Question

In this week’s meeting, you will be negotiating the acquisition of Intellectual Property. What constitutes intellectual property? Who is affected and how are they affected? How will you ensure who is the sole and exclusive owner of the IP in question? How will you reduce exposure to damage or loss of IP? What other considerations must be included?

Answer 1

What is intellectual property?

Intellectual property (IP) is an umbrella term used to describe a range of legal rights that attach to certain types of information and ideas, and to their particular forms of expression.

Types of intellectual property rights

IP rights fall into two general categories:

Registered rights. These rights are granted on application to an official body, such as the UK Intellectual Property Office. Registered rights are monopoly rights. This means that, once registered, the owner can stop others from using the right without permission. They include:

• patents;
• trade marks; and
• registered designs.

Unregistered rights. These arise automatically, give protection against copying or using the right, and include:

• copyright;
• unregistered trade marks;
• unregistered design rights; and
• confidential information.

Most Importantly the Economy and the Society affected by the IP.

Impact on Economy.

IP infringement harms companies through lost revenue, the costs of IP protection, damage to brand, and decreased incentives to innovate because of potential theft.3 Consumers are harmed when they purchase counterfeit goods of lower quality, some of which, such as counterfeit medicines, may pose health or safety risks. Governments lose tax revenue and bear enforcement costs. Decreased incentives to innovate resulting from IP infringement reduce economic growth, weaken the nation’s competitiveness, and decrease job creation.

Business Often experience lost revenue and ultimately lower profits when sales are diverted from authentic goods counterfeit ones. In addition to lower sales, profits are also adversely affected by the additional costs required to protect the firm from future episodes of intellectual property infringement. One estimate found that the average company lost $101.9 million in revenues and incurred costs of $1.4 million in identification and enforcement of intellectual property rights, leading to an average decline in profits of $46.3 million.

Recent government data help to shed light on the magnitude of foreign infringement. In 2011, the U.S. Customs and Borders Protection seized 24,792 counterfeit or pirated goods, a 24.2 percent increase over the amount of goods seized in 2010.

Availability of a counterfeit good can also put downward pressure on the price of the authentic product, causing a further decline in a firm’s revenue. Additionally, a company’s brand may be damaged when consumers who are unaware they have purchased a counterfeit good blame the maker of the genuine product for the poor-quality counterfeit they have bought.

Impact on Society

Strike up a conversation about intellectual property (IP) at a party and you’ll likely find yourself standing alone. Though it may seem like an abstract concept to some, IP plays an essential role in our culture and economy by driving innovation, protecting consumers, and supporting everything from music, cinema, and sports to health, tech, trade, and more. In other words, anyone who’s interested in the hottest new smartphone, the latest blockbuster film, the most promising new drug therapy, the safest toys for their children, or the next major U.S. trade agreement is interested in IP—whether or not they know it.

IP is critical to public safety and consumer confidence. Strong IP protections and enforcement are important to preventing dangerous products—such as counterfeit pharmaceuticals or toys—from getting into consumers’ hands. Trademarks give customers confidence that they are buying genuine, high-quality products from brands they trust.

IP is an incentive for innovations that enhance and improve our lives. When artists, inventors, or scientists have assurances that their works will be protected and rewarded thanks to IP rights, they are more inclined or able to produce. With strong copyright laws, musicians are more likely to record new albums. Patent protections enable pharmaceutical companies to take on the costs and challenges of putting lifesaving new drugs on the market. Without opportunities for ownership or profit, the incentive to innovate .

How will you ensure who is the sole and exclusive owner of the IP in question?

Many types of commercial contract feature the grant of rights by one person or company (the "grantor") to another. Such grants may be based upon independently enforceable rights, such as intellectual property rights, or simply on contract. For instance:

• technology transfer agreements may involve the licensing of patent-protected inventions
• distribution agreements typically grant the distributor the right to sell the relevant products in a particular market
• author agreements usually contain a grant of the right to produce and publish a book or other work.

The distinction between grants that are exclusive and non-exclusive is fairly clear. Where rights are granted on an exclusive basis, the grantor is saying: "I'm not going to grant these rights to anyone else, and moreover I won't exercise them myself". No such undertakings are given where rights are granted on a non-exclusive basis, and the grantor is free to grant the same rights to others, or to exercise the rights itself.

Less clear is the distinction between exclusive rights and sole rights. A common view (my own) is that a grant of sole rights should involve the grantor retaining the ability to exercise the rights itself, while undertaking to forbear granting the rights to others. But many contracts use the term to refer to a grant of exclusive rights. Given this lack of clarity, you should refrain from using the word "sole" in relation to grants of rights. And where you are interpreting a contract that includes a grant of sole rights, you need to look at the rest of the document to discover whether the grant is really exclusive.

How will you reduce exposure to damage or loss of IP?

While this nightmare scenario is terrifying, the truth is that very few people want to steal your ideas. If someone wants to start a business, it’s probably because they already have a concept they want to make a reality, and they’re not about to ruin their reputation by using yours.

That doesn’t mean intellectual property risk doesn’t exist. As a business grows, it becomes necessary to share ideas with others, be they investors, subcontractors, teaming partners, or business associates. This kind of collaboration can leave a company exposed. Investors need to know where their money is going, clients want to know what they’ll receive, and employees require some knowledge to do their job. Here are 7 ways to reduce your intellectual property risk:

1. Share What’s Needed

A pitch doesn’t need to contain all of the details. When constructing pitches, only provide the salient details. Investors and lenders may require more information so they can better assess risk, but most others don’t. A potential client cares less about the process, and more about what they’ll receive. New employees only require enough information to complete their job. Embrace “Need to Know,” and you’ll greatly reduce intellectual property risk.

2. Use NDAs

Before revealing your secrets to any associates or employees, ask them to sign a non-disclosure agreement. While this is a great way to protect yourself, many investors and potential clients are loathe to sign an NDA before any discussions. By adding a confidentiality statement to your business plan, you can reduce risk without requiring a signature.

3. Get a Provisional Patent

While you may not be able to afford a full patent, a provisional patent can give you the security you need to start shopping around. Keep in mind that it expires after a year, and you cannot extend, so once you receive it the clock will be ticking.

4. Trademark Your Name

When your company’s idea is strongly tied to its name, trademarking the name can provide some protection. The legal documents establish a timeline that shows when you were developing the idea, providing indisputable evidence in court.

5. Do a Rep Check

Before revealing your ideas to anyone, make sure that they haven’t been involved in any disputes in the past. A quick internet search should show if the person in question has a good reputation or if they have an iffy history.

6. Listen to Your Gut

If your instincts are telling you something’s wrong, listen. Someone who seems overly interested in the details may want to invest or they may want to grab your idea and run. The more experience you have, the easier it becomes to determine someone’s motive, but don’t discount warning bells just because you’re a novice.

7. Create a Paper Trail

If you do end up going to court, you need to be able to furnish evidence. By putting as much as you can into writing, you’ll have the proof you need. Create a log that keeps track of every discussion where your intellectual property was revealed. This will not only help you in court– it might help if one of those conversations end up going somewhere.