When it comes to protecting what a business owns it’s easy to think of the physical – premises, equipment, stock and vehicles.
But what few seem to do, or more accurately, do well, is take steps to protect the intangibles. From in-house software to the goodwill that attaches to a brand and trademark, intellectual property (IP) can be far more valuable that any physical assets owned.
And the 2018 Interbrand Best Global Brands 2018 Rankings proves the point. It placed Apple in first place with a brand value of $214bn; Google second at $155bn, while at 100th place is Subaru with a price tag of just $4bn.
What is IP?
As defined by the Oxford Dictionary, intellectual property is “intangible property that is the result of creativity”. That opens up a wide definition, but Nick Rose, partner and head of FieldFisher’s intellectual property and technology litigation group, says that “there are a number of different intellectual property rights (IPRs) available to creators of IP. These include, copyright, trade marks, patents, industrial design, and in some countries, trade secrets.”
Copyright protects the expression of ideas (but not the idea itself); trade marks protect signs (think brands) that are used by traders to differentiate from other traders; patents protect new inventions; and design rights protects the visual appearance of an object (the shape, texture, contours and ornamentation). These, says Rose, are the core IPRs, with the tort of passing off, database rights and trade secrets/confidential information often being closely linked.
The law grants IPRs varying lengths of protection and some may be registered or unregistered. For Rupert Bent, a partner within the IP and Media Group at Eversheds Sutherland, the essence of IP law is to “prevent others from appropriating IP rights in such a way that creates confusion in the minds of others that certain businesses are connected which may cause damage a rights holder’s brand”.
Why protect IP?
Sarah Williams, a senior associate and chartered trade mark attorney at law firm Walker Morris, says that not only is IP a valuable asset, it is commonly the asset upon which many businesses are built. “The top players in the fashion industry are prime examples. Their products, though admittedly often well-made and of good quality, have their prices grossly inflated to take in account their brand value.”
As she notes, people buy brands, not products, and it’s for this reason that Williams says that brands must make every effort to limit misappropriation of their brand: “If a consumer suffers a bad experience with a branded item, even if it is counterfeit, they will form a negative view of the brand and not the product. This tarnishing can often be permanent.”
Some brands have gone to extreme lengths to prevent this. Burberry famously withdrew many of their products and patterns from sale due to widespread copying. They have since re-launched and are far stricter in their approach to infringement.
Rose says that taking steps “protects the value of the asset and serves as a disincentive for others to exploit a firm’s IP. In particular, in the case of registered protection, third parties are able to view the rights on a public register and are therefore put on notice of a firm’s registered rights before commencing any infringing use.”
Financially, Rose notes that an IPR’s value derives from the fact that “they can be licensed or sold on, creating an additional source of revenue for the IP owner. In addition to earning royalties through licences, firms can use their IP as security for loans in order to raise finance.”
For most rights the mechanics of protection are tied to registration. But Williams cautions firms here. She says that “where possible it is sensible for a registration to be owned by a limited company.” She says this for two reasons. “It is the rights owner who would be liable should an infringement action be brought against them. Therefore, if a right is owned by an individual, they become personally liable. Second, a registration in the name of the company also ensures that the company has control over the IP right in question.”
And this makes sense. If a right is owned by an individual, and that person leaves the business, unless there are other provisions in place, the IP right would be theirs to take with them. “It is not unheard of,” says Williams, “for business partners who were previously the best of friends, to fall out and then have to settle disputes over the ownership of IP rights. If the right is in one person’s name, it is more complex for the other partners to make a claim over its ownership.”
Rose agrees. In his opinion, getting this in order is important as the IPR is an asset of the company. He also draws a distinction between the owner of the IP and a licensee: “It is not uncommon for the IPR to be held by a separate IP holding company related to the main corporate entity for tax or accounting purposes.”
But there is another reason to take over rights ownership adds Bent – to deal with infringement: “In order to be able to recover damages [for any infringement], the owner of the rights should also be the user of the rights, either directly or by way of licence.”
Interestingly, Williams has come across scenarios where third parties have registered a company’s brand name or design without the rightful owner’s knowledge. “This prevents the IP right owner from being able to register their own mark or potentially trade in a territory... and it is affecting UK right owners on a daily basis.” While this problem is solvable with cold hard cash, she says that the sums “are often hugely inflated figures and can be tens if not hundreds of thousands of pounds. However, often the owner has no choice but to concede and pay the sum in order to carry out their business.” While she admits it’s less likely in the UK and EU, it is a serious problem elsewhere. Registration is comparatively much less expensive than having to negotiate with a squatter to buy back a registration.
Once a right is registered, Williams advises that it is important that the right owner polices their IPR properly and enforces when necessary and appropriate.
“Particularly in the case of trade marks,” says Williams, “if a right owner allows other marks to co-exist on the trade marks register or in the market place there is an argument that they are allowing their exclusivity in the trade mark to be diminished.” Clearly a firm cannot keep a constant watch, which is why she suggests a watching service to monitor the trade marks register. “If a conflicting mark is highlighted the owner of the earlier right may oppose its registration.” This would be via a trade mark opposition before the trade marks office, an inexpensive way to ensure that exclusivity on the register is not weakened. But Rose adds a caveat – “this would only prevent a third-party holding an identical or confusingly similar registration and does not cover off infringing use.”
An alternative is to initiate infringement proceedings before a court. But Williams warns that bringing an infringement action is costly for both parties and should not be entered into lightly. “Before deciding whether to bring an action, a full review of the case and the possible outcomes should be undertaken with an IP lawyer as no case is a guaranteed success. However, before getting to the stage of issuing proceedings, it would be usual to issue the infringing party with a cease and desist letter.” She adds that this is not too costly and will usually resolve a case satisfactorily or at least bring the other party to the negotiating table.
But what happens if there’s no response? Rose says that “if no undertakings are provided, in the UK, rights holders can enforce their rights in full High Court or Intellectual Property Enterprise Court proceedings.” He makes the point that the Intellectual Property Enterprise Court is an alternative venue to the High Court for bringing intellectual property proceedings for SMEs. “It provides a streamlined procedure and financial limits for recovery of damages (at £500,000) and for legal costs (capped at £50,000).”
Where the infringement has an immediate damaging effect, Bent says “an IP owner may apply for an interim injunction (full proceedings would then usually follow) which would prevent the infringer from infringing the rights in question while the dispute is resolved.” He adds that if the dispute looks relatively straightforward, the owner may apply for summary judgment (without trial) or a speedy trial, “particularly where the issues are discrete, and the evidence is not too burdensome.”
It’s possible, says Bent, that businesses may decide to make applications without notice, “particularly where it is important that the infringer is not tipped off as they may destroy evidence.”
Another issue to be aware of, according to Williams, is not allowing trade marks to become generic. Hoover is a classic example. “By allowing others to use the trade mark descriptively, the trade mark can become generic and therefore an owner risks the cancellation of their own registration and also loses their ability to bring an action on the grounds of infringement.”
As to when to enforce, Rose says that firms can’t go after everyone “but businesses do need clear blue water around their makes and must safeguard their patents. Much will depend on the threat to the business.”
Bent’s perspective is based on pragmatism – he says to consider how damaging the exploitation of rights is likely to be. “For minor infringements, it is unlikely to be economic to deal with every infraction and start litigation which can ultimately be very lengthy and costly. However, for more serious infringements that are harmful to the business, the cost of enforcing is outweighed by the potential damage that may result from doing nothing.”
Enforcement of IPRs through litigation is costly, but Rose says that more often than not, intellectual property disputes will be settled without issuing proceedings, “or, if proceedings have been issued, without the need for a trial.”
It won’t surprise many that insurance can be bought to protect against risks associated with IP infringement. Most insurance of this nature, but not all, is aimed at businesses who have already secured IP rights.
However, firms can also protect themselves against inadvertently infringing the rights of others. Williams warns that “if you have received the cease and desist letter, it is probably too late.”
Rose points to Before the Event (BTE) legal expense insurance that can be obtained before an alleged infringement occurs. It covers the cost of opinions on the likelihood of success of an action; the main actions for enforcement of rights or defence to allegations of infringement; damages if a company loses an infringement action; and a defence to challenges to the validity of a firm’s rights. One other benefit of BTE insurance is that it frees up funds that might otherwise be tied up in a claim.
For those on the end of a failed claim, Rose looks to After the Event (ATE) insurance “which protects litigants in respect of adverse costs awarded against them in the event that their claim is unsuccessful.” ATE can, however, be costly.
Bent offers a reminder – “insurance is only available before the possibility of a claim is known about or ought to have been known about.”
The IP landscape post Brexit
There is an elephant in the room. Brexit. And the natural question to pose is what will happen come the UK’s exit from Europe?
Williams says the landscape for IP rights is currently quite difficult to predict. “As yet, nothing is set in stone and the rights of the holders will depend on the outcome of the ongoing negotiations between the UK and the rest of the EU.” She adds that “we believe that any registered IP right at the EU Trade Marks and Community Designs Office will automatically be extended in the UK at the end of the UK’s transition period, 31 December 2020.”
Rose, too, thinks that change is coming, and he notes a recent publication from the UK Intellectual Property Office (UKIPO), IP and Brexit: The Facts guide, which provides information on the future of IPRs after Brexit. “The guide, which was first created in August 2016, has been updated in the light of the flurry of Brexit-related publications and announcements in recent weeks in relation to IP.
In the short term, we may see a significant increase in UK national filings to ensure that EU wide rights holders are guaranteed protection post Brexit.”
It’s clear that firms need to protect their IP to prevents others from exploiting creations and ideas that they own. Any failure to act could lead to a dilution of market share, the loss of any registered rights, and the diminution in company value.
Case study: Mask-arade
Mask-arade, part of the Rubie’s Group of companies, specialises in photographic masks of celebrities for parties and other events. Commercial director Ray Duffy says that he and his co-founders were aware of IP rights when starting up. “As we grew and gained more clients we took on the services of a local IP law firm before we started to manufacture our printed celebrity face masks.” He says they “were instrumental in steering our young company in the right direction”.
IP rights process can get expensive, says Duffy, if rights holders over extend the scope of their rights when protecting ideas without any potential sales in a given territory. This is why he says “it is best to take a real look at the potential areas/territories you want cover rather than take a blanket approach.” The firm uses an international IP and brand protection team to look after registrations. He says that the company has just successfully registered trademarks and designs in the UK, EU and has patent pending in the US for a range of new products. Mask-arade is in the process of doing this for a new set of party accessories.
The current range of legal protections are sufficient in Duffy’s opinion. “As long as you use a combined effort and involve all relevant authorities you should be okay. It is all too easy for a copycat business or manufacturer to ignore a cease and desist letter. You need to have confidence in your registrations and ask for the removal of infringing products as well as an accountability of profits. You need to have the means to follow this through to a successful conclusion.”
Mask-arade takes a zero-tolerance approach to enforcing against infringements and “is working with all of the main ecommerce platforms to ensure that we can successfully target infringing resellers”.
In anticipation of the future, post-Brexit, Duffy says Mask-arade has filed new trade mark registrations with the UKIPO and EU Intellectual Patent Office to ensure is it well protected. “It may become slightly more involved,” says Duffy, “and we have noticed things taking longer than expected to run the process. The unfortunate thing is that no-one really knows what the impact of Brexit will have on IP rights. We will have to wait and see what the future holds.”