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Using IP to build and protect your business

Intellectual Property (IP) doesn’t just protect technology from competitors. It builds shareholder value and serves as a cost efficient tool to control risk. That may be the commercial risk associated with being displaced by competitors, or the legal risk associated with becoming a target of litigation from other IP rights holders.

This control of commercial and legal risk is, in our view, one of the key objectives of IP strategy. In our latest article we explain how, and why, MTA members should build their IP position with this in mind.

MTA members develop innovative technology of all kinds all the time: software, firmware, product design, manufacturing process, tooling and much more. All of this technology gives rise to IP rights - copyright, confidential information, designs, and patents.

These IP rights can be divided into two categories: unregistered rights and registered rights.

Unregistered rights arise automatically, whilst registered rights as the name suggests, must be registered with the relevant authorities. A different approach is required for each.

Unregistered IP Rights

Unregistered IP rights, such as copyright and confidential information, are powerful but can be costly and difficult to enforce. There are three key hurdles:

1. It must be proven that the right exists at all.

2. Ownership of that right must be proven.

3. It must be proven that there has been some improper breach of that right – whether by copying in the case of copyright, or by breach of confidence in the case of confidential information.

Proper management of unregistered rights aims to address the first two of these hurdles.

This requires a proper framework of legal agreements. A non-disclosure agreement (NDA) is a start, but it is not enough on its own. Careful record keeping, and proper control of projects and processes, such as software development and information exchange, are also essential.

If managed properly, like any other IP right, unregistered rights can be licensed out to generate revenue, used as the basis of an injunction to force copy-cat products off the market, or as a lever in negotiations to bring the other side to the table or achieve a better outcome for the rightful owner.

However, legal proceedings based on unregistered rights are costly and time consuming, and the outcome is often difficult to predict. As a result, parties may be more likely to risk a dispute because they assume that the IP rights holder will be unwilling to sink cash and managerial time into a dispute with an uncertain outcome. This effect is magnified if one party to a dispute has more resources. Uncertainty costs money to resolve, and so favours those with deeper pockets.

Registered IP Rights

Registered IP rights, such as patents and registered designs, are the best way to resolve these problems. They reduce uncertainty and, as a result, make disputes less likely and level the playing field between unequal parties.

Patents should be used when the value in something comes from how it works – most often the case for software, manufacturing methods, electronics, machinery and tooling.

Registered designs should be used when a product has value because of its appearance or its shape - most often the case for a consumer product, or a software user interface.

Both patents and registered designs provide the right to prevent others making, selling or otherwise dealing in a particular product or method (in the case of patents). The other main benefit is that it’s not necessary to prove copying - the right may be enforced against someone who has independently developed the same thing. In addition, the questions of the existence of the right and its ownership are both a simple yes or no.

For these reasons, enforcing registered rights is simpler and the outcome is more predictable. In practice, this makes it less likely that there is a need to enforce them at all.

The cost of registration is also significantly lower than (often less than 1%) of the costs of attempting to enforce unregistered rights. Registered IP rights therefore drive decision making. Quite often the decision is to avoid the risk and cost of litigation completely. Faced with a valid patent, very few businesses are willing to infringe.

For example, customers considering switching to an alternative supplier need to take reliability of supply into account. If the alternative supplier would infringe registered IP held   by the incumbent, then an IP based injunction could take them off the market at any time. No customer wants an unreliable supplier. This can make the difference between the incumbent keeping a customer and losing them. Registered IP rights also have defensive value. An owner of registered IP rights makes a less attractive target for litigation because they may be able to enforce their own IP rights against the would-be litigant. We’ve seen both of these things happen in practice. Controlling risks like these is the purpose of IP strategy.

There is no one size fits all approach, the right advice depends on the detail of your circumstances and your objectives. These may be complex, but we provide straightforward understandable advice to guide you through the issues.

To discuss the best approach for protecting the IP in your manufacturing business contact

Sean Leach, Partner in Mathys & Squire on saleach@mathys-squire.com