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Patently Aggressive

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aa17-aug-sep-2006-patently-aggressiveYour IP is registered, but that’s no guarantee your livelihood is safe from harm. Without enforcement, those patent and trademark certificates aren’t worth the paper they’re printed on. Manipulating the IP system is a fine art, resulting in tactical stoushes between big players and small. Jodie O’Keeffe reports on a business world turning Patently Aggressive.

We are all affected by intellectual property (IP) rights. Try making it through a single day without glimpsing the © ® or ™ symbols, loaded with the implicit message ‘this is mine, not yours’. Perhaps these symbols are so prevalent they have earned our disregard. We burn CDs and share them with friends, we record television programs and play them back (more than once), and we pass on web like idle gossip.

Many of us infringe the IP rights of others on a daily basis, perhaps with only partial awareness and generally without intent to profit. The ramifications of these infringements are not usually felt, unless you are one of the few unlawful music-downloading individuals targeted by the music industry in an effort to deter the masses.

Some IP rights are infringed lightly, but the notion of intellectual property is a weighty one. Arguably, the ability to exploit IP for commercial gain underpins the global economy and stimulates innovation. The system has its critics, but IP rights are fundamental to modern businesses, large or small. Whatever your line of business, if you have gone to the effort of securing your IP, your return on investment rides on your ability to defend it.

Prevention is better than cure

Court rooms are expensive places and best avoided. A minefield of IP issues can be avoided by targeting your research and development to an area where the IP landscape is not too crowded, but where a market still exists.

“Rather than coming up with a product and reacting to what’s already out there, let what’s out there guide your research. If one area is already swarming with patents, perhaps it’s not a good idea to go down that path; it’s more trouble than it’s worth,” says Todd Shand, Partner at patent attorney firm Wray and Associates.

Once you have decided on a product area, even if you have been granted a patent, exercise caution.

“To avoid infringing others’ rights, have your patent attorney undertake an infringement search before you commit any serious funds towards launching a new product,” says Shand.

“There’s a common misconception that, if you file a patent, you are able to perform the invention that’s described in the patent. That’s not how patents work at all. If you file a patent you’re able to stop someone else from performing it. That doesn’t mean that you’ve got a right to do what’s in the invention. You could be infringing someone else’s patent,” he says.

Proactively protect your IP by showing business partners you take the matter very seriously. Use confidentiality agreements where possible, record meetings or take minutes and have them signed by all parties present. You risk the label ‘paranoid control-freak’, but these small steps can make a potential threat think twice before violating your rights.

Some large organisations are reluctant to sign confidentiality agreements, especially if they deal with high numbers of proposals from potential partners. Signing a multitude of agreements invites inadvertent violation.

“Your lawyer and patent attorney might be saying, ‘Look, don’t talk to them without one,’ but commercial reality might mean that’s the only way you can talk to them at all,” says Shand.

Ideally, Shand recommends filing a provisional patent application before discussing your IP with third parties.

“Think about talking to people, file your provisional patent application and then start talking to them straight away. That way there’s no legal requirement that they keep things confidential. Also, in some jurisdictions, attempting to exploit your invention before filing a provisional patent application means that your patent will ultimately be invalid,” he says.

In wooing would-be investors, make sure they fully appreciate your IP strategy, and what it’s going to cost. Patents don’t come cheap: filing, renewal and patent attorney fees are a given, litigation a possibility.

When Greg Stokes and his partner Steve Barics started their wine-in-a-can business, Barokes Pty Ltd, they were so confident of the value of their Vinsafe® IP, they set aside an ‘IP fund’. As a potentially disruptive innovation, the pair knew it was crucial to have the financial and personal support of their investors.

“Your capital partner must be aware of the potential of your product, and that, if it is good, somebody will try to knock it off,” says Stokes. “Get your trade marks and patents in place and be prepared for a fight.”

The fight came sooner than expected, with packaging giant Amcor Packaging (Australia) Pty Ltd opposing the Vinsafe® innovation patent before it had been granted.

“We allocated five cents per can to a patent fund, to get the patents and cover any issues – any challenges, any copy products,” says Stokes. “Nobody forecast a large player hitting us on the first base.”

Weapons and shields

IP threats come in many guises and at various points in the product lifecycle.

After a patent application is accepted by the Australian Patent Office, opposing parties have three months to lodge their claim. Opposition is typically based on the lack of originality or inventiveness, or ious ownership. The patent applicant and opposing party submit evidence to the Commissioner of Patents, and a decision is handed down at a hearing. It sounds pretty straightforward, but this process can take 18 months, often longer.

If either party is unhappy with the decision, the battle can rage on in the Federal Court or the Administrative Appeals Tribunal. For a small or start-up business, this process can be prohibitively expensive (although some costs are usually covered by the losing party).

Thanks to their IP fund and investor backing, Barokes managed to weather the storm. Even though the Commissioner of Patents found in their favour, Stokes believes the system is skewed towards the big players, with small companies lacking the resources to defend their patent applications.

“The usual strategy for patenting is the opposition proceeding. If they’re a big company, they’ll deep pocket and delay. These tactics create a cloud above your patent. They’ll challenge your technology, whether they can win or not,” he says.

Once a patent has been granted, infringement becomes the big issue and businesses need to be proactive in upholding their rights. Monitor the space in which your business operates by engaging your patent attorney on a watching brief and use the eyes and ears of licensees, distributors, PR firms and Austrade representatives to feedback information on unauthorised use.

When an alleged infringement occurs, resist the urge to go into battle with guns blazing. Instead, play detective. Verify and validate the ‘evidence’, even seek independent advice on whether an infringement has actually taken place. Keep questioning: if this case ends up in court, will it be watertight?

Then, Shand recommends sending a letter, alerting the infringer to the intellectual property rights they may be violating.

“A cease and desist letter is a good starting point because there’s a general lack of awareness about IP rights. Most infringement takes place with the party not actually knowing they’re doing the wrong thing,” he says.

Once it is clear that profits and court costs are at stake, the infringement usually ceases. The other party, however, may not share your point of view.

Game on

A difference of opinion between two organisations over intellectual property rights is best resolved with a win-win outcome. Or, at the very least, a ‘win-cut your losses’ outcome. In fact, approximately 85 percent of patent cases in Australia between 1995 and 2002 were settled out of court, according to Kimberlee Weatherall, Associate Director with the IP Research Institute of Australia (IPRIA).

“Cases often settle because there are real doubts about their likely success,” she says. “For businesses, the issue is commercial: is it worth my spending lots of money fighting over this? Or can we reach some sort of compromise? These types of commercial issues come to the fore.” There are a variety of ways to creatively settle an infringement dispute. Two firms might operate in different markets under a licence agreement, two research teams could collaborate or two small businesses might join forces. Other times a settlement is reached only under the looming threat of litigation.

“It’s a two-edged sword. Undoubtedly, IP can be used to bully and blackmail. Holding the prospect of highly expensive patent litigation over the head of someone else can be a method of tough commercial negotiation. On the other hand it can be a protection,” says Weatherall.

Any IP issue costs time and money and, no matter how friendly the approach, some organisations just won’t play. Tim Jones, IP Counsel with QPSX’s IP Assertion team, encounters this scenario often.

“Typically with larger infringers, we’re seeing more of a reluctance to do friendly deals. A lot of them won’t even talk to you until they get a writ,” he says. “Larger companies are still constrained by resources and they have to decide what to do when they get these infringement letters across their desk.”

While some large companies ask for further details, Jones says others solve the resource problem simply by ignoring it.

For a smaller company, this is crunch time. Is this infringement case worth pursuing? If so, who is going to pay for it?

“If we’re talking US litigation, we usually need to find funding, whether it’s via cash funders or engagement of US contingent counsel. In the States, lawyers are allowed (in certain circumstances) to reduce their fees or to take no fees at all in return for a percentage of the outcome. That’s obviously attractive for clients who don’t want to pay legal fees up front,” says Jones.

In Australia, lawyers can’t do contingent legal work, so (unless you find some help pro bono) an angel investor, high net worth individual or pure litigation fund is needed.

“These investors are not difficult to find, but there are a limited number of them in Australia. We are seeing more people entering into the market, though,” says Jones.

Pro bono notwithstanding, there’s no such thing as a free lunch and it’s likely your new benefactor will be interested in an equity or profit sharing arrangement.

If you choose to continue the good fight, you could find yourself in civil courts around the world. In Australia, copyright infringement cases are usually heard in the Federal Magistrates Court, while patent and trade mark cases generally start in the Federal Court or state Supreme Courts.

This is serious business, but Kim Weatherall has found that IP litigation need not involve millions of dollars and years in court.

“Patent litigation is often expensive, but it’s not always the monster in general perception. In our research we found a lot of cases with overall court time between five and 15 hours,” she says.

And, apart from hopefully winning the case, there are unexpected benefits to engaging in an IP skirmish, as Barokes found after three years defending the validity of its Vinsafe® technology.

“It held us back, but it was worth it in the end,” says Stokes. “We can leverage off what happened in the patent office. If someone like Amcor is prepared to put mega-funding into opposing our technology, it sends a message to the rest of the world. Our patent has been through the wringer in Australia. We’ve been able to utilise all that information and make it known around the world. It makes anyone out there who wants to steal or copy our technology think about it.”


IP progress in the People’s Republic

With reward there is always risk. We manufacture our goods cheaply in China and sell to a lucrative market at the risk of intellectual property violation.

IP rights can be violated anywhere in the world, but in China effective enforcement is still catching up with the international conventions of IP protection.

“While the Chinese market has a reputation for being somewhat unregulated and stories of IP infringements abound, it is a market that can’t be ignored,” says Todd Shand, Partner with patent and trade mark attorneys Wray and Associates.

“Obviously, there are issues relating to the enforcement of intellectual property rights in China. However, in the past few years the Chinese Government has recognised the importance of protecting IP rights and has proceeded to improve the level of protection offered.”

Chinese President Hu Jintao recently outlined a new national Intellectual Property Rights (IPR) strategy backed up by a sound legal and policy system, according to the State Intellectual Property Office website.

“China should cultivate its own copyrighted and patented brands that are IPR protected, improve its IPR legal system to meet international IPR protection requirements and crack down on IPR infringements,” said Hu.

Sounds good, but Shand recommends partnering with an appropriate local adviser to assist in securing and (if need be) enforcing your rights. For more help, check with your patent attorney.


The right to reproduce

In the ongoing balancing act between the rights of consumers and those of the copyright owner, Australian consumers will soon be allowed the luxury of legally recording their favourite television program and watching it back – once.

Under copyright law reforms proposed by the Attorney-General earlier this year, format shifting will also be allowed, where consumers can make copies of they have legally acquired.

So, you can copy your CD collection to your MP3 player, or scan a newspaper article for safe-keeping. But, rewind a section of West Wing you didn’t quite catch and you’re in trouble with the authorities.

Meanwhile, the proposed entitlements may be nullified by the evolution of Digital Rights Management (DRM) technology, with media companies enforcing their own version of copyright restrictions.

DRM opponents fear media distributors are restricting legal use by purchasers. Some online music stores are finding popularity by offering DRM-free MP3 files, only to be boycotted by the major music labels.

Just another skirmish in the digital rights conflict between creators, owners, distributors, government, punters and pirates.

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