Kiwi companies are known for their innovation, but many let themselves down when it comes to internationalising their knowledge. Exporter looks at the IP issues to consider before entering overseas markets.
New Zealand has a poor track record of converting its intellectual property into commercial success on a global scale – a key barrier to this being Kiwi entrepreneurs’ reluctance to enter into partnerships with bigger players outside the country.
Kate Wilson, partner at James & Wells Intellectual Property, says one of the major barriers to Kiwis converting their knowledge into intellectual property (IP) is they are still not willing to “partner” up with businesses who have the ability to help with the process of commercialisation.
New Zealand ranks 22nd among countries in the world that have successful patent filings in the US, and on a global scale, only 20 percent of New Zealand patents are successfully filed overseas.
“What’s wrong is that we are great with innovation but not that good at internationalising our knowledge. We have yet to recognise there are a lot of businesses out there that can take our business further,” Wilson says.
Businesses with great innovation have many ways of protecting their IP. Yet too many businessmen are caught up working in the business rather than sitting back to see how they can package their IP for conversion into commercial success, Wilson adds.
For beginners without a current IP strategy, start by taking a look at the business plan for your export market, says Gus Hazel, senior associate at James & Wells.
First identify your target markets. If resources are an issue, break down the IP protection plan into a series of realistic timelines for execution, and prioritise how you are going to finance the IP strategy,” he advises.
“For most businesses, that would mean getting a trademark registered, or a domain name registered. If you have technologies or designs that need protection, consider what budget you have to pursue those,” Hazel says.
Register your trademark if it is key to your marketing strategy, says Charlotte Henley, partner and IP specialist at Kensington Swan. “It is more economical to enforce your registered rights than to rely on establishing ‘use’ rights, and consider whether a patent or registered design would be worthwhile for your product,” Henley adds.
Another method of taking a technology or IP across borders is to license the use of your technology in a target market, according to Simon Rowell, partner at James & Wells.
He says licensing out your technology makes sense when the fee you gain from the IP being used generates revenue for the same or less risk as not granting access to
your knowledge.
Protect before you venture
Never leave it too late to protect
your own IP before venturing overseas. In some places, such as China, even if you don’t intend to enter the market in the immediate future, get IP protection, such as trademark registration, as early as possible.
Chinese legislations, contrary to those found in other countries such as the UK or US, grant the trademark rights to the first party who registers the rights for use in China.
Henley says when venturing overseas, it pays to know what actions are needed to protect your IP or to find out whose IP you might be infringing upon.
Should you intend to license technology, manufacture or use a foreign distributor, always consider whether confidentiality agreements are needed to protect knowledge of your IP.
Also, says Hazel, be mindful of what IP your competitors own. For example, if you were going to Australia, conduct a Freedom to Operate Search, to ensure, or at least minimise, the risk you will run into patent infringement allegations and that no one is selling the product under a similar trademark.
Patent for patent’s sake
Considering the incredible strain on resources, companies should not get sucked into the game of collecting patents without them actually providing any real commercial returns.
“A total of 80 percent of the value of our entrepreneurs’ business is to be found in their intangible assets. Most New Zealand businesses just focus on the other 20 percent of their business,” says Kate Wilson.
Charlotte Henley has one final piece of advice for importers – don’t assume that the packaging and brands used overseas are fine to use or sell in New Zealand – they might infringe a third party trademark, or may breach local marketing regulations.
The Madrid Protocol: making global IP protection cheaper?
New Zealand exporters will soon have an additional cost-effective option to protect their trademarks in overseas markets, under changes adopted under the Madrid Protocol, according to Sue Ironside, partner at Baldwins Intellectual Property.
The New Zealand government introduced legislative changes in 2011 to pave way for participation in the Madrid Protocol. Companies are expected to be able to participate in the Madrid Protocol from December 2012.
How it works
The Madrid Protocol involves filing a single international application for trademark protection and designating the countries of interest (i.e. current and future export markets). This means a simpler process of application – one application at a single office, in one language, for one set of fees, in one currency.
Currently, those seeking trademark protection have to do so by filing a national trademark application on a country-by-country basis.
An application using the Madrid Protocol is contingent upon a basic national registration. That means a party would need to have the trademark or IP registered in New Zealand first.
What this means
Ironside says a company seeking IP protection can achieve greater cost savings through the Madrid Protocol route when compared with the cost of filing national applications in each market. The proviso is that the export markets must be members of the Madrid Protocol if they are to be designated countries/regions, she adds.
Currently some 86 countries are members of the Madrid Protocol, which is administered by the World Intellectual Property Organisation. Most of New Zealand’s major trading partners are members of the Madrid Protocol including Australia, UK, the US, China, Europe and Japan.
Is it useful for smaller companies?
Smaller companies can take advantage of the Madrid Protocol system. In many cases, designating only two or three overseas markets will be cost- effective relative to separate national applications, and additional markets can be added to the International Registration as the number of export markets grows or as cashflow allows, says Ironside.
Some of the world’s most successful businesses utilise the Madrid Protocol to protect their trademarks internationally. These include such household names as Henkel (Germany), Novartis (Switzerland), L’Oreal (France), Unilever (Netherlands), Nestlé (Switzerland), Philips (Netherlands) and BMW (Germany).
Key Takeaways
Identify target markets. If resources are an issue, break down the IP protection plan into a series of realistic timelines for execution.
Register your trademark if it is key to your marketing strategy. It is more economical to enforce your registered rights than to rely on establishing ‘use’ rights.
Consider whether a patent or registered design would be worthwhile for your product.
Licensing out your technology makes sense when the fee you gain from the IP being used generates revenue for the same or less risk as not granting access to your knowledge.
IP case studies 1
Weighing the cost of IP protection
The CEO of Goatley Technology Developments, Maurice O’Reilly, sometimes wishes he could just get on with business and not worry about the tedious process of filing patents for the company. Yet, keeping on top of securing patents for Goatley is a crucial part of developing the company as an ongoing start-up – looking to gain investors’ confidence by ensuring that their investments in the company’s technology and prospects are well protected.
The company has what it deems is a revolutionary automatic gear transmission system that will allow one car to operate an automatic as well as manual gear for driving.
O’Reilly says the company currently has one patent applicable in seven countries, and one Patent Cooperation Treaty (PCT) in seven international territories that is now ten years into a 16-year lifespan. A PCT is a patent filing convention which gives the owner the right to file for proper patents, given a set timeline. It is administered by the World International Patent Office and has 128 countries (as at 2005). The inventor must first file for a PCT in his home country before extending that to other countries.
“We are in the process of applying for another PCT that will be examined in 47 territories,” O’Reilly says.
The company has spent over $100,000 for IP protection to date, covering both its patent and PCT applications. There is also an ongoing annual patent maintenance cost. The new PCT will cost another $10,000
in New Zealand, and to extend that to 47 countries, another $170,000, he reckons.
For a start-up, the cost is high, O’Reilly says. His advice for other start-ups weighing up on the cost is to determine whether they have the financial ability to fund the knowledge protection. The other aspect to keep in mind is the time delay needed to gain the protection.
A company cannot place its product or invention in the public domain until the patent has been applied for in the home territory and a patent pending number is issued, he says. “And once a patent is in the public domain, it cannot be extended into other territories. Further, an IP may become obsolete or superceded by new knowledge if the owner of the IP waits for full protection.”
A company owning new technology should also consider the cost of having to defend the patent should there be an infringement. “It is very difficult to defend a patent under another country’s laws. Many countries, for example China, often ignore IP protection,” he adds.
Yet for companies seeking investors to commercialise a new product, getting full IP protection is often a prerequisite to investment. The investors may not take too kindly to them being asked to cough up more money to protect an IP, O’Reilly adds.
IP case studies 2
An uphill battle
For Izon Science Ltd, a high-tech instrument maker, the company’s strategy to protect its intellectual capital reads very much like a classic battle strategy from China’s military strategist Sun Zi: ‘Know thy self, know thy enemy’.
Izon is at the leading edge of making nano particle measurement instruments. So far, the company has already secured eight patents in its vault. CEO Hans van der Voorn says, depending on what pans out, the company may end up with about 40 or 50.
The company’s intellectual property (IP) protection strategy is focused on protecting its wide spectrum of knowledge without losing sight of the commercial dictates.
IP protection can be a long and uphill journey. Izon filed its first Patent Cooperation Treaty (PCT) in late 2004 and is just about to be issued US and Australian patents. It had sought early protection for the UK market, as that was an important market for the company to corner.
Here is how its IP strategy goes. It has four ongoing platforms of IP that it is seeking to protect. The first is to ring-fence Izon’s know-how on using elastomeric holes for measuring nano particles. “This gives us wide protection and it would be difficult for anyone else to use a size tune-able hole. The patent encompasses the way the holes are used as well as the general approach to making them.”
The second is built around its knowledge of how to make this ‘hole’.
The third covers the knowledge of how particles are put through the ‘hole’ – in this case how pressure and voltage are used to control particles being measured, not just by adjusting the holes.
The fourth covers greater depth of the process involved in measuring particles.
“We did [protecting IP on how particles are put through the hole] this because we were developing solutions for markets which no one had identified before. We didn’t want a potential competitor coming along and just copying what we had done. We have inherent advantages by having an adjustable hole, but there are a lot of measurements where you don’t necessarily need the adjustability. The control of pressure and voltage enables us to speed up or slow particles down and even stop or reverse the flow. That means we can do a lot of additional types of measurement.”
The fourth IP coverage is aimed at detailed applications of the general principles on the process involved in measuring particles.
Van der Voorn adds that the IP protection being pursued covers a lot of ground and it is unlikely the company will be granted everything it seeks to cover. Further, the process is long – it could be ten years after the first application until all of the patents covering the first IP platform (including China, India and Europe) are fully awarded.
He cautions start-ups against over-investing on IP protection, although most start-ups will need to pursue some form of protection if they want to sell on or get investors.
Start-ups should also be mindful that the commercial requirements should be driving a company’s IP strategy.
“Collecting patents for the sake of it, as many research institutes like doing, is an expensive indulgence. It may be that the end markets or commercial potential are not fully understood at the start so filing a provisional application is quite a cheap way to get interim protection while continuing to do R&D, market analysis and get further investment,” van der Voorn adds.
