An introduction to intellectual property for businesses


As borders melt away and the internet connects
more and more people, billions of consumers are becoming part of a global
marketplace. Businesses and consumers, wherever they are located, can reach
each other and goods can change hands with a simple click of the mouse. Small
businesses from all over the world now have a real opportunity to engage and
participate in this ever-enlarging market. At the same time, as more and more
companies jostle for customers, competition is all the more intense. Each
company has to find ways to reach consumers and maintain their loyalty. They
have to offer something that others don’t. To succeed in this intensely
competitive globalised environment, businesses have to be continuously
inventive, innovative and creative. They must be able to communicate to
consumers in ways that appeal to them.

Enter intellectual
property (IP),a
regime created to stimulate and encourage the inventors, innovators and
creators among us to produce the solutions we need for the problems we face, to
satisfy our need for art, music and things of beauty, and to be able to compete
for customers in a free and fair market.

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IP rights

The IP system consists of a basket of
different rights created by law to allow innovators and creators to control the
fruits of their inventive and creative efforts. It provides for the possibility
to acquire rights over new ideas, innovative products and processes,
confidential information, creative materials, original designs and distinctive
business signs. The law spells out what these rights are, stipulates the
conditions for obtaining these rights and indicates how they may be acquired. Each
right is separate, though there are some similarities in the conditions that
apply, how they are obtained and the rights that accrue. Successful products
often rely on multiple IP rights used in combination with each other.

New technical solutions can be protected by patent
rights (or utility models), a product’s visual appeal by design rights,
confidential business information that gives a business a competitive advantage
by trade secrets, original creations by copyright and distinctive business
signs by trademark rights. These rights are not in watertight compartments. If
the conditions are right, a design could be protected by copyright, or if it
distinguishes a product from other products, it could be a trademark; confidential
business information could give rise to a patent, etc.

To obtain patent, design and trademark rights,
an application has to be made to a prescribed authority and that application,
identifying the invention, design or sign for which protection is sought,
becomes a matter of public record and thus public information. This information
is maintained in freely available databases and constitutes an important
resource when sourcing for ideas, as well as a competitive intelligence tool to
spot activities of competitors, ensure “freedom to operate” and identify
potential partners. Copyright, which protects original creations, does not
require a registration process and instead accrues at the point of creation.
Confidential business information is by its very nature secret and remains
protected from unauthorised access as long as systems have been put in place to
maintain the secrecy. Trademark rights can also accrue through use in the
marketplace, though they are generally weaker. Unregistered design rights are
also available in some jurisdictions. IP rights are generally granted for a
limited period of time, though registered trademark rights can theoretically
exist forever as long as they are renewed. Trade secrets also can continue
forever as long as the information remains confidential.

This is a formidable array of rights that,
once obtained, can be used to protect and therefore defend a company’s core
competitive advantage. When used strategically, often in combination with each
other, such rights can prevent copycats and imitators and delay competitors.

IP benefits

The core competitive advantage of the company
may be the unique solution it offers, or its creative flavour, or its
recognition and appeal, or all of the above. Whatever it may be, a number of
options are available through the IP system and it is for the company to
determine which of the available tools would best serve its needs. In any case,
the IP system is there to serve the business objectives of a company and
whatever decision it takes it needs to do so in a manner that advances and
supports its business objectives.

Failure to protect itself may mean that
imitators will quickly take over, and since the imitators did not invest in the
development of that solution or that design or in creating that trusted image,
they will be able to provide the same unique proposition at a lower price,
quickly running the original company out of business.

IP rights are often described as negative in
nature in that the right provided by law is to exclude others from using it, as
opposed to a positive right to use. However, the right to exclude necessarily
means that there is also the right to include: the option to say yes to a third
party to use these assets.

Therefore, the IP system, by providing a
certain tangibility to intangibles, creates assets much like physical assets
that can be traded by the owners of these rights. IP rights can be bought and
sold, licensed (rented), donated, used to attract partners and collaborators,
signal to investors and project a certain image to customers and potential
employees.

The intangible nature of IP rights offers a
unique opportunity as compared to tangible assets. Unlike tangible assets,
intangibles can be enjoyed by an endless number of people at a marginal cost of
zero or almost zero without affecting its quality, and this enjoyment can take
place simultaneously. Physical assets, on the other hand, can be enjoyed
generally by one person at a time and multiple users can affect its quality. IP
owners can therefore give others (say yes) the right to use their IP asset in
exchange for value, usually a fee called royalties, which they can
theoretically do with as many third parties as they wish, creating multiple
revenue streams. This is known as licensing and businesses today thrive on a
multitude of such licensing practices, creating many lucrative business
opportunities.

IP licensing and collaborations

Two important types of licensing practices are
franchising and merchandising. Franchising is when a collection of IP rights is
licensed together with a business model and with business support. The
franchisor or the owner of the business model and the IP rights allows the
franchisee to use the IP rights and the business model, and provides training
and support to the franchisee in setting up and running the business. This is a
very popular way for newcomers to start a business. They are able to use an already
established clientele loyal to the brand. This is a significant advantage to
any business, which would normally have to invest a lot of time and effort in building
up brand recognition. Of course, as with any licence, the franchisee has to pay
for that privilege through royalties for the use of the IP. Franchising is also
a popular growth strategy for business owners that are able to expand their
business, creating new revenue streams without the need to actively participate
in the running of the expanded business. Many globally well-known marks such as
McDonald’s and Pizza Hut are run in this manner.

Another very popular licensing practice is
merchandising, where owners of trademarks, designs and copyright allow others
to apply these on their products. This allows small businesses that have yet to
build the consumer recognition for their products to apply the trademark,
design or copyright-protected work to their products and, attract the consumers
loyal to these, and be able to command a higher price than a business that did
not do so. This allows everyday products to acquire an appeal that they would
otherwise not have. For example, the image of Donald Duck may be licensed to
someone who produces caps, making the caps much more interesting to a consumer
than if they did not have that image. A large share of the revenue that accrues
to sports clubs is from licensing their logos to companies that sell clothing
and memorabilia to fans. Once again, the right to use the IP is provided in
exchange for a fee and higher costs are involved but with the potential to reap
higher rewards.

In addition, a well-managed IP portfolio
performs a signalling function, letting potential employees, customers and
partners know that the company is modern, innovative and serious. People like
to engage with, work for and use the services of such businesses. A
well-managed IP portfolio also performs the important function of assuring
investors that the company has taken care to protect its valuable assets; for a
technology-based startup the innovative idea is perhaps its only asset. It is
also a means for entering into collaborations and joint ventures where the
parties bring their different IP rights together into one enterprise,
strengthening them both.

National and global IP systems

Ironically, as borders melt away in the global
marketplace, the IP system remains firmly national (or regional). That is to
say, while the minimum thresholds for protecting IP rights are governed by
international treaties, the process of obtaining IP rights and enforcing them
rest with national authorities. IP rights for the most part have to be sought and
formally obtained through application to a national or regional authority. The
right obtained is limited to that jurisdiction where it was granted, which is
generally a country and in some cases a region where a system exists to grant
rights for a particular region, such as in Europe through the European Patent
Office, or Benelux countries, or English-speaking African countries through the
African
Regional Intellectual Property Organization, or French-speaking African countries through
the Organisation
Africaine de la Propriété Intellectuelle. Therefore, while businesses are keen to
exploit the global marketplace, they have to be mindful that their IP rights
need to be actively sought and obtained in those marketplaces. There is no
automatic global IP right.

The World Intellectual Property Organization (WIPO),
as the premier global forum on IP, has taken the lead from as far back as 1883
to put in place rules and systems for managing the IP system as a global framework,
while the rights as indicated above are essentially national or regional
rights. WIPO administers a number of international treaties – 26 in fact – that
agree on the legal framework of IP law, on the administration of IP rights and
on the obtaining of rights in multiple countries. It administers the Patent
Cooperation Treaty, the Madrid System and the Hague System, which enable IP
rights owners to obtain patents, trademarks and design rights respectively in
multiple countries.

When the IP system holds no appeal to a
company, it is still important to pay attention to it as there could be many
pitfalls that an unsuspecting business may face by not being aware of how the
system works. As indicated earlier, failure to use the IP system to protect competitive
advantage will mean a business will run the risk of opening the door to
imitators. Worse, the company may protect the innovation itself, in effect
excluding the original innovator from the market. Failure to pay attention to
the IP system would also mean that the company runs the risk of infringing the
rights of others, inviting lawsuits, reputational damage and wasted resources. Other
risks involve loss of proprietary information and failure to clarify IP
ownership, leading to possible disputes when dealing with partners, vendors and
other collaborators. Finally, when expanding beyond borders, significant damage
can ensue by assuming that IP rights are valid worldwide, that IP laws are the
same in other countries and not knowing that there are important deadlines to
be met. These errors can cause serious harm to an unwitting business.

Poor IP uptake

Despite the significant advantages of the IP
system and the risks that may accrue in not paying attention to it, businesses
around the world are for the most part not using the IP system. This is due to
a lack of awareness of its advantages and risks in not using it or due to a
perception that it has little relevance, that it is too costly, that it is too
complex and that there is little ability to enforce. This is unfortunate, for
while IP may not be relevant in equal measure to all businesses, it has
something for every business and for some more than others. IP is particularly
relevant for innovative businesses, those that have a unique idea for a product
or service. It is also relevant to those operating in a niche market targeting
a specific clientele such as environmentally conscious consumers or those
looking for bio products, etc. Such consumers are usually in a higher income
bracket and are willing to pay a higher price for such products. IP plays a key
role in signalling to these consumers the nature and quality of the products
they seek. IP is also important to export-oriented companies or those engaged
with suppliers, manufacturers and distributors in other countries.

As explained above, IP is a territorial right
confined to the country or region where it was obtained. Companies engaged
outside their borders need to apply for and obtain protection for their
innovative products in the markets in which they are operating. Failure to do
so means that these products and the IP relevant to them are not protected in
those markets and could legitimately be exploited by competitors in those
countries.

IP support for businesses

The programmes being implemented by WIPO for
the benefit of small businesses seek to address this situation. They are
designed to support innovative businesses by, on the one hand, increasing their
awareness of the IP system and its advantages and the risks of ignoring it;
and, on the other hand, developing the capacity of their intermediary
institutions to integrate IP-related support services to their menu of business
services.

The support is provided through business-friendly
information in the form of guides and tools essentially made available through
the IP for Business website of WIPO. The most recent service developed and made
available on a pilot basis is WIPO
IP Diagnostics
, a web-based tool that allows a company to identify their
potential IP assets and receive an automated report on how they may be
protected, managed and exploited by responding to a series of questions about
their business. The support for business intermediaries is delivered through
targeted support programmes to selected intermediaries identified by countries
as well as IP offices. These include the development of country and sector-specific
material, training programmes and the sharing of best practices. In this
regard, the IP for Business series of guides and WIPO IP Diagnostics form the
basis of country-specific material.

This and other initiatives in favour of the
business community will be an important part of the work of a new sector at
WIPO called IP and Innovations Ecosystem. The creation of this new sector is
part of larger efforts by WIPO director general Daren Tang, who took over the
helm of the organisation in October 2020, to sharpen WIPO’s focus on helping to
promote the commercialisation of IP around the world, particularly by smaller
companies. This is critical to supporting the widest possible participation in
the global IP system.

Tamara
Nanayakkara is counsellor in the IP for business division, IP and innovation
ecosystems sector at the World Intellectual Property Organization.

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