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Transcript of 1 I N N O V A T I O N L A W PHILIP MENDES BRADLEY THOMAS (ASSOC) Level 3, 380 Queen St Brisbane QLD,...
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I N N O V A T I O N L A WPHILIP MENDES BRADLEY THOMAS (ASSOC)
Level 3, 380 Queen StBrisbane QLD, Australia
Ph + 61 7 3211 9033Fax + 61 7 3211 9025
[email protected]@innovationlaw.com.au
Leveraging IP Assets: Role of IP in Improving Enterprise Profitability through Direct Exploitation, Licensing, Franchising, and / or Merchandising, and
Developing Other Types of Strategic Business Relationships: Case Studies
Shanghai15 December 2004
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Leveraging IP Assets to improve profitability
What does leveraging IP assets mean ? use IP Assets, to build business relationships and opportunities in that way achieving more with an IP Asset than if you didn’t have
the relationship and in turn, to improve a business’ profitability
Outline: Looking closer at an IP Asset’s owner right to exclude others Looking at ways for sharing IP Assets and how taking an inclusive
approach can improve profitability Emphasis on Case Studies: some of the imaginative ways that IP Assets
have been leveraged to create new business relationships and increased profitability
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Patent:right to exclude
Patent confers upon its owner the right to exclude others from exploiting the invention the subject of the patent
The perspective of a patent owner, consistent with that idea, is that a patent has to be closely guarded, with the owner being alert to others who may be infringing it, and who must be prevented from doing so
That is a very simple use of the rights conferred by a patent
Patent owners often focus on their patent As barriers to entry, as tools to exclude others Rather than as tools for strategic alliances and increased profitability
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Patent:right to exclude proactive inclusion
Patent owner sees the right to exclude as a means of recouping what may have been years of speculative investment
A patent owner has that right to exclude But it is a right which sometimes may result in a patent’s economic benefits
not being maximised A patent may be used to exclude others, but it can also be used as a tool to form
strategic alliances, take advantage of new opportunities, and in that way maximise profitability
Recouping the speculative investment on the patent may in fact be slowed down by the right to exclude. It might be recouped faster through using IP assets as tools for new opportunities
An IP asset can be leveraged to partner with other businesses in a strategic way to create new business opportunities
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Licensing and concurrent IP rights
Licensing IP is a tool An owner of an IP asset may grant to another person rights to use the
owner’s IP An owner of IP may do so consistently with retaining their own
exploitation rights
How? By the use of tools that permit concurrent exercise of IP rights
Sole Licenses – a shade of exclusivity Field of Application restrictions Territory restrictions
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Exclusivity: Sole License
Exclusive Sole
Exclusivity:
Non Exclusive
One Exploiter – the licensee
Two Exploiters – owner and the
licensee
Numerous Exploiters – owner and
numerous ‘ees
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Exclusivity: Sole License
A mechanism for concurrent rights to a patent Owner may exploit rights, and at the same time grant exploitation
rights to a licensee: a sole license Two persons in the market exploiting the same patent – as
competitors
Why would a patent owner with the right to exclude others grant a license to a person that would be its competitor ? Surely that will decrease profitability, not increase it ! Doesn’t that defeat the purpose of having the right to exclude others
granted by a patent ? Yes, but not necessarily always
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Exclusivity: Case study in increasing profitability by granting a sole license
Technology developed by testing laboratory – Company A in Australia Company A had clients globally But its global clients amounted to less than 1% of the global market place Did not have a global marketing network – and did not want to – preferring to
remain “boutique” Company B in Europe
A competitor to Company A But a significantly larger company, with a significantly larger share of the
global market place Had the resources to market widely, globally, and maximise the use of the
technology Choices:
Exclude all others from the technology – and make minimal financial returns License a competitor with greater capability and maximise financial returns
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Fields of Application
Some technologies lend themselves to different uses.
These are called fields. field of science particular application industry by industry
Some licensees have expertise / marketing networks in some fields but not all.
Would you exclude others from exploiting your patent in all fields, even those
fields, applications, industries outside your own capability to service ?
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Fields of Application
New formulation for scratch resistant plastic
Possible fields: Exterior pipes – plumbing
industry Spectacles – optics industry Furniture – moulding
industry Bottles for consumer
products – injection moulding industry
Car parts and trim – motor vehicle industry
Boat trim – boating industry
Would you keep all fields to yourself and exclude others, even if you had no capability other than in one field only ?
No, you would license out remaining fields
Would you license optics industry applications to a plumbing manufacturer ?
Would you license motor vehicle applications to an optics manufacturer ?
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Fields of Application
Retain rights you want to exclude others from And leverage your IP by licensing out other fields of application to others, in that
way maximising your own profitability
Field of Application User
Exterior plumbing Licensee in plumbing industry
Spectables Licensee in spectacles industry
Furniture Owner - furniture moulding industry
Bottles Owner - injection moulding industry
Car parts and trim Licensee in motor vehicle industry
Boating trim Licensee in boarting industry
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Territory
The most familiar way to leverage an IP Asset Patent owner
keeps a territory that it sells its products in licenses patent to licensees to sell in other territories that the owner cannot
service
Could be country by country states or other geographically distinct areas within a country
Rather than excluding others from the IP Asset It is made available to strategic partners that exploit it, and pay a royalty
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Leveraging IP Asset in a Strategic Alliance
A strategic alliance occurs where two or more companies align themselves to each other They may be competitors They might also be in entirely different industries
But they combine their efforts or their resources for their mutual benefit
They may even make their IP Assets available to each other Usually more than just a license – a closer more intimate relationship
than just a license They leverage their own IP Assets to form a partnership with another
person that contributes its IP Assets, with a common objective of both benefiting from each other’s IP
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Strategic AlliancesCombining IP Assets to create new IP
Company A is conducting R&D on a new formulation for a scratch resistant plastic for making plastic furniture
Company B is be conducting R&D on a new formulation for a scratch resistant plastic for making motor vehicle trim
Both have valuable IP in the area have patents
They decide that collaborating together combining their resources combining the inventiveness of their staff may lead to developing a formulation that would suit them both
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Strategic AlliancesCombining IP Assets to create new IP
They enter into a Collaboration and license agreement To collaborate and create New IP hat will be jointly owned
Company A grants to Company B a license Of Company A’s patents Of Company A’s interest in the New joint IP In the field of motor vehicle trim and accessories
Company B grants to Company A a license Of Company B’s patents Of Company B’s interest in the New joint IP In the field of furniture
Both have leveraged their own IP assets To create New IP To obtain access to the IP of the other, and the new IP, in their own field
of interest
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Strategic Business relationships that can be formed by leveraging
Licenses are at the heart of almost all strategic relationships where this leveraging of an IP Asset occurs
License of a patent a trade mark A registered design
Special types of licenses Franchising Merchandising
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Franchising
A special type of license A bundle of IP rights and contractual rights
Trade mark A business system or process (know how) Group purchasing power Group advertising power
The bundled IP and contractual rights are licensed, or franchised, to a licensee, or franchisee
The originator of the IP rights leverages those rights by creating business relationships with franchisees that pay franchise fees, or royalties
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Merchandising
Another special form of license
Licensing Designs Characters (movies, cartoons) Copyright works (art, photograph etc)
And allowing licensee to reproduce onto products, from clothes to children’s lunch boxes, back packs, and food containers
Another form of leveraging an IP Asset by extracting maximum value by sharing its use with others
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Case Study:ITL Corporation Pty Limited
An Australian Company Commenced operations in 1994 Seen it grow
from the two founders with no other staff, to over 170 staff in four countries
from no IP assets to 12 patent families Over 100 granted patents worldwide 11 Trademarks registered in over 25 countries
From a company with no capital, to a company listed on a stock exchange in late 2003
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Company’s name and business
ITL stands for
Innovation
Technology
Licensing
ITL’s name itself indicates that IP Assets are a major focus of its attention
Its name suggests that licensing was its intended business model
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Company beginnings
Joint Managing Directors Bill Mobbs (computer consultant) Jag Dillon (research scientist and then TGA (FDA) official)
Both decided to undertake a Masters of Business Administration and met at University
At the time were aged in early 30s They both decided that the business that the wanted to form needed to
be niche global innovative protectable
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Identifying the need
In 1993 - 1994 the risk of AIDS infection was receiving global attention, as was Hepatitis C infection
Healthcare professionals (doctors, nurses, etc) were particularly concerned about the risk of accidental infection, given that they daily dealt with patient’s blood
At about this time a retractable syringe entered the market The blood collection agencies (Red Cross and others) were particularly
concerned about accidental needle stick injury to their staff ITL identified the need for a product into which blood collection
needles could safely be contained, upon exit from the blood donor, in that way minimising the risk of needle stick injury
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First product
They designed a vessel into which blood collection needles would retract
In 1994 ITL applied for a utility patent or petty patent (in Australia now called an innovation patent) over their first product, the DonorCare
Later converted to a standard patent Has a unique design Needle retracts into the vessel, protecting
health care staff from the risk
of needle stick injury
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First trade mark
DonorCare was also the first trade mark
DonorCare
Trade Mark was sought at an early time ITL identified the need to achieve product recognition at an early date It needed its potential customers to be aware of its product, and to recognise
ITL’s products, over any competing product
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Licensing option
ITL considered for some years that its strategy would be to license out the patent
Licensing held many attractions
ITL could be a passive licensor Collect royalties apply its resources to developing new products
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License manufacturing and sell products
But greater profitability was to be realised by selling product instead of licensing
ITL decided to leverage its IP assets to Develop an alliance with an OEM manufacturer that manufactured
product and sold only to ITL Develop an alliance with global purchasers of its products
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License manufacturing and sell products
ITL accordingly decided to leverage its IP Assets by moving away from licensing, and instead licensing a contract manufacturer, and selling products
ITL ManufacturerLicense to manufacture
Sell products back
Buyer
Sell products
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License manufacturing and sell products
By doing so
Leveraged its IP Asset to build a capability it did not have Created a strategic relationship with a licensee – who was licensed to
manufacture only, and to exclusively supply all product to ITL, and to no one else
Leveraged in a way that achieved more with the IP Asset, and more with that strategic relationship, than if that leveraging had not taken place, and there had been only a simple license.
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Other products
Platypus Similar to DonorCare, but designed specifically for AV Fistula
Needle sets Also designed to prevent needle stick injury
Key to its success has also been Patent protection
(Niche, global, innovative, Protectable) Trade Mark
Market recognition and loyalty
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Other Products
Blade Guard Stitch cutter, reducing risk of injury
Flipper Stripper Strips blood tubing
Samplock Vacuum tube for blood collection
Adopted the same strategy
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Evolution to Licensing in
Having established own manufacturing facility, it has licensed in other people’s technology to add to its product range
That is, has licensed in other people’s unique patents or designs to produce and sell
Leuko Cart A portable cart for blood bags
Baby Leuko Cart A smaller version
Adopted the same strategy
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One IP Asset leveraging another
What does it mean to leverage one IP Asset with another ?
You have one IP Asset
You have a second IP Asset
You leverage one IP Asset with another, and maximise the financial return, than if you had not done so
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Patent and Trade Mark same product
Patent term will expire after 20 years from application date Trade mark will continue indefinitely, while registration fees are paid
If directly exploiting a patent rely on patent to exclude others that may reverse engineer
But in the meantime promote the trade mark for that product Generate customer loyalty for the product
The patent may expire, but sales may continue, enjoying the competitive edge brought about by the continued trade mark and customer loyalty
Leverage the patent to add value to the trade mark and improve profitability beyond the patent term
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License Patent and Trade Mark together
The challenge: To do the same when licensing a patent Persuade licensee to also take a license of a trade mark, and require
only that trade mark to be employed in the exploitation of the patented product
Have two royalty rates: one in the patent license, the second royalty rate in the trade mark license
Collect two royalties for the life of the patent After the patent expires continue to receive royalties pursuant to the
trade mark license
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License Patent and Trade Mark together
Most patent licensors do not leverage the value of their Patent IP Asset in this way
A licensee will seek to persuade the licensor that the goodwill generated from the sale of the product should belong to the licensee
Often that argument will succeed But a licensor that succeeds in leveraging one asset against the other in
this way will earn royalties for a period well after the expiration of a patent
It will be easier for a licensor to do so when licensing on a Territory by Territory basis. It will be easier in that case to require uniformity in trade marks across all Territories
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Case study: leveraging one IP Asset with another: Trade Secret and Trade Mark
Company A had a formulation for an nutrient additive to chicken feed that resulted in chickens producing eggs enriched with Omega 3
Omega 3 a fatty acid that helps prevent heart disease found in oily fish such as sardines etc found in relatively few foods
Ironic that you eat a fatty product like an egg (10g of fat in the yolk) to be able to more readily access the Omega 3 fatty acid
Challenge: The formulation was not patented, but was protected only by trade
secrecy. It had been commercially used, so could not be patented Financial return sought on a long term basis, by reference to the price
premium that would be charged by egg producers for Omega 3 eggs
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Case study: leveraging one IP Asset with another: Trade Secret and Trade Mark
Challenge: If a know how license was entered into, requiring royalty payments, its
term would cease, and royalties would cease, as soon as the formulation entered the public domain
As there were to be number of licensees of a know how license, by Territory, there was an increased possibility of the formulation entering the public domain, and even an incentive for the formulation to leak
It was sought to get a reach through royalty based not on the quantity of nutrient added to feed, but based instead on the premium price for sales of Omega 3 enriched eggs
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Case study: leveraging one IP Asset with another: Trade Secret and Trade Mark
Strategy Grant a license to a feed producer to make nutrient and sell it to egg
farmers – but only those egg farmers that had entered into a trade mark license
Grant trade mark licenses to egg farmers, in that way permitting them to buy the feed additive
Farmers must use trade mark to promote any Omega 3 eggs, those eggs must meet certain specifications, and farmers must pay a royalty on Omega 3 eggs sold pursuant to the trade mark license for the agreed term, and its renewal
Discourages possible leakage of the formulation Ensures royalties are connected to the trade mark license, which is likely to
have a longer life than a know how license of a formulation Success in leveraging one IP Asset against another
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Leveraging occurs by grant of rights, not excluding
Leveraging IP assets as described occurs by licensing in all of forms Using an IP Asset, and instead of excluding others from its use,
proactively going out and finding other users who will want to use that IP Asset
But a word of caution: Leveraging by licensing occurs because a licensee does actually exploit
the licensed rights If a license is exclusive, and the licensee does not actually exploit the
licensed rights, no leveraging takes place at all A licensee may seek a license to in turn exclude others
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Importance of performance obligations in a license
So often licenses are granted without consideration to performance obligations
In the urge to do the deal, and in the desire not to put the relationship with the licensee under stress, performance obligations are ignored, or inadequately provided for
What are performance obligations? Things the licensee must do in order to retain the license Things which if not done, can lead to the licensor being able to
terminate the license, and find another licensee instead with which to more profitably leverage the IP Asset
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Types of Performance Obligations
Two types of performance obligations Obligations before the first sale Obligations after the first sale
Fir
st
Sal
e
Dea
l S
igne
d
End
of
T
erm
R &
D
Pro
du
ct in
Mar
ket
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Obligations before the first sale
Licensor wants to know that the licensee
Will continue R & D (if applicable)
Will complete R & D (if applicable)
Will expeditiously start and travel the regulatory pathway (if applicable)
Not “shelve” the IP Commercialisation Milestones
Milestones that a Licensee must achieve to continue to be licensed Not achieve milestone – license is terminated
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Commercialisation Milestones
Examples: If more research is needed to bring products to a market ready
state, the completion of that research Produce a prototype Conduct a trial Complete construction of Pilot Plant Complete construction of Production Plant Obtain any regulatory approval Employ a person with particular expertise Grant a sub license to a partner in Key Market First sale anywhere in the world
Dates by which these must be achieved Mechanisms for extension of time Termination if not achieved in any extended time
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Obligations after the first sale
Usually require minimum sales revenue / units sold
Expressed as worldwide / or markets
If failure in a market Exclusivity converts to non
exclusivity Or termination In the market concerned,
without affecting other markets
Pharmas and biotech - none of that is acceptable Will be prepared to make
minimum annual payments
Territory Period Units of Product
North America 1 year from from signing 100,0002 years from from signing 150,0003 years from from signing 200,000etc
Europe 1 year from from signing 120,0002 years from from signing 175,0003 years from from signing 250,000etc
etc 1 year from from signing etc2 years from from signing3 years from from signingetc
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Conclusion
Identify IP Assets that lend themselves to leveraging for greater profitability
Think of IP Assets as tools They are tools not necessarily to exclude others from They may be tools to share with others, and in that way maximising the
profitability of the IP Asset
Leveraging in this way is accomplished by licensing in all its forms But don’t forget to include performance obligations in the license