Use of IP rights in internationalisation process

Introduction:

If anyone still doubts whether IP rights are assets of decisive importance for business, it would be enough for them to read the trade agreement between the United States and China of 15 January
2020. The agreement’s first articles address the protection of IP rights and the regulations that China will assume for the best protection thereof. This should come as no surprise. The World Trade
Organisation (WTO) General Agreement on Tariffs and Trade 1994 was accompanied by the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), an agreement that committed
WTO member states to recognise a minimum standard of protection for these rights. Therefore, for a company that chooses internationalisation (which today’s global market has made a
necessity), protecting IP rights is not only useful, but also indispensable to avoid infringing other people’s rights, which could result in court proceedings and, if unsuccessful, a loss of investment,
reputation (exposure or a criminal seizure at a trade fair can be devastating) and market access before business has even begun. It is even more important for companies to protect their own intellectual property, particularly if they are entering a new market. In fact, IP rights are a “reserve of exclusive exploitation” of an invention’s technical, aesthetic or communicative aspects. This means being able to prohibit others from exploiting a protected element (ie, being the only company on the market that can offer the element or licence or sell it to (potentially larger) third parties and achieve a valuable ‘leverage effect’). As such, rights holders can obtain new resources quickly and expand their business indirectly. Although companies make their own history, there are best practices that apply generally and must be strictly followed.

Consult patent databases

After publication (ie, 18 months after filing), patents become public and can be found in official databases (eg, the European Patent Office databases) that anyone can access. Therefore, when
starting an activity in a given field – especially when entering new markets – it is important that companies discover what is new in this field (and what is protected in the relevant jurisdiction) in
order to respect and, if necessary, navigate existing IP rights (so-called ‘designing around’). If a patent is at risk of infringement, companies should contact a patent attorney or highly specialised
lawyer. Patent databases are an essential resource when designing new inventions and allow users to remain up to date with all of the most interesting technology available. They are also a gold mine for companies that are entering new markets without relevant prior experience. For example, if a company intends to export products, they must check that there are no local patents in the
importing country that may be opposed to these products (eg, products that may be different from those protected in the exporting country, even if they belong to the same ‘family’ and have the same owner). In so doing, the company may also discover inventions that are not protected in the importing country, such that it would be better to produce and sell products there (and in other countries with similar protection structures) what cannot be produced at home.

Protect and enhance distinctiveness

An effective, attractive and (above all) unique brand compared with those of competitors is indispensable; but no less indispensable is protecting and enhancing brands effectively. In fact,
registration (which must be preceded by an appropriate prior art search to avoid infringing the rights of other parties and risk having to change a trademark when the first results are obtained)
serves to protect companies and their businesses at the initial stage, preventing a third party from appropriating the brand equity that is being built on a new market. For this reason, it is important to apply for a trademark for products for which the mark will be used in the immediate future and for products which, in the public perception, could be connected to the same company, not only for the countries in which said company already operates, but also for those which represent possible outlets for its products and where possible imitators operate, starting with East Asia.

It is not necessary to do everything immediately (a reasoned list of priorities should be drawn up); however, offering products in an important market without first securing IP protection – starting
from distinctive signs, that often include labels, trade dress and the distinctive and non-functional shape of products – should be avoided.

Further, in order for a brand to acquire value, it must:

1. choose a strong theme for all company communications, one that identifies the company and
its production in the minds of potential buyers; and
2. maintain absolute consistency with this theme in all company messages.

Importantly, a brand’s message should consider the culture of the country where the company intends to sell its products to avoid any negative repercussions. In other words, companies must
have the courage to be ‘glocal’ (ie, to build a global business, but be able to adapt to local peculiarities).

Maintain and defend trade secrets and know-how

Companies – especially manufacturers, but also purely commercial companies – ‘naturally’ produce information that may have significant market value and represent a competitive advantage. This applies to experiences that are translated into production know-how, but also to customer and supplier knowledge, needs and capabilities, customisations and prices and discounts. Such
information has important corporate value, but can be easily stolen (eg, a former employee who has copied relevant files can make trade secrets and know-how available to their new employer).

Trade secrets and know-how can be protected if technical tools (eg, data protection technology and access restrictions) and legal tools (eg, internal regulations on confidentiality and electronic tools, non-disclosure agreements and exclusivity agreements as necessary) that can prevent information leaks have been put in place. Such tools make it possible to protect information which is not generally publicly known and has sufficient economic value to warrant against theft and misuse by (for example) suppliers, licensees and component makers, but companies should implement them early as a preventative measure.

Protecting different kinds of creation

Subject to national laws, innovative companies can generate many types of protectable creations, including: 1. technical solutions, including inventions and utility models; 2. product shapes, which may be protected by design registrations, shape trademarks and – more rarely – copyright (the rapidly changing protection landscape could make this form of protection more accessible in future); and

3. software and databases, which may be protected by copyright and against unfair competition.

Inventions often have more than one form of protection (ie, partly alternative and partly cumulative). Choosing when, where and how to protect a creation and to which countries protection
must be extended requires technical and legal expertise. Therefore, companies should maintain continuous relationships with IP attorneys and highly specialised lawyers to avoid potential
infringement. Once disclosed, a technical invention is usually no longer protectable; however, designs remain protectable up to one year from disclosure (in some countries this grace period
applies to inventions too).

Deriving value from IP assets

IP rights are a defensive weapon against counterfeiting and are a useful resource for companies, especially those entering new markets which seldom have the resources to exploit their creations on a large scale or in all potentially interested countries. In such cases, the licensing (and also the assignment) of at least some element of a creation can be advantageous, because it allows for
investment in the core business or in countries considered more commercially interesting. In many cases, it is also possible to start co-branding operations, which add visibility to a brand (but if it is consistent with the company’s brand image).

IP rights – especially patents, trademarks and registered designs – can also be offered as guarantees, with a kind of pledge, to obtain financing. Further, from a fiscal point of view, the exploitation of IP rights (in this case also directly) can be advantageous by adhering to the so-called ‘patent box’ system.

A forward-looking approach and the ability to set up correct growth strategies are also crucial. Assignments and licences are key to making the best use of IP rights as a competitive factor on the
global market. These agreements cover not only the rights arising from registration or patenting, but also those arising from creation and use, including copyright (eg, on useful creations such as design, software and databases), unregistered trademarks and other distinctive signs, confidential business information and primarily technical and commercial know-how.

However, when executing such agreements, the limited term of these rights must be taken into consideration. In the European Union, except for limited extensions for the pharmaceutical sector,
which not all countries provide for, patents last for 20 years; designs are protected for five years, a term which may be extended in five-year increments up to a maximum of 25 years; and trademark protection lasts 10 years but can be renewed indefinitely. In addition, some rights are subject to forfeiture in case of non-use (eg, trademarks and sometimes patents).

Trade secrets

It is no coincidence that the first article of the recent trade agreement between the United States and China is dedicated to trade secrets. In fact, trade secret protection corresponds with patent
protection primarily because of its scope. Agreements relating to or covering protected trade secrets have a major impact on IP law, as maintaining secrecy is necessary for their continued
protection. The obligation of confidentiality can last indefinitely (and must if secrecy is to be maintained). As the protection of secrecy will last as long as knowledge assets are kept secret, it is
essential that confidentiality obligations last as long as the information that they cover remains generally unknown and not easily accessible. Fixed terms can therefore be fatal for protecting trade
secrets.

Article 39 of the TRIPs Agreement includes an interpretative footnote, according to which:

           For the purpose of this provision, ‘a manner contrary to honest commercial practices’ shall
           mean at least practices such as breach of contract, breach of confidence and inducement to
           breach, and includes the acquisition of undisclosed information by third parties who knew,
           or were grossly negligent in failing to know, that such practices were involved in the
           acquisition.

This indicates breach of contract as the first conduct that makes the use of a rights holder’s trade secrets “contrary to honest commercial practices”. The correct contractualisation of confidentiality
obligations is therefore crucial for the configuration and adequate protection of trade secrets, especially in international transactions. This also requires the sufficiently precise identification of
what information constitutes a trade secret, for both reasons of agreement validity and antitrust law.

Trademarks

In most countries, trademark infringement due to the way or context in which a mark is used implies the forfeiture of the trademark and the assignment or licence from which the public is also deceived may even make these agreements null and void. Such deception may concern the message communicated by a trademark, not only strictly material ones. In fact, there are also ‘immaterial’ characteristics (eg, authorship and stylistic consistency, but often also geographical origin) that assume decisive importance for consumers. Further, trademark rules are coordinated with those concerning other aspects of business communication, such as advertising and producer responsibility regarding defective products. In addition, apart from penalties, brand misuse by local distributors could have a negative impact on a brand’s image and thus its value, even globally. Therefore, the correct contractualisation of international business relationships is essential.

Ownership, circulation and use of IP rights

The management of the ownership, circulation and use of IP rights within a group of companies, especially multinationals, should not be based on the mere principle of the group’s free use of said
rights. This position does not take into account the patrimonial and accounting autonomy of each company in the group, nor the mutual give-and-take relationships which must be properly regulated and valued from a contractual perspective (in particular, by using framework agreements).

Emblematic of this position is the management of technological innovation, the creation (or acquisition from third parties) of which is usually onerous and in the first case may also involve
obligations towards employee-inventors, which are linked to the value of the invention. In fact, employers must meet their obligations, regardless of whether the latter is the patent holder.
Therefore, there would be no justification for the free transfer of the relative exclusive rights to other group companies, except in the case of flows in the opposite direction, which constitute the
consideration of such asset assignments.

Jurisdiction issues

Jurisdiction issues should be carefully considered when drafting and periodically reviewing contracts, particularly license agreements and technology transfers, especially those which are long
term. Clauses should be adjusted to ensure efficient enforcement.

Comment

Every company taking part in the internationalisation process must use the right skills, avoid making mistakes and turn costs into opportunities. The ownership, proper management and contracting of IP rights can make the difference between a successful business and a short-sighted, unrealistic initiative in the global market.

For further information on this topic please contact Cesare Galli at IP Law Galli  (+39 02 5412 3094) or email (galli.mi@iplawgalli.it). The IP Law Galli website can be accessed at
www.iplawgalli.it.

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