IPToolbox IP & Your Business What IP means to you What IP means to you What this module is about Basic overview of the qualities of IP and what IP means to your business. The commercial, social and legal rationale for having IP. The qualities of IP which impact on its contractual management. When to use intellectual property in business. What IP means to you Capitalise on your intellectual property and achieve your business goals Profitability, productivity and market leadership are key business goals. They are also qualities that could be used to describe your business if you successfully commercialise your IP. In order to achieve the best and most profitable outcome from your innovation (whether product or service) you need to protect, manage and take advantage of your IP effectively. This module presents the big IP 'picture'. It outlines a number of issues related to the protection and management of IP and the impact that successful IP management can have on your business. In order to understand the true value of IP, it is important to be aware of the philosophies behind IP legislation and the formal rights granted. If nothing else, this might put the various legal descriptions and arguments put forward by the professional IP practitioners you may deal with into some sort of context. What IP means to you Intellectual property rights versus rights in physical property Businesses and individuals that accept the risk and expense of innovating can reap great rewards. In this sense, IP rights are similar to rights in physical property. For example, when a property owner decides to undertake renovations before selling a property in the hope of making a greater return, he/she is taking a risk. The sale price however, will usually reward the owner for the time, expense and effort he/she has committed. Taking the time to properly protect, manage and plan the use of IP can also provide great rewards. The owners of IP rights are given a position of 'exclusivity' for a certain period of time. This means they can operate in the market with limited competition, providing them with the opportunity to establish their market position and gain market share. As with the posession of physical property, IP is a business asset and should be recognised and valued in the business' balance sheet. Accurate recording of IP assets may make the business more attractive to potential purchasers, partners and investors. In fact, a company's IP may well be its most valuable type of asset. What IP means to you The Acts protecting intellectual property rights The policy rationale for IP protection is the same as the reasoning behind the Trade Practices Act 1974 (TPA) and The National Competition Policy (NCP). These policies are based on enhancing the welfare of Australians by providing competition, fair-trading and consumer protection. There are four broad-based policy justifications underpinning IP protection. These are: Contract theory. In return for publicly disclosing their work or invention, the IP author is given exclusive rights to own and use that IP for a limited time; Reward theory. These exclusive rights are given as a reward for the expense and effort required to bring an innovation to the market; Incentive theory. Without such exclusivity, there would not be sufficient encouragement for owners to take the risk and expense associated with innovation; and Natural rights theory. An IP owner has a natural entitlement to the benefits associated with developing the innovation. While there is no one unified body of law protecting IP and as the laws that do exist are, in some cases, still open to interpretation. There are a number of Acts that address IP rights and these in turn are administered by a number of government authorities. It is important that you understand what each set of laws covers in respect to protecting and commercialising your innovation. The key Acts are: Patents: Patents Act 1990 - administered by IP Australia Trade marks: Trade Marks Act 1995 - administered by IP Australia Designs: Designs Act 2003 - administered by IP Australia Copyright: Copyright Act 1968 - administered by The Attorney General's Department Plant Breeder's Rights: Plant Breeder's Rights Act 1994 - administered by IP Australia Circuit Layout Rights: Circuit Layouts Act 1989 - administered by The Attorney General's Department There is also legislative protection offered to confidential information and trade secrets (See Protecting confidential information ). The features of each type of protection are outlined in the Intellectual property protection section of this site. The ownership of IP rights gives the owner legal protection to use his/her IP in an environment of limited competition and enables him/her to prevent others from using that IP, without the owner's express permission. While it may be relatively easy to copy an innovation, or at least the look of an innovation, the laws protecting IP innovations create a form of exclusivity in the market place. For example, the designs legislation provides a level of exclusivity for the look of a creation. The extent of the exclusivity however, is such that it does not reach 'unacceptable' levels, ie. other parties may still protect designs that are similar. For example, think of the different styles of kettles on the market, each of these may be registered by different parties. Even with registration, there is no 100 percent guarantee of absolute title for the registrant of a patent, trade mark or design. This means that IP ownership may still be open to question if some other party believes he/she has the rights to use the IP. There are a number of steps that should be taken to reduce this risk to a minimum. These steps are discussed in detail in the What IP means to you section of this Site. It is also important to understand that a trade mark does not guarantee that you can use that name as your business name, company name or domain name (See the Intellectual property protection section of this site). What IP means to you The business philosophy of IP rights IP is the asset of any 'new economy'. Protecting and managing your IP is particularly important when establishing your product or service in the market and is often the difference between your enterprise's success or failure. The existence of IP rights restricts competitive market forces for a finite period while still allowing competitors to innovate with respect to different aspects of the protected product or process. IP rights are an incentive to reward innovation. The reward provides the IP creators/owners with the time and opportunity to exclusively decide on how best to exploit their creation while limiting competition in certain circumstances, for varying periods and in various ways. In this way IP rights: Reward the innovator's effort and skills; Encourage others to engage in innovative activities which benefit society; Promote wider access to innovations, thereby advancing further research and development by others; and Protect a person's natural rights of ownership in his/her intellectual pursuits. IP rights provide a number of competitive advantages for their owners, for example: IP rights can be provide an extremely valuable bargaining tool and in most cases can be sold for financial reward; IP rights may also help their owner compete on the basis of the quality associated with a product rather than on price alone (See What IP means to you ); IP laws give owners of IP the right to exclusively determine who can use the IP and how it can be used; IP rights provide the owners with a number of options in the event that the owner cannot afford to manufacture the IP, or position themselves competitively in all potential markets. The most common way of commercialising IP is through licences and assignments (See Commercialising IP  ); The fact that IP rights are not physical means that they can be used many times without being diminished, eg. the same IP can be licensed to a number of different licensees each based on a specified geographic region; and IP laws reduce the chances of your products and/or services being replicated and passed off as those of a rival trader. There are a number of ways that laws can interact to provide more powerful protection and open up new opportunities, eg. a 'blocking patent' (See What IP means to you ). What IP means to you Key qualities of intellectual property rights Having identified each IP right, it is important that you understand its respective and particular proprietary qualities, commercial implications and inherent value. Keep in mind that there are restrictions to being granted IP protection and there are also distinct advantages associated with each form of IP protection (See What IP means to you ). Some of the key qualities of IP protection are outlined below. 1. Restricted exclusive rights Registered IP rights provide you with exclusive rights. However, they are restricted in both their duration and scope. These limited restrictions comply with the requirements of National Competition Policy that stipulates that enabling the widest possible availability of competition will have a positive impact on economic growth. Each right has its own restriction in terms of duration. For instance, patents last for 20 years, designs for 16 years and copyright for 70 years after the death of the 'author'. Note renewal fees must be paid to ensure patents and designs remain in place for these periods. IP laws protect the innovator while still allowing newcomers to enter and compete in a mature market. For example, patents protect only a specific invention, designs protect only the particular visual appearance of a product, copyright protects only the form of an idea's expression (not the idea itself), and know-how is protected only when it can be shown that there is an obligation of secrecy between relevant parties. 2. Overlapping A range of IP rights can be used to protect the same product or service. For example, a product can have patents applying to specific aspects of technology, the product's brand name can be protected by a registered trade mark, the product's appearance can be protected by a registered design and manuals can have copyright protection. These layers of protection can be used in commercially creative ways. Given that different rights have their own respective purposes and time frames, you need to identify which IP laws would be most appropriate for your commercialisation purposes. You may need to seek professional advice to achieve the most effective protection. The more IP rights that can be used to protect a particular product or service, the more resistant your product or service will be to competition. For this reason it is important that you take a disciplined and broad approach. 3. Contradiction As well as overlapping, the various rights afforded by IP legislation can sometimes contradict each other, as in the case of design and copyright. For example, if an artist creates a drawing; he/she is protected by copyright. If the artist is then approached to convert the design to three dimensions for the purposes of commercial sale, he/she can apply for design registration. If successful however, the copyright protection is lost (See What IP means to you ). It is important that you seek the help of an adviser to work through the potential contradictions and determine the best strategy for your innovation. 4. Ownership Ownership is always based on being able to show that you are the 'author' or 'creator' of the IP. Note that you may also become the owner by having the IP rights assigned to you. As discussed earlier absolute title to an IP right cannot be 100 percent guaranteed. While patents, designs and trade marks have a public register of owners administered by IP Australia, title is not unequivocally guaranteed by registering a patent, design or a trade mark. An IP title does not have the same 'indefensibility' quality as does the title to land or other assets. IP is always open to a challenge in court from another person who believes that he/she can show that certain criteria were not met in the original application process. The best defence against this is proper planning and management (See  The power of IP database searching). It is sometimes difficult to establish effective property rights in relation to confidential information. For example, several people may be involved in creating a new product or process. Unless specified by a legally binding agreement, it can be difficult to determine who is the 'author', and hence owner of the various IP components. Joint ownership of copyright may also have its complications. The title to secrets and copyright can and should be carefully managed to make dealing with these issues as straight forward as possible. In cases such as these, it may be necessary to seek legal assistance. These are some of the elements that can make the security of title to IP problematic in some cases. Without this statutory guarantee of title, it is important that those investing in IP recognise the potential risks and manage these through appropriately structured contracts. The best way to protect ownership may be through warranties and covenants in standard IP contracts. This is another area where legal advice may make the process a little easier (See What IP means to you and Protecting confidential information ). 5. Transferability Like any other business asset, such as plant and equipment, IP rights are highly negotiable and can be used for commercial advantage. As a business tool, IP can be closely linked to market position and this provides the capacity to negotiate the advantage for money. IP rights can generally be bought, sold, licensed, given away or made freely and widely accessible. How you sell or licence IP is limited only by your business and negotiation skills. Beware however, that there may be revenue implications such as stamp duty, capital gains tax and GST. (See Commercialising IP , Financing and commercialising IP and Taxation & government incentives ). 6. Territoriality Most IP rights are territorial, meaning they have to be dealt with distinctly in each new territory (ie. country) where the owner intends to trade. For example, a patent, trade mark or design granted in Australia may not automatically be granted in other countries. Copyright is the only IP that is automatically recognised in the global market. All other forms of IP need to be specifically assessed and approved in each country in which the IP owner intends to trade (See What IP means to you ). If you intend to market a product or service in a foreign territory, it is essential that you carefully pre-plan and understand the various IP protection laws operating within those territories. It is important to ensure that you understand the cost and time implications of the process in each country. Australia is party to a number of international agreements which makes it a little easier to obtain rights such as trade marks, patents and designs in other countries (See What IP means to you ). 7. Volatility There are still some issues associated with IP that are both complex and unresolved. One of the key areas is the court's interpretation of the full extent of the rights granted by the various forms of IP legislation. For example, in 1983 the High Court of Australia still refused to accept that copyright, as it was then, applied to computer software. Even now, controversial and unpredictable decisions by courts are still made in relation to IP. This of course affects the extent of damages which may flow from the infringement of IP rights. Regardless of these difficulties, IP is still regarded as a well-developed and advanced area of law. Progress in this area is ongoing. For example, the general laws of contract and tort are constantly reviewed and interpreted in terms of their application in IP cases. What IP means to you When is IP protection relevant to you When commercialising your IP (See Commercialising IP ), there are two ways in which IP becomes relevant to an organisation. These are: Creation and acquisition; and Management and protection. 1. Creation and acquisition IP laws protect only the emphasis of an idea, they do not protect the idea itself unless that idea satisfies the requirements of patent protection or that of trade secrets. However, the distinction between the idea and the expression of that idea can be complicated. For instance, in terms of copyright, a person may think up a storyline for a play he/she intended to produce and write. If that idea has not been put into writing, it cannot be protected under the Copyright Act although it could be protected by confidential information legislation (See Protecting confidential information ). A positive aspect of Copyright law is that copyright exists as soon as the play is written down. There is no need to register the work for the author to be afforded copyright protection. However, patents, designs and trade marks all require an actual application for protection to IP Australia and need to be assessed under the respective legislation. Like copyright, circuit layout rights are automatic, however, you will need to apply for plant breeder's rights and a domain name if you need this type of protection (See What IP means to you ). 2. Creator versus owner The IP creator or author usually enjoys ownership rights. However, there are circumstances where the IP creator is not the IP owner. For example, where a graphic designer is engaged to design a new company logo, unless it is specified, the logo belongs to the designer. The firm engaging the designer should ensure that at the end of the design process the firm owns the logo, as it is likely to become their corporate identity. This would be done through some form of contractual agreement (See Protecting confidential information ). In these situations, the wording of the engagement contract between the creative person and person requiring ownership as a result of that creativity, determines who owns the IP. It is important to note that simply engaging and paying for the creation or development of a new product or invention does not automatically mean that the commissioning party owns the IP. Generally, by paying a fee for IP creation or development, there is some ownership granted to the commissioning person. However, title remains firmly with the creator unless there is an adequate contract specifying ownership rights. What IP means to you How to manage your IP As with trade in capital equipment and shares, IP must be effectively managed. With tangible property, effective management includes physical maintenance, security and record keeping. The same principles apply to managing intellectual property. Identify and protect your IP Specifically, IP management can be broken into: Evidence of ownership and rights of use; Security, protection and enforcement; Maintenance; and Placing IP appropriately in your corporate structure and creating the right links with other entities within your corporate structure. Often businesses are not sure which, if any, element of IP - actual or potential (since some may require actual application) - they own. Undertaking an IP audit will help identify and protect your IP (See Conducting an IP audit). Proof of ownership and rights of use Evidence of an IP right arises from various sources -- IP legislation, outcomes of court cases relating to the particular branch of IP (such as patents or copyright) and agreements between the people involved in its creation and use. Undertaking an IP Audit will also take you through the process of demonstrating proof of ownership for listed IP. This ownership can take a number of formats including timesheets for staff, letters of agreement transferring ownership to you or proof of acquisition in cases where the IP was purchased (See Conducting an IP audit). Some IP requires you to formally apply for registration through the various bodies outlined in What IP means to you (depending on your particular type of IP). Once you can prove you own the IP, you are in a highly privileged position where you can exploit the IP for your own commercial gain while being able to restrain others from exploiting it. Owning IP is like owning physical property. Proof of ownership enables you to take legal action to deter would-be trespassers and obtain damages against those who have trespassed, just as the owners of physical property can do. At any one time different IP rights may apply to a 'work' (as defined under the Copyright Act 1968), object, image or piece of information. Even though many people can own or buy copies of a book for example, only the author may have a right to receive royalties and only the publisher can licence the right to others to copy the book. For example, a publisher sells the right to reproduce a book extract for one particular magazine issue. Checklist: proof of IP ownership and rights of use To help prove your ownership of IP, keep a record of: What kind of right you have and in what form the right was created; What, if any, material from a third party was used in the creation process, and whether permission for such use was obtained; When it was created; Who created it; Evidence of ownership - such as an application for a trade mark, design or patent; Contracts with all parties involved in the creation of the IP which ideally clearly identifies who owns the IP; Log books showing how the creation process was undertaken (particularly important for IP created by employees); Files of early drafts and prototypes of the actual deliverables which embody intellectual property; and Copies of agreements with companies on whose behalf you are distributing goods or services. These should include agreements giving distributors the right to use trade marks and marketing material. This evidence should be stored in an IP Register with a backup copy in a separate location. Managing your IP Once ownership or a right of use in IP is proven, the next step is to develop a process for maintaining it. Without full compliance with legislative requirements, your IP rights may be inadvertently compromised, waived or allowed to lapse. To effectively manage your IP you should: Establish a register listing all IP owned or used, the source of rights for use of that IP and evidence of ownership of rights of use; Make sure your IP is protected by registration where appropriate; Regularly audit the valuation and use of IP; Regularly review Australian and international IP registers (if relevant); Ensure you have confidentiality agreements in place with employees who develop, protect, commercialise or manage your IP; Ensure your company complies with the terms and conditions of licence agreements which grant your organisation the right to use IP belonging to others; Keep IP registrations current and ensure you have documents proving a chain of title ownership. This includes commission and employment agreements as well as agreements allowing others to use the product; Clearly identify whether a product is subject to IP protection. For example, on a web site, you should have clearly visible statements indicating ownership of the IP rights (such as copyright) and what use, if any, can be made of the material on that web site; Record and keep all evidence of any IP creation or transfers. This helps prove ownership; Record and keep all evidence of agreements allowing another person to use your IP. This proves the identity of the authorised user and scope of authorised use; Keep up-to-date with industry developments to make sure no one infringes your IP rights; and Act against all infringements of your IP rights. The next step is to determine the value of your IP and what it contributes to your business (See Valuation of IP). Then develop a business plan that outlines the strategies you will use to benefit (See Business planning ). Defending and enforcing your IP There is a substantial overlap between maintaining your IP and the need to secure, enforce and protect it. Unfortunately, maintenance alone does not offer all the protection needed to maximise the use of IP. There may be times when you have to take proactive or reactive steps to defend your IP against another party who is, intentionally or inadvertently, using your IP (See  Infringement of IP rights). What IP means to you Questions for your adviser What does expression of an idea mean? Is a logo, for example, an idea or an expression of an idea? How do I determine which form of IP protection best suits me? Is it always best to pursue formal protection of my IP? Does protecting my IP place any restrictions on me? How do I start the process, what should I do and what should I avoid doing? How much do I really need to understand about the legislation behind IP? Why is it not possible to have a 100 percent guarantee of title over my IP? How do I find out about different types of protection for one piece of IP? Is it always worthwhile applying for different forms of protection? What are the best ways of proving I own my IP? Find out what type of adviser you need. What IP means to you Summary of key concepts The laws protecting IP are not always clear or logical. It is important to be able to prove ownership of IP. Intellectual property has many of the same ownership rights as physical property. The difference is that IP can be licensed or assigned many times. Each type of IP has its own legislation and registration requirements. It is important you effectively manage your IP to ensure you get the best protection and are able to take the best advantage of it. There may be a difference between the creator and owner of IP - make sure that you understand this and have addressed it through appropriate contractual arrangements.