Putting Some Thought into Intellectual Property

Around the turn of the 20th century, with amazing advances in new technologies in transport (rail, automobiles and aircraft), communications (telegraph and telephone) and energy (steam and electricity), some schools of thought took the view that there was nothing left to be invented. Yet despite this gloomy projection technology has continued to thrive, as is evidenced by the growth in the number of patents issued in the United States, from approximately 15,000 patents annually at the beginning of the century, to over 155,000 one hundred years later.

It is estimated that thirty years ago 80% of the market value of publicly traded companies lay in tangible assets, such as real-estate or plant and equipment. Recent studies in industrialised countries now suggest that more than two-thirds of the market value is now attributable to intangible assets. Much of this intangible value comprises "intellectual property", which includes patents, trade marks, registered designs, copyright, trade secrets, know-how and confidential information.

As intellectual property becomes more significant in the global economy, companies developing technology and intellectual property should ensure that they become aware of practical issues relating to these assets. Protection and commercialisation strategies should gradually be developed, which complement the business strategy and policies of the company.

Patents

In these technologically driven times, patents have become increasingly important to technology based companies. By way of illustration, Microsoft´s patent portfolio grew from 1 patent to over 800 during the 1990s, and the number of patents owned by prominent high-tech companies, such as Dell, Novell and Intel, grew five-fold between 1994 and 1998.

Patents provide protection for inventions, namely new and inventive ideas. Patents afford meaningful protection for these ideas, provided procedures are in place for identifying patentable technology, and measures are taken to avoid disclosure of the technology before patent applications are filed. If technology is simply made available to the market without patent protection, anybody is free to copy and exploit the technology.

While there is no such thing as a "worldwide patent", certain patent conventions and treaties allow patent applications to be filed in a number of countries simultaneously, or enable a large number of countries to be provisionally designated subject to subsequent confirmation.

Consequently, a cost effective international patent filing strategy may be developed to maximise the protection for the technology for the least possible expense.

Copyright

Copyright is enjoyed in works embodying the results of intellectual activity. It is not the idea incorporated in the work that is afforded protection, but rather its material expression. The most common forms of copyright are found in literary, musical and artistic works.

Copyright in these works does not have to be registered in South Africa, as the copyright arises automatically upon the creation of the work, provided certain conditions are met.

Registered Designs

Anybody who conceives of a new shape or appearance for an article may be able to obtain protection by means of a registered design. This protects the appearance or form of an article, rather than any underlying principle which that article may embody.

Trade Marks

Trade marks are the words, logos or other signs by means of which the goods or services of a trade mark owner can be distinguished from the goods or services of other manufacturers or suppliers.

Know-How

Know-how is in essence the expertise which has been built up in respect of a field of technology. In practice, know-how is embodied in drawings, notes, calculations, reports and other documents. Often know-how incorporates trade secrets and confidential information and appropriate contractual protection should be put in place for these intellectual property rights. This protection may take the form of confidentiality agreements and restraints of trade.

Commercialising and Exploiting Technology

Technology is generally developed in the hope of deriving a financial benefit. This can be achieved by the owner of the technology itself, or the technology may be made available to another entity through a technology transfer arrangement. In addition, the technology may be sold outright.

Historically, patents were regarded as deterrents to competition, but this perception is changing and patents are now also considered to be income generating assets. Technology transfer agreements generally increase the likelihood that technology will gravitate towards those best placed to use it and advance the technology. These agreements often provide a means to share risk, save costs, pool know-how and increase the rate of innovation. They may also contribute to improving the production or distribution of products, and may lead to lower prices or better quality products.

The most common technology transfer arrangement is the licence agreement, in terms of which the holder of a right allows a third party to use the intellectual property, in return for some form of remuneration. Between 1990 and 1998, patent licensing revenues in the United States increased by approximately 700% to more than $100 billion.

IBM alone generates well over $1 billion in annual patent licensing revenues, some of which is earned from its competitors. There are also various special forms of agreements that may be entered into when commercialising intellectual property. Such agreements include franchise agreements, joint venture agreements, distributorship agreements, agency agreements and agreements relating to confidentiality.

When considering technology transfer agreements with foreign entities, certain basic considerations should be taken into account. These include the double taxation arrangements which exist in respect of the prospective markets for the technology, withholding taxes that may be payable on royalties, indirect taxes such as VAT and customs duties, restrictions on payments for technology, transfer pricing issues and other legal issues.

Moreover, the South African Reserve Bank must provide specific approval for the payment of royalties by a local licensee to a foreign licensor, and guidelines exist regarding the royalty range that will typically be permitted. Similarly, where technology rights are assigned to a foreign entity, the rights must be assigned for fair value in an arm´s length transaction. Ignoring these principles may amount to a contravention of the exchange control regulations, for which the penalties are severe.

There are tremendous opportunities available in the commercialisation of intellectual property, and all that is required to capitalise on the opportunities is awareness, and a little creativity and planning.

SPOOR & FISHER