Crisis period: Managing your Intellectual Property in a Healthy Way!

Dominique Pomerleau [1] and Julien Fleurance[2]
ROBIC, LLP
Lawyers, Patent and Trademark Agents

While Quebec, like most of the world, is living at the pace of the containment and daily monitoring of the pandemic’s evolution, many business owners are wondering about the best way to get through the economic crisis resulting from the health crisis and, if possible, to emerge ahead of their competitors. Among the expenses they face, those related to their intellectual property (IP) assets may appear to be an easy source of savings. True or not?

Fortunately, IP titles acquired by a company over the years offer protection that lasts longer than the duration of economic crises. As a result, decisions made hastily during this economic turmoil could have unfortunate consequences over a longer period of time than the crisis itself.

We will first look at the management of existing IP assets before considering best practices for the protection of new IP, as well as the use of IP as a potential source of cash inflow.

1. Introduction

The four main types of IP a company may own are: copyrights, trademarks, patents and industrial designs. Each of these titles is intended to protect a different type of IP and has its own requirements in terms of deadlines and associated fees.

• Copyrights: In Canada, as in most countries, copyright protection is granted from the time the work is created, as long as the work (dramatic, artistic, musical or literary) meets certain requirements. However, it may be advantageous to register one’s copyright by providing evidence of the existence of copyright and of the fact that the person named in the registration is the owner. There is no deadline for such registration. In Canada, the term of protection for a work is 50 years after the death of the last of the authors, with no renewal fees to be paid. With respect to deterrent marking, registration is not required in order to use it on a company’s works. However, the costs of registration are relatively low and the deferral of registration fees, if any, has limited impact on a company’s IP protection budget.
• Trademarks: Trademarks include words, symbols or logos used to distinguish the goods or services of a person from those of a third party. Although registration is not mandatory to obtain some form of protection, it may prove advantageous as it allows the exclusive use of the mark for the goods or services covered by the registration in the entire jurisdiction where it is registered. There is no deadline for registering a trademark but, once registered, maintenance fees must be paid on a periodic basis to maintain the registration. These maintenance fees are relatively inexpensive.
• Patents: Patents aim to protect inventions in a majority of technological fields, by granting their owner a temporary exclusive right during which the invention cannot be manufactured, sold, used or imported without the owner’s consent. In most jurisdictions, patent applications must be filed prior to any public disclosure of the invention. Some countries, including Canada and the United States, allow a grace period of one year after the first public disclosure to file a valid patent application. To keep patent applications and patents in force, maintenance fees must be paid on a regular basis, which varies one jurisdiction to the next.
• Industrial Designs: These IP titles are intended to protect features relating to the shape, configuration, pattern and ornament of a finished article. Some jurisdictions, including Canada, the United States and Europe, allow a grace period of one year after the first public disclosure to file a valid application. The costs associated with industrial design protection are much lower than those associated with patent protection for an invention. Depending on the jurisdiction, maintenance fees may be required to renew the registration for one or more terms.

In this article, we will focus on trademarks, industrial designs and patents.

2. Reviewing your Intellectual Property Portfolio

For a company, the costs of IP protection typically represent a small fraction of the total investment in research and development (R&D), often less than 10% of the budget. In addition, economic setbacks last a low percentage of the potential life of an IP title (20 years in the case of a patent, at least 15 years for an industrial design, and renewable for trademarks). Thus, IP strategy decisions must be made with the long-term business needs of the company in mind. During an economic downturn, a conservative IP strategy can be implemented to limit costs while providing adequate protection and value.

Before making decisions that could be irreversible and have long-term effects, it is first essential to have a clear view of the current state of the IP portfolio by reviewing its content in order to assess the relevance of each of its titles. The review of the portfolio may also be an opportunity to develop or update the company’s IP strategy, which may/should vary over time as it is affected by circumstances such as economic decrease. In times of economic downturn, it may be tempting to reduce the budget allocated to legal affairs, including IP. However, it may be more strategic to aim to align this budget with business strategy in order to take advantage of various opportunities.

The value of each title may be commercial, technical, legal and/or strategic. Thus, the alignment of IP titles with business strategies may be one of the critical activities in rationalizing costs. In fact, each IP title must be aligned with the business strategy and a business use must be associated with each title. Thus, the first step in the review process is to align each title in the portfolio with a business use in the business strategy. The usefulness of the title can be immediate (title used by a business unit) or potential (projected usefulness by a business unit). If the IP title has no utility, it is no longer aligned with the business strategy.

It may be relevant to associate an IP title with its original motive (what product(s)/service(s) was it associated with, was it filed for funding or partnership purposes, and/or was it intended to interfere with a competitor). Is this original motive still applicable? If not, is the title still aligned with the business strategy? For patent and industrial designs, various indicators can be used to assess the relevance of IP titles in a portfolio, including the number of third party citations of the title, the age of the title and the scope of the claims. The portfolio may also be reviewed in relation to business opportunities.

Upon completion of the review, IP titles may be classified as essential, desirable, or obsolete. It is suggested that obsolete IP titles be abandoned, assigned or licensed to avoid the costs associated with renewing them. Some companies are reluctant to abandon an obsolete IP title for fear that it may become necessary to protect a product or technology. If this is the case, a thorough and blame-free screening process can be established where IP titles identified as “obsolete” are reviewed and their abandonment is approved by all departments (legal, technical and administrative departments). In addition, as detailed below in the section on using IP titles as a source of cash inflow, licensing out obsolete IP titles, i.e., allowing a right to use in return for compensation, such as monetary compensation, may be an interesting alternative to irreversibly abandoning a title.

For titles that are still useful in connection with the business strategy, their performance and rate of return can be assessed in comparison with other titles of the same class owned by the company. If an additional reduction in IP costs is required, IP titles with a lower performance and/or rate of return may also be abandoned, assigned or licensed. As with portfolios of stock market assets, rather than trying to recoup the money spent on an IP title, it is preferable to identify those titles for which the probability of return on investment is highest when the IP budget is limited.

For products/processes/services that are subject to both trademark and industrial design and/or patent protection, is it necessary to maintain all protections or can the success of the product be exclusively supported by the trademark? Another strategy to reduce costs is to abandon patents in areas where trademarks support the product, process or service. This strategy is rarely implemented because the trademark managers, frequently a company’s marketing department, are not aligned with the patent managers, frequently the legal department or the engineering department. Thus, the possibility of a synergistic link between one and the other is rarely established.

As mentioned above, abandonment is not the only possible avenue for obsolete or lower value IP assets for a company. Such titles may have value to a third party and could be licensed or assigned, and thus be a source of revenue. In conducting the portfolio review, it is possible to identify potential new applications for the protected technology, new markets, hypothetical infringers or potential partners with whom joint ventures, licences or agreements could be put in place. If no licensing or sales opportunities can be identified, the titles under consideration may then be discontinued as they mature.

Also, if you are in a precarious financial situation, following the review of your portfolio, for titles that you wish to keep with upcoming required actions, remember to contact your intellectual property specialist well in advance of the associated deadlines. The latter will be able to advise you on the possibility of extending certain deadlines and thus delay the expenses that must be incurred to maintain the title in force.

For example, for deadlines related to intellectual property titles filed before the start of the pandemic, you may be able to take advantage of time extensions currently offered by some patent offices. Some jurisdictions also offer to extend specific deadlines, subject to payment of extension fees. For a patent application in Canada, the start of the examination may be delayed for up to 4 years from the filing date. Still in Canada, an alternative option could be to temporarily abandon your patent application or patent before requesting reinstatement, to gain a few months before having to incur fees. In the United States, it is possible for US$100 (depending on the size of your company) to extend the deadline to respond to an examination report by one month. In fact, time extensions of up to six months from the date of issuance of the communication can be obtained upon payment of time-increasing extension fees. Similarly, it is possible to defer the payment of a maintenance fee for a US patent for six months by paying an additional fee at the time of payment.

3. Protecting New Technologies

Periods of recession can be a time for innovation, new ideas and methods and other IP-related activities. According to Dr. Francis Gurry, Director General of the World Intellectual Property Organization (WIPO), “history has shown […] that companies and countries which continue to invest in new products and innovation during times of economic recession will be those that will be best positioned to take advantage of the recovery, when it arrives.

In fact, an economic downturn can be seen as a good time to invest in research and development so that companies will be in a better position when the economy recovers. Many major companies were created during recessions, including General Electric (1892), General Motors (1908), IBM (1911), Disney (1929), Packard Development Company LP (1939) and FedEx Corp (1971).

However, during these periods of more limited financial resources, how can R&D projects be prioritized, and the resulting IP protected without losing one’s shirt?

As a first step, one should review current R&D projects and new technologies on which the company may want to position itself, so as to adjust its protection strategy accordingly. If necessary, it may be relevant to conduct preliminary research to identify whether the technology is already known or blocked by existing patents or industrial designs, or whether the trademark in question is close to an already existing trademark, so as to limit the risk of being exposed to litigation. The least promising, riskiest or most expensive projects may then be abandoned or, at the very least, deprioritized. 

Patent literature is a highly concentrated collection of technical information. By conducting landscape searches and analyses, it is possible to find expired patents or patents belonging to universities or research centres that may be a potential target for acquisitions. Intelligently using these tools can lead to a much more efficient R&D effort.

In most jurisdictions, an invention must not have been made public before being the subject of a patent or industrial design application. Furthermore, regular patent applications must be filed in the various countries, for which protection is sought, within the non-extendible 12-month time period following filing of a first (priority) patent application. The filing of regular patent applications will also be the last opportunity to add new matter to the description of the invention. Thus, the protection strategy should depend, among others, on the degree of progress of the project and its intended disclosure date.

For example, for inventions whose disclosure may be delayed, it may be advisable to continue to keep them secret, so as not to compromise the possibility of protecting them when the economic situation permits. However, delaying the filing of a patent application also carries risks since a patent is granted to the first patent application filed for an invention. Thus, it is possible that a third party files a patent application for the same invention and prevents you from ultimately protecting your invention and/or even limit your freedom to exploit it. Therefore, in areas where technological advances are fast, delaying the filing of the priority application may not be a recommended strategy.

For innovations for which obtaining an exclusive right is less critical for the company, these could be the subject of defensive publications in order to prevent a third party from obtaining a patent for an identical or very similar invention, or in order to reduce the possibility of a litigious situation.

For inventions that are the subject of a priority patent application that must be completed within twelve months of the filing date, various solutions are also possible to limit or delay the costs to be incurred. If the invention has not yet been publicly disclosed, it is possible to refile the priority application in order to obtain a new priority date. However, it is possible that a third party may have filed a patent application between your first filing and your second filing for an identical or very similar invention, and thus prevent you from ultimately protecting your invention. Again, in areas where technological advances are fast, delaying the filing of the priority application may not be a recommended strategy.

It is also possible to file the regular patent application as an international patent application, known as a PCT application, so as to delay by at least eighteen months the time for selecting the countries/regions in which protection will eventually be sought. During this additional period of time, markets may develop and, on expiry, the selection of countries/regions where protection will be sought can be made in a more informed manner. The selection of countries/regions should be based on a number of facts, including the presence of competitors, the size of the market, the ability to defend one’s IP title, future trends, etc. It may not be necessary to protect IP in all countries where the invention will be commercialized. For example, compliance with an 80/20 ratio, whereby 20% of the countries in which the company is present cover 80% of its market, may be relevant.

As can be seen from these few lines, there are many solutions and, since failure to meet certain deadlines can have irremediable consequences, we invite you to contact, well before the deadlines, your IP specialist who will be able to provide you with personalized advice.

4 .Intellectual Property Titles as a Source of Cash Inflow

Finally, it would be simplistic to consider one’s intellectual property assets only in terms of the expenses they entail. They can also be, particularly in times of crisis, sources of income.

Trademarks, patents and industrial designs thus help strengthen a company’s competitive position, which can be crucial in times of market downturn. They can also be considered as guarantors of financial soundness, for example to be used as collateral for negotiating bank loans or considered by financial institutions to determine the terms of loans granted. In addition, they can be a means of negotiating commercial agreements, licences or even of putting unscrupulous competitors on notice, before possible litigation.

Finally, periods of economic difficulty could be opportunities to acquire intellectual property from competitors in difficulty, in order to further strengthen a company’s competitive position.

5. Conclusion

In conclusion, in times of crisis, the main pitfall would be to throw the baby out with the bathwater and dispose of intellectual property rights on a massive scale, under the guise of limiting immediate expenditure.

Reviewing IP portfolios and tracking resources in a difficult economic environment are among the best practices of IP owners. Identifying, and subsequently discarding, obsolete titles not only reduce maintenance costs but also administrative costs associated with tracking these registrations. In addition, many solutions exist to smooth the cash outflow curve for maintaining an IP portfolio.

By reviewing and adjusting your IP strategy, the dreaded economic downturn could become an opportunity to strengthen your competitive position, leveraging your titles while continuing to invest in innovation and its protection, and thus take full advantage of the recovery when the time comes. It should be kept in mind that, since the life span of IP titles is much longer than that of an economic crisis, IP strategy choices must be made with the company’s long-term business needs in mind.