


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for commercial transactions, instead of being narrowly defined as legal rights (that is, IPR), then it becomes rather obvious that businesses should start managing IP as core business. Viewed from a business perspective IP is no longer restricted to the role of blocking others, but instead can be used as building blocks to create innovations, markets and ventures in a proactive manner. In this context business managers must build capabilities in IP management as part of their core business toolbox, and not leave these issues to be handled merely by the IPR department of the firm.

Managing (intellectual) assets, property and capital One major confusion for business persons is the lack of standard terms, concepts and processes to coherently describe and manage knowledge-based business in a global economy. We should like to propose a framework that goes back to basics by relating it to the strong traditional understanding of property and capital that underpins the capitalistic system. In this context assets could be defined simply as valuable objects, property as objects for commercial transactions, and capital as objects accepted by the financial establishment. Building on this framework we can identify three critical business management processes that can be labelled intellectual asset management (IAM), intellectual property management (IPM) and intellectual capital management (ICM). From a

Managing knowledge-based business Asset management

Property management

- Define, value, claim, manage new ideas and knowledge as firm assets • R&D management • Knowledge management Intellectual • Information management, etc

- Define, value, claim, manage new ideas as value propositions • IPR management • Licence management • Management of virtual products • Standardization management • Open source management, etc

Capital management - Define, value, claim, manage new ideas and knowledge as objects in a financial machinery • Securitization and management of IP as collateral • Controlling, accounting and taxation • Governance of bankruptcy estates, etc CHALMERS | GÖTEBORG UNIVERSITY

Figure 1.3.1 Managing knowledge-based business

CIP

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IP IN THE KNOWLEDGEABLE ECONOMY 23 

knowledge-based business perspective it becomes obvious that intellectual assets must be the centre of attention. Technical functions, design, content, brands, systems and databases and so on are companies’ most important assets, and need to be created and fostered through knowledge management, information management and R&D processes (IAM). To develop and manage intellectual assets is however not sufficient. These assets must be claimed and converted into value propositions (that is, property) in commercial transactions (IPM). Inventions, designs, brands, patents, copyrights, licences and so on are all intellectual building blocks that must be exploited in the construction of innovations, companies and network-based markets and platforms. To enable successful intellectual property management it is at the same time important that the intellectual assets constitute capital in the financial machinery. Thus, these assets must be included in financial accounting, as part of the basis for taxation, and most importantly managed as capital in financial transactions (ICM). If intellectual assets cannot for example be seen to constitute collateral security and cannot be subject to seizure or included in a bankruptcy estate, it will remain very difficult to build successful companies based on intellectual property as this property will not be viewed as (financial) capital.

The transformation to knowledge-based business models The meaning of concepts such as intellectual assets, property and capital is further clarified in developments that can be observed in three different areas. Perhaps most obvious and famous is the transformation driven by advances in information and communication technology. This development has led to a number of hybrid business solutions combining aspects of industrially manufactured products and services, including solutions that can be coined as virtual products, such as IT services, ‘features’ and ‘content’. The technological advances surrounding software, databases and internet solutions have created a platform with an enormous potential for value creation, partly in terms of technological functions and innovations, but also in terms of design, cultural expression and even moral value systems. The lack of tools for developing IP, however, is forcing software developers to still fix their software to hard media in physical packaging, and deliver it to customers through traditional channels of distribution. The lack of an adequate approach to intellectual capital means that accountants given the task of quantifying the value of company resources face an insurmountable challenge, and banks naturally refuse to grant loans. Thus valuable IT-based features, content, conceptualized IT services, and virtual products (that is, IP) are not accepted as financial securities (that is, intellectual capital). Another important example is the transformation taking place within the different biotech-based markets. Innovations within the field of biotechnology often arise at a great distance from the market, and the majority of ideas within this area will therefore not be implemented as commercially complete products within a span of 5 or 10 years in the future. At the same time, however, in many cases it takes millions of


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dollars to bring a biotech product to the market, which means that the entire existence of the industry depends directly on the ability of companies to trade amongst each other with licences tied to various intellectual properties. If this were not possible, the considerable entry barriers would mean that only a small number of multinational giants could survive on the market. This would in turn mean an incalculable loss of valuable knowledge from research groups around the world, which would never be developed to the point of benefiting humanity. The unwillingness to accept research results regarding genomes, proteins and stem cells as financial security and comparable capital is of course obvious. The third and final development which clearly demonstrates a growing focus on IP is the branding culture. For some of the most sophisticated actors the brand has become their most valuable resource, and it has grown far beyond simply being a distinct name on a product. Today, the entire value proposition of the company can very well be said to be comprised by the brand. This value proposition, in turn, does not merely contain a description of the functional utility and quality of the proposition, but also the experience the buyer can expect, as well as the identity that the buyer will project to other people. The importance of this is demonstrated, for example, in the fact that the CocaCola brand was recently valued in excess of US$70 billion, and other world-leading brands such as Intel, Microsoft and IBM are not far behind. Increasingly companies are coming to realize the inherent potential in building the business around the brand as an intellectual resource. The brand is realized as property in commercial transactions such as franchising, merchandising, image transfer and co-branding. Nevertheless, it is only recently that a small number of American actors have created securitization opportunities for borrowing against these core assets, thus converting them to capital.

A framework for developing knowledge-based business models In order to transform industry into knowledge-based business, the focus of business managers must shift from the production of physical products to the creation of intellectual assets, property and capital. This shift is most easily realized through the creation of new business models where knowledge-based solutions form the core. Below is a brief listing of evolutionary thinking to support business leaders in developing knowledge-based business:  I do not produce a physical product – I build a brand.  I do not produce a physical product – I offer a concept/solution for problem solving.  I do not produce a physical product – I build and control a piece of a market.  I do not provide hourly services – I develop virtual products and license offers.  I do not perform R&D – I develop leverageable research tools, development tools and diagnostic tools.  I do not perform R&D – I build platforms for open innovation.

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IP IN THE KNOWLEDGEABLE ECONOMY 25 

 I do not perform marketing – I design customer value experiences.  I do not perform marketing – I merchandise.

Bo Heiden and Ulf Petrusson are the directors of CIP, which is a non-profit development centre focused on knowledge-based business, jointly founded by Göteborg University and Chalmers University of Technology in Sweden. More information on the authors and CIP is available at www.cip.chalmers.se

1.4

IP and open innovation

Hélène Raybaud and Yves Morel discuss the IP implications of switching innovation from the unilateral to the multilateral at Schlumberger.

The oil and gas exploration and production industry has entered a cycle of strong demand-driven growth which is unprecedented since the 1970s. To satisfy such demand, fossil fuels are expected to remain the primary energy source for at least the next 30 years while other energy sources develop. Growth in the supply of oil and gas is largely enabled by new technologies that target access to known conventional reserves through new exploration and production, as well as the development of unconventional sources such as heavy oil and light gas. One of the key factors to success will be the pace at which new technologies can be developed. This in turn can benefit from the importation and integration of applicable technologies from other engineering fields. Schlumberger, as the world’s leading supplier of upstream technology, is at the forefront of this development. While there is nothing new in this concept, it does require a new approach to intellectual property (IP) considerations. Here we consider what organizational changes are required and the consequences for intellectual property rights (IPR).

Open innovation: the new equation of globalization If in the 1960s, the typical company outsourced less than 5 per cent of its research and development (R&D), that figure today is more than 20 per cent. In the United States in 1980, only 40 per cent of industrial R&D came from companies with more than 25,000 employees compared with 70 per cent in 1960. Globalization, democratization



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of information technology, competitive US and European policies, mobility of people, and new financing systems have created ecosystems and sources of unprecedented innovation. The traditional exclusive control of a company’s IP assets can no longer resist these changes, and needs to integrate community poles of innovation. The control of partnerships has switched from unilateral to multilateral pathways.

Open innovation at Schlumberger The Schlumberger Riboud Product Center (SRPC), located in Clamart, France, is one of more than 20 Schlumberger technology centres worldwide. SRPC works with a number of industrial partners, the selection of which is driven by technology as well as by business needs. Much care is applied to the selection of our future partners, and SRPC has targeted partners that while excelling in their own technologies, also represent clusters of innovation. Among the potential candidates, collaboration has been diversified through associations with industrial partners as well as academic representatives. The strategic approach is based on connection to a limited number of partners while never being further than two steps away from the best laboratories. Among its industrial partnerships, SRPC has enhanced collaboration with smaller companies via national innovation agencies and regular meetings. Collaboration has been further advanced with other industries in different business activities through participation in what are known as ‘innovation platforms’. In France SRPC is a member of a number of centres of excellence. At the European level, SRPC is actively engaged with several European technology platforms. In addition to these connections to external initiatives, SRPC has also created an internal innovation space known as the Innovation Hub. This dedicated resource aims to bring together partners in innovation – such as employees, academic staff and external company representatives – in a ‘bring your own project’ approach. In addition, the creation of an industrial chair, with a university professor assigned for a year to the project, emphasizes links with Schlumberger university partners.

IPR and open innovation The IPR management model has evolved to include these new opportunities and constraints because IP strategy had to evolve in order to support the SRPC objective to include the open innovation model in a variety of projects. This evolution has involved two main areas: management of the patent portfolio, and the centre’s approach to contractual matters.

The patent portfolio Engaging in an open innovation initiative without having an adequate IP strategy in place would involve risk for any company. In technology development in a competitive industry, patents are key leadership assets. Management of the patent portfolio needs to plan for a decision model for the future IPR to which the centre will have access, while also mapping existing company IPR. At this stage, it is important to note that

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IP AND OPEN INNOVATION 29 

this revision of IP strategy does not ignore traditional principles used for internal innovation, and seeks to include successful guidelines and best practices in addressing the emerging open innovation mechanism. The results of this evolution in IP practice include a number of key points:  It is essential to secure IP positions before entering any collaboration. This is a prerequisite to successful discussion and negotiation. SRPC has therefore committed to promote relationships between the IP department and the centre’s engineers and scientists to be sure that applications are filed early enough in the process. If appropriate, such filing should be done before any external contact.  IPR should be potentially considered as assets that can be bought, sold or licensed depending on the collaboration framework being considered.  It is important to conduct systematic and recurrent portfolio revisions. The variety of technologies, as well as the number of ‘patent families’ within the portfolio, can no longer be managed passively. The same approach should be applied when the time comes to decide IP protection extensions. One important criterion is not to engage in vast country coverage for a single case if the decision cannot be linked to a business case. Neither patents nor technology have much value when separated from their business model, and a close connection between the two is vital in creating value from technology.  Knowledge of the IP behaviour of future partners must be acquired. Depending on a potential partner’s size, nationality or legal regime, IPR negotiations might be completely different. SRPC has found it to be very important to acknowledge basic principles such as the fact that a good licensing programme might bring more value than the complete ownership of a patent portfolio. This is not the usual way in which large companies envisage collaborative deals.

Contractual considerations SRPC has also identified one key factor of the open innovation model: contractual initiatives must include a win-win incentive. Once partners have been selected, it is important to clearly review collaboration contractual practices so that old proprietary principles can leave room for a collaborative model. This allows the partner a chance to plan for a return on investment (ROI). This somewhat evident statement relies however on the imperative need to know our partners’ expectations as well as their contractual limits. It is equally important to understand and define our own internal limits in order to avoid collaborations that are bound to fail from the start. Other contractual considerations are pertinent to collaboration projects with universities. To be given access to top laboratories, students and other resources, it is crucial to understand the objectives of each member of that group. What do they want and what do they acknowledge for ROI? Once each partner’s interest in the potential collaboration is understood, easy and rapid contractual deals can be concluded. It should be noted that reducing the time to contract is not only important in academic collaboration, it is also extremely important in the whole technology development circle.


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In terms of contractual considerations, SRPC has identified a number of key initiatives:  Membership of discussion forums enables understanding. The evolution in contractual practices disseminated by organizations such as ProTon Europe, a network of technology-transfer offices and companies affiliated to universities and other public research organizations, has proved a useful source of information. In France, SRPC also pays attention to contractual guidelines within various associations for R&D valuation, which include Réseau CURIE and Réseau Opticsvalley as well as several others. Much can be learnt from these networks that can be used to better prepare future partners’ requests.  Preparation of easy and ready-to-use contract templates can enable the rapid implementation of working formats. This step sounds evident but a significant number of collaborations collapse partly because the partners’ incentives to collaborate decrease in the period before tangible contractual terms appear.  Involving the company’s financial organization can benefit discussion. Input from the finance department to better understand the financial side of contractual commitments is of key importance in assessing the value of any future deal. Introducing this input into the decision process – when browsing different contractual options – has proved to be highly beneficial.  Proposing framework agreements to future partners saves time. With the variety of partners with whom SRPC has engaged in the open innovation process, proposals have often been made to cover a variety of individual R&D project collaborations under a single framework agreement. This type of agreement has the advantage of compiling in a single global discussion as many contractual points as possible, including potential barriers to success. However it is important to sign such framework contracts for relatively short periods – typically between two and four years – so that each partner can review and fine-tune terms once the renewal of the contract becomes due.

In conclusion The open innovation model has led to a complete review of the mechanisms that govern technology development partnerships. Open innovation is not a choice, it is a necessity, but it is not always a source of competitive advantage. In this context, realistic and pragmatic management of IPR is essential. The SRPC IPR management process has now evolved from a position that considered technology to be an end in itself to a position that seeks to implement closer interaction between the business model and the management of IPR.

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IP AND OPEN INNOVATION 31 

Hélène Raybaud is the head of the IP Department of Schlumberger Riboud Product Center, France. Hélène has an engineering degree from Hautes Etudes Industrielles, France. She has a diploma from CEIPI and is a European patent attorney. She started her career as a patent engineer with Renault before joining Schlumberger in 2000. Hélène is a member of ASPI, EPI and COMIPI. Yves Morel is a Schlumberger innovation manager and handles university relations for Europe. Yves has a MSc degree from the University of Sherbrooke, Canada. He joined the French nuclear industry before joining Schlumberger in 1985, where he occupied different functions in software engineering. Yves is also the leader of Smart-Reservoir net, a European thematic network of companies working in the oil and gas industry. For further details see: http://www.slb.com/

1.5

Managing patents as assets

When value is created downstream, then upstream patents have to be closely linked to business plans, argues Lars Kellberg at Novo Nordisk.

Without strong patent rights, companies may face exclusion from the market, have to pay onerous royalties or have to enter into disadvantageous partnerships with other companies that possess stronger patent portfolios. Thus the design and successful execution of patent strategies is critical for innovative companies. This will not be news to the reader acquainted with patents. However, the fact that many companies move towards value innovation rather than technological innovation and the impact of globalization makes it necessary to challenge conventional thinking in terms of patent strategy.

Getting the most valuable patents Hyper-competition is a fact of life. Global competition leads to intensified warfare for the customer, and even niche markets are tackled by new entrants. Companies that are able to grow and conduct profitable business under these conditions are increasingly those that provide and sustain superior customer value. Commoditization pressures from standardization, increased customer experience and competitive copying forces companies to create additional value or redefine customer value, and this is often done in the mid-downstream part of the value chain rather than in the upstream productoffering part.



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To maximize the value of a patent portfolio it is critical to ensure a link between patenting activities and business plans, and this means that patenting activities increasingly must go beyond the mere protection of technology and product features. Nevertheless, the patenting of the core technologies used in a product will still constitute a substantial element of any patent strategy. By core technologies is meant inventions that provide superior technical solutions compared with other known solutions in the market, but that are normally hidden to the user. Importantly, however, a patent strategy provides more value when it goes beyond the mere protection of technology and product features in order to maximize exclusivity. Thus, within the pharmaceutical area a patent strategy could include new ways of using known products or equipment or processes associated with new products. Another important area is the patenting of selling-point features: inventions that can be identified by the user and thus be used to positively distinguish the product in the market.

From core technology to marketing claims and unique selling points The process of bringing new medicines to the market is long, complicated and very expensive. Finding a new drug candidate and bringing it to the market is like ‘finding a needle in a haystack’, and in order to be able to recoup the investments in R&D, a patent protecting the new molecular entity – the compound patent – is of course of vital importance. On the other hand, the compound as such is just a ‘core technology’, and a successful product launch relies not on the intrinsic properties of the molecule, but rather on the product label which has been approved through clever clinical development and regulatory strategies. In order for a new diabetes drug to be competitive it has to provide more than just blood-glucose lowering. There must be some other properties of the product that can be promoted, and that make it stand out from other diabetes drugs. A straightforward example is a drug developed for treating Type 2 diabetes which in additional to its blood-glucose lowering effect has a positive impact on body weight. This would alleviate the concern of weight increase and thus address a long-felt need among the large segment of Type 2 patients with a high body mass index. In order to be able to promote this ‘selling point’ it must be stated on the product label, and a patent relating to the achievement of weight neutrality or reduction may prevent competitors from being able to claim this benefit for similar products. More creative drug label patenting activities are also possible, such as patenting of precautions, warnings, contraindications, storage and handling information and so on, and will contribute to increasing the competitive profile of products. Furthermore, it may also delay generic entry into the market, because generic manufacturers are normally required to copy the label of the original product.

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MANAGING PATENTS AS ASSETS 35 

Securing freedom to operate through an enhanced bargaining position An unpleasant by-product of hyper-competition is increased risk of exposure to thirdparty patents, because there will likely be more players filing patent applications in your area of research. The best shield against competitor patents is of course to make the invention and patent it before your competitor. This means that R&D processes and organization should be such that they promote early patenting of critical features, for example by frontloading research into technologies that are required for product launch. Even if the company does not make all the key inventions before its competitors, building up a substantial patent portfolio will increase its bargaining power in crosslicensing discussions. The chances are that it will then be able to solve the potential freedom to operate issues amicably and thereby avoid disruptions and IP-related delays in product launches. The following elements should all be addressed in a patent strategy which aims at maximizing bargaining position.  First, you need to ensure that the patenting of alternative routes to chosen solutions is taking place, by proactively identifying and protecting commercially attractive alternatives to a given selected product in development. In other words, rather than simply focusing on the specific product in development, resources should be allocated to secure the protection of deselected, yet alternative solutions.  Second, you should ensure the protection of concepts that can succeed current development project targets. This means that resources should be committed to proactively provide early prognoses of the future product range in order to focus on inventions of relevance for early patenting and to develop scenarios for future products.  It is also important to constantly monitor, identify and analyse competitors’ products, publicly available product ideas and patents, in order to link ongoing patent filing activities with competitor activities, and to maximize the impact of the company’s own patent portfolio on future competition and the development strategies of competitors.

Successful execution is at least as important as designing the strategy A mediocre, but well-implemented, strategy is likely to have a higher impact than a perfect strategy which is badly executed. Thus optimal organizational set-up and efficient decision processes should be in place. Ideally, overall patent strategies should be aligned with R&D strategies and long-term business objectives, and kept updated on a regular basis as part of the company’s corporate strategy development programme. In many cases, the establishment and prosecution of a patent portfolio is anchored in the specific R&D project that the portfolio supports. The main advantages of


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decentralized patent portfolio management are a sense of local ownership of the portfolio, a strong flow of information between patent attorney and project, and the ability to respond swiftly to changes in project scope. However, certain control mechanisms are important to ensure sufficient attention to patent matters across all R&D projects, and the sharing of better practice. Such control mechanisms can involve regular reporting in accordance with a predefined format, facilitation of strategy implementation through the use of internal specialists whose task it is to challenge the projects and suggest actions for improvement, and regular audits where patent portfolio management for individual projects is critically reviewed and the findings are communicated to senior management.

Drafting patent applications for worldwide protection When drafting a patent application it is critical to take into account that the application should potentially provide optimal protection in many different jurisdictions. Most European companies have learned to draft applications in the US format in order to fulfil the special requirements in the United States, and vice versa. The US market is by far the largest market for pharmaceuticals, with approximately 50 cents of every dollar being spent in the United States. Hence, patent attorneys working for European pharmaceutical companies have learnt to adapt to the opportunities and pitfalls in the United States. They draft patent applications to fulfil the ‘best mode’ requirement, are very careful in submitting all relevant prior art to the US Patent and Trademark Office (USPTO), avoid writing prophetic examples in the past tense, do not argue the case in the patent specification, include business method claims in many applications, always file continuations in important cases to keep a pending application alive, and so on. However, it is my experience that many practitioners consider the non-US part of the world more or less equivalent to Europe in terms of drafting considerations. China is projected to become the eighth largest pharmaceuticals market by 2009, and India is a country with more than 20,000 drug manufacturers and which has recently introduced compound patent protection for pharmaceuticals, yet one rarely encounters any individual, who in drafting patent applications takes into account the special needs of these countries, let alone knows what these needs are. For companies whose longterm growth strategy is impacted by their success on the rapidly growing markets in Asia, this will have to change soon.

Novo Nordisk is a healthcare company and a world leader in diabetes care. The company has the broadest diabetes product portfolio in the industry, including the most advanced products in the area of insulin delivery systems. In addition, Novo Nordisk has a leading position in areas such as haemostasis management, growth hormone therapy and hormone replacement therapy. With headquarters in Denmark, Novo Nordisk employs approximately 22,000 full-time employees in 79 countries, and markets its products in 179 countries.

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MANAGING PATENTS AS ASSETS 37 

Lars Kellberg is corporate vice president and head of corporate patents at Novo Nordisk A/S. He joined Novo Nordisk in 1996 as corporate patent attorney. Before that he worked as an associate of a major Danish IP law firm. In 1997 he was appointed manager of a patent department with the responsibility for Novo Nordisk’s patent portfolio relating to insulin, oral anti-diabetics and medical devices, where he worked until he assumed his current position in 2001. Lars holds an MSc in Chemistry and is a European patent attorney.


1.6

Europe’s different IP cultures

William Bird of Bird Goën gives an insight into the multiple levels on which IP is practised in Europe.

Europe was and is not so much a reality, for instance a geographical, political or economical one, as a cultural idea. Jürgen Mittelstrass, 2004 Uplifting words to inspire generations of Europeans? Not for a legal practitioner. In law we require a well-defined text, in a developed language with clear meanings embedded in a rich and trustworthy jurisprudence. Merely a ‘cultural idea’ is not going to cut it. It is said that European democracy is unlikely to succeed because as long as there is no true European community, every attempt to establish a democratic Europe is bound to fail. The European Union is far removed from a community with a common identity. The European peoples do not share a common language, they lack memories of a common history that might help to develop a collective identity, and they do not take part very often in common European activities. The lack of a pre-existing uniting common history, language, culture and ethnicity means that a collective identity does not exist at the level of the Union. There was a time in which European unity appeared to be possible – at the time that the generation that remembered (and feared) world wars sought protection in unity. However, this time appears to have passed. The lack of complete agreement


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at Maastricht, the failure to implement a constitution, the stalling of the Community Patent and a Directive on the patenting of computer-related inventions warn that a new generation has arrived in which internecine nationalistic, commercial and political battles are beginning to defeat any remaining unifying spirit. Against this backdrop, the Office for the Harmonization of the Internal Market and the European Patent Office (EPO) struggle on. In this situation, the intellectual property (IP) legal practitioner is forced to play on all the registers, from the national level of utility models and petty patents up to the European or international level. In this context ‘experienced’ means a detailed knowledge of more than one of the national IP laws, as well as the corresponding regional and international laws. And that means knowledge of more than one language and the legal culture associated with it. For the experienced IP strategist obsessed with an interest in languages and different European cultures this is a field day. There is a fascination in this level of complexity in combination with the real way that IP interfaces directly with the commercial welfare and market strategies of industrial organizations. Job satisfaction – at least for those who are competent – is more or less guaranteed. But this complexity is far from user-friendly. The beginner in IP is faced with a myriad of alternatives. The costs for such freedoms are a high price to pay for industry. Can we afford such a plethora of bureaucracy? One saving grace perhaps is that it can also act as a defence. For example, it is probably harder for foreign organizations to obtain an easy hold on the whole of the Community because the IP laws are so fragmented. The law (as it has always done) favours the rich – that is, those who can afford specialized advice. Another challenge that faces the newer members as well as the smaller and older members of the Union is the difficulty and cost of integrating specialized IP courts into the normal civil court procedures. In the newer members there is little historical basis for deciding on IP issues. In smaller countries the number of IP court cases can be low, so there are few decisions at supreme court level. It is difficult to provide legal advice when the outcome of a court case is an unknown. The decisions of the Appeal Boards of the EPO and of the Enlarged Board of Appeal have now reached such a level of completeness that they could, and often do, provide a useful guide in matters of patent validity. Unfortunately, despite referring to essentially the same legal text, some national courts do not follow the EPO line. Although much harmonization has occurred, diverging opinions never seem to die out. The imposition of ‘federal rules’ still rankles. As far as patent infringement is concerned, there is no equivalent body of jurisprudence to fall back on. This issue has been clearly identified and a solution would appear to be a necessity. The effect of setting up the Court of Appeals of the Federal Circuit in 1982 in the United States provides a powerful motivation to find some equivalent solution for Europe. However, nationalistic, commercial and political interests are likely to dog the progress of its European equivalent for some time to come. Towards the end of the 19th century the ‘Captains of Society’, or industrialists, were very much present. Among other developments they set up an international

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EUROPE’S DIFFERENT IP CULTURES 41 

system of IP rights (IPR). Patent offices were founded and the Paris Convention formed the basis for handling international IPR. With fears of a gridlock of societal bureaucracy (society’s main instrument of control), there was a move to find protection in community values and representatives. There are some parallels with modern times. The Trade-Related Intellectual Property Rights (TRIPS) agreement signed during the GATT talks in 1994 can be seen as an increase in societal control at an international level, heading towards globalization. The counter-reaction has been massive. Instead of being perceived as a safeguard against the inequities of globalization, the European Union has gradually become synonymous with it . The closer it approaches, the greater the anxieties. The lesson from history is that it is better to stay on course but to go easy and to maintain active and productive dialogues between combatants. It should always be remembered that the whole purpose of forming the European Community was to find other ways of solving problems than by cathartic blood letting. The fears that drive people towards community-based values, rather than relying on the potentially more objective standards of society, are probably unjustified but they are still very real. They should not be ignored. IP is often a thermometer of underlying political changes or unrest. IP law is a hallmark of civilization – one of society’s main values. If IP law is really in danger then so is civilization as we know it. In conclusion, keeping Europe together and on track is not going to be easy. It is probably a case of learning to ‘herd cats’ – big cats and difficult ones. European patent and trade mark attorneys can take pride in belonging to a profession that seeks respect for IPR in agreement with basic human rights, and that opposes fraud and organized crime at a regional level for one of the major population groups of the world. The Office for the Harmonization of the Internal Market and the EPO need to find and keep an objectively neutral course, free of political taint and with a high level of professionalism. In that both these offices bring together intelligence and expertise from all over Europe, they have the best possibility of achieving this with distinction. The standards set by the judges, and the quality of them, determine the quality of attorneys. Nothing is ever perfect – the cup is always only half full. But in Europe, what that cup contains is something that is, and always has been, of great value, richness and beauty.

William Bird graduated from Cambridge University, UK with an MA in natural sciences, and is a Chartered Engineer. He has worked as an engineer and manager in development, marketing, product management and project management in multinational companies, from which he has obtained a wide experience of the requirements and functioning of an industrial company. He has lived and worked in the United Kingdom, Norway, Finland, Germany and Belgium, and has travelled widely in Eastern and Western Europe, the Middle East, Africa and the United States.


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During the last 20 years he has worked as both a corporate and a privatepractice patent and trademark attorney in Germany and Belgium. He has expertise in both common law and codified legal systems, in IP law, technology transfer, IP licensing and the setting-up of spin-off companies. He is a European, British and German patent and trademark attorney, a tutor at CEIPI and a lecturer at the Vlerick School of Management. He is a founder partner of the IP law firm Bird Goën & Co. Contact details: Bird Goën & Co, Klein Dalenstraat 42a, Winksele, B3020, Belgium, tel: (+32) 16 48 05 62, email: [email protected], website: www.birdgoen.com © Bird Goën & Co 2007.





2

Acquisition of IP rights in Europe




2.1

Patents

There are many options for filing patents in Europe, says Peter Indahl of the International Patent Bureau in Denmark.

In Europe you have many possibilities for obtaining patent protection on your inventions. You can file for a national patent, with one application per country, or you can use a European patent application to protect the invention in many European countries of your free choice, or you can combine both systems. In Europe we have the European Union with a single market, where goods can flow freely from one country to the other within the union. But the European Union has not been able to provide us with a patent system granting unitary patents that cover this single market and can be enforced with effect for the whole of the European Union. A carefully analysed filing strategy is consequently necessary in order to obtain cost-effective patent protection in Europe. If an invention is to be protected by patents in all countries of the European Union, then we are actually speaking of patent protection in 27 different countries. In most cases, it is clearly not cost-effective to maintain a granted European patent in force in all 27 countries of the European Union. It is generally more cost-effective to protect more inventions in fewer countries of the Union. It should not be forgotten that some European countries, like Switzerland, Turkey and Norway, are outside the European Union, although they are, or soon will be, members of the European Patent Convention.


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PATENTS 53 

Integrate the filing strategy with your business plan The filing strategy is part of the patent strategy that naturally needs to be integrated with the business strategy of your company in order to result in the desired development and success. When the initiative is taken in the business plan, patenting can be utilized to support and strengthen the commercial objectives in the overall strategy. And a well-founded patent strategy makes it easy for people to understand why patenting is essential to the business. One important part of the filing strategy is to define the countries in which it is necessary to obtain patent protection in order to secure the market position of your own products. Another part of the filing strategy could be directed against competitors. It is possible to file patent applications with the primary purpose of restricting the market possibilities of your main competitors. Filings of this kind should be made in countries that are of primary interest to your competitors and without looking at where your own market is. One aim is to restrict the freedom of competitors and in the end reduce their financial strength and competitiveness. Another aim could be to establish a patent position that can be used for bargaining when one day a competitor approaches you with the allegation that your company infringes one of its patents. A third strategy relates to the intended commercialization route for the invention. If the applicant plans to license the patent (because it is unable to manufacture it), the patent application should clearly show how the invention integrates with the existing technology of potential licensees.

Your company size and position in the market The relevant filing strategy of course depends greatly on the type of business you are in, and also on the size of your company and its position on the market. For a small, young emerging company based on new technology it is typically possible to obtain a broad patent protection with a relatively small number of patent applications. This is so because the patent density is low in the area of the new technology, which leaves room for drafting the individual patent application with a broad scope of protection. The young emerging company on the other hand often needs a broad geographical coverage of patent protection because the market has not yet been developed. Because of this the emerging company should preferably file international patent applications. For reasonable cost, this type of patent application offers protection on a preliminary basis with effect for 135 countries in a single application. However the international application only lasts for about two and a half years from the filing of the first application on the invention. Near the end of this period it is necessary to follow up with regional (European) or national patent applications in the countries where the protection is to be maintained. By filing a number of international patent applications the young emerging company can cover the relevant aspects of the new technology and in this manner create a strong IPR position, in particular if the patent protection is supplemented with trade mark protection. The strong bargaining power obtained by this protection can be used in negotiations with investors, partners or licensors.

 54 ACQUISITION OF IP RIGHTS IN EUROPE

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The right timing, however, is very important. Because larger investments are required at the end of the two and a half years, bargaining power begins to diminish after about two years. The business plan and the initial filing of patent applications on the new technology must be planned with this in mind. For a well-established company with a major market share, the picture is very different and the filing strategy needs to be much more detailed. In addition to protecting new technology with broad patent applications, this type of company typically also applies for quite a lot of patents of rather narrow scope. When the technology in an area has developed to a mature state, the patent density in the area is high. Although there is no longer room for broad patents because of the high patent density, continuous investment in developing product improvements can be protected by patents of a correspondingly narrow scope. Despite their narrow scope these patents are very effective in protecting the market position of the well-established company, because the competitors cannot copy the technical contents of the products on the market without infringing the patents. The established company typically has a relatively high number of filings, and it needs to be more aware of fine-tuning the filing strategy so that applications are filed in a manner providing the best cost–benefit ratio. For established companies there is no general rule pinpointing the most advantageous filing strategy. Some of the issues relevant to the filing strategy are mentioned below. Most of these issues are also relevant to the young emerging company that wishes to file in Europe based on its international application.

The patent offices available in Europe The European Patent Office (EPO) is central to obtaining patents in Europe. Thirtytwo European countries are party to the European Patent Convention, including all of the 27 members of the European Union. An additional five European countries, mostly from the Balkan area, have made a special agreement with the EPO allowing them to be included in a European patent application as ‘extension states’. A single European patent application is, at the choice of the applicant, able to cover up to 37 European countries. After grant the European patent must be validated in the individual countries in which the patent protection is to be upheld. The European patent provides the same effects in each individual country as a national patent granted by the national patent office. In addition to the EPO, all European states have their own national patent office, apart from Andorra, San Marino, the Vatican and Liechtenstein, for which special agreements exist with the national patent offices of other states. It is therefore possible to apply for a national patent in all European countries, and this system of national patenting coexists with the European patent system in the states party to the European Patent Convention. Apart from a few exceptions mentioned below, it is completely up to the applicant whether patent protection is established in these states via a European patent or via national patents. The national patent offices in Europe do, however, treat patent applications differently according to their national traditions. In Northern Europe the tradition

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PATENTS 55 

calls for granting patents after substantive examination, more or less in line with the examination performed at the EPO, whereas in the Mediterranean states the tradition is to register patents without substantive examination. The national patent offices granting patents only after substantive examination (examination to establish whether the invention fulfils the requirements of novelty and inventive step, etc) are those of Germany, Denmark, Sweden, Norway, Finland, Poland, the United Kingdom, Austria, Bulgaria, Romania, Hungary, Estonia, the Czech Republic and the Slovak Republic. Some other patent offices register patents after an examination of formalities and possibly a novelty search, but leave it up to the courts to evaluate the material patentability of the invention (novelty and inventive step etc). Patent offices adopting this approach include Italy, Greece, Portugal, France, Slovenia, and also Belgium, the Netherlands, Latvia and Lithuania. In Spain the applicant can choose between a novelty search only or novelty search and examination.

Substantive examination or pure registration In the European countries where you can choose between obtaining a national patent registered without substantive examination and a fully examined European patent, the choice depends on whether you want a quick registration of a possibly weak patent or a fully examined European patent that is more easily enforced against a competitor. When it comes to enforcement of your patent, it is naturally easier to enforce a patent that has been fully examined before grant. Such a patent carries greater weight before the national courts. Many applicants choose to obtain protection via the EPO. If patent protection is desired in at least three countries performing substantive examination, the most costeffective route is to apply for a European patent. The European patent application is examined as a single application, and this is generally cheaper than carrying out substantive examination of three or more national patent applications.

The first filing: national or European In some European countries the first filing must be a national filing at the national patent office in the country in which the invention was made. This is regulated by the national legislation with the purpose of checking whether the invention relates to sensitive military material (national security regulations). If a patent application is in fact critical to national security (for example, nuclear technology or cryptography), it should always be filed nationally. If not, the first filing is required to be a national application only in Cyprus, France, Greece and Spain. Some other countries require that a European first filing is filed with the national patent office so that it may be checked according to national security regulations. It follows that in most European countries the applicant has a real choice between a national first filing and a European first filing. When there is a choice, the applicant is well advised to choose the first filing that results in the most comprehensive novelty


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search for prior art within less than one year from filing of the first application. It is very important to discover relevant prior art early in the application phase. Some national patent offices have made a special agreement with the EPO in relation to national patent applications so that the EPO performs an extended European search report on a national patent application from these states. Such agreements are effective for France, Belgium, Luxembourg, the Netherlands and Turkey. In these countries a national first filing can accordingly be a cost-effective first filing.

The first filing: international If the United States is an important market you should also consider making the first filing an international patent application (under the Patent Co-operation Treaty administered by the World Intellectual Property Organization (WIPO) in Geneva) with English as the publication language. From its filing date such an application has full prior art effect against later filed competitor patents in the United States.

Quality of the first filing Whether the first filing is national, European or international, the most important thing in view of cost-effectiveness is to draft a high-quality application. It should contain a quite detailed description of the invention, and carefully analysed patent claims that take the relevant prior art into account.

Peter Indahl is a European patent attorney and holds an MSc in mechanical engineering. He has been active for more than 20 years in the International Patent Bureau, based in Copenhagen, Denmark. He is vice-chairman of the European Patent Practice Committee of the Institute of Professional Representatives before the European Patent Office. Peter Indahl provides strategic advice to clients, and has extensive experience in patent litigation. Contact details: International Patent Bureau A/S, Rigensgade 11, DK-1316 Copenhagen K, Denmark, tel: (+45) 43995511, fax: (+45) 43999911, email: [email protected]

2.2

Trade marks

Trade marks in Europe are protected in one of three ways, explains Gabriella Modiano at Modiano Josif Pisanty & Staub.

All roads lead to Europe Europe is one of the most extensive geographical and economic areas in the world. Being made up of highly industrialized countries with a wealthy population, it is an important market for companies looking for areas to expand their trade. Effective trade mark protection is one of the issues companies face when deciding to enter the European market. There are three main alternatives to acquire trade mark protection in Europe:  national filings in each European state of interest;  international registrations designating one or more European states;  Community Trade Marks (CTM). Each of these alternatives results in effective trade mark protection. Nonetheless, choosing which alternative is the most suited for the specific needs of a company may be difficult.

National filing system Using national laws in order to acquire trade mark protection in a country has historically been the most obvious choice for a company. The country is chosen for its economic and marketing potential, trade mark filing is performed and protection is obtained. This is a clean, easy, simple way of obtaining the requested result. But is it really the correct option for Europe?




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The answer will be yes, if the company is interested only in one or two European countries and has no future plan of increasing its presence in other additional countries in Europe. In such a scenario, picking the country of interest and filing national trade marks in that state will surely be the most cost-effective and legally sound option. But what if the company is interested in more than two or three European countries, or has future plans to increase its presence in Europe?

The international trade mark system The international trade mark system provides for an effective alternative to obtain trade mark protection in Europe. The World Intellectual Property Organization (WIPO) provides one single filing procedure and one single renewal procedure. This is surely cost-effective and leads to simplified portfolio management which also increases efficiency. Nonetheless, the drawbacks of the international system have to be kept in mind when choosing this approach. The first main disadvantage is that, under particular circumstances, the international registration is bound for five years to the fate of its home application. For example, if the home application is cancelled on the grounds of lack of novelty, because of the existence of a prior national right valid only in the home country, the international trade mark – which would theoretically not face the same problem in the designated countries – will have to be either converted or re-filed as national applications in other countries of interest, leading to high expenses and complex portfolio management. The second disadvantage of the international system is the limited possibility of choosing the most appropriate scope of protection for products or services. As a matter of fact, many countries that are members to the WIPO system do not allow broad claims, such as claiming the heading of a class, and request, on the contrary, very specific and limiting definitions of the claimed products or services. Therefore, the applicant will either not be able to take advantage of more liberal national approaches, or have to provide for limitation in each country with a restrictive approach, which again will increase overall costs. The final disadvantage of this system lies in the fact that, although the international system provides for a single filing and renewal procedure, examination and prosecution of the trade mark will still be performed by each country under its own law. Therefore, so called prosecution costs – costs relating to objections by national examiners – will still be incurred. This will result in a single trade mark with different scopes of protection in each designated country. As can be seen, in a market like Europe, which is viewed by many non-European companies as a single market, the international trade mark system does not provide for the needed unitary protection, cost-effectiveness and clear legal framework.

The CTM system: Europe’s unitary answer The European Union is one of the major world economic players. It comprises 27 independent European member states which act together in a single market ruled by

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several unitary laws valid in all the European countries. The main idea behind the European Union lies in the recognition that the synergy of all European countries acting together leads to a crucial competitive edge in the modern era of globalization. It was this drive towards unification that led to the approval of EC Regulation no 40/94 and the opening, in 1996, of the Office for Harmonization in the Internal Market (OHIM): the European Union trade mark and design office with responsibility for granting Community Trade Marks and Designs. This single legal framework provides an effective and economically reasonable tool for acquiring trademark protection in Europe. The CTM is unitary in nature: that is, it is a single trademark application or registration which is valid in all 27 Member States of the European Union. In fact, all national trade mark laws have been harmonized in order to recognize the CTM as if it were a national trade mark filed at a national level. Therefore, by filing one single application, the owners obtain exclusive rights in every European Union member state, enabling them to prohibit third parties from using an identical or similar trade mark in their commercial or industrial activities in every European Union country. One of the main advantages of the single CTM system lies in the simplification of the formalities and the management of this unitary IP right. In fact, only a single application has to filed, in one single language of procedure, at a single administrative centre (the OHIM), with a single registration procedure and a single renewal. The other main advantage lies in the considerably reduced costs for obtaining European trade mark protection in terms of official fees as well as management costs. It has been demonstrated that the total cost of a CTM is approximately comparable to the cost of three national trade mark applications. This reasonable economic investment makes it possible to obtain trade mark protection in 27 European Union countries.

A unitary (and unique) weapon against potential infringers in the European Union As a result of the compulsory harmonization of all national trade mark laws of the European Member States, today CTMs are considered equivalent to national trade mark rights. The main advantage of this unitary validity in all Member States lies in the fact that infringement proceedings may be brought before specialized national courts which have been designated by the different Member States and act as ‘Community Trade Mark Courts’. Although the litigation is dealt with by national courts, their status as Community Trade Mark Courts allows them to issue decisions which have effect throughout the European Union. This is one of the few cases of a genuinely unitary legal system in Europe, which avoids the need to prosecute infringers in each Member State. Moreover, CTMs are recognized in all Member States as prior rights with respect to all subsequent community, international or national trade mark applications and other conflicting rights. Thus, owners of CTMs can enforce their exclusive rights against subsequent CTMs as well as national trade marks or international trade marks designating European countries.


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The (positive) fate of historical national trade mark applications: the creation of ‘seniority’ When the CTM system was first envisaged, the main problem was how to create a competitive system which could be successful in a world where national trade mark filings had existed for at least a century. In other words, how could this new system convince companies that owned very old European national trade marks to give up their trade marks in view of this new unitary system? The solution was to create a new legal concept: seniority. Seniority is the peculiar legal framework created by the CTM Regulation, which allows owners of prior identical national trade marks to claim the original ‘old’ filing date in their ‘new’ CTM. This legal framework allows the preservation of the prior ‘old’ national rights even if the national trade mark is surrendered or not renewed. This solution has also helped maintain the aim of achieving a cost-effective management of trade marks in Europe, since owners of CTMs will be able to keep the legal benefits of ‘old’ trademarks and at the same time avoid the high national renewal cost for each single national prior trade mark.

A single market: used in few countries, valid in 27 states The CTM Regulation requires, as do most national laws, that a trade mark be used in order to be kept valid. Nonetheless, the burden of use of a trade mark is limited for CTMs compared with national rights. In fact, according to several interpretations and case law, a CTM will be maintained in all the countries of the European Union provided that effective and genuine use is proven in only a few Member States, thus avoiding the risk of revocation actions based on non-use. Therefore, owners will not need to use their CTM in all 27 Member States in order to avoid cancellation action for non-use. A limited use in selected Member States will be sufficient.

The expansion of the CTM in an ever-growing Europe Since the entry into force of the CTM system, the European Union has undergone several ‘enlargements’, with the accession of new Member States into the Union. Today the European Union comprises 27 Member States, and although the enlargement process has currently come to a halt, it is expected to resume in the future. The CTM system, in keeping with its aim of being an easy, cost-effective alternative for IP protection in Europe, has provided during every enlargement phase for the automatic extension of all existing CTM applications and registrations to the new acceding Member States, without the need for any fee payment or bureaucratic procedure. The CTM can therefore be considered as a gateway not only to the existing European Union but also to a market which will continue to expand in the future.

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The Modiano firm was founded in 1950. In 1979, the firm established its European patent attorney brach in Munich. Today, Modiano Josif Pisanty & Staub is one of the major European IP law firms acting before the EPO on behalf of a wide variety of international clients, covering all fields of technology. As of 1995 it also deals with European CTMs, being staffed with 45 European trade mark attorneys. Further details: Modiano Josif Pisanty & Staub, Thierschstrasse 11, 80538 Munich, Germany, tel: (+49) 89 221216, email: [email protected] Gabriella Modiano is the managing director of the firm, and is a European and Italian trade mark attorney. She is active in the field of national, international and Community trade marks, including prosecution, opposition, litigation and opinion work. She is fluent in English, German, French and Italian.


2.3

Copyright in Europe

Jan Nilsson, vice-president of Ström & Gulliksson Intellectual Property Consulting, discusses the basis on which copyright is protected in different European countries.

The legal provisions of copyright extend to the works of authors, composers, artists and other persons, and regulate the scope of protection for various categories of works of art, including utilitarian art, computer software and photographs.

Copyright protection Anyone who has created a literary or artistic work may claim copyright in that work provided the work is original: that is, it has been created independently and is the personal expression of the author. A prerequisite for protection is that the work has a certain level of originality and individuality. Thus, for instance simple generic forms do not enjoy protection. Copyright protection does not extend to the facts or ideas contained in a work, only to the personal way in which the author has expressed the contents. This means that, for example, the algorithm forming the basis of a computer program is not protected under copyright law, only the concrete expression of that algorithm in the form of the program language. Copyright law also contains provisions protecting databases. The requirement for protection of a database is that it represents a substantial investment of time and effort or contains a substantial amount of information. The copyright protection for a work begins when the work is created. A literary or artistic work might, for example, be a fictional or descriptive representation in writing or speech, a musical or dramatic work, a cinematographic work, a work of architecture or a computer program (but it is not limited to these categories).


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Legal provisions Contrary to other IP rights (IPR), such as patents, trade marks and designs, no registration or other formality is needed for a work to be protected under all copyright laws in Europe. This is because of the Berne Convention for literary and artistic works. The Berne Convention is the most important of a number of international agreements in the field of copyright. About 150 countries are currently party to the Convention. The member states of the Berne Convention all satisfy certain minimum protective requirements, including national treatment, the granting of certain moral and economic rights to authors, and the adoption of certain minimum terms of protection. The Berne Convention is administered by the World Intellectual Property Organization (WIPO) in Geneva. Membership of the Berne Convention must afford the same respect for the copyright nationals of other convention countries as they afford their own. For example, nationals of the United Kingdom must be treated in the same way as Swedish nationals in the application of copyright law in Sweden. The Trade-Related International Property Rights (TRIPS) Agreement governs IPR internationally. TRIPS is administered by the World Trade Organization (WTO). A country that is party to these agreements is obliged to provide protection under its national law to works from other countries that are party to the agreements. A number of Directives have been issued for the harmonization of copyright law in the European Union, including the 2001 EU Directive on Copyright. These directives primarily concern, but are not entirely limited to, the protection of computer programs, satellite and cable transmissions, databases, and copyright in the information society.

Rights to a work under copyright protection Copyright in a work grants exclusive economic and moral rights to its author. This means that only the author, his or her successor in title, or his or her licensee, is authorized to make use of the economic and moral rights. With respect to economic rights, copyright in a work gives the exclusive right to make the work available to the public. Works can be made available to the public through performance, for example in a theatre or during a music concert, with or without the use of a technical device. Works performed can be transmitted to other places where the public may enjoy the work, and at times chosen by them. This can be done by wired or wireless means, such as by radio, television or via the internet. Works or copies of a work may be exhibited publicly: for example a painting might be shown in an exhibition. This means that the work is made available to the public in a single place without use of a technical device. Finally, copies of a work can be made available to the public by distribution, such as works being placed on sale or leased. The economic rights in a copyright work may be transferred or licensed to others. The author of a work always has the right to have his or her name stated in connection with the work. The author has also the right to object to changes in the work, and to prevent its being made available to the public in a form or in a context that is contrary to the reputation or individuality of the author.

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The rights apply to the work both in its original form and in any amended form such as a translation or adaptation, in another literary or artistic form, or in another technical form. Works amended in such ways are called derivative works. Protection under copyright law typically (for example, under Swedish copyright legislation) lasts for the lifetime of the author plus 70 years. Mechanical rights for recordings of sound or moving pictures are limited to 50 years from the date of the recording. The protection of databases is limited to 15 years. When the term of protection has expired, the work may be used freely.

Free use of works In some circumstances members of the public to whom copyright-protected works have been made available may make a certain number of copies of them for personal use. There are very specific provisions applicable to computer programs. Anyone who has acquired the right to use a computer program is entitled to make copies of the program for everyday use, and to make any adaptations of the program that are necessary in order to use the program for its intended purpose. A person who has the right to use a computer program may also make back-up copies of the program, if this is necessary to fulfil its intended use. It is also allowable to study or test the function of the program, a process known as reverse engineering. However the right to copy works for private use is strictly limited. It is not allowable for a person other than the copyright holder to make copies of musical works or film works, even for private purposes. It is also not permissible to make copies of utilitarian articles or sculptures, or copy another person’s work of fine art by means of artistic reproduction.

The copyright symbol © It is recommended that copyright holders and their licensees should use the copyright symbol (a ‘C’ inside a circle, ©) or the word ‘copyright’ on books, music CDs, computer programs and so on, if they are considered to comply with the level of originality required for copyright protection. Although the copyright symbol has no legal effect in most countries, it is a reminder that copyright protection is considered to exist, at least by the author or licensee of the work.

Legal measures against infringers The copyright laws of European countries contain provisions for enforcing the author’s copyright. Intentional infringements of copyright may lead to fines, or in serious cases imprisonment. A particular sanction that a copyright owner may use is to request an injunction preventing further violation of copyright, with a penalty (normally a fine) should the infringer continue the action. In certain cases a court may impose an injunction without hearing the defence of the supposed infringer of the copyright. If there is reason to believe that someone has infringed copyright (for example, by making


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unauthorized copies of a work in a factory), a court may order that an infringement investigation be performed with the object of securing evidence. This action can be very effective, because such an order may be issued without informing the potential infringer in advance. The court may also order that unlawful copies should become the property of the rights holder, or must be destroyed.

UK copyright law The central piece of legislation in UK copyright law is the Copyright, Designs and Patents Act 1988 (the 1988 Act), which has been amended to conform with subsequent EU Directives. The European Directive on Copyright lists 10 possible exceptions to copyright that Member States can choose whether to implement. British copyright law incorporates a set of exceptions to copyright known as fair dealing. A similar set of exceptions applies to database rights. These exceptions deal with the issues of research for a noncommercial purpose, criticism and reviews of the work, or use of it in reviewing or criticizing another work. It is possible to use a copyright work in a limited way for these purposes (for example, quoting an extract from a written work, or reproducing an extract from a dramatic or musical work), without infringing any copyright in the work, provided the use is accompanied by a sufficient acknowledgement, and provided that the work has been made available to the public. Fair dealing for databases also applies to the use of databases that have been made available to the public. It is permissible under these provisions to extract substantial parts of a database if the purpose is teaching or research, if the person is an authorized user of the database, and the source of the material is indicated. Commercial use is however not allowed. Copyright in a database is not infringed if a person with the legal right to use part or all of a database does things necessary to use or access the contents of the database. Fair dealing for the purposes of private study or non-commercial research is also allowed under UK copyright law. There are explicit limitations to what can be considered fair dealing with computer programs in their decompilation or copying. It is permissible to decompile a program if it is necessary to gain information vital to creating an independent program to interact with the decompiled program, and provided that the information obtained by decompilation is not used for any other purpose. It is also permissible to observe programs to determine their functions and the ideas underlying them by loading and executing the program. It is also permissible to make temporary copies of literary works other than computer programs and databases, such as dramatic works, artistic works, musical works, typographical arrangements, films and sound recordings, if such temporary copies are necessary for a technical process, transient or incidental, and only exist for the purpose of transmitting a work across a network between third parties, or only exist in order to support the lawful use of the work.

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The concept of moral rights was codified in British law by the 1988 Act, and is applicable for authors of literary, dramatic, musical and artistic works and the directors of films. Moral rights include the right to be identified as the author or director of a work as appropriate, the right to object to the derogatory treatment of a work, and the right to object to false attribution of a work. Moral rights also extend to performers in qualifying performances. These rights are the right to be identified and the right to object to derogatory treatment of the performance when that performance is broadcast live or a recording of it is played in public.

French copyright law French copyright law is defined in the Code de la propriété intellectuelle, which implements European copyright law (Directives) and defines two different rights, namely proprietary rights (droits patrimoniaux) and moral rights (droits moraux). The French copyright law (droit d’auteur) is based on the rights of the author instead of on the ‘right to copy’. Developments in international copyright law such as the Berne Convention, and copyright laws in other civil law jurisdictions, have been influenced by French copyright law. Although the French parliament voted to implement the 2001 EU Copyright Directive, there have been different opinions on how to do so. Among the exceptions to copyright in French law – based on the exceptions proposed in the 2001 Directive – is one covering private copies. French residents may freely make copies of works for their private use, and freely display those works within their family circle without the agreement of the copyright holder. Software is excepted. Consequently, French law includes a tax on blank media, including audio and video cassettes, CDs, DVDs, memory and hard drives in portable media players, the revenue from which is distributed to rights owners.

New developments In recent years, there have been important developments that affect the protection of works in general, and works in new electronic media in particular. New forms of information technology (IT) and the internet facilitate the transmission – and thereby both authorized and unauthorized copying – of works such as music, films, newspapers and books. This has led to an adaptation of the provisions in this area, resulting for example in the EC Directive on Copyright in the Information Society, which has been incorporated into the national laws of the EU countries. With respect to originality, a recent judgement from the Swedish Appeal Court concerning a flashlight (the Mini Mag-Lite) dealt with a much-discussed issue, namely the requirements for protection of functional industrial design. The court held that the shape of the Mini Mag-Lite was not original and thus not protected as a work of art under Swedish law. The reason for the decision was partly that the flashlight was a downscaled version of its predecessors, and also that the shape was considered to be primarily functional.


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For instance, the Court ruled that the general overall shape and configuration of the barrel of the flashlight was a result of the fact that there are two standard AAcell batteries inside, laid end to end. To choose the most evident and suitable design, closely adapted to the function of containing two such batteries, is not to be considered as ‘original’. However, industrial design could be regarded as a work of art, provided that the design is original enough. Industrial design shapes closely adapted to the function of an object, like the Mini Mag-Lite, can however be covered by other forms of protection, like design registration (which is limited to 25 years).

Jan Nilsson, who holds an MSc in computer engineering, is a vice-president and senior partner of Ström & Gulliksson Intellectual Property Consulting. He has more than 10 years of experience in the areas of software, telecommunications, computer systems and networks, internet applications, electronic devices and business methods. His primary practice area is Swedish, foreign and international patent preparation and prosecution, as well as oppositions and appeals. He also specializes in preparation of opinions regarding patent infringement and validity, client counselling, strategic patenting, intellectual quality-related issues, and is an experienced technical advisor in patent litigations. The patent firm Ström & Gulliksson Ltd and the law firm Gulliksson Advocates Ltd are specialists in intellectual property law and intellectual property-oriented commercial law. Further details: Ström & Gulliksson Intellectual Property Consulting, Edison Park, Emdalavägen 16, SE - 220 07 Lund, Sweden, tel: (+46) (0) 46 19 05 00, email: [email protected]

2.4

Designs

Design rights in the European Union can be a surprisingly strong source of protection for both three-dimensional (3D) and virtual products, says Elisabeth Murray at Mathys & Squire.

An aspect of European intellectual property (IP) law that is widely underappreciated is the powerful protection now available for features of design of an enormously wide variety of products. Design in this context includes the appearance of a product or its packaging. While there are inevitably some commercial products for which design protection is excluded, products for which designs are protectable vastly outnumber products for which they are not. Design protection is not restricted to the design of decorative objects; consumer and industrial products as diverse as mobile phones, building components, drinks cans, machine tools, computer equipment, kitchen gadgets and vehicle parts can all be the subject of design protection. Nor is design protection restricted to the design of 3D objects: computer icons and user interfaces, financial literature and graphic symbols may all now qualify for some form of design protection. For those familiar with patent protection, it is interesting to note three important areas where design protection is dramatically more favourable to the design right owner:  registered design protection in the European Union is (within limits) still available after the product in question has been launched;  some design protection is acquired automatically without registration procedures or fees;  the owner of an EU (Community) design right can enforce the right in all EU countries simultaneously, in one court proceeding.


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These differences will of course have important consequences not only for the design right owner, but also for companies seeking to launch competitive products. There are essentially two regimes of protection: automatic unregistered protection, which is free to obtain, relatively short-lived and enforceable only against those who actually copy the design; and registered protection, for which there is an application procedure, which is long-term and is enforceable against use of the design, irrespective of whether or not there was deliberate copying. A requirement for protection as a registered or unregistered Community design is that the design is new. Within this important and developing area of law there are of course drawbacks, complexities and some conditions. These are summarized in the remainder of this article, but you are recommended to seek expert assistance, for example from a European patent attorney, most firms of which are also skilled in design matters.

What is a design? From a legal perspective, according to the Regulation on Community Designs, ‘design’ means the appearance of the whole or a part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture and/or materials of the product itself and/or its ornamentation. ‘Product’ is defined widely in the Regulation, and includes not only the actual product or component itself, but also packaging as well as get-up, graphic symbols and typefaces. Computer programs are specifically excluded from design protection but protection can be obtained, for example, for the design of computer icons.

Legal protection for designs in the European Union In the European Union the law of designs is complex, and is a tangle of Community and national design laws as well as, in some cases, national copyright laws. Protection of a design can be obtained through registered rights (those which are applied for) and can also arise through unregistered rights, which come into being without application. Until recently, the laws relating to designs differed widely across the various Member States of the European Union. EU legislation introduced the registered Community design right and unregistered Community design right through Council Regulation No. 6/2002, and harmonized (the main features of) national registered design law by way of Directive 98/71/EC. The advent of the Community Design Regulation has greatly simplified the law across the EU for registered Community and registered national design rights. However, there has been no harmonization of the national unregistered design rights or of the relevant national copyright laws, which still differ widely between countries. The different laws provide, for example, different scopes of rights, different conditions as to term, different criteria for infringement, and different remedies for infringement. All of these different laws exist in parallel, and so a particular product can have aspects that are the subject of a registered Community and/or registered national design,

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aspects that are protected by unregistered Community design and/or unregistered national design rights, and still further aspects may be the subject of copyright protection. (In addition, the product may be the subject of one or more patents and/or trade mark registrations.) For simplicity, reference is made in this article mainly to protection obtainable under the Community Regulation, although some reference is included to the additional national provisions. Further complexity arises since the definition of design relates to a product or part of a product, and thus a single product could include several designs, each one being the subject of separate design protection. For example, a mobile phone could include new designs for its overall shape, as well as for separate elements such as its screen or keypad. Design protection differs from patent protection. Design protection can be obtained for a product’s aesthetic appearance, whereas patents protect inventions, for example relating to the function of the product. Indeed, the registered Community Design Regulation specifically excludes from protection features for which design is solely dictated by function.

Protection of designs under the Community Design Regulation For protection under the Community Design Regulation a design has to be (among other things) new and have individual character. A design is considered to be new if no identical design has been made available to the public. The test for individual character considers the overall impression the design produces on the informed user. In other words it must be apparent that the design is different from designs that existed previously. Such a design may benefit automatically from the unregistered design right, and/or registered protection can be applied for.

Rights obtained under the Community Design Regulation A Community design right gives its owner the right to prevent third parties using in the European Union an identical design or a similar design which does not produce on the informed user a different overall impression from the protected design. A registered Community design right gives a monopoly right: a right to exclude others from using the design. The registration affords protection in respect of both designs that have been deliberately copied and designs that have been developed independently. An important distinction is that the unregistered Community design does not provide a monopoly right. This limits the value of the unregistered right as it is necessary to prove copying for infringement to be proved. While the design right relates to a product, the scope of protection afforded by a Community design right is not limited to that particular product but extends to any article bearing that design, whether the article is similar or not to the product. The


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protection of the design extending to its use in respect of other articles is of particular benefit where features of a design extend across a company’s product range. In such cases registered design protection can provide some form of protection for brand identity, and can thus be an important partner to trade mark registration.

Taking action against infringement Action against infringement of a registered Community design or unregistered Community design right is brought in a designated Community Design Court; each EU member state designates the relevant courts. A judgement given in a designated court is valid across the European Union. The Community Design Court can award an injunction, seizure of products and ‘other sanctions which are provided by the law of the Member State in which the acts of infringement or threatened infringement are committed’, and so the remedy of damages or account of profits may also be available.

Benefits of registration under the Community Design Regulation The Community Design Regulation provides a single procedure for obtaining a design registration covering all of the countries of the European Union. This is clearly preferable to filing separate national applications where protection in several EU countries is to be sought. Unlike a registered Community design, an unregistered Community design does not provide a monopoly right. Thus, while the unregistered rights may be useful for taking action to prevent deliberate copying, copying can be difficult to prove. Remedies available for infringement of unregistered rights may be limited compared with registered rights. In particular, the remedy of damages may, in some cases, be unavailable in actions for infringement of unregistered rights. Licences may be available as of right for the infringer of unregistered rights, and thus the owner of the unregistered right may not be able to prevent use of the unregistered design, whereas an injunction might have been obtainable had the design been registered. The maximum term of protection for a registered Community design is 25 years, whereas the term of an unregistered Community design right is considerably shorter at three years. National unregistered rights generally also have a relatively short term. Unregistered rights are thus more suited for providing relatively low-level protection, in particular for short-term products or products having a short production run. Thus there is clear legal benefit in obtaining registration, in addition to the deterrent to would-be infringers that registration may provide.

Applying for registration Application for a registered Community design is made at the Office for Harmonization in the Internal Market (OHIM) in Alicante. The application procedure is simple. The

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application is filed with representations showing all the features of the design to be protected. In some cases a sample of the design may be filed. An ‘indication of product’ is filed with the application, which states the product to which the design is to be applied, but this does not affect the scope of protection afforded by the registration. Several designs can be included in a multiple application, thus reducing overall costs. Examination of the application is carried out only as to formal requirements; no comparison of the design applied for is made with prior rights to see whether the design is new and of individual character. When the application has been accepted it proceeds to registration and publication. It is possible to request deferred publication, in which case the publication can be delayed by up to 30 months after the application date or priority date, if applicable. Protection in non-EU countries may be obtained by filing further design applications in other countries. If such applications are filed within six months of the date of filing of the initial application for the design (the priority date), then they may claim the benefit of the filing date of the initial application.

When to file A requirement for Community registration is that the design is new, in that it has not been made available to the public before filing. However, there is a grace period of 12 months so that under certain circumstances disclosure of the design may not destroy the novelty of the design with regard to obtaining registered Community design rights. However, many countries do not have such a grace period against self-disclosure, and therefore, if valid protection for the design is to be obtained in any of those countries, an initial application for registration must be filed before there is any relevant public disclosure of the design.

Third parties’ rights It follows that since steps should be taken to ensure design protection is in place before launching a new product, it is also necessary to consider the rights of others and the risk of infringement of a third party’s design registration or other rights. Consideration should be made to carrying out searches to look for registered design rights which might be infringed by sale of a product. If relevant third-party rights are found, redesign of the product could be considered, or a licence of rights could be sought. Application can be made to OHIM for a declaration of invalidity of a registered Community design right. It is not generally possible to search for unregistered rights as such, but for there to be infringement of an unregistered Community design right there must have been copying of a prior design. Care therefore should be taken to avoid copying third parties’ designs. National registered and unregistered rights may also exist in parallel to any Community rights, and expert assistance should be sought to advise on such matters.


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Summary The design of a product is potentially of great commercial importance, giving added market value and setting a company’s product apart from those of competitors. Design can not only provide value to products themselves, but can also provide a branding function, giving coherence of design across a company’s product range. Community design law provides important protection of this valuable asset, and Community design rights extend and are enforceable across the whole of the European Union.

Elisabeth Murray is a partner of Mathys & Squire and advises clients across a wide range of IP including patents, design rights and trade marks. Elisabeth has particular experience in obtaining registered design rights in the European Union and worldwide. Mathys & Squire is a leading firm of patent and trade mark attorneys, providing the full range of IP advice and services to clients worldwide. Combining technical expertise, specialist legal skills and commercial awareness, Mathys & Squire helps to maximize its clients’ rewards from innovation while minimizing their risks in bringing that innovation to market. Further details: 120 Holborn, London EC1N 2SQ, Tel (+44) (0)20 7830 0000 or Cambridge Business Park, Cambridge CB4 0WZ, tel: (+44) (0)1223 393739, email: [email protected], website: www.mathys-squire.com


2.5

Utility models

For utility models, there is no common European practice, reports at the Italian Patent and Trademark Office.

Unlike other intellectual property rights (IPRs), harmonized legislation for making models is not provided under EU legislation, the European Patent Convention (EPC) or international legislation. The Paris Convention for the Protection of Industrial Property (1883) provides for utility models only for its objects, and establishes some general rules such as the national treatment for non-resident holders and temporary protection on the occasion of international fairs. Therefore, it is possible to protect a utility model on a national basis, but the protection does not exist in all countries, and it varies considerably from country to country, particularly as regards the level of inventiveness required. However, there has been increasing attention on utility models at Community level over the past decade, since the issue of the Commission Green Paper on the Protection of Utility Models in the Single Market of 1995,1 revised in 2001,2 and the proposal for a Directive approximating the legal arrangements for the protection of inventions by utility model,3 which was never approved.4 In Italy, the utility model is the subject of separate right from a patent for inventions. Both patents and utility models define an intellectual creation with a technological content in any field of industry, but they are two distinct IP rights which cannot be combined. Patents and utility models differ in the level of inventive step required. A patent protects a new invention which involves an inventive activity and is capable of industrial application, while a utility model consists of improvements in shape which do not constitute a solution to a technical problem but rather confer a particular utility on a product which already exists. Thus the improvement brought

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about by the shape merely gives a product more efficacy and/or a greater convenience in handling, but the improvement does not transform the object into something substantially new and different. Since a utility model assumes the pre-existence of a product, it cannot precede an invention. However, by law, anyone applying for a patent for an industrial invention may at the same time file an application for a utility model, which proceeds only if the patent application is refused or accepted only in part. When registered utility models concern complex products, single spare parts are not automatically covered by the patent protection. According to Italian case law, 5 spare parts can be patented through utility models if they present features of autonomy in respect of the complex product considered as a whole. Both of these two IP rights have been provided for in the Italian legal system for about 70 years. A utility model should not be thought of as a ‘minor patent’. Rather it is a tool to protect functionality. This is the outcome of an evolution in the Italian utility model protection system. When utility models were introduced in the domestic legislation for the first time at the end of the 19th century, they were really a sort of minor patent, and hence they were exempted from the substantive examination for patentability. The protection for utility models and industrial designs was not differentiated. Different IP rights make up an efficient IP system only if they are substantially different without overlapping, so that they protect different aspects of innovation in a specific, clear, transparent and consistent manner in order to enable owners of the rights to exploit and value a competitive advantage. For this reason in 1940 the Italian IP system was comprehensively updated, and the institution of utility models was reviewed and improved to make concrete this market approach. Since then, patentability requirements and prior examination were introduced for utility models too. While there is a difference in the qualitative level of inventive step required between utility models and patents, for the other requirements utility models must fulfil the same thresholds of novelty, industrial application and lawfulness as for patents. The exclusive right conferred by the patent on the holder takes effect from the date of filing of the application, and has a term of 20 years for inventions, and 10 years for utility models. A factor always considered in the Italian IP system is the balance between the life cycle of a product, the processing time for the IP rights application and the needs of the IP right holder to have effective protection. This is a good thing because in many industrial sectors the product life cycle is reducing. In Italy, the IP right holder has the right to base a legal action from the application filing date, in order to guarantee effective protection in substantially disputed situations.

Notes 1 COM (1995) 370 final. 2 SEC (2001) 1307.


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3 COM (1997) 0691 final amended by COM (1999) 309 final /2. 4 The arguments for and against creating a Community utility model are summarized on the Community website devoted to intellectual property: http://europa. eu/scadplus/leg/en/lvb/l26048.htm 5 Turin Court decision, 21 April 1990. 6 The Copyright Service deals with any issue related to the national and international protection of literary, artistic and scientific works, at the same time as the rights originated by the copyright. Moreover, it supervises the Società Italiana degli Autori ed Editori (SIAE) – the Italian collective licensing society for authors and editors – maintains relations with the World Intellectual Property Organization (WIPO), and acts as a secretariat for the Copyright Advisory Committee and for the Intellectual Property Protection Committee. In Italy the National Patent and Trademark Office (UIBM), connected to the Ministry of Economic Development, is responsible for any activities relating to industrial property rights (patents, trade marks and designs) while the Copyright Service of the Ministry for the Cultural Goods and Activities administrates copyright and related rights.6 All the types of IPRs listed below can be obtained through the UIBM: patents, utility models, topographies of a semiconductor product, new plant varieties, supplementary protection certificates, trademarks and designs. Further information concerning applications, fees and how to obtain, keep into force and enforce different IPRs in Italy are available on the UIBM website, www.uibm.gov.it or by emailing uibm@sviluppoeconomico. gov.it

2.6

Trade secrets

The EU Member States offer extensive, though diverse, levels of protection for trade secrets through varying combinations of common law, criminal law, competition law and contract law, reports Professor Ruth Soetendorp, director of the Centre for Intellectual Property Policy and Management at Bournemouth University.

Trade secrets, along with know-how and reputation, are sometimes referred to as ‘quasi intellectual property’. This is because they are often generated alongside intellectual property rights (IPRs), and like IPRs they have a commercial value. It is important in a company that trade secrets are recognized as soon they come into existence. If you or your colleagues, employees or consultants do not realize that certain knowledge should be regarded as a trade secret, it will be difficult to afford it the protection it needs in order to be exploited or enforced in the future. The value of enterprises lies increasingly in intangible IPRs and associated trade secrets, rather than tangible products or plant. So it is increasingly important to have a clear understanding of what constitutes a trade secret. It is important to appreciate the vulnerability of trade secrets where technology allows information to be replicated swiftly and without expense, by disaffected staff members or competitors.

What is a trade secret? Not easy to define, a trade secret is commonly considered to be any information including but not limited to technical or non-technical data, a formula, pattern, compilation, programme, device, method, technique, drawing process, financial data, or a list of actual or potential customers or suppliers that is sufficiently secret to derive




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economic value, actual or potential, from the fact that it is not generally known to other persons who could obtain economic value from its disclosure and use, and whose secrecy is achieved thanks to its holder’s reasonable efforts.1

How does a trade secret differ from confidential information? The difference between ‘secrecy’ and ‘confidentiality’ is difficult to establish. A trade secret tends to have independent, legitimate commercial value in and of itself, whereas the use or abuse of confidential information may or may not have commercial value. For example, the secret formula for a popular soft drink would be considered a trade secret, while the menu choices for a film star’s wedding breakfast would be confidential information. Where someone, without permission, photographed an ‘installation’ put together to be photographed for a record sleeve, and sold that photograph for commercial publication, there was no possibility for an action for breach of copyright because the ‘installation’ was not an artistic work. Instead, an action for breach of confidence was successful (Creation Records Ltd v News Group Newspapers Ltd 1997). Efforts must have been made to ensure the secrecy or confidentiality of the information. There need not necessarily be a confidentiality or non-disclosure agreement in place to ensure information will be treated as ‘confidential’. However whenever commercial dealings might involve confidential information, or trade secrets, it would be good practice to have a confidentiality or non-disclosure agreement in place. Often, a clear understanding of whether or not information is defined as a trade secret emerges only as the result of a judicial decision. In a trade secret dispute, the court considers a number of factors, which point to the importance of ‘good housekeeping’ in respect of trade secrets by companies seeking to rely on them.  The extent to which the information is known outside the owner’s business, and the extent to which it is known inside to employees and others: this suggests the importance of sharing information strictly on a ‘need to know’ basis internally and externally. Where trade secrets have to be shared as part of negotiations, they should be disclosed in the context of a non-disclosure agreement which spells out the exact and specific nature of the information being disclosed, the purposes for which it might be used, and the limited number of people entitled to have access to it.  The provisions in place by the owner to protect the secrecy of the information: this suggests the importance of putting procedures in place to minimize risk. A prosaic list could include computer screen savers, shredding of waste papers and visitors’ signing-in sheets. While good practices will not protect against abuse, absence of good practice will make it more difficult to challenge an abuse successfully. In addition, the court will consider the value of the information to its owners and to competitors. Value can be appreciated from consideration of the amount of effort or

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TRADE SECRETS 85 

money invested in developing the information, and whether or not that information could easily be replicated or obtained by other people.

What information can constitute a trade secret? A trade secret comprises trade-related information that is de facto secret, and where the owner has made efforts to maintain its secrecy. Such information can be positive or negative. Negative trade secrets might concern information about the weaknesses of a process or ineffectiveness of a product. Positive trade secrets can relate to all manner of business information including:    

compilations of data; lists of customers; costs and prices; business methods and strategies.

It can cover knowledge relating to company innovation, including:    

drawings and plans; computer software; prototypes; formulae, ingredients and manuals.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is a treaty administered by the World Trade Organization (WTO) which sets down minimum standards for many forms of IP regulation. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) treaty in 1994. It contains requirements that nations’ laws must meet for IPRs and undisclosed or confidential information. TRIPS Article 39 contains express provisions for the protection of undisclosed information, where such information is secret, has a commercial value because it is secret, and has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information to keep it secret.2 TRIPS remains the most comprehensive international agreement on intellectual property to date, although there is no obligation under TRIPS to provide for criminal procedures in respect of abuse, for example by espionage, of trade secrets and confidential information. All states that are members of the World Trade Organization are signatories to the TRIPS agreement.

How does the law protect trade secrets? TRIPS lays down a benchmark for respect of trade secrets in all signatory states, but if secret information that is owned in Germany has been made public in France, the secrecy is lost. The US Supreme Court has said, ‘once secrecy is lost the property interest is lost forever’. UK law regarding confidential information has been described


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as ‘a shield and not a sword’, which suggests how difficult it is to assert the right through the courts and achieve restitution. Both comments emphasize the importance of concentrating efforts on protecting secret information. In most common law jurisdictions confidentiality and trade secrets are regarded as an equitable right rather than a property right. Trade secrets are difficult to maintain over time (though not impossible, as with for example Coca-Cola’s secret recipe), or over a large number of people. Confidentiality may be at risk when employees privy to a secret leave the company. Electronic communications make it possible for secret information to be made public swiftly and globally. While there may be situations where relying on confidentiality is preferable to public disclosure in a patent application, it is invariably more difficult to prove a breach of confidence than infringement of a patent.

International recognition of trade secret protection Trade secrets can be referred to as ‘know-how’, which is defined as a ‘body of technical information that is secret, substantial, and identified in any appropriate form’. This suggests that to qualify as a trade secret the know-how must be fixed in a tangible medium, hard copy or electronic, to be legally recognized. The EU member States offer diverse, but high-level, trade secret protection through trade secret legislation which offers a different combination of common law, criminal law, competition law and contract law, depending on the Member State. Different regimes distinguish in law slightly between applications to manufacturing trade or industrial secrets, knowhow, confidential business information, private and corporate information. In England the law in this respect depends on the broad principle of equity. Anyone who has received information in confidence shall not take unfair advantage of it, by using it to the prejudice of the person who gave it without obtaining consent. In Germany anyone who, in the course of competitive business activity, contrary to honest practices, makes unauthorized use of a trade or industrial secret by communicating it to a third party, can face a damages claim or punishment under unfair competition law. In France, commercial secrets get protection through unfair competition and contract law. In the People’s Republic of China, trade secrets are protected under the Law of the PRC Against Unfair Competition 1993, which deals with attempts to pass off products as legitimate, imitation of trade dress, use of an unauthorized enterprise name, as well as infringement of trade secrets. Infringing activity in respect of trade secrets includes ‘obtaining business secrets from the owners of rights by stealing, promising of gain, resorting to coercion or other improper means’ and/or ‘disclosing, using or allowing others to use business secrets of the owners of rights obtained by the means mentioned in the preceding item’. Japanese law takes a somewhat unusual approach. Infringing a trade secret is similar to the ‘improper means of appropriation’ under the US Uniform Trade Secrets Act. Significantly, the new law expressly authorizes third-party liability and injunctions. Compensatory, but not punitive, damages are also provided. Other measures to restore

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TRADE SECRETS 87 

goodwill, such as a public apology (a common form of relief in Japan), are available. Third-party liability for wrongful taking of trade secret value occurs if the wrongdoer knew, or was grossly negligent in not knowing, that he or she was obtaining secret information. Japan has no historically recognized legal protection for trade secrets. Amendments to the Japanese Law of Unfair Competition 1990 (Art. 1 (3)) afford protection to ‘any manufacturing method, marketing method or other technical or business information useful in commercial activity’. The law does not recognize trade secrets as property rights that can be asserted against others; rather it identifies six kinds of ‘unfair acts’ of acquiring, disclosing or using the trade secret that cause harm to a trade secret holder. Compensatory, but not punitive, damages are available, as are other measures to restore goodwill, such as a public apology, which is a common form of relief in Japan.3 The World Intellectual Property Organization (WIPO) warns small and mediumsized enterprises (SMEs): It is important to bear in mind that trade secret protection is generally weak in most countries, that the conditions for, and scope of, its protection may vary significantly from country to country depending on the existing statutory mechanisms and case law, and that the courts may require very significant and possibly costly efforts to preserve secrecy.4

Trade secrets and confidential information – some practical suggestions  Non-disclosure agreements: people who expect to talk about the company’s trade secrets outside the company need to know what type of non-disclosure agreement is appropriate in the circumstances.  Where to take a good idea: people at any level in a company should know to whom to take their bright idea. If not, or the designated person does not know how to respond appropriately, that bright idea might be lost to the company, along with its value.  Visitors: visitors to your premises should sign a visitors’ book in which they undertake an obligation of confidence in respect of everything they see and hear during their visit, and be invited to leave their electronic communication equipment at reception.  Contract terms: an express undertaking of confidentiality should be written in to the contracts of all staff, support workers, consultants, casual workers and students on placement.

Notes 1 Intellectual Property Helpdesk, The legal protection of trade secrets, http://tinyurl. com/y3f9bp 2 Agreement on Trade Related Aspects of Intellectual Property Rights 1994 (TRIPS Agreement), Section 7, Protection of Undisclosed Information, Article 39.


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3 Magri, Karen A, International Aspects of Trade Secrets Law [online] http://www. myersbigel.com/ts_articles/trade_secret3.htm 4 WIPO, Intellectual Property for Business: Trade secrets [online] http://www.wipo. int/sme/en/ip_business/trade_secrets/benefits.htm

Ruth Soetendorp is Professor of Intellectual Property Management and joint director of the Centre for Intellectual Property Policy & Management at Bournemouth University. Her award in 2001 of a UK National Teaching Fellowship recognized her work on IPR education in the non-law curriculum, developed through consultancy projects with the UK Patent Office, EPO, WIPO and private companies. Her research has brought her face to face with engineering faculties in Europe, Australia, Japan, China, Russia and India. She is co-author of interactive resources designed to facilitate self-managed learning of IPR, and leads the education subgroup of the UK Intellectual Property Awareness Network. Further details: Bournemouth Law School, Bournemouth University, Poole Dorset UK BH12 5BB, tel: (+ 44) (0) 1202 965212, website: www.cippm. org.uk, email: [email protected]





3

Commercializing IP in Europe





3.1

Innovation rights

Winning companies, argues Jean-Louis Somnier of Novagraaf Technologies, use 100 per cent of the power of intellectual property (IP) in all the attributes of an innovation: defensive and internal, as well as offensive and external.

In today’s business world, innovation is back in the headlines. To face fierce competition in products and services, innovation is one of the key major drivers of companies’ values and competitiveness whatever their size, their sector of activity and their geographical operations. An innovation in itself does not give the creators a decisive path to success on the market. It is combined and cross-departmental efforts within a company that generate success – R&D, Design, Marketing, Operations, Sales, Communications – leading to the effective launch of products and services, with the end-consumer (either business to business (B-to-B) or business to customer (B-to-C)) recognizing value in the new proposition. Innovation is about creating something truly new to the world, highly visible to the end-consumer or highly invisible, as part of a product, a service, a process of production or even a business model. True innovation changes a paradigm in the lifestyle or perhaps the health of the end-consumer, or brings about a definitive quantum leap in operations. Innovation can also be incremental to existing products and services and still be called progress. Innovation takes time and money to be successful. From idea to commercialization of an end-product, through multiple validation steps and prototypes, months and sometimes years can be necessary. The pressure of competition and changes in client expectations shorten product and service life cycles.


 100 COMMERCIALIZING IP IN EUROPE

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Innovation: a holistic view, going beyond technology alone IP plays a key role in innovation and its process. The innovation perspective and its IP implications differ from one industry sector to another. Sometimes technology plays a core role (as in manufacturing and high-tech sectors), and sometimes in addition, design, brands and image are critical (as with consumer goods). From a marketing standpoint, an innovative product or service goes largely beyond the sole patented technology on which it relies. In the consumer goods sector, an innovative product has a set of specific attributes which enable the end-client to identify, recognize and appreciate the experience, and which finally lead to customer loyalty: a brand, a logo, a shape/design, some packaging features, characters/colours/fonts (with potential variances depending on geographies and client segments). Communication and advertising the products leads to the creation of ad campaigns with individual signatures, sounds and music. And of course there are features that rely on specific technology components, pieces of software or materials. Distribution channels also play a key role in spreading innovative products and services (including the internet of course, more and more), including specific innovation in displays to customers in stores. And finally, external valorization through licensing is increasingly important in today’s business. In a specific example that can easily be extrapolated to any other sector of business, all this set of attributes falls under the IP area of application: trade marks, designs, copyrights, patents in technology and methods. Winning companies use 100 per cent of the power of IP in all the dimensions of innovation, on all the attributes, not only as defensive and internal but also offensive and external tools. They do not only use the huge possibilities offered to protect their investments, to ensure their success: they also use searches, research and intelligence to identify competitive moves (effective competition, blurring effects) and also to come up with new ideas in leveraging existing technology, improving on what exists to finally build a distinctive and creative offering to the market. And above all, they consider the expenses associated with innovation not as a cost but as fully integrated in their business plans as a must, as important as all other investments, and assessed as early as possible in the development and launch processes.

Entering Europe with an innovation: options for IP rights (IPR) protection As a result of this, the strategy and tactics needed to handle IP rights in any market, in any geography, are strongly embedded in the strategy and tactics of the introduction of innovative products or services to the markets under consideration. These are key parameters in choosing the right strategy and tactics for IPR:

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INNOVATION RIGHTS 101 

 Geographies: in which countries and which markets are sales to end-consumers expected? In which countries is the product manufactured?  Channels: direct or indirect? Licensing or not?  Timing: which business sequence is expected – Year 1, Year 2 or . . .?  Competition activity: how intense? What are the potential reactions? As well as these parameters, the business plan could also be adjusted in light of the possibilities that IPR ‘availability’ offers. There is an iterative process that leads to the final plan. Protecting IP rights is part of the business decision process. An innovative product or service, and its launch campaign in Europe, must be described and ‘chunked’ into different IP components: trade marks, designs, patents, copyrights and domain names.

IP protection of an innovation: a critical business decision The options for IP rights protection are many, and should carefully be assessed according to business plans, risks, markets of interest and speed of expansion. The main identified routes for IP protection are on the national, European Community and international scales. Lessons must be learnt from large firms and innovative companies: they understand and recognize that IP is embedded in their business. First, it is seen as a discipline, necessary in all critical business decisions and considered as an investment or insurance, not only as a cost, especially when innovation is concerned. Second, it must be considered in a holistic way, largely beyond technology. The winners of today and of tomorrow know it.

Jean-Louis Somnier is a French and European patent and trademark attorney, who has been managing director of Novagraaf Technologies for seven years. He is an engineering graduate of the Ecole Nationale Supérieure de Techniques Avancées (ENSTA), Ingénieur du Génie Maritime and Ingénieur de l’Armement (R), and holds a degree from the International Institute of Industrial Property Law (CEIPI). Jean-Louis has 16 years of experience in industry as a engineer and operational manager, and 19 years as a patent attorney. He also teaches IP strategy classes at universities and secondary technical schools. Contact details: [email protected], tel: (+33) (0)1 49 64 60 00, website: www. novagraaf.fr


3.2

Building an international knowledge business

Christina Nordström, a knowledge management specialist at the Swedish Patent and Registration Office, discusses the lessons to be learnt from the intellectual property (IP) strategies deployed by two innovative Swedish companies.

ClimateWell and Elekta are two innovative Swedish companies which have started off with an idea, developed and commercialized a product for the local market, and then successfully conquered international markets, keeping their IP assets intact and making a profit on the ideas behind the patents. How did they do it? There are no patented solutions for successful IP management. Different enterprises and different products face different conditions and challenges. So here are two different stories.

ClimateWell ClimateWell AB is a supplier of solar powered air-conditioner equipment. Its products have the unique ability to store energy and convert hot water into cooling and heating of the indoor climate in buildings. Today it has 27 employees, with offices in Sweden, Spain, Italy and Finland. The challenge ahead is to build a narrow business with a broad patent strategy. It is hard to believe, but it actually started off with an invention that did not work very well. Ray Olsson, the founder of a company called Suncool (and now head of innovation at ClimateWell) had worked on developing new absorption technologies


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since the 1970s. When he finally succeeded and applied for a patent he also contacted Göran Bolin, founder of another small company, Solsam Sunergy, which developed and sold solar collectors. Together they tested the functionality of Ray’s invention in different ways, and in 2001, when it proved to be functional, Solsam Sunergy merged with Suncool and became ClimateWell. All the IP assets belonging to Suncool were transferred to ClimateWell, and it immediately started building a consumer product that focused on the cooling and heating of buildings. How did ClimateWell handle its IP assets while expanding into new markets? ‘Our policy has always been to seek global protection by applying for patents in all markets that might be interesting to us,’ says Per Olofsson, the president and CEO. ‘There are of course always things to consider, and the question all small companies have to ask themselves before going in to markets like Asia, Europe and the United States is whether it’s worth it. It’s expensive and it takes experienced guidance from a skilled patent agency.’ At ClimateWell all patent decisions are made by the board of directors. Since all representatives on the board have a common view of what value patents bring to the company, there are rarely any discussions. Having a clear patent policy that states how to handle different types of patents and costs also reduces the need for discussions. ‘The decisions on what patents to file for have to be based on evidence that the product works and that you believe it will sell. If both of those criteria are fulfilled, there is no reason not to apply for global patent protection,’ says Göran Bolin, executive VP and CTO at ClimateWell. It is also necessary to agree on licensing, and if this is a good strategy for the company. At ClimateWell, licensing is considered badly paid and not especially interesting. ‘There are companies that fool themselves, believing that there are easy ways to make money, but this is not true,’ says Per. ‘There are no short cuts to earning money.’ Its IP assets are crucial to ClimateWell’s business. That is why it has driven a very aggressive patent strategy through the years. In 2005 its patents represented 15 per cent of its depreciations. Further, being a business-to-business provider, it is very important to have a patent strategy that is mentioned in all contracts. In some cases, the partner even signs an ‘active safeguard’ clause, which means it must work proactively to protect ClimateWell’s patent. ‘An aggressive patent strategy has been a necessary but not an obvious choice for ClimateWell,’ says Per Olofsson. ‘After all, it does cost quite a lot. Not only do you need adequate patents, you also need to have the ambition and the resources to protect them.’ What advice can ClimateWell give small companies who are thinking about international expansion?  Apply for patents. This is necessary if you want to build value for your business and attract potential investors. To grow organically is tough and takes much longer. Further, having strong patents gives your company a competitive edge. Without patents there are no guarantees, which in turn make it more difficult to expand.

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BUILDING AN INTERNATIONAL KNOWLEDGE BUSINESS 105 

 Before applying for patents, think it through carefully. How would you act in case of a patent infringement? Are you prepared to protect your IP? A patent is an expensive investment and has to be well planned for.  Establish good relations with a professional patent agency. This is a long-term relationship that can prove very valuable.  Do not rely too much on the patent protection. It is not until you go to court that you realize whether the patent you have is strong or not.  Patent issues should be handled strategically by management and the board of directors. The strategy should be based on what markets are most important, for you or for your competitors, and how you wish to position yourself in these markets.  The larger the company, the more perspectives you have to deal with. Therefore it is important to have a standardized, common tool for evaluating possible patent applications.  Don’t think there is easy money to be made in licensing.

Elekta Elekta’s story started in the 1930s, when its founder, Professor Lars Leksell, who was a neurosurgeon, realized that the rate of mortality for patients undergoing brain surgery could be reduced by minimizing surgical intervention. During the late 1940s he invented the stereotactic frame, and introduced it as a tool with which neurosurgical instruments could be positioned with great precision. Since then Elekta has developed from being an innovative small company on the Swedish market to an international medical-technology group who provides clinical solutions, comprehensive information systems and services for improved cancer care and management of brain disorders. With 2,000 employees globally at 30 offices in 20 countries, Elekta is today the market leader in image-guided and stereotactic clinical solutions for radiosurgery and radiation therapy worldwide. Because its line of business is relatively non-litigious, Elekta did not initially focus on patent issues, and did not feel the need for a strict patent strategy. Further, the patents the company applied for were general. The rules and guidelines that regulate the market build a protective framework for any firm that manages to enter the market. Hence, there are not that many competitors, the giants keep to themselves and lawsuits are rare. Early on in Elekta’s history it was R&D managers who handled IP issues, although they were not dedicated to this full time. Patents were seen as something you had to do, not something that brought value to the company. Although this has changed, it is still a question of priority. ‘IP issues are important questions that have to be dealt with at management level,’ says Tomas Puusepp, president and CEO of Elekta. ‘But at times there are many other issues that are equally or even more important. In these cases it can be difficult to prioritize IP. Our goal however, is to handle IP issues more strategically in the management group.’ To protect the enterprise from potential threats you need a strong patent portfolio, and in 2003 Elekta recruited Adam Franzén to be responsible for IP issues and build the


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Elekta portfolio. Even though he is not part of management he works closely with the company’s legal team, who address all types of patent questions with management. ‘When building a patent portfolio you shouldn’t underestimate the importance of quantity and apply for many patents,’ says Franzén. ‘But it’s also important to have strong patents. Patents, especially in the United States, tend to get granted with a somewhat unclear scope of protection. This is not all bad as it creates uncertainty among competitors and could be used as a competitive advantage for the patent holder.’ Elekta also has a written patent strategy which is revised every six months. The main purpose has been to increase the amount of patent applications per year, but it also serves as a supportive policy in case of infringement proceedings. Keeping track of what is going on in the market is another crucial activity for successful IP management. Elekta constantly scans the market to follow technological development as well as filed patents by searching for news on different types of technology, companies or key inventors. Elekta’s advice to aspiring companies is:  Choose a country or a region to focus on. And prepare yourself for potential problems. You need endurance and stamina. A lot of things can go wrong and it might take longer than expected. You should also carefully analyse the market so that you understand market drivers, how the IP system works and what the legal framework looks like.  You should do a complete competitive analysis and patent search. If not, you might fool yourself into believing that you are alone in the market. Especially in the United States, where there are countless small and medium-sized companies, competitors must be identified.  Don’t just apply for a patent to protect ideas linked to specific products, but try to obtain a broad scope of protection that could potentially create problems for your competitors’ product development. That is what makes a strong patent. A common error companies make is to underestimate their environment. This goes for IP management as well.

The Swedish Patent and Registration Office (PRV) grants protection and exclusive rights to technical ideas, trade marks and industrial designs. PRV handles applications regarding changes of personal names and issues authorizations to publish periodicals. PRV offers commission services and courses in all of its subject areas. It is a government-owned authority with 500 employees, with offices located in Stockholm and Söderhamn. General information on industrial property in Sweden can be found under www.prv.se. For information regarding the article please contact Christina Nordström: [email protected]

International innovation

Enterprises must think beyond their domestic markets in developing their IP, say the Italian Patent and Trademark Office.

In the new knowledge-driven economy and in an international environment characterized by increasing market integration, the intellectual property (IP) system plays a key role in competitive business strategy. IP rights (IPR) are crucial in the process of value and innovation creation at enterprise level. Over the last few years, a broader view of innovation has been considered which is not limited to product and process innovation but gathers in innovation in all its dimensions, including organizational and marketing innovation.1 Different IPRs are able to catch and protect the value and competitive advantage of all these dimensions of innovation over the years. Enterprises should always integrate industrial property with their internationalization strategy. Often, at entrepreneurial level, there is a lack of capacity to single out and evaluate the intangible value produced, which is therefore devoid of protection. Enterprises, especially small and medium-size enterprises (SMEs), know little about industrial property as business tools. They generally consider IPRs merely as an expense, and when they choose to protect their intangible assets, the protection is very often only occasional and domestic. However a clear division among domestic markets does not exist any more. The market has always to be considered in its international dimension, and the IP strategy to protect the intangible assets has to be conceived and carried out at the same level, encompassing all the markets where a firm is present, directly or indirectly, with its products or services. Unprotected intangible assets carry the risk of being appropriated by other enterprises, especially in far-off countries where it is difficult for an SME to monitor the market. Then when a company decides to file an application for


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an IP right in its domestic market, it should apply for the same right in all the countries that the company is planning to enter within a three to five-year period, especially if in those countries the number of IPR applications is rising steeply with a rate of growth which significantly exceeds the extraordinary increase in the GDP rate.

Note 1 See OECD (2005) The Oslo Manual: Guidelines for collecting and interpreting innovation data, 3rd edn, OECD, Paris [online] www.sourceoecd.org.science/ T/9264013803 (accessed 29 March 2007). For further details go to www.uibm.gov.it

3.3

IP and proof of concept

In the experience of Dan Richardson and Dr Paul McEvoy at Technology from Ideas in Dublin and Cathal Lane at Tomkins & Co, there are four main disciplines to observe in taking early-stage technologies to market.

The translation of technology ideas into tangible and viable concepts is an activity known as proof of concept (POC) development. This early-stage development process lies at the interface between research and development activities, and is critical if valuable resources are to be deployed efficiently in creating and protecting intellectual property (IP). POC development is conducted by industry, universities and inventors themselves. However it is an activity that is often not conducted well, and may be best outsourced to specialist companies. Irrespective of whether the customer for your IP is internal or external,1 a wellconducted POC project leading to a robust business case is achievable provided certain principles are followed. This chapter describes methodologies used by POC specialists that can be successfully deployed to improve the identification, development and exploitation of early-stage technologies, particularly in small and medium-sized enterprises (SMEs) and universities.

Environment and people As ideas emerge from research, their fast and efficient transition into revenuegenerating IP is a challenge which requires the right environment and people. The successful ingredients include:  bottom-line focus with a willingness to terminate projects when required;


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 focus on delivering ‘investment ready’ technologies;  focus on delivering what prospective customers want, with direct market feedback rather than areas of interesting science setting project objectives;  a generalist, system engineering perspective of the technology and how it fits into the broader product or system;  a multidisciplinary team of scientists, engineers, patent attorneys and outsourced expertise. Assembling these ingredients, all within the right commercially focused yet objective culture, is not easy, which is why universities and SMEs often find POC development challenging. It is important to note that the inventor is often not the best person to lead a POC project, and their expertise can best be exploited in a technical capacity.

Sourcing ideas It is important that developers of technology recognize that good IP can come from any source, not just internally. The transition towards open innovation2 demonstrates that successful technology companies exploit IP from multiple sources (eg universities, SMEs, customers, competitors) and organize themselves to engage with a multiplicity of potential IP suppliers. It can be difficult to know where to look for in-licensing opportunities, and it can be more reassuring to stick to ideas sourced internally. However, something as simple as a patent search on competitor names can start the ball rolling on the assessment of the IP landscape. Government support is available in many European countries to assist (see box). Furthermore, it can be beneficial to explore bundling IP from multiple sources to create more substantial opportunities and fill gaps in internal IP portfolios.

Technology search service In Ireland, the government agency Enterprise Ireland provides a dedicated technology search service (Tech Search www.techsearch.ie) to SMEs. This enables SMEs to find IP from many sources including universities, other SMEs and multinationals. This support can fast track the POC process and help identify potentially valuable IP of which SMEs would otherwise be unaware.

Selection/filtering Once a potential idea has been identified, a decision needs to be made whether to invest in it. This decision-making process should ensure critical issues are highlighted at an early stage:  Be clear on the benefits of the technology to the end customer. Technologists are often poor at framing the benefits of their technology (eg it saves €15 million per



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year; it generates €50 million in new revenue over three years). This is best linked to known problems or shortfalls that can be ultimately linked to the bottom line of a business (what is the corporate 'pain' your technology is relieving?). Avoid technical terms and keep it simple as decisions on subsequent investment are usually not made by technical experts.  Estimate, reduce and eliminate risks. Be clear where your risks are (market? IP? technology?), and use the initial analysis project to reduce them. For those that cannot be removed, assess whether your planned POC project will reduce them sufficiently to make the IP ‘investment ready’.  Calculate the potential return on investment (ROI) for the project, considering the outstanding risks. Sometimes this is difficult to do where new products or new markets are concerned. Whatever discount factors you use in establishing the viability of your project, be realistic about the risk of the project. Early-stage projects are invariably risky, and therefore should have discount factors attributed appropriately.  Include strategic fit as part of the process. Do not be sidetracked on interesting projects which do not fit with the longer-term plans of the company.

Development Project management There is often a risk that POC activities are run more like curiosity-driven research projects than commercially focused development projects. This should be avoided. Clear project management principles must be employed, such as PRINCE2 or PMI, with a stage gate plan formulated and progress regularly reviewed against it. This plan should be augmented with two other documents: a risk register and business case. The risk register is used to track and monitor how the identified risks change during the project. It is important that these are the perceived risks identified through dialogue with potential customers. The aim should be that by the end of the project these risks reach a low enough level that there is confidence to invest in the next stage of development. The business case is a document that should ‘sell’ the opportunity to those investing in the next stage of development. It should summarize the market opportunity, the robustness of the IP position and the viability of the technology. It is a living document and should be updated regularly during a project along with the risk register to ensure that the rationale for investment has not changed. Ultimately this should lead to a view on the valuation of the IP.3 Well-defined project deliverables should be identified that have a clear link to the risk areas identified by potential customers. In early-stage POC projects, new information can be gained very quickly and this could change what you want in your deliverables. While ‘moving the goalposts’ is often seen as a sign of poor project management, it may be necessary to do it, in a systematic way that improves the likelihood of a successful project. Flexibility is the key.

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IP AND PROOF OF CONCEPT 113 

Perhaps the most important and difficult skill to develop in your POC team is the ability to take an unbiased view of the potential of the IP. Management must be willing to terminate a project at any stage, and should encourage project managers to do this without fear of being seen as failures.

Key activities There are four key work packages that should form the core of any POC development: All are interrelated, and can inform and stimulate further activities in each of the other work packages. Each work package will typically be conducted continuously throughout the project, and will then form the main content of the business case.

Market analysis As in any market-led project, market research fundamentals (eg analysis of competitors, technology cost structures and business models) underpin this analysis. The most common reason that POC projects fail is that the market has not been understood adequately. This can be for a multitude of reasons including:  Lack of understanding of the real user requirements.  Lack of understanding of who the customer is: the person who pays you for your IP is not necessarily the end user of your IP.  Targeting the wrong market. The largest market may not be the right market to target first. Smaller, niche markets may present better entry opportunities because of their lower specification requirements or higher risk tolerance. Larger high-value markets often have regulation risks and manufacturing cost risks attached.  Poor knowledge of cost structure in the market. It is important that you understand what is typically paid for IP in your market, and furthermore, what value may be attributed to your piece of IP (see box).  Bad timing (the opportunity passes). It is crucial that you look ahead and factor in adoption timescales typical for the market you are in. It is therefore vital that before embarking on a POC project, discussions with potential customers are conducted. There are various tools for capturing this knowledge and mapping it onto your concept characteristics (eg quality function deployment (QFD)4), and if appropriate these should be used. If you direct your project towards specific customer requirements, it becomes less ‘technology push’ and more ‘market led’. This should be the objective of all POC projects as this can significantly reduce market risk.


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Cost structure The cost of mobile phones varies greatly across a number of different price points. Typically, IP itself runs around 5–7 per cent of the total cost which is different than the price at retail because the wireless operator always ‘buys down’ the capital cost of the product and gains it back on monthly revenue. Taking the example of a low-end mobile phone, a typical manufacturing cost may be around €50. For a mature mobile phone technology, the cumulative IP element of this is typically around 6 per cent (around €3) and comprises a basket of about 20 patents covering ‘essential IPR’ associated with the standard. Of these patents, a small number will be considered key, some will be middle ranking with the remainder being lower value. The royalties will therefore be attributed to IP owners on this basis. For high end, more technically advanced phones, the IP costs can increase significantly. Understanding such complexity in cost structure is therefore vital if your POC project is to be successful.

IP development and protection The best and often most efficient method to develop and actively manage IP through the project is to engage professional advisors as part of a team. This ensures that the targeted IP position is tested as part of the project, extending the IP space occupied by the patent to its fullest extent. It also ensures that searches are conducted at the earliest point possible, often saving money that would otherwise be wasted on pointless work. This way of working is common amongst large R&D companies and technology development specialists, but can often be hard to achieve in SMEs and universities. However, dynamic patent attorneys are willing to work in this interactive way with clients as it invariably leads to better and stronger patents, and also improves the understanding of development staff in the drafting and filing process.

Technology prototyping The level of evidence required to make your IP ‘investment ready’ will vary from sector to sector and from customer to customer. Some may be happy with simulation results and some may require laboratory-scale prototypes. Your plan must establish this in advance to ensure you will meet the expectations of the customer by the end of your project. A useful method for focusing your project is the NASA technology readiness level (TRL) scale.5 This provides a view on the maturity of your IP and how close it is to the market in a systematic fashion (eg a TRL of 0 is ‘Basic principles observed and reported’ and a TRL of 9 is ‘Actual system “mission proven” through successful mission operations’). One additional factor to consider here is the TRL of other technologies that your IP may be reliant on. In reality the customer is not only interested in your TRL but the combination of all IP and the readiness of the overall system solution (often called the system readiness level or SRL).

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IP AND PROOF OF CONCEPT 115 

The golden rule here is to avoid getting sidetracked by interesting science. Achieving the deliverables within cost and budget is the key metric of success in POC development, not producing scientific papers.

Product development road map This is the element that is most often missing from the marketing of IP. It essentially outlines to the customer what they will have to do next to take the IP to market. Often the customer may be best placed to establish this, and therefore this road map can be developed further through dialogue with them. To make IP investment ready it is important that a clear plan to market is in place detailing:    

The risks to be overcome. How large are they? What are the chances of failure? Finance required to take this IP to market. Timeline for, and stage gates in, the development plan. Other IP required to make this happen. What are the constraints on access to this IP?

Sale Depending on who is conducting a POC project, its completion either leads to a sale/licence, further technology development projects and/or a subsequent product development programme. Whether your customer is internal or external, a sales pitch will be required to secure further investment. This should be based on the outputs from the four work packages outlined above in a way which sells the benefits of the technology, not the technology itself. As the market for IP becomes more liquid, the routes to market for IP are increasing. Patent brokers can support this process, as can web portals. Patent auctions are now also becoming a viable alternative for realizing value quickly and effectively.

Summary and future trends The dramatic increase in the levels of licensing within the IP market over recent years, and the trend towards open innovation, mean that there are an increasing number of IP suppliers pitching their wares to potential buyers, which are now open to using externally sourced IP. However the challenge of taking IP from the lab to market remains as demanding as ever, with many technologies on offer just not ready for customers to license. To make technology ‘investment ready’ requires a POC project to be undertaken by a commercially focused, multidisciplinary team that addresses the key concerns of prospective customers. Whether you engage specialists in this field or conduct your own POC projects, developing revenue-generating IP remains an exciting but difficult activity.


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Notes 1 In this chapter, customers for IP are considered as external, but the same principles apply if your customer is within your own organization. 2 Henry Chesbrough, Open Innovation, Harvard Business School Press (2003). 3 There are a number of different methods and all are summarized in Richard Razgaitis, Valuation and Pricing of Technology Based Intellectual Property, Wiley (2003). 4 see http://en.wikipedia.org/wiki/Quality_Function_Deployment 5 see http://esto.nasa.gov/files/TRL_definitions.pdf

Technology from Ideas (TfI) is a technology commercialization company that specializes in conducting proof of concept (POC) development of early-stage ideas within the physical sciences and engineering domains. TfI sources ideas mainly from researchers in partnered universities, and develops these into investment-ready technologies with their own scientists and engineers in their own labs. It then sells or licenses the proven technology in conjunction with its partners, who conduct subsequent product development work for end customers. Profits from sales are then shared with the university and researcher. Tomkins & Co. was established in 1930 by Arthur Bellamy Tomkins, and is one of Europe’s longest-established IP law specialists. With 50 top quality people, working in established teams, it consistently delivers high-calibre practical advice across a broad range of technical domains. Its clients range from large corporations and multinationals to individual inventors and entrepreneurs.

3.4

Business–university collaboration

The practice of developing model agreements to simplify negotiations between companies and universities is being adopted in Europe Lawrence Cullen at the UK Intellectual Property Office reports.

To improve innovation performance, it is essential to increase collaboration between business and university. However, the complexity and cost of negotiations relating to intellectual property (IP) can be a serious barrier to setting up effective collaboration between business and universities. This was one of the key findings from the UK government-sponsored Lambert Review of Business–University collaboration in December 2003. This review was chaired by Richard Lambert, former editor of the Financial Times newspaper, former member of the Monetary Policy Committee of the Bank of England which sets interest rates for the UK economy, and currently chairman of the Confederation of British Industry (CBI), the voice of business in the UK. To help overcome this barrier, the Lambert Review recommended the development of a set of model agreements to help business and universities understand the issues involved in handling IP under a number of different collaboration situations. This set of model collaboration agreements, known as the Lambert Model Agreements Toolkit, was launched in February 2005. Following an update in October 2005, a review was carried out in February 2006 which found that a wide range of UK organizations were making use of the Toolkit. These include universities, small and medium-sized UK enterprises (SMEs), large corporations, regional development agencies (RDAs) responsible for innovation and technology transfer training organizations.


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Purpose The Lambert Toolkit is designed to help businesses and universities save time and effort in the negotiation process and increase the likelihood of a consensus between all parties. It was developed by the Lambert Working Group on IP set up in May 2004, following completion of the Lambert Review and it was chaired by Richard Lambert. The Toolkit is important because the rapid pace of change in science and technology is generating new opportunities for business in the United Kingdom and in Europe. Great strides are being made in areas such as bio- and nano-technologies, information and computer technology, new materials and new fuels. To take advantage of this progress, our economies have to be able to transfer knowledge effectively, both in terms of people and know-how, between those who have generated it and those who are best placed to exploit and develop it commercially. Solutions and applications developed through such collaborations will usually have a high intellectual input, be knowledge-intensive and provide high added value to a business. This value is usually protected through the use of IP hence the model agreements are extremely important guidance tools for UK businesses and universities to ensure they get the IP right. Making it easier for embryonic businesses to handle what is seen as a complex issue will improve their chance of survival.

The Toolkit The Toolkit comprises five model agreements and three supporting tools. Each Lambert Model Agreement (LMA) describes a different scenario for collaborative working between business and university. The five scenarios covered by the model agreements are summarized in Table 3.4.1. The three supporting tools help potential collaborators identify all the issues they need to take into account when deciding which one of the five model agreements is most suitable for their particular circumstances. The Agreement Outline provides a checklist of all the issues that a potential collaborator needs to think about in preparation for negotiating a collaboration agreement. Some of these issues need to be considered internally within the business or university before entering negotiations, and some of these issues need to be covered during the negotiations themselves. The Decision Guide is an interactive question and answer tool which helps the user to identify the most appropriate LMA to use as a starting point for negotiations. It focuses on three key areas and how they interact with each other. These are:  the ownership and rights to use the results of the project;  the financial and other contributions made by the commercial sponsor;  the university’s use of the results for academic purposes. Having a clear idea of the position in these areas helps users to identify which model agreement most closely meets their needs. By combining the responses to the questions in the Decision Guide, it is possible to identify which of the LMAs may be the most appropriate starting point. If a project







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is of critical commercial importance to the commercial sponsor, and cannot take place without using the sponsor’s technology or intellectual property, the Decision Guide directs the user to consider LMA4 or LMA5. Where publication of the results would have a serious impact on the competitive position of the sponsor and the sponsor wishes to ensure that publication does not take place, the user is directed to LMA5. If a project is of a more speculative nature or not of such critical commercial importance, and is more about developing a relationship with the university academic, then the user is directed to consider LMA1, LMA2 or LMA3. The Decision Guide can be used as many times as a user wants to explore different combinations. It is not a precise or exhaustive guide, but it is very helpful at focusing the user’s thinking on what he really wants from a collaboration.

Table 3.4.1 The five Lambert Model Agreements (LMAs) LMA

Terms

IP owner

1

Business has non-exclusive rights to use in specified field of technology and/or geographical territory; no sub-licences Business may negotiate further licence to some or all university IP Business may negotiate for an assignment of some university IP University has right to use for non-commercial purposes Contract research: no publication by university without business’s permission

University

2 3 4 5

University University Business Business

The Guidance Notes provide a commentary and explanation of the terms used in the agreements, and an explanation of some of the legal issues. This makes sure that both parties understand the issue and avoid confusion.

Using the Toolkit The best way to use the Toolkit is to take a stepwise approach where: 1. The Agreement Outline is used to identify all the issues the parties need to consider in order to have an effective collaboration agreement. 2. The question and answer approach in the Decision Guide is used to decide which of the five model agreements provides the best fit with the circumstances of their collaboration. 3. The Guidance Notes are used to check that they understand the meaning and relevance of the terms and clauses used in the model agreements.

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BUSINESS–UNIVERSITY COLLABORATION 125 

Using this approach, it is possible to identify quickly the important and relevant issues in any proposed collaboration, and to gain a better idea of the type of collaborative agreement best suited to the purpose in hand. Thus when negotiations with the potential collaborator begin, the common issues can be agreed without delay and both parties can then focus their time and effort on resolving the critical issues. The model agreement serves as a starting point and is designed to reduce the cost and time spent negotiating. The text of these agreements is not ‘set in stone’: they can be adapted to take into account the particular circumstances of each collaboration. The stepwise approach is designed to make sure that potential collaborators have identified and thought about all the relevant issues before beginning negotiations. This is important because it allows those issues that are not contentious to be agreed quickly. If both parties have very different expectations from the potential collaboration, illustrated for example by their selection of very different model agreements as starting points for negotiation with each other, this becomes clear very quickly. Both parties will then be able to decide quite quickly whether to continue or not. None of the LMAs deal with the joint ownership of IP. The Lambert Working Group considered that it is more difficult for the business and the university to manage this together efficiently. The Toolkit adopts a simpler approach which relies on one of the parties owning all the IP as a single entity, with the other party receiving appropriate payment and access as agreed. Also third parties seeking to license a technology may often find it easier to deal with a sole owner of all the IP.

Use of the Toolkit Use of the Toolkit has been made across the full range of companies and universities, including SMEs and large corporates such as GlaxoSmithKline (GSK) as well as well-established universities such as Oxford and Cranfield and new universities such as Hertfordshire. For example, GSK has used 31 LMAs for its collaborations with universities (from March 2005 to January 2006), four of which were with universities outside the United Kingdom, and one with a university spin-out company. All five types of model agreements have been used and some collaborations have been put in place at very short notice, such as one week. The University of Oxford put 10 collaborations in place between October 2005 and February 2006, two with SMEs and eight with large pharmaceutical companies. The University of Hertfordshire has used the Toolkit to review its policy on collaborations with industry. As a newer university with less experience in this area, it found the Toolkit to be a useful benchmark. The LMAs have provided answers on how to deal with issues on ownership of IP, confidentiality and publication of material by students. This has resulted in the successful negotiation of eight agreements with SMEs. Using the Toolkit, a collaboration agreement with GSK was put in place in two days! Business support and development bodies such as the RDAs have also begun to use the Toolkit. The Lambert Agreements have been used by the South East England Development Agency (SEEDA) as the standard agreements for its Proof of Concept Funding Scheme – PoCKeT – where local businesses are put in contact with a higher education partner anywhere in the United Kingdom to assess commercial viability


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(seven projects in the period from May 2005 to February 2006; £25,000–£30,000 per project). In each of these cases an LMA type 4 or 5 has been used where the industry collaborator will have ownership of the IP. SEEDA expect to have 20 to 30 such projects each year in this programme, and that the standard agreement for the programme will be a Lambert one.

Recent updates The update to the Toolkit in October 2005 provided examples of other useful agreements that users had found helpful when putting a collaboration in place. These are listed in Table 3.4.2, and cover specific issues that may arise when setting up or in the course of a collaboration. These other useful resources (OURs), as they are termed, will help users to tackle a range of related issues that often arise during collaboration projects. Such issues include, for example, ensuring confidentiality, negotiating a licence, and use of samples provided by one collaborator to the other. These OURs are provided as examples only, and though consistent with the five model collaboration agreements, they were not subject to the same level of scrutiny and development by the Lambert WG.

Collaboration in Europe Inspired by the example of the LMA Toolkit and drawing on similar work from other European states such as Denmark and Germany, in 2006 the United Kingdom, as part of its presidency of the European Union, led a working group which developed the CREST Cross-Border Collaboration Toolkit. This highlights the issues that a collaborator in one European country must address when considering a collaboration with a business or university counterpart in another European country. This toolkit uses a decision guide approach similar to that used in the Lambert Toolkit. It also includes a checklist of cross-border issues that the user can use to check whether a proposed collaboration agreement adequately addresses the crossborder issues. Actual suggested clauses are not possible because of the differences in legal systems and contract law between countries. This toolkit also includes fact sheets for 20 countries in Europe, identifying the key issues that a person needs to know about when considering a collaboration with a partner from that country. Currently, this Cross-Border Collaboration Toolkit is only available in printed form, but work on an internet version is expected to begin in 2007.

The future: business-to-business model agreements The LMAs and Toolkit focus on collaboration agreements between a business and an academic partner. Work is currently under way to provide model agreements which would be suitable for use by a larger number of partners working in a consortium. Such multi-partner consortia increasingly arise in R&D projects funded by the

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BUSINESS–UNIVERSITY COLLABORATION 127 

Table 3.4.2 Other useful resources for business-university collaborations Resource

Example of when used

1

Sample patent and know-how licence

Where the sponsor and the university have reached agreement that the sponsor should be granted an exclusive licence to use identified IP in the results of a research collaboration (see LMA 2).

2

Sample patent assignment

Where the sponsor and the university have reached agreement that the university will assign IP in certain results of a research collaboration to the sponsor (see LMA 3). It is based on the assumption that the assignee will pay a one-off sum for the assignment of the patent, but the parties may agree revenuesharing or other payment terms.

3

Sample materials Where a sponsor has agreed to allow the university to use transfer certain materials in connection with a research project. agreement

4

Sample consultancy agreement

Where there is an agreement between a commercial sponsor and an individual academic researcher, under which the individual researcher undertakes to provide consultancy services to the sponsor. It records a private arrangement between the researcher and the sponsor. The researcher assigns the IPR in the work done as a consultant to the sponsor in return for payments made by the sponsor. In order to be able to assign those rights, the researcher must own them. That normally means that they must not have been developed in the course of his or her employment by the university; if they have been developed in the course of employment, those rights will usually belong to the university.

5

Sample nondisclosure agreement

Where a business and a university wish to exchange confidential information as part of their discussions about a potential research project before they have entered into a collaboration agreement.

6

Sample equipment loan agreement

Where the business sponsor has agreed to allow the university to use equipment in connection with a research project.

7

Sample confidentiality notice

A simple example of the kind of notification a user would include on the front page of a document to indicate that it and the information provided are confidential.


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UK Department of Trade and Industry under its Technology Programme, or by the European Union under its Framework Programme. In this situation there may be more than one academic partner and more than one business partner involved in the consortium. The Lambert Working Group on Intellectual Property will meet in Spring 2007 to work on a set of model consortia agreements. This Working Group will also examine the potential for developing a set of model agreements for collaborations between two business partners. Business-tobusiness collaborations are becoming increasingly important in an environment where companies can no longer afford or are too small to carry out all functions themselves. Increasingly they have to partner and collaborate to gain access to new products, technologies or skills. A review of the role of intellectual property in the UK carried out by Andrew Gowers, a successor to Richard Lambert at the Financial Times, on behalf of the UK Treasury, has recommended that a range of model agreements for business-to-business collaborations would be very useful .

Conclusion The Lambert Toolkit has provided a useful and practical tool to make negotiating a collaboration agreement easier. It helps save time, effort and resources. It makes it easier for potential collaborators to identify any major issues or differences of approach early on in the process of negotiating the collaboration agreement, so as to be able to concentrate on resolving those issues or differences. The sooner this is achieved, the sooner the work can begin.

The Toolkit can be accessed through the website of the UK Intellectual Property Office (UKIPO, the new name for the UK Patent Office) at http://www.ipo. gov.uk/education/education-hfe/education-agreement.htm, or through the DTI website at: www.innovation.gov.uk/lambertagreements. To order a free copy of the Toolkit on CD ROM and obtain further information on any of the above, contact the Awareness, Information and Media team, UKIPO. Dr Lawrence Cullen is a principal hearing officer in the Trade Marks Registry of UKIPO, where he is responsible for hearing and deciding disputes between parties over trade marks. He took up this post in April 2006. Prior to this, he spent five years as a senior policy adviser in the Intellectual Property & Innovation Directorate (IPID) of UKIPO. Dr Cullen was a member of the Lambert Working Group on Intellectual Property which developed the LMA Toolkit in February 2005. He was co-chairman of the EU-CREST group which produced the CREST Cross Border Collaboration Toolkit in October 2006 to simplify setting up collaborations between partners in different EU countries. Dr Cullen was educated in chemistry in Ireland and the United Kingdom and has worked as a research scientist in universities in France, the United Kingdom, Germany and the United States.

3.5

Managing IP in collaborative ventures

The benefit of developing an idea jointly is easily lost without agreement on how exactly it is going to be exploited, warns Martin A Bader at BGW AG Management Advisory Group, St Gallen – Vienna.

Collaborations have become of greater importance for companies today, because of the increased complexity of scientific and technological development, shortened innovation cycles and the higher risks and costs of generating innovation. Thanks to strategic technology alliances over several decades, the number of research and development partnerships has steadily increased. As a consequence the management of intellectual property (IP) in collaborations plays a decisive role. Early and explicit agreement on how the IP ownership and benefits are generally to be allocated among collaboration partners is important. Finding solutions to the handling of IP that evolves from collaborative ventures thus poses a big challenge to the collaboration partners and their strategists.

Collaboration = dilution of intellectual assets? Collaborations have been experiencing general growth for decades. Statistics on joint patent ownership also show evidence of this phenomenon: an empirical investigation affirms that the proportion of patents and patent applications that are co-owned by two or more patent applicant companies in triad patent families increased from almost 7 per cent in 1980 to more than 10 per cent in 1995 (see Figure 3.5.1). The low ratio


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A. In total patent families

B. In patent families with at least one US, EU or Japanese applicant

% 15

% 15

Japan

10

10 European Union

United States

5 1980

1982

1984

1986

1988

1990

1992

1994

1980

1982

1984

1986

1988

1990

1992

1994

5

Note: A triad patent family is a patent applied for at the EPO and the JPO and granted by the USPTO for inventions that share one or more priority dates. Applications are sorted by priority date (date of first filing worldwide) for granted patents only (granting date up to 2000). Co-applications in patent families with at least one US, EU or Japanese applicant, as presented in the figure on the right, are not mutually exclusive.

Figure 3.5.1 The share of jointly owned patent families is continually growing and relatively slow growth of jointly owned patents can be explained by the general tendencies of companies to avoid jointly owned patents, because they are considered to cause increased administrative efforts before and after the collaboration, and pose difficulties for the exploitation of the IP.

Collaborative success factors Collaborative ventures do not necessarily have to lead to disasters or the dissipation of intellectual and financial value. However, various precautions and attentive but pragmatic preparational and negotiative steps should be taken, especially during the early stages of the collaboration process. These are the success factors for managing IP in collaborative environments, as affirmed by various industry projects and supported by diligent academic studies conducted by the author, who has extended professional industry experience (see also Table 3.5.1).

Determination of the dominant collaborative goal Assess future use intentions at the initial stages of the collaboration, such as desired market size focus (a narrow or broad target market) and desired collaboration focus (an inbound or outbound licensing stream).

Assessment of scope of contract  Assess the business case risks and opportunities with respect to the degree of maturity of revenues, costs and profits.



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 Define the collaboration scope, eg intellectual property licence, technology licence, business model licence or business solution licence.  Understand the individual needs and positions of the collaboration partners, and how competitive advantages can be reached through the specific collaborationrelated IP.  Understand the collaboration partner’s business model and the role that collaborative IP plays, in deciding on exclusivity terms.

Establishment of terms of contract  Mutually reflect on and fully address the following issues with respect to content and legal approval: inventorship rights, ownership rights, rights of use, licensing rights, enforcement of rights, prosecution, administration of rights and sharing of costs.  Focus on clarifying and setting the terms of the collaboration as clearly as possible before entering the collaboration.  Calculate the impact of the overlapping IP on the company’s own activities, and its dependence on the collaborative IP after the collaboration has ended.  Balance the contracts to counter an imbalance of power by taking into account anticipated returns, business scope and risks, and offering the collaboration partner sufficient information about the business objectives.

Incorporation of procedural aspects  Consider the mutual contribution and the aspects of the use of rights in the context of time, categorizing the item as background intellectual property, foreground intellectual property, sideground intellectual property, postground intellectual property or residual information.  Ensure that a back-licence is given on collaborative improvements and further developments.  Secure the IP needed to have enough space to operate independently after the collaboration has ended.  Deal with the various stages of in- and outbound and collaboratively generated IP, for instance by distinguishing between pre-existing and collaborative IP.  Set up and optimize the (internal) process between the collaborating and negotiating levels: that is, between the research and legal level.

Consideration of collaborative settings  Ensure that each collaboration party has a clear view of access rights and needs for the later externalization of rights that are deemed necessary for future research and business activities, with respect to bilateral, multilateral and collateral constellations.  Focus on the skills and the know-how of the collaboration team to create a win-win situation, rather than on the collaboration partners’ general knowledge.  Deploy experienced staff for the collaboration selection process, providing technical experience from expert scientists. The analysis of the collaboration partner’s IP strength and potential should be based on a scientific view.

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MANAGING IP IN COLLABORATIVE VENTURES 133 

Demarcation from existing intellectual property Before entering a collaboration, ensure the safety and integrity of the organization’s own inventions and IP as thoroughly as possible.

Regular communication  Internally communicate between the different experts and negotiation stakeholders involved.  Integrate internal and external patent experts early in the process.  Communicate consistently between the collaboration partners.

Invention checks at early milestone markers in the innovation process Ensure that the organization gets hold of valuable ideas and inventions as early as possible for further refinement and prosecution.

Efficient patent portfolio management from the beginning Develop a concise and effective IP portfolio with a rational value–cost ratio throughout the collaboration time frame.

Definition of exit strategies at an early stage of the collaboration Develop a clear view of how to exit in order to have a predefined exit route and to avoid destructive side effects if the collaboration is terminated on purpose, or termination is enforced.

Conclusions The growing collaborative environment has influenced the way in which organizations deal with IP. Organizations are more willing to share and propagate IP. The initial position of an innovation collaboration focuses on intentions for the future use of the IP; along with its future peripheral and post-collaborative use. A clear entry strategy is the hidden key to collaboration success. Be clear at the start which party will have what rights at the conclusion of the collaboration, especially if the relationship is to sour. Here, the art of negotiation is to create a solid legal basis, while not jeopardizing the common vision and spirit of collaboration. Otherwise, there is a real danger of both sides losing out. It is recommended that agreements are made on business plans and legal issues that govern the anticipated fruits of the collaboration, including IP. Furthermore, it is vital to establish an early and explicit agreement between partners in order to determine how to share ownership, rights of use and exploitation rights of the resulting IP. This requires a clear exit strategy that will answer the question, who has ownerships of and access to which rights after the collaboration has ended? The main reason for the difficulty in answering this question is that at the start, the partners do not know fully what markets and competitors will be present throughout the collaboration’s duration


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Table 3.5.1 Success factors for managing IP in collaborative ventures 1 2 3 4 5 6 7 8 9 10

Determination of the dominant collaborative goal Assessment of scope of contract Establishment of terms of contract Incorporation of procedural aspects Consideration of collaborative settings Demarcation from existing IP Regular communication Invention checks at early milestone markers in the innovation process Efficient patent portfolio management from the beginning Definition of exit strategies at an early stage of the collaboration

Source: Bader (2006).

and beyond. However, by mutually taking care of the relevant success factors already at an early stage, corporations that expect higher values through collaborative ventures will dare to collaborate.

References Bader, M A (2006) Intellectual Property Management in R&D Collaborations, Physica, Heidelberg OECD (2002) OECD Science, Technology and Industry Outlook, OECD, Paris

Dr Martin A Bader is managing partner of the innovation and intellectual property management advisory group BGW, which is a spin-off from the Institute of Technology Management at the University of St Gallen, Switzerland. He is a European and Swiss patent attorney and holds a Master’s degree in electrical engineering. Previously, he was vice-president and chief intellectual property counsel at Infineon Technologies, a leading high-tech semiconductor company worldwide which was carved out from Siemens. Dr Bader is Substitutive Council Representative of the Institute of Professional Representatives before the European Patent Office (epi) for Switzerland, and a member of the Licensing Executives Society (LES). He has published two books and various articles on intellectual property management. For further information contact Dr Martin A Bader, BGW AG, Management Advisory Group St Gallen – Vienna, Thurgauerstrasse 4, 9400 Rorschach am Bodensee, Switzerland, website: www.bgw-sg.com, email: [email protected]

3.6

Licensing as a growth strategy in Europe

License your IP and control the risks involved in rolling out a business internationally, says Martin Sandford, president of the Licensing Executives Society in Great Britain & Ireland.

Suppose that you have successfully conceptualized, developed, manufactured and sold a new product in your home market. What do you do next? You may be content just to sell in your own country, but you will probably see potential for increased profits in generating greater sales and more rapid sales growth by addressing the opportunities in other EU territories, and beyond. You could export directly to consumers, distributors or wholesalers in other European territories. You could appoint sales agents in the other EU territories. Or you could consider licensing manufacturers. To pursue the licensing route, you would need to have strong protection for the core concepts underlying your product. This might come in many forms, but the best protection is likely to be a patent.

Risk perspective What are the essential differences between licensing and the other alternatives for growth? This can best be illustrated by considering the types of risk to which you are exposed. If you choose the export route as your growth strategy, you will be exposed to a number of areas of risk including financial, management, product liability, marketing and regulatory risks.


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The financial risks are largely those relating to increased working capital, to recruiting and employing more staff and to the financing of any expansion of manufacturing capability that is required to meet the expanded sales. The management risks will mainly be those related to establishing and maintaining business relationships with companies that will take your product to market in territories with which you are unfamiliar, and in managing staff in your home territory and elsewhere to achieve the desired growth. The hidden management risk is distraction; ‘taking your eye off the ball’ in your core home territory could possibly lead to destabilizing your existing business. Product liability rests with the manufacturer, so the export route will increase your exposure, and require insurance with expanded territorial cover. Different territories often require different marketing strategies, messages and distribution routes; you will need to research these differences and adapt your product offering and marketing accordingly. Within Europe the regulatory environment should be consistent, but the ways in which products are approved and monitored do vary; you will need to understand the differences and act to address them. If instead you choose licensing as your strategy for growth, some of these risks are eliminated and others modified. You will largely eliminate the financial risks associated with exporting, although as the licensing activity grows you may need more staff, or staff with a different skill set. Once licences are set up the management risk should be much less than for exporting, entailing maintaining relationships with licensees, monitoring their performance and solving any problems that arise. There is still some risk of distraction whilst licensees are identified and negotiations conducted, but the risks are probably less than for exporting and are more easily controllable. Since product liability and regulatory requirements rest with the manufacturer, these will be transferred to the licensees, though there may be some residual product liability risk. Marketing becomes the licensees’ responsibility, although you may wish to retain a degree of control to ensure that your licensees’ messages are consistent with yours. So, in summary, licensing potentially reduces the number of areas of risk to which you will be exposed compared with exporting, and where the risks are not eliminated may reduce the extent of the risks.

Intellectual property (IP) For licensing to work, you need some item of protection to include in the licence. This might come in the form of patents, copyright, trademark, design rights, or possibly secret know-how. The proposition is that a licensee will pay you money for access to a protected position in the market and for access to a product that is ready to go to market in the licensee’s territory, thus eliminating development delays. The licensee wants access to a monopoly for as long as possible. The monopoly may be limited by market segment or application, and the duration of the monopoly may be restricted by the nature of the underlying IP. Patents last for 20 years from the date of filing, whereas trade marks can be eternal and copyright typically lasts for the life of the author plus 70 years.

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LICENSING AS A GROWTH STRATEGY IN EUROPE 137 

The amount that a potential licensee will be willing to pay for the rights will depend upon the perception of the strength of the package that it is being offered, as well as the attractiveness of the market opportunity. Generally, patents are acknowledged as the strongest and best intellectual property right, but the other items should be considered since it is the strength of the total package that will determine the attractiveness and thus value of the offering.

What is a licence? A licence is a permission to do something that would otherwise infringe the licensor’s rights. It will contain definitions of key words used in the licence, and it will define the scope of the permission that is being granted, by reference to IP, market applications and geography. It will record what payments are to be made, how they are calculated, when they are to be made and what verification and rectification procedures will apply. The licence will specify the rights and obligations of the parties. In addition, the licensor may supply other items, such as know-how, temporary secondment of staff or consultancy, to enable the licensee more rapidly to absorb the technology and get the product onto the market. The licence will probably also deal with dispute resolution. Particularly if your IP is mainly in the form of patents, you will have only a limited period during which to exploit it. This leads to the insertion of diligence provisions in the licence which, if breached, can enable you to terminate the licence.

Licensee selection The ideal licensee is a company that will take the maximum risk off your shoulders and wholeheartedly attack the market. You will need to have confidence in the potential licensee’s stability, management competence and commitment to your product. This will probably mean a company that is larger than your own, and one that has skills and resources that you do not. You will also need to recognize the geographical and sectoral strengths of the candidates, only granting rights where the candidate has sufficient strength. Selection of a weak or incompetent licensee could result in a negative impact on the reputation of your product seeping back into your home market from its efforts, so there can be no compromises.

Common pitfalls – what can go wrong A licensee may believe that you are granting the right to make a particular product but that is incorrect; you are granting it ‘freedom from suit’ under your IP. There may be other IP rights that impinge upon the product the licensee eventually markets, and to which it may need separate rights. If you become aware of other IP in the area, then the licensee should be informed. In granting a licence you are granting a limited monopoly. The licensee will expect to see that monopoly maintained; otherwise it will probably cease making


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any payments to you. So you need to have thought through how you might deal with infringements or challenges to your IP, taking account of the financial realities. Also, you can restrict the permissions you grant to your licensees, but you cannot prevent the free movement of goods within the European Union once the goods have passed out of your licensee’s hands.

When would licensing be inappropriate? Licensing may be inappropriate if the manufacture of your product is not economically sustainable in the licensed territory and outsourcing of manufacture (perhaps to China or India) is likely. Also, if you are aware of conflicting IP, it would be better to resolve the IP issue before entering into any marketing of the opportunity.

Conclusions Licensing can be a route to rapid growth. It enables you to mobilize skills and resources that you do not have, for the manufacture, promotion and sale of your product or process. Strong IP is a key prerequisite to this strategy, and licensee selection will be a key factor in success, as will skilled negotiation of the licence.

The Licensing Executives Society, Britain & Ireland is one of 31 national and regional chapters of the Licensing Executives Society International (LESI: http://www.lesi.org/ ). LESI connects licensing professionals around the world, with over 11,000 members drawn from industry, academia, government and the professions. New members with an interest in licensing are always welcome. Martin Sandford held various senior positions at BTG plc, the global licensing company, from 1984 to 2005, including managing multidisciplinary teams developing and commercializing new technologies in crop protection, polymer processing, human healthcare diagnostics, medical imaging, prosthetics and medical devices. His consultancy work since 2005 has focused on the valuation of IP, intellectual asset management and strategy development. He is the current president of the Licensing Executives Society, Britain and Ireland. Further information: [email protected] © Martin Sandford 2007

3.7

Innovation support in the new Europe

The majority of small and medium-sized enterprises (SMEs) in the European Union’s new Member States have not yet recognized the real market value and intrinsic business potential of intellectual property rights (IPR), say Éva Bakos and András Haszonits at the Hungarian Patent Office.

In a knowledge-based economy, the effective management of intellectual property (IP) is becoming a more and more important condition for coping with market competition. This calls for the development of an industrial property culture within enterprises, for the enhancement of their awareness of the industrial property system and for the strengthening of their industrial property skills. (‘Industrial property’ is the term for registered rights – patents, trade marks and registered designs – so it is rather narrower in scope than IP.) As is set forth by the Lisbon Agenda, innovation is a key factor in gaining competitiveness. It is possible to consider the European Union as a market of 25 million enterprises of which 23 million are SMEs. As SMEs account for more than half of all employment, the innovation capability of SMEs is crucial from both economic and social points of view. It is estimated that increasing expenditure on innovation of SMEs by 1 per cent results in a 1 per cent increase in the national GDP. In Hungary, the SME sector accounts for 36 per cent of the GDP and gives work to 67 per cent of employees: that is, to more than 1.5 million people. At the end of 2003, there were 868,000 enterprises in Hungary, of which 99.9 per cent were SMEs. Within this, the rate of micro-enterprises with less than 10 employees was particularly high.


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Situation of Hungarian SMEs according to the VIVACE Survey 2006 Hungary joined the European Union in May 2004, the European Patent Convention (EPC) in 2003 and the Community Trademark System in 2004. In order to take advantage of the possibilities deriving from accession, as well as to reduce the disadvantages arising, the Hungarian Patents Office (HPO), in agreement with the administrative authorities and professional bodies concerned, prepared an ‘Action Plan Promoting Industrial Property Competitiveness of Enterprises’ (the Hungarian acronym for which is VIVACE, meaning vividly, a term taken from musical terminology). The aim of the VIVACE programme is to better understand the situation, motivation, problems and needs of SMEs, to heighten their IP awareness and consciousness, and to develop demand-driven services for them to improve their business performance. Therefore, the HPO in cooperation with the Hungarian Chamber of Commerce and Industry interviewed more than 500 Hungarian SMEs about the impact of EU accession on their business operation, innovation and IP strategies.1 The data were gathered by personal interviews, providing feedback on a questionnaire containing 45 items. The results of the survey revealed that the national enterprises were not ready for the accession. The perception of the majority of SMEs of the accession was negative. The findings show that SMEs felt the disadvantages but believed they could not make use of the emerging possibilities of the accession process as they continued to do business as usual. In other words, the enterprises were observing the changing situation, but they did not expect to adapt adequately to it. Based on a 2004 survey monitoring the innovative capacity of Hungarian SMEs,2 it was observed that 75 per cent are non-innovative, less than one quarter are somewhat innovative and only different sources on the internet this proportion correlates with findings from other EU15 Member States.

Price negotiation capability Domestic sales opportunities Profitability Competitiveness 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

worse

unchanged

better

Figure 3.7.1 The anticipated effect of EU accession on Hungarian SMEs’ ways of doing business

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INNOVATION SUPPORT IN THE NEW EUROPE 141  Innovative 3%

Somewhat innovative 22% Noninnovative 75%

Figure 3.7.2 The innovation capability of Hungarian SMEs

The majority of the SMEs of the new Member States have not yet recognized the real market value and intrinsic business potential of IPR. They do not apply the tools offered by IPR to foster their business, and do not integrate IPR into either their business process or their marketing strategy. Nearly every SME considers it important to be recognizable on the market, and 75 per cent of them make an effort and devote resources to distinguishing their products or services on the market. In other words, they allocate funds for branding. At the same time 86 per cent of the companies answering had not applied for a trade mark registration, which is contrary to the logical marketing strategy one would expect. The situation we encountered when we inquired after the products’ aesthetic appearance and design activity was even more dramatic. While 93 per cent of the SMEs answering considered product design as an important sales factor, and more than half of them spent money on it, just one of every hundred managers had exploited the potential of obtaining design protection. As far as the use of patent information is concerned, Hungary ranks in the middle of the European countries. Only a fraction of existing SMEs make efficient use of the different kinds of IP protection available, and they are therefore at a significant disadvantage compared with their European neighbours. Talking about R&D expenditure, the Hungarian standard is much below the target set by the Lisbon Agenda. In contrast to the 3 per cent of the GDP that it is recommended to spend on R&D, hardly 1 per cent is allocated for it. Additionally, the structure of financing innovation is still rather unhealthy, as two-thirds of investment comes from the public sector and just one-third from the private sphere. In developed countries like Finland this ratio is the other way around. According to the findings of the survey completed by the HPO, close to threequarters of the SMEs have never ever spent any money on R&D or innovation. Just


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Do you do anything to distinguish your product/service?

25

75

Yes 20%

0%

60%

40%

80%

No

100%

Potential

Do you youhave havetrade trade mark protection? Do mark protection?

86

14

Yes

20%

0%

60%

40%

No 80%

100%

Figure 3.7.3 IPR activity of Hungarian SMEs Do you consider aesthetics of a product important?

7

93

Yes 20%

0%

60%

40%

80%

No

100%

Do you invest in the aesthetic designing of your product?

45

55

Yes 0%

20%

60%

40%

80%

No 100%

Do you possess design protection?

Yes

1 0%

99 20%

40%

No 60%

Figure 3.7.4 Hungarian SMEs and design protection

80%

100%

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INNOVATION SUPPORT IN THE NEW EUROPE 143 

Finantarea activitatii de cercetare + dezvoltare 80 70

72%

Percentage of firms

60 50

28%

40 30 20 10

0 0%

0.1–2%

2.1–4%

4.1–6%

6.1–8%

Over 8%

Spending on innovation

Figure 3.7.5 sector

R&D investment compared with net revenue in the Hungarian SME

16 per cent meet the criteria of the Lisbon Agenda. At the same time it is important to mention that 10 per cent of the firms spent 8 per cent or more of their revenue on innovation. One of the most decisive and positive pieces of information from the survey was that innovation proved to be a good financial decision in most cases. Out of the SMEs that have ever applied innovative actions, 90 per cent were better off, or at least had not lost financially on the deal. This fact requires wider publicity. The results of the VIVACE survey underlined the importance and aims of the programme, and the necessity and viability of increasing SMEs’ trust in innovative actions and fostering their innovation capabilities, together with their IP consciousness and effectiveness. These, together with a business-oriented management of IPR integrated into the general business processes, including settled decision making, can greatly contribute to increasing the competitiveness of SMEs of the Central and Eastern European economies.

Economic incentives for innovation and the application of IPR There are a number of different approaches to the application of economic incentives to foster innovation. On the one hand Finland, one of the most innovative economies of the European Union, has never taken action to set up any tax incentive scheme, while on the other hand Ireland is rich in different resources of this kind. The Hungarian government decided to follow the Irish example in this respect, and supports innovative actions and IP activities with economic incentives. It is important to note that the


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K+F tevékenység gazdasági mérlege Bilantul economic al activitatii C+D 17%

Significant profit

58%

Some profit

14% 11%

Break-even level Loss on investment

Figure 3.7.6 Financial balance of R&D activity in the Hungarian SME sector

majority of the incentives apply even to those foreign companies that have their headquarters in Hungary. A special tax-type fund, the ‘innovation contribution’, was introduced in 2003 to raise the national level of innovation. The contribution is paid by all companies (except for micro-enterprises) but can be reduced by the amount of the direct costs of R&D carried out by the company on its own. Furthermore three times the price of R&D ordered from public research organizations can be deducted from the tax base. The revenue from the ‘innovation contribution’ flows into an innovation fund which is used to support different innovation developments, programmes and investments. The acquisition of national and international IP protection is aided via different funds. Up to 90 per cent of the costs related to obtaining international patent protection can be subsidized by the state. Similarly, there is an indirect stimulus to IP activities through a scheme whereby the acquisition of national IP protection is aided via the tax refund system. The affiliation tax system was modified in 2004, giving the opportunity for SMEs to deduct the costs of obtaining and maintaining national protection (patent, utility model, design and plant variety protection) from their tax burdens. In addition, a new parallel application fund system has become available, which also supports the costs of prototyping, the preparation of the pilot series, and preparation of marketing surveys and business plans for international sales roll-out. There are various other funds available supporting the acquisition or rental of scientific equipment, generating R&D in workplaces and developing technology-intensive subcontractual set-ups.

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INNOVATION SUPPORT IN THE NEW EUROPE 145 

The VIVACE programme It is desirable to heighten the awareness of the industrial property system in SME circles by means of campaigns, special training programmes and by using up-to-date information and communication techniques. It is indispensable to promote all the efforts that aim to reduce the costs of acquiring and maintaining IP rights. VIVACE is aimed at supporting and increasing the competitiveness of SMEs by increasing their awareness of the IP system and developing their industrial property culture. The first period of the programme was between 2004 and 2006. As a result of the HPO’s proposals, with the government policy placing more emphasis on supporting innovation activities and Hungary’s joining the EPC, the Hungarian government has provided support for the development of an SME Activity Plan. The SME Activity Plan sets the task of increasing the competitiveness of SMEs by the following means:  the development of value-added IP services;  the development of the IP information and education system;  the development of economic incentives.

Conclusions The first period of the VIVACE programme is now complete, and the results have shown that these measures have helped to increase the competitiveness of SMEs in Hungary. The anticipated results, and actual results to date, of the VIVACE programme are:    

innovative SMEs starting to consciously manage their intellectual property, an increasing number of patent-protected products, increased recognition of IPR, and increased utilization of them; increased licensing activity.

The HPO operates an extensive website to provide all interested visitors, from newcomers to professionals, with useful business information: visit www.hpo.hu

Notes 1 Petz-Vanyai-Viszt (2006) Az iparjogvédelmi tudatosság helyzete Magyarországon, in Fehér könyv a szellemi tulajdon védelméro ´´l, pp 40–55, MSZH, Hungary (in Hungarian). 2 Magyar Innovációs Szövetség (2002) A magyar kis- és közepes vállalatok innovációs képességének fejlesztése (Témavezeto´´: Pakucs János), GKI Rt, Budapest (in Hungarian).


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Éva Bakos is director of the Industrial Property Information and Education Centre of the Hungarian Patent Office. The Centre provides IP information services, courses to the public and contributes to raising IP awareness with promotional tools and publications. The centre’s main task is to raise awareness of industrial property for SMEs throughout Hungary and to create, develop and maintain a network with partners, such as Hungarian Chambers of Commerce and Industry, for this purpose. The Centre looks to maintain a good relationship with governmental bodies, local chambers and non-governmental organizations as well as to cooperate with national patent offices, the European Patent Office, the World Intellectual Property Organization and other relevant bodies. András Haszonits is head of the Industrial Property Education section of the Industrial Property Information and Education Centre, a service line of the HPO. He earned an MA in architecture and MSc in pedagogy at the University of Pecs, Hungary, and an MSc in environmental sciences/sustainable infrastructure at the Royal Institute of Technology, Stockholm, Sweden. Following a career in IT development and later in management consulting, he joined the HPO in 2003. He is responsible for the development of the IP education system in Hungary, the cooperation with the extensive university partnership network of the office, the organization of knowledge dissemination amongst the National IP Information Network’s service providers, the development of advanced education materials and electronic publications such as internet-based awareness raising information campaigns for SMEs, and the HPO’s e-learning programme. He is also involved in the development and operation of the VIVACE programme and the service development policy of the HPO.

4

Technology and patents





4.1

Creating a patent position in Europe

The European patent system is well established but its successful use requires care and thought, says Alan Senior of J A Kemp & Co.

The principles behind exclusive intellectual property rights (IPR) are questioned from time to time, but currently such rights, particularly patents, are well regarded by Western politicians and by economists in the developed world. It is accepted that it is in the public interest to encourage the development of new technology by the grant of a period of exclusivity that compensates the innovator for the costs of innovation, costs that are avoided by competitors who merely copy. To politicians and economists, patents help to make innovation profitable, and encourage investment, and that in turn leads to growth and increased employment. What, though, do patents mean to innovators, and how should they make the most of the patent system? Innovators, particularly individual inventors and small and medium-sized enterprises (SMEs), can be sceptical. They hear apocryphal reports along the lines of ‘My uncle invented such and such and never received a penny,’ ‘Patents are not worth the paper they are written on,’ ‘They are impossible to enforce’ and ‘The system is too complex and expensive, and designed only for large multinationals.’ There is often some truth in such complaints. The fact is that creating, defining and enforcing patent rights can be remarkably difficult and can cause much delay, worry, expense and disappointment. On the other hand, these rights can be very valuable if handled for correctly. The important things to keep clearly in mind are what you hope to achieve


 154 TECHNOLOGY AND PATENTS

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through a patent filing programme and what costs you are prepared for. Patents are a commercial tool that, like others, have costs and benefits.

The building blocks Under the European Patent Convention, patents are granted on inventions which, as defined in ‘claims’ of the patent specification are (i) susceptible of industrial application, (ii) new and (iii) involve an inventive step. The grant can extend to up to 30 countries but typically between 3 and 10 only are designated. As to (i), while there are exceptions any ‘technical’ idea which is for a method, process, product or indeed part of a product is potentially patentable if one can contemplate using it industrially, which in practice one usually can. Thus it is not very often contended that an idea is not ‘susceptible of industrial application’ (apart from the medical treatment exception), and any such contention is usually mixed up with the exceptions to patentability. As to (ii), ‘new’ means that at the filing date the invention must not be known to the public anywhere by being made available in writing, orally or by use, or in any other way. The European Patent Office (EPO) itself makes a search to check on this ‘novelty’. Wider knowledge of what has gone before (the ‘prior art’) can be brought to bear as well. It is essential, therefore, to file a patent application no later than the date on which you (or your inventor) first publishes or uses the invention publically. If you do not do that, you lose the chance of getting protection in Europe. (You may still be able to obtain a patent in the United States and Canada, where the rules are different.) Inventors and developers must know about this, and systems to report to a responsible officer should be in place. Ignorance of this basic point leads to disappointment. This ‘novelty’ is taken very literally. If your claim specifies a single feature not disclosed in a single item of the prior art, it is distinguished by that feature and has novelty – even if that single feature is trivial. As for (iii), we then, particularly for inventions based on small distinctions, come on to ‘inventive step’. The required level is not as high as you might think. Many small advances are protected: most patents are about small steps. Few start new industries or product lines. The technical significance of small points of novelty can be surprisingly large. Experienced attorneys know that you can, by consulting experts, often find important factors and arguments in favour of inventiveness that are not apparent from the documents on file. Be aware that the system is complicated. It was based on existing national systems and has been refined and developed over 30 years. There is a lot of case law on both procedural and substantive issues. Some is pretty difficult for lay people but it is generally coherent and sensible. However, the rules are strict. Those that cause applicants greatest problems are the prohibition on adding ‘subject matter’ after filing, which is very strictly applied by the EPO, and in a related way, the need to find a complete basis for what you claim in your earliest, or priority, application. Unfortunately, a weakness in the initial specification cannot be corrected.

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CREATING A PATENT POSITION IN EUROPE 155 

It might be tempting to save initial costs and draft and file a patent application yourself, and have a professional take over only when the patent office begins to issue awkward examination reports during prosecution of the application. That would be a mistake. A well-drafted initial specification will save time and money in the long run, and will increase your chances of obtaining strong and broad protection. Thus, if you possibly can do so, have a good specification drafted for you. This process will usually involve initial discussions with a patent attorney relating to the invention and the prior art, the production by the patent attorney of a first draft, and its subsequent revision to take into account answers to questions and requests for more complete information made by the attorney. In that way you should arrive at a description which is clear and thorough and complete, has well-thought-out claims, and (very important) wellthought-out fallback intermediate positions in case the main claims are lost during prosecution or litigation. Sadly, cost and time considerations often cause cases to be filed in a much less than desirable condition. Prosecution of the patent application involves examination reports being issued by the EPO – generally objecting to lack of novelty or inventive step on the basis of prior art found in the search – and responses drafted and filed by the attorney. Technical information will be required during prosecution, and experimental work may need to be carried out. It is important during this process to ensure that any arguments presented and amendments made are consistent with the commercial reasons for filing the patent application. After the EPO grants your application, you may face opposition by third parties, who are given an opportunity for a short period after grant to eliminate, or to force amendment of, your patent centrally at the EPO. After that period, third parties can only apply for individual revocations or amendments in each country in which the patent has been made effective. The unified opposition procedure is therefore attractive to them. The patent is vulnerable during this period, and it is often good practice during this short period to lie low, and not attract competitor attention to your patent. As with the drafting and prosecution of applications, the quality of professional representation in preparing oppositions and conducting opposition hearings can really matter. In many cases the preliminary view of an opposition board is changed at the hearing. Depth of thought and thorough preparation frequently pay off. The work has to be done in large part before the day of the hearing.

Litigation If you are concerned at the grant of a third party’s European patent, opposition should be considered seriously. A good case based on effective prior art not considered by the patent office examiner might see the patent revoked at that early stage. Some countries will delay litigation while an opposition (and appeal) is pending. However, patents can in fact become stronger and more respected as a result of unsuccessful oppositions. It can be a good strategy to negotiate with a patentee for a licence, possibly royalty-free and possibly exclusive, on the basis of fresh prior art that you have found. It might be to your advantage for the patent to remain in force so long as you, but not other competitors, have a licence. There are, as always, many factors to consider. But in


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no jurisdiction is litigation desirable if it is avoidable: external costs can be large and internal management costs will soon become substantial as well. At present, litigation systems differ considerably between countries. Germany has the most cases (many are disputes between German rivals); Britain has the most thorough and probably the most expensive.

Building a position with the blocks Although the patentability of different technologies might well affect the direction that a company takes, the usual approach is for an overall commercial strategy to be set first, for a technical strategy to follow that, and for a patent strategy to be devised to fit the technical strategy. The aim then is to create a portfolio of patents and applications that supports the commercial strategy. The purpose of the portfolio might be one or more of the following:     

excluding competitors; generating royalty revenue; cross-licensing; getting ‘a seat at the table’; building capital value.

If the commercial strategy is to manufacture and sell products yourself you will wish to exclude competitors in order to avoid price erosion. In that case you may be content with narrow patent claims covering only products immediately competitive with your own. If, on the other hand, you wish to generate a royalty income, your patent coverage will not be tied to products relating to your own manufacturing capability. If your aim is cross-licensing (probably because you need rights under third-party patents) you may wish to concentrate your patents in areas of interest to those third parties. The last two categories listed are more speculative. In the first of them, getting a seat at the table, you will want to demonstrate to potential business partners that you cannot be ignored, perhaps as a supplier or a contributor to a joint venture. In the case of building capital value, patent applications may be filed to demonstrate you possess serious technology for the purposes, for example, of obtaining venture capital or for flotation. Patents and applications may constitute a considerable part of the perceived value of a start-up company. The strategy in this case would be to impress the financial community, and the number of cases, as much as their precise scope, will be important. A further consideration sometimes applies to large customers, often government departments, that have rules generally requiring multiple sourcing. It can be the case that buyers are allowed to use sole sources if the supplier can show it has a patent. Purchase managers often prefer to avoid the trouble of multiple sources, and might in fact prefer to deal with a supplier who has patented products. They might be relieved if they can avoid a full tender process. There are substantial cost issues of course; but the system does allow opportunities to abandon between initial filing, which is expensive, and wider overseas filing, which

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CREATING A PATENT POSITION IN EUROPE 157 

is even more so. It is suggested that if in doubt you should file, but have periodic reviews and be prepared to abandon the process. Note that pending applications have a value: the potential for protection may inhibit competitors. There are other considerations. For example, it is sometimes advisable to action multiple cases in respect of each product line if possible; there may well be several ‘inventions’ involved in a successful product and each patent or each patent claim has deterrent effect. The more granted or pending cases there are, the harder it is for the competitor’s advisors to give an ‘all clear’. Many products will have more than one aspect that is arguably novel. One should always consider which feature it is that causes the customer to buy the product. Ultimately, it is no good claiming one feature of the product if the real reason for the customer’s purchase is another feature. An industrial product often defined in commercial product specifications that detail many, but not all, of the product’s features. Make sure your patent claims match the product specification. Often the supplier plays a part in writing the product specification. It is important to keep your product evolving, and your portfolio of patents and applications should evolve with it so that pending or granted claims always exist that cover the technical feature that is currently of interest. Eventually, competitors will find ways around patent claims, or the cases will expire or be shown to be weak, and it is necessary to keep moving the goalposts. Geographical and technical coverage need careful thought. Where are the markets? Where are the competitors and their facilities? Likewise, keep in mind who you are trying to impress: the competitors, investors? It is useful to establish a reputation for defending your patents. You want to be able to obtain the benefits without litigation, and you should not be seen to be weak. This is one reason for not maintaining patents that you would not be prepared to enforce or at least to negotiate strongly over. Keep IP activities in line with development issues, and commercial and product strategy; so the protection is where it will be wanted and there is protection for the feature that salespeople can use to impress. It should also be noted that the way in which a patent, or any other intellectual property right, can be exploited commercially is circumscribed by competition law, a subject that is too large to be covered here!

J A Kemp & Co. is a leading firm of UK and European patent attorneys providing extensive services in the field of intellectual property rights. The firm is based in London’s Gray’s Inn, but also has offices in Oxford and Munich. It is a large and successful practice with a long-established international reputation, notably for its work within Europe where it has been one of the leading users of the European Patent Office for 30 years. There are over 40 qualified European patent attorneys in three technical groups, led by Alan Senior (Engineering & Electronics), Geoff Woods (Biotechnology) and John Benson (Chemistry).


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Contact details: J A Kemp & Co, 14 South Square, Gray’s Inn, London WC1R 5JJ; Tel: (+44) (0) 20 7405 3292; email: [email protected], website: www.jakemp.com





4.2

European patents: differences from the United States

Timothy J May and Beth Z Shaw of Finnegan Henderson give a US perspective on procuring and enforcing patents in Europe.

Introduction The practice of patent law has become very internationally focused. With the advent of global trade in all technical areas, US and European companies now have countless reasons to seek worldwide protection for their inventions. For many US companies, understanding how to most effectively procure and enforce European patent rights, and protect against the assertion of such rights, is a vital component in a global IP plan. When engaged in this effort, US practitioners undoubtedly encounter both the stark and subtle differences between the US and European patent systems. Understanding these differences can be critical when, for example, a US company locates research and development activities in Europe. Importantly, companies must generally obtain and enforce a patent in every country where protection is desired. This chapter outlines some of the numerous concerns that companies should consider when preparing their global IP strategies, including the filing and prosecution of patent applications, post-grant procedures, and the litigation and enforcement of patents.


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Filing and prosecuting patent applications in the United States and Europe There are some considerable differences between US and European law that practitioners should evaluate when preparing and prosecuting patent applications. These differences include practical considerations, such as the timing of filing the application, as well as substantive legal considerations, such as whether or not an inventor must disclose the best mode of practising the invention in the patent application.

First to file versus first to invent The US Patent and Trademark Office (USPTO), unlike most of the world, awards a patent to the first to invent, rather than the first to file a patent application. As a practical matter, this means that US inventors can avoid the rush to file a patent application, but may encounter difficulties in determining the actual date of invention for priority purposes. As a result, practitioners should encourage inventors to keep detailed records, such as inventors’ notebooks, to detail dates of conception and reduction to practice of the invention. In contrast, companies seeking patents in Europe should consider filing a patent application on each invention as soon as is practical.

Public use or sale Under US patent laws, a patent application must be filed for an invention within one year of the first public use or offer for sale. This one-year period is often referred to as the one-year ‘grace period’. Companies may use the grace period to develop a claim strategy and prepare a full application. For example, companies may use the time to specifically tailor claims to cover a competitor’s product, or to try to obtain a licensee or other funding before deciding to expend resources on patent protection. Europe (along with most other jurisdictions) does not have a one year grace period like the United States. Instead, Europe requires ‘absolute novelty’, meaning that a patent application must be filed prior to any public disclosure or offer for sale. US companies should consider this absolute novelty requirement when establishing policies for employees to publish papers, give trade presentations, or otherwise disclose inventions that the company may wish to protect in Europe. To meet the European ‘absolute novelty’ requirements, US companies may choose to file a US ‘provisional’ patent application before, for example, a first public use or disclosure of the invention. Because a provisional application does not have to meet the USPTO’s formal requirements, it can be prepared very quickly to establish a necessary filing date. The USPTO will not examine the provisional application. Instead, applicants have another year from the provisional filing date to file a regular, formal application. The one year to file the formal application does not count against the term of the patent.



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Handling inventors Some European countries, such as Germany, require a company to give remuneration to employee inventors by law. This right generally does not exist in the United States. Additionally, in some European countries, an inventor may become the owner of the invention if the company does not declare its intent to protect the invention. In contrast, in the United States, most companies have standard employment agreements that clearly identify that any intellectual property (IP) developed using company resources is the company’s property. Additionally, US state laws may provide that a company generally owns any invention made by an employee at the direction of the company. At the very least, under the doctrine of ‘shop rights’, a US company usually has the right to use any employee’s invention made using the employer’s tools and materials. Nonetheless, it is generally good practice for a US company to obtain a formal assignment from each inventor at the time of filing a patent application, rather than risk a dispute with the inventor later (for instance if the patent is ever litigated, or if the inventor leaves the company and the company wants to license the patent). While a formal assignment is not required by the USPTO, most companies choose to file an assignment in the USPTO to provide a clear record showing the company’s ownership.

Substantive considerations There exist various substantive legal considerations that companies should consider when preparing and prosecuting patent applications. For example, US patent applications must set forth the best mode of the invention. Europe, however, does not require that the inventor set forth a ‘best mode’ in the patent application. In practice, this is an important difference. If a company wishes to seek a later US patent based on a European application, the company must inquire whether the inventor has withheld the best mode from the European application. The lack of a best mode in the description of the application may lead to an invalid patent in the United States. For example, if a US patent application is filed without the best mode and the best mode is later (for instance, in litigation) discovered to have been withheld, the patent will be found invalid. Alternatively, if the best mode is included in the US application, but not the European application, the US application will not have the benefit of the European application’s filing date. As a result, disclosure of another mode during the intermediate time, after the filing of the European application and before the filing of the US application, may render the invention obvious. Thus, US applicants often ensure that the first filed application includes the ‘best mode’.

Post-grant procedures Practitioners should also consider the practical differences between post-grant procedures in the United States and Europe. Anyone, including the patentee, can seek a re-examination of a US patent in certain circumstances. This may be done by either

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EUROPEAN PATENTS: DIFFERENCES FROM THE UNITED STATES 167 

ex parte or inter partes re-examination systems. Anyone may commence either type of re-examination by demonstrating that prior art patents or printed publications raise a substantial new question of patentability affecting the validity of an issued claim. The main difference between the two systems is that third-party requesters may only participate in the first phase of the ex parte re-examination. In contrast, third-party requesters have full participation rights in the inter partes re-examination procedure, but at a cost: the third-party requester is estopped from challenging the validity in court on any ground that the third-party requester raised or could have raised during the inter partes examination procedure. The European Patent Office’s (EPO’s) opposition proceeding is similar to the USPTO’s inter partes re-examination procedure, because it allows full participation of a third-party requester. There are, however, two important differences. First, the notice of opposition must be filed in writing at the EPO within nine months from the publication of the mention of the grant of the European patent, and second, there is no estoppel by failure to raise prior art in the opposition proceeding. There is no timing requirement for requesters of US re-examinations. In US practice, this means that re-examination may be used strategically by a defendant to challenge the validity of a patent after being sued, which is often well after the grant of a patent. In some US courts, a pending re-examination may also be justification to delay the US case until the re-examination is complete.

Litigation/enforcement When litigating or enforcing a patent in Europe or the United States, practitioners should consider some of the following differences between US and European law:  ownership of the patent;  jurisdictional issues;  discovery procedures.

Ownership One basic yet important point that a company must investigate before attempting to enforce a patent, is to determine who actually has the right to enforce the patent. In the United States, one co-owner (whether a co-inventor, if the patent is not assigned to a company, or a co-owner if there has been joint ownership or a transfer of rights) has the right to license a patent without the consent of any other co-owner. As a consequence, one co-owner can also block other co-owners from enforcing a patent simply by refusing to join voluntarily in the patent infringement suit. Even more drastic, one co-owner could freely license the patent to a competitor without the consent of the other co-owners. In contrast, most European countries require a co-owner to get consent from all other co-owners before licensing a patent, and as a consequence, no single co-owner could block the enforcement of a patent.


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Jurisdiction A patent owner does not have much choice in considering which country should enforce a patent, because generally, a patent must be enforced nationally. In the United States, a patent granted under US law is limited to the United States, and European patents are similarly limited. In the United States, while questions unique to patent law are governed by federal law, there may be differences in regional law that may affect the enforcement of the patent. For example, whether a particular US court has personal jurisdiction over a foreign corporation may depend on a court’s past interpretation of regional law. In Europe, a patent continues to be governed by the national law of the country where the patent was registered. In 2006, the European Court of Justice reiterated that the national court where the patent was registered has exclusive jurisdiction over any proceeding concerned with the validity of patents. In Europe, infringement is also a question of national law.

Procedural differences in discovery In some European countries, there is no general duty of discovery. Additionally, in many European countries, parties may withhold documents that adversely affect their own case or documents that support another party’s case. In direct contrast, parties in the United States have strict discovery requirements to search, identify, and produce documents, including documents that may adversely affect their case, in all US jurisdictions. Indeed, in some jurisdictions, parties may face heavy sanctions and huge fines as punishment for disregarding discovery orders, such as failing to diligently identify and produce documents in their control. The discovery requirements imposed by US law apply even to foreign defendants, for example, who may not be aware of the strict requirements of US law and may be reluctant to comply with the often expensive and time-consuming obligations to produce documents. Counsel for these companies must emphasize to their clients that no parties are excused from complying with US discovery laws, and that parties may face serious sanctions for disregarding discovery requirements.

Finnegan Henderson is dedicated to protecting the ideas and innovations that drive businesses around the world. With over 300 lawyers, eight offices, and four decades of experience specializing in IP law, it offers full-service IP coverage in virtually every technology and product category, ranging from consumer goods, electronics, medical devices and manufacturing to pharmaceuticals and nanotechnology. Its practice includes all aspects of patent, trademark, copyright and trade secret law, including counselling, prosecution, licensing and litigation. It also represents clients on IP issues related to international trade, portfolio management, the internet, e-commerce, government contracts, antitrust legislation and unfair competition. Further details: www.finnegan.com

4.3

Prior art searching

‘Is your patent worth the paper it’s written on?’ asks Dean Parry, technical director of Patent Seekers.

Anyone wishing to apply for a patent, or purchase one, should make sure they are well informed about the novelty of the invention it covers. Prior art searching can provide important information about the probability of success of a patent or whether it is of any value. Understanding the basics of patent systems and patent office decisions can help you to determine whether your invention is patentable and/or of any value.

It’s a complex system Companies and individuals face an uphill struggle when it comes to trying to grapple with the complexities of today’s patent office systems. This is mainly because of the number of patent office rules that must be obeyed in order for any patent application to slowly make its way toward being allowed (or refused). Inventions have to be assessed on whether they are new, inventive and whether they relate to patentable subject matter. However, there is a wealth of free information available online that can help.

The standard route to gaining a patent You can only attempt to gain a patent if you submit a drafted patent application to the relevant patent office. Your patent application will be subjected to prior art searching and examinations. So it can take several years for the patent to be granted (put in force). However, any granted patent is backdated to at least when it was first submitted.


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How does a patent office process your patent application? The search stage The first big hurdle for any patent is the official patent office search. This is carried out by a patent office examiner and is the first test of whether your invention is new. The examiner carries out patent, internet and research paper (if relevant) searches in order to try to find the most relevant prior art (the best information that may show someone else came up with your idea before you did). Although there is usually no official decision made based on the results of these searches, there is usually an indication of how relevant the results might be. The UK Intellectual Property Office (UKIPO) and European Patent Office (EPO) both utilize online patent search tools to carry out the following types of searches:  keywords (search terms logically combined) on title, abstract, description and/or claims;  classification terms only (usually taken from IPC, ECLA and US classes);  keywords on title, abstract, description and/or claims combined with classification terms (usually taken from IPC, ECLA and US classes);  company name/inventor name only (this can be with a year and/or country code limitation);  company name/inventor name with a year and/or country code limitation;  citation analysis (ie if you find a patent that is close to your invention then try to find what patents were cited against it and what patents it was cited against). The patent databases, normally used cover worldwide sources including Great Britain, Spain, WO(PCT),1 Germany, France, the United States and Japan. There are also searches carried out on research papers, journals and using standard internet search engines such as Google.

The dreaded examination stage After the search stage your patent application and your search results are published and you then have to wait for the examination stage. The examination will be carried out by a patent office examiner who will assess the search results and either allow your patent to be granted or state why your application cannot be allowed. (You will be given the opportunity to make comments and/or amend your application to make it allowable.) Interpreting and responding to examination decisions can be extremely complex and time-consuming. In fact, the decisions made at this stage can make the difference between your ending up with a powerful or a worthless patent.



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Common misconceptions Should you jump for joy when you get your patent granted? Once you gain your granted patent you can jump with joy at the prospect of being able to hit people with it (should they dare to decide to make or sell your invention). Or can you? Unfortunately, this is not always the case. Just because a patent office has granted your patent does not mean your patent is valid. The reasons for this are simple:  Prior art not available to the patent office examiner at the time of the search and/or examination comes to light in the course of later licensing negotiations litigation.  An invalidating prior disclosure took place before the patent opposition was filed, for example, a non-confidential discussion between the inventor and a potential investor, customer or supplier.  The patent and research databases used by patent examiners do not provide complete coverage of all advances, and therefore, there is no guarantee that all relevant information was covered.  The accuracy and effectiveness of the patent office search will depend on who worked on it. This is mainly the result of the selection of keywords, classifications and the combinations of these used.  Basic human error can cause relevant information to be missed.  Patent offices are subject to time constraints that have to be in place in order for them to operate effectively. (We would all like a patent examiner to spend several weeks searching for our invention but this is impractical.) These problems are avoided as much as possible by all modern patent offices but there are still no absolute guarantees.

Light at the end of the tunnel It is not all doom and gloom though. Modern patent offices employ highly skilled staff who continually strive to improve searching methods. Also, online patent and research databases are continually updated and improved. So searching methods and data capture for patent examiners are continually improving. The validity of patents can be tested by using the skills of commercial patent analysts who know the weaknesses of patent systems, have access to worldwide databases and can spend several weeks searching the most relevant subject matter.

A few helpful suggestions Be proactive. Either use a commercial searcher to carry out prior art searching or carry out the searching yourself before, during and after the grant of your patent. Also, keep an eye on your competitors’ patents and products (in other words, know your market). In this way, you should be able to identify the most relevant prior art and so be in a strong position if you have to enforce your patent.

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PRIOR ART SEARCHING 173 

If you wish to purchase a patent or invest in a product protected by a patent, then have a search carried out to test its validity. Otherwise, you may be investing in something worthless.

Useful links Free patent and research databases Espacenet: http://ep.espacenet.com/ Software for Intellectual Property (SIP): www.patentfamily.de US Patent Office search facility: http://www.uspto.gov/patft/index.html GoogleScholar: http://scholar.google.com/

Commercial patent databases: PatBase covers the full text of British, Spanish, WIPO, German, French and US documents, and provides some coverage for more than 75 countries: www.patbase.com Delphion covers full-text on WIPO, Spanish, German and US documents and covers INPADOC2: www.delphion.com Dialog provides extensive worldwide information on patents and research papers: www.dialog.com

Classification information: http://ep.espacenet.com/ http://www.wipo.int/classifications/ipc/ipc8

Notes 1 WO patents are those published by the World Intellectual Property Organization (WIPO).They are also referred to as PCT patent applications since WO patents are filed under the Patent Cooperation Treaty. 2 INPADOC (INternational PAtent DOcumentation Center) contains the bibliographic and family data of patent documents and utility models of 76 patent-issuing organizations including the EPO and WIPO. In addition, the legal status data of 46 patent-issuing organizations are included.


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Dean Parry (BSc, MSc, MIMA, MIEEE) is a former cybernetics researcher and UK Patent Office examiner who specialized in the patentability of software. He is now the technical director for the commercial patent search company Patent Seekers Ltd which he co-founded in 2005. Patent Seekers is now one of the leading suppliers of prior art search and analysis in the United Kingdom, supplying patent attorneys and multinational companies worldwide. It specializes in validity and infringement searching, and regularly works on high-profile cases to help companies defend against infringement action in European and US markets. Further details: Patent Seekers Ltd, Suite 53 Imperial House, Imperial Park, Celtic Lakes, Newport NP10 8UH, website: www.patentseekers.com, email: [email protected], Tel: (+44) (0) 1633 816601.

Assisted patent searches

Professor Heinz Muller and Dr Alban Fischer at the Swiss Federal Institute of Intellectual Property give a Swiss perspective on finding a way out of the information jam.

Many potential users of the intellectual property system (IPS) are afraid of the complexity of the system and the costs involved in obtaining an intellectual property right (IPR). The failure to exercise such property rights results in an immense loss for national economies. A 2004 survey conducted mainly among Swiss-based biotech enterprises demonstrates that about one-third of all patentable inventions are not patented in Switzerland. This applies in particular to small and medium-sized enterprises (SMEs) and individuals. Bigger companies tend to be more familiar with formal appropriation methodologies. As a result, the share of patentable inventions not patented decreases with company size. However, in most economies the SMEs represent the majority of all businesses, and together employ a much larger workforce than all big companies combined. Thus, assisting SMEs in understanding the IPS and protecting their inventions would boost not only the revenues of these companies but the economy as a whole, including the number of employees. One way to assist these companies in using the IPS is to make them aware of patent information and support their attempts to capitalize on this vast information pool. This is even more important since several studies show a severe lack of awareness of the benefits of patent information. Again, SMEs in particular tend to neglect the use of the technical, legal and economical information contained in patents, although this information might be vital for their survival. The reasons for not using patent information are diverse. On one hand, the thinking is that the searches, in particular in professional databases, are too complex. When such searches are conducted by untrained or inexperienced users


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too many documents are retrieved. Often such a large number of documents cannot be carefully examined. Sometimes however, not enough or no documents at all are retrieved, although the searcher feels certain that a number of relevant documents must exist. Furthermore, there is often not enough time for the researchers and developers working for small companies to search thoroughly for patent information. And last but not least, since a particular company does not own any patents and does not intend to apply for a patent, it might believe there is little or no relevant information within the patent literature.

The helping hand for patent information retrieval Obviously there is a need to educate SMEs and other potential users of the IP system. Three main areas of education seem to be necessary: education and training on the benefits of the IP rights system in general, education on the handling of intellectual property rights, and training in the use of IP information. The diversity of prejudices for not patenting innovations or using patent information indicates that specific and individual education and training are best suited to reduce this lack of awareness and know-how. Very often no general reasoning will help a potential user of the IPS, but close personal interaction with an expert and individual help tailored to the specific problem can better demonstrate the benefits of patent information.

The assisted patent search Besides the commercial ‘high-end searches’, the Swiss Federal Institute of Intellectual Property (IGE) offers what it calls an ‘assisted’ patent search. It is based on the institute’s general mission to inform the public about Swiss federal law. It aims at individual inventors and SMEs and does not cover its costs: it is subsidized by the IGE. For this type of search, the client is required to be present at the office of the IGE. The search is conducted by a search expert in close collaboration with the client. The search is generally limited to four hours except for members of public research facilities. For them, the search can be extended to a whole day without extra cost. In general, the search is performed as cost-effectively as possible, by using publicly accessible patent databases as well as EPODOC (the European Patent Office’s internal documentation database). This search is defined by the searcher together with the customer, and is in most cases a prior art search. The benefits of such a close interaction with the customer are obvious. General questions about patenting can be answered and the customer will become familiar with the procedure for searching patent and technology information in patent databases. Furthermore, the customer will get a first impression of the position of his or her invention in terms of prior art, and will be enabled to optimally formulate the claims for an application. At the end of the search the client may take home up to 20 patent citations and five printed documents free

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ASSISTED PATENT SEARCHES 177 

of charge, as well a few hours’ experience of professional patent information retrieval. The disadvantage of such an approach is the limited time allowed for the search. As a result a limited accuracy must be accepted. Nevertheless the assisted patent search turned out to be very useful for clients. In most cases a profound decision is possible after the search, or an appropriate application can be formulated. A further disadvantage can be that the customer needs to be personally present during the search. This is especially unsatisfactory for customers working a long distance from the place where the search is conducted, or with limited time resources for travelling. New IT tools, however, could overcome this disadvantage. There are possibilities for desktop-sharing via software such as netviewer. The advantages of such a system are striking. Clients need not spend undue time travelling to the institute; they can work in their familiar environment; they can continue with work immediately after concluding the search; neither the client nor the researcher will be looking over each other’s shoulder; both parties can be flexible in their time management, for example for coffee breaks, abandonment or follow-up searches; and virtual interactions can gradually increase.

The successful patent search From our experience, a successful patent search depends on several factors:  A set of data sources must be available. Often only one data source is not enough to cover all aspects of a search.  If several data sources are available, the redundancy of these data sources should be minimal: for example, overlap of the search possibilities of the data sources should be as small as possible.  The researcher must be able to fully handle the data sources and capitalize on the strength of each of them.  The pertinence of the retrieved documents has to be correctly assessed in order to avoid overlooking of relevant documents. This means that the client must be an expert in the field being researched.  Researchers must have specific patent-law knowledge and be able to understand the specifications set forward by the client, clarify and focus the mandate.  Thus, a close interaction between the researcher and the client is the most important success factor for any type of patent search, but in particular for the assisted patent searches. As a conclusion: if these points are considered carefully, a patent search will in most cases be satisfactory for all partners involved, the client and the researcher.


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The IGE is the national competence centre for all matters relating to Intellectual Property in Switzerland. The Institute offers the following services:  patent, trademark and designs registration in Switzerland and for some international registrations;  information searches on competitors, technologies, trends in innovation and more, including the assisted search for public Swiss research institutions;  courses and seminars for individuals and companies, schools and universities.

Prof Dr Heinz Mueller is a patent officer at the IGE and an expert on biotechnology inventions. For further information contact: heinz. [email protected] or visit www.ige.ch Dr Alban Fischer is head of the patent department at the IGE. He holds an MBA from the University of Zürich and a PhD in physics. For further information contact: alban.fi[email protected] or visit www.ige.ch

4.4

Portfolio building

Sue Scott at Abel & Imray outlines some of the principles involved in building a patent portfolio.

This chapter deals with building a patent portfolio. The type of portfolio we shall be looking at is a collection of patent families all relating in some way to an actual or potential commercial product. Within this portfolio, there will be a number of different patent families, each relating to a different aspect of the product, or to a similar alternative product. Each patent family will have family members in a number of different countries.

How to develop your filing strategy Different industries tend to adopt fundamentally different patent strategies. In the electronics industries, companies typically file very large numbers of patents, each covering what might be a relatively small development in a particular field. Electronic devices typically contain many hundreds of different parts, and it is unusual for any single patent to be of overriding importance. It is commonplace for companies in the electronics field to engage in cross-licensing, in which each company licenses the others under a large number of patent families, without too much consideration of the relative value or importance of each different family. In contrast, in the chemical industry, and particularly in the pharmaceutical field, a new chemical product is often the subject of a single, strong, broad patent family. This patent family will be extremely valuable, often covering a novel compound which is going to be a commercial product. Nevertheless, pharmaceutical companies build large patent portfolios to protect their products.


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Will you file a patent application?

If not, will you publish, or maintain secrecy?

If so, in which countries will you progress it?

Figure 4.4.1 Patent application decision tree

All research-based companies should have a patent strategy to guide their decision making. For the present purposes, I shall reduce the analysis of the decision on whether or not to apply for patent protection once any invention has been made to the simplest possible decision tree (see Figure 4.4.1). To decide whether to file a patent application in the first place, you need to address the advantages and disadvantages, the pros and cons, of patenting versus secrecy. The main advantage of patenting is obvious: patents potentially give you strong protection, enforceable in the courts, against your competitors, enabling you to keep them out of the market, or to limit their presence in the market in a controlled fashion. There are really only two downsides to patenting. The first one is cost (and as anyone reading this book will doubtless already know, patents are very costly), while the second one (which, in fact, is often an upside) is that patenting inevitably leads to publication of the details of your invention. There are two advantages of keeping an invention secret. One is that this is very cheap – it costs you no money – and the second is that in some cases (for example where the invention is a process for making a product, and it is not possible to tell from examining the product how it has been made) you may be able to keep your competitors in the dark for ever. There are, however, two big downsides to keeping your invention secret. Once secrecy is lost, which can happen in many ways, it is lost for ever; and, crucially, a competitor might make the same invention independently, and may obtain a patent on it. This could have massive implications for your own commercial freedom to use your own invention.

In which countries should you file patent applications? Remember that patents are all about keeping others out of the market. Therefore, you need to consider where your competitors or potential licensees might wish to operate. Where you wish to operate might in this context be a secondary consideration. Other things to consider are how easy it is to get patents covering a particular subject matter



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in a particular country – for example some countries do not allow certain kinds of computer software-related inventions to be patented – and you might also want to consider how easy it is to enforce patents in a particular country. Finally, cost will be a major issue. When taking your decisions, it is important to keep your commercial objectives in mind, and to remember that patents have a 20-year horizon.

The value of different types of claim The value of a patent will depend upon the type of claim you can obtain. There are three factors that determine how valuable a claim will be:  its inherent patentability – does the invention have a strong inventive step?  its blocking effect – its ability to keep others out of your space;  your ability to police it: how easily can you detect infringement? In the most basic terms, there are two kinds of claim: product and process. Generally, product patents are of more value than process patents (because infringement is most easily detected and proved), but there are many exceptions. The next section looks at the claim types within a typical pharmaceutical patent portfolio, but the general method of analysis applies equally well to any technology.

Claim types: a pharmaceutical case study The first patent in a typical pharmaceutical portfolio often relates to a broad class of novel chemical compounds. As research continues, ‘me-too’ compounds (falling outside the original patent) and ‘selection’ compounds (particularly active compounds falling within the broad scope of, but not specifically disclosed in, the original patent), usually emerge, as do derivatives of the chosen compound. New synthetic processes may be invented, while research into interactions with other drugs may lead to patentable mixtures. Formulations will be developed. Finally, you may discover additional medical indications for which your compound is useful. Provided that you have sufficient experimental data, a broad claim covering a class of novel compounds is usually patentable, and difficult for competitors to avoid. Patents covering ‘me-too’ compounds are typically of rather lower inventive step, but they remain moderately difficult to avoid. Selection patents are likely to be of high patentability, and usually moderately difficult to avoid (because the compound may be the best in its class). All claims to novel compounds are easy to police. It is often difficult to obtain patents covering derivatives: their patentability is usually low. The blocking effect of patents on derivatives is also likely to be low (because alternatives are usually available). Similarly, patents on enantiomers (‘mirror image’ compounds) are extremely difficult to obtain, and the blocking effect is only moderate (because the racemic mixture is usually a viable alternative). In contrast, it is often quite easy to obtain patents covering preferred crystalline forms of compounds. Such patents may however be easy to avoid (by using other forms).



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Where an invention resides in a specific formulation recipe, the blocking effect may be low if alternative formulations are readily available. Patents on formulations containing mixtures of drugs may be valuable: patentability will depend on proving synergy between the ingredients, while the blocking effect will depend upon technical and marketing considerations. Claims to synthetic processes are often of limited value. Patentability is often fairly low, and the patent may be avoidable by using an alternative process or by moving manufacture to a non-patent country. Further, it is not easy to tell what a competitor is doing in the privacy of its own manufacturing plant. Nevertheless, such patents may have value. Note that if you have, say, a US or UK patent covering a synthetic method, the importing of a product made abroad using the patented process into the United States or United Kingdom infringes the patent. Further, most companies operating to modern business standards will have a formal policy which does not permit them to knowingly infringe the valid patent rights of others. Finally, medical method claims present interesting problems (and your heart should sink when a patent attorney tells you that a problem is ‘interesting’). The availability and value of such claims varies widely between countries. Often, claims relating to a second medical indication are difficult to obtain; further, wide country coverage may be essential to gain a significant monopoly position. A summary of the value of the various types of claim is shown in Table 4.4.1.

Table 4.4.1 Various types of claims against pharmaceutical patents Patentability

Ease of policing

Blocking effect

Novel compound

High

High

High

Derivative

Low

High

Low

Enantiomer

V. low

High

Moderate

Polymorph

High?

High?

Low?

Specific formulation

Moderate

Low?

Low?

Mixture

??

High

Moderate?

Process

Moderate

Low

Low

First medical use

High

High

High

Second medical use

??

Moderate?

Moderate?

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PORTFOLIO BUILDING 185 

Portfolio review The big downside of portfolio building is cost. Patents are expensive, and it is vital that you review your portfolio regularly to weed out any patents that are no longer necessary. Portfolio review is not easy, but there are a number of approaches you can take to make the task easier. Consider, for example, adopting a five-point plan as follows. 1. Obtain a robust cost analysis. This is not easy to get, but you gain more by abandoning a patent which will cost only a few hundred euros in the next year, than in abandoning one which will cost many thousands, and it is useful to be able to distinguish between the two. You might find it helpful to categorize each patent as ‘high’, ‘medium’ or ‘low’ cost. 2. Make sure you have reliable data. You will need a mix of commercial and patent data, typically: – the perceived commercial significance of the technology to your existing business (for example, whether it is currently incorporated in one of your commercial projects, or whether it is licensed); – the possible commercial significance in the foreseeable future; – the strength, blocking effect and policeability of each patent (as discussed above); – the length of patent life remaining; – country coverage. 3. Establish the necessary criteria on which decisions will be made. What these criteria are will depend on your own particular business. Some may be very simple: for example, any patent generating licensing revenue greater than the patent maintenance costs should be kept, while any patent more than a certain number of years old and neither generating any licensing income nor covering any of your own commercial products should be abandoned. Others will be more complex. 4. Use the data from (1) and (2) above to decide whether a particular patent meets your criteria. Consider adopting a ‘traffic light’ system: using the criteria established in (3) above, flag each patent as red, green or amber: definite, immediate ‘stop’ (no conceivable reason for keeping); definite ‘continue’ (must be kept, as plainly of commercial importance); or ‘possible, proceed with caution’ (further review). 5. For each ‘possible’, consider whether additional information is needed to take a sensible decision, and whether fresh criteria might also be needed to handle this data. If so, obtain these, and rework steps (1) to (4), using the fresh data and criteria. If not, identify the difficulty in taking an immediate decision, and determine whether this difficulty is likely to disappear in, say, six months or a year. Then either take an immediate decision, or set a deadline by which a decision will be made – and then rework steps (1) to (4) again. It is often helpful to decide that a patent will definitely be abandoned on a particular date unless a particular milestone is met, or a particular event comes to pass. Your objective should be to label each patent as a definite ‘stop’ or a definite ‘continue’ by a certain date.


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Be aware that a ‘wait and see’ decision is really a ‘continue’ decision, and never (unless you have a very understanding finance director) keep a patent alive ‘just in case’. You need to ensure that every patent is kept alive for a specific, justifiable, reason.

Conclusion Many economists believe that the 21st century will be the century in which intellectual property becomes the single most important asset that a company can have. The ideas about how you might think about your inventions and your patents outlined in this chapter should enable you to develop the robust patent strategy and review process which will be necessary for the health of your research-based company.

Abel & Imray is a leading firm of patent and trade mark attorneys handling all aspects of intellectual property. Clients range from multinationals to small companies, operating in all areas of technology. Sue Scott works as a consultant in the London office, handling a wide range of patent and agreement work. Prior to joining Abel & Imray in 2002, Sue was head of patents at BTG, the leading technology transfer group, and deputy head of patents at BP. She has acted as an advisor on patents to the UK government, and has a deep knowledge of patents and their management. Contact details: [email protected]; tel: (+44) (0) 20 7242 9984.

4.5

Patent exceptions

John Brunner and James Warner at Carpmaels & Ransford consider the EPO’s rules for what can – and cannot – be patented.

In general, patents can be obtained for innovative products, apparatus, processes, methods and uses in most scientific, technical and industrial fields. However, there are various criteria that have to be fulfilled for a patent to be granted. The reader will probably be aware that an invention that is the subject of a patent application must be new. This means that a patent application must be filed before there is any public disclosure of an invention. A second criterion is that the invention must involve an inventive step. This means that an invention must not be obvious to a skilled person working in the field to which the invention relates. It is these twin criteria of novelty and inventive step to which the European Patent Office (EPO) will devote a large amount of time when considering whether to grant a patent. However, the story does not end there. In addition to requiring that subject matter that is to be protected under a patent be new and involve an inventive step, the patent system sets further limitations on what patents can and cannot be obtained. At the EPO, these limitations are governed by the European Patent Convention (EPC) in four ways:  An invention must be capable of industrial application. This requirement is particularly important for medical inventions.  The subject matter of the patent or patent application should not fall within a list of categories of subject matter which is considered not to be an invention, so-called ‘excluded subject matter’. This requirement is particularly important for computerimplemented inventions and business methods.


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 The EPC specifies that a patent shall not be granted for any variety of animal or plant or any essentially biological process for the production of animals or plants that is not a microbiological process or the product of such a process.  Finally, the EPO will not grant a patent for inventions that are immoral or contrary to public policy. This requirement is important for some inventions relating to, for example, genetic engineering and stem cells.

Medical inventions at the EPO As explained above, the EPC excludes certain types of methods from being susceptible of industrial application, and therefore patentability. Specifically, it excludes:  methods of treatment of the human or animal body by surgery;  methods of treatment of the human or animal body by therapy; and  diagnostic methods practised on the human or animal body. ‘Therapy’ is defined broadly by the EPO, and is considered to mean any treatment designed to cure, alleviate, remove or lessen the symptoms of, or prevent or reduce the possibility of contracting, any disorder or malfunction of the human or animal body. Prophylactic treatment is considered to be a method of treatment and therefore excluded from patentability. However, patent claims clearly directed to methods for non-therapeutic purposes (such as cosmetic methods) are generally accepted. The term ‘surgery’ is also defined broadly by the EPO, and any physical interventions on the human or animal body that, whatever their specific purpose, give priority to maintaining the life or health of the body on which they are performed are considered to be methods of treatment by surgery and therefore excluded from patentability. In 2004, the patentability of diagnostic methods in the EPO was the subject of a case before the EPO’s Enlarged Board of Appeal. This case established that various criteria must be fulfilled for a method to be excluded from patentability. As a result, the exclusion of diagnostic methods is now considered narrowly by the EPO, and in principle it is possible to protect diagnostic methods as long as they do not include all the necessary steps for making a diagnosis. However, care is still required when drafting a patent specification to ensure that the invention is framed in the correct context.

Therapeutic methods It is possible to protect new therapeutic compounds themselves and pharmaceutical formulations with a patent. In addition, for substances and compositions that are not themselves new, but that have a new therapeutic purpose, it is possible to protect the use of that substance or composition for the new therapeutic purpose. The protection of an invention to the new use of a substance or composition already known to have a therapeutic purpose is problematic. This problem can be overcome by using a particular type of patent claim language known as a ‘second medical use’ or ‘Swiss-

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PATENT EXCEPTIONS 189 

type’ claim. Restrictions on the precise wording of claims are set to be relaxed by the introduction of changes to the EPC in 2007. In certain circumstances, it is therefore possible to protect the new and inventive therapeutic application of the already known substance.

Surgical methods Methods of performing surgery are particularly difficult to protect with patents at the EPO. In the main, a patent applicant’s only practical option is to try to protect the surgical device that is used during a particular surgical method.

Computer software at the EPO Why it is difficult to protect computer software with patents at the EPO Patents for computer software have been a contentious topic of discussion amongst industry specialists and patent experts for many years. When the EPC was originally drafted, the computer software industry was still in its infancy and it was generally held that copyright would be sufficient to protect computer programs. As a result, the EPC was worded to exclude a number of activities from patent protection, including methods for doing business and programs for computers. However, the EPC goes on to qualify that these activities are only excluded to the extent to which the patent application or patent relates to these activities as such. This apparent ambiguity has been the source of much uncertainty. The huge growth in the use of computer software and its complexity has brought into question the viability of excluding computer programs from patent protection. As a result, the EPO has continually modified its stance towards patents for computer software. More recently, the huge growth in the use of the internet as a tool for conducting business has brought into question the viability of excluding from patent protection business methods implemented via a computer.

How EPO practice applies to computer programs as such In 1999, two EPO cases established that it was possible to protect the physical carrier on which a computer program was stored (such as a CD ROM or floppy disk) provided certain criteria regarding the nature of the computer program were fulfilled. Following these cases, it became the accepted practice of the EPO that software itself could be protected directly if the software, when executed on a computer, produced a technical effect.

The current practice of the EPO with regard to computer software and business methods More recent cases have established that, if a patent application directed to a computer program or a business method involves technical features, then the EPO will not


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necessarily reject the application. The question is whether the distinguishing features of the invention that provide a technical effect are considered to be obvious to a skilled person, such as a software developer. If they are, then the patent application is likely to be refused. For example, it is unlikely that a computer program which sorts names and addresses alphabetically could be protected simply on the basis that this had never been previously done by a computer. (That is, mere automation with a computer of something that has been done manually in the past is not generally allowable.) However, if the computer program sorted the names and addresses alphabetically in a way that did not arise from conventional computer programming, it might be possible to protect this new sorting method with a patent.

Types of computer-implemented inventions for which the EPO has granted patents In various guises, the EPO has granted patents for:          

image processing; graphical manipulation software; artificial intelligence; user interfaces; speech recognition; operating systems; genetic algorithms; genetic mining systems; database systems; financial trading systems.

Generally, in all of these areas, patents have been granted for inventions that involve physical technical components providing technical advantages over what was previously known. Of course, there remains significant uncertainty over the meaning of the word ‘technical’, and the assessment of whether something is technical or not is made on a case-by-case basis.

Patents for plant and animal varieties at the EPO The EPC excludes the patenting of plant or animal varieties and essentially biological processes for their production (for example, if the process consists entirely of natural phenomena such as crossing or selection). However, the exclusion does not apply to microbiological processes or the products thereof. The exclusion of plant varieties from patent protection arises from the existence in many EPC member states of plant breeders’ rights in accordance with an international convention (the UPOV Convention). The exclusion only prevents a patent from being granted if it attempts to cover a specific plant variety, but it does not prevent patents



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being granted to plants generally. Furthermore, the EPC does not exclude the granting of claims to transgenic plants, where specific plant varieties are not identified. The EPC also does not exclude claims to transgenic animals (broadly defined). However, problems arise because the EPC prohibits the grant of patents to inventions, the exploitation of which would be contrary to ‘public policy’ or ‘morality’. Increasingly, this is seen as commercially significant with the development of stem cell technology and genetic engineering. In these fields, the EPC now defines what is and is not patentable. Specifically, the following are deemed to be unpatentable:    

processes for cloning human beings; processes for modifying the germ line genetic identity of human beings; uses of human embryos for industrial or commercial purposes; processes for modifying the genetic identity of animals which are likely to cause them suffering without any substantial medical benefit to humanity or animals, and also animals resulting from such processes.

Additionally:  genes in situ are unpatentable;  natural products can be patented as long as they are not claimed in the form in which they occur naturally;  isolated genes may be patentable. Animals have been held to be patentable under certain circumstances, and the isolation or patenting of mRNA encoding a human protein has been held not to be immoral. The patenting of stem cells has attracted considerable controversy at the EPO. The EPO’s Enlarged Board of Appeal is currently considering whether the patenting of human embryonic stem cells should be allowed.

Summary In conclusion, the law surrounding what is or is not patentable and the most appropriate way to formulate patent claims is highly complex, and expert advice should be sought from a patent attorney before any public disclosure of an invention.

John Brunner ([email protected]) is a European patent attorney at Carpmaels & Ransford, where he specializes in acquiring patents for computer-related technology at the EPO. James Warner ([email protected]) is also a European patent attorney at Carpmaels & Ransford where he specializes in patent work involving medicinal chemistry. He is experienced in all aspects of EPO procedure.

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PATENT EXCEPTIONS 193 

Carpmaels & Ransford is one of the leading firms of European patent attorneys, and has extensive experience in assisting clients, from individuals and start-up companies through to large multinationals, in obtaining patents for their innovations in the United Kingdom, at the EPO and throughout the world. For more information on how Carpmaels & Ransford can assist you in protecting your innovations, please contact: Carpmaels & Ransford, 43–45 Bloomsbury Square, London WC1A 2RA, tel: (+44) (0) 20 7242 8692, email: [email protected] website: www.carpmaels.com

4.6

Patent clearances

Multinational litigation in all 32 states in the European Patent Convention adds up to huge expense. Better to clear each territory centrally, says Micaela Modiano of Modiano Josif Pisanty & Staub.

Patents confer to the patentee the exclusive right to carry out the invention in the country where the patent has been obtained. Oftentimes, there is great interest on the side of the patentee’s competitors in being able to carry out the invention in that country before the expiry date of the patent, and in many cases this interest is accompanied by the competitors’ belief that the patent is invalid. To be on the safe side, it is therefore the competitors’ desire to clear the territory of the patent so as to then carry out the invention in that territory without risks. For clearing the territory covered by a European patent of that patent, multinational litigation is often required, especially if the European patent designates many or all of the possible European Patent Convention (EPC) countries. With the EPC now including 32 EPC contracting states, not to mention the extension states, it is clear that multinational litigation in several of such countries can be an extraordinarily expensive endeavour. To this one must add that the courts of the various EPC countries often interpret patents claims and infringement scenarios differently, so that the same litigation between the same parties and relating to the same facts may lead to very different results, thus creating a great deal of risk and legal uncertainty for the party wishing to achieve clearance. Fortunately, the EPC includes two ‘clearance’ procedures which, like the rest of the EPC procedures, are centralized at the European Patent Office (EPO). These two procedures entail different costs, advantages and disadvantages, but they are certainly less costly and more homogeneous procedures than a multinational litigation in even two or three EPC countries.

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PATENT CLEARANCES 195 

European opposition: a single procedure and a single result After grant, any third party can start a revocation action against a European patent. The revocation action, when filed at the EPO, is called ‘opposition’. This procedure automatically exerts its effects in all designated states. This is a very significant difference from the effect of a judicial revocation procedure, which exerts its effect only on the portion of the European patent that is in force in the country of the court handling the judicial revocation procedure. Oppositions can be filed only within nine months from the date of grant of any given European patent. However, for intellectual property (IP) and computer-savvy competitors, the nine-month opposition period is preceded by a much longer period which can be used for preparing the opposition, namely the entire period between the publication of the application corresponding to the patent to be opposed and the grant of that very patent. In fact, the file histories of all recent European and Euro-PCT applications are available online. These file histories are updated on a regular basis so as to include all communications, and can be easily monitored by competitors throughout the examination procedure, so they can be informed well in advance of the grant of the patent of the claims with which the patent will be granted. This allows the competitors wishing to start an opposition against a given European patent to start preparations for the opposition well before the nine-month period. A decision taken by the Opposition Division (OD) of the EPO is appealable, and all of the above procedural and strategic considerations also apply to the appeal proceedings before the EPO Boards of Appeal. The decisions taken by the OD and Board of Appeal are immediately applicable in all EPC contracting states designated by the opposed European patent. Thus, if the OD or Board of Appeal decides to revoke the patent in its entirety or to maintain it in amended (limited) form, the revocation or maintenance in limited form immediately applies to all national portions of the opposed European patent. This is clearly different from the situation arising from a nationally filed revocation action started in two or more EPC contracting states designated by the patent, where such action may result in revocation of the patent in one country, in limited maintenance in a second country and in maintenance of the patent as granted in a third country. Therefore, in addition to being more easily manageable due to procedural centralization, oppositions also have the advantage of bringing about homogeneous results for all EPC contracting states designated in a given European patent. They allow competitors to continue to refer to the patent’s scope of protection as a single concept in all designated states rather than having to start evaluating the European patent as a separate entity (with differing scope of protection) in each designated state.


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Third party observations: steering prosecution at no cost Careful and IP and computer-savvy competitors can avail themselves of a further EPO-centralized procedure for the purpose of influencing the course of examination of a given European patent application, thus potentially clearing the European territory of the resulting EP patent even before that patent is granted. In fact, observations can be filed by third parties during the EP examination procedure. Such observations can be anonymous, which is a great advantage when, for example, the third party and the patentee are in licence negotiations regarding the patent and the third party does not wish to prejudice the course of the negotiations, while it is simultaneously trying to steer the European application’s examination so as to reduce or even eliminate the royalties due as a result of the license. Contrary to the opposition procedure, third-party observations do not allow the third party to become a party to the examination proceedings. However, there is no limit to the number of observations that can be filed. Therefore, depending on the outcome of the first observations filed by a given party, for example in the event that the applicant is able to overcome any objections raised by the examiner on the basis of the observations by means of inaccurate or incomplete and yet persuasive arguments, the third party may file new observations in which it clarifies why the arguments are inaccurate or incomplete, and why the examiner’s objection therefore still stands. As no fee is due for third-party observations, this option is clearly less costly than an opposition. In addition, third-party observations allow competitors to influence the scope of protection of a given European patent before grant, thus creating an earlier opportunity for clearing the territory of a given European patent without having to wait for the opposition to start.

Double attack Nothing in the EPC procedure prevents a given party from filing one or more third-party observations during the examination phase of a given European application, and if the desired result is not reached, then filing an opposition against the patent. However, it must be kept in mind that the examiner in charge of examination of a given European application is generally also a member of the OD deciding on the oppositions filed against the resulting European patent. Thus, it is generally recommendable to file an opposition on the basis of prior art not already made available to the examiner, either by way of the official search or by way of third-party observations, as the examiner will probably feel that he or she has already ruled on that prior art and a different ruling on the same prior art is unlikely. A double attack based on early third-party observations and later opposition should be considered only in those cases where the opposition can be based on new prior art, or at least on new or significantly more complete arguments relating to essentially the same prior art.

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PATENT CLEARANCES 197 

Summary The European opposition procedure is a cost-effective and more easily manageable revocation procedure than national judicial revocation actions filed in the various EPC countries. In addition, the third-party observations make it possible to influence the course of examination of a European patent application before the grant of the patent. A selected or combined use of these two procedures allows the patent owner’s competitors to try to clear the European territory of the patent by means of centralized, comparatively inexpensive procedures, and is thus in many cases advantageous over national litigation.

The Modiano firm was founded in 1950. In 1979, the firm established its European patent attorney brands in Munich. Today, Modiano Josif Pisanty & Staub is one of the major European IP law firms acting before the EPO on behalf of a wide variety of international clients, covering all fields of technology. As of 1995 it also deals with European Community Trademarks, being staffed with 45 European trade mark attorneys. Further details: Modiano Josif Pisanty & Staub, Thierschstrasse 11, 80538 Munich, Germany, Tel: (+49) 0 89 221216, email: [email protected] Micaela Modiano is a partner of the firm and is a European and Italian patent and trade mark attorney, acting mainly in the chemical, pharmaceutical and biotechnological field. She deals with all aspects of national and European patents, including prosecution, opposition, litigation, and opinion work. She is fluent in English, German, French and Italian.

4.7

Patents on a budget

To control costs, keep asking whether or not a patent offers a commercial advantage, suggests Keith Loven at Loven & Co.

Smaller companies and individuals sometimes feel that the patent system is only for the big boys. The costs are high and the outcome too uncertain, they feel. This article aims to offer a strategy for achieving the best possible protection on a limited budget. To start with, there are a few questions you will need to answer:

Do you have an invention? Answering this question is often not straightforward. There are two principal requirements for obtaining a patent: is the subject new, and does it involve an inventive step? The second of these is something that can keep patent attorneys and lawyers profitably occupied for weeks. However, some effort expended in seeking to answer the first question can save you a lot of money. It might also give you a clue about the likely answer to the second question. Basically, if what you are proposing has been done before in public or made available to the public in some other way, for example by details being published, then it is not new. Unfortunately, this means a lot more than just whether you can go out and buy one. If publication of essentially the same thing took place, say, 100 years ago, but this never led to the idea being put into practice, this still means the idea is not new. So while you might start by looking at what is available on the market now, you will need to look further to produce a useful assessment. Novelty searching is not straightforward; there are professionals who specialize in nothing else. However, there are publicly available free databases where you can carry



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out patent searching, and time spent searching these can help you avoid reinventing the wheel and, more to the point, spending money unnecessarily trying to get a patent for the reinvention. It is outside the scope of this article to go into searching techniques, but it should be borne in mind when using keyword searching that there are often many different ways of describing the same bit of technology, particularly when the original description was in a different language. When you have some idea of what has gone before, you should be able at least to answer the first question and get some sort of assessment on the second question. If going from what is already available or proposed to your idea is not the blindingly obvious thing to do, it may be possible to argue that you have an invention. You may need professional help in assessing this. You then need to ask yourself another question.

Do you need a patent? A patent is just a commercial tool, and as with any tool you need to be happy that it is likely to deliver what you want from it. A patent will not, for example, guarantee that you are free to exploit your invention, nor will it automatically stop others from copying it. A patent is a legal right to take action in the courts against those who make use of the invention defined in the patent. Taking action in the courts will cost you money – probably a very large sum of money – but it is likely to be equally expensive for the infringer to defend the action. Of course, it may be possible for the winner to claim a contribution from the loser towards legal costs, but this will still leave the winner out of pocket. Could you gain a commercial advantage simply by keeping the technology secret? Filing a patent application results in public disclosure of your technology, which is fine if you can get useful legal protection to stop other people using it, but some forms of invention might not be detectable in other’s products and, conversely, others might not be able to tell what your invention is by looking at your product. In these circumstances, consider whether you would be able to keep the technology secret. Ask yourself whether your product or process involves some commercially significant advance. Put crudely, will people be prepared to pay you extra for your product or process compared with what they can buy from others, or will your idea enable you to sell more cheaply or profitably? If you were to deny your invention to rivals by way of a patent, would this really prevent them from competing with you effectively? Also consider very carefully the timescale. Obtaining grant of a patent through the EPO can take several years. If the technology is likely to have been superseded within a couple of years, seeking a patent may not be cost-effective (although the deterrent effect of being able to say ‘patent pending’ in the short term will need to be considered). You will also need to assess whether the invention has wider application than just the markets you have in mind. Could you license the technology into other industries?

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PATENTS ON A BUDGET 201 

Finally, consider whether other forms of protection would be more cost-effective, for example registered designs (but bear in mind that these just cover the look of the product, not the way it works) or registration of trade marks to make the most of reputation built up during the life of the product. Registered designs and trade marks, generally speaking, will not require consideration until the product is nearing readiness for the market. Neither is particularly relevant if you are planning just to license someone else to make and sell your product, since the final look of the product, and the brand under which it is sold, will almost certainly be determined by the marketing company. But if you are planning to market a product yourself, choosing the right brand and handling it correctly will be vital to maximizing the value for your business. These issues are briefly dealt with below. In addition to registered designs, which can give protection for up to 25 years, automatic protection against direct copying of designs is provided in Europe through unregistered design right. The protection extends for just three years for unregistered Community Designs, but up to 10 years for UK Design Right. This is no substitute for proper patent protection, but is certainly better than no protection at all if patent protection cannot be obtained.

Decide on a sensible patenting strategy Assuming that you have decided seeking a patent is likely to give you sufficient commercial advantage, you then need to consider where you are going to get a patent. This means trying to assess where the likely markets are for the product or process, or perhaps I should say the likely significant markets. You will need to compare the likely return from any particular national market with the cost of obtaining and maintaining protection in the market. If the product is only ever likely to sell in your own country, then a national patent may well be the appropriate way forward and the most costeffective. If, however, your market is likely to include a number of countries within the European Union, then you may need to consider seeking a European patent. Two significant variables in the cost of obtaining a European patent are the time spent in drafting the initial patent specification and translations of the specifications into various languages on grant. Let us deal with the first of these. While you could draft your own patent specification, you should bear in mind that drafting a patent specification that is likely to stand up to scrutiny in the courts (or indeed produce useful protection at all) is not a trivial matter, and you should consider consulting a patent attorney as early as possible. By being clear about the objectives, as indicated above, you will help your patent attorney focus on the really important issues and produce a patent specification which is tightly drafted to cover what is commercially important to you. This makes best use of your attorney’s time (and therefore your money) initially, and may also help control the cost of translations on grant. There is no point in spending a great deal of money on trying to stretch a patent specification to cover possibilities that you are never likely to be able to commercialize either directly or through licensing. The wider you seek to go in protecting an invention, the more likely it is that you will end up


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covering something that is not new; and the more different ideas you try to put into your patent specification, the longer it is going to be and therefore the more expensive the translations will be when eventually the patent is granted. The other factor is the timescale. Once you have filed a patent application, you start a clock ticking: costs will start accruing and decision points will come around. You need to be ready for these, so while it is desirable to obtain the earliest possible filing date for a patent application, be clear about your development programme (or licensing programme) to ensure that, once the application has been filed, you are able to push things forward as soon as possible. For example, if you do not know at the date of filing the application which states are likely to be important markets for the invention, you can hedge your bets by designating all available member states of the European Patent Convention. If you pay the designation fees for seven states you are deemed to have designated all states, and the cost saving by designating fewer states is not great. But by the time the patent is granted, your patent attorney will have been pressing you for a decision on which states to make the grant effective in. You only have three months from the date of grant in most states to file a translation and maybe appoint a local attorney as address for service. If at this stage you still do not know your markets, you may need to pay for more translations than might be necessary in the long run.

Keith Loven is a UK Chartered Patent Attorney and European patent attorney who qualified in 1980. After gaining experience in private practice and in industry, he set up his own private practice in 1989, and is now based in Lincoln, UK, with local, national and international clients. Trade marks now make up a significant and growing part of the practice’s work. He can be contacted on (+44) (0) 1522 801111, email: [email protected], or via the firm’s website at www.loven.co.uk





5

Creative and digital rights


5.1

Issues in European copyright

‘Will copyright within the European Union have to change or is the framework already good for purpose?’ asks Andrew Yeates, a consultant at the media law firm Sheridans and former head of rights at the UK’s Channel 4.

The benefit of flexibility for copyright Copyright is not earned or won through registration.1 This provides important flexibility for recognition and protection of copyright. It may also be one of the reasons that copyright is often considered after patents and trade marks when assessing the value of an intellectual property (IP) portfolio. But value is fundamental to copyright, and this value has attracted very significant attention from policymakers in Europe during the last 18 months. Work under the EC’s copyright acquis has continued,2 although some moves, such as reform of copyright levies, appear to have faltered. Copyright levies are seen as an important source of secondary revenue by many rights owners. It is important that rights owners understand how they can collect levies when they are entitled to them. However, they are also regarded as a burden by the hardware and other manufacturers who have to pay the levies to collecting societies. The topic also raises concerns within the Commission due to the lack of harmonized approach to the imposition and methods of collection of levies in different Member States.

 210 CREATIVE AND DIGITAL RIGHTS

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In June 2006 the Commission published a consultation inviting interested parties to comment on the proposed reform of copyright levies as applied to equipment and media used for private copying. Although the Commission intended to publish a Recommendation, the process ran into strong political resistance from cultural lobby groups. In December 2006 the Commission conceded that ‘more reflection is required on this complex issue’. The issue is therefore expected to return to the Commission’s work agenda ‘when it is ready’. But it would be wrong for those with an interest in copyright to confuse allegations of ‘complexity’ with the benefits of ‘flexibility’ carefully crafted into the wording of international treaties and EC Directives relevant to the copyright acquis. The flexibility provided for within the key international treaties for recognition of copyright has been vital in supporting the evolution and growth of copyright law in the face of recent technological advance.3 This valuable flexibility is epitomised by the Berne Convention ‘three-step test’ which laid the ground rules for permitted copyright exceptions and limitations.4 The test provides that: Members shall confine limitations or exceptions to exclusive rights to (1) certain special cases (2) which do not conflict with a normal exploitation of the work and (3) do not unreasonably prejudice the legitimate interests of the right holder. It is worth spelling this out, since the ground rules tend to be forgotten by those seeking to remedy a specific concern linked to technological advance, or changes to the wider regulatory framework. The flexibility within the test has enabled both the Commission and Member States to provide for practical application of copyright exceptions and limitations which are in the public interest while also reflecting how different rights owners apply their rights to different markets, and vitally, secure fair compensation in respect of the different value attached to such markets.

To harmonize or not to harmonize, that is the question The copyright acquis intends to address whether the existing Community legislative framework for substantive copyright law as a whole still involves provisions which have a negative impact on the good functioning of the internal market. It may lead to action to promote further harmonization. To support its work the Commission appointed Professor Hugenholtz of the University of Amsterdam to conduct two studies. The first of these, The Recasting of Copyright and Related Rights for the Knowledge Economy5, addressed issues relating to recasting of copyright acquisition. The second provides for a study on the implementation and effect of (EC copyright) Directive 2001/29/EC.

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In terms of economic rights, the report highlights the current inconsistency over the way in which ‘broadcasting’ is defined across Member States, and how this activity links with the – now harmonized – definition of the right of ‘making available’ work on demand. This issue goes to the heart of ‘copyright transparency’ in the digital world. All too often the relatively few ‘restricted acts’ recognized under copyright law are confused with the way in which the ‘market’ for licensing each restricted act can be divided and subdivided as a result of opportunities opened up through new technology. The restricted acts are the acts for which the consent of a copyright owner is required to avoid infringement. Only six genres of restricted act are generally recognized for copyright works.6 Copyright law should not be the target for reform, when in reality the challenge facing business is the development of business models that provide different ways to license a single restricted act, while also delivering effective back-office functions to enable transparency of licensing. However, as new online services offering ‘streamed’ online content, ‘podcast’ online content, timed digital rights management (DRM)-protected content, digital downloads for limited use, or even digital downloads for wide-ranging use all develop, it is easy to accuse ‘copyright law’ of not keeping up. But in reality it is the challenge for business and consumers to establish mutually acceptable terms about defining the new services, all of which may make use of a single copyright ‘restricted act’ or a new balance between the acts of ‘reproduction’ and ‘communication to the public’ recognized by the copyright acquis to underpin all the transactions. However, it is when the definitions of the key restricted acts are confused or unclear that the call for reform and clarity seems to be at its strongest. It is hard not to agree with the conclusion in the report of Professor Hugenholtz that ‘on balance, the harmonisation process has produced mixed results at great expense, and its beneficial effects on the Internal Market remain largely unproven and are limited at best’.7 This only goes to stress the importance of work to help improve consumer awareness about the role of copyright, and the ways in which it can help promote opportunity for creativity and consumer choice on the back of technological advance. All of this supports the well-timed UK ‘Gowers Review of Intellectual Property’ launched in February 2006.8

Gowers Review of Intellectual Property The Review took place during 2006, and reported to the Chancellor, the Secretary of State for Trade and Industry and the Secretary of State for Culture, Media and Sport in the autumn of 2006. Its recommendations were published on 6 December 2006. Crucially, against the background of the copyright acquis the Review assessed ‘whether the current technical and legal IP infringement framework reflects the digital environment, and whether the provisions for “fair use” by citizens are reasonable’. The Review resulted in 54 recommendations being made to the UK Government.9 The central issues of ‘flexibility’ within the existing framework, and pressures for harmonization lay behind most of the recommendations that relate to copyright. The


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UK Intellectual Property Office is now looking at how the Gowers recommendations that relate to UK implementation of the copyright exception and limitation provisions linked to Article 5 of the EC Copyright Directive10 may result in changes to current law. Examples include a recommendation to introduce a limited private copying exception for format shifting for works published after a fixed date. It is also suggested that there should be no accompanying levies for consumers. Gowers also proposes that the United Kingdom should allow private copying for research to cover all forms of content (relating to copying, not the distribution of media). It is also suggested that the United Kingdom create an exception to copyright for the purpose of caricature, parody or pastiche. But all these changes beg the question of whether legislative change is really necessary, and if implemented, whether the change will result in any real benefit overall. The challenge for all involved in following up the Gowers recommendations will be to consider the ‘devil in the detail’, particularly as far as copyright exceptions and limitations are concerned. The ‘format shifting’ recommendation is aimed at covering consumers who wish to be able to make a copy of a CD purchased for private use in order that the sound recording can be played on another piece of hardware. But when translated into the recommendation, questions arise. What is meant by ‘format’ in this context? Does format only mean ‘commercial sound recording’? How does the term relate to transfer of visual images (including photographs) from CD or web-based viewing onto paper? How would such an ‘exception’ relate to the work of commissioned wedding photographers? In looking at the options for an exception for caricature, parody or pastiche it must be remembered that any exception is limited to special cases which do not conflict with a normal exploitation of a work and which do not unreasonably prejudice the legitimate interests of the right holder.11 Such legitimate interest must take account not only of the economic right of rights owners to authorize the making of adaptations of their works, but also the moral rights of authors, particularly the right to object to derogatory treatment of their work. Now that Gowers has published recommendations, it is important that a period of further consultation takes place to properly address these points of detail, and ensure that well-meant changes do not have unexpected knock-on detrimental effects on the operation of other copyright exceptions and limitations that have operated well, and secured ‘fair compensation’ for rights owners when relevant, without practical concerns arising. Gowers has not confined its recommendations relevant to copyright to the United Kingdom. A number of recommendations are made that are directly relevant to future UK contributions to the wider copyright acquis debate. The most controversial of these include:  The European Commission should retain the length of protection on sound recordings and performers’ rights at 50 years.

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 Policymakers should adopt the principle that the term and scope of protection for IP rights should not be altered retrospectively.  Directive 2001/29/EC be amended to allow for an exception for creative, transformative or derivative works, within the parameters of the Berne three-step test. Perhaps less controversial, but nevertheless raising questions over detail, is a proposal for provision for orphan works to the European Commission, amending Directive 2001/29/EC. Reference was helpfully made to the recent work of the US Copyright Office which followed extensive discussion of the issue of orphan works in the United States.12 However, defining ‘orphan work’, reconciling the way in which licence provision against ‘reasonable search’ nevertheless in effect creates a compulsory or statutory licence, and the way in which the provision recognizes and accommodates the moral rights of the owners of works classified as ‘orphan’, will all be important issues to address in any further consultation.

Summary The pace of evolution for copyright law has never been greater. Europe has adopted a flexible framework which has generally served creators, industry and consumers well. If polish is needed in places to ensure or encourage compliance, the continuing process of review through the copyright acquis and initiatives such as the Gowers Review must be a good thing. But, as the Commission has recently recognized when considering copyright levies, change for the sake of change must be handled very carefully, if real creative opportunity is to blossom from effective recognition of copyright.

Notes 1 Article 5(2) Berne Convention for the Protection of Literary and Artistic works (Paris Act, 24 July 1971 as amended 29 September 1979). 2 Details of the copyright acquis programme intended to simplify, and where necessary remove, unnecessary legislation can be found in the Commission’s publication Implementing the Community Lisbon Program: A strategy for simplification of the regulatory environment. 3 See particularly the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 1994. 4 Article 9 (2) Berne Convention and Article 13 TRIPS Agreement. 5 Hugenholtz, P B et al (2006) The Recasting of Copyright and Related Rights for the Knowledge Economy, Institute for Information Law, University of Amsterdam [Online] http://ec.europa.eu/internal_market/copyright/docs/studies/ etd2005imd195recast_report_2006.pdf (accessed 26 March 2007). 6 The rights to (a) copy a work; (b) issue copies of a work to the public; (c) rent or lend a work to the public; (d) perform, show or play a work in public; (e) communicate


7 8 9 10 11 12

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a work to the public; and (f) make an adaptation of a work, or do any of the other restricted acts in relation to an adaptation. See note 5. HM Treasury, Gowers Review of Intellectual Property [Online] www.hm-treasury. gov.uk/gowers (accessed 26 March 2007). UK Patent Office, ‘Gowers review of intellectual property’, 6 February 2007 [Online] http://www.patent.gov.uk/policy/policy-issues/policy-issues-gowers.htm (accessed 26 March 2007). Directive 2001/29/EC. Recognized under Article 5.3 (k) Directive 2001/29/EC. US Copyright Office, ‘Orphan works’, January 2006 [Online] www.copyright. gov/orphan (accessed 26 March 2007). Orphan works are works whose owners may be impossible to identify or locate.

Andrew Yeates was appointed as a consultant to Sheridans solicitors in March 2006, having worked in-house for many years in senior positions in the television and music industries. Some 11 years with Channel 4 television included work as head of Acquisitions and Business Affairs and head of Rights and Corporation Secretary . They were followed by an appointment as director general of the British Phonographic Industry, the UK record industry trade association. In addition to working with Sheridans, Andrew is currently intellectual property adviser to the Periodical Publishers Association and General Counsel to UK collecting society the Educational Recording Agency. He chairs the DCMS Creative Exports Group (an industry advisory panel aimed at promoting export issues and concerns of the creative industries to the UK government). He is also a member of the DCMS Legal Deposit Advisory Panel addressing legal deposit requirements for electronic publications in the digital age. His work with Sheridans is particularly focused on rights management and the exploitation of content on new platforms. Further details: Sheridans, Whittington House, Alfred Place, London WC1E 7EA Telephone (+44) (0) 20 7079 0137, email: [email protected], website: www.sheridans.co.uk © Andrew Yeates 2007.

5.2

Copyright and the digital economy

Emanuel Meyer, a senior legal advisor for copyright and related rights at the Swiss Federal Institute of Intellectual Property (IGE), reviews how the internet magnifies national differences in the treatment of copyright.

The digital environment has spurred a lively debate on the copyright regime. Concerns about access to knowledge1 or the possibility of reusing content in the read/write culture2 have led to demands for a fundamental change in the copyright system. These arguments, while rightly recognizing the change in how works are used, overlook the fact that copyrights do not ban certain uses absolutely. Copyright merely gives the rights owner a choice. Provided the ‘right of making available to the public’ is introduced, the existing copyright regime is a perfect tool to handle the use of works in a digital environment. The Berlin Declaration on Open Access to Knowledge in the sciences and humanities3 and the Creative Commons licenses4 are proof of the way the existing copyright regime can be adapted to a changing environment. Of course, those who believe that people should be entitled to use anything freely without any permission and without any respect to the creator will inevitably come to a different conclusion. That, however, is a fundamental question regarding the legitimacy of any copyright regime, and has nothing to do with adaptation to the digital environment. Probably the greatest problem regarding the use of copyrighted material is the incredible amount of misunderstandings surrounding copyright. There is much information on copyright issues on the internet, and many people refer to this


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information without any regard to the fact that it might be false or inapplicable in their home country. It is amazing to what extent people still believe that anything found on the web may be used freely, or at least used freely if it is not used to generate profit, for scientific or artistic purposes, or for a ‘good cause’. This is not the case. As a rule, copyrighted material may only be used with permission. If there are any legal exceptions to that use, chances are they are highly specific and differ considerably from country to country. For instance, the US copyright act primarily relies on a ‘fair use’ system. A judge will look at the purpose and character of a use (including whether such use is of a commercial nature or is for non-profit educational purposes, the nature of the copyrighted work, the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and the impact of the use upon the potential market for or value of the copyrighted work).5 For example, in considering all these elements, the Court of Appeals of the Seventh Circuit came to the conclusion that downloads from unlicensed file-sharing networks do not constitute fair use and thus constitute copyright infringement.6 The Swiss copyright act – contrary to the US system – does not recognize ‘fair use’ exceptions but contains a number of specific limitations in its chapter 5. One of the limitations reads, ‘Published works may be used for private purposes. Private use shall mean any use of a work in the personal sphere or within a circle of persons closely connected to each other, such as relatives or friends.’ Thus, a Swiss judge, faced with the facts of BMG Music et al v. Gonzalez, would have most likely considered whether Gonzalez solely downloaded music files or whether at the same time she made the music files on her computer available for others. If the latter was the case, Gonzalez would have certainly committed copyright infringement since the totality of the users of a file-sharing system obviously do not fall under the legal definition of ‘private use’. If, however, she downloaded the files solely for private purposes, the judge might have come to the conclusion that her use was within this restriction. The problem created by these inter-country differences becomes much more accentuated in the digital environment, since a ‘making available to the public’ might be considered lawful in one’s home country but create a serious liability in another country where the website is also accessible. Therefore, great care must be exercised when using copyrighted material on the internet. Unless the use has been permitted, it is not advisable to use any content that might be copyrighted. Legally, the safest approach is to acquire an individual licence containing specific representations and warranties. Considerably less safe are general permissions such as the cc-licences. For instance, the ‘Attribution-NonCommercial-ShareAlike 2.5’ licence contains the following disclaimer: Unless otherwise mutually agreed to by the parties in writing, licensor offers the work as-is and makes no representations or warranties of any kind concerning the work, express, implied, statutory or otherwise, including, without limitation, warranties of title, merchantability, fitness for a particular purpose, non-infringement, or the absence of latent or other defects, accuracy, or the presence or absence of errors, whether or not discoverable.



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Some jurisdictions do not allow the exclusion of implied warranties, so such exclusion may not apply to you. This is coupled with the following limitation of liability: Except to the extent required by applicable law, in no event will licensor be liable to you on any legal theory for any special, incidental, consequential, punitive or exemplary damages arising out of this license or the use of the work, even if licensor has been advised of the possibility of such damages. In the absence of any warranty of non-infringement, the use of cc-licensed content creates a clear risk of liability. The same holds true for licences implied by terms like ‘free clip art’. Often the problem is not acquisition of the necessary permission but the identification of the rights owner. Since copyright generally requires no formalities, there are few registers in which the name of the rights owner can be searched. One of the few is the database of the US Copyright Office, which can be accessed under http:// www.copyright.gov/records/ (last accessed 23 January 2007). Generally, collective rights management societies also have good documentation on the rights ownerships of copyrighted works. As was pointed out above, the copyright regime does not require fundamental changes in order to be adapted to the digital environment, and thus the content of licences of copyrighted works can remain basically the same as in the analogue environment. The main points are: the granting clause; royalties, reports and payment; protection from third-party rights or against third-party infringement; transferability of rights and obligations pertaining to licences; representation and warranties; indemnification; integration, modification, choice of law, arbitration, ©-marking, severability, force majeure;  term and termination.7       

Even though the licence contracts do not differ in their structure, there are a few points that merit attention. Because of the worldwide accessibility of the internet, users of copyrighted works on the internet generally need a worldwide licence. Territorially limited licences are an option only if the websites in question cannot be accessed from unlicensed countries. Another issue is the use of copyrighted works on the internet under existing contracts. Depending on the applicable legal framework, such use can be covered by existing contracts. However, § 31(4) of the German copyright act explicitly states that ‘the grant of an exploitation right for as yet unknown types of use and any obligations in that respect shall have no legal effect’. In contrast, the Swiss copyright act does not

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COPYRIGHT AND THE DIGITAL ECONOMY 219 

explicitly regulate this issue. But the legislative message for the current revision of the copyright act states that ‘future uses of copyrighted works are transferred if the rights owner explicitly and without reservation assigns his rights to a third party or enters into an agreement where its interpretation leads to the same result’.8 Thus the legal situation in Switzerland differs considerably from the one in Germany. Nevertheless the statement in the legislative message may be deceptive, and one must look at the whole structure of the law. Under the Swiss copyright act, the author is fully protected. The copyright act states that ‘the author shall have the exclusive right to decide whether, when and how his work is to be used’. This of course includes the ‘right of making available to the public’. If this exclusive right to decide whether, when and how a work is to be used is assigned explicitly and without reservation, the right of making available to the public is included, since it is a part of this right. The owners of neighbouring rights do not profit from such comprehensive protection but are given only specific rights such as the ‘reproduction right’. They will only profit from the ‘right of making available to the public’ once the amended copyright act enters into force. Currently existing contracts regulating the transfer of neighbouring rights that do not include the future ‘right of making available to the public’ will therefore not include that right. A final point is that careful wording is necessary when dealing with the issue of the protection of technological measures. The national legislations generally seem to follow the wording of the World Intellectual Property Organization (WIPO) internet treaties. They protect ‘effective technological measures that are used by authors in connection with the exercise of their rights’. Technological measures can roughly be divided into copy restrictions and access restrictions. In practice, the rights owners license their works to on-demand services such as iTunes. The content is often delivered with copy restriction measures. The on-demand services then provide the access restrictions. But the on-demand service is neither the author nor the rights owner, but generally a non-exclusive licensee whose interest is to protect its business, not the author’s rights. It is therefore doubtful that the on-demand service can rely on the protection of technological measures through the copyright act. It seems more likely that provisions that protect conditional access must be relied on. But it is also doubtful whether the copyright owner can rely on the protection of technological measures through the copyright act for access restrictions, since access restrictions are measures used by the on-demand service to protect its business and not by the author in the exercising of his or her rights. This situation might be different if the rights owner required the on-demand service to provide specific access restrictions. In such a case, the on-demand service could be considered an auxiliary person to the rights owner, and the access restrictions would thus be considered as being exercised by the rights owner. As a result, the rights owner should be able to rely on the protection of technological measures through the copyright act.

Notes 1 See http://www.cptech.org/a2k/ (last accessed 23 January 2007).


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2 http://www.ft.com/cms/s/d55dfe52-77d2-11da-9670-0000779e2340.html (last accessed 23 January 2007). 3 http://www.zim.mpg.de/openaccess-berlin/berlin_declaration.pdf (last accessed 23 January 2007). 4 http://creativecommons.org/ (last accessed 23 January 2007). 5 17 U.S.C. § 107 (1976). 6 BMG Music et al. v Gonzalez, 430 F.3d 888 (7th Cir. 2005). 7 See Brunsvold, B G and O’Reilley, D P (2004) Drafting Patent License Agreements, 5th edn, BNA Books, Washington, DC, pp vi–ix. 8 BBl 2006 3409.

Emanuel Meyer is a senior legal advisor for copyright and related rights at the Swiss Federal Institute of Intellectual Property (IGE). He holds degrees from the University of Zurich and the Franklin Pierce Law Center. IGE has its headquarters in Berne and is the federal agency for all matters relating to intellectual property in Switzerland. Founded in 1888, it received its present status as an independent organization incorporated under public law on 1 January 1996. As an independent legal entity, the Institute is financially and operatively autonomous, and is entered in Switzerland’s Commercial Register. General information on intellectual property in Switzerland can be found under http:// www.ige.ch/defaulte.htm. For information regarding the article please contact the author at [email protected]

5.3

Digital policy management

Mark Isherwood at Rightscom reviews challenges in managing digital resources in the networked environment.

Defining the problem The automated management of intellectual property assets and the rights associated with them (hereafter collectively ‘digital resources’) has historically been perceived as only being of importance to the media industries. However, as the reality of a ‘dream’ network, providing access to anything, anytime, anywhere moves ever nearer, more and more organizations (from publicly quoted companies to non-governmental organizations, and from small and medium-sized enterprises (SMEs) to educational establishments) are recognizing the vital importance of policies that manage access to and use of digital resources (whether in a business to business (B2B) or business to consumer (B2C) environment). The recent growth in importance of online sharing communities such as YouTube and MySpace makes this of equal importance to individuals who provide the user-generated content these communities rely on. Thus the need for a policy to manage digital resources also embraces the consumer to consumer (C2C) business model. Of course this phenomenon cuts both ways. There is more and more exploitation of third-party-owned digital resources by these organizations and individuals; this can create serious liability issues if undertaken without the consent of the owner. It is also recognized that as the network develops, such policy management must be carried out


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with increased automation, eventually arriving at a point where the transaction and processing costs are almost zero. So how does an organization (or indeed an individual) protect its own digital resources and ensure compliance with the policies established by third parties? The frequently touted solution is the use of digital rights management (DRM). However, this term is frequently and wrongly taken to mean technology that enforces policies and controls access to or use of digital resources. In this form such technology is frequently deployed as a solution with little if any initial definition of the problem. Effective, automated management of digital resources in the network is as much about the right analysis of requirements and the correct business decisions as it is about the technology that subsequently may be deployed. Automated management of digital resources is therefore a far wider issue than is implied by the most widely understood definition of DRM. This chapter explains the nature of DRM in its widest sense, identifies the business activities that have to occur before we even approach technology issues, and briefly describes some of the generic tools not always associated with the general perception of DRM.

Digital policy management DRM has for more than 15 years been the term used to identify a group of technology tools that, as many vendors would still have you believe, provide automated end-toend solutions for the management of digital resources in the network. Most of these tools are designed to control or measure access to digital resources, and are thus purely about enforcement. As such they are better referred to as technological protection measures (TPMs), a now commonly used term derived from the World Intellectual Property Organization (WIPO) Copyright Treaty 1996.1 The automated management of digital resources may require the deployment of TPMs, and they certainly have their place. However, deployment of TPMs is only an element of a much wider series of activities which Rightscom, and increasingly others, refer to as ‘digital policy management’ (DPM). DPM is about defining, describing, communicating and enforcing policies which control the access to and use of any form of network digital resource. DPM should provide:  certainty of identity of digital resources (what is it?);  certainty of identity of parties (who is ‘offering’ and who is ‘consuming’?);  certainty of definition of ways in which resources may be used (how can it be exploited?). Fully functional DPM therefore, includes:  a significant ‘policy data layer’ which manages information about the digital resources, the parties, and the policies;  a ‘policy communication layer’ which ensures that all parties in any transaction are kept cognisant of the policies that surround it;

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 a ‘policy enforcement layer’ which where necessary ensures the policies are adhered to;  a ‘policy audit layer’ which measures and reports compliance. The enforcement and audit layers may include TPMs. TPM issues cannot be solved however without understanding DPM in its totality. These concepts have existed in the physical world since the dawn of the first act of commerce. They focus on enabling trust and predictability, and now have to be extended and remodelled for the network. If they are not, the utility of the network will simply decline. Effective, automated management of digital resources in the network must therefore be embarked upon as a continuum, embracing all the activities defined in DPM, and not simply as an enforcement issue.

Some DPM building blocks The layers that define DPM also define the business process path which organizations need to follow when seeking to effectively manage their digital resources in the network. The answer to simple questions like ‘what do we own?’ and ‘how can we exploit it?’ is frequently assumed rather than properly analysed. Similarly (and perhaps even more critically), organizations omit to determine in sufficient detail what they do not own. Once this task is complete it is then essential to be able to identify and describe what is owned, which requires the unique identification and description of the digital resource, the owning party and the agreement that asserts that relationship. Automated machine-to-machine communication is highly dependent on the reliability and ubiquity of unique identification. Those processes that for one reason or another cannot rely on the use of unique identifiers have a degree of ambiguity which makes process automation uncertain. Data matching in the absence of shared unique identifiers frequently demands human intervention for its success, imposing a cost on transaction processing which in the long term is not sustainable. In practice, an essential element of the management of identification processes is the association of identifiers with ‘metadata’, well-formed and standardized descriptions of the digital resources identified. Increasingly, standard identification systems are coming to include specifications for the registration of metadata with the identifier. The development of metadata repositories which are open to query will prove to be a very significant and necessary step in the automation of the management of digital resources in the network. Metadata is of equal significance in the context of the description of agreements or licences. In order for rights in digital resources to be handled by computer systems they must be expressed in a formal, machine-readable manner. Digital rights expression languages (DRELs) allow asserted rights over digital resources to be expressed in a machine-readable format, and facilitate the dissemination of this information along with more general metadata. A rights expression language is a type of high-level computer-processable language that can express human instructions for interpretation by a processing device, without ambiguity and in a secure manner. The instructions


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concern what a rights owner allows a user to do with a digital resource. The primary purpose of the language is to enable technical enforcement tools to control the use of protected material delivered on networks when they are accessed by users.

Standards development and interoperability The concepts of identification and description in an automated environment are not in themselves new. Since the widespread use of computers for the communication of information between organizations, business partners (sometimes working in groups) have agreed proprietary forms of identification and description and even crude forms of ‘rights’ expressions. However, in the network of the 21st century, digital resources are being exploited in ways which are not defined by the physical limitations of their distribution mechanism, such as a CD or a terrestrial broadcast. Increasingly a digital resource can be ‘consumed’ across any distribution mechanism using any device, leading to a fully integrated and multimedia experience. Proprietary solutions developed in business verticals are largely ineffective, and can actually act to prevent the creation of the ‘dream’ network.2 In the digital network, automated transaction processing will not work without standards and interoperability. There is a huge range of domains where standards are required for the virtual world. The context of DPM is no different, if we are to create predictability and interoperability in the network for all stakeholders. Work has already been undertaken by different stakeholders but the focus has largely been domain specific; for example on one media type (International Digital Publishing Forum3) or on one platform type (Open Mobile Alliance4). It is only in the last few years that more work has been undertaken which focuses on standards that cross domains to provide interoperability; for example MPEG-215 and Coral.6 This work will have to continue for some time if the dream of access to anything, anytime, anywhere is truly to be realized.

Notes 1 See http://www.wipo.int/treaties/en/ip/wct/trtdocs_wo033.html#P87_12240 2 A prime example of this is Apple’s iTunes which is now being challenged in several European countries to open its business model to enable interoperability between iPods and other portable music players. 3 http://www.idpf.org/ 4 http://www.openmobilealliance.org/ 5 http://www.chiariglione.org/mpeg/standards/mpeg-21/mpeg-21.htm 6 http://www.coral-interop.org/index.html

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Rightscom is a UK-based consultancy that specializes in the provision of solutions for the management, trading and protection of intellectual property rights (IPR) and digital content in the network environment. Its clients include a wide range of organizations in the digital media content industries, technology providers and regulators including the European Commission. Rightscom specializes in the analysis of the impact of changes on the ‘digital content’ landscape brought about by upheaval in operational, technical, commercial and regulatory processes, and in the design of the solutions needed to protect stakeholder value at a time of turbulent change. Rightscom’s expertise and experience spans the entire content value chain across the media industries. Our skills range from commercial strategies to technology architecture and implementation support. Its semantic engineering service offers cutting-edge tools and services to support the three core processes of semantic engineering, namely defining the meanings of terms and schemes (such as messages and database schemas); mapping together the meanings of different terms and schemes; and transforming metadata from one term or scheme to another without losing its original meaning. Rightscom has defined and developed metadata schemes for a wide range of clients. Mark Isherwood spent 18 years working for the MCPS-PRS Alliance, the UK music rights collecting society and one of the biggest in the world, in senior management positions. He was responsible for the development of strategies and policies for substantial rights negotiations with a range of licensee industries, including all the major UK television and radio broadcasters and the video industry. Since helping to establish Rightscom, Mark has undertaken rights acquisition negotiations for a major pan-European broadcaster. He has worked with Sony BMG Music Entertainment in the analysis of their system requirements in the management of digital music, and participated in a project for the Joint Information Systems Committee (JISC) examining the IPR consequences of using Creative Commons licences in the higher and further education sectors. He is currently the lead consultant for Rightscom in the support of DDEX, an organization developing standard XML messages and other supporting standards for the exchange of information relating to the management of digital music content and rights. Further information can be obtained from [email protected], tel: (+44) (0) 20 7620 4433.

5.4

Digital distribution and Creative Commons

Paula le Dieu on choosing the right tool for the increasingly nuanced world of online distribution.

In 1991, Tim Berners-Lee launched the World Wide Web (WWW). If the printing press gave us an extraordinary capacity to capture ideas, the WWW gives us an equally extraordinary capacity to distribute those ideas. But the age of the printing press and subsequent broadcasting models down the years has wrought a very particular set of tools that are coming under increasing pressure in the wake of Berners-Lee’s launch. This article seeks to very briefly explore one of these tools – copyright – and see how it is coping. It also looks at the new controversial tool that is digital rights management (DRM).

Copyright – the Swiss army knife of distribution tools Gutenberg ensured that knowledge could be captured in a format that allowed for wide distribution of exact copies. This meant that authors could confidently mark their contribution because it was printed exactly as originally conceived by that author. Prior to Gutenberg’s press, authorship had been anonymous or anecdotal, and ideas had slowly cycled their way around the thinkers of the day, acquiring nuances and interpretations and growing or withering accordingly. Print technology therefore led to the concept of the author and to the idea of the ‘copy’ which, via a need to ensure that there were sufficient incentives for these new authors to continue to print their ideas, eventually led to copyright law.

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Copyright has remained resilient in the face of change, and has grown and adapted to many different cultural and market needs over the years. Most remarkable has been the way that copyright law has been shown to be quite a good fit for purpose for the online world. I say ‘quite a good fit’ because in a fascinating anachronism, the days when ideas cycled their way around the thinkers of the day, acquiring nuances and interpretations, and growing and withering accordingly, have returned. Only this time, far from slowly cycling, ideas are pinging around the world, being assimilated, developed and recycled in the blink of an eye. The printing press has grown up and become a word processor, an image handler, an audio application and a video editor, and it is now attached to a distribution pipe that runs directly into the hands of the bulk of the western world’s population. Suddenly, the idea of a ‘copy’ is far less clear, and not everyone wants or needs the full suite of copyrights on every single item they author and distribute. In fact, to do so keeps them and their work out of the cycle of discussion, and increasingly it keeps them out of the flow of the marketplace. Fortunately, copyright law has the flexibility to allow innovation around the expression of copyrights. One particularly useful innovation is a set of licences authored by Creative Commons (www.creativecommons.org).

Creative Commons – some rights reserved Creative Commons (CC) focuses on providing standard licences for use by authors who wish to let consumers know that they have access to more rights in the work than those typically available under default copyright expression (all rights reserved). Authors have a choice of six licences. However the choice is best expressed in terms of two questions: 1. Allow commercial uses of your work? Yes? No? 2. Allow modifications of your work? Yes? Yes, as long as others share alike? No? All licenses reserve copyright for the author such that the licenses are non-exclusive and do not prevent the author from exercising any exploitation potential in the work. All licenses require that any use of the work must be accompanied by an acknowledgement (attribution) of the contribution made by the author while allowing copies to be made and distributed. These aspects in combination with the author’s response to the two questions result in the six licences. At the most open end of the spectrum, there is a licence that allows for anyone to copy, share and modify your work for commercial or non-commercial purposes. At the other end of the spectrum, you can choose a licence that reserves all rights apart from the right to make a copy and to share the work, and then only for non-commercial purposes. Once you have chosen a licence you mark your work with a CC logo that indicates that only some rights are reserved and then publish the work online. Anyone wanting to use that work simply clicks on the logo to find out what rights they can use in the work. Creative Commons licences have two critically important attributes which make them a welcome addition to the distribution toolkit. The first of these is the


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flexibility they offer authors and rights holders. The six licences reflect and support a wide variety of emerging, online business and cultural models and provide legal confidence for those that wish to explore yet more. Being able to choose the right tool for the increasingly nuanced world of online distribution is a critical strength, as John Beckman, founder of the Magnitudes music label, recognized.

Magnitudes Beckman saw that there was an opportunity for a different music business model that was ‘web native’. He decided to go with the web’s inherent capacity for sharing music instead of fighting it, and use his fan base to get the music in front of a lucrative but traditionally very difficult to reach customer – the music licensing marketplace. But first Beckman needed to make sure that he had a fan base and that they had everything they needed to ensure they pushed the music across the web. One of the critical tools he uses is a non-commercial Creative Commons licence. This licence gives anyone permission to play, copy and pass on any of the label’s music as long as it is for noncommercial use. Sure enough, five years later, Magnitudes plays an important role in the music licensing community, particularly for independent film makers. The second key attribute of the licences is the ease with which they communicate difficult legal concepts and are emerging as a standard amongst authors and consumers alike. Copyright is usually understood by a few people with strong vested interests in their rights. It has not typically been well understood by the general public. By providing three ways of reading the licence – legalese, plain language and machine readable – Creative Commons ensures that the legal concepts are accessible and easily understood. In summary, Creative Commons licences are worthwhile tools to consider when tackling the challenges and opportunities inherent in online distribution.

DRM – the sledgehammer of distribution tools Finally, a very brief word on DRM, which is a broad collection of technologies designed to technically prescribe the access, uses and distribution ability that a consumer has over a work. DRM technologies are designed to protect works from undesired use, although it is arguable how effective they ultimately are. However in doing so they can prevent your customers from being able to exercise legitimate uses of the work, such as those available under copyright exceptions, or even access the work in the first place. In putting in place roadblocks to legitimate uses, you can be encouraging your customers to explore the very tools that allow them to exploit the work beyond your desired uses. A personal example of this is my experience with DVDs. Two out of five DVDs I purchase will not play on my computer, which is my primary viewing station. This is because of a combination of DRM technologies on the work and my laptop’s built-in region blocking. Despite the fact that I am the DVD industry’s dream customer, with an average of five DVDs purchased a week, that same industry has encouraged me to

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DIGITAL DISTRIBUTION AND CREATIVE COMMONS 229 

become an expert in software that rips DVDs to my laptop without the DRM, or in particularly desperate circumstances has driven me to explore illegal download sites in an effort to get a copy of the work that I can watch, having been thwarted by the DVD. In summary, DRM use should be considered very carefully and with your customer at the centre of your thinking.

Paula Le Dieu is the managing director of Magic Lantern Productions (MLP). MLP is known for creating innovative interactive media, ranging from rich media websites, mobile games, digital video, DVD, right the way through to content and rights management systems. Working with clients and partners in the media, technology and public-service sectors, including Channel 4, BBC, BT, Tiscali, the UK Film Council, Skillset and many others, MLP specializes in understanding the power of broadband networks and emerging digital platforms, for the creation, presentation, distribution and sharing of ideas. As well as her role as MD, Paula heads up the Open Media division at MLP. Prior to joining Magic Lantern, Le Dieu was the director of iCommons, the international arm of Creative Commons. She played a central role in improving the profile of local language and jurisdictional versions of Creative Commons licences and the Science Commons project. Le Dieu also headed up the groundbreaking Creative Archive initiative for the BBC. As project director she created and launched the Creative Archive as a public service initiative to provide the fuel for digital creativity by opening up access to, and allowing for, reuse of Britain’s cultural heritage, starting with the BBC’s radio and television archive. Le Dieu remains committed to ‘open media’ and continues to be involved with the Creative Archive project as a member of the Creative Archive advisory board. Further details: www.magiclantern.co.uk


6

Brands and trade marks





6.1

Taking products and services to market across Europe

What are the key steps to consider before and after launching a new product in a number of territories? ask Brian Morgan and Esther Gottschalk at Marks & Clerk in London.

In this age of ever-increasing globalization you need to retain a competitive edge in not just one but all the countries where you do business today as well as in the future. Even if you are not looking to launch your product or services across numerous territories in Europe straightaway, you must have an intellectual property (IP) strategy that is aligned to your business strategy from the outset. It may seem obvious to some but many companies still fall down in this respect by not taking the necessary steps to protect their IP and meet their business objectives. The end result can mean that an IP strategy is formed too late (when a crisis happens), causing unnecessary stress and increased costs. After all IP should be an asset, not a liability! At its worst, avoidance can mean serious problems, such as having to scrap a product launch because the brand name you chose is already being used by someone else, or having to create a completely new brand for exports because the brand name chosen infringes the rights of another company based in one of your target territories.

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TAKING PRODUCTS AND SERVICES TO MARKET ACROSS EUROPE 237 

So why does this happen? It is partly because different people in the organization tend to be responsible for each area. Product development and marketing often forget to consult legal until the last minute because not every idea gets to the launch phase. As a result, lack of communication means the IP position is often considered when the launch date is already in mind. When rolling out a brand across a number of territories, there are a number of key steps to take before and after a launch.

Before a launch First, work out your geographical needs and put them in order. This is not about a wish list! Instead of thinking ‘I want to sell X product worldwide,’ think strategically about where you are launching first, and put a timescale against the territory. This is critical for working out your budget, and stops the need for the blank cheque. If you are only going to be selling in the United Kingdom in the first year, but want to move into France and Switzerland within a few years and then Norway by 2012, it is important to specify the marketing plan. Do not just think United Kingdom, France, Switzerland and Norway, without evaluating the practical timescales, but do evaluate the need to have the same trademark in key jurisdictions where you will be marketing. The second rule is, give yourself enough time. When putting a product in the marketplace, to keep costs low and to sort out any problems, you ideally need to give your IP advisers time to clear a brand name. The very worst thing you can do is pick a brand name, spend time and money on designing logos or manufacturing products, and then turn to your advisers, only to be told that the name you have set your heart on already belongs to someone else. Trying to ‘free’ a brand when it is owned by another company is a lot harder and a lot more expensive than finding something new that is not fraught with difficulty. Starting early is important. The legal side of branding is as important as the creative side, and should be run concurrently. This does not mean you need a lawyer sitting with your marketing department. It simply means training someone effectively who will build in the legal process to the creative process when deciding upon a new brand. The trick, therefore, is to find a person within your organization who can take a coordinating role for the IP. Do not tack the role on to someone’s job role. Find an effective communicator, who understands the company’s brands and ethos, is aware of product development, in touch with marketing plans, who will enjoy the responsibility of controlling the company’s IP. It could be your marketing manager. It could be a high-level administrator. It could be an accountant. There is no need for this person to have a legal background: your external advisor should be able to give them the necessary advice and training to carry out the role effectively. Third, find a legal expert who can assist you. Launching any brand, domestically or worldwide, takes legal knowledge, judgment and experience given the varying legal systems and the choices of protection. An IP specialist will help you choose and protect a trade mark capable of generating a strong and versatile brand identity in the market, avoid infringement claims and protect your products and marks from unfair

 238 BRANDS AND TRADE MARKS

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competition and false advertising. Choosing the right brand, which is available and can be easily protected, will save money in the long run. Another key factor to remember is that each country has its own IP rules and regulations, and it is very difficult for a non-expert to grasp how the differing laws apply in each jurisdiction. For this reason, getting expert advice is crucial. Using the right knowledge and the interrelation of the systems, your IP adviser will consider issues such as national rights or protection through the Community Trade Mark register or via an international registration. In relation to designs, while you can get a design registered in many countries, in the United States designs are treated like patents, and rules of novelty and disclosure apply. So if you registered your design in Europe in 2004 and then decide weeks before your launch in the United States that you want to do the same, you are already too late. Of course, if you have followed steps one to three above at the time when you first thought about the product, this mistake would have been avoided. This is why geographical strategies are inherent within successful IP planning.

After a launch When you have protection in place, it is important that you monitor the position to make sure other companies are not hijacking your brands. A watching service means that a third party will keep a check on your brands and inform you if they find anyone trying to register a trade mark that is similar to yours. It is not an expensive process. The benefits are that you learn if you have any problems often before they become serious. It is a lot easier to stop a company using a brand that is similar to yours if it has just filed an application picked up by your watching service. If you have no strategies in place for monitoring your trade marks, then you may only stumble across problems inadvertently years later. Trying to take action then is much more complicated and expensive. For example, a rival company is a lot more likely to back down if you raise an objection to its using the brand when the brand is in its infancy, than after it has invested in the name and has been successfully marketing the product for years. To conclude, therefore, building effective strategies around your IP will give your business a major, sustainable market advantage in Europe and beyond. IP is as important to commercial success as business, marketing and financial planning. At the end of the day, IP rights can create real value for your company. If you are looking to maximize this value by growing your business in Europe make sure your IP strategy meets your objectives.

Marks & Clerk is a leading group of patent and trade mark attorneys with an associated firm of IP lawyers, Marks & Clerk Solicitors. With an expanding network of offices, it is able to provide a full range of integrated IP services, covering patents, trade marks, designs, copyright and domain names. Further details: www.marks-clerk.com

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TAKING PRODUCTS AND SERVICES TO MARKET ACROSS EUROPE 239 

Brian Morgan is a registered trade mark attorney and European trade mark attorney, and a partner at Marks & Clerk in London. Email: [email protected]. Esther Gottschalk is an assistant in trade marks in Marks & Clerk in London. Email: [email protected]

6.2

Managing brand and design portfolios in Europe

The European Union has introduced new European-wide legal systems over the last decade or so for the protection of intellectual property (IP) rights. Silas Brown of Briffa examines how this has affected the creative industries and managers of IP portfolios in Europe.

If you are an agent for clients in the creative industries advising them on how to protect their IP, deciding how best to advise your clients can be tricky. The law of IP is at your fingertips, but how best to use it? Picture the scene: you are pouring yourself a cup of coffee one morning when a client phones and says it has a new brand and wants to start using it in France, Spain, Germany and the United Kingdom. No sooner have you put the phone down when another client calls in and tells you of a great new product design it needs to protect, for launch initially in the German market but maybe later in Ireland and the Netherlands. You know you probably need to get your clients some registered protection in these European countries, but what registrations will protect your client and how to do it most cost-effectively?

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MANAGING BRAND AND DESIGN PORTFOLIOS IN EUROPE 241 

Trade mark protection Brands are protected by registration of trade marks in relation to specific goods and services. If registration is obtained, a monopoly is granted to the owner, such that if another person or company uses an identical or similar mark for identical or similar goods or services which may confuse customers, the trade mark is infringed and the owner can stop such infringing use and get compensation. All trade marks are territorial, and so this protection only exists in the country where a registration is obtained. A trade mark registration in Germany, therefore, is useless in protecting a brand for products or services marketed in, say, the United Kingdom and vice versa.

The bad old days The client mentioned above that wishes to protect its brand in France, Spain, Germany and the United Kingdom, 15 years ago would have had to file a portfolio of four separate trade mark applications to gain the necessary protection for those countries. In the old days, if a client wanted to protect its brand in Europe, this was the only option. And because filing 20 or 30 separate trade mark applications in each of the countries of Europe for each brand used Europe-wide was prohibitively expensive, the majority of brand owners filed only strategic applications in the key European countries and not all of them, which left them exposed in other European countries where registrations were not obtained. Not only was the previous filing process expensive as a result of this multijurisdictional system in Europe, but it also meant more expense with regard to ‘clearing’ a brand before filing trade mark applications. Diligent brand owners will always carry out formal trade mark clearance or availability searches before filing applications to register a trade mark. This is to see whether there are any similar brands out there already, and if the coast is clear, the client’s trade mark applications can be filed without a high risk of rejection. However, carrying out formal trade mark searches in each of the European countries would be a very expensive process. Consider an average cost for trade mark searching of say £300 or €450 per country (some are more than this), and remember that there are over 25 countries in Europe. The sums quickly add up if a client wants to carry out a comprehensive search in Europe. This is before a single trade mark application is filed, with the accompanying cost involved at that stage. The whole process could get quite complicated and very expensive if wider European coverage was necessary. In the old days it was simply not possible to say, ‘Let’s get you covered for Europe.’ Brand owners may have filed in certain countries initially and then added to them with further applications later if a market developed in other European countries. But at the same time that brand owner would have no registered protection in other European countries where the brand might be being ripped off.


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The future is bright In the last 10 years or so a new system of Europe-wide trade mark registration has become available, which vastly simplifies the trade mark process and reduces the cost of protecting brands in Europe remarkably. It is now possible to apply for and obtain an EC Registered Trade Mark (referred to as a Community Trade Mark or CTM) which if granted has effect in each of the 27 member states of the European Union. Such a CTM application can be made at a tiny fraction of what it would cost to file 27 separate applications for the same protection. The CTM system is administered by the Office for Harmonization in the Internal Market (OHIM). The system has revolutionized the management of brand portfolios in Europe. With a single application to OHIM, it is not only possible to say to clients, ‘Let’s get you covered for Europe’ as far as brand protection is concerned. It allows the brand portfolio manager to be able to offer so much more to the client for less. Accordingly, the client may be able to protect several brands Europe-wide for costs equivalent to protecting a single brand in only several key European countries under the previous system. Furthermore, a formal search of the CTM register can be carried out for the equivalent cost of searching in a single country, and usually gives a reasonably clear picture of what brands will not be available Europe-wide. Many clients will seek some reassurance from a CTM availability search alone prior to filing a CTM application, rather than searching in all the EU Member States.

Registered designs Designs, such as product designs and patterns, are often one of the key types of IP owned by designers and product retail businesses. These designs are valuable commercial assets, and can be protected by registration of ‘design rights’ relating to each design a business owns. Registered design rights protect the ‘shape and configuration’ of such a design. Thus, a design for a new shape of bookcase or the configuration of a computer screen interface, for example, can be registered as a design. Similarly to brand protection, a design right registration gives powerful monopoly protection for the specific design registered. As a result, a design portfolio manager would advise the client mentioned in the introduction that wanted to protect its product design in the German market, and maybe later in Ireland and the Netherlands, that an application for a design registration is required. But what is the best way to protect such a client’s position in the strongest as well as the most cost-effective way in Europe?

Designed for convenience Similarly to brand protection, design right registrations are territorial, and so separate registrations are required in the countries where protection is required. Also, in a very similar way to the European system of trade mark registration, in previous years design right registration in Europe meant having to file separate applications for registered protection in the separate countries of importance to the client. Again, this invariably became expensive and complicated. Once again, clients were driven to focusing on

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obtaining design right registrations only in key major European countries in order to make the best use of their budget. However, in the last five years the European Community has also introduced a centralized system of convenient registration of design rights across Europe, through the introduction of the EC Registered Design (referred to as the Community Registered Design or CRD). The new system of CRDs is also administered by OHIM. The registration of a single CRD for a particular design will provide registered design right protection for the applicant’s design in all 27 Member States of the European Union in a single application filed at OHIM. The client mentioned earlier would previously have had to file a design application with the German Design Registry and then later (if the product was to be launched in Ireland and/or the Netherlands) new applications would have to be filed in those countries at further cost. Not only was this a problem in terms of costs, but unlike trade mark registration there are time limits that apply to the making of foreign design applications, such that if a design application is filed in one country, the owner must file applications in any other countries within a one-year period, after which the design will be treated as unregistrable in other countries. Thus, such a client would be under pressure to file in European countries where protection is potentially required early. If it turned out that the product was not in fact launched in those particular countries, these additional costs would have been incurred unnecessarily. The new system of CRD registration, therefore, represents a vast improvement, because the whole of the European Union can be covered at the same time for the same cost, and so potential expansion into European countries not initially considered by the owner of the CRD can be easily covered for that product from the beginning.

Economies of scale In most cases when it comes to obtaining registered design right protection for product designs, it is not just a single product design that a business will want to protect. More often than not, a wide range of different product designs will be launched over a period of time in one or several countries in Europe. The new system of CRD registration has an additional benefit to such businesses which want to protect larger portfolios of designs. If several design right applications are filed simultaneously, there is a very large discount on cost. OHIM filing fees are significantly reduced for each separate design application filed simultaneously, and the more design applications that are filed at the same time, the lower the filing fees are for each application. This means that an IP portfolio manager can and should work carefully with clients to prepare those clients’ design portfolios so that several design applications can all be filed at the same time, thus obtaining the most cost-effective protection of their portfolios.

A balance of risks Of course, there are always risks associated with new procedures. A good brand portfolio manager will be aware that the old system of separate national trade mark and design right systems remains in place, and a conflict between the new and old systems


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can still arise. For example, if a CTM availability search is carried out and nothing is found and so a CTM application is filed, an owner of a trade mark registered in, say, Poland (which would not have been discovered by the CTM availability search) could oppose the CTM application on the basis of its rights in Poland and stop registration of the CTM. Brand and design portfolio managers should be aware of such risks, and advise their clients accordingly when extolling the virtues of the CTM system. There are also other risks that an IP portfolio manager must consider. For example, the CTM and CRD do not cover non-EU countries such as Norway, Switzerland and several Eastern European countries. If protection is required in these European countries, separate applications must be filed there. However, the new Europe-wide system of trade mark and design right protection which has been implemented in the last 10 years also reduces some of the risks that existed before. The centralization of trade mark and design right registration makes the IP portfolio manager’s job easier, in that rather than managing the maintenance and renewal of several registrations in several different European countries, he or she will only be concerned with a single registration for each brand or design for the whole of the European Union.

Conclusion The CTM and CRD systems are still relatively new tools in the IP portfolio management toolbox, and these tools promise to be more and more heavily utilized in the future by European and international brand owners alike. With regard to the clients mentioned earlier, you will now be able to offer for no extra cost the safety net of registered trade mark protection in the European countries they require, as well as 21 other countries in Europe at the same time and for a similar cost. The broader impact of these new tools, beyond making IP portfolio management in Europe easier, is that they have made protection of IP rights more accessible and available to clients on tighter budgets. They have made those of us in the IP portfolio management business look at IP protection far more from a European perspective. Whereas before these new systems were introduced we may have thought in terms of protection of IP rights in relation to single countries in Europe, now we tend to think more in terms of protecting in ‘Europe’ first, then the rest of the world. As a result it can be said that these new systems have gone some way to shrinking the global map of intellectual property rights protection.

Briffa is an award-winning firm of solicitors based in London, specializing in the business and law concerning a wide variety of industry sectors, and in particular those who value their intangible assets – their intellectual property. Whatever your business, be it design, technology, entertainment, software development, publishing or the internet, we can help you add value to it so that you reap the rewards of the investment you have made in its creativity.

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Silas Brown is a solicitor specializing in IP, including branding, registered and unregistered trade marks and licensing, as well as information technology including e-commerce, computer and internet law. Silas has a solid background in dealing with a range of commercial contracts, terms and conditions, and advising on commercial arrangements for the successful exploitation of IP rights and technology. Further details: Briffa, Business Design Centre, Upper Street, Islington, London N1 0QH, tel: (+44) (0) 20 7288 6003, email: [email protected], website: www. briffa.com

6.3

Building a strong (European) trade mark

Sofia Arenal at Mewburn Ellis LLP considers the tactics in building a trade mark in Europe.

Selection What is a trade mark? It is something that distinguishes your product or service from those of competitors. This can be words, pictures, stylized words, a logo (sometimes called a device or a design), a colour or colour combination, a shape (such as the traditional Coca-Cola™ bottle), a sound (such as the jingle associated with Intel™) or even a smell, or a combination of some of these things.

What is a good trade mark? It is something that stands out from the crowd and is distinctive. It may allude to aspects of the product or service, but not describe them. Marketing teams often advocate a descriptive name, which will immediately convey what the product is or does, but this is not a good long-term strategy. Competitors may want to use something similar, and you could either lose repeat sales because people think what they buy from someone else is in fact your product, or, faced with a range of similar brands, they may discount branding altogether.



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For examples of strong and widely known marks, Jaguar™ is a good mark for cars because it is not descriptive of them, yet has positive connotations of sleekness and power which are attractive attributes for a car. It is an ordinary word and easy to remember. Kodak™ is a good mark for anything, because it does not describe, is not a proper name, is short and is an invented word.

How do you create one? There are brand consultancies, or you can come up with some ideas yourself and consult a trade mark attorney. Consider whether you want to create a ‘family’ of marks within your company or corporate group, sharing a common element, for example a prefix or suffix (often relevant in the pharmaceutical industry), or theme, such as names of planets, Roman gods, names of winds, animal species etc. It is advisable to come up with a few alternative marks, in case your first choice is not viable, perhaps because someone else has beaten you to it and registered it (or something close enough to block yours), or because you are advised that it is not a good mark.

Languages Few businesses deal only in a single national market, and it makes sense to adopt a single mark for as many of your markets as possible. If your mark is a word, check that it does not have a negative meaning in the languages of your customers. For example, Nova may seem a good mark for a car to a Briton, but in Spanish, ‘no va’ means ‘does not go’.

Trade mark clearance searching The two reasons for carrying out trade mark searches before adopting a new mark are, first, to make sure use of your mark does not risk infringing third-party rights (in the same mark or something confusingly similar); and second, to check whether thirdparty rights are likely to block registration of your own mark. Searching in multiple countries can be an expensive process; but then so can defending infringement actions in court and having to withdraw products from the market and rebrand.

Registration Why register? In many countries there are ‘common law’, or unfair competition laws, which can be used to stop competitors or counterfeiters from using your mark, or something too close to it. But a prerequisite is proving that you have the rights to assert in the first place. A registration certificate is a much cheaper. It also serves as a ‘keep off the grass’ sign to competitors, when they carry out availability searches.

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BUILDING A STRONG (EUROPEAN) TRADE MARK 249 

A trade mark is also a commercial asset. Particularly in the consumer market, the brand can be one of the main factors, if not the main factor, for an individual choosing which of several competing products to buy.

When to search and file applications to register trade marks This should be done long before you plan to launch the product. Many businesses leave it too late. If possible, carry out clearance searches and then file trade mark applications at least six months before launch. In the United Kingdom, six months represents about the shortest timescale for obtaining a trade mark registration. Under the Community Trade Mark (CTM) system – more below – allow a minimum of a year. It can often take longer. Under the Benelux system, registration can be obtained very quickly using an accelerated procedure, which is especially useful if you need to tackle an infringer. You can spread the cost of filing applications by taking advantage of the sixmonth priority period, whereby any application filed within six months of the first application, for that mark and those products/services virtually anywhere in the world, is effectively backdated to the date of the first application.

What products and services to claim For administrative purposes, there are currently 45 ‘classes’ into which all products and services are classified. The classes do not always correspond closely to commercial reality. A trade mark registration only gives a monopoly in the mark for the products and services it covers, although infringement rights can extend some way beyond these. Therefore careful consideration needs to be given to the range of products/ services you claim. Once an application for registration has been filed, you cannot expand the list of products/services, only narrow it. You should cover all products/services of current and potential future interest. If you claim too narrowly, you could soon outgrow your registration; if you claim too broadly, you could well invite unnecessary objections/attacks from third parties.

The process from application to registration of a trade mark Trade mark law is harmonized, although not identical, throughout the European Community. It is also increasingly harmonized on a global basis. The basic elements of the process tend to be as follows: 1. Pay fee and file application stating – the mark; – the products/services to be covered; – the applicant’s name and address. 2. Trade marks office issues a filing receipt. 3. The proposed trade mark is examined to see whether it is inherently suitable for registration, for example, that it is not misleading or generic. Some offices also check whether there are conflicting prior applications/registrations. They may raise


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objections based on such earlier rights, or simply notify the applicant and/or the owner of the earlier right. The applicant has a chance to respond to objections. 4. Assuming the mark is accepted by the office, it will be published. Third parties have a set time, commonly three months, to object by way of opposition. Opposition proceedings are beyond the scope of this article. They can sometimes be resolved by negotiation. 5. If any objections raised are overcome, the mark is registered and a certificate issued.

Where to register This depends on your current and likely markets. Generally trade mark registration has to be obtained on a country by country basis. There is no such thing as a worldwide registration, but there are ways of covering groups of countries, which can be very cost-effective. You can cover the whole of the European Union in a single registration via the Community Trade Mark (CTM) system. The CTM office is based in Spain. It is a unitary right, so if your mark turns out to be descriptive in Finnish or Greek, or is successfully opposed based on an earlier Slovakian registration, the whole thing fails, although you may have the (expensive) option of converting the remnants of the CTM into national applications. German, UK, Spanish and Italian applicants are the biggest EC users of this system. The majority of non-EC applicants are from the United States. Registration of CTMs is sometimes delayed or prevented by oppositions. However, around 50 per cent of oppositions are resolved, usually by negotiation, without a decision on the case being issued. The majority of oppositions are handled in English, but they can be in other EC languages. You can use an existing application/registration as the foundation for an ‘international’ registration under the Madrid system. You can pick and choose the territories of interest from a large group of countries and blocs including the European Union, United States, Australia, China, Singapore, Japan, Switzerland and Norway, to name but a few. You effectively get a bundle of national rights, administered centrally, potentially saving substantially on cost. If you encounter problems in one country, this need not affect the others. You can include a CTM as one of the territories in a Madrid application. You need to qualify for ownership of a mark under the Madrid system by nationality/ incorporation, domicile or commercial establishment in a member country.

Beyond registration A registration commonly lasts for 10 years. It can be renewed indefinitely, on payment of fees, for successive periods, usually of 10 years. Use your mark correctly and consistently, so it stands out in text (using for instance bold, upper case or a special format). If you do not use your mark properly, you cannot expect others to do so.

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BUILDING A STRONG (EUROPEAN) TRADE MARK 251 

Use it as an adjective, not a verb or noun: for example refer to a ROLEX™ watch, not a rolex. The owners of Google™ are trying to stop people using ‘google’ as a verb, as in ‘Have you tried googling to see if you get any hits?’ Show it is a trade mark eg by using the letters ™ or symbol ®. The symbol ® strictly means that the mark is registered, whereas the letters ™ simply mean you claim it as your trade mark (whether it is registered or not). It can be an offence to indicate a mark is registered when it is not, and this is something to bear in mind if your products and marketing materials or website are transnational. Identify the marks, and their owner and licensee (if relevant) on packaging, product literature, websites and so on. If someone misuses or infringes your mark, take action. Trade marks need to be protected, like any other asset.

Sofia Arenal is a qualified UK trade mark attorney and representative authorized to act before the Commonwealth Trade Marks (CTM) office. She is a member of the Institute of Trade Mark Attorneys (ITMA) and has lectured for the institute. She is on the council of the UK group of the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI). In addition to her UK experience, Sofia has worked for several months in trade mark firms in Spain and the United States. She joined Mewburn Ellis in 1996, became a partner in 2004 and is based in the firm’s London office. She has particular experience of trade mark oppositions, revocations and invalidation actions in the United Kingdom, and oppositions under the CTM system. She has been involved in appeals to the High Court and the European Court of First Instance. Further details: Mewburn Ellis LLP, York House, 23 Kingsway, London WC2B 6HP, tel: (+44) (0) 207 240 4405, email: sofi[email protected] © Mewburn Ellis LLP 2007.

6.4

Defending brands

Lisa Lovell, managing director of Brand Enforcement, a legal consultancy specializing in the criminal enforcement of intellectual property, provides some pointers on what brand owners should be considering when planning how to protect their intellectual property (IP) rights in the United Kingdom and throughout Europe.

When planning the protection of intellectual property rights (IPRs), a robust enforcement strategy is absolutely imperative. Any anti-counterfeiting or anti-piracy strategy should include consideration of the following elements:  awareness;  intelligence;  enforcement.

Awareness Provide a clear point of contact In order for law enforcement officials to be able to bring a prosecution against infringers of IP, the assistance of the owners of the IP in question must first be sought. A clear point of contact within each relevant jurisdiction must be provided by IP owners in order to ensure that any assistance regarding the matter can be given without delay.

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DEFENDING BRANDS 253 

By providing a clear point of contact, IP owners will effectively maximize their chances of prosecutions being brought on their behalf.

Maintain an ongoing rapport Once a clear point of contact has been established, it is important for IP owners to develop a rapport with all relevant officials dealing with the infringement of their IPRs. An ongoing rapport must be maintained in order to encourage law enforcement officials to continue to contact IP owners regarding future suspected infringements. By maintaining an ongoing rapport, IP owners will in effect be constantly reminding law enforcement officials to look for suspected infringements bearing their brands.

Distribute enforcement guidance It will never be possible to provide all enforcement officers in all jurisdictions with one-to-one training. However, enforcement guidance should be provided to as many law enforcement officials as possible, either in printed format or virtually via a secure website. Enforcement guidance is necessary to keep officials up to date and enable them to make an informed decision as to whether an infringement has occurred. By distributing enforcement guidance, law enforcement officials will not only be able to identify more infringements, they will also be able to engage IP owners more effectively regarding the suspect elements of the goods in question.

Apply a consistent methodology It goes without saying that any anti-counterfeiting or anti-piracy strategy should be applied consistently for the maximum benefit. A consistent methodology should be applied to build confidence between IP owners and law enforcement officials. By applying a consistent methodology, all personnel involved in its implementation will be able to make as much progress as possible as this will ensure that law enforcement officials are aware of when and to what extent assistance may be provided.


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Intelligence Monitor the marketplace While law enforcement officials may contact IP owners to report infringements, it is largely up to the IP owners themselves to monitor the marketplace and to report any infringements to officials who are responsible for enforcing such matters. As well as the physical marketplace, the internet should also be monitored by IP owners in order to establish the extent to which IPRs are being infringed. By monitoring the marketplace, IP owners will be aware of how much damage infringers are causing to their brands and will be able to allocate the correct resources to fight the problem effectively.

Collate and disseminate relevant intelligence After monitoring the marketplace, intelligence regarding the extent of infringement of IPRs should be collated. Once the relevant intelligence has been collated, it must then be disseminated to all relevant enforcement personnel. Disseminating relevant intelligence to the enforcement authorities within each relevant jurisdiction will enable progress to be made in determining who the real players are behind IP theft (which is often linked to serious and organized criminals).

Educate on current infringement trends As well as providing law enforcement officials with information on how to distinguish between a counterfeit and a genuine product, information should also be provided as to the likely routes involved in the trade of such products. Current infringement trends should be monitored by IP owners and any changes should be notified to all law enforcement officials in the jurisdictions concerned. Educating law enforcement officials on current infringement trends will provide the best chance of successfully tracking down both the infringers as well as the infringing goods.

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DEFENDING BRANDS 255 

Enforcement Consider civil as well as criminal action The first seven steps as mentioned above comprise the basic elements of a criminal IP enforcement strategy. However, as well as criminal action, civil action should also be considered. Once an infringer has been identified and criminal action either undertaken or ruled out, consideration should be given to whether the target has sufficient assets to warrant civil action. By considering civil as well as criminal action, IP owners will maximize their chances of claiming damages and therefore maintaining a budget for future IP enforcement actions.

Register border rights To restrict the free circulation of counterfeit and pirate goods across national borders, IP owners should register their rights with Customs. A single application, which is free of charge, can cover the whole of Europe. Customs IPR applications must be regularly updated to provide relevant intelligence in order for officials to detect infringing produce. By registering IPRs with Customs, IP owners will minimize the chances of the infringing goods being merely destroyed without any action being taken against the infringer, or the goods being released because officials do not know who to contact to confirm the infringing status within the relevant time limits given.

Periodically revise your IP enforcement strategy Of course, anti-counterfeiting strategies are as unique as the particular brand they relate to. Therefore any strategy embarked upon needs to cover other angles or issues that have not been covered in these recommendations. However, the elements recommended above will provide a good starting point. Having said that, the recommendations will differ depending upon the particular jurisdiction. European brand owners face a particularly difficult situation because there are so many different legal systems and so many different officials to liaise with. Any IP enforcement strategy should be periodically revised to take account of new intelligence received, new trends emerging, etc.


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The benefits of implementing a consistent IP enforcement strategy Maximize the chances of prosecution of infringers.  Empower officials to make an informed decision on whether an infringement has occurred.  Engage officials more effectively regarding the suspect elements of the goods in question.  Assess how much damage infringers are causing to your brands.  Allocate the correct resources to fight the problem effectively.  Enable progress to be made in determining who the real players are behind IP theft.  Provide the best chance of successfully tracking down infringers.  Maximize the opportunity to claim damages.  Maintain a budget for future IP enforcement actions.  Ensure you have the best possible protection in place at all times.

Lisa Lovell qualified as a solicitor in 2002 and is the founder and managing director of Brand Enforcement. With over eight years’ experience in this niche legal field, Lisa has gained a strong reputation in the anti-counterfeiting arena. She has written extensively on the subject of IP theft for various industry magazines and was editor of the special supplement on intellectual property law, published in The Times in September 2006. Lisa is currently appointed by the UK Government’s Patent Office as a member of the Intellectual Property Crime Group (IPCG). As part of this role, she participated in a series of raids known as Operation Dawn and also acted as a legal adviser to the Tonight with Trevor McDonald show on the status of the £1.5 million worth of counterfeit produce seized. For further information on our personnel see http://www.brandenforcement. co.uk/about-us/our-personnel.cfm





7

Company knowledge


7.1

Intellectual assets management

Iain Russell at the Intellectual Assets Centre charts the highway to future knowledge value.

To know the past one must know the future.

The knowledge gap Professionals involved in the day-to-day minutia of working with intellectual property (IP) and intellectual assets (IA) often overlook the vast lack of awareness and understanding in most businesses regarding this topic. A wise colleague once summed this up for me with a simile, saying, ‘Our task [of persuading companies to practise proactive intellectual asset management] is like attempting to sell a particular brand of whisky to a market which does not understand the concept of alcohol – or if it does, then only to get drunk.’ This chapter discusses some questions that CEOs might ask about the management of their organization’s IA. Additionally the key differences in measurement approaches being advocated and researched in Europe and the Rest of the World are explored.

Why is this important to businesses? Figure 7.1.1 shows the shift in the relative values in organizations between tangibles and intangibles between 1978 and 2006. These values are just as valid for unlisted

 264 COMPANY KNOWLEDGE

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1978 intangible assets 20% tangible assets 80%

1997 tangible assets 50%

2006 intangible assets 50%

tangible assets 20% intangible assets 80%

Figure 7.1.1 Relative values of tangible and intangible assets Source: Standard and Poor’s 500 Stock Index and IAM Magazine, March 2006.

companies and small and medium-sized enterprises (SMEs), as is shown at times of investment, management buyouts or buy-ins. This data not only shows the change over time but illustrates the size of the ‘hidden’ value in intangibles, often exceeding the tangibles by three or four times!1 When such figures are translated into a country’s national accounts the intangible value in a nation’s stock of enterprises suggest staggering sums of money. This untapped value offers those countries first developing new knowledge economies massive opportunities for economic gain. However we have now uncovered a potentially dangerous cocktail, where there is substantial ignorance of the topic combined with lots of value. Let me reassure you however that this cocktail can be made palatable through the application of IA management. First let us define our terms. Are intellectual property, intellectual assets and intellectual capital (IC) really just the same or if not, how do they differ? Figure 7.1.2 shows how IA may be positioned relative to IP and to IC. IP is seen as a subset of IA: it is all the IA that is legally protected, mostly but not exclusively by statute law. IA consist of all the IP plus non-registered but usually codifiable or recordable intangible assets (these include brands, know-how, databases, customer lists and drawings). When intangible assets which are neither legally protected nor codifiable (often the least tangible assets such as culture and human capital) are added, the whole spectrum of intangibles is often referred to as the IC of the organization.

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INTELLECTUAL ASSETS MANAGEMENT 265 

When legally protected these are intellectual property (IP) When codified these are intellectual assets (IA)

Trademarks Patents

Publishing rights Brand logo designs

Copyrights

Trade secrets

Information databases

Confidential information

Industrial design

Technology

Software platforms

Most

Know-how Customer capital Unpatented research

Knowledge providing value Human capital Culture

Structural capital

Tangible

Least

Figure 7.1.2 The components of IC: a spectrum of knowledge assets Source: reproduced by the kind permission of Dr Gordon McConnachie, iCMG, 2005.

Why are these assets ‘hidden’ and does it matter? Due to accounting rules most of these valuable intangibles are ‘hidden’ (particularly to those outside the organization) because they are off-balance sheet. Management gurus such as Peter Drucker and the pre-eminent Scottish scientist Lord Kelvin instilled in us the axiom that what is not measured is invariably not managed. It matters then because there is a business risk in not creating a list or an inventory and having a good understanding of the value of such business assets. Once intangibles with value can be recognized, or in some cases measured (and methods for doing this are set out below), then the means for establishing ownership and the strategies for protecting such value may be decided. Additionally opportunities for exploiting value can also be explored.

Why focus on IA management and what does it encompass? The creation of IA forms a critical part in the value extraction process, as IA embodies the ingenuity and innovation of the people (human capital) in the organization. IA are owned assets, and can form a solid base to build an income stream from the intangibles. IA management is about the proactive management of owned – sometimes registered – intangible assets for organizational gain. It can apply to all kinds of organization regardless of sector, size, technology, geographical spread and maturity. It involves communicating value externally, managing value internally and often innovating altogether new value streams. Experience shows that to extract a commercial


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gain from IP there needs to be a positive exploitation of this wider group of IA (such as the know-how in staff and contracts). This ensures that a robust and comprehensive strategy is adopted. As a consequence value can be released from such assets.

How to manage intellectual assets Figure 7.1.3 sets out a proven step-by-step technique for starting down the road of proactive IA management. It starts by raising awareness through education. This often helps key organizational decision makers recognize the areas in which they need to improve. At that point an IA audit or diagnostic can help to progress the organization, not just in terms of awareness raising but also in its capability to do something about managing its IA. The audit should allow the organization to answer the following questions:    

Where are we? What have we got? What are the gaps? Where are the opportunities?

Awareness Audit

Plan

Action

CONSCIOUS

CONSCIOUS

Incompetence

Competence

Education UNCONCIOUS

UNCONSCIOUS

Incompetence

Competence

Capability Figure 7.1.3 Developing an understanding of IA Source: reproduced with the kind permission of Ian Laird, Nitech Solutions Ltd

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It is recommended that there is some external input to the audit. Ideally this will be from a professional able to take a holistic view of the intangibles in the organization, such as a management consultant with relevant expertise, but depending on their background the audit could be facilitated by patent attorneys, lawyers and increasingly in many countries through public sector bodies. If an audit leads to a plan and subsequent action the company can claim to have some conscious competence in the management of its IA. As far as planning is concerned, Patrick Sullivan advises organizations to think about both ‘defensive’ and ‘offensive’ approaches.2 Defensive approaches include:  protecting products and services;  avoiding litigation;  pursing infringement. Offensive approaches include:    

generating revenue from the IA of new products and services; being open to accessing the technology of others; obtaining access to new markets; supporting business activities and strategic aims using IA.

As time goes on and the organization refines its IA plan, its competence becomes more tacit and just ‘part of the way we work’ (what is called unconscious competence in Figure 7.1.3). At this point another threat arises: that of not measuring, managing and communicating the value to selected stakeholders on an ongoing basis. Such stakeholders will want to be aware of not just the value but how it is being protected, and how it will be exploited in the future. The process of measuring and communicating intangible value is often an area where small businesses particularly look for guidance and support. So what are the options? There are a number of possible measurement approaches, and Table 7.1.1 shows their diversity. The Canadian Value Measurement Reporting Collaborative (http:// openmeasurement.net) has listed on its website over 85 different measurement approaches.

How to measure and communicate value Returning to our definitions of IP, IA and IC, these differences in terminology are reflected in this classification. However, do these represent merely semantic differences or completely divergent perspectives on the management of intangibles? In my experience this classification reflects the cultural nuances in the approaches of different parts of the globe to the disciplines of intellectual property/asset /capital management.


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Table 7.1.1 Classifying the measurement approaches Focus

Intangibles Indicators as assets

Market cap

Object being Intangibles Various Factors measured as assets indicators of influencing performance capital markets Transactions Selected FASB’s Balanced Market cap examples intangibles scorecard Book value project KPIs Gap analysis Economic value based analyses

The ‘capitals’

Value streams

Various definitions of the stock of intellectual capital Intellectual capital Human capital Organizational capital

Value streams

Intangibles values streams Eventbased enterprise value streams

© 2006 CICA, VMRC and MatrixLinks. Reproduced with the kind permission of the authors.

Theorists, academics and practitioners in the United States In the United States people appear more interested in enhanced business reporting from a corporate governance viewpoint (as a result of the likes of Sarbanes-Oxley and other regulatory issues) and measurement which leads to value extraction. As a consequence ideas and methods from the United States look at the fair valuation of intangible assets and models for the potential of future value streams, and tracking their realization (the ‘intangibles as assets’, ‘market cap’ and ‘values streams’ approaches).

The Europeans In Europe people appear more interested in the ‘capitals’ and the ‘indicators’ approaches. This means setting goals and tracking performance of organizations using a broad framework of indicators which are often seen as proxies for the monetary value residing in intangibles.

Those from the Far East, Japan, Australia and developing countries In these areas people typically straddle the ‘intangibles as assets’ and ‘capitals’ methods. Japan has issued guidance on IP and IA reporting, as has Australia in respect of the latter. Japan particularly seeks to integrate environmental, social and intellectual asset reporting and disclosure. There is IC research work being done in Taiwan, and in 2007 intellectual capital centres are starting up in Hong Kong and elsewhere in mainland China. An Intellectual Property Institute is available to help business people in Singapore. The focus of such initiatives is on business awareness, enhancing

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executive competence, and on reporting and disclosure for the purposes of better corporate governance.

Which approach should be adopted? Whatever measurement approach a business chooses, it needs to think about the extent to which the measures chosen reflect the drivers of organizational value, the ease of data collection and measurement, how the measurements will be used internally, and how and to whom value will be communicated thereafter. All the approaches have at their heart the visualization of intellectual assets, an essential step in their management and value release.

What about the future? The above shows that there are a variety of methods and tools available to businesses to help visualize and manage their intellectual assets. Such variety might appear to some to be a weakness. How can the average small business, for instance, navigate its way forward when there are so many options? Increasingly there are bodies and resources (websites, fact sheets, professional advisors) who can help. I would contend that the variety is merely an indication of the vibrancy and early stage of much of this work. I anticipate that predominant methods and techniques will emerge, and that these will be mainstreamed management tools in the future. Buckminster Fuller once said, ‘Now there is one outstandingly important fact regarding Spaceship Earth, and that is that no instruction book came with it.’ We are only now starting to put together the instruction book for Intellectual Asset Management Version 1.0.

Notes 1 Handy, C B (1989) The Age of Unreason, Arrow, London. 2 Sullivan, P H (2000) Value-Driven Intellectual Capital: How to convert intangible corporate assets into market value, Wiley, USA.

Iain Russell is the chief executive of the Intellectual Assets Centre in Glasgow, Scotland. He leads a team of specialists in the area of intellectual assets management. Iain and his team, sponsored by the Scottish Executive, are responsible for raising the awareness of Scottish business people about the role of proactive intangible asset management in business success. They have a track record of highly effective business development with practical business results. Contact: Intellectual Assets Centre, Suite 6/6 Sky Park, 8 Elliot Place, Glasgow G3 8EP, tel: (+44) (0)141 243 4920, fax: (+44) (0)141 229 1498, email: iain. [email protected], website: www.ia-centre.org.uk

7.2

Inventions by employees

Prevailing disharmony is detrimental to the patent system, says Walter Holzer at GMX.

The claim to an invention and/or to a patent belongs to the inventor or his successor in right,1 irrespective of whether the inventor is a so-called free inventor or an employed inventor. In the latter case, in one way or another, ownership of a service invention or the title to the patent depends on specific laws, which are different in each Member State of the European Patent Convention. In other words, employed inventors’ rights and obligations are not harmonized in Europe, which makes them a European problem. In 1977 the European Commission carried out a comparative study. The resulting Green Paper raised the question whether current differences between national laws on inventions of employees were affecting innovation and conditions of employment and/or freedom to provide services and/or conditions of competition. In the follow-up to the Green Paper the European Commission surprisingly stated that the differences were not such as to justify a move towards harmonization at Community level. The reluctance of the European Commission to intervene is understandable, since the matter touches upon employment laws, salary laws, taxation laws and related laws, areas which tend to resist harmonization, because they are highly political. On the other hand, an Organization of Economic Cooperation and Development (OECD) Working Group on Innovation and Technology Policy/International Collaborative R&D and Intellectual Property Rights came to the conclusion: Differences in the potential claims of employees of the organizations, institutes and companies involved in joint research to the rights resulting from the

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INVENTIONS BY EMPLOYEES 271 

research may generate a host of complications for collaborative research ventures. In today’s world where the mobility of inventors does not stop at a country’s border and the free movement of goods and services in the common market is the ultimate goal of the European Union, any cross-border activity adds to the complicated assessment of the rights of the individual employees and their employers, for example in international collaborative research involving industry and universities. What makes an invention a service invention? As a very general definition: its subject matter belongs to the field of activity of the concern in which the employee works, and the activity that has led to the invention is one of the duties of the employee, or the employee has received the first idea of the invention in the concern, or the maturing of the invention has been substantially facilitated by utilizing the experience or the equipment of the concern. National laws may touch upon the basic rights of inventors, the definition of employees and of service inventions, the transfer of the invention, the remuneration (if any), secrecy obligations, liabilities, limitation of rights and other related issues. Particular problems tend to be universities, publicly funded research institutes, collaborative research ventures, places of employment, joint inventorship and the like. In most European countries ownership of a service invention rests with the employer. As the invention initially belongs to the inventor, the transfer to the employer, which is based on some kind of contract, such as a collective labour agreement, is a transaction consisting of a notification by the employee and a declaration of claim by the employer. Notification is a general rule in Europe. The inventor must communicate any service invention to the employer. The employer must declare within a certain time period whether it claims the invention. It goes without saying that only patentable inventions are covered by this rule. It makes no difference in this context whether an application has been filed or a patent has been granted. In a dispute it will have to be assessed, for example by a court (that is, a court-appointed expert), whether the invention is indeed a patentable one. The most frequent problems occurring in practice are:     

there is no formal communication by the employee; the communication is not in writing; the invention is not yet finished; co-inventors are not mentioned; there is no timely reaction from the employer.

If employees fail to notify their employer they may become liable to the employer for damages. If the employer fails to claim the invention it remains the property of the inventor. As national laws also apply to employees in public service, such as university personnel, any such employee must report an invention, and the university must


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declare whether it claims the invention or not. University professors, who in some countries enjoyed ownership privileges, at least in the past, nowadays tend to be treated like any other official, for example someone employed in the civil service. Secrecy obligations play a major role with service inventions. The employee and the employer both have an obligation of secrecy. The duty of the employee expires if the employer has not claimed the invention or if the employer has renounced secrecy. The academic right of research and publication may create a problem in the field of university inventions. At any rate, to be on the safe side a patent application should be filed before any publication, for instance at a scientists’ congress. Remuneration is a key problem in countries that provide for obligatory rewards. The remuneration criteria for example are the economic importance of the invention for the employer, the exploitation of the invention at home or abroad, and the employer’s contribution to the invention in terms of suggestions, experiences, preparatory work or service instructions. The national laws generally regulate who owns an invention made by an employee, and whether or not the employee should receive a reward over and above the normal salary. Reward schemes exist in a number of countries, such as Austria, Denmark, France, Germany, Norway, Spain, Sweden and Finland, whereas no schemes or restricted schemes exist for example in Italy, Switzerland, the United Kingdom, the Netherlands and Belgium. The remuneration may be calculated according to formulas known to a person skilled in the art. No remuneration is due if the employee is employed for inventive activities. He or she is then entitled to special remuneration only if the salary does not already represent an adequate remuneration. Remuneration of public service officials is dealt with pursuant to service law procedures. In a dispute concerning private employment, the court or an arbitration panel must fix the amount of the remuneration by taking into account all facts and circumstances that are relevant for the assessment from an economic point of view and for other reasons. The employee has to evidence that he or she has made the invention, that the invention has been claimed and that the company has used the invention. The employee normally relies on notes and witnesses. As any dispute in connection with service inventions may turn out to be lengthy and complicated, the ordinary rules of dealing with such inventions should not be ignored. Rather, care should be taken to take the right steps from the beginning. Politically speaking, guidelines and model contracts for a system regulating service inventions of employees should be set up in Europe in a harmonized manner, at the latest with the introduction of any Community patent.

Note 1 1 Art 60 EPC: If the inventor is an employee the right to the European patent shall be determined in accordance with the law of the state in which the employee is mainly employed. If the state in which the employee is mainly employed cannot be determined, the law to be applied shall be that of the state in which the employer has the place of business to which the employee is attached.

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INVENTIONS BY EMPLOYEES 273 

Walter Holzer in an Austrian and European patent and trade mark attorney. He is a former president of the Austrian Chamber of Patent Attorneys and was a technical judge at the Austrian patent appeals court. He graduated in mechanical engineering from the Technical University Vienna. Contact details: [email protected]

7.3

IP and the web

‘Don’t get caught in the net’, says Silas Brown at Briffa, who in this chapter examines the main risks to intellectual property (IP) on the web, and discusses how to reduce them.

The internet has become an indispensable part of many businesses, and the web page has become the new shop window on the world. A business’s brand can be circulated very widely for a very low cost on the internet, and in particular in the creative industries, creative works can be displayed and marketed in digital content portfolios. However, at the same time the internet creates pitfalls and problems for IP owners. The internet allows high-quality digital reproduction of brands and content, creating a significant risk of high-quality copying. Furthermore, if digital content infringes the IP rights (IPR) of others, third parties may bring infringement claims. The law governing IPR on the internet is still in its early stages, and in many cases pre-internet law is simply interpreted to apply to the online environment.

Trade marks on the web Trade marks are unique indicators for their owners. The ultimate protection for a trade mark is registration with trade mark registries. All trade mark rights are territorial, and so protection only exists in the country where the trade mark is actually used or registered. Trade mark registration in the United Kingdom, therefore, is useless in protecting a brand in, say, Japan or the United States. The internet, of course, is a global network with no single governing body.

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IP AND THE WEB 275 

A worldwide web Since the internet is truly a worldwide web, a web page is visible all over the world. As a result, brand owners setting up a new website must consider whether their brand is available for use outside their home country. It is important for the brand owner to carry out a significant amount of research before proceeding to launch a website. The first step is to carry out internet searches through search engines such as Yahoo or Google. This is likely to give a good idea whether the brand in question or something similar is being used by others. Only when they are satisfied that the same or similar brands are not already being used in the same industry should brand owners use their brand on the internet. The second step is to carry out searches of public trade mark registers in important countries for the brand owner. Of course, it will be too costly and time-consuming for any business to search the trade mark registers of all countries in the world. However, by searching in the key countries where it is intended to sell the brand, the brand owner can ascertain the risk of proceeding to use that brand on the internet.

International brand image Research by the brand owner prior to launching a web presence, in fact, usually crystallizes thinking about the brand itself and international brand image. Brand owners may at that stage decide to start building up an international portfolio of trade mark registrations, covering countries that are key markets for them. The European Community Trade Mark (which covers the 27 Member States of the European Union in a single application) and the Federal Trade Mark in the United States (which covers all the US states in a single application) help to shrink the trade mark map in the western hemisphere as regards trade mark protection, and are usually seen as a good starting points in building an international portfolio. The internet has also turned on its head the symbols used to denote trade mark protection. Under trade mark law in the United Kingdom and most other jurisdictions around the world, use of the ‘®’ symbol to denote a registered trade mark may only be used if the owner has a registered trade mark in that jurisdiction, otherwise a criminal offence is committed. A brand owner displaying a brand on the internet should only use the ™ symbol to denote the brand, since it will not have registrations in all the countries of the world where the brand is visible. Notices should be set out on the website to notify users of trade mark ownership.

Master of your domain Domain names are the trade marks of the internet. The courts in England and elsewhere have established that a domain name will be treated as a trade mark under trade mark law. It is best for a brand owner’s domain name to be the same as its corporate brand. Many will want their domain name to be purely descriptive, to guide users to the site. For example, Puma might want its users to see a domain name greatrunningshoes. co.uk and think of its products, but the fact is that such domain names are not good


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brands. This example would never be registrable as a trade mark, since it would not be fair to stop other manufacturers of running shoes from using the descriptive phrase ‘great running shoes’. As a result, the brand owner will use, for example, puma. co.uk as its domain name to be consistent with its brand strategy. If another shoe manufacturer registers for example puma.eu as a trade mark, the brand owner would have an action for registered trade mark infringement against that person, and could seek an order to have the domain name transferred to the rightful owner. The problem comes when a nature enthusiast registers puma.com for a website about pumas. This would be a legitimate domain name registration, and the brand owner would have a considerably harder time getting hold of this domain name. It is therefore, crucial for a brand owner to ensure that it has the necessary domain names registered before committing to a brand. The new ‘.eu’ top-level domain, governed by EURID, was introduced in 2006 and is becoming a very popular Europe-wide toplevel domain for businesses operating in Europe. Metatags (lists of key search words attached to a website for use by search engines) and search engine optimization should be used by a brand owner, choosing descriptive keywords to lead users to the website. Thus a distinctive brand reputation for the goods or services will grow on the internet ,and over time goodwill will be built up.

The web closes in As we can see, trade mark ownership and protection on the internet is very much more restrictive than in the pre-internet environment. With domain names it is in many ways more important to get your brand registered as a domain name before committing to and proceeding with a brand on the internet. Why? Because while only one domain name exists for a single word as a domain name (such as briffa.com or briffa.co.uk), the same trade mark could be used perfectly legally by different people for different goods or services. International trade mark law sets out 45 classes of goods and services (34 classes of goods and 11 classes of services). As in the Puma example above, once a domain name is registered, it cannot be used by anyone else. Furthermore, it is crucial to make legitimate use of search engines and metatags as mentioned above. It has been clearly established that trade mark infringement can exist by using other business’ trade marks as metatags despite the fact that metatags are not visible to the user. Continuing the above example, if you were in business as a sports shoe retailer branded as Whizz and you set up your website whizz.co.uk, this would be perfectly legitimate. However, if you added words such as Puma, Nike, Adidas and Reebok to your metatags list to get a bit more traffic, you would be infringing these trade marks. Many brand owners now have sophisticated web-crawling software which searches out such infringers. Such infringers are, therefore, now very likely indeed to get trapped in the web, and getting out is more often than not expensive.

Digital content on the web The law of both copyright and defamation in the United Kingdom and elsewhere has a long and slowly developing history, vastly pre-dating the internet. The core basis of

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copyright law across the world is that the effort and skill that goes into creative works means they should be protected from being copied by others for commercial gain. The core basis of the law of defamation is that untrue statements that damage a person or a business’s reputation may not be published. As a result, copyright owners wishing to protect their copyright works on the internet must sometimes rely on interpretation of laws that pre-date the internet or on practical solutions, and operators of websites must ensure that defamatory material is not published on their websites.

A technological solution for a technological problem There is no doubt that digital website content is easily defined as a copyright work (and thus work that may not be copied without the permission of the copyright owner). Text, illustrations, diagrams, photographs, drawings, video files, sound files and software are all undoubtedly copyright works. However, the real problem comes in enforcing such copyright. Any owner of IPR must bring legal action wherever the rights are infringed. In the context of the internet, it is clear that the number of potential infringers is vastly increased. A photograph, picture, sound file or multimedia file posted on a website in the United Kingdom can be accessed easily by many millions of people throughout the world, and copied quickly. Amendments to copyright legislation have recognized and supported the fact that in this context, prevention is better than cure. Recent amendments to English law support the use of anti-copying technology to avoid copying online. Such technologies include the use of anti-copying software in your website, which makes it impossible for users to actually copy the digital content files. With graphic images visible and digital (invisible) watermarks can be useful, meaning that the image cannot be reproduced without the watermark showing up, effectively negating their use. JavaScript can be employed to display pop-up messages whenever right-click-copy is attempted by a user, warning the user of the breach of copyright law. Businesses launching a web presence should therefore consider using such technology wherever possible.

Don’t get punished for the views of others Many website owners have interactive websites which allow users to post material and upload content to the website. Whether it is user-editable advertising space, blogs, forums, chat rooms or otherwise there are many instances in which a website may be hijacked by unscrupulous users posting illegal, abusive, infringing or defamatory material. In these circumstances, the law of defamation has been interpreted to find that the owner of the website (as the publisher of such material, albeit unintentionally) may be liable for the damage caused to others. Owners of websites should, therefore, be extra diligent with regard to possible infringing or defamatory material that is posted by others to their website. The breakthrough case of Laurence Godfrey v Daemon Internet (1999) established that while the operator of a website can be held liable for the defamation of others using its website, there is a defence if the website owner removes the material from the site as soon as it becomes aware of it. This has led business owners with an online presence, and particularly those with user-editable sections of their websites, to


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implement a ‘notice and takedown’ policy, whereby as soon as they are notified of any potentially infringing or defamatory material posted by a user on their website, they immediately take it down. Such precautions should be considered carefully by any business with a presence on the internet.

Is your website a cuckoo’s nest? Often businesses entrust the building and development of their websites to web developers, and understandably trust that they will get things right. However, some web developers do not concern themselves with IP law, and source content for websites (images, illustrations and even audio or video files) from questionable sources without obtaining authorization to use it from the copyright owner. The result might be a fantastic, flashy-looking website you are very pleased with, but in reality it is a riskladen cuckoo’s nest of other people’s property. The way in which this is most commonly brought to the website owner’s attention is via a letter from a copyright owner demanding removal of the material and payment of damages. Large image licensing agencies such as Getty Images, for example, clamp down heavily on unlicensed use of their images on websites. Therefore, it is most sensible to use a reputable web developer. Website owners should check out the digital content provided by their web developer before their website goes live, or better still, have their own original digital content produced for their website.

Conclusion The internet is still a new and complicated area for IP law, and one which is littered with potential pitfalls. Some simple steps have been outlined in this chapter which can be taken by businesses to ensure that they own the brands and content they use on the internet, and that such intellectual property is protected. This way the internet will be the huge opportunity it should be for any business.

Briffa is an award-winning firm of solicitors based in London, specializing in the business and law concerning a wide variety of industry sectors and in particular those who value their intangible assets – their IP. Whatever your business, be it design, technology, entertainment, software development, publishing or the internet, we can help you add value to it so that you reap the rewards of the investment you have made in its creativity. Silas Brown is a solicitor specializing in IP, including branding, registered and unregistered trade marks and licensing, as well as information technology including e-commerce, computer and internet law. Silas has a solid background in dealing with a range of commercial contracts, terms and conditions and advising on commercial arrangements for the successful exploitation of IPR and technology.

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For further details contact: Briffa, Business Design Centre, Upper Street, Islington, London N1 0QH, tel: (+44) (0) 20 7288 6003, email: info@briffa. com, website: www.briffa.com

7.4

Database rights

Robert Lands discusses the doubts that have arisen over database rights after a ruling by the European Court of Justice.

As the author of this work, I can take comfort from the fact that the strong arms of the law will protect my literary efforts for my lifetime and a further 70 years after the year in which my creative juices permanently dry up. Literary copyright is well understood and lasts a very long time. But what happens if I create an anthology, a directory or a computer database where the contents of the work were not written by me and are therefore not my copyright? Such things can be valuable business assets, and can take a great deal of original thought and sweat of brow, so should certainly be protected. The kinds of literary works protected by copyright are set out in an old case from 1910. They are original written works which provide ‘information, instruction or pleasure in the form of literary enjoyment’. Over the years the courts have applied this to tables and compilations, so schedules of broadcasting programmes, books of questions and answers and directories of all kinds were said to have literary copyright in various cases. Today ‘databases’ (see below for the legal definition) are listed in the UK Copyright Designs and Patents Act as a protected kind of literary work. However, literary copyright was found to be lacking when it came to protecting these special kinds of works. Copyright is all about protecting something from being copied, but in the case of a database, the economic interests of the creator may be harmed by the unauthorized use of information taken from the database in a manner which would not constitute traditional copyright infringement. Take, for example, a database containing a list of British companies in a particular industry that employ more than 1,000 staff. You can see that such a list will be valuable

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DATABASE RIGHTS 281 

to some people and may have been expensive to research and compile. Imagine that I periodically copy listings from this database and used them for my own ends without the permission of the database owner. The extracted listings may not be a substantial part of the copyright work (the list as a whole), and so use of the information may not infringe the literary copyright in the list. This is where the database right comes in. The database right is not new. It arises from a European Directive and was implemented into our national law at the tail end of the 1990s. However, a relatively recent high-profile case has thrown into doubt the scope and effectiveness of our database right, and the impact for businesses that depend on databases as key assets is significant.

The database right What is a database? A database is defined in law as ‘a collection of independent works or data or other materials arranged in a systematic or methodical way and individually accessible by electronic or other means’.

The legal definition of a qualifying database is quite generous. We know that a database is more than just a computer database, and is likely to cover say a printed telephone directory. It goes further still, as it is not just a collection of data (as in a phone book) but a ‘collection of works’, so the right could also apply to an anthology of poems or an album of photographs. In fact, there is nothing that says the database has to be confined to being paper or electronic, so it could even apply to a collection of threedimensional articles. Once you have a database that meets the definition, the law gives you the right to stop unauthorized ‘extraction or reuse’ of all, or a substantial part, of the contents of that database. ‘Extraction’ means the permanent or temporary transfer of the contents of a database to another medium by any means or in any form, and ‘reutilization’ means making the contents of the database available to the public by any means. The database right does not last as long as literary copyright. It lasts 15 years from the end of the year in which the database was completed. However, if the database is made available to the public within that time frame, the clock is reset for another 15 years from that point. Nevertheless, remember that some databases are still protected under traditional literary copyright, and so can often enjoy this simple anti-copying protection for the life of the author plus 70 years from the end of the year of his/her death. The database right and copyright are not mutually exclusive. It may be that a defendant infringes both rights and in that case, the claimant could plead both offences in his/her lawsuit.


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There is however, a higher test of originality for a database to enjoy such protection than for an ordinary literary work (for which the test, broadly, is merely whether the author has expended his/her own skill and labour on the work). A database must be original in the sense that ‘by reason of the selection or arrangement of the contents of a database’ it constitutes the ‘author’s own intellectual creation’.

The British Horseracing Board case The case that has shaken things up is the European Court of Justice’s (ECJ’s) decision in the matter of British Horseracing Board (BHB) v William Hill (November 2004). This case has been working its way through the courts since 2001. It started when BHB sued William Hill for infringing its database rights by publishing on its website lists of the horses running in upcoming events, information obtained and reused without permission from BHB. Mr Justice Laddie gave his judgement in the High Court in 2001, finding that an infringement had occurred. William Hill appealed to the Court of Appeal, which then decided that it could not properly decide on how to interpret the law without guidance from the ECJ, since the interpretation depended upon the true meaning of the Database Directive (which emanated from Europe). The key question referred to the ECJ was this; what is the database right actually intended to protect:- is it the creation of the database, or the information contained within it? The ECJ said that the expression in the Directive: ‘investment in . . . the obtaining . . . of the contents [of a database]’ must be understood to refer to the resources used to seek out existing independent materials and collect them in a database. It does not cover the resources used for the creation of materials which make up the contents of the database. Simply put, the right is designed to protect the skill and effort of putting together the database and not the content per se. The ECJ extrapolated from this that, in the case before them, the resources used by BHB to draw up a list of horses in a race did not constitute an investment in creating a database. To win the case, BHB would have to be able to prove that it had separately (from the creation of content) made a substantial investment in the creation of the database, and that the part extracted by William Hill was itself the result of that substantial investment. BHB fell at the first fence (if you’ll pardon the pun).

The practical impact of the decision The ECJ’s judgement will impact across the whole of Europe, as each Member State has its own database law which must now be interpreted in accordance with the decision. In putting the emphasis on the investment involved in obtaining and verifying the content of the database, the ECJ may have caused difficulties for companies which also invest in the creation of the content. Such businesses may find it difficult to demonstrate a clear separation of investments and damage to the relevant part.

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DATABASE RIGHTS 283 

We shall no doubt therefore see producers of databases establishing separate subsidiary companies for the creation of databases, so that it can be demonstrated that the investment is solely for such creation and no other purpose. Where this is not possible, others might strengthen their position by creating meticulous records of the time, materials and money invested in the selection, acquisition and verification of works included in the database, as distinct from the investment in the creation of such works.

The commercial reality In February 2007, the English Court of Appeal added a judicial footnote to the ECJ case which highlights some commercial realities. The BHB had seen the legal basis underpinning its commercial strategy undermined by the ECJ, but nevertheless continued to charge third parties for the commercial use of its data. One such third party, Attheraces Ltd (ATR) challenged BHB over this in the High Court. The High Court decided that BHB was acting unfairly in charging large fees, as it was abusing its dominant position as the only source of this data. However, BHB, unhappy with this ruling, appealed to the Court of Appeal. There it was able to show that its prices were not overinflated, taking into account the full costs of financing horse racing, which is its primary activity. The Court of Appeal accepted this and allowed BHB to continue charging for its data. The case between BHB and ATR was a technical dispute about competition law and whether or not BHB was abusing its monopoly position, but nonetheless it goes to show that profits can be made, and judicially sanctioned, even where the database being exploited is not actually protected with an intellectual property right.

Robert Lands is a partner at renowned central London law firm, Finers Stephens Innocent LLP. He specializes in intellectual property and the increasingly complex field of data protection, working with clients from a wide spectrum of industries including fashion, film, IT and the arts. He is a regular speaker on intellectual property and a contributing author of Engelman’s IP Update. Further details: Robert Lands, Partner, Finers Stephens Innocent LLP, tel: (+44) (0)20 7344 7664, email: [email protected], website: www.fsilaw.com


8

IP as an asset


8.1

Valuing IP, intangibles and goodwill

Traditionally, accounting standards are unhelpful in representing the worth of intellectual capital, says Kelvin King, director of Valuation Consulting, a BNP Paribas company.

Intellectual capital (IC) is recognized as the most important asset of many of the world’s largest and most powerful companies; it is the foundation for the market dominance and continuing profitability of leading corporations. It is often the key objective in mergers and acquisitions, and knowledgeable companies are increasingly using licensing routes to transfer these assets to low-tax jurisdictions. Accounting standards have traditionally not been helpful in representing the worth of intellectual property rights (IPR) and intangible assets (IA) in company accounts. Future winners will be those that own and effectively manage their IC assets, such as brands and patent portfolios, which have become possibly the most critical success factor. No sector has been untouched by IPR. You cannot ‘manage’ without having some understanding of value, and the benefits of good IPR management include:  increased returns on capital invested in the business, particularly capital tied up in intellectual property (IP);  increased shareholder value;  a thorough understanding of the alignment of IP development or acquisitions and business strategic objectives;

 288 IP AS AN ASSET

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 the ability to make informed decisions about IP development or acquisition;  the creation of new and diverse revenue streams from IC, and especially from underused IC;  the ability to know which is the valuable IC (perhaps within a large portfolio) and so protect it fully, and which is the IC of no significant value, which might be sold or abandoned;  achieving lower overall costs associated with IC development or acquisition, protection and utilization;  creating internal awareness of the importance of IC to success. The role of IPR in business is insufficiently understood. It is probably undervalued, under-managed or under-exploited, and there is little coordination between the different professionals dealing with an organization’s IPR. You probably need a better understanding about IC and its ownership, acquisition and use. You probably need a practical source of knowledge and guidance about IP and other IC in a commercial context. You might be a chief executive of an IC company or a brand-based business, or both. You might be a manager of such a business, a research director or academic. Maybe you are a student on a management programme or an accountant, a corporate finance professional, investor or venture capitalist. In your studies IC will not have been a core subject. Whatever the reason, you need to understand IC, and especially IPR, to do your job better or to be more successful in your career. IPRs are both important and complex. Therefore the questions to be answered should often be:     

What are the IPRs used in the business? What is the value (and hence level of risk)? Who owns it (could I sue or could someone sue me)? How may it be better exploited (eg licensing in or out of technology)? At what level do I need to insure the IPR risk?

The current big issues for IPR valuation concern:     

accounting standards; corporate governance; litigation (defence and attack); fairness opinions; in-process R&D.

Relevant accounting standards The core standards to be considered are International Financial Reporting Standard (IFRS)3 on business combination valuation allocations, International Accounting Standard (IAS)38 on recognition of IPR in accounts and IAS36 on valuation impairment tests. Purchase accounting must be applied to all acquisitions (business combinations are also treated as acquisitions, and there is no more merger accounting). Many intangible assets that would previously have been subsumed within goodwill must

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VALUING IP, INTANGIBLES AND GOODWILL 289 

be separately identified and valued. Explicit guidance is provided for the recognition of such intangible assets, and IFRS3 includes a list of assets that are expected to be recognized separately from goodwill. The valuation of such assets is a complex process. It nearly always requires specialist IP valuation skills, and frequently an IP lawyer to undertake the categorization the valuer requires. Examples of intangible assets to be separately recognized and categorized within the purchase cost are set out in the regulations, and include those that are marketing-related (trade marks, brands, domain names, newspaper mastheads), customer-related (customer lists and contracts), artistic-related (television programmes, photographs, films, publications), contract-based (eg licensing and royalty agreements, contracts for numerous situations such as advertising, construction and supply) and technology-based (patents, computer software, databases, trade secrets etc). IFRS3 is mandatory for all new transactions from 31 March 2004. Additionally under IAS36 valuations need to be independently tested for impairment by the valuer on a regular basis. Obviously one of the valuer’s first questions will be, with advice from the IP lawyer, patent or trade mark attorney: has there been any diminution of the legal nature of the originally categorized IP?

Corporate governance There is developing statute and case law which will compel boards of directors to accept that they must undertake and lead IP decisions rather than leave them to management.  Sarbanes–Oxley: under this US law the provision of valuation services for audit clients is prohibited.  Caremark International Inc 1996 imposed on directors the duty to ensure adequate reporting.  A Walt Disney case in 2003 and Research in Motion (the Blackberry case) establish the potential liability of directors in respect of IP.  Find case references at http://www.valuation-consulting.co.uk/services/oxley_act. html.

IPR and the valuation expert For the valuer, this process of understanding is not usually a problem when these rights have been formally protected through trade marks, patents or copyright. This is not the case with intangibles such as know-how (which can include the talents, skill and knowledge of the workforce), training systems and methods, designs, technical processes, customer lists and distribution networks. These assets are equally valuable but more difficult to identify in terms of the earnings and profits they generate. With many intangibles a very careful initial due diligence process needs to be undertaken together with IP lawyers and in-house accountants.


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Overall risk affects valuation analysis. Corporate valuation must reflect risk, and most importantly risk assessment should reflect IPR value. One of the key factors affecting a company’s success or failure is the degree to which it effectively exploits its IC and values risk. Management obviously need to know the value of the IPR and those risks for the same reason that they need to know the underlying value of their tangible assets: because business managers need to know, or should know, the value of all assets and liabilities under their stewardship and control, to make sure that values are maintained. Markets (restricted or otherwise), institutions and shareholders need to be educated. Exploitation can take many forms, including outright sale of an asset, a joint venture or a licensing agreement. Inevitably, exploitation increases the risk assessment. The valuation procedure is, essentially, a bringing together of the economic concept of value and the legal concept of property. The presence of an asset is a function of its ability to generate a return and the discount rate applied to that return. The cardinal rule of commercial valuation is that the value of something cannot be stated in the abstract. All that can be stated is the value of a thing in a particular place, at a particular time, in particular circumstances. I adhere to this, and the questions ‘to whom?’ and ‘for what purpose?’ must always be asked before a valuation can be carried out. This rule is particularly significant as far as the valuation of IPR is concerned. More often than not, there will only be one or two interested parties, and the value to each of them will depend upon their circumstances. Failure to take these circumstances, and those of the owner, into account will result in a meaningless valuation. There are four main value concepts: owner value, market value, tax value and fair value. Owner value often determines the price in negotiated deals, and is often led by a proprietor’s view of the cost if he or she were deprived of the property. The basis of market value is the assumption that if comparable property has fetched a certain price, then the subject property will realize a price something near to it. The fair value concept, in its essence, is the desire to be equitable to both parties. It recognizes that the transaction is not in the open market and that vendor and purchaser have been brought together in a legally binding manner. Tax valuation has been the subject of case law worldwide since the turn of the century, and is an esoteric practice. There are quasi-concepts of value which impinge upon each of these main areas, namely investment value, liquidation value and going concern value.

Methods for the valuation of IPR Acceptable methods of the valuation of identifiable intangible assets and IP fall into three broad categories. They are either market based, cost based, or based on estimates of future economic benefits. In an ideal situation, an independent expert will always prefer to determine a market value by reference to comparable market transactions. This is difficult enough when valuing assets such as bricks and mortar, because it is never possible to find a transaction that is exactly comparable. In valuing an item of IP, the search for a comparable market transaction becomes almost futile. This is not only because of the lack of compatibility, but also because IP is generally not developed to

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be sold. Many sales are only a small part of a larger transaction, and details are kept extremely confidential. There are other impediments that limit the usefulness of this method: special purchasers, different negotiating skills, and the distorting effects of the peaks and troughs of economic cycles. In a nutshell, this summarizes my objection to such statements as ‘this is rule of thumb in the sector’. Cost-based methodologies, such as the cost to create or the cost to replace, assume that there is some relationship between cost and value. This approach has very little to commend itself other than ease of use. The method ignores changes in the time value of money and ignores maintenance. The method of valuation flowing from an estimate of past and future economic benefits can be broken down to four limbs: capitalization of historic profits, gross profit differential methods, excess profits methods, and the relief from royalty method. Discounted cash flow (DCF) analysis sits across the last three methodologies. DCF mathematical modelling allows for the fact that one euro in your pocket today is worth more than one euro next year or one euro the year after. The account of the time value of money is calculated by adjusting expected future returns to today’s monetary values using a discount rate. The discount rate is used to calculate economic value, and includes compensation for risk and for expected rates of inflation. The capitalization of historic profits arrives at the value of IPR by multiplying the maintainable historic profitability of the asset by a multiple that has been assessed after scoring the relative strength of the IPR. For example a multiple is arrived at after assessing a brand in the light of factors such as leadership, stability, market share, internationality, trend of profitability, marketing and advertising support, and protection. While this capitalization process recognizes some of the factors that should be considered, it has major shortcomings, mostly associated with historic earning capability. The method pays little regard to the future. Gross profit differential methods are often associated with trade mark and brand valuation. These methods adopt the differences in sale prices, adjusted for differences in marketing costs. That is the difference between the margin of the branded and/or patented product and an unbranded or generic product. This formula is used to drive out cash flows and calculate value. Finding generic equivalents for a patent and identifiable price differences is far more difficult than for a retail brand. The excess profits method looks at the current value of the net tangible assets employed, as the benchmark for an estimated rate of return, to calculate the profits that are required in order to induce investors to invest in those net tangible assets. Any return over and above those profits required in order to induce investment is considered to be the excess return attributable to the IPR. While it theoretically relies on future economic benefits from the use of the asset, the method has difficulty in adjusting to alternative uses of the asset. Relief from royalty considers what the purchaser could afford, or would be willing to pay, for a licence. The royalty stream is then capitalized, reflecting the risk and return relationship of investing in the asset. DCF analysis is probably the most comprehensive of the appraisal techniques. Potential profits and cash flows need to be assessed carefully and then restated to


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present value through use of a discount rate, or rates. With the asset being considered, the valuer will need to consider its operating environment to determine the potential for market revenue growth. The projection of market revenues will be a critical step in the valuation. The potential will need to be assessed by reference to the enduring nature of the asset, and its marketability, and this must subsume consideration of expenses together with an estimate of residual value or terminal value, if any. This method recognizes market conditions, likely performance and potential, and the time value of money. It is illustrative, demonstrating the cash flow potential – or not – of the property, and is highly regarded and widely accepted in the financial community. The discount rate to be applied to the cash flows can be derived from a number of different models, including common sense, the build-up method, dividend growth models and the capital asset pricing model utilizing a weighted average cost of capital. This appraisal technique will probably be the preferred option. These processes lead us nowhere unless due diligence and the valuation process quantify remaining useful life and decay rates. This will quantify the shortest of the lives of the item in the physical, functional, technological, economic and legal senses. This process is necessary because just like any other asset, IPR has a varying ability to generate economic returns depending on the length of these main lives. For example in the DCF model it would not be correct to drive out cash flows for the entire legal length of copyright protection, which may be 100-plus years, when a valuation concerns computer software with only a short economic lifespan of one or two years. However patent legal protection of 20 years can prevent infringement situations which may be important, as is often illustrated in the pharmaceutical sector, with generic competitors entering the marketplace at speed to dilute a monopoly position when protection ceases. The message is that when undertaking DCF modelling, always avoid projecting longer ahead than is realistic by testing against these major lives. It must also be acknowledged that in many situations after examining these lives carefully, it is often not credible to look beyond say four to five years to produce cash flow forecasts. The mathematical modelling allows for this, in that at the end of the period when forecasting becomes futile, but clearly the cash flows will not ‘fall off a cliff’, a terminal value is calculated. This is done using a modest growth rate (say inflation) at the steady state year, but also discounting this forecast to the valuation date. Valuation is an art more than a science, and is an interdisciplinary study drawing upon law, economics, finance, accounting and investment. It is rash to attempt any valuation adopting so-called industry/sector norms in ignorance of the fundamental theoretical framework of valuation.

Conclusion In a book I authored with John Sykes, an IP lawyer,1 we established a number of general principles concerning the management and valuation of intellectual property:

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 Principle 1: make IC a part of the business strategic thinking and planning. For example use risk control, maximize value, be aware of emerging technologies, and seek appropriate legal protection.  Principle 2: understand the role of IC. This involves assessing the importance of IC now and in the future to the market position and future success of your business. Part of this is the challenge to identify the IP of others and avoid infringing the associated legal rights.  Principle 3: be aware of competing IC.  Principle 4: know your own IC. Apply rigorous processes to identify and evaluate the existing IC in the business, creating a comprehensive record of results and developing a process for identifying future IPR. Use positive due diligence. Success or not is dependent upon a management process to do just these things.  Principle 5: identify IC required, which is a process of forecasting future needs.  Principle 6: acquire any IC required.  Principle 7: think tax and balance sheet.  Principle 8: be ready to protect your rights.  Principle 9: measure improvements as an essential part of good IC management, to develop measures of success of the management and evaluation of IPR.  Principle 10: spread the message, because just as important as measuring improvements is communicating a strategy and process, not least via financial PR etc.  Principle 11: know the cost and value of your IC.

Note 1 King, K and Sykes, J (2003) The Valuation and Exploitation of Intangible Assets, EMIS, Welwyn Garden City.

Kelvin King is director of Valuation Consulting Ltd, a BNP Paribas company. Valuation Consulting is dedicated to the valuation of intangible assets. Kelvin’s book The Valuation and Exploitation of Intangible Assets received excellent reviews in professional journals. For further details: Valuation Consulting, email: [email protected] or [email protected], website: www.valuation-consulting.co.uk © Kelvin King

8.2

Brand valuation

David Haigh, chief executive of Brand Finance, discusses techniques for assigning a value to brands.

‘Brands’ can be defined very narrowly as ‘trade marks’, more inclusively as ‘trade marks and associated intellectual property rights (IPR)’ or more broadly as the whole business trading under the trade marks – the ‘branded business’. When considering individual asset values the International Accounting Standards Board (IASB) recommends reporting accountants to consider three broad asset classes: fixed assets, monetary assets and intangible assets. Intangible assets are further classified by the IASB into marketing, artistic, customer, contract and technology-related intangibles. Theoretically, companies could identify and report on many individual intangible assets, but in practice they tend to group several specific intangible assets under generic headings (for example, ‘Film rights’, ‘Mastheads’, ‘Software’, ‘Patents’ or ‘Brands’). The IASB allows companies to decide which specific intangible assets to aggregate under these generic headings. For our purposes so long as the individual intangible assets operate together to create economic value for the company, and have similar useful economic lives, the reporting company can define the components of ‘brands’ for itself. In its International Financial Reporting Standard 3 (IFRS3) the IASB requires that an acquiring company must identify the fair market value (FMV) of all assets acquired in a business, and must record the FMV of each asset in its post-acquisition balance sheet. The value recorded in the balance sheet must then be checked for impairment at least annually. Impairment reviews must be conducted using discounted cashflow (DCF) analysis, which determines the net present value (NPV) of the assets in question based on the expected value of economic benefits arising from the asset in the future.

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Approaches to ‘brand’ valuation Whether we are valuing ‘brands’ as separate intangible assets or the branded business as a whole, the approach to valuation is very similar. To begin with there is a general presumption that valuations are based on the four market value principle, which is defined as: The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. International Valuation Standard 1 (International Valuation Standards Committee) In arriving at FMV the valuer has to use expected earnings based on the highest and best use (HABU) of the asset in question. HABU is defined as: The most probable use of a property which is physically possible, appropriately justified, legally permissible, financially feasible, and which results in the highest value of the property being valued. International Valuation Standard 1 (International Valuation Standards Committee) Assuming we are determining FMV based on HABU, it is then necessary to select one of the alternative valuation bases recommended by the International Valuation Standards Committee. These are discussed below.

Cost based ‘Creation costs’ may be estimated by looking back to the brand launch and restating actual expenditure in current cost terms. This approach may provide a meaningful number for a new brand, where the time period is short and the costs are readily available. However, even when costs can be collected consistently the answer does not represent the current value of the brand. ‘Re-creation costs’ may also be estimated. The obvious difficulty is that there is no such thing as an identical brand so it may be hard to calculate a relevant re-creation number. Brands are valuable because they are unique. By their very nature they are not comparable or replicable. For these reasons cost-based valuations are usually only commissioned as a sense check.

Market based This assumes that there are comparable market transactions (specific brand sales), comparable company transactions (the sale of specific branded companies) or stock


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market quotations (providing valuation ratios against which a comparable branded entity can be valued). A valuation may be based on the disposal of comparable individual brands, specific branded divisions or whole companies where adequate information is made publicly available. In practice, there are few directly comparable transactions. Even where there are sales of specific brands or branded businesses, details are generally not widely available, and it is hard to make comparisons. In addition, the notion of comparability assumes that brands are identical, which is never the case. Market-based valuations also tend to be used only as a sense check.

Income based There are two alternative approaches.

Royalty relief This assumes that a company has no brand and needs to license one. If a brand has to be licensed from a third party, a royalty rate on turnover will be charged. By owning the brand such royalties are avoided. Ownership therefore relieves the company from paying a licence fee (the royalty rate) – hence the term royalty relief. The royalty relief method involves estimating likely future sales, and then applying an appropriate royalty rate to arrive at the income attributable to brand royalties in future years. Using a discounted cash flow (DCF) technique the valuer discounts estimated future royalties, at an appropriate discount rate, to arrive at an NPV – the brand value. The advantage of this approach is that there are many examples of royalties in use by companies licensing brands to one another.

Earnings split This approach also depends on the accuracy of future sales and earnings projections. It uses the future earnings attributable to a brand after making a fair charge for the tangible assets employed. A charge is also made for tax at a notional rate. The resulting brand earnings are discounted back to a net present value (NPV) representing the current value of the brand. Typically such brand valuations are based on three to five-year earnings forecasts. In addition, an annuity is calculated on the final year’s earnings on the assumption that the brand continues beyond the forecast period, effectively into perpetuity. As brand rights can be owned in perpetuity and many brands have been around for over 50 years, this is not an unreasonable assumption.

Steps in an economic use valuation 1. Modelling the market to identify market demand and the position of individual brands in the context of all other market competitors. Usually the valuation model is segmented to reflect the relevant competitive framework within which the brand operates.

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2. Forecasting the economic value added of the branded business (to identify total branded business earnings). 3 Estimating the brand contribution (or brand value added – BVA®) using business drivers research (to determine what proportion of total branded business earnings may be attributed specifically to the brand). 4. Benchmarking brand risk rates – BrandBeta® analysis (to assess the security of the brand franchise with both trade customers and end-consumers and therefore the security of future brand earnings). The resulting discount rate is used in the DCF calculation.

‘Existing use to existing owner’ Brand valuations are generally based on ‘existing use to existing owner, without hope value’. In most cases the value of a brand will reach its HABU with the existing owner. However, in some situations this may not be the case. For example the hotly contested acquisition of Rowntree by Nestlé in 1988 demonstrated where the opposite was the case. From an original price per share of less than £5 the price per share rose to £11. The fact was that Rowntree’s brands were worth much more to Nestlé than they were to Rowntree, the existing owner. The brand valuer needs to consider on each occasion whether this applies and value accordingly.

Conclusions Brand valuation is becoming an increasingly critical question for owners of trade marks and marketing IP. IP lawyers are increasingly being drawn into M&A, licensing and securitization deals. Valuers stand ready to provide analysis, opinions and guidance to IP specialists. IP lawyers need to think carefully about what IP assets are being valued, how well are they protected and what they are being valued for. It is remarkable that in many situations companies believe they have good title to ‘brands’ only to find that someone else has the registration in geographic territories or business classes that were deemed secure. Budweiser is a good example of a brand with ambiguous and contested ownership, which has a direct bearing on value. Brand Finance estimated last year that the value of Anheuser Busch would increase by US$11 billion if it secured unfettered trade mark rights worldwide.

Brand Finance plc is the world’s leading independent brand valuation and strategy consultancy. It advises strongly branded organizations, both large and small, on how to maximize shareholder value through effective management of their intangible assets. Brand Finance has extensive global experience in all aspects of intangible asset valuation, transaction support, brand management and


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licensing. It specializes in bringing together a unique combination of strategy, finance and marketing experts to offer unrivalled expertise in this area. Prior to founding Brand Finance in 1996, David Haigh qualified as a chartered accountant with Price Waterhouse in London . He worked in international financial management then moved into the marketing services sector, firstly as financial director of The Creative Business and then as financial director of WCRS & Partners. He left to set up a financial marketing consultancy, which was later acquired by Publicis, the pan-European marketing services group, where he worked as a director for five years. David moved to Interbrand as director of brand valuation in its London-based global brand valuation practice, leaving to launch Brand Finance. Contact details: tel: (+44) (0)20 8607 0300, email: d.haigh@brandfinance. com, website: www.brandfinance.com

8.3

The monetization of intellectual property

Guido von Scheffer, Stephan Lipfert and Juliane Ostler at IP Bewertungs AG (IPB) discuss how IP is turning from collateral into a separately tradable asset.

Gaining from one’s intellectual property (IP) is no longer a fairy tale. Today there are numerous options for turning creativity into money. Patrick Süskind sold the rights of his novel Perfume to Constantin Film for €10 million. In 1995 David Bowie sold his song rights for US$55 million and created the so-called ‘Bowie bonds’. Royalty Pharma securitized its patent portfolio for US$225 million in 2003. Three years later Deutsche Bank sold Germany’s first preselected patent value fund. Beside this, public platforms for IP transactions have come into focus in the United States. The IP merchant bank Ocean Tomo started its first IP live auctions in 2006 and made over US$30 million at its spring and fall events. IP Auctions GmbH launched its first European IP auction in May 2007. IP is no longer just nice to have. It has left behind its image of being just additional collateral, and become an asset, separately valuable and tradable.

General questions Historically IP was the concern of scientists, engineers and patent attorneys. In most companies the IP department has the status of Chrysomeles watching Nephele’s children in the legend of the Golden Fleece, guarding over the company’s most


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valuable treasures. IP was treated like something to be kept inside to protect the enterprise’s core technologies and secure its freedom to operate. The impact of IP on a company’s value drivers was minor. In 2005 investment in intangible assets beat investment in tangible assets in the United States for the first time. It is already on most CEOs’ and financial controllers’ minds that IP can contribute more than just protection for the company. They are aware of having real assets in their IP portfolio. The most crucial aspect in these circumstances is the question of how to identify these assets, how to valuate them, and last but not least how to realize them.

The capital market’s view of R&D In most cases an enterprise’s capitalization is determined by the capital market’s view of its chances and risks. Empirically it has been proven that the average return on R&D investment in chemical industries is over 17 per cent.1 Even an announcement of rising R&D expenditure has a positive impact on the company’s share value.2 In addition capital markets weigh licensing revenues twice as high than normal operational revenues, because licences prove that the technology is industrially relevant and has more than paid for the enterprise’s R&D investment.3 The Patent Board’s weekly release in the Wall Street Journal shows that enterprises that have a systematic patent strategy significantly outperform other companies. Bessler and Bittelmeyer empirically prove that the simple existence of patents is positively correlated to a company’s performance within 500 trading days after their initial public offering (IPO).4 At the same time, because of asymmetric information, R&D-intensive enterprises offer excellent options for insider trading, which makes most investors worried about being cheated.5 It is also well known that only 15 per cent of all patents are able to exclude competitors from entering the market for more than four years. Sixty per cent of all patents do not guarantee exclusivity at all.6 Roughly 90 per cent of the value generated by R&D is earned by only 10 per cent of projects,7 and only 30 per cent of all R&D projects have a positive net present value (NPV) at all. 8 To earn extraordinary returns on investment, investors are forced into diversification and a structured selection process.9 Diversification within the enterprise itself will lead to a discount in its share price (the ‘conglomerates discount’).10

Intermediates and external IP logistics Nowadays most board decisions in times of reduced budgets, restructuring and re-engineering are very clear and simple: bring costs down or revenues up, and ideally both! When it comes to R&D this means either cutting budgets, which is likely to decrease the company’s future value, or making better use of existing R&D products – that is, IP. IP can be used either to reduce the enterprise’s capital cost or to increase free cash flow by generating additional revenue through out-licensing. Crucial in these circumstances is the lack of IP investment managers in most companies. The IP department in most cases is occupied with the classical prosecution

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THE MONETIZATION OF INTELLECTUAL PROPERTY 301 

of patent infringements. The management in most cases does not consist of patent experts, and the legal department in most companies is not trained on the economic aspects of IP exploitation. To fulfil the capital markets’ demands of transparency and the requirements of an efficient licensing management, resources and experts will be needed who will take care of all three disciplines. Alternatively these services can be outsourced to intermediates, to external IP logistics organizations. They start with a quantitative identification process combined with a claim chart analysis, which delivers the first indications for licensing potential. The second step is a fundamental due diligence which evaluates the technical, economical and legal aspects of the identified licensing potential. Only when all these elements have been proven to be valid will the portfolio be worth realizing. In recent years the infrastructure for patent commercialization has been extended significantly. The patent value funds and patent live auctions mentioned earlier are two important components in this process.

Patent value funds (PVF) Regardless of whether the identification, valuation and realization process is done internally or by an external IP logistics provider, there is always an investment decision to be made, because successful realization of the value of IP is highly correlated to the quality of the previous selection and valuation process. Often the owners of IP are not in a position to spend any money. For example most universities and institutions that have a budget for research and science do not have one for the commercialization of their IP. Therefore either the IP is sold too cheaply or it is not commercialized, because the status of development does not attract any potential licensee. If the owner is not willing to spend money, like many enterprises that decide to cut costs by cancelling certain R&D projects, the result will be the same. The licensing potential in the IP portfolio will not be realized because the necessary money has not been invested to start the process. A PVF can take over exactly this initial investment, which is needed to close the ‘Valley of Death’ that is so apparent in Figure 8.3.1, between the actual status of development and the status of being attractive to any licensee. The PVF invests in further developments needed, pays for prototyping, enlarges the patent family if necessary, and takes care of a professional commercialization process. The former patent holder participates on various levels. First it receives an upfront payment. If it is involved in the further development steps, it also participates by assigning staff to, and being paid for, the development project. The PVF is always interested to keep the IP unit of know-how and patents, if possible. Finally, the former patent holder and the PVF share the profits earned by the portfolio. Needless to say, PVFs also need to invest in the identification and valuation process to select patent portfolios with the potential to be commercialized.


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C

J-curve

Patent application

Sales budget

R&D budget

Financial gap (eg for prototypes, test series, miniaturization. . .)

PATENT VALUE FUNDS Figure 8.3.1 Commercialization is an investment Source: © 2001–07 IP Bewertungs AG (IPB). All rights reserved.

Alternative commercialization options – patent live auctions IP auctions are no novelty. The commercialization of rare governmental IP rights for instance, radio licences, licences to run fuel stops off state-owned highways and last but not least, the auction of universal mobile telecommunications system (UMTS) licences in Europe, provided recent examples of relevant auctions. The first live patent auction was held by the IP merchant bank Ocean Tomo in San Francisco in April 2006. Customized for the US market (US IPR for US buyers), it showed that patents could be auctioned. IP Auctions GmbH offered patents, and licences for their exploitation, in a European IP auction in May 2007. This was the first IPR auction customized for the European market. Two elements make live auctions an interesting option for commercialization. Primarily, auctions always force a competitive situation. Every bidder runs the risk that a competitor may snatch away the invention he or she was focusing on. Second, the auction avoids the danger of endless negotiations, with the counter-party always running the risk that the deal will not be closed, and all the money and time invested

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THE MONETIZATION OF INTELLECTUAL PROPERTY 303 

will be lost. In the auction the transaction is closed within seconds. The time and money to be invested in the due diligence is up to the buyer’s intention. Not every patent or patent portfolio is auctionable, just as not every patent can be commercialized. Whether it is auctionable depends on whether a patent has the potential to offer freedom to its potential buyer, or is identified as a key technology throughout a claim chart analysis.

Notes 1 See Aboody, D and Lev, B (2000) Information asymmetry, R&D, and insider gains, Journal of Finance, 55, pp 2747–66. 2 See Schwartz, M (1999) The value of R&D, Evaluation Stern Stuart Europe Limited, 1(3), pp 1–11. 3 See note 1. 4 See Bessler, W and Bittelmeyer, C (2006) Innovation and the Performance of Technology Firms: Evidence from initial public offerings in Germany, Working paper, Justus-Liebig-Universität Giessen. 5 See note 1. 6 See Narin, F, Noma, E and Perry, R (1987) Patents as indicators of corporate technological strength, Research Policy, 2–4, pp 143–55. 7 See Lev, B (2001) Intangibles: Management, measurement and reporting, Brookings Institution Press, Washington, DC. 8 See Grabowski, H (1990) A new look at the returns and risks to pharmaceutical R&D, Management Science, 36(7), pp 804 ff. 9 See Arnold, H (1976) Risikotransformation, in Handwoerterbuch der Finanzwirtschaft, pp 1506–16, H Bueschgen, Stuttgart. 10 See Bessler, W, Bittelmeyer, C and Lipfert, S (2003) Zur Bedeutung von wissensbasierten immateriellen Vermoegengegenstaenden fuer die Bewertung und Finanzierung von kleinen und mittleren Unternehmen: Ein Ueberblick, in Unternehmensbewertung und Basel II in kleinen und mittleren Unternehmen, pp 309–34, J A Meyer, Cologne.

IPB is one of Europe’s leading technology industry service providers for patent evaluation, patent financing and patent brokerage. IPB supports companies as well as individual inventors in creating, managing, financing and executing world-class patent strategies to maximize their IP values. Being an independent member of an international network, IPB has access to worldwide resources on intellectual property rights and finance services as well as an auditing and taxation sector. Most of its employees work in the headquarters in Hamburg, with a main focus on patent evaluation, patent monetization and consulting patent value funds.


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Guido von Scheffer has been the director of IP Marketing at IPB since the beginning of 2003. He established IPB as an international brand and is responsible for the company’s key account and relationship management. Prior to his position at IPB, Guido worked at an international auditing company for several years, and for an international logistics provider outside Germany. Guido also is a member of LES International, VPP-Germany, GRUR and numerous expert round tables (for the World Intellectual Property Organization (WIPO), the European Commission etc). He has represented the company at numerous international conferences and workshops. Stephan Lipfert is the director for IP Management at IPB, and Juliane Ostler works in IPB’s Corporate Communications Department. Contact details: IP Bewertungs AG (IPB), Stephausplatz 10, 20354 Hamburg, Germany, tel: (+49) (0)40 878 790 00, email: [email protected], website: www.IPB-AG.com

8.4

Patent evaluation

Poul-Erik Nielsen at the Danish Patent and Trademark Office discusses techniques for giving patents their full strategic weight.

Historically, companies have viewed patents in a legal context, as a means of safeguarding intellectual property (IP) rights. In the knowledge-driven economy, however, IP is assuming greater strategic significance. According to research conducted by Ernst & Young in 2000, 90 per cent of Danish companies expected the importance of assessing the value of their patents to increase – but no widely accepted method for doing this existed. As part of the Danish government’s wider strategy for fostering business development and growth, the Danish Patent Office developed a computer program, IPscore 2.0®, which is distributed on a CD ROM. Patents are scored on a scale from 1 (poor) to 5 (very good), identifying areas the company is strong in and those it needs to work on. The score determines the patent’s strategic importance, and whether it is being fully utilized. Once a patent’s value has been established, it can be used to attract outside investment, or exploited through licensing and business opportunities such as a sale or purchase. Many companies just think of patents as insurance against infringement, but they can often generate profits outside the core business area. A good example is IBM, which earns 14 per cent of its revenues from licensing activities.

Patents as a strategic weapon By ascribing a value to IP rights, the Danish Patent Office hopes to raise awareness among managers of patents’ strategic potential. Information about existing patents is


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disseminated as a means of encouraging companies in new areas to concentrate on new areas of innovation. In the past 10 years, the number of Danish patent applications has increased by 60 per cent. The ultimate goal is to be among the top five OECD countries for patenting activity. Danish companies are familiar with patents as a source of technical information, but few use them strategically. In part, this is because of the complexity of the information itself. In the Ernst & Young study, 75 per cent of companies indicated a need for training to understand and apply patent information. In this context, the Danish Patent Office is working to strengthen the IPR culture within universities, both in teaching and in patenting the results of their own research, through the provision of patent courses. Also, the Copenhagen Business School employs researchers who specialize in IP management.

Substantial content of IPscore 2.0® IPscore 2.0® is a systematic tool for the evaluation of patents and technological projects. The tool presents both a qualitative and quantitative evaluation in the form of a financial forecast depicting the net present value (NPV) of the technology being evaluated. Additionally, the tool produces output in the form of graphical overviews and a report to facilitate communication of the results of the evaluation. The tool provides a framework for evaluating and strategically managing patents and development projects and thereby integrating these into the company strategic management. The IPscore 2.0® questionnaire has been developed in close collaboration with heavy patent users and innovative players within different industries to cover the most important aspects to make a substantial evaluation of the company’s patent portfolio, technology or technological development projects. In other words, the tool can be used for evaluation throughout the lifetime of the project, starting at the ideas phase and continuing to making the decision about applying for a patent, and until you decide to abandon the patent or maybe sell or license it to another company that might gain more benefit utilizing the innovation. It is important to emphasize that IPscore 2.0® has been developed to calculate the internal value of a patent, a technology or a technological development project. The internal value is the evaluated value of the technology or project to be used within your organization. The tool does not calculate the market value of the evaluated patent, technology or project, as the external value is depending on the context in which the patent, technology or project has to be utilized.

Evaluation methodology for IPscore 2.0® A

Legal status

This category concerns the assessment of the patent as a legal document: that is, the legal basis for maintaining and enforcing the patent and the company’s ability and motivation to do so. The category looks at determining the patent’s present issuing-

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PATENT EVALUATION 307 

process position, how broad the patent’s claim is and how durable it is thought to be. Is the patent monitored with regard to infringements? And if so, does the company have the means to enforce the patent? As a whole, the category provides a picture of the patent’s legal status and situation.

B

Technology

The focus of this category is on assessing the patent’s technology, the perspectives within the technology, and the technology’s demands on the company. It is determined whether the technology can be substituted by other technologies, whether infringing copycat products are easy to produce, whether the technology has been tested and whether the technology creates a demand for new production skills/equipment. The category aims to provide an overall impression of the technology’s position of strength.

C

Market conditions

This is an assessment of various factors and conditions affecting the marketing options of the patented technology and the business opportunities created when the patented technology is contained in one or more product/s. Relevant areas are the market’s competitive situation, market growth, product life expectancy in the market, licensing opportunities and so on. This category creates an impression of the different factors and conditions, which, when aligned with the patent’s legal status and the perspectives in the technology, shows the potential inherent in the patented technology. Certain assessment results proceed to become a factor in the calculations for the financial forecast.

D

Finance

The finance category concentrates on determining how the patented technology affects the financial structure in the business area where it is put to use. It is an assessment of the future costs for product development, production and earnings, coupled with the importance of these contributions to the company’s total turnover and profit. Also assessed are the investment needs for production equipment. The information gathered here can be combined with key figures from the company accounts to provide factors in calculations for financial forecasts.

E

Strategy

The strategy section focuses on categorizing the patent (the legal document) with a view to weighing the actual purpose of the patent against the qualitative and financial assessments. The company assesses the purpose of the patent: that is, how it intends to use the patent. Is the patent a defensive tool, short-term and only attached to one product, or does it also have an offensive, long-term purpose, for example by securing the right to come up with new product developments in new markets and thus insuring the company enterprise options?


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The financial results category The model includes a financial results category, where key figures from the company accounts are entered. These figures form the basis for calculating a financial forecast of how much the patented technology is worth to the company when put to use in a given business area. From the annual company accounts, key financial figures for turnover, costs and provision for depreciation are entered in this financial results category. The patented technology business area is also defined. The figures provide an order of magnitude for the assessments made in selected financial assessment.

IPscore 2.0® is an easy and user-friendly software tool which can be used by all companies that have small or large portfolios of patents and technological development projects. The evaluation tool has received interest from a lot of enterprises, and also from the European Patent Office (EPO), which has acquired IPscore 2.0®. Interest in the evaluation tool has been considerable from most of the EPO member states including the new ones from Eastern Europe. More information regarding IPscore 2.0® can be obtained from Chief Advisor Poul-Erik Nielsen, Danish Patent and Trademark Office, email: [email protected]

9

IP and corporate finance


9.1

Raising finance through IP

Hugh Dunlop at R G C Jenkins & Co discusses the relative importance of intellectual property (IP) to different types of finance.

It is usually essential that early-stage technology companies can demonstrate a strong intellectual property position before they can attract significant private investment. This preferably includes granted patents with commercially strong claims and clear benchmarking against the prior art, showing that they have genuine claim to inventive steps. Dr Andrew Stevenson of the UK investment company E-synergy

IP assets from early-stage investment to IPO Intellectual property rights (IPRs) are like any other property or asset of a business – they can be bought, sold, leased out (licensed) or mortgaged. Depending on the nature of the business and the IPRs they may be key assets of a business or just the ‘icing on the cake’ when it comes to raising finance. Whether the IPRs of a business are of interest to a financial backer also depends on the nature of the investment. Except in particular circumstances, a bank will probably give little weight to the value of IPRs when extending an overdraft facility. The bank is principally concerned with servicing interest through profits. In the case of a secured loan, the bank is likely to consider only tangible assets and real estate that can readily be sold at auction. Notwithstanding websites that purport to auction patents (and with

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the exception of copyright in popular works), IPRs cannot readily be auctioned or sold, in large part because they have no accepted uniform method of valuation. On the other hand, when it comes to raising seed capital and venture capital, IPRs are very important and sometimes critical. Viewers of the BBC television programme Dragons’ Den may have observed a company that was reluctant to offer the putative investors worldwide rights under its international patent application. In one particular episode of the programme, this question over the extent of the patent rights on offer turned out to be a deal breaker. Going up the scale of financial investment, we can consider a trade sale of shares in a company to a larger company that might exploit a technology, idea or brand. Again IPRs are likely to be critical. At the top end of the scale, we can consider an initial public offering of shares (IPO). By the time a company considers an IPO, it is a well-established business. Public investors may well expect the company to have exclusivity in its technology and brand. The corporate finance team promoting the IPO will need to have checked all the boxes in relation to the IPRs, but the public investor will be concerned with the overall reputation of the company rather than this or that IPR. (One hears notorious tales from a century ago when poster campaigns invited the public to invest in newly formed companies purely on the basis of a patented invention, but that was a different age.) Accordingly, our topic here lies in the phases from raising seed capital (from angel investors and sometimes government sources), through to initial rounds of venture capital or an early stage trade sale. By the time a company has been through these stages (or even skipped these stages) and is considering a private equity investment or an IPO, it is likely to have secured its IPRs and been through due diligence (sometimes several times) and is unlikely to be reading this chapter. The next section of this chapter considers the due diligence process. For the present, we are concerned with bringing the company to the point where an investor is sufficiently interested to require a due diligence disclosure, and the company is confident it can open its books and pass the test.

Raising seed capital It is an axiom that in an early stage, one is investing in the person and not the idea. Anecdotal evidence tells us that 99 per cent of ideas never take off. It is the 99 per cent perspiration and not the 1 per cent inspiration that makes a good idea into a profitable business. For this reason, most new companies obtain their initial seed capital from directors and their families and friends – sources who know and trust the individuals. Going beyond the circle of the directors and the bank manager, and with the directors financially committed to the enterprise (having ‘put their money where their mouths are’), from what other sources might an entrepreneur raise money on its IP?

Government grants Some European governments make grants available to encourage and facilitate innovation or entrepreneurship. For example, the UK Department of Trade and Industry (DTI) offers R&D grants (formerly called SMART Awards).1 The R&D grants are

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available for bringing to market a new product, process or service where a programme of technical work is involved that contains significant innovation (risk, challenge and difficulty). The UK scheme of R&D grants is administered on a regional basis. In some cases (eg through the Welsh Development Agency2) the patent attorney’s fees can be covered by the award. Various other grants are available for funding basic research3 and for collaborative research at national level4 or EU level.5 For a DTI grant, the project proposal needs to convince the assessors that the technology is, among other things, innovative. This is where IPR comes in. It is more or less a prerequisite that the applicant has at least filed a patent application and obtained a search report. It is not generally necessary to have prosecuted the patent application through to a granted patent. (That may take some years – far too long for an impatient entrepreneur.) The results of the patent office search are often the first objective test of an idea’s level of innovation or ingenuity. The search report may be drawn up by the local national office or (even better, but for a higher price) by the European Patent Office (EPO). The search will typically identify a short list of earlier published documents considered relevant to the questions of whether the claimed invention is new and inventive. The may be identified as ‘very relevant if taken alone’ (X category) or ‘relevant if combined with another document’ (Y category) or merely ‘technological background’ (A category). A well-drafted patent application for a genuine innovation will produce a search report that has at least some claims that are free from ‘X category’ documents. This is a good indication at this stage. Often (depending on the patent office and the procedure selected) the search report is accompanied by an examination report or preliminary opinion on patentability. This is now the procedure for European and international patent applications.6 The patent attorney can review these reports and write a brief letter to accompany the application for the R&D grant to verify how or why the idea is new, notwithstanding the results of the search or the objections raised by the patent examiner. It is important that the specification clearly sets out the reasons how or why the idea is new and inventive, with reference to the examiner’s unanticipated objections. Not the slightest detail can be added later. This is why it is crucial that the application has been carefully prepared by a professional with experience in preparing for the unanticipated.

Angel investors The term ‘angel’ has long been used for individuals who finance theatrical productions. A wealthy individual may be prepared to put up a large sum of money on a West End production not merely as a speculative business proposition, but for the love of the stage. Today, individuals invest as business angels in a range of ventures, and in recent years there has been increased involvement in backing technology ventures. Wealthy individuals with an interest in technology also form clubs or loose networks to hear technology start-ups pitch for investment, and to spread the risks and rewards among their members.


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Technology investors are typically interested in scalable ideas – that is, ideas that, once proven, can quickly deliver rapid sales growth – rather than ideas that are limited in their rate of growth by factors such as people and recruitment. Software and medical diagnostic kits are classic examples. Production costs are negligible, and manufacture can be ramped up in an instant. By way of contrast, many non-tech enterprises are at the other end of the scale. Restaurants and travel are examples. No doubt angel investors can be found for the right opportunity, but the proposition is quite different. Highly scalable ideas are vulnerable to copying. Patent applications are vital. At investment pitches, a prospective entrepreneur will typically mention to the audience of potential investors that patent applications have been applied for, or an international patent application has been applied for, or a patent has been granted in this or that country. If this is not mentioned, it is a frequent question from the audience: ‘Have you applied for a patent and what is the status of your patent application?’ The investor is merely seeking assurance that the proposed investment is protected. For reasons already mentioned, only occasionally will the investor be considering whether, in the worst case where the company folds, there might be an IP asset that can be salvaged. Equally, an investor is typically unimpressed by an overemphasis on the value of the patent, or an expectation that an investment can be recouped merely by licensing the patent. On the other hand, in many instances the business proposition may indeed be purely to license the technology. This is a very common model in the software and semiconductor industries. The technology will be brought to market included in a chip or a mobile phone made by others. In these cases, the IPRs are critical. At the early stage, the patent may indeed be all there is, although this would be unusual. Even in the drugs, biotechnology or medical diagnostics industries, there is usually valuable know-how. But at this early stage, the technology is so far unproven, so there may not yet be any trade mark or goodwill.

Beyond seed capital – venture capital A venture capital (VC) investment is not unlike an angel investment, but is usually on a larger scale and with much less blind faith and much more business scrutiny and a thorough investigation of the IP assets as part of the ‘due diligence’ disclosure and investigation (for which, see the next chapter). The company may by now have a more measurable worth, and the VC will propose to buy a significant share of it and probably appoint a director. For an initial round of funding the VC will typically not seek a controlling share, but perhaps not far short of a controlling share. The VC may well wish to buy much of the share of the angel investors, depending on who those investors may be and what, if any, involvement they have. The VC will need to look more closely at the patent applications. Mere search reports and examination reports will probably not be enough. Equally, the review by the company’s patent attorney may not be enough. A brief independent review is likely to be required to verify not only that the objections raised by the various patent offices can be overcome, but that the scope of patent claims that can be achieved

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is satisfactory – so that a third party will not be able to simply ‘design around’ the patent. If there has been any shortcoming in the quality or scope of the originally filed application, it is likely to be identified at least by this stage. All being well, the initial seed capital has brought the product through a feasibility stage and initial prototype stage and what is sought is development capital to bring the product to a production stage. Of course these are not clear divisions: some prototypes are enormously expensive, and some require expensive field trials to prove viability. There may be any of a number of reasons for seeking venture capital. For convenience, VC investors speak in terms of ‘Series A’ and ‘Series B’ funding. So far, we have been talking about a first round of funding (Series A). If all goes to plan, the Series A funding sees the development through to the point where the product is production-ready, or the service is being offered to the public and is beginning to take off. A trade sale might be very feasible at this stage. Having proven the technology, the company might find a larger partner with a gap in its product line, manufacturing capability and the distribution channels to bring the product to market. Or if it is a service, the larger partner may have the recruiting network to quickly ramp up the number of outlets, or the purchasing power to bring about economies of scale, or the franchising know-how, and so on. By this stage, the IP assets may have grown. In addition to national, European or International patent applications, and patents resulting from these, there may be:  a trade mark (or service mark), perhaps with associated goodwill if the mark has acquired a level of awareness in the marketplace or in the press or other media;  a website URL;  registered designs;  unregistered design rights;  software or other works of authorship. Rather than a trade sale, the plan may be for independent organic growth without further funds, or another injection of funds may be required to put the product into production and commence sales and distribution. This may be referred to as ‘Series B’. Yet a further round of Series C funds may be required if problems have been encountered or there has been a change of direction, or in other unusual circumstances. Research by R G C Jenkins & Co among technology start-ups shows a significant expansion of patent portfolios in the stages between initial seed funding and Series A or Series B venture capital funding. Figure 9.1.1 shows, for start-up companies with published patent applications (published in the company’s name), a breakdown of average patent portfolio size according to the last round of VC funding. The numbers represent numbers of patent families (where a patent family may have a number of patents for the same invention in different countries). The initial increase from seed funding to Series A funding coincides with the stage at which VC investors perform due diligence investigations onto a company’s IPRs. The VC wants to know, first, whether adequate protection for the technology has been applied for in the relevant markets around the world; and second, from the search reports issued by the various patent offices, whether the company’s inventions


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8 6 4 2 0

Seed

Series A

Series B

Figure 9.1.1 Average number of patent applications at each funding stage

are indeed new, or whether in fact others have filed patent application first. Further portfolio growth is seen as a company progresses from Series A funding to Series B funding, by which time the product is typically through its prototype phase and about to enter production. This is an innovative stage when technical problems have to be overcome and the company needs sufficient liquidity to patent the solutions to those problems.

Summary of IP assets In summary, the investor (at whatever stage) is considering investment in a package that, in addition to the ability and commitment of the individual, and the business opportunity and any tangible assets, comprises:  the know-how, which may or may not be confidential7 and may or may not be a trade secret;8  the patent(s) or patent application(s);  copyright in works of authorship;  any registered and unregistered design rights;  any trade marks, service marks and URLs.

Notes 1 http://www.dti.gov.uk/bbf/BSS/page29002.html (accessed 28 March 2007) 2 http://new.wales.gov.uk/topics/businessandeconomy/finance/smartcymru/?lang=en (accessed 28 March 2007)

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3 4 5 6

http://www.dti.gov.uk/science (accessed 28 March 2007) http://www.businesslink.gov.uk (accessed 28 March 2007) http://cordis.europa.eu/fp7/home_en.html (accessed 28 March 2007) The UK Patent Office also issues a combined search and examination report if the search and examination fees are paid together. 7 In the United Kingdom confidentiality is based on contract. Many common confidentiality agreements unnecessarily require information to be absolutely secret for it to be confidential. 8 Some countries like France and Germany have laws to protect trade secrets even for information that may not be absolutely secret in the way required by patent law. It is beyond the scope of this chapter to discuss whether or how know-how and trade secret rights may be assigned or mortgaged like other IP assets.

R G C Jenkins & Co is a firm of European patent attorneys, chartered patent attorneys and trade mark attorneys based in London and Munich, providing a comprehensive range of services across the technical spectrum. Hugh Dunlop is a partner of the firm serving clients primarily in the communications, semiconductor and software fields, including a range of start-up technology companies. For further details visit the website: www.jenkins.eu

9.2

Investors and IP risks

Peter Finnie at Gill Jennings & Every LLP discusses how to check whether IP is properly integrated with the business plan.

The increase in awareness of intellectual property (IP) has had a significant impact on investors. The more sophisticated investors want to build a better understanding of the IP-related risks and gain insight of just how the IP asserted to be of value to the business fits within the overall business plan put forward for consideration. They also want to see evidence that appropriate systems are in place to identify and protect the intellectual assets of a company. In other words, they want to see an explicit IP strategy.

A risk management approach to IP A concept that investors do understand is that of ‘risk’, particularly the risk of losing money, and it is useful in this context to consider IP in these terms. It is advisable to tailor any IP due diligence process to identify and evaluate risk. The key to this is the company’s business plan. The following are examples of some of the typical IP risks a business may face:      

The company does not own the IP. The IP is not valid and hence unenforceable. Valuable IP is overlooked and inadvertently ‘lost’. An inappropriate filing strategy is pursued. Third-party IP is infringed, with consequences. The IP is not adequately protected, leaving room for competition.

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INVESTORS AND IP RISKS 319 

 Money is spent on IP that is not relevant to the business plan.  IP issues may undermine the ability to attract and retain investment.  Unresolved IP issues may affect the ‘exit strategy’. Companies seeking investment rarely present their IP to potential investors in a form that addresses these IP risk issues. Indeed many offer nothing more sophisticated than a basic patent status report with a list of their patents and pending patent applications together with copies of the associated publications. Some companies think it is sufficient to file patent applications and to demonstrate they have a policy of doing so, since received wisdom is that this will justify an inflated pre-money valuation of the company. They do not attempt to explain what they are doing in terms of their own business plan and there is no explicit (written) IP strategy to speak of. Furthermore, they demonstrate little or no understanding of the IP owned by their competitors. As a consequence, they have usually taken no steps to assess the risk of infringement or whether there is a commercial opportunity worth following.

A structured approach IP risks can be revealed relatively easily by taking a structured approach to IP due diligence. An IP due diligence report can assist the investor in renegotiating the initial valuation of the company where serious issues are uncovered. It may also be used to determine a more appropriate IP strategy for the company to adopt going forward to avoid some of the IP risks that were identified. It might affect the decision to invest at all. A good starting point is a thorough review of the business plan, since this often reveals a great deal about the proposition, including the underlying technology and the key competitors in the market. Even a basic understanding of the business plan, which typically reveals the ‘unique selling point’ the company offers, can suggest an appropriate approach to the due diligence exercise. The scope and format of the IP due diligence report needs to be agreed in advance, although this needs to be reviewed as the process goes along. There is no ‘one size fits all’ approach to IP due diligence. Investors often leave IP due diligence until very late in the day, sometimes shortly before their option to invest expires. These self-imposed time pressures usually preclude detailed investigation of the validity of patents/patent applications. Detailed freedom-to-use opinions also require lengthy and expensive investigations and so an early start is essential. The scope of any investigations in relation to these issues needs to be considered carefully. Unless it is thought the investment decision or pre-money valuation hinges on the issue, these forms of investigation may be of little benefit.

Examples The following are just a few examples of IP issues that have had a real impact on the investment process:


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 The company was proceeding on the misunderstanding (not common) that the IP rights they held gave the company the right to exploit its technology. IP is an ‘exclusive’ right in the sense that it gives the holder the legal right to exclude others.  The importance of the IP to the future success of the company was oversold, leading to a significant devaluation of the company when it became clear the IP was not as strong as first asserted.  The IP was not related to the current business plan and therefore of no apparent value (despite assertions to the contrary to support the valuation of the company) but still represented a significant ongoing cost.  The company had no coherent internal policy for identifying and protecting innovation at an early stage. As a result, the opportunity to protect a particular innovation said to be key to the success of the business plan had been missed.  No international novelty searches were conducted on newly filled patent applications and so the investor had no evidence to support the assertion made by the company that strong patent protection was available for the technology.  The unsophisticated patent filing strategy effectively delayed the grant of any US patents, to the detriment of the ability to attract US-led investment.  The patent applications were not written with the business plan in mind so the patent claim structure was inadequate to support the planned exploitation of the technology.  No detailed assessment of third-party rights had been undertaken, even when it was clear there were several US patents that could adversely affect the company’s plans to exploit its own technology. This approach to risk did not inspire much confidence in the directors responsible.  No ongoing watch of published patent applications or patents by competitors had been put in place to give an early warning of potential risks. A simple infringement search of patents held by competitors mentioned in the business plan revealed several infringement risks. This held up the investment process for several weeks and seriously undermined the value of the company.  Plans to exploit the IP were incompatible with existing agreements with third parties involved in joint research and development on some key aspects of the technology. Joint ownership of inventions can limit the ability to exploit the IP to the fullest extent possible. In this case, the planned trade sale to a major company in the longer term was a wholly unrealistic exit strategy.  No trade mark applications had been filed and no trade mark clearance searches had been conducted.  The company was not free to use its trade marks in the United States (often a key market) so a new name was required. This arose from a failure to check at an early stage whether the trade mark could be registered and used in the United States. Where branding is important it is not sufficient simply to obtain a domestic registered trade mark and assume you can do the same elsewhere. Getting the trade mark side of things wrong can be very costly.

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It is worth noting that all of the above should have been foreseen by the companies involved but were overlooked, largely because they did not have a systematic approach to the development and implementation of an explicit IP strategy.

IP strategy Many companies give little attention to the need to remain properly focused on IP matters (rather than simply the acquisition of IP for the sake of it) and the support IP can lend to the business plan. IP management is important. A company that can demonstrate why IP is relevant to the business and where managers show that they have taken effective measures to develop an appropriate position is more likely to gain the confidence of investors. Ultimately, this can affect the ability to attract future investment, and the value of the company. One of the most useful by-products of an effective IP due diligence process is the development of an explicit IP strategy. This is important to protect the interests of the company and the investor alike. IP strategy should be formed in the context of the commercial aims of the company as a whole, including the exit strategy. The aim is to ensure that companies get the most out of their R&D efforts, and to provide a framework to manage IP risks in a responsible and cost-effective manner. It follows that this must also be in the interests of the investors. The following are some of the issues to be considered and steps that should be taken when developing an IP strategy.

Developing an IP strategy  Establish a clear understanding of how IP rights can support the company. How is the IP going to be exploited to add value? How does the planned exit strategy affect this?  Establish clearly defined procedures for formally identifying innovation at an early stage so it can be reviewed at an appropriate level, a decision reached on whether to seek registered protection, and an internal register of company IP updated accordingly. It is all too easy to overlook the protection of innovation in the rush to get new products on the market.  Develop a formal patent and registered trade mark filing strategy. On what basis does the company decide to file a new patent or trade mark application, and what factors dictate the filing strategy?  Develop an IP awareness programme for key staff. Consider introducing an employee reward scheme as an incentive to innovate, report and assist in the process.  Produce support documentation, for example invention proposal documents, inventor acknowledgements, standard agreements and assignments, patent status reports, and bibliographic summaries. These can be used to support internal procedures and provide written materials in a format which is very useful when responding to requests for information from board members and investors.


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 Put in place a system for watching for the publication of patent applications and granted patents by key competitors as a means to identify IP infringement risks and opportunities. Maintaining a state of blissful ignorance will not inspire confidence.  Consider general third-party IP issues, including contracts with suppliers and joint developers. The contracts of employment of key staff should be reviewed to ensure the terms cover the key IP issues that may arise, for example the ongoing duty of confidentiality.  Lastly, though importantly, agree and monitor an IP budget for the company. The costs of acquiring IP and considering third-party issues can be significant. What impact will this have on cash flow? The IP strategy should be made explicit by committing it to paper. It should be reviewed regularly to ensure it is consistent with the business plan.

Conclusions The hidden risks of IP can have an enormous commercial impact for both investors and companies. Taking a risk-management approach to IP, and in particular, developing an explicit IP strategy that deals with these risks in a cost-effective and responsible manner, will repay itself in the longer term.

Peter Finnie is a European patent attorney and partner in the London-based firm of Gill Jennings & Every LLP. He is a recommended patent attorney in the latest edition of the Legal 500. The core of his practice is represented by UK start-up companies for whom he advises on the development of IP strategies as an integral part of business planning and fund raising. He has helped guide his clients through a number of successful funding rounds involving both UK and foreign investors. The firm as a whole has been involved in many due diligence exercises, trade sales and initial public offerings, acting both for companies trying to secure financing and for private equity groups considering investing in a company. For further details: Gill Jennings & Every LLP, Broadgate House, 7 Eldon Street, London EC2M 7LH, tel: (+44) (0)207 3771377, website: www. gje.co.uk, email: [email protected]

9.3

IP and acquisitions

Focus on the IP that could break a deal, say Omar Baki, Ann Danared, Barry Franks, Anders Holmberg and Peder Oxhammar at Brann Patentbyrå AB.

Intellectual property (IP) due diligence is an important part of the due diligence performed during acquisitions, mergers and licensing deals. Customarily IP due diligence has been very thorough and labour-intensive, time-consuming and expensive. However, in fast-paced businesses where the time available for deciding whether to go ahead with transactions is limited, an alternative way of performing IP due diligence has become desirable. Often in-house lawyers and IP counsel have been risk-averse, and in order to reduce the risk that a completed acquisition turns out badly because of an undetected IP-related problem, they might have tended to over-specify the amount of IP due diligence required. This is particularly easy to do if the costs fall on a different cost centre and do not affect the IP department’s own budget. However the disadvantages of over-specified IP due diligence are many – not only high external costs and long processing times, but in order to justify their fees external IP counsels may feel obliged to produce large, detailed reports, which unfortunately often have the consequence that important information is hard to locate among irrelevant but important-looking lists, tables and statistics. In order to avoid the above scenario the IP professional (‘IP counsel’), irrespective of whether he or she is an internal employee of, or an external consultant to, the acquiring company (the ‘client’), must actively investigate the reasons that the acquisition is being contemplated by the client in order to find out how important IP is to the acquisition. The IP counsel must then determine which IP is most important for deciding whether the acquisition can go ahead or not (the ‘deal breakers’), which


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IP adds value to the deal (‘value adders’) and which IP has a negligible impact on the deal (‘other’). In other words the IP counsel has to know what IP is necessary to support or destroy the commercial case for going ahead with the acquisition. Obviously the IP counsel cannot (and must not!) do this in isolation – in fact the only way this can be done is through complete and regular communication with the client. The earlier that this is started in the acquisition process and the more often that it is updated, the higher the chances that major risks and problems will be identified at an early (and therefore inexpensive) stage. At the same time the IP counsel should try to get a clear picture of what level of uncertainty the client is comfortable with, and then manage the IP due diligence so that the end result reflects that risk. So much for theory. The following provides some hints, tips and suggestions about how to make IP due diligence more cost-effective. The first step is to make sure that you, as IP counsel, really understand the business case behind the transaction and what it implies for the IP due diligence. If you are attempting to buy a company like Coca-Cola, you might put more value on its trade mark and registered design portfolio and its trade secrets than on its patent portfolio. Consequently the IP due diligence should be weighted more to investigating the trade mark, design and internal security than patents. However if you are planning on acquiring a company like Kodak, which has a valuable trade mark but which also has diversified so that it has major products in a number of technical fields, then it would be inadvisable to neglect the patent portfolio. Now it is not every day that such obvious cases occur, so the following is a list of suggested areas that might need to be investigated and upon which a decision should be taken in consultation with the client. The client, as the instigator of the transaction, must decide what level of risk and uncertainty it is willing to be exposed to when arranging the deal.

Important questions Questions that need to be answered may include:  What is the potential loss to the client if the IP situation of the acquisition is not as good as it thinks it is? Is this reflected in the proposed purchase price? Usually the company being acquired has tangible assets which can be relatively easily valued (most details should be available in the annual report) and the difference between the value of these assets (eg €10 million) and the price that the client is willing to pay for that company (eg €12 million) is the value (€2 million) that the client puts on the acquisition’s intangible assets – which include IP. The art of valuing IP is unfortunately too complicated to be dealt with within this chapter, and the reader is advised to consult a specialist if further information regarding IP valuation is required. Ultimately the goal of IP due diligence is to help the client determine whether that figure is justified, or more realistically, to determine what the risk is that that figure is incorrect and by how much. This information can then be used during negotiations to adapt the purchase price accordingly.  How clear does the geographic IP situation have to be before the decision to go ahead with the transaction can be made? Is it enough to investigate the IP situation

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IP AND ACQUISITIONS 325 

fully in just some countries – typically only those that have the largest markets – and if so, which countries are these? For example, the US, European and Japanese markets together may account for 80–90 per cent of the sales of the company being acquired – the target company – and the client’s business plan would maintain that proportion. In that case it may suffice to investigate the IP in those countries in depth (for example, check assignments, search reports, examination reports, file histories, amendments to the applications) and just check for the presence of granted and pending IP in the rest of the world. Is there freedom to operate? How clear does the technical IP situation have to be? For example, which pieces of IP cover current or planned future products? Are any important pieces of IP granted or still pending? If still pending, does an analysis need to be made of the likelihood of the pending IP being granted/registered? Which IP fields are most relevant? Patents? Trade marks? Designs? Copyright? Domain names? Invention disclosures? Trade secrets? Can any be subjected to just a superficial analysis (eg just compiling a list of IP) or even ignored for now? What IP deal-breakers are there? Deal-breakers could include such things as IP explicitly licensed to a competitor (or implicitly, for example in a patent pooling agreement), actual/ impending litigation, oppositions/appeals, warning letters, incomplete chains of ownership, missed due dates? What level of detail is needed for trade marks? Is it enough to just know in which countries important trade marks are registered, or is it necessary to check also which classes they cover?

The goal of these questions is to generate an IP list, agreed upon with the client, which gives details of what the client assumes to be key IP and what level the client needs it to be analysed to.

Levels of analysis Possible different levels of analysis could be as follows:  Basic: for the major markets: identify IP owned by the target company, check who is the proprietor of the IP, check whether the IP is still alive, check for current or pending litigation/conflicts, check for any registered limitations on the IP such as licences or the IP being pledged as security for a loan.  Basic +: as above but extended to other markets and variations of the company name – holding companies, subsidiaries and so on.  Level 2: check that the IP covers actual products, check the classification of trade marks and designs, check for the company’s product clearance procedures, check licences for limitations on the use of IP.  Level 3: check file histories, compare registered trade marks and designs with the trade marks and designs actually used, make subjective evaluations of litigations/ conflicts which were identified above.


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IP AND ACQUISITIONS 327 

 Level 4: check for relevant prior art, determine if there are risks for invalidity suits, check whether in-house product clearance procedures are actually followed and documented, check whether there is a risk that trade marks will be degenerated.  Level 5: check for freedom to operate.  Level 5 +: if third-party rights have been found which may affect freedom to operate, evaluate whether these rights are valid.  Level 6: determine the value of the IP, and if necessary generate opinions regarding infringement and validity for IP that is (or potentially could be) involved in litigation. The above levels are not to be treated as static levels – they should be seen as guidelines to what information may be needed.

Due diligence process Often the due diligence process starts with the target company providing folders and binders of confidential and commercially sensitive financial, legal, scientific and commercial material about itself in a ‘data room’ for a limited period of time – anything from a few hours up to a few days, or, exceptionally, weeks. The data room is housed, for reasons of security and anonymity, in the offices of a third party – usually a legal firm. The client’s legal, financial, scientific and commercial representatives are only allowed to study the material in the data room and cannot make copies of it. Close cooperation between these representatives is important, as this is a way of discovering information which can validate (or overturn) the assumptions made by the client on what is key IP and to what level it needs to be analysed. For example, marketing information may show that the target company’s major markets lie outside Europe, Japan and the United States, and consequently the geographical scope of the IP analysis needs to be changed. Or historical financial information may show that fees paid to external IP counsel in the United States have suddenly increased. This could be a sign of impending problems or action taken to prevent future problems – only deeper investigation can determine which of those it is. IP due diligence is an evolutionary process, and as the material is studied further questions will be raised, and gaps in the material identified, which will lead to requests for complementary/additional information. Often these requests cannot be fulfilled – possibly because of lack of time, or the material is not available, or the company is unwilling to release particularly sensitive material. Details of all requests, especially those that were not fulfilled (and the reasons why they were not) should be recorded and appended to the final IP due diligence report. Preferably at least once a day, a verbal report of what has been discovered from the material in the data room (and elsewhere – normally the material in the data room can be supplemented with publicly available information gathered from other sources such as the internet, IP databases and other search tools) should be presented to the client by the IP counsel. Ideally the client’s other representatives also deliver their reports at the same meeting, as they may identify areas that need IP due diligence. The purpose of the meeting is to allow early identification of problems, to correct invalid assumptions and to expedite amendment of the key IP list if it becomes necessary.


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The due diligence report Concurrently with, or if time allows, subsequent to the period that the data room is open, the IP on the key IP list is analysed by the IP counsel and the results of the analysis presented in a report which describes IP assets and IP weaknesses (such as the absence of assets). It is important that, wherever possible, key facts regarding IP assets, weaknesses and problems are linked to the business plan so that support (or otherwise) for the commercial case behind the proposed acquisition can readily be seen. Problems should not be mentioned in isolation, but possible remedies for them should be provided where possible – for example, suggestions on possible in-licensing strategies, product changes needed to design around third-party IP, or warranties needed – so that their relevance and importance to the deal is not exaggerated. Areas that could not be investigated because of a lack of time or resources, but which in an ideal world should have been investigated more fully, must also be flagged so that appropriate action can be taken. An important part of the report should be a summary of what was done and, equally important, what was not investigated during the IP due diligence so that the client is made aware of where the weaknesses are in the due diligence that was performed. The report, which may be written or verbal, must be sufficiently clear that the client can make an intelligently informed decision on whether to go ahead with the acquisition as originally planned, or to renegotiate the deal – perhaps to get a better price or additional warranties – or drop it. Remember, due diligence is not about IP – it is about doing business!

Omar Baki, Ann Danared, Barry Franks, Anders Holmberg and Peder Oxhammar are in the IP Due Diligence Group at Dr Ludwig Brann Patentbyrå AB, Sweden. Brann Patentbyrå AB is the third largest IP company in Sweden, employing over 85 IP attorneys and assistants. Please visit www.brann.se for more information about the services Brann provides.

9.4

IP and private equity

Dr Malte Köllner, co-founder of Triangle Venture Capital Group and a patent attorney in Frankfurt am Main, comments on the ways in which intellectual property (IP) breaks deals.

I do not think I have to stress the increasing importance of IP in our knowledge-based national economies. The same applies for companies, for which IP has become by far the largest building block of their value, and for which for example patents are a means to defend old markets and to enter new markets. So we have an increasing importance of IP for companies. This, of course, has a large influence on investment decisions concerned with technology and patent-based companies. In the venture capital (VC) industry, an invention, know-how and a patent are quite often the main assets to be found at the start-up of a company. For more mature technology companies, which might take part in a private equity (PE) deal, a solid IP position is crucial. Therefore, investors are increasingly IP aware and the investment phase involves a more and more extensive IP due diligence. What influence does this IP situation have on the investment decision to be taken? Can IP be a deal breaker? Let us focus for the time being on high-tech companies. When looking at the IP of high-tech companies, you may find patents, trade marks, copyright and so on. Since we are talking about technology companies, let us concentrate on the patents. Some professionals would answer that by their experience, IP – in the end – generally is not a deal breaker. Often these professionals are involved with software companies. The IP due diligence might come down to taking care that the IP is in possession of the company. This makes everybody feel comfortable with the IP portfolio. That’s it. This rather relaxed attitude may have something to do with the widespread opinion that


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software patents are more likely than others to be circumvented – which is sometimes true and sometimes not. My personal experience also lies in the software industry, but also in the realm of medical technology. Let me tell you some stories from my daily work. The first story concerns a spin-off from a research institution. A wonderful technology had been developed together with some industry partners. It was a mixture of software and hardware, a special device with intricate algorithms to steer it. The exploitation potential seemed tremendous. The scientists from the research institution were keen on publishing scientific papers during the R&D phase of the project. The engineers from the industry partners were keen on patents. In the end, all the patents were held by the industry partners, and the scientists from the research institutions did not even know that was so. When finally the scientists from the research institution wanted to spin off a company and were looking for VC, they woke up and discovered that the freedom to operate for their spin-off was simply not there – and nor was the money for the spin-off. Another story concerns a company that was holding quite weak patents. The patents were actually held by a separate company: that is, there were two companies, one running the business and one holding the IP. Both were owned by more or less the same people, the inventors and founders. The company was developing and marketing a very promising medical device. After a while, the business got into trouble. The company running the business was in distress and was bought up by an investor for almost nothing. The investor disregarded the patents because of their weakness. He bought the business-running company but did not buy the IP-holding company at the same time. So the IP-holding company, and thus the patents, remained in the hands of the former shareholders and founders. This did not seem to be a problem, since the medical device was redesigned and did not infringe the old and weak patents and patent applications. After some patent attorney’s work, however, the weak patents and patent applications matured into wonderful patents with a broad scope of protection. These strengthened patents were so broad that they also covered the redesigned medical device now to be marketed by the investor. The new patents, however, were still in possession of the inventors, founders and former shareholders. All of a sudden, the investor found he had bought a company without any freedom to operate. He could and should have been more prudent in his IP due diligence. Also, he underestimated the relevance of IP. It would have been much wiser for the investor to state that the patents are useless, but to buy them – just in case – nevertheless. The price at that time would have been close to US$1. The value of the new patents was clearly considerably higher. One more story, which I shall make very brief. A large medical device company, world leader in its field, was willing to purchase a medical device start-up, which had developed a cutting-edge technology. The start-up had a few business units and had succeeded in establishing a duopole monopoly together with its major competitor with the help of patents. The start-up had quite a few patents. So had its competitor. Obviously, questions of patent conflicts, litigation and freedom to operate were in the air. The start-up had prepared some non-infringement opinions concerning some

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patents of its major competitor, but for other patents non-infringement opinions were lacking. The world-leading medical device company did not feel comfortable with the IP situation, and finally only bought those business units where the freedom to operate in view of the major competitor seemed to pose no relevant risk. In general, if the freedom to operate is missing, deals have broken more than once. The freedom to operate is missing if there are any patents owned by third parties that the products of the company might infringe. In the extreme, the company may not even be able to sell a single product as a result of this patent infringement (see above). A decent freedom to operate analysis requires considerable effort, and thus it is often disregarded, although such an infringement analysis might be more than important. Besides a missing freedom to operate, there is one more deal-breaker in every industry. That is if a company is not in possession of the IP, nor has it an exclusive licence (that cannot be terminated by the patent owner). If the patents are still held by the founders and the founder refuses to transfer the IP to the company, you will be in trouble when it comes to an exit. In that case you might be better off without any patents at all. That will considerably reduce the price, but the deal might still be closed. On the other hand, in such a situation the founder him/herself will also be in trouble. This is a clear and easy deal-breaker. We had such a situation. The deal broke. And that was my last story.

Dr Malte Köllner is a partner in a patent attorney’s law firm in Frankfurt am Main, Germany. He is editor in chief of one of the two leading journals on intellectual property in German-speaking countries. He is co-founder of the Triangle Venture Capital Group. He is a regular lecturer and has authored and co-authored numerous publications on IP and VC. For further details: Dr Malte Köllner, Köllner & Partner, Patentanwälte, Frankfurt am Main, Germany, email: [email protected], website: www.kp-patent.de


10

Selected IP jurisdictions


10.1

Germany

Germany is often chosen as the jurisdiction in which to litigate against European infringements of patents. Christoph de Coster of Taylor Wessing in Munich explains why.

More than 50 per cent of all patent litigation cases in Europe are heard before German courts, and 80 per cent of these cases are dealt with by specialized patent chambers of district courts in Dusseldorf, Mannheim and Munich. The German patent system provides specialized judges and effective proceedings for a patentee to obtain an injunction and/or damages. Moreover, court proceedings in Germany are usually not as expensive as proceedings in other leading jurisdictions such as the United States. To show why Germany is generally considered to be an attractive jurisdiction for patent litigation, the German patent prosecution and patent litigation system and its principles are outlined below.

Split court system in patent matters To understand the German patent litigation system one has to take into consideration the specific German bifurcated court system, providing for a separation between infringement and nullity courts (ie for invalidity or revocation). Nullity cases are heard before the Federal Patent Court, while infringement cases are heard by the specialized chambers of the district courts. The district courts handling patent infringement actions may construe the patent, but have no jurisdiction over the validity of the patent and are bound to enforce the patent as it is. The jurisdiction over the validity of a patent lies solely with the European Patent Organisation (EPO) and with the German Patent and Trade Mark Office (Deutsches Patent und Markenamt, DPMA) in the case of an

 336 SELECTED IP JURISDICTIONS

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opposition, or in the case of a nullity action against a German patent or a German part of a European patent, with the Federal German Patent Court and on appeal with the German Federal Supreme Court. While the prosecution of patent applications are handled by specialized patent attorneys with a technical background in the relevant field, infringement cases are presented by attorneys-at-law, usually in cooperation with patent attorneys.

Prosecution proceedings – almost harmonized In Germany, before being granted a patent must undergo an examination for formal requirements and for patentability. These examinations are to be carried out by the DPMA. As the German Patent Act (Patentgesetz, PatG) was harmonized with the European Patent Convention (EPC), requirements according to the PatG correspond to those of the EPC (novelty, inventive step, industrial applicability etc). The same applies more or less to prosecution, which is similar to the proceedings before the EPO. Still, in some areas, different standards for novelty and inventive step might be applicable under German law, even if the wording of the relevant legal provisions is mostly identical. For example, the German Federal Patent Court is still more reluctant than the EPO to accept ‘selection inventions’ in the field of chemistry, where a specific compound or mixture has been selected out of a previously known range of specifications or abstract formulae. Differences might also exist in the patentability of software inventions, because German courts handle the exclusion of patents – for example, for business methods or language analysis methods even if implemented in computer software – in a more restrictive way than the EPO. It would exceed the scope of the present article to explain these differences in detail. After the grant of a German patent an opposition can be filed with the DPMA during a three-month period (as opposed to nine months at the EPO). After expiration of the opposition period it is possible to file a nullity action with the German Federal Patent Court in Munich. A very speedy way to secure protection for a product in Germany is to use the utility model system. Utility models are registered but not examined, and thus protection is quickly granted. They can be obtained for products but not for processes. Utility models are often used as an alternative or additional option to patent protection.

Enforcement of patents German courts are competent for enforcement of patents granted by the DPMA and for the enforcement of the German part of European patents. Because there is no unified European court system the enforcement of a European patent usually requires the filing of actions in each national territory covered by the patent. To avoid multiple proceedings patentees usually select one or two jurisdictions to enforce their patent, and force the infringer into settlement negotiations. Germany and the United Kingdom are popular jurisdictions to start such actions in Europe, because decisions rendered

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by German or UK courts are well respected and often followed by courts in other European jurisdictions.

The goal of an infringement action: remedies The most important remedy in a patent infringement case is the claim for cessation of further infringement (injunctive relief). Injunctive relief is mandatory in the case of infringement in Germany. It is not subject to any balance of interest considerations, as under the most recent US case law. In addition to injunctive relief, the patentee may claim damages. There are three methods for the patentee to calculate damages: royalties, infringer’s profit or lost profits. In practice the lost profits alternative is less important, since the patentee has to disclose internal calculations, and the requirement for the patentee to prove that there are lost profits were relatively high. The most common method for calculating damages is still based on a royalty (ie had the infringer been a licensee what royalty would they have been paid). However, patentees increasingly tend to claim the infringer’s profits due to a recent decision of the German Federal Supreme Court according to which infringers are, in principle, only entitled to deduct from their turnover variable costs and such overhead costs as are directly linked to the production of the infringing product. Consequently, damages according to infringer’s profits might be higher than the infringer’s actual net profit. Moreover, the infringer has to provide the plaintiff with information on the infringing acts to enable calculation of the damages.

To stay or not to stay: invalidity defence in infringement proceedings There is no invalidity defence in Germany due to the separation of infringement and invalidity proceedings. However a German infringement court may stay the infringement proceedings in view of a pending opposition or a nullity action against the patent in suit. The decision to stay an infringement action lies at the discretion of the court, and is based on a balance of the patentee’s and defendant’s interests. Usually, the court will stay the infringement proceedings only if there is a preponderant probability that the patent will be revoked in invalidity proceedings. In practice, only if novelty-destroying prior art that was not considered during prosecution is cited in the invalidity proceedings is the court likely to stay the infringement action. Therefore, the stay of an infringement action in view of a pending opposition or nullity action is still the exception in Germany, as only a few (roughly 10 to 15 per cent of) infringement actions are stayed. Since invalidity proceedings currently last one year longer than infringement proceedings, the chances of the patentee obtaining an injunction in the infringement proceedings are considerable.

Duration and costs A first instance infringement case can be heard within 9 to 15 months depending on the workload of the court. The appeal proceedings in second instance last from 12 to 15 months. A further judicial review by the German Federal Supreme Court may take


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anything from one and a half to four years, and is only admissible in cases of special importance. The costs of a standard infringement action with international parties typically amounts to between €100,000 and €200,000. The costs for German infringement proceedings partially depend on the value of the matter under dispute, calculated on the basis of the commercial value of the patent at issue. The winning party may claim for a refund of court costs and attorneys’ fees by an amount provided by the German statutory fee schedule. If the defendant raises the invalidity denfence and files an invalidity action the costs of this action have to be added to the overal cost.

Enforcement of the judgement The first instance infringement decision is ‘provisionally enforceable’ for the patentee contingent upon a security (eg bank guarantee) to cover possible damages of the defendant if the first instance judgement were to be later overruled. The appeal judgement is enforceable without security to the other party.

Pretrial discovery: order of inspection To obtain sufficient evidence of an alleged infringement the patentee may bring an action before the court requesting the inspection of a device that he assumes is infringing. Inspection is carried out by a patent attorney or a court-appointed expert. In the past, such orders were handled very restrictively in Germany, but with the Enforcement Directive there is a strong tendency for more and more inspection claims to be enforced, if a prima facie case of infringement is established by the patentee. Inspection orders can be obtained at very short notice so that the alleged infringer is taken by surprise.

Mini trial: preliminary injunctions In addition to or even before starting an action for patent infringement, a patentee may apply for a preliminary injunction. Preliminary proceedings are very similar to the proceedings on the merits. However, they are streamlined, so that a decision is usually rendered within two to four months after application for the preliminary injunction. Possible remedies in preliminary proceedings are an injunction to enjoin the infringer from infringing acts, such as manufacturing infringing goods, as well as a claim for information regarding the origin and the distribution channels of the infringing product. An injunction can be enforced immediately without a security. A preliminary injunction has three requirements:  clear infringement;  strong validity of the patent;  urgency of the case. The preliminary injunction can be a very effective tool, especially in clear cut cases, such as piracy cases.

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Nullity actions Given the separation between infringement and nullity proceedings, a defendant must initiate separate nullity proceedings against the patentee in the Federal Patent Court if he wants to rely on the defence of invalidity in the infringement proceedings. This has to be combined with an application for a stay of infringement proceedings to avoid a first instance judgment which may be enforced. The grounds for nullity of a patent largely refer to the grounds for an opposition against a German or European patent, such as lack of patentability (lack of novelty, lack of inventive step, non-patentable subject matter), insufficient disclosure or added subject matter of substance. In nullity proceedings the German Federal Patent Court may render a first instance decision within 18 to 24 months after filing of the action, depending on the technical field and the complexity of the patent. The appeal proceedings before the Federal Supreme Court require about three to four years. The costs for German nullity proceedings are similar to the costs of an infringement action. The winning party may a claim for a refund of court costs and attorneys’ fees by an amount provided by the German statutory fee schedule.

Conclusion Germany is a very patentee-friendly jurisdiction. The court system provides specialized judges and an effective system to enforce patents. The bifurcated system makes it very difficult for the defendant to defend against an infringement action. The costs of the proceedings are relatively low compared with jurisdictions such as the United States. From the perspective of the patentee, the lack of pretrial discovery or disclosure proceedings can be considered as a disadvantage of the German system. However, the situation has improved after the enactment of the European Enforcement Directive. It is now possible to gather evidence by pretrial inspection orders.

Taylor Wessing is a leading law firm providing legal support for commercial organizations doing business in Europe. Based in Belgium, France, Germany and the United Kingdom, Taylor Wessing provides the full range of legal services to major corporations and growing enterprises. Taylor Wessing boasts a strong reputation in the corporate, finance and real estate sectors alongside in-depth experience across the full range of legal services including intellectual property (IP) and technology, tax, litigation and dispute resolution, employment and pensions, and private clients. Christoph de Coster is partner in the Munich Intellectual Property Department at Taylor Wessing. Christoph specializes in advising national and international clients on patent litigation and IP-related transactions.

10.2

The United Kingdom

Jacqueline Needle of Beck Greener compares UK and European enforcement procedures.

It is said that organizations refrain from protecting their innovations because of a belief that they could never afford to enforce their rights in the courts. However, a company giving up the advantages that intellectual property (IP) protection might give still cannot be certain that it will not become embroiled in IP litigation. Any organization that introduces new products or new business methods, or changes how it promotes itself, its name or its brands, could find itself on the receiving end of an action for IP infringement. The nightmare scenario is a business finding officials on its doorstep empowered to confiscate goods or documents. Let us take patent litigation as an example of IP litigation generally, and let us consider the cost of patent litigation both in the United Kingdom and in other countries of the European Union to determine whether the cost genuinely provides a reason to avoid protecting innovation. And let us consider the steps an organization can take to avoid litigation.

The cost and incidence of patent litigation The European Commission is so certain that litigation costs adversely affect the takeup of patent rights that it is currently working on a scheme to require anyone applying for a European patent to have compulsory patent litigation insurance. A study for the Commission determined the average amount spent by each party in a patent infringement action in a number of EU countries, as shown in Table 10.2.1. Of the countries listed, neither Germany nor Finland consider the validity of a patent



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Table 10.2.1 Patent litigation costs in selected EU countries Country France Germany Finland Sweden United Kingdom

First instance costs

Appeal costs

Percentage of costs recovered

€80,000 €165,000* €120,000* €120,000 €550,000

€45,000* €200,000* €25,000* €65,000* €430,000*

Low Low 100% 100% 50%

* Costs of separate nullity action not included.

in an infringement action and the parties invariably additionally incur the costs of a separate nullity action. Therefore, in practice, the costs given above for those two countries should be doubled. The same study looked at the number of European patents in force in various countries and at the number of patent infringement actions started per annum to determine a litigation ratio indicating the incidence of patent litigation. So in France where 250,000 European patents are currently in force, and 50 patent actions are started a year, the litigation ratio is 1:5,000. Only 50 per cent of patent actions in France proceed to trial and judgement, so a similar calculation gives a first judgement ratio of 1:10,000. The figures for other countries are shown in Table 10.2.2. Table 10.2.2 Patent litigation ratios in selected EU countries Country France Germany Finland Sweden United Kingdom

European patents in force

Litigation ratio

Ratio to first judgement

250,000 300,000 20,000 82,000 250,000

1:5,000 1:600 0 1:2,000 1:5,000 1:2,000

1:10,000 1:7500 0 1:5,0000 1:8,0000 1:12,000

Thus, with the exception of Germany, very few patents are the subject of litigation. Even where an action is started, at least half are settled before trial. In the United Kingdom, only about 20 actions a year go to trial, which is one-sixth of those started.

UK litigation procedures The figures show that patent litigation in the United Kingdom is generally expensive. Furthermore, the level of expense incurred in litigation in the United Kingdom is higher than that seen in other European countries. This difference in cost arises out of differences in process.

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A UK patent infringement action is started with formal pleadings, in which a patentee states little more than that an identified action or product of the defendant infringes his patent. The defendant denies infringement and counterclaims for revocation. The revocation action identifies grounds on which the patent is invalid, for example, by listing earlier documents said to disclose the invention. Thus, the written case amounts to little more than ‘You infringed.’ ’Oh no, I didn’t, and in any event your patent is invalid.’ The proceedings then move on to both disclosure and evidence. During disclosure each party has to locate and make available internal documents relevant to the issues. Then evidence, generally in the form of written statements by independent experts, is prepared and filed. The disclosure and evidential stages can take months and can be very expensive. The case then moves to a trial, which can last several days. During the trial a specialist patent judge hears both parties and the experts are cross-examined. The UK procedure can be compared with that in Germany, for example, where the patentee files the whole case in written form at the outset. In the complaint brief the patentee is required to describe the invention and ascribe a meaning to the claims of the patent. He (or she) also has to set out why the defendant’s product infringes. If the patentee wants the court to hear evidence, he needs to include in the same brief details of factual matters that he believes might be challenged by the defendant, and offer evidence to uphold the facts. The defendant responds in writing and the patentee has a chance to comment on any new issues raised by the defendant. The case goes to trial before a panel of judges who hear brief submissions from the parties and then come to a decision. Typically the hearing lasts up to three hours. One reason for the difference in costs between the United Kingdom and other European countries is the emphasis which is placed on written submissions in the rest of Europe. In addition, outside of the United Kingdom, disclosure and evidence are rare. In the past, patent infringement actions in the United Kingdom involved three types of professionals, namely patent attorneys, solicitors and barristers. In the rest of Europe there is no barrister/solicitor division so actions may be the responsibility of a single professional. In the United Kingdom, the Patents County Court was set up in response to industry concerns about the cost of patent litigation. It gives the parties a greater choice of the professionals who act and, for example, in the Patents County Court a patent attorney may act alone. The study referred to above on behalf of the European Commission identified that actions in the Patents County Court generally cost about one-third of the cost of actions in the Patents Court.

Is the cost of enforcement a reason to avoid protection? We have seen that patent infringement actions in the United Kingdom can be costly. However, less than 1 per cent of UK patents are involved in litigation, and of that 1 per cent less than 20 per cent are subject to trial. As so few patents are litigated to trial, it seems bizarre to forgo protection for a valuable innovation to avoid that cost.


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Innovations generally involve many person-hours in their conception and development, and substantial costs can be incurred in getting the project to market: for example, in testing, packaging, advertising, distribution and similar. The costs of a patent application, filed before any disclosure of the invention is made, will be relatively modest in such a context. Once a patent application has been filed the innovation can be appropriately marked ‘patent applied for’. This acts as a ‘keep off the grass’ sign and can be very effective. Not many businesses coming across a new product will decide to copy or emulate it without taking some notice of the warning. Even where there is no patent notice, many reputable businesses will search for patent applications before deciding whether to proceed with a similar product. Thus, a patent application will involve the competitor in expense in determining the existence and relevance of any patent protection. At worst the patent application will delay competitive copies, at best it will prevent them. Photocopy machines were made and sold only by Xerox® for the full term of its basic patent. No competitor tried to sell competitive machines and there was no need for legal action. Xerox® therefore had a de facto and extremely valuable monopoly for nearly two decades. Even if there is a competitive product on the market, the patentee does not have to sue for patent infringement. There may be scope for licensing or other deals. For example, a company with restricted production facilities may find it beneficial to turn an infringer into a licensee with full responsibility for the production. Ron Hickman, who invented the Workmate®, did have to sue Black & Decker® when it began to copy his work bench. However, it soon became apparent that it would be much more lucrative for Black & Decker® to take over the production which, until then, had taken place in Mr Hickman’s garage.

How to avoid litigation The champagne at a product launch party can taste very flat if an unexpected court injunction stops the launch in its tracks. Generally, it is only necessary to follow a few simple rules to avoid being the defendant in an unwanted legal action for IP infringement.  Do not copy the products, documents, or other materials of competitors.  Keep records of all company work leading to ideas and innovations. The keeping of notebooks is recommended for engineers.  Before adopting new names, brands or innovations make appropriate searches to establish whether competitors have any relevant rights.  Ask a patent attorney for ‘freedom to use’ advice where your competitor does have rights.  Where there is an identified risk of conflict move to another project, or negotiate with the competitor before committing to the project.

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Jacqueline Needle, a partner of Beck Greener, is a graduate in electrical and electronic engineering. She is a Chartered Patent Attorney, a European patent attorney and a registered trade mark attorney. In 1997 Jacqueline was awarded, with distinction, an LLM in Advanced Litigation and since then has become a patent attorney litigator. Thus, Jacqueline is one of a handful of British patent attorneys who are able to undertake litigation in intellectual property matters in the English courts. Beck Greener is a firm of patent and trade mark attorneys based in the heart of London’s historic legal district. Beck Greener provides a comprehensive service covering all aspects of IP, namely patents, trade marks, designs and copyright. It is the aim of the firm to provide robust and commercially relevant advice. For more information, contact Beck Greener, Fulwood House, 12 Fulwood Place, London. WC1V 6HR; tel: (+44) (0)20 7693 5600, fax: (+44) (0)20 7693 5601, email: [email protected], website: www.beckgreener.com

10.3

France

Christian Nguyen van Yen, managing partner of Marks & Clerk in France, discusses the distinctive features of practising IP in France.

All European patent attorneys know at least two things about intellectual property (IP) in France: the Paris Union Convention and the Strasbourg Winstub. The latter is where people sitting the European qualification exams gather to debate European Patent Office (EPO) case law over a Flammeküche/Riesling dinner. Is there much more to IP in France, seeing as statistics indicate that US and Japanese corporations prefer London or Munich, and French judges seem to have difficulty with the problem/ solution approach? This chapter presents an overview of France as an IP jurisdiction, and considers the opportunities for the future. Let us begin with the judges. It is a fact that the French Department of Justice considers it contrary to all the traditions of the French legal system to have judges who can specialize in one field and develop their expertise in its technicalities. Of course, this does not prevent some judges, who have developed a passion for IP during a first assignment, from coming back to it a few years later when they are done with divorce matters, employment issues or any other areas of law, and focusing on IP. And overall, judges who handle IP cases in Paris or Lyons are extremely capable. First and foremost, the French legal IP framework offers good tools for use by IP right holders and judges. When dealing with counterfeiting, criminal sanctions have been increased, even before the awaited transposition of the European Enforcement Directive: a person wilfully infringing a copyright, a design, a trade mark or even a patent is liable to a €300,000 fine and a three-year prison sentence (Bill no 2004-204, 9/03/2004 – respectively incorporated in the French IP code under numerals L.335-2, L.521-4, L.615-14 and L.716-9). When the offence qualifies as organized crime, the sentence may be increased to €500,000 and five years in prison.

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During my last visit to China, this was the subject of much debate and concern among the establishment. At the time Sanofi Aventis had brought a case against some Chinese businessmen who presented their allegedly infringing medicines at a trade show, and they ended up in prison based on these provisions. Harsh, but probably an effective deterrent. For non-criminal offences, French law, much to the envy of many jurisdictions, also offers a way of bringing evidence of infringement to the court, known as ‘saisiecontrefaçon’ or ‘infringement seizure’. This applies to all IP rights, and is a process whereby a representative of a right holder may get access to the premises, personnel, ledgers and so on of an alleged infringer to find evidence to support the allegations. All that is required is an order from a competent court (Paris, Lyons or one of five others) listing the type of evidence to be sought. This order cannot be denied if the right is in force, and can be decided in a matter of days. Seizure of evidence is done by a notary public, and an IP attorney representing the right holder can be present. Economical and efficient means to collect evidence of infringement – those of you who have gone through discovery can fully understand what does not constitute economical and efficient – is a primary feature of the French IP system. The second is patent-specific: since a patent application can only be rejected by the National Patent Office (INPI) if prima facie it is not novel, it is easier than in other jurisdictions to challenge validity in court if the right holder has not been cautious in prosecuting the application. Hence the importance of judges’ accumulated experience in deciding upon inventive activity. French judges now tend to use the same method as their colleagues in other European countries: the infamous problem/solution approach. To demonstrate that a patent is invalid for lack of an inventive step over prior art, you must bring facts and arguments to support the assertion that a person skilled in the art would have naturally arrived at the invention by combining various prior art elements to solve the problem that the patentee wanted to resolve. This is not trivial, and even less so in the field of computer-implemented inventions, which is an area of hot debate and is so important for the New Economy. My personal view is that the French judges have found an approach which is not strictly ‘orthodox’ by German and EPO standards but is quite effective. Contrary to their counterparts in other jurisdictions, they accept, first, that the person skilled in the art may be somebody from a non-technical field (‘the art of publishing and distributing promotional coupons’), and second, that the non-technical features of an invention can be included in the list of features to be combined to establish an inventive step over the prior art. This may not seem a big deal, but it can make a significant difference, and result in the patent being held invalid in one jurisdiction, but valid in France. (In particular, this happened in Infomil v Catalina Paris Court, June 2002 – affirmed by Paris Court of Appeal, April 2004 – where the patent was upheld by the Paris Court. A patent on a related invention by the same assignee was in opposition appeal proceedings – T0053/03 and T0084/03.) When a patent has been found valid, an important consideration is the scope of the claim, and particularly the inclusion of equivalents in the scope. It must be determined whether an embodiment infringes the valid patent. Space does not permit a detailed analysis of French case law on the theory of equivalents, but makes it possible only to


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take a high-level view. Claims are relatively new to French patent law (1968). Until then, infringement was decided on the basis of what the judge thought was the gist of the invention. This is why when considering the question nowadays, a judge will tend to rely heavily on the specification and will have a broad understanding of the scope of the claims. There have been decisions whereby a patent has been held infringed in France and in Germany (though with a narrower scope in the latter case) and not infringed in the United Kingdom because of a narrow claim construction. When it comes to evaluating damages, however, French courts are not known for their generosity. Since the Civil Code of the early days, one of the basic principles of French law is that a plaintiff cannot be paid damages in excess of his or her own prejudice. In the field of infringement, this means that damages are limited to the amount of profit that the right holder would have gained in the absence of infringement. In other words, the plaintiff must prove he was able to sell goods or services in the same quantities and at the same profit margin as the infringer. This is not always the case, and not always easy to prove even if it is the case. In addition, some say that plaintiffs do not do a proper job in supporting their prejudice. Right holders can be a bit reticent to disclose how much profit they make from their IP – maybe for fear of the negative impact this might have on customer relationships. It can also very well be a result of the lack of expertise in supporting claims for damages. But this is not specific to France, and indeed the limit to damages is a feature of all civil law countries. To sum up, I would say that, all in all, France has a legal framework and a general environment that is certainly not worse and in some cases – such as the ‘infringement seizure’ procedure – is better than those of other European countries in relation to the enforcement of IP rights. Looking to the future, the French IP profession should build on its strengths as well as other current opportunities. In terms of their situation, be it as a result of different regulations, customs or training – probably all of the above – French IP attorneys are able to handle contractual and legal advice work. This makes a difference when a client is looking for an IP attorney who is able to help not only in prosecution but also in getting the best value from the IP. If French IP attorneys were to get right of audience and right of representation of clients before courts – as most of their colleagues from Germany and the United Kingdom can – it is certain that the French IP profession would be put on a par for competing in a deregulated European market when the deregulation process bears its full effect. Opportunities today are the result of France’s long-standing tradition of state intervention in supporting investment, and significant funds are allocated to fostering R&D. Billions of euros are poured into the ‘poles de compétitivité’ and other initiatives to boost innovation. This will normally generate more patents, trade marks and designs, and therefore more work for the IP community. We all hope that our clients will be able to benefit from the relative strengths of the key jurisdictions and local advisers in Europe. Then they will be able to get the best from all systems. The ultimate solution is obvious: a simplified European patent system.

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Marks & Clerk is a leading group of patent and trade mark attorneys with an associated firm of IP lawyers, Marks & Clerk Solicitors. With an expanding network of offices, it is able to provide a full range of integrated IP services, covering patents, trade marks, designs, copyright and domain names. For further details visit www.marks-clerk.com Christian Nguyen van Yen is a European patent attorney and French industrial property attorney, who is managing partner of Marks & Clerk France.

10.4

Italy

Modifications in Italian law are allowing IP rights to be defended more effectively and speedily, report Gabriella Modiano and Micaela Modiano of Dr Modiano & Associati in Milan.

Historically, Italy has long been considered as one of the countries where infringing and counterfeit products are manufactured and sold. Until recently there has been a widespread impression that enforcing intellectual property (IP) rights in Italy is a lengthy and inefficient process. Although such misconceptions might still exist, things have changed, and important modifications in the Italian law now provide for legal means which allow IP owners to defend their rights more effectively and speedily. One reason for the change is the worldwide shift of infringement and counterfeiting production from industrialized countries (Italy is one of the original members of the G8 which regroups the most industrialized countries in the world) to developing countries and particularly to south-east Asia. This geographic shift is mainly due to the low-cost labour available in the countries, which allows inexpensive production of copied goods which are then exported worldwide. The change in the global economy has led many politicians to review domestic laws to increase national protection against infringements. The same trend has been felt in Italy, where local industry is suffering from Asian competition. As a result there has been an increase in legal remedies under Italian law, such as the introduction of preliminary injunction proceedings in legal actions relating to IP rights, which makes it possible to get a court order in just a few weeks or months. Another change has been the recent creation of specialized IP courts, which have the exclusive right to hear IP cases. This has led to the increasing specialization of judges, which allows a more efficient and correct interpretation of IP law. Finally, to

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combat the unlawful importation of infringing goods to Italy, customs remedies have been enhanced and are becoming increasingly effective in stopping suspected goods from entering the national market.

Using available rights To best defend one’s IP rights in Italy it is vital to evaluate correctly and combine all available legal means. If IP owners suspect the import of infringing goods to Italy, they should activate a customs surveillance service with the Italian Customs Authority. Italian law, in accordance with the relevant EU Regulation, provides that the rights owner can file a request for a suspension of the customs clearance of suspected goods. The request must be filed with the central Italian Customs Agency in Rome, and allows the customs to block the import of stocks which may contain infringing goods, until all the necessary inspections are carried out. The request must include all data relating to the IP owner and his (or her) rights, together with the required documents and undertakings by the applicant to recognize his civil responsibility for any possible damage wrongfully caused. The Customs Agency will then forward it to the local customs offices. It will notify the IP owner of any suspected irregular shipment, which can be inspected together with a representative of the rights owner. Italy is one of the founding EU Member States, which now comprises 27 countries with a common market of around 450 million people. With this in mind, it is worth noting that a surveillance similar to the one described above can now be applied in other EU countries as well. In particular, if the applicant holds a Community IP right (ie Community Trade Mark or Community Design), in addition to the request for suspension, he or she can also ask other EU customs authorities to intervene. In such a case, the Italian Customs Authority forwards the request to the competent authorities in the other EU country. The request must be accompanied by an undertaking by the applicant to recognize his civil responsibility for any possible damage wrongfully caused. The second suggestion is that if you have to litigate, choose your court well. The creation of the specialized IP courts, which will make their judges specialized in IP matters, should be kept in mind. All cases will have to be dealt with by one of the 12 courts. The largest number of IP-related lawsuits takes place in northern Italy (where most of the local industry is located). The northern Italian cities have thus become the centre for this type of dispute. Italian law requires that nullity actions are filed in the jurisdiction where the IP rights application was filed, but the IP section where the infringing act has taken place is also competent to hear the matter in case of an infringement. The provision therefore allows for a substantial degree of forum shopping, which in turn makes it possible to shift competence to the best-reputed court or to the strategically best one.

Litigation speeded up One of the key aspects of Italian litigation is the possibility of filing for preliminary injunctions in trade mark and patent infringement cases. Previously, lawsuits were


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known to last many years, and in some cases the decisions were issued after the lapse of the patent. Today, IP owners can use preliminary injunction proceedings as an alternative, effective and quick legal weapon against infringers. Preliminary injunction proceedings can be considered as mini-lawsuits. Apart from the speed of the decision, they also differ from ordinary lawsuits on their merits, in that the IP owner must prove the following two conditions. First is the urgency of the requested remedy (in Latin: periculum in mora), which is the Italian equivalent of a threat of immediate and irreparable harm. It is necessary to demonstrate to the judge that the delay involved in an ordinary judicial proceeding on the merits would seriously prejudice the plaintiff’s interests. Judges often take into consideration the time lapsed between the start of the extra-judicial dispute and the initiation of the legal proceedings; the more time elapses, the less urgency a judge is likely to see in the requested remedy. Second is the strength of the legal right (in Latin: fumus boni iuris). To fulfil this condition, the IP owner must demonstrate a strong legal right. Granted trade marks or the Italian national phase of a granted European patent are normally considered as strong legal rights. The advantage of preliminary injunctions is the speed with which judges decide a case. It can take between one to four months, which obviously is a much shorter period than the duration of an ordinary action on the merits. Moreover, judges often award the legal costs to the winning party, which can amount to up to 80 per cent of the real costs. Damages are not discussed in preliminary injunctions. Another main advantage of preliminary injunctions lies in the fact that, due to the change in the Intellectual Property Code in 2005, it is no longer necessary to file a lawsuit in the merits in order to keep the injunction valid. Therefore, at least for the time being, once an injunction is obtained, it will automatically remain valid until a further decision annuls it. This is an extremely powerful weapon for IP rights owners.

Looking to the future Despite the improvements provided by the changes to the Italian law, ordinary lawsuits can still take between three years (for trade mark cases) and five years (for patent cases) for a first-instance decision. Many commentators are arguing that this aspect should be dealt with as well, to create a system which allows for shorter regular proceedings. One proposal, which was implemented in 2005, was the introduction into IP cases of the trial proceedings also used in corporate lawsuits. In such proceedings, many of the tasks previously imposed on the judge are shifted to the lawyers, since its main aim is to reduce the workload of the courts and increase speed of the procedure. Although the issue is still much debated, what can be said is the old idea that Italian IP lawsuits were long and burdensome does not reflect reality any more, and that IP owners can now obtain effective and quick protection against infringers in Italy by using the available (and improved) legal instruments at their disposal.

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ITALY 353 

Established in 1951 as IP attorneys in Italy, Modiano also has Munich, Lugano and Alicante branches as European patent and trademark attorneys. It is one of the leading Italian IP firms, with a total staff of over 200, comprising 70 Italian patent or trademark attorneys and 15 Italian IP trial lawyers. For further details: Dr Modiano & Associati, Via Meravigli 16, 20123 Milan, Italy, tel: (+39) (0)2 85 90 77 77, email: [email protected] Gabriella Modiano is the managing director of the firm, and is a European and Italian trade mark attorney. She is active in the field of national, international and Community trade marks, including prosecution, opposition, litigation, and opinion work. She is fluent in English, German, French and Italian. Micaela Modiano is a partner of the firm and is a European and Italian patent and trade mark attorney, acting mainly in the chemical, pharmaceutical and biotechnological fields. She deals with all aspects of national and European patents, including prosecution, opposition, litigation, and opinion work. She is fluent in English, German, French and Italian.

Changes in the Italian IP system

The Italian Patent and Trademark Office reports on Italy’s new IP code.

In order to make the Italian intellectual property (IP) system consistent with the new economic landscape, the IP law has been recently reviewed and rationalized and a new IP code was issued in 2005. It substitutes for about 40 previous laws which had overlapped since 1939. Among several novelties provided for under the new IP code in order to raise the quality of the IP system, there are two that should be pointed out. One concerns the introduction of the search for granting patents. The other refers to a strategic use of the patent application fee. A national patent search service will be provided for by outsourcing this service to the European Patent Office (EPO) on a bilateral agreement basis, as France and the Benelux countries do. The aim is to make Italian patents stronger and better able to fulfil higher quality standards. As for IP fees, the financial act of 2007 provides for new Italian Patent Office fees for granting patents (inventions and utility models), for design registration and for trade mark opposition procedures. In order to keep a granted patent in force, renewal fees must be paid on the fifth anniversary of the filing date and every year after that. Meanwhile to keep a granted utility model in force the renewal fees must be paid from the second five-year period and every year after that up to the 10th year. As for a registered design, the renewal fees are due from the second five-year period and it is possible to renew it for up to 25 years. An important element of the fee strategy provided for in the new rules conceived by the Italian National Patent and Trademark Office (UIBM) consists in linking the size of the patent fee with the number of patent claims. This should keep a balance in the IP system between protection and access to knowledge and innovation.

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CHANGES IN THE ITALIAN IP SYSTEM 355 

Just as for patent and utility model application fees, public research organizations1 (PROs) and the Ministry of Defence and Ministry of Agriculture and Forestry are exempt from paying them. This provision has been introduced as a measure to promote the propensity to patent on the part of the PROs (especially universities) and as prerequisite to improve collaboration between PROs and industry. The new fee amounts will be published during 2007 and will be available on the UIBM website.

Note 1 Universities are PROs in Italy.

For further details visit www.uibm.gov.it

10.5

Spain

IP has changed more in Spain in the last 20 years than in any of its neighbours, says Miguel Vidal-Quadras Trias de Bes at Amat i VidalQuadras Advocats.

In the last 20 years, the protection of intellectual property (IP) has undergone a profound change in Spain, perhaps more than in other countries nearby. This is mainly due to two factors. The first is the economic and political changes taking place in Spain as a result of its joining the European Union and the high level of industrial, commercial and welfare development that has also occurred. The second is changes in the regulations and the judicial and corporate awareness of the importance of intangible assets in today’s society.

Changes in the regulations related to IP IP regulations in force in Spain currently consist of a set of specific, modern national acts. We should also mention the EU regulations governing IP and international treaties on this subject. Most of these treaties have been signed by Spain. We can summarize current regulations as composed of the follow regulatory texts:  International agreements, especially the Paris Convention of the European Union and the TRIPS Agreement, are the basis on which modern law is founded, adapted to the needs of the agents operating in the market.  Patent, trademark and designs law are among those adapted to the principles of these important framework agreements, which from their supranational standpoint are acknowledged through the relevant community Regulations (on trade marks and designs), European patents and international trade marks and designs.

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 From the national standpoint of Spanish regulations, the basic rules approved in 1929 have been gradually replaced by more modern regulations adapted to the new needs of Spain in its current context of economic and business organization: – The Patent Act of 1986 provided the basis of patent law adapted to the common culture of the Member States of the European Union, and was basically amended in 2002 to include the European Directive on bio-technical inventions. – The Trademark Act, approved in 1988, was in turn replaced by a new act in 2002 for the purpose of adapting it to the new aspects, based mainly on EU law. – The recent Spanish Industrial Design Act approved in 2003, which was the item still pending for modernization of Spanish IP law up to that time. – Copyright regulations were approved in 1986 and underwent two very substantial reforms in 1996 and very recently in 2006. In addition, the protection of IP was completed by national regulations on competition law (1990) and unfair competition (1991), which added to the mechanisms for protection of companies’ interests in their business operations in the market, and community competition and customs regulations. The system for protection of IP and recognition of its high value in today’s economic scenario is also reinforced by the support of criminal law in certain circumstances, when the offences are particularly serious and wilfully committed.

Changes in litigation regulations and judicial proceedings Judicial proceedings have been made a great deal more flexible in the last two decades, and Spain has changed its slow formalistic judicial system, which often gave rise to misgivings for holders of IP rights (IPR) and a certain feeling of impunity when IPR were infringed as a result of the lack of a flexible, functional and speedy process for redress. Among the main aspects, the following mechanisms for reinforcing the recognition of rights held over intangible assets should be mentioned:  setting up prior judicial inspection proceedings, known as ‘diligencias de comprobación de hechos’ (1986);  flexible interim injunction proceedings (1986);  verbal hearings before the judge (2000);  new preliminary procedures being implemented to compile commercial, financial and customs data (2006). In September 2004, Commercial Courts were set up, with exclusively assigned competence for judicial proceedings related to IP and unfair competition. This has resulted in semi-specialization on this subject, leading to better knowledge in cases related to IP, consolidation of standard criteria for interpreting the regulations, higher quality in the legal rulings and, in fact, greater trust and legal security for all the parties concerned. The main jurisdictions for these issues are Barcelona, Madrid, Valencia and Bilbao.


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Changes in the IP agents The profound change taking place in IP in Spain has also led to a great deal of change in its perception by the agents involved:  Companies: they are more and more aware of the need to make investments to create intangible value which increases their capital and allows them to compete on an international level.  Public authorities: there is greater awareness by the state and other authorities, and consideration of companies that invest in intangible assets and protect them through IPR, both in Spain and abroad. This leads to better assignment of public resources.  IP attorneys: they are more and more aware of their important role, not only as brokers to obtain IP titles, but also advising in order to structure an efficient and effective strategy for protecting their clients’ intangible assets.  Attorneys in law: they continue to be specialists on this subject. However a change has taken place both in their direct relationship with their clients and in their adaptation to increasingly more international and complex law.  Universities and research centres: they are becoming more and more involved in capitalizing on their research, and there has been a very substantial increase in applications for patents and technology transfer.

Conclusions We can conclude this brief report on the protection of IP in Spain by pointing out the following aspects:  Nowadays Spain is a country that is well aware of the important role played by the value of intangible assets in the economic world.  The courts are also aware of this fact and protect companies’ IP with much greater efficiency than a few years ago.  Greater efficiency in IPR protection by courts has led to more awareness of the importance of intangible assets, the need to respect property belonging to third parties and the need to design new, original and creative projects.  This greater awareness of companies has meant that IP service providers need to offer a highly professional, specialized service.  This has also led to an increase in the return from intangible assets owned by companies, institutions and private individuals. In conclusion, the change in the regulations and the approach to IPR by Spanish institutions means that Spain is placed in a high position among countries regarding the level of IP protection. It offers holders of these rights the possibility of operating in its territory with adequate guarantees. This framework also provides a perfect scenario for developing new projects and ideas with a high-level specialization through which top-level advice can be obtained to protect corporate results. In this respect, it can be confirmed that Spain has managed to establish the grounds for a healthy future,

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adapting to the times and aimed at achieving a straightforward adaptation of the business fabric to the new conditions and needs of a global market.

Miguel Vidal-Quadras Trias de Bes is a doctor of law and head of the Intellectual Property Department at Amat i Vidal-Quadras Advocats. He is a member of the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) and the Licensing Executives Society (LES). He is the author of various publications on IP, professor of protection of technology in the University of ESADE in Barcelona and lecturer at the Patent Centre of the University of Barcelona, and also gives various courses on industrial property. For further details, email: [email protected], website: www.avqadvocats.com

10.6

The Nordic countries

Annelise Holme of Holme Patent A/S outlines the situation for IP protection in Denmark, Norway, Sweden and Finland.

With regard to intellectual property (IP) litigation, and especially patent litigation, the key points of court proceedings in Denmark do not differ very much from those that are applied in Sweden, Finland and Norway. Furthermore, the increasingly common legislation of the European Union aims to bring the litigation practice more in line with mainstream European practice. In this context Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the Enforcement of Intellectual Property Rights has strong bearings on the unification of litigation and compensation issues. The Directive aims to ensure that laws governing the enforcement of IP rights are the same across the European Union, introducing a consistent series of remedies, and that they are in line with international requirements. This chapter gives an overview of the litigation process in Denmark, followed by a few comments about Sweden, Finland and Norway.

Denmark Scope of the patent The extent of protection of a patent determines the outcome of infringement proceedings and thereby the actual value of the patent. Pursuant to §39 of the Danish Patent Act, the extent of protection conferred by a patent is determined by the terms of the claims. Guidance from the description and drawings may be used to interpret those claims. In some cases guidance can also be found in the file wrapper and concessions, and



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explanations made by the applicant may be held binding by the courts when deciding the scope of the patent. The general attitude of the Danish courts in patent matters is to find a reasonable balance between the interest of the patentee and the interest of legal certainty for third parties.

Type of proceedings In case of an infringement, the patentee can request either a preliminary injunction and/or an infringement action.

Preliminary injunction A preliminary injunction is an available remedy for a patentee in Denmark. Often an infringement suit starts with a preliminary injunction, which, as its name implies, is granted very early in a court action for patent infringement, and restrains the defendant from infringing the patent during the duration of litigation. Generally, courts have set forth the following requirements for granting a preliminary injunction. First, the plaintiff (patentee) has demonstrated a reasonable likelihood of success on the merits of the case (that the patent in suit is valid and infringed), and second, the right to request injunction will be forfeited if the patentee is forced to take action through an ordinary trial. The question of infringement involves construing the scope of the claims of the patent, and then determining whether the defendant’s product or method falls within the scope of those claims. In all but the clearest cases, proof of infringement can involve the unilateral testimony of several persons from both the plaintiff’s and defendant’s sides, including patent and technical experts. If a preliminary injunction is granted, the plaintiff must file a lawsuit against the defendant within two weeks from the date of issuance of the injunction.

Infringement action The plaintiff in an infringement action must provide the necessary evidence to substantiate the alleged infringement. In Denmark, it is possible to request a perpetuation of testimony in order to ensure that evidence in respect of an infringement action will not be eliminated or removed. Very often, the most important evidence in a Danish patent suit is opinions provided by technical expects. Normally two experts are appointed, a specialist within the relevant technical area and a patent agent.

Competent courts A plaintiff in a patent suit has no choice of jurisdiction and venue. A request for a preliminary injunction have to be filed at the city court of the defendant’s venue. From 1 January 2007 the Maritime and Commercial Court of Copenhagen has handled all other patent suits in the first instance. This sovereignty of the court gives the judges the possibility to develop expertise within the area of patent law. The decisions are made

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THE NORDIC COUNTRIES 363 

by a panel of either three or four judges, comprising legal and technical experts. A decision of the Maritime and Commercial Court may be appealed to the Supreme Court of Denmark, as the second and final instance, within eight weeks of the date of judgement. A Supreme Court decision is passed by either five or seven judges. The court can, upon request from the plaintiff, rule that the defendant publish the decision of infringement in a prominent way, for example by inserting an advertisement in a newspaper.

Arbitration If both parties agree, it is possible to have infringement disputes resolved by arbitration. However, an arbitration panel cannot nullify a patent.

Damages The Danish courts have a reputation of being very conservative in awarding damages in infringement cases. However, the new rules that entered into force when Denmark implemented the EU Directive on the enforcement of IP rights (2004/48/EC) are intended to optimize the damages for the winning party. The main rule is still that when the court rules in favour of a rights owner, the defendant must pay a reasonable compensation for the exploitation of the invention as well as damages for the additional damage caused by the infringement. However, under the new rule it is now possible to some extent to claim compensation for non-economic damages: that is, damages to reputation and established loss of good will. It has also been established that the infringer’s unjustified enrichment must be taken into account when the courts determine the actual damage. However, the plaintiff is only entitled to receive damages for what it has actually lost, but the unjustified enrichment can be used as a parameter in this evaluation. Furthermore, from 1 January 2006 it is no longer possible to claim damages for infringements conducted in good faith: that is, where the infringement is not willful or due to negligence. Even though this rule probably will be pleaded more often, it is not expected that it will lead to practical changes.

Defending a patent suit A variety of defences can be raised in infringement proceedings.  Non-infringement: the first defence is a denial of the infringement, which can consist of a denial of the alleged facts and/or adverse opinion.  Patent nullification: if the defendant is of the opinion that the patent is invalid, it is possible to raise this as a defence, and at the same time file a counterclaim for nullification of the patent.  Opposition: this is of course only possible if the nine months time limit for filing an opposition at the EPO has not yet expired. Thereafter, the defendant can request an administrative re-examination of the patent. If the plaintiff files an infringement suit the administrative re-examination will be stayed.


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Finland The Helsinki District Court has a specific division for IP matters. In patent matters the judges are assisted by two court-appointed technical experts in the field of the disputed patent. The court-appointed technical experts do not have voting rights on the panel, but render an opinion on the technical questions relevant to the dispute. In patent invalidation matters the district court shall, and in patent infringement matters the court may, obtain the opinion of the National Board of Patents and Registrations. The Helsinki Court of Appeals and the Supreme Court do not have a special division to hear IP matters. Instead, their expertise comes from tradition and long-term professional experience. The key benefit of Finland as a patent, and also an IP, jurisdiction is the time aspect. Parallel proceedings in the other Nordic countries are as a rule always much slower, and where there are parallel proceedings pending in various jurisdictions, a Finnish judgment will often be the first to be obtained, serving then as a precedent in the other parallel proceedings. The cost aspect of litigation proceedings is also special for Finland, at least from a general point: the level of legal fees in Finland is not on a level with corresponding costs in most other jurisdictions. Moreover, one aspect to be observed is the fact that the winning party will be awarded full compensation for its legal expenses, to be paid by the losing party.

Sweden The Stockholm District Court is the exclusive venue for patent litigation. All IP matters brought before the Stockholm District Court are handled by a certain division, with the result that only a limited number of judges are recurrently involved in these matters. Thus, as professional judges serve in this division they become particularly experienced and knowledgeable in this area of law. In Sweden, an interlocutory injunction is normally based on a claim for a final injunction expressed in a writ of summons. The plaintiff may move for a preliminary injunction at any stage of the proceedings, even before the court of appeal. When seeking an interlocutory injunction or an infringement investigation order, the plaintiff must provide sufficient security for any damages the defendant may suffer if an interlocutory injunction is issued but the court subsequently finds that the case lacks merit. In practice it has proven difficult to obtain an interlocutory injunction. The basic rule under Swedish law is that the rights holder is entitled to full compensation for its loss. A claim for compensation for infringement is barred if the damage was incurred more than five years before action was brought. However, the right to claim compensation is preserved if the patentee sues for infringement within one year after the grant of the patent. Based on recent case law, it appears that the Swedish courts are gradually becoming more generous towards rights holders.

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Norway At the time of writing Norway is not a member of the European Patent Organisation, however, Norway is making preparations to join during 2007, and hence in 2008 it is hoped that applicants for European patents will be able to designate Norway for protection as well. Presently patent protection can be obtained only by filing at the national patent office, or through the Patent Co-operation Treaty (PCT) operated by the WIPO in Geneva. The general venue in infringement actions is the local court circuit of first instance where the defendant resides or in the case of corporations, where it has its central office or principal place of business. Outside the City Court of Oslo, first-instance local courts in Norway have little experience in handling patent cases, and it is therefore recommended to bring cases before the City Court of Oslo, if possible. Norway is not a member of the European Union, but since it is a member of the EEA (European Economic Area) Agreement, EU Directives are normally also binding for Norway. The Directives are integrated into the EEA Agreement through an EEA Joint Committee decision, and subsequently become part of the national legislation of the EEA EFTA states, including Norway. However, procedural regulations have until now not been part of the EEA agreement sphere, and as a consequence Norway have decided not to implement the Directive on the Enforcement of Intellectual Property Rights. The effect on, for example, assessment of damages for patent infringement in Norway compared with the other Nordic countries, remains to be seen. In Norway the courts accept that the damages paid to the proprietor should be not less than what would have been a reasonable licence fee for the patented technology. Additional loss may be incurred in the event the infringers have engaged in price cutting, forcing the patentee and its successors to reduce their profits. In such cases the infringer may be held liable for damages with respect to such losses. Preliminary injunctions are available, provided that the party can prove irreparable harm or damage or that effective enforcement will otherwise be difficult. The requesting party will usually be asked to place a guarantee for any loss suffered if the allegation of infringement is rejected by the court.

Holme Patent A/S is a progressive firm of patent, trade mark and design attorneys founded on the philosophy of providing quality work and fulfilling the diverse requirements of a spectrum of clients covering virtually every sector of business. The professional staff comprise experienced and qualified European patent attorneys and European trade mark and design attorneys practising in the variety of technical and legal disciplines required in an international IP practice. IP law is ever-changing and developing within the framework of international agreements and treaties. An integral part of the firm’s philosophy is to maintain and develop its expertise in relation to these changes, and to provide clients


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with sound advice and practical assistance in protecting their IP on a worldwide basis. Annelise Holme has an MSc in chemical engineering. Her experience includes the preparation and prosecution of domestic and international patent applications in pharmacology, biotechnology, biochemistry, cell biology, immunology and genetic engineering. She has previously worked in the field of vaccines. She is furthermore experienced in litigation practice as well as oppositions and appeals before the European Patent Office. Annelise Holme is a member of the International Federation of Intellectual Property Attorneys (FICPI), the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) and the Association of Danish Patent Agents (DDPAF), and is a European patent attorney. Contact details: Holme Patent A/S, Vesterbrogade 20, DK-1620 Copenhagen V, Denmark, tel: (+45) 33 24 21 21, email: [email protected], website: www. holmepatent.dk

10.7

Benelux

Bernhard Kügele of Novagraaf (International) discusses how patents are awarded and enforced in the Netherlands, Belgium and Luxembourg. Pieter de Ruijter at Novagraaf (Netherlands) then considers the single trade mark system that applies to all three countries.

Unlike trade marks, which can be filed by any applicant from one of the three Benelux countries at the Benelux Office for Intellectual Property in The Hague (BOIP) and have validity in the entire Benelux territory, patents must be filed separately at the patent office in each of the three countries. The following is a brief overview of the very similar, if not identical, procedures.

The Netherlands Up to 1995, the Netherlands Patent Office fully examined a patent application as to novelty, inventive step and industrial applicability of the invention. The new Patents Act of 1995 abolished the old system and introduced a new, simple registration system, without examination of the merits of the invention. Upon filing, the applicant may indicate if he (or she) wishes to obtain a patent for a full lifetime of 20 years, or a reduced lifetime patent of six years only. If the application is for a full lifetime patent, it is necessary to request a novelty search, and if no search is requested within 13 months from the filing (priority) date, the application is automatically transformed into one for a six-year patent. It is, of course, also possible to request a six-year patent immediately upon filing. The search is carried out by the European Patent Office (EPO), and the search report will include a written opinion of the examiner, but no further discussion is provided for. A patent






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BENELUX 373 

application must be filed in Dutch, or may be accepted in another language if a Dutch translation is submitted within three months. Notwithstanding the registration of unexamined patents, the legal validity of a patent depends of course on the novelty and inventive character of an invention. However, these aspects are only examined in court if a patent is infringed. Annual fees need to be paid to maintain a patent in force, the first time at the fourth anniversary of the filing date and annually thereafter (there are no annual fees for the first four years, and no annual fees for patent applications). If a third party believes a patent is being infringed, it should analyse the validity of this patent and submit its opinion to the Patent Office for an official opinion, which has considerable weight in a later possible infringement proceeding, should the patent owner decide to enforce the patent. Thus, the Patent Office’s opinion is not a decision, but only a useful argument later in court: that is, in the District Court of The Hague.

Belgium The situation is very similar to the one in the Netherlands. One distinction is that a novelty search must be requested within 18 months from filing (priority), instead of 13 months as in the Netherlands, lack of which will result in the grant of a six-year patent only. A patent application must be filed in French or Dutch. Annual fees need to be paid to maintain a patent or patent application in force, as of the second anniversary of the filing date (there are no annual fees for the first two years).

Luxembourg The procedure for obtaining a patent in Luxembourg is practically the same as in Belgium. A patent application may be filed in French, German or English. If it is filed in English, a translation of the claims into French or German must later be submitted. Annual fees need to be paid for applications and granted patents as of the second anniversary of the filing date and annually thereafter. (There are no annual fees during the first two years.)

European Patents All the Benelux countries are members of the European Patent Convention, and consequently any of the Benelux countries may also be designated in a European Patent application. European Patents being fully examined, they automatically have a maximum lifetime of 20 years, subject to payment of annual fees. National 20-year patents, as well as European Patents in the field of pharmaceuticals, may be subject to a Supplementary Protection Certificate for up to five years. All three countries provide for amendment procedures, permitting the applicant to reformulate the claims after having obtained knowledge of the contents of the search report. However, according to international standards, no new subject matter may be introduced by way of this amendment.


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Cost The procedures until the point of grant in one of the national offices in Benelux are relatively cheap compared with applications in Germany or the United Kingdom. However, where an applicant also wishes to obtain patents in other European countries such as Germany, France and the United Kingdom, it would be cheaper to file a single application covering the Benelux countries and others at the EPO.

Court proceedings When a patent owner finds that a third party is infringing the patent, it may go to court (the District Court of The Hague, or the competent courts in Belgium and Luxembourg) and ask for a condemnation of the infringer. Whereas European Patents qualify immediately for a court proceeding, national patents, whether for six or for 20 years, must be accompanied by a search report (for example, produced by the EPO) to allow the court to decide on the validity of the patent before ruling on the infringement. In the case of a European Patent, the validity is reviewed only if it is challenged by the infringer. The plaintiff has the possibility of selecting, as damages, either the surrender of the infringer’s profits or compensation for its losses, whichever is higher. Summary proceedings are possible, which constitute a shortened procedure and which may be requested at the same court. Preliminary injunctions (that is, temporary execution of a prima facie decision) may be obtained in cases that appear to be clear-cut. The law also provides for cross-border injunctions, which means that a patent owner may request a Dutch court in order to render a decision which would normally be within the jurisdiction of another EU Member State, such as the infringement of a parallel patent in this other country.

Trade marks in Benelux A trade mark registration in Benelux provides protection in all of the three Benelux countries (the Netherlands, Belgium and Luxembourg). From a trade mark perspective, the Benelux territory is indivisible and a trade mark cannot be registered in only one or two Benelux countries. A comparison can be made with the validity of Community Trade Marks across the European Community. On 1 September 2006 a new Benelux Convention on Intellectual Property (trade marks and drawings or designs) became effective.

Filing An application for registration of a trade mark should be filed, in one of the official languages, Dutch or French, either directly with the BOIP in The Hague or with the national intellectual property office in Belgium or Luxembourg. Any person (individual or legal entity) may apply for registration of a trade mark in relation to goods or services. For administrative purposes, the International Classification of

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BENELUX 375 

Goods and Services is applicable to trade mark applications in Benelux. An application may cover goods and services in one or more international classes.

Examination Once the BOIP has examined and approved the trade mark application on formalities, such as payment of the official fees and the appropriate classification of the goods or services, the application will be published. Counting from the first day of the month following the publication date, third parties can file a notice of opposition against the application within a term of two months. The possibility of filing an opposition in Benelux was introduced in phases starting on 1 January 2004. Trademark applications filed before 1 January 2006 were only partially opposable, whereas all applications filed as of this date could be opposed in respect of all goods or services covered by the application. Like the Community Trade Mark system, opposition proceedings in Benelux provide for a cooling-off period to give the parties the opportunity to explore the possibilities of an amicable settlement, and if no settlement can be reached, an adversarial part in which the parties are allowed to present arguments and evidence. During both the cooling-off period and the adversarial part, the opposition proceedings can be suspended several times upon joint request of the parties. When the BOIP renders a decision in the opposition proceedings, the losing party is normally ordered to bear the costs (to be fixed by the BOIP), or if both parties are partly successful each party bears its own costs. Each of the parties has two months to file an appeal against this decision with any of the Appeal Courts in The Hague, Brussels and Luxembourg. There is a substantial difference from the Community Trade Mark system regarding the possible bases for an opposition in Benelux. Whereas an opposition against a Community Trade Mark can be based on prior registered or applied-for trademarks, prior non-registered trademarks, prior registered trademarks with a reputation, prior well-known trademarks, prior other signs used in the course of trade such as company names or trade names, and directed against identical, similar or dissimilar goods or services, an opposition in Benelux is exclusively based on prior trademark registrations and well-known trade marks, and directed against identical or similar goods or services. The rationale of the Benelux opposition procedure is to provide trade mark owners with a relatively simple and efficient administrative tool for defending their trade mark rights against any alleged infringement. Besides the examination on formalities, the BOIP examines the trade mark applied for on its registrability per se. A trade mark is capable of being protected and registered if it can serve to distinguish goods or services of one undertaking from those of other undertakings in the course of trade. If the BOIP considers that the trade mark lacks any distinctive character, deceives the relevant public or is contrary to public order or good morals, taking into account the goods or services applied for, it will provisionally refuse to register the trade mark. An objection to the provisional refusal may be filed with the BOIP within a term of six months following the date on which the refusal was issued. Unless the BOIP can be persuaded to revise the provisional refusal, the refusal


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will become final. In such an event, an appeal can be filed with one of the Appeal Courts at The Hague, Brussels or Luxembourg.

Registration and duration If in the end no objections were raised, or the objections encountered were overcome, the trade mark application will mature into a final registration, which provides the trade mark owner with protection for a first period of 10 years from the filing date. The registration is indefinitely renewable for 10-year periods.

Pieter P G de Ruijter is senior Benelux and European trademark attorney at Novagraaf Netherlands. After graduating from the University of Groningen in 1997 with a law degree, specializing in IP, Pieter started his career as a trade mark attorney. In his day-to-day practice he handles all IP consultancy matters with a main focus on trade marks, trade names, designs and copyright. He is experienced in providing clients with practical and legal advice relating to (strategic) issues on protection, use, management and enforcement of IP rights. For further details: email: [email protected], tel: (+31) (0)20 564 14 11.

10.8

Ireland

In Ireland’s growing technological society, Olivia Catesby of Tomkins & Co reviews the development of an effective framework for upholding patent rights.

Although a relatively small country with a population of just over 4 million, Ireland is an important player in the European technological marketplace. Ireland’s economic success over the last 10 years is unrivalled, and with a highly educated and skilled workforce attracting multinational corporations in the IT, telecomms, biotech and pharmaceutical fields into Ireland, this success is set to grow further. An increase in R&D and innovation within both the multinational companies and Ireland’s homegrown industries, together with increased support for high-tech start-ups, has been reflected in a steady rise in patent filings both nationally and internationally. To encourage R&D in Ireland, current tax legislation provides that income arising from patents for inventions devised within the state enjoys tax exemptions. The tax exemption is available to persons or companies resident in the state for purposes of income tax. To qualify, the patent must be in relation to an invention for which the research, planning, processing, testing, devising, developing and so on were carried out in Ireland. A strong IP framework exists within Ireland to support its thriving knowledgebased economy and to ensure that innovation is protected in the increasingly hightech environment. Two types of national patents are available under the Irish Patents Act 1992. In addition to the 20-year ‘full term’ Irish patent system offering similar patent protection to that afforded in most national jurisdictions in Europe, the Irish patent system rewards even a low level of inventiveness with the provision of a shortterm Irish patent. This category was introduced to provide a simple, low-cost system designed primarily for less technologically complex inventions which by their nature will have a shorter life cycle.


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The main differences between short-term and full-term Irish patents include a shorter term (10 years), a lower inventive step requirement, and a limit on the number of claims. A short-term patent is not examined against the prior art, nor is there a requirement to submit evidence of patentability by way of an equivalent patent in another jurisdiction or search results, so short-term patents proceed to grant very quickly. Both types of patent application serve equally well to establish a priority date. A full-term patent, once granted, can be litigated. A short-term patent, although granted, cannot be litigated unless and until a prescribed search is carried out, a copy is sent to the defendant and a copy is published by the Patents Office. The accession of Ireland to the European Patent Convention (EPC) in 1992 opened up a patent route into Ireland through the European patent system. A granted European Patent designating Ireland is treated as if it were a full-term Irish patent granted under the Patents Act 1992. The official language of the Irish Patents Office is English. Ireland is unique in Europe having a six-month validation period rather than the usual three-month period from grant for validating a European Patent in Ireland. After grant, decisions of the European Patent Office’s (EPO’s) opposition division or Board of Appeal are binding in Ireland. Thereafter, Irish courts have exclusive jurisdiction in the validity of an Irish patent regardless of its origin. As Ireland is a member state of the Patent Cooperation Treaty (PCT), it is also possible for International (PCT) applications to be filed at the Irish Patents Office. Likewise, it is possible to obtain protection in Ireland via an International (PCT) application. IP litigation in Ireland is historically rare. Disputes are usually settled by way of interlocutory injunctions or on the basis of similar proceedings in other jurisdictions. To obtain an interlocutory injunction to restrain a defendant from alleged infringing activities pretrial, one must show that there is a serious issue to be tried, a reasonable chance of success in full trial, the balance of convenience must lie in awarding the injunction rather than allowing the expected infringement to commence or alleged infringement to continue, and that if the injunction is refused, the patentee could not be adequately compensated by an award of damages if successful in court. In patent cases, infringement and invalidity are usually dealt with simultaneously, wherein invalidity is a defence to infringement. Although Irish courts are not bound by decisions of foreign courts, judicial notice may be taken of decisions on similar issues. Decisions on patentability are likely to follow decisions of the EPO if there is a lack of Irish case law in the subject, and attention may be given to decisions of UK courts where a similar common law system applies. Remedies available if a patent infringement action is successful include a permanent injunction, an order for delivery up or disposal of infringing products, a declaration that the patent is valid and infringed, award of damages or account of profits. An innocent infringer defence can be used to prevent the award of damages. It is also possible for an alleged infringer to initiate court proceedings through a groundless threats action if improper threats of patent infringements are made. Declarations of non-infringement are also possible, from either the patentee or the courts if the patentee refuses.

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IRELAND 379 

The recent introduction of a new division of the Irish High Court, known as the Commercial Court, leads the way for fast settlement of IP infringement cases at relatively low cost. Established in 2004, the new Irish Commercial Court specializes in commercial litigation with claims in excess of €1 million, but IP litigation is considered irrespective of the claim size. Litigation of short-term patents with claims of small value is usually heard in the circuit court, with an appeal to the Commercial Court possible. The Commercial Court provides a forum familiar with business law and practices, presided over by specialist judges with established commercial backgrounds. Although representation is limited to barristers and solicitors, patent litigation teams usually comprise a barrister with IP experience, a specialized IP solicitor and a patent attorney. In its first few years in existence, the Commercial Court has proved hugely successful. The waiting list is very short, with trial dates usually allocated within a few weeks. Through use of a rigorous pretrial procedure wherein litigating parties are forced to agree as many issues as possible before trial, with on-the-spot fines for breaching deadlines, leaving the trial hearing to focus on only those issues remaining in dispute, most cases are concluded within months from entry onto the court lists. As more and more IP cases are heard in the Commercial Court, greater assurance will be provided to holders of Irish patents that quick and successful enforcement of IP rights in Ireland is possible in this growing technological society.

Olivia Catesby is a European Patent Attorney working in Tomkins & Co in Dublin, Ireland. Founded in 1930, Tomkins & Co is one of Europe’s longest running IP firms. Tomkins serves clients both nationally and internationally in all areas of IP law, with clients ranging from large corporations and multinationals to individual inventors and start-ups. Tomkins’ Patent, Trademark and Design Attorneys are registered to practice before the Irish Patent Office, the UK Intellectual Property Office, the European Patent Office, and the Office for Harmonization in the Internal Market (OHIM). Tomkins’ dynamic and highly experienced IP attorneys work closely with their clients to identify, protect and enforce their intellectual property, as well as provide high calibre advice on all aspects of intellectual property law and practice. Each Patent Attorney in Tomkins has a strong scientific background in their chosen specialty, with many having previously persued successful scientific careers in research or industry, prior to joining Tomkins. Specialties include electrical and mechanical engineering, ITC, physics, chemistry, biochemistry, biotechnology and microbiology. For further details, visit www.tomkins.com

10.9

The accession states

Unfamiliarity with intellectual property (IP) as a property right has led to limited use of enforcement measures, such as seizure orders, freezing orders, injunctions and account of profits, says Professor Michael Blakeney, director of the Queen Mary Intellectual Property Research Institute at the University of London.

Accession Under their contracts of accession to the European Union, all the new members of the European Union, including Bulgaria and Romania, were obliged to bring their IP laws into line with the acquis communautaire (the legal regime of the European Union). Consequently, virtually all of the IP legislation of the European Parliament has been enacted in those countries. Bulgaria and Romania have also benefited from IP infrastructure projects provided by the European Commission (EC) under its PHARE (Pologne, Hongrie Assistance à la Reconstruction Economique) programme. This was set up in July 1989 to support the transition of Poland and Hungary to democracy and to market economies. PHARE is now the main channel of EC assistance to the countries of Central and Eastern Europe; it currently encompasses a further 11 countries (Albania, Bosnia Herzegovina, Bulgaria, Czech Republic, Estonia, Former Yugoslav Republic of Macedonia (FYROM), Latvia, Lithuania, Romania, Slovakia and Slovenia). Additionally since 1991 the European Union has implemented a programme of assistance to the countries of the western Balkans (Albania, Bosnia and Herzegovina, Croatia, Serbia and Montenegro, including Kosovo, and FYR Macedonia).

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THE ACCESSION STATES 381 

Under both the PHARE and CARDS programmes, not only have the EU IP laws been introduced, but also infrastructural assistance has been provided. In the case of Bulgaria and Romania projects have been implemented to provide for the training of all agencies involved in IP enforcement: police, customs, patent office officials, magistrates, judiciary and prosecutors and officials from the ministries of culture. Also awareness-raising seminars have been run for participants from industry and commerce and for the legal profession. In Bulgaria a pioneering PHARE project has established a computer network linking customs, police, the Ministry of Justice, Patent Office and Ministry of Culture. This provides a state of the art information facility for customs officials to enable them to discharge their border control obligations.

Former Communist countries For those accession states that formerly were Communist countries, the absence of a system of private property meant that they were unfamiliar with IP as a private property right. This has been matched by an absence of the commensurate experience in enforcing those private rights. A number of the IP remedies that were developed in the private law system, such as seizure orders, freezing orders, injunctions and account of profits, are unfamiliar to judges in those countries. Industry bodies have commented adversely on the small penalties that have been imposed by courts in relation to piracy and counterfeiting, and the almost complete absence of imprisonment as a sanction. At the same time those countries have retained a system of administrative enforcement of rights, which sits alongside the system of criminal and civil enforcement of rights. As a consequence less serious industrial property offences fall within the jurisdiction of the Patent Office, and less serious copyright offences are the business of the Ministry of Culture. In both areas enforcement tends to be severely circumscribed by the very limited resources that those bodies have available to them. For example, in most accession countries, enforcement officials in patent offices and ministries of culture have to combine their enforcement duties with their other tasks, and usually there is only a handful of enforcement officials to cover the entire country. Additionally, there is confusion about the overlapping IP jurisdictions between the criminal courts and administrative bodies. Defendants take advantage of this by pleading the lack of jurisdiction of the body that happens to be dealing with their case. Also largely absent in the former Communist states is a culture of collaboration between the private and public sectors in IP enforcement. Thus for example, the identification of goods as counterfeit or pirate products; the procedure known as ‘expertising’, is undertaken by patent office or ministry of culture officials, rather than by rights holders who obviously have the greatest knowledge about their own products. In the generally straitened economic circumstances of the accession states, industrial-scale IP counterfeiting and piracy has been identified as a growth industry. This is exacerbated by the fact that in some new EU Member States there is an endemic culture of corruption which arises in part from the low salaries of government officials.


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Thus for example, individual bribes paid to customs officials to permit the entry of contraband shipments often exceed their official monthly salaries. The generally low level of judicial competence in the field of IP enforcement has been remarked upon adversely by the DG Enlargement officials concerned with the monitoring of the discharge of the membership obligations of accession states. This is in part attributable to their inexperience with IP and also the very heavy case loads that those officials have to carry.

Case studies The situation of counterfeiting and piracy in individual accession states has been remarked upon by the US Trade Representative (USTR) in annual Special 301 reports which deal with the state of IP enforcement around the world. From 2005 the European Union has commenced its own evaluation of IP enforcement in third countries (ie those outside the European Union). This may be something of a hollow exercise if major infringers are located within the European Union. Bulgaria appeared on the USTR Special 301 Watch List in 2004 and 2005, because of a perceived increase in copyright piracy and the perceived inadequacy of enforcement and law reform steps to tackle it. The USTR in its Special 301 report for 2006 retained Bulgaria on the Watch List. The USTR noted that Bulgaria had made some improvements in its IP rights (IPR) legislation, coordinating between intergovernmental agencies, strengthening enforcement measures against optical disc piracy, and raising public awareness of IPR. For example, in February 2006, the newly formed inter-agency Council of Intellectual Property Protection approved amendments to the penal code criminalizing the possession of counterfeit products. The USTR encouraged Bulgaria to make further IPR improvements by engaging in sustained and consistent enforcement activities, devoting sufficient resources to combat piracy and counterfeiting, improving IPR legislation, and attacking the growing problem of internet piracy: In particular, Bulgaria’s Government should make judicial enforcement in the courts a priority, including providing IPR training to prosecutors and judges, urging courts and prosecutors to make IPR infringement a priority, encouraging the completion of prosecutions and civil court cases on a timely basis, and seeking deterrent penalties for IPR violations.1 Romania was also retained by the USTR on the Watch List in 2006. It noted ‘high piracy rates in the sectors of business software, music, and entertainment software, due to weak enforcement and deficiencies in the judicial system’. However, it conceded some improvements, including the designation of the General Prosecutor’s Office of the Supreme Court as the national coordinator for IPR enforcement, the provision of ex officio authority to law enforcement authorities, the requirement of source identification codes for optical disc manufacturing, and increased dedication of resources for IPR enforcement.

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THE ACCESSION STATES 383 

The USTR noted the high incidence of copyright piracy on the internet, and that law enforcement agencies and the judiciary continue to place a low priority on IPR enforcement: For example, prosecutors are reluctant to prosecute criminal IPR cases, courts are reluctant to convict and issue deterrent sentences against IPR infringers, and the Romanian judiciary has dismissed a large number of cases on the grounds that there is a ‘lack of social harm’. The USTR noted the growth of copyright piracy on the internet in Hungary. It also commented on ‘enforcement deficiencies’ including ‘prosecutorial delays, judicial imposition of low fines or weak sentences, and weak border enforcement’. In Latvia, the USTR noted that ‘some key IPR issues remain in need of attention, including copyright piracy, especially on the Internet, and the lack of effective border enforcement’. In Lithuania the IPR problems identified by the USTR included ‘copyright piracy on the Internet and trans-shipment of pirated optical media through Lithuania’. The export of optical media, particularly border enforcement, was identified as a serious problem, ‘with Lithuania serving as a central trans-shipment point in the Baltic region for mostly Russian-produced optical media to the rest of Europe’. Poland was criticized by the USTR because of ‘a lack of judicially imposed deterrent sentences for criminal IPR infringers that include imprisonment, continued sale and distribution of pirated products in and around the Warsaw Stadium, and weak border enforcement, among other IPR issues’. The USTR encouraged Poland to strengthen enforcement measures to combat IPR piracy and counterfeiting.

Note 1 US Trade Representative (2006) 2006 Special 301 Report:Executive summary [Online] www.ustr.gov/assets/Document_Library/Reports_Publications/2006/2006_ Special_301_Review/asset_upload_file473_9336.pdf (accessed 28 March 2007)

Michael Blakeney is Director of the Queen Mary Intellectual Property Research Institute (QMIPRI), which is located in the Centre for Commercial Law Studies at Queen Mary, University of London. QMIPRI is a focus for IP research and policy advice and has undertaken IP capacity-building projects in the EU accession states and in a number of developing countries. For further details visit www. qmul.ac.uk

IP in Slovenia

Education is the priority, says Janez Kukec Mezek at the Slovenian Intellectual Property Office.

The Slovenian Intellectual Property Office (SIPO) was established in 1991 as the Industrial Property Protection Office, and its first task was the preparation of necessary legislation. As a result of these activities, the Industrial Property Act entered into force in 1992. Several other Acts followed, and SIPO is now ‘responsible’ for the Industrial Property Act, Copyright and Related Rights Act, the Act on Protection of Topographies of Integrated Circuits, the Employment Related Inventions Act and several international treaties to which Slovenia is a signatory. At present, SIPO is an autonomous body within the Ministry of Economy. Its staff numbers 49, of which 29 employees have university degrees. Its main tasks are the following:  carrying out proceedings for the grant of patents and supplementary protection certificates for medicinal and plant protection products, and proceedings for the registration of industrial designs, trade marks, topographies of integrated circuits and geographical indications, with the exception of those relating to agricultural products, foodstuffs, wines and other products obtained from grapes or wine;  keeping registers of industrial property rights;  preparation of legal regulations in the field of intellectual property (IP);  issuance of authorizations to collecting societies of authors and holders of related rights for collective management of their rights, and supervision of the operation of such societies;  provision of information services relating to IP rights and carrying out documentation activities;  publication of the Official Bulletin on Industrial Property;  administrative-technical tasks for the Conciliation Board for disputes concerning employment-related inventions operating at SIPO premises;



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 representation of the Republic of Slovenia, in accordance with the positions, instructions and authority of the government, in foreign and international organizations in the field of intellectual property. SIPO endeavours to strengthen its role in the field of raising awareness of the importance of IP rights and to strengthen cooperation with all actors included in the system, such as patent agents, courts, enforcement bodies, non-governmental organizations and associations, and other interested members of the public. With this purpose, it carries out a number of activities, such as:      

organizing seminars, conferences and workshops on IP issues; presentations at trade fairs; issuing a variety of publications; open-door days; press conferences; organized visits of college and secondary school students accompanied by their teachers.

SIPO pays special attention to educational activities, which it performs by itself or in cooperation with other international and domestic organizations. It regularly organizes seminars and workshops at its premises and elsewhere, targeting in the years 2005 and 2006 mostly small and medium-sized enterprises (SMEs), while giving in this year as much focus as possible to university and business incubators and technology parks. In previous years, SIPO often cooperated with the Chamber of Commerce and Industry of Slovenia and its regional branches in the preparation and execution of these activities. They provided it with the ability to get in touch with SMEs that were their members, and offered the logistical support needed for its activities. At the beginning of 2006, SIPO contacted Slovenian business incubators and technology parks, proposing closer cooperation with them in supporting innovations. Their response was more than favourable, so that in 2007 SIPO had already started to closely cooperate with business incubators at the universities of Maribor and Ljubljana. The cooperation with the Business Incubator of the University of Maribor resulted in SIPO’s participation in the ‘Best Business School’ which was organized in three Slovenian cities (Maribor, Ljubljana and Koper), where it could address more than 200 participants from universities and SMEs. The cooperation with the University Incubator of Ljubljana yielded even more fruitful results, since it started with a series of nine three-hour seminars on IP delivered by SIPO experts to the members of the Incubator. More than 100 students, researchers, university workers and representatives of different institutes and SMEs participated in each of these seminars. In order to bring information about IP rights as near to end users as possible, SIPO awarded the status of an official information centre, which

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IP IN SLOVENIA 387 

means the European Patent Office (EPO) placed them on the list of PATLIB (patent information) centres, to the Maribor University Library and the Central Technological Library of the University of Ljubljana. Slovenia has thus three such centres, taking into account also the information centre established at SIPO. But the most important element of the SIPO strategy in pursuance of the set goals is the initiative for setting up and supporting IP Points for information and consultancy at the university level. They are meant to become focal points where academics, students and university staff will be able to get information and advice on IP issues.

Further information is available from Janez Kukec Mezek, head of the information and promotion department, Slovenian Intellectual Property Office, Kotnikova 6, SI-1000 Ljubljana, Slovenia, website: www.uilsipo.si






11

IP protection


11.1

Litigation strategies for European IP registered rights

Both in theory and practice, harmonization of IP enforcement in Europe is some way off, says Georgie Collins, head of IP at Bevan Brittan in London.

This chapter analyses the current and future possibilities for obtaining relief for registered intellectual property (IP) on a pan-European basis. Strategies are identified for both potential claimants and defendants, and consideration is given to those factors litigants should be mindful of when choosing where to litigate.

Pan-European patent injunctions – past, present and future A little history The trend in granting pan-European relief was led by the Dutch courts in the mid1990s, which allowed a claimant to bring summary proceedings (known as Kort Gelding) rather than full legal proceedings. This allowed the claimant to achieve a quick resolution (in four to eight weeks), a facility that at the time was not available

 396 IP PROTECTION

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in other EU countries. Consequently, there were a number of cases where the Dutch courts seized jurisdiction over patent disputes involving non-Dutch companies.1 In response to this, a defendant counterattacked with the ‘torpedo’. The patent infringer sought to pre-empt a patentee obtaining a pan-European injunction by applying for a declaration of non-infringement in a state that had a reputation for having a slow legal system (Belgium and Italy were typical targets). However, from the late 1990s there has been a shift in emphasis. The Dutch courts introduced new proceedings known as ‘accelerated proceedings on merit’ which were not as short as the Kort Gelding, and the Dutch Court of Appeal restricted the ability of Dutch courts to seize jurisdiction over European patent actions.2 The UK courts were sceptical of the approach adopted by the Dutch. Whilst the UK courts were prepared to grant pan-European injunctions, this was on the basis that validity was not challenged. This had the effect that obtaining pan-European relief from UK courts was not a practical option, as validity was almost always raised in any claim for infringement.3

Recent developments The granting of pan-European injunctions for patent infringement has been dealt a severe blow by the recent decisions of GAT and Roche.4 The European Court of Justice (ECJ) held that European patents are national rights that must be enforced nationally. If validity is in issue then the country where the IP right is registered has exclusive jurisdiction over that patent. The ECJ approved the opinion of the Advocate General who said that it was ‘unavoidable’ that infringements of the same European patent had to be litigated in each relevant national court, even if the proceedings were against the same group of companies based in different Member States. The effect is that there is far less scope for forum shopping, and organizations will have to litigate infringement and validity of patents in separate Member States where the rights are registered. The ambit of the torpedo has also been restricted by the United Kingdom. The UK Court of Appeal has stated that unless an invalidity claim at the European Patent Office (EPO) is nearing resolution, it will often be unjust to stay UK court proceedings pending the outcome of the EPO validity proceedings.5

Considerations for the future The importance of selecting the best jurisdiction to litigate has been highlighted by the recent contradictory decisions of the Dutch and UK courts involving Angiotech.6 The UK Court of Appeal upheld a ruling that Angiotech’s patent was invalid despite having had the opportunity to see the decision of the Dutch court, which ruled that a key claim of Angiotech’s patent was valid and infringed. The Angiotech, GAT and Roche decisions have placed renewed emphasis on the European Patent Litigation Agreement (EPLA, see below), which if agreement can be reached, will see a more cohesive approach to the determination of patent disputes and relief granted.

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LITIGATION STRATEGIES FOR EUROPEAN IP REGISTERED RIGHTS 397 

Community Trade Marks and Community Design Right The enforcement of a Community Trade Mark (CTM) is dealt with by CTM courts, which are national courts designated by Member States to deal with CTM cases. Not all Member States have CTM courts (Cyprus, Hungary, Lithuania and Malta are yet to designate any). A CTM court can grant pan-European relief if the defendant is domiciled or established in the particular country of the court. Pan-European relief has been granted for CTMs: for example Pfizer was recently granted a pan-European injunction to prevent the infringement of its Pfizer and Viagra trade marks on the internet.7 If a defendant is not domiciled or does not have an establishment within the European Union, then the Office for Harmonization in the Internal Market (OHIM) in Alicante will have jurisdiction. While a claimant can also bring proceedings in the national courts of the country where the infringement occurs, those courts cannot grant pan-European relief and are limited to dealing with the infringing acts committed in that particular Member State. The same regime (described above) applies to Community Design Right (CDR). Under the CTM and CDR systems operated by OHIM, any questions relating to validity and revocation must be determined by OHIM, unless the validity claim is part of an infringement action. Once a validity claim has been lodged with OHIM, any infringement or invalidity claim will be stayed unless there are ‘special grounds’ for allowing such proceedings to continue.8 The CTM and CDR both provide that, notwithstanding any invalidity proceedings, the court still has jurisdiction to grant an interim injunction. However, at least in the United Kingdom, the IP rights owner needs to be sure of its ground regarding the subsistence of its rights, because of the cross-undertaking as to damages that must be given in respect of any injunction application.

The future: COMPAT, EPLA and the Enforcement Directive The Community Patent (COMPAT) proposed by the Commission in 2000 had the aim of simplifying the procedures for obtaining and litigating patents in Europe. The COMPAT system would exist alongside patents granted by the EPO. Talks on COMPAT have stalled following heated debates on a number of issues, particularly concerning language requirements. It seems that it will be some years before a unitary community patent is available, if at all. The EPLA seeks to set up a pan-European court which will deal with issues of patent infringement and validity across Europe. The Agreement is to be optional, and will only apply to those Member States that sign up to it. It is (currently) proposed that national courts would continue to have jurisdiction over claims relating to European patents for a transitional period of seven years after the EPLA comes into force. However, the scheme has suffered major setbacks. The French government have said that the EPLA raises serious constitutional issues which are impossible for it to solve, and there has been opposition to the EPLA within the European Council. It was hoped


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that the EPLA would fill part of the void left by the failure of COMPAT to progress, but this now seems unlikely. The European Commission is expected to publish its communiqué on jurisdictional issues and how national governments can move closer to agreement in mid-2007. The European Enforcement Directive has only been implemented in 12 of the EU’s 27 Member States (Austria, Cyprus, Czech Republic, Denmark, Estonia, Finland, Hungary, Ireland, Italy, Slovenia, Spain and the United Kingdom). Unfortunately, many counties have taken the view that the remedies set out in the Directive were already available to them. The key provisions relate to disclosure of evidence (Article 6), search and seizure (Article 7), rights of information regarding the origin of infringing materials and distribution channels, injunctions and delivery up (Articles 9 to 11) and damages and costs (Articles 13 and 14). It is expected that even when all Member States have implemented this Directive there are going to be considerable discrepancies between the national legislation and the Directive itself. The upshot is that there will not be any real harmonization as regards enforcement.

Considerations when deciding where to litigate The laws and procedures of each jurisdiction vary considerably as regards the granting of interim relief, the speed with which an injunction and legal proceedings are determined and the costs involved. The prospects of success of each jurisdiction must also be taken carefully into account. The thresholds for granting interim relief are different, as are the standards applied to infringement and the validity and weight given to evidence, particularly expert evidence. Not all jurisdictions deal with infringement and validity together. National procedures are still very varied as regards disclosure, evidence and experiments, even though the EU Enforcement Directive has sought to bring harmony. Some countries do not afford an option for the claimant to elect for either damages or an account of profits, as is the case in the United Kingdom, Germany and Spain. The French and Italian courts will only award damages as opposed to an account of profits. In the Netherlands, in a trade mark infringement action, an account of profits is available where the infringer is liable for bad faith, in addition to damages. Practice also differs over the recovery of legal costs. In the United Kingdom the general rule of thumb is that the successful party can recover from 65 to 75 per cent of its costs. While the United Kingdom adopts a split trial in addressing liability and damages/ account of profits, in other jurisdictions these issues are dealt with at the same hearing (this applies to Germany, Italy and Spain). The approach to assessing damages can also be different in the varying jurisdictions.

Checklist of key strategies for a claimant  If the infringer is domiciled/established in more than one jurisdiction, the claimant must determine the jurisdiction in which it is more advantageous to litigate.  If there is more than one defendant to proceedings and infringement is occurring in various jurisdictions, the claimant should carefully select in which single jurisdiction

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LITIGATION STRATEGIES FOR EUROPEAN IP REGISTERED RIGHTS 399 

it wants to bring proceedings against multiple co-defendants who may be domiciled in different jurisdictions. It should be considered which jurisdictions favour the rights holder. Consider an aggressive strategy by bringing several actions in key jurisdictions against the infringer. Obtain a favourable decision in one jurisdiction and demonstrate the same decision will be reached in other jurisdictions. Carefully select one jurisdiction to bring a claim, based on speed, the approach of the national court, expense and compensation. Pursue criminal proceedings, carefully considering which countries have maximum penalties in the event of a successful prosecution. In the case of a CTM or CDR, if litigation seems likely, consider filing national rights in addition to European rights so as to avoid a ‘stay’ of the enforcement of a European IP right pending the determination of an invalidity claim. If a defendant has employed a torpedo-type strategy, consider raising Article 6 of the European Convention on Human Rights (the right to determination of civil rights in a fair hearing and within a reasonable period of time) to any arguments to stay an infringement claim pending determination of validity. Consider the prospects for enforcing the judgment against the defendant(s).

Checklist of key strategies for a defendant  Establish a business in a country which is considered pro-defendant.  Pre-empt a claim by applying for a declaration of non-infringement in a preferred jurisdiction.  Apply for an ‘anti-suit’ injunction to prevent a claimant from bringing proceedings in a particular jurisdiction on the grounds that another court has jurisdiction.  Challenge the validly of a European patent at the EPO, or CTM or CDR at OHIM, so as to counter any infringement proceedings and allow business activity to continue.  If proceedings are issued, seek a stay on the basis that jurisdiction belongs to another national court.  Regarding threats, consider which countries have threats provisions and whether these can be used to counter an infringement action.

Notes 1 Chiron v Organon Teknika (1995)1 ER15. 2 Hermes International v FHT Marketing Choice BV (1998 ETMR 425), Expandable Grafts v Boston Scientific (1999) FSR 352. 3 Coin Controls v Suzo International [1997] FSR 660, Forte Dodge v Akzo [1998] FSR 222. 4 Gesellschaft fur Antriebstechnik mbH & Co KG (GAT) v Lamellen und Kupplungsbau Beteiligungs KG (LuK (C-4/03), Roche Nederland BV v Primus (C539/03) (13 July 2006).


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5 Machinery Developments Limited & Pechinery Plastic Packaging inc v St Merryn Meat Limited (2005 EWCA Civ 29). 6 Conor Medsystems Inc. v Angiotech Pharmaceuticals Inc. and another [2007] EWCA Civ 5. 7 19 October 2004 OHIM. 8 See Article 10 Council Regulation 40/94 EEC and Article 91 Council Regulation 6/2002 EEC.

Georgie Collins heads up the London IP team at Bevan Brittan and specializes in all aspects of IP. She has experience of all aspects of dispute resolution and has dealt with various cross-border disputes. Client comments in Chambers and Partners 2005–2006 described her as ‘bright, reactive and pragmatic’ practitioner ‘par excellence, with a rare insight into multinational and multidisciplinary problems’. The 2006–2007 Chambers & Partners edition states that ‘observers greatly appreciate the work she accomplishes in relation to trade mark issues involving parallel importing and counterfeiting, and respect her abilities in mediation, arbitration and dispute resolution’. Contact details: email: [email protected], tel: (+44) (0)870 194 7833, fax: (+44) (0)870 194 1000.

11.2

Differences in patent litigation

Nigel Stoate, Simon Cohen and Matthew Burman compare patent litigation procedures in Europe’s three leading jurisdictions, Germany, the Netherlands and the United Kingdom.

Whether your business seeks to enforce patent rights or to defend against such enforcement, it is often the case that a patentee will hold multiple designations of a European patent, and an alleged infringer will be operating in several different countries at the same time. There is currently no European legislation providing specifically for pan-European patent litigation, and this means that the parties may need to bring separate actions in different jurisdictions. Initiatives such as the Community Patent, the European Patent Litigation Agreement (EPLA) and the London Agreement promise to improve this situation, but until they become a reality it is tactically important to decide where best to bring the proceedings, and in what order, because the prospects of success may vary from one court to another, and early decisions in one country can set a precedent for later proceedings in another. It is generally regarded that Germany, the Netherlands and the United Kingdom have the most developed patent courts in Europe, and in each of these jurisdictions there is a specialist court with specialist judges who hear IP cases. But there are now 27 Member States of the European Union (and 32 signatories to the European Patent Convention (EPC), under which European patents are granted through the European Patent Office, EPO), and the quality of the patent courts in the region varies from the relatively experienced to the comparatively untested. While steps are actively being


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taken to improve the quality and consistency of the different courts throughout the region, it remains the case that decisions from the ‘specialist’ jurisdictions tend to lead the way for the other countries. But even between Germany, the Netherlands and the United Kingdom there are significant differences in the way patent litigation is conducted. In this chapter, we compare the differences and take a look at the strategic advantages and disadvantages of each.

The legal system The biggest differences stem from the fact that in continental Europe (including Germany and the Netherlands) there is a civil law system, whereas in the United Kingdom the legal system stems from the common law, making it much more similar to the system in the United States.

Disclosure The common law system in the United Kingdom creates a number of key differences in the litigation process when compared with the civil law systems of the continent. Perhaps the most obvious is that automatic disclosure of documents is available in the United Kingdom. This obliges each party to disclose documents on which it relies, and documents that support or adversely affect its case or another party’s case. Disclosure can be very useful, for example, in validity proceedings to get to the bottom of what underlies the invention or in infringement proceedings to prove what the infringer is doing. Subject to confidentiality and court rules, it can also provide useful ammunition for foreign actions.

Evidence In Germany and the Netherlands, the court appoints an expert to prepare a report and the parties have very little control over who is appointed. There is no exchange of witness statements, and rarely any opportunity to give oral evidence or cross-examine the other side’s witnesses. Parties may file reports from their own experts, but these are only considered on paper and carry little weight. In the Netherlands the most common ‘accelerated proceedings on the merits’ procedure does not allow for any expert evidence at all before judgment, and if it does subsequently decide to hear evidence, it is the judge who primarily asks the questions. In contrast, the United Kingdom allows each party to choose an expert (whose duty remains to the court), and the exchange of reports and cross-examination that follows allow a thorough examination of the merits of the case, and provides an opportunity to test and challenge the other side’s evidence. Needless to say, an important part of the process in the United Kingdom is choosing an appropriate and credible expert who will communicate technical aspects to the court both clearly and convincingly.


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The rigorous approach to expert evidence in the United Kingdom is further reflected in the gathering of experimental evidence. Where experiment results are to be relied on at trial, representatives from the opposing party must be given the opportunity to witness repeats of the experiments. In Germany and the Netherlands, there is no such requirement and consequently experimental evidence is given less weight at trial.

Cost As a result of the more thorough approach to patent actions in the United Kingdom (disclosure, experts etc), UK actions tend to be more expensive, although because the winning party generally recovers its costs, this is only really apparent if a party loses. In the United Kingdom, the winning party can expect to recover the majority of its actual costs from the other side. In Germany also, the winning party recovers costs, but on a statutory scale, depending on the value of the case, which usually comes to quite a bit less than the actual costs involved. In the Netherlands, only some fixed costs are recoverable and these are generally a token amount. For example:  United Kingdom: each side spends £500,000. The winner recovers, say £400,000. Cost to winner, £100,000; cost to loser, £900,000.  Germany: each side spends £200,000. The winner recovers, say £100,000. Cost to winner, £100,000; cost to loser, £300,000.  Netherlands: each side spends £200,000. The winner recovers virtually nothing1. Cost to winner, £200,000; cost to loser, £200,000.

Duration A further difference between these main patent jurisdictions is the duration of proceedings. This can be an important consideration for commercial reasons, especially if one of the parties is prevented from entering the market pending final judgment. A trial in the Netherlands will happen in a morning, with each side limited to 90-minute submissions. Germany is similarly quick, and a trial will usually be heard in a day. A trial in the United Kingdom will go into the issues in much more detail, and its length will depend on the case, but is likely to be several days. However, the whole proceedings are relatively quick and it is quite possible to obtain a judgment within 12 months of commencing an action. In Germany this period is typically 12–15 months and in the Netherlands two years, though using the accelerated procedure cuts this down to 12 months unless evidence needs to be heard. The speed of interim injunction procedures also varies between jurisdictions. In the United Kingdom, judgment in an interim injunction application can be given in a matter of days as long as it can be proved that there is an arguable case (on validity and infringement), and the commercial evidence is that the so-called balance of convenience is in favour of an injunction. In the Netherlands, there is a full preliminary review on the merits based on expert affidavits and witness statements, which takes

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approximately six weeks up to a hearing and a further two for judgment. In stark contrast to the United Kingdom, a German interim injunction hearing is almost a minitrial, which will consider the strength of the patent and the likelihood of infringement as well as the commercial arguments, and usually takes anything from two to four months.

Legal aspects Aside from the practical aspects of litigation, one of the key aspects to any patent action is the court’s interpretation of the patent claims. The Protocol on the Interpretation of Article 69 of the European Patent Convention sought to harmonize the interpretation of claims across Europe, but inevitably quirks in national court systems have made this difficult. Germany uses the doctrine of equivalents to construe claims, and operates a split system, which means that infringement and validity issues are heard in separate courts. This prevents the use of ‘squeeze’ arguments that are often run in other jurisdictions, where infringement and validity are heard together. A ‘squeeze’ is where one party argues that if the patent claim is construed widely then it is broad enough to capture the prior art so the patent must be invalid, and if the claim is construed narrowly there can be no infringement as the claim is too specific. Either way, the patent owner loses. The Netherlands uses the doctrine of equivalents to construe claims, but may hear issues of validity and infringement together. It is also possible in the United Kingdom to start proceedings for a declaration of non-infringement at any time. The only requirements are that the claimant has provided written details to the patentee and the patentee has failed to provide the acknowledgement that it does not infringe. In contrast, it is not possible to start declaration proceedings in Germany or the Netherlands unless the patent has been asserted.

EPO proceedings The European Patent Office (EPO) in Munich grants a bundle of separate national patents arising from a single EPO application. This patent can be challenged centrally at any time during the first nine months from grant. These oppositions consist of written submissions and usually a fairly short (for instance, one-day) oral hearing which will maintain, amend or revoke the patent. The outcome will automatically apply to all national designations. This is in contrast to revocation of national patents, which has no legal effect on the operation of their foreign equivalents (but may encourage similar proceedings in these other jurisdictions). Oppositions can last several years, and affect national proceedings in different ways. In Germany, it is not possible to challenge the validity of a European Patent until the end of the EPO proceedings. Meanwhile, infringement proceedings can still go ahead. This presents a considerable danger that a party can be injuncted from the market, notwithstanding that the patent is later revoked. For many businesses this can


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be devastating, not just for short-term cash flow reasons but also from the view of longer-term customer loyalty. In the Netherlands, the position is similar when there is an opposition pending, although the court may hear validity issues if raised as a defence to an existing action. The United Kingdom on the other hand is unlikely to stay an action on the basis of ongoing opposition proceedings.

Conclusion If an organization has a patent in only one country, or there is an infringement in only one country, then there will be no need to consider in which forum to litigate. But this is rarely the case. The national systems for patent litigation across Europe all have their quirks, and depending on the precise facts and circumstances, litigating in one jurisdiction may be preferable to another. Decisions from Germany, the Netherlands and the United Kingdom may well be persuasive to less experienced jurisdictions, but until the efforts to harmonize European patent law succeed, tactical forum shopping is still an integral part of asserting and defending IP rights in Europe.

Note 1 Note that the Dutch practice on this is changing in light of the Enforcement Directive 2004/48/EC.

Taylor Wessing is a leading law firm providing legal support for commercial organizations doing business in Europe. Based in Belgium, France, Germany and the United Kingdom, Taylor Wessing provides the full range of legal services to major corporations and growing enterprises. Taylor Wessing boasts a strong reputation in the corporate, finance and real estate sectors alongside in-depth experience across the full range of legal services including IP and technology, tax, litigation and dispute resolution, employment and pensions, and private clients. Simon Cohen and Nigel Stoate are partners in the Intellectual Property Department at Taylor Wessing. Simon specializes in patent litigation and licensing in the pharmaceutical and other sectors, as well as doing pharmaceutical regulatory work. Nigel specializes in multijurisdictional patent litigation and advice, licensing and technology transfer in the engineering, chemical, pharmaceutical and biotechnology industries. For further information please visit www.taylorwessing.com

11.3

Opposition at the European Patent Office

Alan MacDougall and Chris Hamer of Mathys & Squire explain how to challenge the validity of a competitor’s European patent rights.

Any business that develops new products or processes runs the risk of infringing thirdparty patent rights, which can result in the business being drawn into patent disputes. It is therefore good business practice for companies to maintain a regular watch on the patenting activities of at least their main competitors. Where potentially relevant patents or patent applications are found, strategies can be developed to reduce this risk by designing around the patents, by challenging the validity of the patent rights or by amicable business resolution. The European Patent Convention (EPC) provides an opposition procedure which allows the validity of a granted European patent to be challenged. The opposition must, however, be filed with the European Patent Office (EPO) within nine months of the grant of the European patent. The opposition procedure is a consolidated process which allows a single challenge to be made that is effective in all countries covered by the granted patent. Third parties that are sued for infringement under a European patent may also intervene in any existing opposition proceedings provided they do so within three months of the start of the infringement proceedings.

What challenges can be made The European Patent can be challenged on the grounds that the claimed invention is not patentable (for example it is not new or not inventive); that the patent does not


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describe in sufficient detail how the claimed invention can be carried out; and/or that the granted patent contains new matter that has been added since filing.

How to build a case The strength of any opposition is only as good as the evidence that is provided to support the grounds on which the European Patent is challenged. It is therefore critical to consider what contribution the patent claims to have made over existing knowledge, and to assess whether this contribution meets the patentability requirements set by the EPC. To make this assessment, companies need to investigate and understand what was publicly known before the effective filing date of the patent. This will involve searching for earlier publications, such as papers, journals and earlier patents and patent applications. The EPO will itself have carried out a search for such material, and in granting a patent will have concluded that the claimed invention is patentable over the material it found. You should however double-check this yourself, as the EPO may have been misled by the proprietor. Another useful source of material is the official files of corresponding patent applications possibly filed in other countries. The material found by other patent offices may be more relevant than that found by the EPO. Consideration should also be given to whether or not anybody (including the proprietor) had publicly used the claimed invention prior to the effective filing date of the patent. It is worth checking the proprietor’s sales and marketing material, since some companies forget the need to file their patent application before publishing the invention. With this knowledge it is then possible to assess whether there is a case to be made that the claimed invention is not patentable. With regard to the other grounds, consideration should be given to whether or not it is actually possible to carry out the claimed invention from the information in the patent (supplemented by common general knowledge that was available before the effective filing date of the patent), as well as whether any amendments have been made since the filing of the patent which may have inadvertently introduced new matter (whether by addition or deletion). If there are any gaps in the patent’s teaching or if there is such new matter, there may be a case to argue on these other grounds as well.

Once you have built a case, what next? Once you have built your case and know its strengths and weaknesses, you can then consider the best strategy for achieving the desired result – that the patent will not affect your business. One way to achieve this result is to try to negotiate a licence under the patent with the proprietor before the deadline for filing the opposition. If your case is strong, you may be in a position to negotiate a free or nominal licence with the proprietor, or persuade it to narrow the patent claims to exclude the technology of interest to you. If you cannot agree terms with the proprietor before the opposition deadline, you can still file an opposition and withdraw it if terms can be agreed before the conclusion of the opposition proceedings. However, the EPO may well continue the opposition on its own if it believes the case has merit.

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What is needed to file the opposition An opposition must include a written reasoned statement of case (the notice of opposition) in English, French or German, which provides, among other things, an indication of the facts, the evidence relied on and the arguments. An opposition fee must also be paid. The notice of opposition must be filed and the opposition fee paid within nine months of the publication of the grant of the European patent. There is sometimes the opportunity for evidence to be filed later, but this should not be relied upon.

What happens after filing the opposition If the opposition is admissible, then the EPO will forward the opposition to the proprietor for comment. The proprietor is given a period of time (usually four months) to consider the opposition and to file counter-arguments and/or amendments to overcome the objections. As the opponent, you will be sent the proprietor’s response and given a period of time to file further arguments based on the proprietor’s response. Further opportunities for written correspondence may be given, but usually at this stage the case is considered by an Opposition Division which is a group of three EPO examiners. If either party has requested a hearing, the Opposition Division will summon the parties to a hearing where each party can present its case orally. The summons usually includes an indication of the Opposition Division’s view of the case and what in its opinion needs to be discussed at the hearing. The hearing usually ends with the Opposition Division announcing its decision, which will be to revoke the patent, to maintain the patent as granted, or to maintain the patent in amended form. A written decision is then issued, detailing the reasoning underlying the decision.

How long it takes and how much it costs The opposition proceedings (from the date of filing the opposition to issue of the decision) usually take two to three years, and sometimes longer in complex cases. The costs involved vary depending on the complexity of the case, the extent of the searching carried out and the thoroughness with which the opposition is handled. Typical costs that can be expected are from €7,500, for a simple case which does not need significant preparation or searching, to €45,000 or more, for complex cases involving difficult subject-matter or complex evidence issues. The costs are spread over the duration of the opposition proceedings, and are far lower than would be incurred by separate revocation actions in each country, particularly if the opposed patent has been validated in all 37 possible countries (as of 1 March 2007).

Help with an opposition European patent attorneys can advise you on a strategy, prepare and file the opposition on your behalf and represent you at the hearing (and at any subsequent appeal).


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Can you get an award of costs? Usually each side bears its own costs, but costs can be awarded if the other party has acted inequitably, such as by the late filing of evidence or amendments.

What happens to a European Patent when an opposition is pending The European Patent remains in force in each country it has been validated. If the proprietor attempts to enforce the patent in a country’s national court, the court will decide whether or not to wait for the outcome of the opposition.

Can you appeal the decision? Any party to the opposition that is adversely affected by the decision can file an appeal. A notice of appeal must be filed within two months of the date of the written decision. A grounds of appeal must be filed within four months of the date of the written decision, setting out the basis for the appeal.

What happens after filing the appeal In theory the appeal is a review of the decision, but in practice it often results in a complete rehearing of the case. The procedure is very similar to that of the opposition procedure described above, and takes about the same time to complete. The costs involved in an appeal are typically similar to those of the opposition. As with the opposition procedure, each party usually bears its own costs, except when one of the parties has acted in an inequitable manner. The appeal is terminated by a decision, which may be to revoke the patent or to uphold the patent as granted or as amended. In some cases, where the Board of Appeal does not uphold the Opposition Division’s decision and there remain issues yet to be considered by the Opposition Division, the Board of Appeal can remit the case back to the Opposition Division for further consideration.

Can you appeal the Board of Appeal’s decision? Currently there is no right to appeal the decision of the Board of Appeal. If the appeal decision is to revoke the patent, no further avenues of appeal are available to the proprietor. However, if the appeal decision is to maintain the patent either in amended or in its granted form, then the opponent can file revocation actions in each of the European countries covered by the patent. There is an Enlarged Board of Appeal whose current purpose is to rule on important points of law and to ensure a uniform application of the law, where for example two Boards of Appeal have issued conflicting decisions.

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However, changes to the EPC will come into effect in December 2007 (at the latest), which will allow parties to the appeal to request that the Enlarged Board of Appeal review the appeal decision. There are limited grounds for requesting such a review, and so it is likely that this review process will be used only in exceptional circumstances.

Tips for opposition/appeal strategy When opposing a patent:  Understand the extent to which the patent conflicts with your business so that the opposition can be targeted to the relevant parts of the patent.  Perform a comprehensive review of what was known before the effective filing date of the patent to be opposed.  Leave plenty of time to carry out the review so that time is available to fully understand the situation.  Before filing the opposition, consider settlement with the proprietor.  Where possible, try to keep the arguments simple and to the point.  Link the grounds of opposition and the arguments so as to force the proprietor to narrow the claims in a direction away from your technology.  Do not withdraw any grounds of opposition, so that the objection can still be raised in any future appeal.  Always ask for a hearing (even though you may decide not to attend). When defending an opposition:  Consider the importance of the patent to your business and defend accordingly.  Beware of arguments based on hindsight which are often made by opponents.  If amendments are necessary, consider different limitations of the patent which are commercially acceptable.  If appropriate, multiple independent claims can be filed.  Do not withdraw any requests for which you may wish to file an appeal.  Always ask for a hearing (even though you may decide not to attend).  Prepare with great care for the hearing to avoid unwelcome surprises.

Alan MacDougall and Chris Hamer are partners of Mathys & Squire, and both specialize in obtaining patent and other IP protection for clients, defending these IP rights and in opposing third-party patents at the European Patent Office. Mathys & Squire is a leading firm of patent and trade mark attorneys, providing the full range of IP advice and services to clients worldwide. Combining technical expertise, specialist legal skills and commercial awareness, Mathys & Squire helps to maximize its clients’ rewards from innovation while minimizing their risks in bringing that innovation to market.


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For further details contact: Mathys & Squire, 120 Holborn, London EC1N 2SQ, tel: (+44) (0)20 7830 0000, Trinity House, Cambridge Business Park, Cambridge CB4 0WZ, tel: (+44) (0)1223 393739, email: mail@mathys-squire. com, website: www.mathys-squire.com

11.4

IP insurance

You can bring a horse to water, but you cannot make it drink, says Matthew Hogg of Kiln in reviewing the development, availability and purchase of IP insurance in Europe.

Arguably of all the assets possessed by European companies their intellectual property (IP) is the least understood, managed, valued and therefore appreciated. Yet forces such as relatively recent accounting and regulatory change have combined with accumulated business intelligence to highlight the significance yet potential fragility of the knowledge economy’s most traded assets. While the uptake of IP insurance has been limited, with less than 1 per cent of European companies buying cover, the private insurance markets, government bodies and even patent offices see insurance bringing benefits to the IP system and expect an increased uptake in the coming decade.

Inherent risks of IP Risk is inherent in IP. Today’s winner can be tomorrow’s loser not only because of the pace of technological change or the fickle nature of human need, but also because of the very nature of IP rights, which protect that technology and yet are an asset that has no tangible form. IP rights define invention, creativity and expression using aesthetic and artistic qualities. These rights may not even be regulated by a third party, and at best are construed by words and definitions that can be interpreted in different ways, and have been written in to legal documents that do not necessarily demonstrate the visual and physical characteristics intended. The boundaries that define our intangible rights are vague, and typically are made absolutely clear only by a legal challenge of some sort.


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That challenge can then partially or even completely destroy the right, and on the flip side, infringement of such IP rights can be difficult to determine. The grant of a patent, for example, should never be seen as a right ‘set in stone’ but as a contestable statement of intent that, as a result of its limited monopoly capabilities, will be trying to control a valuable space in a market which contains other parties who will not be keen to have their commercial activities restricted. Additionally risk arises because the practice of acquiring patents is not a perfect science, and IP ‘claims’ can be poorly drafted, leaving gaps in intended remit. Poor searches of ‘prior art’ might be performed, or the process might suffer from poor examination procedures in certain countries. An IP right is also defined by national laws rather than having international application, meaning that the scope and strength of the IP might be different in various jurisdictions. Yet those IP rights are limited by a more fundamental risk: IP is only as strong as its application, protection and enforcement upon others. If the threat of litigation is removed from the IP mix, no moral constraints are likely to limit the number of infringers.

IP value The value of certain IP is often demonstrated to us clearly in the national press. The US$612.5 million legal settlement between NTP and RIM in the Blackberry saga made the news in 2006, yet there have been well over three dozen IP infringement lawsuits to date that have led to awards or settlements of over US$100 million, and awards of U$29.1 million and US$27 million have been made in Germany and the United Kingdom respectively. However, this does not give the entire picture of IP value by any means. The amount of R&D invested in products and services which translate directly into IP portfolios, or intellectual capital such as trade secrets, is immense. Value is created from the economic margins that such commercial advantages have created. This might be seen directly through a company’s own products, and additionally it is often realized through licensing agreements and royalty payments. Global licensing revenue for IP is estimated at US$150–200 billion per year. All of this in turn has ensured that approximately 75 per cent of the market value of traded companies is associated with their intangible assets, about a third of which is thought to be held in specific IP rights. It is also worth noting that the cost of protecting a product with patent rights for the duration of its useful life on a global basis could run into tens or even hundreds of thousands of euros. Recent developments have also led to clearer IP portfolio values, as ways are found to market and commoditize those assets, such as IP bonds or even recent patent auctions.

Risk and insurance IP risk can be of either an internal or external nature. Typically, but by no means in all instances, insurance lends itself to the concept of external risk because of its focus on

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fortuity. Of course certain external risks are commonly considered uninsurable, where a policy might be considered to be gambling with the future viability of the insurable interest. Certain business risks, such as the longevity of an innovation before it is supplanted by a technological development, are examples. The damage caused by IP risks can be severe. At one end the cost of legal expenses, penalties and damages associated with infringement of another’s IP, or in bringing a lawsuit against an infringer, can be both unexpected and considerable. Loss of IP following a lawsuit or expiry of exclusivity can cause a loss of consumer confidence and lower sales or profit margins going forward. The worst losses will be of a severe business interruption nature, such as the release of confidential information, or the loss of a product, brand name or other competitive advantage. Some IP insurance coverage can be found in multi-peril media policies, old general liability policies, errors and omissions (E&O) or professional indemnity coverage. The protection however is usually limited to coverage under the definition of ‘advertising injury’ liability involving copyright or trade marks, or if broader than ‘advertising injury’, is typically limited to legal expenses and liability arising from trade mark or copyright litigation only. The demand for patent protection ensures that stand-alone IP insurance is available for protecting risks associated with a greater breadth of IP rights, and with specific terms and limits that are relevant to IP claims. Of course underwriters of this class must be particularly wary of the moral hazard of insured companies (the change in their actions as a result of possessing an insurance policy), and the risk of selection against underwriters (only risk-taking companies purchasing cover). Stand-alone IP insurance really took off in the mid-1990s but had existed on a smaller scale from the end of the 1970s. Most of the insurance carriers writing the business for European companies were based in London, and predominantly in the Lloyd’s insurance market. Traditional IP insurance policies focus on the indemnification of legal expenses and liability for infringement. More recent policies look to protect the value of the IP to the business, treating it much like a property risk. The forms of cover available are briefly outlined below.

IP defence insurance This coverage is possibly best known because it was the element that was trimmed from broader policy wordings as insurers realized that not only was IP litigation expensive, it required specialist knowledge of the insured’s market and products. An additional reason was that the damage awards, particularly from US jury trials, were unpredictable at best. With patent litigation costs averaging over US$2 million in the United States and around US$0.5–1 million in Europe, excluding damages, the financial repercussions for companies and insurers alike are obvious. The cover therefore looks to indemnify the insured for its legal costs incurred during the defence of an IP infringement or invalidity action, or possibly post-grant opposition actions in the European Patent Office (EPO) or re-examination proceedings in the United States, initiated by the insured as a defence strategy. Protection can also be bought for any damages awarded against the insured.


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Many insurance markets for this product have come and gone in this niche area, particularly because of the fluctuating insurance cycle before and after 11 September 2001. Early US insurers quickly found that they were running between 4,000 to 6,000 per cent loss ratios (for example, US$4,000 paid in claims for every US$1 received in premium) on this book of business, and few markets survive in the United States. A couple of large European insurers tested the market for a few years, but typically only with domestic national insureds, and with presumably little success. The cover is still available for European companies, however, in the Lloyd’s market through a limited number of Lloyd’s syndicates, even for US exposures.

IP enforcement insurance IP enforcement insurance also indemnifies an insured for legal expenses, but this time the insured will be an IP owner and a plaintiff against an alleged infringer of those IP rights. This form of cover is particularly valuable to small companies, which for a relatively small premium have the capability to bring expensive litigation against larger companies that might have presumed they could infringe with impunity because of the IP holder’s limited resources to enforce its rights. Historically there were two clear enforcement policies, ‘known’ and ‘no-known’. A known policy was taken out by an insured which knew that someone was infringing its IP but was unable to afford litigation. An insurer could, in certain circumstances, examine the case and decide whether there was merit in supporting the action by insuring the ongoing expenses. The insurer would then receive a percentage of any financial gain made by the insured in court, as well as legal expenses if the insured was successful in its action. Both known and no-known insurance still remain available in the London markets, but are rarely offered by insurers in other countries.

IP value insurance An interesting development within Lloyd’s of London has been an insurance product to protect IP asset values, in much the same way as a company would insure its headquarters, plant or stock. The policy, developed by the writer’s employer, Kiln, does not indemnify against legal expenses or damages, but rather against the financial impact should IP rights be lost as a result of a legal action, such as a patent invalidity suit or employee ownership action. Additionally the IP might become unexploitable as a result of certain legal or regulatory actions of governments. The various ways in which value can be derived from IP and insured under an insurance policy include:     

IP-rich product revenue stream margins; licensing income and royalty receipts; IP portfolio valuation; prior R&D expenditure; collateralized IP for loans;

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IP INSURANCE 417 

 investment in IP-rich companies;  accounting valuations for tax or M&A purposes.

Open source compliance insurance An even more recent development has been the emergence of an insurance product to indemnify an insured for the financial loss suffered as a result of an action brought against it for non-compliance with open source (OS) licences and, predominantly, the stringent conditions of the general public licence (GPL). The OS software movement now has considerable traction, and the operating system of Linux (estimated to be used on 4.1 million servers and 12 million devices in 2006) along with other OS software is attractive both for internal use and as a business proposition for providing services around new product developments. The risk involved however is that any use of OS code (protected by copyright law) within another project, or any development of an OS project that is then distributed beyond the company, must be done in compliance with the original licence. This can effectively mean that ‘proprietary code’ mixed with OS code must also be distributed for ‘free’ under the terms of the licence. While this was originally seen as a US exposure, where OS groups such as the Free Software Foundation were highly developed to bring actions against the noncompliant, the exposure is now a very real risk in Europe, with the activities of groups such as the gpl-violations.org project. The insurance product provides cover for:  loss of profits resulting from a legal settlement preventing the use or sale of the insured’s product, resulting from the requirement to distribute certain code or products in compliance with any licence;  the impaired valuation of an acquisition agreement or adjusted sale price for the reasons above, where OS representations and warranties have been insured;  costs to repair or replace code so that it complies;  any other acceptable value such as R&D expenditure on the product.

Final remarks There is no doubt that as awareness of IP value grows within European companies, there will be a commensurate increase in interest in IP insurance to protect fundamental assets. It might be argued that the traditional purchase by companies of property insurance is outdated when looking at key revenue drivers. IP does not bring only business risks that are non-insurable but with fortuitous yet far-reaching perils. The insurance markets, particularly in Lloyd’s of London, have developed and maintained many solutions to these perils. However the market will not develop further without an increased uptake from buyers.


____________________________________________________

Matthew Hogg is an underwriter at Kiln, one of the largest managing agencies at Lloyd’s of London. Matthew is the specialist in the field of IP insurance, and in particular first-party cover. He is also the underwriter for a number of new product offerings from Kiln focusing on the business interruption risks associated with intangible assets, including cyber, OS and reputation risks. Matthew can be contacted by email at [email protected], or tel: (+44) (0)20 7886 9000.

Appendix 1

History, organization and procedures of the European Patent Office

Origins Over 20 states met at a diplomatic conference in Munich in 1973 to discuss the introduction of a European patent grant procedure. The conference concluded with the signing of the European Patent Convention (EPC) by 16 participants. Four years later, on 7 October 1977, the EPC came into force. All signatories to the EPC aligned their national patent law with the EPC, resulting in substantial harmonization in patent laws across Europe. Those states that have acceded to the EPC (either in 1973 or subsequently) are said to be members of the European Patent Organisation. The legislative body of the Organisation is the Administrative Council, whose delegates come from every member state and meet four times each year. The Administrative Council decides matters of policy and finance, and numerous committees, boards and working groups on technical topics report to it. The executive body of the European Patent Organisation, namely the European Patent Office (EPO) in Munich, began its work as a granting authority when the EPC came into force. On 1 June 1978 the first applicants filed for European patent protection. In that same year the EPO expanded to include sites in Berlin and The Hague, originally the seat of the International Patent Institute. By 1979, 10,000 European applications had been filed. The EPO granted its first patents in 1980.

 420 APPENDIX 1

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The filing figures reflect the rapid development of the EPO: the 100,000th application was filed in 1983 and nine years later the total was 500,000. During 1998 total filing figures reached the million mark. The Vienna site was established in 1992 and incorporated the former International Patent Documentation Center already located in the Austrian capital. A small EPO liaison office was also opened in Brussels to build up relations with the European Union institutions. A further 12 states have acceded to the European Patent Convention since 2002 alone – a testimony to the strength of the European patent system.

Patentability A patent is a legal title granting its holder the right to prevent third parties from commercially exploiting the invention without authorization. European patents are granted for inventions that  are new;  involve an inventive step;  are susceptible of industrial application. Furthermore, the following are not considered to be inventions, if the European patent application only relates to such subject matter or activities:  discoveries, scientific theories and mathematical methods;  aesthetic creations;  schemes, rules and methods for performing mental acts, playing games or doing business;  computer programs. This means that, for example, a computer program alone is not a patentable invention, even though a novel technical invention which is implemented through means including a computer is eminently patentable. Such an invention is more than just a computer program alone. In addition to this, inventions falling into the one of the following categories will not be able to obtain patent protection:  plants and animal varieties or essentially biological processes to produce plants or animals;  inventions contrary to ‘ordre public’ or morality. In return for the protection bestowed by the patent, the holder has to disclose the details of the invention. This information is published in the patent document so that everyone can benefit from the information it contains. The exchange of information concerning the invention in order to gain the protection offered through a patent is also known as the ‘patent bargain’.

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HISTORY, ORGANIZATION AND PROCEDURES OF THE EPO 421 

Patent application procedure The services of a qualified European patent attorney are advisable to ensure that a robust patent application is filed which will be an asset to the applicant. The European grant procedure takes about three to four years from the date the application is filed. The application must be filed in one of the EPO’s three official languages, English, French or German. There are two main stages for the patent application:  Formalities examination and search report preparation, where the EPO checks that the application meets all formal requirements, and a search report, listing documents relevant to the patent application (‘prior art’), is prepared and sent to the applicant together with the so-called Extended European Search Report, an opinion on whether the application seems to meet the requirements. After 18 months from the first filing date (or sooner, at the applicant’s request) the patent application is published, and included in the patent databases around the world to be viewed by the public.  Substantive examination is when the EPO, at the applicant’s request, investigates whether the invention meets the requirements of the EPC and whether it is patentable. This process can involve several exchanges of written arguments between the EPO examiner and the applicant (or rather, the applicant’s patent attorney) as they refine the scope of protection for the invention (eg to be limited just to those features that are novel and inventive in view of the prior art). Applications into the first stage come to the EPO either by direct filings, or by transmission of applications filed at national patent offices on the request of the applicant. There is, however, an alternative route. If an application has been filed at the World Intellectual Property Organization (WIPO) under the Patent Co-operation Treaty (PCT), then it will have its formalities examination and search report prepared under (similar) PCT procedures, and then be transmitted to the EPO for the second stage (substantive examination). Often the search will have been done by the EPO too, because the EPO is one of the competent authorities to which search work under the PCT is delegated. Of course, PCT applications can also form the basis for substantive examinations in over 100 other countries. Once all objections arising from substantive examination have been resolved, the patent will be granted, with the claims appearing in all three official languages. There may then follow a third stage:  Opposition proceedings, which can take place if an opposition is filed within nine months of publication of the mention of the grant of the European patent. Oppositions can be filed, for example, on the grounds that an invention is not patentable under the EPC, that it does not disclose the invention clearly and completely so that a person skilled in the art could carry it out, or that the subject matter of the European patent extends beyond the content of the application as filed. Such challenges are heard by Opposition Divisions of the EPO, and can take several years to resolve, with the filing of evidence and written arguments by both sides. Decisions of the Opposition Division (to uphold, amend or revoke the patent)

 422 APPENDIX 1

_______________________________________________________

can be appealed (see below). If revocation of the patent is upheld, then rights are lost in all member states.

National validation and maintenance Up until grant the application will have been handled in one of the three official EPO languages (English, French or German). After grant the application loses its unitary quality, and becomes a bundle of national patent rights. For the complete granted patent to take effect in each member state, translations into the relevant official language must be filed.1 These translations must be filed at the national patent offices, usually within three months2 of the mention of the grant of the patent, otherwise rights in that state will be void. The national laws of some states allow for the re-establishment of rights if the deadline for filing translations is missed. Granted national patents are kept in force by the payment of renewal fees (usually annual fees). For those patents that originated through the EPO procedure, a portion of the renewal fee collected by the national patent office is paid back to the EPO. If renewal fees are not paid, the patent will lapse and the technology that had been protected becomes free for everyone else to use. Where a patent owner has allowed their patent to lapse no one can restore it and bring it back into force. The loss of rights in one country (ie through lapsing, or an adverse court decision) does not affect the rights in another country.

The Boards of Appeal Although administratively integrated in the structures of the EPO, the Boards of Appeal are independent from the Office in their decisions and are only bound by the EPC. There are currently 24 technical boards of appeal, the Legal Board of Appeal, and the Enlarged Board of Appeal in the EPO. The technical boards of appeal and the Legal Board of Appeal examine appeals from the decisions of the receiving, examining, legal and opposition divisions of the EPO. You can consult the division of technical fields between the individual boards in the ‘Business distribution scheme’ documents in the Patents section of the EPO’s website. Work is allocated according to the International Patent Classification. Members and chairs of these boards are appointed for a term of five years. To ensure uniform application of the law, or if an important point of law arises, a question of law can be referred to the EPO’s Enlarged Board of Appeal, either by a board of appeal or by the President of the Office. Members of the Enlarged Board of Appeal are appointed for a term of five years. In recent years the boards of appeal have been receiving about 2,000 new cases and settling about 1,600 cases per year. The public is informed about the decisions of the boards via the Register of European Patents, the Official Journal of the EPO, a database of decisions available online and on ESPACE Legal DVD. A systematic overview of the complete case law is available in an EPO publication, Case Law of the Boards of Appeal of the European Patent Office.

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HISTORY, ORGANIZATION AND PROCEDURES OF THE EPO 423 

Table A1.1 Some European Patent Office statistics for 2006 Applications filed Direct European applications PCT international phase applications Total European applications (including PCT international phase) PCT applications entering the regional phase European applications (including PCT regional phase) Searches European searches International searches Searches for national offices and third parties Total searches by the EPO

61,002 147,000 208,002 74,181 135,183 75,727 69,577 18,269 163,573

Examinations European examinations International preliminary examinations European patents granted Decisions in opposition cases

83,067 14,574 62,780 2,641

Technical fields with the most filings IPC classes Medical or veterinary science; hygiene Electric communication technique Computing Basic electric elements Organic chemistry Measuring; testing Vehicles in general Biochemistry, genetic engineering Organic macromolecular compounds Engineering elements Sub-total Others Total

Number 15,656 13,375 854 7,996 7,438 7,069 4,320 3,830 3,686 3,275 75,499 56,360 134,859

% 11.6 9.9 6.6 5.9 5.5 5.2 3.2 2.8 2.7 2.4 56.0 44.0 100.0

Note: this is preliminary data compiled in March 2007. Final official figures for 2006 can be seen in the EPO Annual Report, published in June 2007.

 424 APPENDIX 1

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Notes 1 With the exception of Lithuania and Slovenia, which only demand translation of the claims. Iceland also accepts the claims alone in Icelandic, if the description is in English. 2 Some states allow more time, but only on payment of a surcharge.

For more information about the EPO, European patent filing procedures, access to patent databases and schedules for a range of public events, conferences and training seminars, please visit www.epo.org

Appendix 2

The Office for Harmonization in the Internal Market

Introduction The Office for Harmonization in the Internal Market (OHIM) is the EU agency responsible for managing the Community Trade Mark (CTM) and Registered Community Design (RCD) systems. It was set up in the Spanish city of Alicante in 1994. Since opening to the public two years after its inception, the agency has received applications from more than 170 countries worldwide for over 560,000 CTMs, 360,000 of which have been registered, and over 230,000 applications for RCDs – available since 2003. Community registration of trade marks and designs is based on the principle of offering EU-wide protection for each of these IP rights through one single registration process for trade marks and another for designs, each governed by its own single piece of legislation. The trade mark or design right granted by the OHIM is therefore indivisible and unitary in character, offering either trade mark or design protection under one single IP title for the entire European Union as a single territory, currently made up of 27 Member States.

The Community Trade Mark Applications to register a CTM can be made directly to the OHIM in Alicante or via any of the national industrial property offices of the European Union, which will in

 426 APPENDIX 2

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turn pass the application to the OHIM for processing. The use of the agency’s online CTM filing system has proved popular with users, over 70 per cent of whom now use this method when applying for a CTM. Electronically filing a CTM application also carries a 10 per cent reduction in the filing fee, making the option more attractive still. Once received, the application will be examined by the OHIM to ascertain whether or not it can be accepted for registration, and if accepted it will be published for a period of three months to allow potential prior right holders to oppose the registration. The OHIM, unlike many national IP offices, does not make ex officio objections to Community registration on the basis of prior rights existing, but rather leaves the matter of raising of such objections in the hands of the affected parties. At the initial stages of an opposition to a CTM application, both parties enter into a ‘cooling-off’ period where they themselves, without any intervention from the OHIM, are given two months in which to come to an agreement over who owns the rights in question, and therefore whether or not the CTM application should proceed to registration. Any agreement reached by the parties at this stage will be accepted by the OHIM. If no such agreement is possible, it falls to the OHIM to take a decision based on the subsequent submissions of each of the parties, in which it will either allow the CTM application to proceed to registration or refuse it. The average time taken to register an uncontested CTM is around 18 months, although any opposition proceedings may extend this period. There is also the option to apply to the OHIM for the cancellation of a CTM, through either a revocation request or an invalidity request, once the mark has been registered. A registered CTM is valid for 10 years from the date of filing, and can be renewed indefinitely for subsequent periods of 10 years upon payment of the corresponding renewal fee.

The Registered Community Design The process of Community Design registration is much simpler and quicker than that of the CTM, principally because no substantive examination as to the registrability of the design is made by the OHIM. As with CTM applications, an RCD application can be filed directly at OHIM, and there is also the option to file online, or via any of the national IP offices of the EU Member States. Unlike the CTM system, RCD filers can include any number of designs in one single application, as long as each of the designs is for the same type of product. These multiple applications have the added benefit of a progressive scale of fee reductions for each design after the initial design, and again for each design after the first 10 filed. The examination of a Community Design prior to registration is based exclusively on formalities and any elements of the design itself that may contravene accepted standards of public morality. Once registered, in around eight weeks, the design right obtained is valid for a period of five years and can be renewed for a further four periods of five years each, entailing a maximum lifetime of 25 years.

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THE OHIM 427 

E-business and information services The OHIM has developed a number of e-business tools over the years to facilitate interaction between its staff and the users of the RCD and CTM systems, especially in relation to filing applications online. This facility now exists for CTM and RCD applications, for oppositions and for CTM renewals. The ‘mypage’ interface allows users to create their own personal, passwordprotected account with the OHIM, via which they can manage their entire Community IP portfolio and undertake simplified filing procedures. The CTM Online and RCD Online databases offer fully searchable data at no cost, and can be accessed, as with all of the Office’s other online tools, at www.oami.europa.eu.

OHIM facts and figures The OHIM handles an average of around 50,000 CTM applications each year, although 2005 and 2006 saw filings rise to around 65,000 and 77,000 respectively, with similar numbers foreseen for 2007. Oppositions are filed against 20 per cent of all CTM applications published, although only 20 per cent of these oppositions actually proceed to decision. There have been 2,050 post-registration cancellation requests submitted to the OHIM since the first CTM was registered, leading to only 190 marks actually being cancelled. Since 1996, CTMs have been filed by companies in 174 different countries, with 22 per cent of this total coming from the United States alone. Sixty per cent of all CTM filings are from EU-based companies, principally in Germany, the United Kingdom, Spain, Italy and France. Goods relating to the information technology and telecommunications industries top the ranking in terms of CTM filings, followed closely by services in the field of telecommunications. In the area of RCD, over 230,000 designs have been received in a total of 60,200 applications, around half of which were multiple applications. Germany heads the list of RCD filing nations, with over 23 per cent of all RCDs coming from this country, followed by Italy, the United States, France, the United Kingdom and Spain.

Further information can be obtained via the OHIM website at www.oami.europa. eu or by sending an email to [email protected]

Appendix 3

IP offices

IP offices of the European Patent Convention member states Austria Austrian Patent Office http://www.patentamt.at/Home/index.html

Belgium Belgian Patent Office (Ministry of Economic Affairs) http://mineco.fgov.be/redir_new.asp?loc=/intellectual_property/home_en.htm

Bulgaria Bulgarian Patent Office http://www1.bpo.bg/

Cyprus The Department of the Registrar of Companies and Official Receiver (DRCOR) of the Republic of Cyprus http://www.mcit.gov.cy/mcit/drcor/drcor.nsf/index_en/index_en?opendocument

Czech Republic Industrial Property Office http://isdvapl.upv.cz/servlet/page?_pageid=82,110&_dad=portal30&_ schema=PORTAL30

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IP OFFICES 429 

Denmark Danish Patent Office http://www.dkpto.dk/

Estonia The Estonian Patent Office http://www.epa.ee/default.asp?site_id=2

Finland National Board of Patents and Registration of Finland http://www.prh.fi/en.html

France Institut National de la Propriété Industrielle http://www.inpi.fr/front/?ref=http://www.european-patent-office.org/onlinelinks/a/aa/ undefined

Germany German Patent and Trademark Office/Deutsches Patent- und Markenamt http://www.dpma.de/index.htm

Greece Greek Industrial Property Organisation http://www.obi.gr/online/

Hungary Hungarian Patent Office http://www.hpo.hu/English/

Iceland The Icelandic Patent Office http://www.patent.is/focal/webguard.nsf/key2/index.html

Ireland Irish Patents Office http://www.patentsoffice.ie/en/homepage.aspx

Italy Italian Patent and Trademark Office http://www.uibm.gov.it/

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Republic of Latvia Patent Office of the Republic of Latvia http://www.lrpv.lv/

Liechtenstein Amt für Handel und Transport (AHT) http://www.llv.li/amtsstellen/llv-aht-home/llv-aht-home-kurzvorstellung.htm

Republic of Lithuania The State Patent Bureau of the Republic of Lithuania http://www.vpb.lt/

Luxembourg Service de la Propriété Intellectuelle http://www.eco.public.lu/

Malta Malta Patent, Design and Trademark Office http://www.mfin.gov.mt/

Monaco National Patent Office, Direction de l’Expansion Economique, Division de la Propriété Intellectuelle No webpage available but the following email address has been given: [email protected]

Netherlands Octrooicentrum Nederland (The Netherlands Patents Office) http://www.octrooicentrum.nl/

Republic of Poland Patent Office of the Republic of Poland http://www.uprp.pl/English

Portugal Portuguese Patent Office http://www.inpi.pt/irj/portal/anonymous?j_user=inpiguest_en

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IP OFFICES 431 

Romania Romanian State Office for Inventions and Trademarks http://www.osim.ro/index3.html

Slovak Republic Industrial Property Office http://www.indprop.gov.sk/

Slovenia Slovenian Intellectual Property Office http://www.uil-sipo.si/

Spain Officina Española de Patentes y Marcas http://www.oepm.es/cs/Satellite?c=Page&cid=1144260495042&classIdioma=_en_u s&idPage=1144260495042&pagename=OEPMSite%2FPage%2FtplHome&numPag Actual=1

Sweden Swedish Patent and Registration Office http://www.prv.se/english/default.html

Switzerland Swiss Federal Institute of Intellectual Property http://www.ige.ch/defaulte.htm

Turkey Turkish Patent Office http://www.tpe.gov.tr/tpe/index_en.jsp

United Kingdom UK Intellectual Property Office http://www.ipo.gov.uk/

Trilateral offices European Patent Office www.epo.org US Patent and Trademark Office www.uspto.gov

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Japan Patent Office http://www.jpo.go.jp/

Other major regional or multinational IP authorities Office for Harmonization in the Internal Market (OHIM) http://oami.europa.eu/ World Intellectual Property Organization (WIPO) http://www.wipo.int/portal/index.html.en Benelux Office for Intellectual Property (BOIP) http://www.boip.int/ Eurasian Patent Organisation (EAPO) http://www.eapo.org/ African Regional Intellectual Property Organization (ARIPO) http://www.aripo.wipo.net/index.html African Intellectual Property Organization (OAPI) http://www.oapi.wipo.net/fr/OAPI/index.htm International Union for the Protection of New Varieties of Plants (UPOV) http://www.upov.int/

Index of advertisers

Abel & Imray 181, 183 Assenpatent BV 43–46 Awapatent 48–50

HGF / HGF-Law xlii Holme Patent A/S 361 Hynell Patenttjänst AB xliii–xlvi

Bavarian Nordic 232–35 Beck Greener 341 Bevan Brittan ix BGW AG 131 Bird Goën & Co 38 Bournemouth University 82–83 BiiP (Business-Integrated Intellectual Property) 257–60 Brann (Dr Ludwig Brann Patentbyrå AB) 326

IBC Legal Conferences (informa business) xix, xxi IMEC 203–06 The Intellectual Assets Centre 262 International Patent Bureau A/S 52 IP-search (Swiss Federal Institute of Intellectual Property) 217 Iprbox Oy 94–97 Italian Patent and Trademark Office 77 J A Kemp & Co

Carpmaels & Ransford 191 Currencies Direct xxiii

153

Danish Patent & Trademark Office iv–v

Kiln plc vi Kirkpatrick 257 Kings College London (informa professional academy) xxi

EPO (European Patent Office)

Loven

ii

Finnegan, Henderson, Farabow Garrett & Dunner LLP 165 Genmab 148–51 Gill Jennings & Every LLP vii GN A/S xxix–xxxii

199

Marks & Clerk xiv–xv Mathys & Squire x, xiii Mewburn Ellis LLP 247 Minesoft xvi MIPLC (Munich Intellectual Property Law Centre) xxxvi–xxxviii

 434 INDEX OF ADVERTISERS

Modiano

________________________________________________

58–59

Nederlandsch Octrooibureau Novagraaf 99 Novo Nordisk 33 Novozymes A/S 159–62

R G C Jenkins & Co 89–91

Octrooibureau Vriesendorp & Gaade 368–72 Patent Seekers 171 Proctor & Gamble (P&G) xxxiii–xxxv PRV InterPat (Swedish Patent & Registration Office) 102 Queen Mary, University of London, School of Law 119–21

310

Schlumberger 27 Schmauder & Partner AG 11–13 Slovenian Intellectual Property Office 385 Ström & Gulliksson AB 64 Taylor Wessing 402 TFI (Technology from Ideas) Tomkins 111

111

UK Intellectual Property Office viii The University of Edinburgh 122–23 Valea Technology & Law Vestas 388–91

18–20

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