A short introduction to intellectual property: what is it, and why does it matter to my business?
09/01/2024
This article is intended for anyone who is involved in a business. It is a short introduction to intellectual property (IP) for newcomers to the subject. I begin with what is most fundamental: the main categories of IP, where their value lies and how you can enhance this value. I then set out some considerations relevant to whether you should register your IP rights. Finally, I give some initial pointers for dealing efficiently with IP disputes.
This article is a short introduction to a topic which is technical. Moreover, every situation is different and what follows is no substitute for legal advice tailored for yours. If you find the content below useful, and would like to explore these areas further with me, I will be delighted to hear from you and will not charge you for an initial call. In that conversation I can also expand on the suggestions below, as to funding sources for your IP strategy.
My contact details are included at the end of the piece.
Why should my business care about IP?
IP is relevant to all businesses. Most businesses will already own IP rights, even if they do not realise it, because unregistered rights subsist automatically. Both registered and unregistered IP rights have a financial value which can be exploited and enhanced; IP rights are a business asset.
Businesses should also know how to steer clear of third party IP rights in order to avert costly disputes. If a dispute is unavoidable, knowing how to approach that dispute from the outset maximises the prospect of a swift, amicable resolution at minimal cost.
What is IP?
IP rights are a patchwork of rights which protect different aspects of intellectual creation. Not everything is capable of protection: high-level ideas or concepts, for example, do not attract IP protection so a good rule of thumb is to assume that the more specific or fixed something is, the more likely it is to qualify for protection.
Briefly:
- Trade marks tell consumers who they are buying from, build brand recognition and facilitate repeat custom. At their strongest, they convey attributes about the business, such as an aura of luxury or reliability. Can be registered and unregistered.
- Patents protect the way something works. Registered only.
- Designs protect the way something looks. Can be registered and unregistered.
- Copyright protects software, written and artistic materials (e.g. logos, marketing and advertising materials, presentations, business reports), music, dramatic performances, sound recordings, films, broadcasts. Unregistered only.
There are also database rights (unregistered) which exist in the compilation of information into a database, and related non-IP rights, which are often considered together with IP, such as confidential information and trade secrets.
So where is the value in my business’ IP?
- The effect of IP is to help your business resist competition. Certain rights are monopoly rights which permit true resistance to competition. Other rights enable you to resist unfair competition i.e. where a third party is seeking to free-ride on your efforts to develop a successful business by copying your brand, marketing materials, products, or otherwise trading off your reputation. Resistance to competition means greater market share; increased revenue; easier investment; and a stronger, more resilient business.
- IP rights, even unregistered rights, can be used as security for a loan or as the basis to attract investment.
- IP rights can be valued and a financial value attributed to each right for the purposes of an asset or share sale.
- IP rights can be licensed, which means you grant permission to a third party to use your rights in exchange for royalty payments. Licensing can generate a steady stream of income.
- Knowing that IP rights exist in your business, and have value, can inform your negotiating position in commercial contracts you wish to enter into, for example research and development agreements, manufacturing agreements, marketing and advertising services agreements, etc.
- Enforcement of your rights against infringers can also generate financial reward, whether through compensation for past infringement or an ongoing revenue stream through grant of a licence.
How do I enhance the value of my IP rights?
1. With unregistered rights, the key is to keep good records so that you can easily prove the existence and scope of the rights. This will be required whenever you wish to enforce the rights, to use the rights as security or to raise investment and obviously when you want to sell the rights or your business. Different unregistered rights require different records:
- For copyright and unregistered designs, you would need to document: who created the work, when, and all iterations of the work; if an employee creator, a copy of their employment contract; if an independent contractor creator, a copy of their consultancy agreement. The latter must include an express assignment of the contractor’s rights in any IP they develop pursuant to the contract.
- For unregistered trade marks, you would need documentary evidence of use of the mark on the market e.g. sales figures, examples of use in marketing and advertising materials, on products, packaging, invoices etc.
2. Enforce your rights against infringers. IP rights can be significantly weakened by unchecked infringement. For example, the result of widespread unauthorised use of a trade mark can mean that the trade mark is no longer capable of distinguishing the goods and services of your business from the goods and services of others. This makes the trade mark less effective and vulnerable to invalidation.
A business is often best placed to identify infringements because you know your market best, but you can subscribe to infringement monitoring services to help widen the net.
A good IP lawyer can help you devise a tiered strategy for tackling infringements to ensure that your budget is used to best effect.
A strong enforcement program is an exercise in positive feedback: enforcement strengthens your rights; the stronger your rights, the less likely they are to be infringed or, if they are infringed, the quicker and cheaper it is likely to be for you to shut down the infringement. Consequently, the more you enforce now, the less likely you are to have to enforce in the future.
3. Use your registered trade marks:
- The more you use a mark, the stronger it becomes; the more capable of distinguishing your business. Furthermore, if the mark is inherently weak (because, for example, it is descriptive), use can confer “acquired distinctiveness” to help the mark overcome an invalidation attack.
- If you do not use a mark for a period of 5 years it becomes vulnerable to revocation for non-use.
It is important to stress that maximising the value of your IP portfolio can be a key determinant in maximising the value of your business for the purposes of investment or acquisition. Well-advised investors will evaluate the strength of your IP rights. They won’t just look at what rights exist on a register, rather they will look behind those registrations, and at what unregistered rights exist, to determine how resistant your business truly is to competition. A strong IP portfolio will inevitably drive up the value of your business as a whole.
Is registered IP more valuable than unregistered IP?
Most probably yes, but it is important to recognise that unregistered rights can nevertheless be a source of untapped value in your business. They cost nothing to acquire and maintain. Because their scope is not fixed by a registration, they can be flexibly tailored to capture an infringer. They can be used to plug gaps in registered protection. Certain unregistered rights, in particular UK unregistered design right and copyright, are particularly difficult to invalidate and can therefore form the basis of a strong infringement claim.
So why would I register?
1. Deterrent effect: the existence of a right on the register has a deterrent effect. Potential infringers can identify the right and ensure they don’t trespass upon it. Likewise, it is easier to mark your products and materials with a registration number, which will flag up the existence of your rights to potential infringers. (You can still mark products and materials with the © and TM symbols to identify unregistered rights (copyright and an unregistered trade mark respectively) but it is generally thought that a registration number has a stronger deterrent effect.)
2. Carry more weight with infringers, making it more likely that you will be able to resolve an infringement action at an early stage.
3. Infringement proceedings are likely to be marginally cheaper because you would not need detailed evidence to prove that the claimed unregistered right subsists. However, the validity of a registered right can, and likely would, be challenged so this gain is only marginal.
4. Length of protection: a registered design lasts longer than an unregistered design. There is no difference in length of protection for registered and unregistered trade marks because both can potentially last forever.
5. Making an application to register can flush out earlier rights-holders who may have a basis to challenge both the registration and your use of the relevant right. Assuming the application to register has been made before launch, this gives you the option to evaluate the claim and consider adopting a different course before any infringing use is made and/or, in respect of a trade mark, before any goodwill has been built up in a brand you may later have to abandon.
But there are costs associated with making an application and paying renewal fees to maintain the registration. Patents are the most expensive, followed by trade marks and then designs. Where you have a choice between registered and unregistered, it is therefore important to consider whether the benefits of registration outweigh these costs.
It is also important to know that registration is not the end of the story: a registered right can be cancelled following proceedings by a third party to invalidate and/or revoke the registration.
On balance, if your budget allows, a carefully tailored registration program, which takes full account of your current and future business plans in order to identify which rights to register, when and where, will be beneficial for your business. But by no means is all lost if you only have unregistered rights to fall back on.
How do I avoid third party rights?
Before you launch a new product or marketing campaign, or adopt a new brand, it is always prudent to check whether anything similar, or indeed identical, already exists. You should search the registers at the intellectual property offices of the country(ies) in which you are planning to operate. You should also carry out internet searches to identify potential pre-existing unregistered rights. An IP lawyer can help with this: it is called “clearance searching”.
If you do identify a pre-existing right which may be vulnerable to invalidation, you can proactively seek to “clear the path” by filing an invalidation action.
If the right does not look vulnerable to invalidation, you can ask the rights-holder for permission to “use” their right i.e. operate in a way which may overlap with their right.
How do I extricate myself from an IP dispute at minimal cost?
Get a good IP lawyer. This isn’t trite advice: the key to diffusing an IP dispute lies in adopting the right strategy from the outset. This is particularly important in IP disputes because they inevitably involve questions of both validity and infringement. As such, you will have to walk a tightrope between arguments you want to make in respect of validity on the one hand and infringement on the other.
An early assessment of the position can also help you decide whether you have grounds to put forward a robust denial and call the claimant’s bluff on taking further action or whether you should channel your funds into negotiating a commercially acceptable settlement, rather than contesting a claim you are unlikely to win.
With respect to calling the claimant’s bluff, very few IP disputes actually result in litigation. The vast majority are capable of resolution at the pre-action stage, or the claimant simply decides to walk away because the costs of litigation outweigh the value of the dispute. Refusing to be drawn into protracted – and expensive – pre-action correspondence can therefore be an effective tool.
There are also legal strategies you can employ to deal with unreasonable claimants, for example making a pre-action Part 36 offer to settle in order to deter the rights-holder from holding out for an unreasonable financial payment.
Furthermore, there are legal tools you can use to turn the tables on an aggressive claimant, such as bringing a claim yourself under the “unjustified threats” provisions or bringing a claim for a declaration of invalidity of a registered right, a declaration that the claimed unregistered right does not subsist and/or a declaration of non-infringement. These are powerful ways of taking control of the action when obtaining commercial certainty sooner rather than later is of paramount importance.
Legal advice: initial consultation and funding your strategy
As I mentioned at the start, I would be delighted to have a preliminary discussion of your situation in the context of the issues in this article, and I would not charge you for this.
For more substantive advice, it is worth bearing in mind that there is government funding available for businesses to instruct an IP lawyer to undertake an IP audit and determine an IP strategy. For some businesses, further funding is available towards implementation of that strategy. I would be glad to discuss these avenues with you on our call.
This article is not legal advice, which should be obtained before taking any decisions or actions in the areas covered. Please do get in touch if you would like an initial discussion of your situation.
