IPR: Is It Good or Bad For Business?

January 30, 2008

Do intellectual property rights still provide the right framework to promote innovation and protect investment in the fast moving world of technology? This pressing question brought a packed house to Linklaters on Wednesday 23 January to hear from the experts.

When Trolls Attack

The first speaker was Roger Burt of IBM who tackled the tricky issue of patent trolls. Technology products can now contain hundreds, or even thousands, of components, making it impossible to conduct a full patent clearance on that product. This creates a major risk: if the product does contain infringing components then an injunction could be issued preventing the sale of the whole product. This threat of an injunction provides the trolls with incredible leverage, potentially converting a minor invention into a multi-million dollar infringement claim. The threat of an injunction has eased somewhat in the US following the Supreme Court’s decision in e-bay v MercExchanage. However, it remains a real concern in Europe.

The Open Source Zoo

Stefano Nappo of UBS then invited us into the open source zoo and questioned if it really raised new issues or just revived old ones. Many open source software products are made available for free. Some might say you get what you pay for, so it is hardly surprising that traditional problems such as bugs, fitness for purpose and obsolescence persist. It is also worth noting that free does not always mean free. The costs for maintenance, documentation and training can add significantly to the total cost of ownership for the software. However, there are some truly new risks such as the possibility of copy-left material infecting your codebase and forcing it into the public domain. With those on the look-out for gpl-violations on the warpath, copier beware!

Homicide Statistics

Stephen Bennett of Lovells, intent on proving that litigation is not for wimps, started with an analysis of homicide statistics, which show that 30% of murders are by close family members. In short, homicides, like infringement actions, commonly involve someone you know. In the case of an infringement action this is likely to be a competitor or licensor/licensee. With this in mind it is worth targeting your risk mitigation strategies by focussing patent searches on your competitors and known enemies, building up a patent pool to use as bargaining chips (and ultimately for cross licences) and thinking carefully about ownership provisions.

Unreasonable Customers

David Eveleigh of BT then took up the baton by looking at the impact of intellectual property rights on service contracts and outsourcing. A common problem is that customers try to nail down the intellectual property provisions at a very early stage of the transaction – often before a technical solution has been proposed and it is clear what these rights will be. This can create a range of problems. Customers seek ownership of intellectual property developed under the agreement without considering if they really need it – are they really going to exploit it commercially themselves? This can drive the price up by depriving the supplier of his right to re-use it. Similarly, customers often try to extend the intellectual property provisions to sub-contractors. Where bespoke software is created by a sub-contractor then it may be possible to obtain an extensive licence or even ownership. However, you are unlikely to obtain similar rights to commodity software (such as a licence to modify, adapt and maintain Microsoft Vista).

Unreasonable Suppliers

Jon Lightman of TPI had fantastic diagrams in his presentation. He looked at intellectual property rights from the customer’s perspective (or rather the consultant’s perspective). He emphasised the need to view these rights in the light of the wider commercial framework. If the project will provide the customer with a real unique selling point or service differentiator then the customer may want to control tightly the re-use of any new intellectual property. If the customer is really going to exploit the output of that project commercially then they may need to own the intellectual property rights. But in many situations this simply isn’t the case. In fact in many business process outsourcings, the customer will accept that this process has ‘gone over the wall’ and that there is no need to get extensive rights over the intellectual property used to provide that service. Finally, he warned against the inevitable loss of soft intellectual property (knowledge and expertise) following an offshoring. Onshore outsourcings normally preserve the employees involved in that service but these employees are almost always lost in an offshoring. This can make it much harder to recover the service at the end of any arrangement.

Is it Time for Intellectual Property 2.0?

Ian Karet of Linklaters then chaired the session for questions. No one went as far as suggesting there should be no intellectual property rights but there was a general consensus that the current position was not working, or certainly that it needed to be improved. Both Roger and Stephen felt that it is now impossible to avoid the risk of infringement completely in the technology sector and the best you can do is try and manage it. Software patents (or rather technical inventions with a substantial software component) came under particularly heavy fire as an expensive and inappropriate means of protection that was open to abuse – one speaker described many of the software patents currently being passed by the EPO as ‘fundamentally bad’. There were a range of solutions to deal with this including replacing software patents with a sui generis right and restricting the circumstances in which injunctions would be issued. Ultimately, do we need anything beyond copyright? As Jon Lightman put it: ‘today’s innovation is tomorrow’s out of the box commodity. That’s what drives innovation, not intellectual property protection’.

Peter Church is a Solicitor at the London office of Linklaters LLP: peter.church@linklaters.com