The value of any business is not comprised solely of the revenue it generates and the physical assets that it holds.
For instance, when there is talk about the liquidation of General Motors and Chrysler, it is not the factories that buyers are interested in, it is the brands.
In the automotive industry, for example, the value of brands, such as ‘Jeep’ and ‘Hummer’, can be extended to uses outside of traditional motor vehicles: ‘Jeep’ is used on AM-FM portable radios and ‘Hummer’ has been used on bicycles. Harley-Davidson Inc. even got in on the act and tried to trademark ‘chug’, the sound made by its motorcycles, so it can be used with other products.
So why is it so surprising to find that businesses frequently neglect to protect one of their most important and valuable assets?
We all remember how Kambrook had a great idea for a power board but lost millions of dollars because it failed to patent it.
Some of us are old enough to remember the Queen’s visit to Australia in 1963, but do we remember how a CSIRO scientist, when asked in a telephone call for the ‘secret formula’ for the fly repellent used by the Queen during the visit and invented by CSIRO, obligingly gave the formula to his caller?
Mortein subsequently made ‘Aeroguard’ and the rest is history.
We’ve all come a long way since Kambrook and Aeroguard.
Brands such as Coca Cola are worth hundreds of millions of dollars and rely on secrecy to protect their secret formulae. Rumour has it that only four people know the formula for Coca Cola. It is also alleged that only four people know the secret to the finger licking good taste of Kentucky Fried Chicken. One wonders if they are the same 4 people!
If companies like Coca Cola and Kentucky Fried Chicken can rely on secrecy, is that enough?
Generally speaking, yes and no.
Yes, because it is successful in some high profile cases such as Coke and Kentucky Chicken.
But for the rest of us, relying on secrecy is usually not enough.
The only way to protect an idea that is made into a product, and that can be “reversed engineered” is to protect it by some form of intellectual property registration such as a patent.
Pepsi tried to copy Coke, but it’s not the same. So secrecy is okay for Coke because it seemingly can’t be reversed engineered, but that may not sufficient protection for a power board.
The point was not lost on Dr Lars Rasmussen, co-creator of Google Maps.
Lars and his brother Jens developed their mapping technology from a spare bedroom in a small Sydney apartment early in 2003. The company they co-founded, Where 2 Technologies, was acquired by Google in October 2004 and their technology was released as Google Maps shortly thereafter. Having protected their invention, they were able to profit from it and enter into a deal with Google. Again, the rest is history.
CSIRO also learnt the lesson with the patenting of its invention of “Wi-Fi” or Wireless Technology in 1996, which is now used in almost all PCs, game consoles, networking equipment, internet-enabled TVs and mobile phones.
Instead of giving inventions away, the CSIRO protected its invention by a patent.
Some of the giants in the world of computing such as Microsoft, Dell, Intel, Nintendo, Fujitsu, Toshiba and others have now settled court cases in the United States initiated by CSIRO to protect its patent. While the details of the settlements are confidential, industry sources estimate that CSIRO will earn between $100 million and 1 billion dollars as well as ongoing licence fees until the patent expires.
Australian ingenuity was again shown recently in the case decided in the United States where the inventor Ric Richardson’s company Uniloc sued Microsoft for breach of its patent of his invention to prevent software piracy. Uniloc was awarded $532 million against Microsoft.
As recently noted by David Webber (whose firm acts for Microsoft in Australia) when commenting on the case: “It is one of the beauties of the patent system in that any small inventor can come up with something terrific and then use the patent to claim the rights to it — and then, of course, it’s a path to riches.”
Protecting your intellectual property
What is required is a strategy where you plan how, when and where your “idea” is to be exploited.
If it is worldwide, then the protection needs to be in the countries in which you will have a market.
This will likely include the United States, the EU and increasingly China and the other emerging economic giant, India.
There are, however, a couple of problems with attempting to protect an idea.
The first is that patent protection lasts 20 years. After the 20 year period your “invention” is no longer protected and may be copied by anyone. For businesses like Coca Cola, 20 years is not enough.
Contrast this with copyright material that is are protected for 70 years after the death of the author, while trade marks may last literally forever, so long as the registration is continuously renewed.
Another issue is that patents are only protected in the country in which the patent is registered. There is no “international patent” as such. The inventor must register the patent in each country in which protection is sought. An expensive option (but worthwhile if you think of the alternative).
Another hidden problem is that once you file an application it is no longer confidential.
The “secret” is in the public domain and may be copied unless the patent is finally registered.
Traditionally, once an invention was in the public domain it could not be patented.
In Australia, we have the novel concept that allows an inventor 12 months after disclosing the “secret” to file for registration to register the patent.
But, and this is a big but, this does not protect the inventor wanting to patent the invention in other countries.
The trick for young players is that this 12 month window does not exist in other countries, such as the China, Japan and countries in the European Union.
Secrecy depends on both a method of keeping the “secret” secret and robust “confidentiality and no use agreements”.
You need a strategy of combining various forms of protection and most importantly robust confidentiality agreements or, as they are sometimes known, “on disclosure agreements”.
Trade secrets disclosed in situations of confidence such as patent attorney/client and employer/employee relationships are automatically protected by the laws of secrecy, but what is a trade secret and what is not is often confused.
Discussions with all potential commercial partners should be prefaced by a clearly drafted and comprehensive confidentiality agreement that should include provisions that the person you disclose the secret to is not only obliged to keep secret the “secret” but not to use the secret itself.
Not all confidentiality agreements are well drafted and it is dangerous to simply treat it as a pro forma document that “is always the same”.
Employment contracts should be reviewed to ensure that they include comprehensive provisions covering confidentiality, “non compete” and “no approaches your clients”, as these obligations only exist at common law while the employer/employee relationship exists.
Proper preparation and execution of confidentiality agreements and employment contracts to protect your intellectual property should be seen as essential for your business survival and profitability.
James Millea specialises in commercial and corporate law at Argyle Lawyers with a particular focus on private equity, renewable energy and commercialisation of intellectual property.