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Defending intellectual property abroad

The global value of fake goods hit an estimated $653bn in 2014 – with drugs, electronics and software accounting for the most commonly counterfeited products. But SMEs are often ignorant of their intellectual property (IP) rights and only16% of SME owners place a specific monetary value on the IP associated with their brands, logos, websites and product designs. What are the implications of this?

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Defending intellectual property abroad

  2. 2. 1 © The Economist Intelligence Unit Limited 2015 Defending intellectual property abroad 1 “Counterfeit Goods Market Value,” Havocscope: Global black market information website. 2 “IP Insights: July 2014,” UK Intellectual Property Office. Peter Lord, the director of the golfing equipment maker Professional Golf Europe, was surfing the Internet when he came across some low-priced Vega golf accessories listed for sale on the online retailer eBay. Since he owns the European Union trademark for Vega products, he knew these were fakes. He complained to eBay, sending it proof that he was the registered trademark owner and EBay removed the products. “”Without a registered trade mark,” he says, “we wouldn’t have had a leg to stand on.” Lord’s experience is not uncommon. The global value of fake goods hit an estimated $653bn in 2014 – with drugs, electronics and software accounting for the most commonly counterfeited products. But SMEs are often ignorant of their intellectual property (IP) rights.1 Only 16% of SME owners, for example, place a specific monetary value on the IP associated with their brands, logos, websites and product designs – even though between 70% and 80% of the value of their businesses may reside in such intangible assets.2 Taking defensive action is probably easier than most SMEs believe. The World Intellectual Property Organisation, the European Commission-funded Intellectual Property Rights Helpdesk, and the UK’s Intellectual Property Office (IPO), among others, publish extensive information on IP rights for SMEs. But the range of legal instruments that can protect a single product can be bewildering, and the cost of obtaining those protections can be opaque. At the most basic level of protection, SMEs are covered by unregistered rights, which are free and exist automatically in law. The Berne Convention protects international copyright for articles of literary and artistic merit, and common law protects unregistered trademarks and designs in the UK and some other countries. However, such unregistered rights are not the best choice for SMEs exporting into foreign jurisdictions, since the onus of proof of IP ownership falls on the exporter. “With unregistered copyright and design rights, you have to prove that your material has been copied, which can be a colossal task,” Martin Neilson, a Patent Attorney at the UK law
  3. 3. 2 © The Economist Intelligence Unit Limited 2015 firm Urquhart-Dykes and Lord, says. “Registered rights, on the other hand, give an SME a monopoly right, so it need only prove that a business has infringed its right to be able to take action.” Registered IP protections fall into four main categories—and often a single product may require more than one category of protection. Registered copyright covers works of literary or artistic authorship; industrial design rights cover the look and style of products; patents protect against the unauthorised use of a company’s innovative products or processes; and trademarks define and defend the words, phrases, symbols, designs and colours a business associates with its goods or services. Companies can also protect trade secrets and the rights associated with celebrity. An IP audit early in the development process can be a valuable tool for exploring the protections available, Neilson says. This is especially true for start-up businesses, where inventors risk accidentally giving away their IP by publishing commercial information in academic journals. Tanya Ewing, for example, approached the UK’s Intellectual Property Office during the development stage of her digital display system that helps consumers and businesses monitor energy consumption. Her Edinburgh, Scotland-based company, Ewgeco, filed patent applications and secured international design registrations well before launching its product. “The visual design of our energy monitoring system was as important to us as the technology we created, so we initially applied for design registrations, a patent and a trademark,” Ewing says. Competitors have scrutinised the technology, she says, but not infringed her rights. There were other commercial advantages too. “By submitting these early on in our product development, long before they were granted, we were able to put a value on our idea and raise capital from investors to develop our product.” Financial penalties for infringing the IP of registered goods and services help deter counterfeiters; SMEs can also seek compensation from a business that accidently breaches its rights. Even where a patent is pending, protection applies. At least in the UK, any damages awarded for infringement accrue from the date the application is filed. The choice of what protection to seek depends not only on the features of the product that create value for the SME, but also on where the business is looking to trade. Only large corporations have the funds to cover all countries, so SMEs have to plan carefully. Lawnsalted, a Kent-based start-up company in the software development and internet sector, decided it did not have enough money to register all of its potential IP rights, so relied on unregistered copyright protection, as well as on a measure of secrecy. For the latter, it created non-disclosure clauses in employee, supplier and client contracts, according to a case
  4. 4. 3 © The Economist Intelligence Unit Limited 2015 study prepared by the European IPR Helpdesk. While this strategy has been effective in the UK, in 2013 the company discovered that the owners of a patent he had exclusive license to use had missed a deadline to register that patent in countries where Lawnsalted planned to trade. This poses a risk to Lawnsalted, since it means that its service can be freely copied in some potential markets, with the consequent loss of competitive edge in those markets. Relying on national registration for IP protection is best where SMEs export to just a few countries. This can be a long-term process: Registering for national patent protection can take up to 31 months in some countries. Neilson says a straightforward patent application in the UK would cost about £5,000, including administration and lawyers’ fees. Translation costs, when required, can add £2,000 or more to each application. Registering a trademark—to associate specific products with a specific mark—costs about £1,000 for a simple mark in some of the 34 goods classes and 11 service classes. Neilson advises SMEs to begin with a broad but realistic set of classes and be prepared to strike off a few, if necessary, as objections from competitors can double the cost. Adding classes to an existing trademark application also increases the cost. The Treaty of Paris set up different mechanisms for applying for IP protection either across the EU, or globally. For example, a trademark registered at the European Union’s Office for Harmonization in the Internal Market protects the mark across the EU, while a patent application to the European Patent Office for EU-wide filing streamlines co-ordination between national patent offices. The patent still has to be granted separately in each jurisdiction. Neilson estimates a European patent application could cost £20,000, including legal and official fees, depending on the number of countries covered. A simple Community Trade Mark application averages £2,000. Extensions of such applications beyond the EU must specify the countries in which the SME seeks protection, and these generate additional costs. Once an IP strategy is in place, SMEs must carefully monitor infringements and enforce their rights. At a buyers’ fair in 2013, the London-based UK Talking Tables, an up-market party accessory business, was surprised to find products similar to its own at the stand of competitor Ginger Ray. The firm claimed Ginger Ray had infringed its unregistered design rights. After a flurry of lawyers’ letters, Ginger Ray agreed to pay £5,000 in damages and costs and to cease to display, sell or market the disputed products. “Unfortunately this is not the first time we have had to take legal action,” Mark McCormack, director of Talking Tables, was quoted as saying, “but we will continue to do so wherever necessary to protect the investment in our design originality.”
  5. 5. While every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor Novartis can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in this white paper.
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