Every entity creates IP on the basis of its business. Protection of the IP created is an important aspect which is many times overlooked due to the focus on the growth of businesses and generally protection of IPR is sought only when they come across any violation thereof. Businesses need to be aware of their IP as they are in the process of creating it. Every business creates IP in some form or the other be it business names, product names, innovative new products, innovate designs or even internal manuals for the functioning of the business and its processes.
Enforcement and protection to IPR is available generally when they are registered. The IPR policy of an entity should aim to strengthen its competitiveness in market and set up the IPR protection system in conformity with its stages of development. IPR management should be allocated to various departments for technology, economy and trade, to foster awareness of IPR protection and to promote research and development so as to improve the capacity of the entity to utilize, manage and protect IPR. This bulletin will discuss the ways to identify the IP wealth of an organization and initiating steps to safeguard and commercially exploit the same.
An IP audit is a systematic review of the IP assets owned, used, or acquired by a business. Its purpose is to uncover under-utilized IP assets, to identify any threats to an entity’s bottom line, and to enable business planners to devise informed strategies that will maintain and improve the entity’s market position. Obtaining, maintaining and leveraging IPR on important or critical technologies requires a significant investment of both money and time. Conducting routine IP asset audits is one of the best management tools for regularly reviewing an IP portfolio and ensuring that individual IP assets within it are not idle and are yielding sufficient return-on-investment.
The preliminary step in the audit process is to identify the IP assets. Identification of IP is sometimes a problem in organizations because of factors like lack of awareness, no policy for promoting IP, lack of evaluation of consequent commercial losses due to non- identification and effective protection of IP assets. IP assets may be any registered or unregistered trade marks, copyrights, designs, or patents owned by the business, in-house work manuals, databases, recipes, franchise agreements, publications and product/process know-how, any licenses to and from third parties, including cross-licenses, brand, product brands, product get-up, goodwill, product certification, export certifications, regulatory approvals, distribution and raw material networks, client lists, marketing, advertising and computer programs, among others.
After identification, the assets are scrutinized to determine the ownership, registration, enforceable right and effective usage and each component are to be rated as per their significance and category examining factors like core technologies, life expectancy and exclusivity of technology. Individual components are also to be given an importance rating by looking at factors such as, embodiment in core technologies, life expectancy of underlying IP in the said technology and the potential or actual exclusivity of technology.
The subsequent step is to itemize the assets and also fix preference based on external or market influences. These will include the brand, product, entity and product get-up, goodwill, product certification, export certifications, regulatory approvals, distribution and raw material networks, client lists, and marketing and advertising programs. Creating an inventory list of IP assets is essential. Once the inventory list is ready, an initial assessment is made as to the relationship of each of the identified IP assets to the entity’s financial performance to determine whether the asset is essential, critical, useful, or minimally important to the entity. An IP protection plan must be created to establish the varying levels of IP protection to be obtained for any class of IP asset and the process for determining the appropriate level of protection for each IP asset. The immediate next step would be to implement the plan. Processes and policies need to be put into place to capture and assess any change in the value of any IP asset and whether such change materially affects the financial status of the entity.
2. Creation of IP
Creation of IP is very critical and one of the most challenging tasks. To promote creation of IP within the organization, there should be commercialization policies to remove impediments to the development of new products.
With the shrinking of global boundaries and expanding businesses, the use of IP has assumed a considerable significance. Presently, companies and their respective products or services are recognized by brands which provide identity to a commodity or service and ensure uniqueness of a good or a service. Trade marks has no longer remained merely a symbol of goodwill but often the most effective agent for the creation of goodwill. Goodwill is defined as business reputation, patronage, and other intangible assets that are considered when appraising the business, especially for purchase. Goodwill is an inherent part of the trade marks and hence, any harm to trade marks directly affects the goodwill of the firm. Damage caused to the brand is not only by misrepresentation of the trade marks, but also by misappropriation of goodwill. The underlying principle of the passing off doctrine is to protect the goodwill against its erosion through usage of identical or similar trading mark and preventing the exclusive reputation in trading name from getting debased. The major focus of trade marks law is protecting the source identification and information transmission function of marks. It helps to reduce the consumer search costs by guarantying exclusivity, supports seller incentives to maintain and improve product quality and reduces the risk that consumers will be misled into buying products they do not want.
Copyrights and design are other IPs which create goodwill and identification. A unique website, advertisement or an innovative presentation or design of a product ensures that people have first recall when a product is concerned, thereby contributing to the goodwill of an entity. Any imitation of content created by an entity or design propagated would cause identification by malafide for the imitator, thereby infringement and erosion of goodwill of the creator or designer entity.
Patents are a separate breed of IP altogether. They are secretive and not disclosed because of their inherent nature. But they aid an entity in bettering its processes and products to such an extent as to assist an entity in establishing a market presence uniquely contributed by them. Due to their non disclosed nature they are of substantial significance to every entity creating them and therefore of greater market significance. Many companies have focused on their ability to create patents and processes so as to build IP portfolios which can be leased and licensed by them for substantial revenues and also can be sources of huge revenue at the point of early introduction into markets and generate goodwill and market reputation for the entities investing in their development.
3. Trade Secrets
Trade secrets are confidential business information that provides an enterprise with the competitive edge. Usually these are manufacturing, industrial, and commercial secrets and include sales methods, distribution methods, consumer profiles, advertising strategies, lists of suppliers and clients, and manufacturing processes. Contrary to patents, trade secrets are protected without registration. A trade secret can be protected for an unlimited period of time but a substantial element of secrecy must exist, so that, except by the use of improper means, there would be difficulty in acquiring the information. Considering the vast availability of traditional knowledge in the country the protection under this will be very crucial in reaping benefits from such type of knowledge.
Trade secrets per se cannot be legally protected as they are secrets, what is enforceable will be the consequential effects of breach of legal contracts. Trade secrets have not been defined in any statute, however, in one of its judgments, the Bombay High Court1 has laid down the elements for identification of information as trade secrets, viz., –
- The extent to which the information is known outside the business;
- The extent to which it is known to those inside the business i.e. by the employees;
- The precautions taken by the holder of the trade secret to guard the secrecy of the information;
- The savings effected and the value to the holder in having the information as against competitors;
- The amount of effort or money expended in obtaining and developing the information; and
- The amount of time and expense it would take for others to acquire and duplicate the information.
4. Effective IP protection
Whereas, there is adequate protection of the laws in regard to IP in India, the enforcement thereof leaves a lot to be desired. The laws should be focused on strengthening the enforcement of IP through various administrative bodies and courts. Thus entities have to be extremely vigilant of the violation of their IPR. They have to aim towards a stringent protection and enforcement mechanism and ensure that all violations are identified, reported and pursued to their logical conclusion so as to create an environment fostering the creation of IP in the organization. Strengthening of IP systems help in the strategic shift from static competition to dynamic competition which will solely be innovation-based. One important aspect that should be understood here is that a comprehensive IPR policy should aim to create a harmonious construction between “protection of innovation” and “facilitation of technology diffusion.” Such a measure can only ensure an effective and efficient IPR policy.
Though many of the companies maintain a good IP portfolio, they do not effectively exploit their IP rights. Unlike in the past when IP rights were used as a defensive mechanism, now, IP is recognized as the main source of business competitiveness. Creation of IP, creating effective protection mechanism of the IP, exploitation of the IP, ensuring fair balance and improving awareness in the organization is crucial for a sustainable growth in the present day competitive age. It is equally important that the employees are made aware of the important role played by IP in our daily life and the need for respecting it, so that an IP culture conducive for the growth of the industry can be established.
Authored by: Neeraj Dubey
1 Bombay Dyeing and Manufacturing Co.Vs Mehar Karan Singh 2010 (112) BomLR 3759