An introduction to intellectual property for businesses
Tamara Nanayakkara of the World Intellectual Property Organization provides a rundown of what IP is, how to get it, why it’s important – and much more
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.
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.
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.