Intellectual property rights in the knowledge economy

Donatella Fiala, 15 Sep 2011

We live in a knowledge based economy. Innovation and an untainted reputation are of fundamental importance to a company's success. Intellectual assets are amongst a company's most valuable assets and the means to protect and enforce them have become increasingly important. Intellectual property (IP) rights such as trademarks, patents or copyright can provide the tools to achieve this. The rise of the Internet and social networking sites present new challenges for IP regimes, as does an emerging IP market.

Up until relatively recently, intellectual property (IP) law was a specialised and dry legal domain, populated by a small cadre of expert lawyers. It was rarely contentious, let alone publicly debated. Over the past few years, particularly with the development of an economy increasingly based on knowledge, this has changed considerably. We encounter, use and create IP every day – both in our professional and private lives. IP is an opportunity but can also be an operational risk – companies need to take both aspects into account.

Where did IP originate?

IP is a relatively new area of law. Something akin to IP rights first appeared in the 15th century - for example, the republic of Venice granted a 15-year monopoly to the first letterpress in the city. However, the breakthrough for IP came with the beginning of the industrialisation when the importance of mere labour (slowly) started to decline and advances in technology and investment in innovation became more and more relevant to a company's success. Investments and innovation can of course result in material products or embodiments but what makes them so valuable is their immaterial core – the information, innovative product feature, process, a way of doing business that can be replicated over and over again. Innovation, like any creation of the human mind, cannot be protected by locking it away. How, then, can it be protected?

IP rights protect innovation and other creations of the human mind by recognising and granting an enforceable property right. Or, more specifically, the law grants to the beneficiary certain exclusive rights to his or her creation – to use and exploit it in a certain way.

Remove the recognition of IP rights, and innovation could be replicated, copied and used by an unlimited number of people at the same time, potentially depriving the innovator of all benefits – and, by that, eliminating the incentives to innovate. This situation has been coined the “Tragedy of the Commons”. This occurs when no single individual owns the resource (be it a lake or an invention). As a consequence, it is inefficiently used, overused, and/or no one has an incentive to invest in the first place as everyone would equally benefit from such investment or improvement without having to incur the cost.

Two main theories are usually put forward as the economic foundation for IP rights, in particular the patent system. A patent is seen as a reward for the inventor's contribution to increase the knowledge to the benefit of everyone (reward theory), or a patent is intended as an incentive for inventors to spend time and resources on advancing science and technology (incentive theory). Society benefits because the law requires the inventor to disclose his or her invention in return for the patent – the inventor benefits as he gets an exclusive right (the patent) to exploit the invention for a limited period of time. The incentive or reward aspect of IP is also apparent in Article I, Section 8, Clause 8 of the US Constitution which forms the basis for the US copyright and patent laws:

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

Scholars continue to debate whether IP is the driver of innovation. Some maintain that competition, the necessity to compete to maintain one's market share, is the actual driver of innovation. Some even see IP rights as a fundamental problem. Situations or industries have developed where so many patents exist in one area (patent thickets) that it can become truly impossible to innovate without infringing many other patents. Ironically, this has been named the tragedy of the anti-commons - too many property rights around the resource hamper or impede its efficient use. Second, some argue that IP should be abolished as it impedes the free flow of information, access to information and ultimately innovation.

Can you obtain a patent on a costing tool?

Patents were originally developed to protect inventions such as steam engines. Recent diverse technological innovations have brought patent law into areas such as biology and e-business. The law has had to evolve and occasionally be amended to provide for such inventions and to strike a balance between the interests of the innovators and society at large. This has confronted patent law with publically debated ethical and moral questions. Should you be able to obtain a patent on a gene? Are patents too broad and impede instead of foster innovation?

The legal landscape has evolved and it is in principle possible to obtain a patent on a way of doing business, even within the fields of financial services and insurance. However, many aspects, such as the scope of protection, remain unclear. Companies will have to carefully monitor how patent laws develop and how they can best use them to their benefit.

Innovation is key, the reputation priceless

Companies have come to realise that intellectual assets are amongst their most valuable. IP rights such as trademarks, patents, trade secrets and copyright provide the tools to protect such assets and to achieve business goals. IP is a competitive advantage and can help maintain the freedom to operate. However, intellectual assets face threats from free-riders and fraudsters. It is important to take appropriate steps to protect them adequately.

Moreover, the importance of the brand has increased. In many areas, consumers no longer buy a product, they are buying a brand, maybe even a way of life – brands such as Nike or Apple come readily to mind. Even industries with relatively homogenous products and a lower brand awareness increasingly see the brand as a powerful tool to differentiate themselves from competitors and to help build and maintain a loyal customer base.

The advent of the Internet

The importance of IP, both to companies and consumers, has really been brought home with the advent of the internet. Never before has the economy been so truly global, never before has information and data been so easily accessible - and so easy to replicate, or copy-paste.

Companies are devoting substantial resources to protect their assets and prevent harm to themselves and their customers. Threats include competitors and providers of accessories or related services who are trying to get a free ride on a company's reputation, innovation and investment; outright criminals who are after your customers' identity and bank account (phishing); fraudsters; cybersquatters; or people selling fakes (there are even fake police sites online). All of this has a huge impact on a company's brand and reputation, creating liability and potentially seriously harming the consumer (fake drugs, other safety concerns). IP rights often provide efficient tools to intervene and bring such illegal activities to a halt.

Online service providers such as eBay or Google are also bearing their share and work together with brand owners to keep the online market place as clean (and safe) as possible.

Are you an infringer?

With so much data and information available online and for free, it has never been easier to do research and prepare presentations - just copy-paste, done. However, companies should bear in mind that everything their employees find online is owned by somebody and likely protected IP. It is therefore important to raise awareness and educate employees - no one wants to find themselves in the news headlines (or in court) for misappropriating another's IP. Freely available does not necessarily equal free to use for any purpose, particularly within a commercial context.

However, companies should be careful not to use IP to try and shut down just any critical statement or report they find online, in particular on social media like Twitter or Facebook. While it exists in last resort, IP law is a heavy handed tool for intervening on social media, with considerable potential to back fire and create negative publicity. Even if certain activities might technically qualify as trademark infringement, it may be savvier to engage with such "infringers" and the internet community, rather than risk winning a battle but losing a war.

The IP market

IP can help protect a company's intellectual capital from free-riders and fraudsters. It can also pose dangers and may impact a company's reputation when the company is found to infringe third party IP. In addition, as with every other property, it constitutes a marketable commodity. Over the last decade, a market for IP rights has emerged. Often the goal is technology transfer, such as when a pharmaceutical company acquires the rights to a new drug or screening tool from a university or a start-up. However, sometimes the buyer's goal will be to simply aggregate huge amounts of patents – not to practice the invention and manufacture products but to generate income from licensing. Such entities are called patent trolls (or non-practicing entities). Their business model is to screen the market for potential infringers with deep pockets and ask for a license fee or else they sue. Some will settle for just below litigation costs, irrespective of whether the patent is ultimately valid or not. Companies need to learn how to deal with these entities.

IP is an important instrument in today's business world, and should be adequately protected and leveraged to a company's benefit. However, IP is also a challenge, and companies need to take appropriate measures to mitigate any IP specific risks.

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Donatella Fiala

Senior IP Counsel, Swiss Re

Donatella Fiala studied law at the universities of Bern, Switzerland and Cardiff, UK and was admitted to the Swiss bar in 2005. Her doctorate thesis focuses on the relationship between intellectual property rights and competition law. She holds a postgraduate degree in copyright law from King’s College in London and she is a member of the board of AIPPI Switzerland.

Before joining Swiss Re as a Senior IP Counsel she worked in private practice advising Swiss and international clients on various aspects of commercial law, in particular intellectual property law, including brand and trademarks, domain name issues, copyright, patents and trade secrets, and related litigation. In her current role, she advises on how to protect and enforce Swiss Re's brand, reputation and innovation, and on how to be compliant with IP laws.

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