Business Times - 20 Feb 2009
Take care of IP rights during downturn
A four-pronged strategy may be considered to maximise ownership and exploitation
By STANLEY LAI
THE financial fallout continues unabated. We struggle to contemplate where and when the global economy will see the worst, but this demands an exactitude of prescience that lies well beyond conventional judgment. Most of us would be content with bracing ourselves for a year (possibly more) of gloom.
Over the next 12 months, prices will come down, assets will devalue, trade financing will come to an end, and with that a steadily declining gross domestic product, particularly for trade-dependent economies. The halcyon days are over for now, and most commentators agree that it will get worst before it gets better.
It would be too simplistic to merely categorise intellectual property (IP) assets as being recession-proof. But if one were to attempt to make this argument, the starting point would be that IP assets are long-term acquisitions. Long-term IP rights should not be relinquished, because you need them when the good times return. Or do you need them at all?
The current economic climate allows us to consider adopting a four-pronged strategy to maximise ownership and exploitation.
First, audit and take stock of the current IP portfolio so as to secure long-term objectives. Secondly, as part of a cost-cutting exercise, companies should consider outsourcing IP management and prosecution functions.
Thirdly, while the values of other assets can be seen to slide during these troubled times, IP assets are no exception, and the timing may be such that unique acquisition opportunities present themselves. Fourthly, do not let up on enforcement efforts, as counterfeiting and other infringing activities may actually increase during a downturn, and rights owners should brace themselves for this.
It is taken as a given that every IP asset-owning company should have a policy or plan in place for the acquisition of IP rights, trade marking, branding for the purposes of marketing and positioning and an exploitative strategy (whether through licences, franchises, collaboration, distribution or production agreements).
With the administration of proper valuation to IP assets, a company is able to add to its book value as well as maintain, if not add to, share value. It was not that long ago that IP assets could also form a useful basis for fund-raising through securitisation. Just look at the so-called 'Bowie Bonds', named after the rock star David Bowie, who raised millions based on the securitisation of music royalties as future receivables. Today we look at new instruments of securitisation through Islamic finance.
A stock take or audit affects different IP rights in different ways. For example, in the case of patents, an IP audit mandates that a company does not own patents for the sake of ownership, but is a more considered exercise to test the existing patent portfolio for strength and quality. An effective audit should weed out a company's weak patents, for surrender or lapse.
In the case of trade marks, an audit would mean deciding whether secondary brands and trade marks (no doubt promoted during a surge of brand protection) have fallen into irrelevance and non-acceptance by the market. This exercise is a culmination of measuring the importance of product placement with the risk of adverse rights asserted by third parties against registration and use of the intended trade mark.
Outsourcing of IP rights management and prosecution is another form of cost-cutting, and which allows existing employees to focus on commercialisation and sourcing of business opportunities. With a correctional alignment that is applied to costs in general, and IP management budgets in particular, during a recessionary spiral, it would be advisable to work with external firms to wholly or partially outsource IP prosecution-related functions such as:
# Drafting, and design drafting;
# Computerised docketing and record keeping;
# Account management; and,
# The tracking of renewal, annuity and other deadlines.
This would make for greater efficiency and release existing manpower for planning, strategy and other non-delegable IP activities, such as transactional drafting/ negotiation, litigation, anti-counterfeiting and dispute management.
In a downturn, opportunities also abound. It is a good time to look at competitors, and the inquiry may disclose an opportune moment to obtain the transfer of that one trade mark or family of marks that has always been cited against your application(s), or used in opposition proceedings in various countries.
Companies may also wish to acquire patents with a view to gaining additional market control or generate additional revenue by licensing or litigation. This so-called 'patent trolling' is not actually as sinister or pejorative as it sounds - it is a creature of the free market and competitive exploitation. It is a revenue-generating model in its own right.
Currently, a company's acquisition of legal and economic rights in respect of all genres of IP rights is automatically subject to a writedown over a period of five years, under a writedown allowance (WDA) scheme. The recent Budget has affirmed and recognised the importance of keeping up the momentum of development for new creative industries such as media and digital entertainment (MDE).
The WDA has been revised to write down capital expenditure incurred by an MDE company or partnership for the acquisition of IP rights (in respect of MDE content), over a two-year (as opposed to a five-year) period, subject to conditions. Companies should take full advantage of such incentives which are a function of necessity and resilience during difficult times.
At the end of the current recession, we may look back at the acquisitions of new technologies and IP and rationalise, with the benefit of hindsight, that they were part of a market correction and a 'hard reset' that any economic ecosystem would inevitably have had to endure (for the better) during a recession.
IP owners beware. Even for countries which have established a no-tolerance regime against counterfeiting, a recession may force IP owners to take their eyes off policing, and the insidious distribution of knockoffs and online infringing copies will surge.
Thus, even if we find ourselves immersed in a climate of gloom and vicious cost-cutting, companies should be urged to identify opportunity amidst difficulty. When a financial crisis occurs, disruption and mayhem may open the door for a nimble, adaptable company to acquire new IP (possibly in diversified industries and so spread IP risk), and gain market share. As Warren Buffet famously said, 'Buy when there is fear in the market'.
Stanley Lai is head, Intellectual Property and Technology Department, Allen and Gledhill LLP
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