Welcome to the course ETIA10,

Patent and
Intellectual Property Rights

Lecturer: Fredrik Edman

Trade Secrets
IP Law
IP law consists of several and overlapping legal diciplines,
each with their own characteristics and terminology.

Different types of IP law

» Patent law

» Copyright law

» Trademark law

» Design rights

» (Trade secret laws)

(also others such as database, unfair competition, etc.)

History of Trade Secrets
» Trade secret law is the oldest form of IP protection, and
already in Roman times the law afforded relief against a
person who induced another’s employee (slave) to
divulge secrets relating to the master’s commercial
affairs.

» Trade secrecy was practiced extensively in the European

guilds in the Middle Ages and beyond.

» Modern trade secret law evolved in England in the early

19th century — in response to the growing accumulation
of technology and know-how and the increased mobility
of employees.
What is a trade secret?
» Trade secrets may be tangible or intangible and can
consist of a wide variety of devices, documents and
experiences

» They may exist more in the perception of their

owner than as an actual combination of elements

» Not all such elements need to be secret

What is a trade secret?
» Examples of what that can be kept as a trade secret

- formulas (e.g. product formula)

- processes (e.g. manufacturing process)

- compilations (e.g. customer database)

- methods (e.g. business method)

What is a trade secret?
» There are three common factors in all trade secret
definitions. They are three requirements that must
be met for enforceable trade secrets to exist. The
information must be;

 a secret in the sense that it is not generally known in

the trade,

 valuable vis-à-vis the competition that does not

possess it and

 the subject of reasonable efforts to safeguard and

maintain secrecy.
 How to safeguard and maintain trade
secrecy.
» Among such measures are:
• Memorializing a trade secret policy in writing
• Informing employees of the trade secret policy
• Having employees sign Employment Agreements with confidentiality
obligations
• Restricting access to trade secrets (on need-to-know basis)
• Restricting public accessibility (escorting visitors)
• Locking gates and cabinets to sites that house trade secrets
• Labeling trade secret documents as proprietary and confidential
• Screening speeches and publications of employees
• Using secrecy contracts in dealing with third parties
• Conducting exit interviews with departing employees, etc.
How to keep it secret
… and remember

Do not rely on statutory protection. Ensure that key

employees and third parties are bound by non
disclosure undertakings.

Why?

- Awareness of the receiveing party

- Clarify scope of secrecy obligation

- Clarify consequences of unlawful disclosure

- Evidence of confidentiality
 Relation between Know-how and Trade Secret
While the key requirement of a trade secret is secrecy, definitions of
“know-how” are completely silent on secrecy.

Some definitions of know-how

• The knowledge and skill required to do something correctly.
• Information that enables one to accomplish a particular task or to operate a
particular device or process.
• Know-how is knowledge and experience of a technical, commercial,
administrative, financial or other nature, which is practically applicable in
the operation of an enterprise or the practice of a profession.

Thus “know-how” per se is not protectable as an intellectual property right.

It acquires trade secret status only if it is secret, has economic value and
measures are in place to secure its secrecy.

Know-how is intellectual property, which becomes an intellectual property right

upon qualifying as a trade secret, which is exactly like the relationship between
an invention and a patent.
 Licensing
Nokia enters into a license agreement with Apple
What is licensing?
» A licence gives the licensee the right to do
something that the licensee otherwise would be
prohibited by law to do.

» Grant of consent to do something - not transfer of

rights!
Who is who in Licensing?
» Licensor gives a licence to a licensee

Licence

Licensor Licensee
What can be licensed?
» IP rights, examples
- Patent
- Utility model
- Design
- Copyright (economic right)
- Trademark
- Integrated circuit topography/”chip”

» Know-how/Trade Secrets

» Other rights
Different types of licenses
» Exclusive licence

» Sole licence

» Non-exclusive licence

» Other terms/licences

- Sub-licence

- Cross-licence

- ….
What is an Exclusive licence?
» An exclusive license is a legal contract in which the owner (the
licensor) of an intellectual property (IP) right authorises another
party (the licensee) to exclusively exercise one or more of the
rights that belong to the licensor, without which the licensee
would be committing an illegal act.

» The licensee is then said to "own" the rights that have been
granted. He or she has the legal power to take court action
against anyone who infringes the licensed rights within his or
her scope or field.
What is an Exclusive licence?
» The term "exclusive" refers to the fact that the licensor agrees
not to grant the same rights covered by the license to another
party (and the licensor themselves cannot compete with the
licensee).

» However, the exclusive license may be limited to a geographical

area, technological application, method of production, or
production of a specific product. Thus, exclusivity may or may
not include competition from other licensees or the licensor
itself, the granting of sublicenses, performance requirements to
be met by the licensee, and/or a time limitation. This allows the
licensor to maintain efficiency and gain the most from his IP
right.

» For example, the owner of a trademark may give another person a license to use
the mark in a region where the owner's goods have not become known and
associated with the owner's use of the mark. Licenses need to be drafted carefully
in order to satisfy the needs of all the parties involved and therefore legal advice
should be taken beforehand.
What is a Sole licence?
» A sole license is a legal contract in which the owner
of an intellectual property right (called the licensor)
authorises another party (called the licensee) to
exercise one or more of the rights that belong to the
licensor.

» A sole license means the licensee is the only

licensee in that territory or for that group of
customers. However, the licensor can still compete
with the licensee. This is different from an exclusive
license, where the licensor themselves cannot
compete with the licensee.
What is a Sole licence?
» Sole licences are less risky than exclusive licences for the
licensor as they are not totally dependent on the licensee.
However, the royalties with a sole license are usually slightly
lower. For example, a sole license granted by the holder of a
patent or a copyright can give the license holder a limited right
to reproduce, sell, or distribute the work.

The sole licensing agreement should be drafted carefully and

cover several aspects, including:

 How the fees and royalties are calculated and when they are paid

 What the licensee is allowed to do

 The territories the agreement covers

 How long the agreement lasts and who can terminate it

What is a Non-exclusive licence?
» A non-exclusive license is a legal contract in which
the owner of an intellectual property right (called the
licensor) authorises to several parties (called the
licensees) within the same scope or field,
consecutively or simultaneously.
Why license out? (to give a licence)
» Reduce own investment risk

» Specialisation, e.g., focus on research

» Faster market introduction

» Faster return on investments

» Transportation of product is difficult

» Legal hinder, ex ban against foreign ownership

» Etc.
Negative aspects of licensing out
» Risk for future competition from licensee

» Limitation of licensor’s freedom to operate in

countries covered by the licence

» Lower total return of investments than by direct

sales
Why license in? (to receive a licence)
» Avoid intellectual property infringement

» Specialisation, e.g., in marketing

» Fast technology access

» Fast market access

» Reduce research investments

» Marketing capacity available

» Protect part of product by exclusive licence

» Etc.
Remuneration
» Theory of valuation of intellectual property
- The cost method
- The market method
- The income method

» What affects the level of remunaration?

Depends on the object of licence

- Strength of IP protection
- Degree of commercialisation
- Negotiation positions
Value of technology licence
Licence Agreement
» Definition of licence object

- product, techonology, intellectual property

» Grant

- Exclusivity, geographical scope, field of use, sub-licensing

» Improvements

» Transfer of know-how

» Technical assistance
Licence Agreement - Content
» Remuneration

- lump sum, royalty, minimum royalty, annual fixed fee

» Payment

- period, reporting, accounting and control of payment

» Quality

» Maintaining intellectual property rights

» No challenge clause
Licence Agreement – Content (cont.)
» Infringement of third party rights

» Infringement by third parties

» Confidentiality

» Licensee’s liability of product

» Licensor’s warranties

» Term of agreement
Lessons Learned When Licensing
Goes Bad….
» Important to have termination clause
» May need to restrict “field of use” to a specific
field [i.e. automotive, not transportation]
» Terms may restrict inventor from working with
other companies on future research if IP is
already committed
» Other reasons to Terminate:
– Failure to obtain necessary capital to develop product
– Failure to take product to market (shelving rather than
developing)
– Failure to meet other financial/marketing milestones
Major Financial Parts of a License

• An “up front fee” (must at least cover patent

costs to date)

• Running royalties of a % of sales (~3-9%)

• Future patent costs (including foreign patents)

• Often includes minimum royalties based on

milestones

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Contacting Potential Licensees
» Use a non-proprietary description of the invention to
assess their interest initially.

» Have a Confidentiality Disclosure Agreement (or Non

Disclosure Agreement) signed in order to provide
additional technical details or speak with the inventors.

» A Provisional Patent application may be filed for added

protection before speaking with industry.

» If they are still interested, arrange a meeting to discuss

the “next step” - research dollars, option, license, etc.

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Non Disclosure Agreement (NDA)
» Purpose of disclosure

» Definition of confidential information

» Confidentiality undertaking

» Restriction on use

» Return of documents

» Warranties

» Consequences of breach

» Term of agreement
 Franschising and Licensing
» In a franchising model, the franchisee uses another firm's successful
business model and brand name to operate what is effectively an
independent branch of the company. The franchiser maintains a
considerable degree of control over the operations and processes
used by the franchisee, but also helps with things like branding and
marketing support that aid the franchise. The franchiser also typically
ensures that branches do not cannibalize each other's revenues.

» Under a licensing model, a company sells licenses to other (typically

smaller) companies to use intellectual property (IP), brand, design or
business programs. These licenses are usually non-exclusive, which
means they can be sold to multiple competing companies serving the
same market. In this arrangement, the licensing company may exercise
control over how its IP is used but does not control the business
operations of the licensee.

Source: www.diffen.com
Franschising
Examples of franschising relationships include:

» A manufacturer-to-retailer arrangement – as occurs with car vehicle

dealerships. The franchisor supplies the dealership (retailer) with vehicles.

» A manufacturer-to-wholesaler arrangement – common with soft drinks

companies. The franchisor grants the franchisee a license to manufacture and
distribute its product(s). This kind of franchise is common when the franchisee is in
another country.

» A wholesaler-to-retailer arrangement – the franchisor (wholesaler) sells products

to the franchisee (retailer) who sells them to the general public. This kind of
arrangement is common in cooperatives, where the franchisee is, in fact, part of
the cooperative (the cooperative is the franchisor).

» A retailer-to-retailer arrangement – the “classic” business format franchise. The

franchisor markets a product (or service) through a network of franchisee retailers.
IPR in Business
 When to think about IPR?

Before Business Setting up Business

Name/Trademark
Prior Art Search Patents/Design/Copyright/Trade Secrets
Market/IP Analysis Licensing in
IPR Strategy

Business is running

Competitor Watch
Patents/Design/Copyright
Licensing in/out
In Summary…

You need an IP strategy!

IP Strategy basically means that you need to start

working with your IP in a systematic and professional
way!
Inventory: What IP assets do you have?
"Intellectual Assets" includes the codified, tangible or physical
descriptions of specific knowledge to which a business can assert
ownership.

We do not have
any IP assets!
Well that is usually not true!

Make a list of all assets!

 From Knowledge to Intellectual Property

Knowledge Intellectual Assets Intellectual Property

Software Software
licences

Databse
Manual
Data
Documentation
Invention
Manuscript
Database
Patents
protection
Process

You need a system for identification of your IP assets.

Conduct IP audits regularly.
Protecting your assets
» Go through your asset list!

» Which of your IP assets are registrable and by which IPR?

» Should they be registered? (trade secret)

» Where should they be registered (on which markets/countries)?

» How does the different assets relate to each other?

» Which assets covers the product(s)?

» How big is our IP budget?

» ….
When your business grows
The following questions needs to be regularly revisited!

» To what extent are your IP assets currently being used, potentially useful, or no
longer of use to your business?

» Does your company depend for its commercial success on IP assets, whether
owned or licensed? On what types of IP assets does it depend?

» Do you have new products or processes which will provide a unique competitive
advantage? If so, will they revolutionize an industry? Can the associated IP rights
be secured, providing additional differentiation and bar competitors from entering
the market?

» What competitive advantage do your IP assets (whether owned or licensed)

provide to your enterprise? Assess and explain how IP provides or adds value to
your customers and contributes to developing a sustainable competitive edge.

» Do your trade secrets, patents, trademarks, copyrighted works and industrial

designs go far enough to protect those aspects of your business that determine
your business' success?
Do you have to rely on IP assets owned by
others?
Having freedom-to-operate is very important!

» Do you own the IP assets that you are using? Can you prove it? Do you have the
records, registrations, contracts and other proof that an investor, business partner
or a court of law may require?

» Are you sure you are not infringing IP rights of someone else? Can you prove it
(e.g. have you conducted a patent, trademark and/or industrial design search)?
Have you verified if any of your key employees, who has worked for a competitor in
the past, is bound by post-employment non-compete or non-disclosure
confidentiality agreements by the previous employer(s)? Do you need access to
third party IP in order to exploit your business idea? Have you been granted the
license(s) you need for the use of IP, which is not owned by you?

» Have you signed non-disclosure and/or non-compete agreements with key

personnel, contractors, consultants or other external suppliers which assign to your
business any IP they develop when working for you?
Do you know enough about your competitor's IP
strategies and IP portfolios?
By searching patent, trademark and industrial design registers, you can
gain detailed legal, technical and business information about a competitor's
operations and products.

» Do you have a plan for gathering competitive intelligence? Do you

gather or plan to use IP information/databases for obtaining competitive
intelligence on your competitors?

» Are there any IP related barriers to enter your competitor's market, e.g.,
patents, trademarks or industrial designs which underscore customer
loyalty to competitor's corporate image, brands, etc.?
The Evolution of an IP strategy
In the beginning when the company is small you only
need a simple IP strategy.

» Do the asset inventory, set aside a budget and protect crucial IP.

When you grow a more complex strategy is needed and

you need to start hiring professional help or employing
an IP-professional in-house.

» Start building and start managing an IP portfolio.

» Do regular IP audits.

» Look into all licence and employment agreements.

» IP budget must be in line with the business. Do not over-spend

money!
Intellectual Property Strategy
IP Cases
 Ex. An anti-allergy sprayer and spray

NEBU-ALLERG

EPO/OHIM
 Which elements can be protected?
 Medicinal product  Brand name:

 Nozzle – NEBU-ALLERG

 Pumping system
 Sprayer can  Logo

 Slogan:
"Press green for go!"
 Domain name
 Advertising material
EPO/OHIM
 Patents and designs (I)

Medicinal product
Patents for
– the active ingredient?
(the "chemical X")

– the method of making X?

Better as a trade secret?

– the formulation?
(combination of X with other ingredients)

– the method of use?

(i.e. treatment of allergies using X)

EPO/OHIM
 Patents and designs (II)
Nozzle Pumping system
 patent  patent
 utility model  utility model

Sprayer Can
 designs: registered and unregistered
 trade mark

EPO/OHIM
 Trade marks, copyright and domain names
 Brand name: NEBU-ALLERG trade mark ®

 Logo: trade mark ®

 Slogan: "Press green for go!" trade mark ®
 Advertising material: copyright ©

 Domain names:
- www.nebu-allerg.com
- www.thegreenbutton.com

EPO/OHIM
Case: Taxi service

Trademark – logo
Branding (reputation)
Case: Test for mental capacity

Copyright – manual, edu.

Patent – test mechanics

Design – pieces
Case: Clothes

The brand!