Integrating Intellectual Property in the Business Plan and

Integrating Intellectual Property in the Business Plan and Strategy: Identifying, Protecting, Developing, Managing and Auditing IP Assets Shanghai 16 December 2004 INNOVATION LAW PHILIP MENDES BRADLEY THOMAS (ASSOC) Level 3, 380 Queen St Brisbane QLD, Australia Ph + 61 7 3211 9033 Fax + 61 7 3211 9025 Philip@innovationlaw. com. au 1 Bradley@innovationlaw. com. au

What is a business plan ? § A plan for the operation and growth of a business § Just as a building has an architect’s plan and an engineering plan, so also a business has a plan § A business plan deals with, amongst other matters § Management of the business § Operations of the business § Growth of the business 2

Role of IP in the Business Plan § Business Plan deals with § Management of the business § Operations of the business § Growth of the business § In a business plan, Intellectual property should similarly be the subject of § Management § Operations § Growth 3

Role of IP in the business plan. 4

Identify the IP § IP created by an SME needs to be identified § Unless it is identified as IP, it cannot be § Secured § Registered § Protected § Exploited § Identification is the first step. § It is the platform upon which everything else about IP rests 5

Identify the IP § The failure to identify IP is perhaps the largest leakage of IP from an SME § IP is created § But it is not recognised as being IP § Employees use it, and continue to use it as they move from one employer to another employer § Employees move to another employer and the IP moves with them § Employees retire, and the IP retires with them 6

Business Plan and Identification of IP § A Business Plan should set out how IP will be identified by an SME § Critical is awareness of IP § The staff of an SME need to be aware that they use, or have created IP § They need to recognise that IP is in use or has been created § To do that they need to know what IP is 7

Business Plan and Identification of IP § How might a Business Plan deal with that ? § Education of existing staff § Education programs for staff will raise awareness and appreciation of IP § Not a once only education program, but a regular education program § Induction of new staff may focus on awareness and appreciation of IP 8

Business Plan and Identification of IP § Disclosure to SME § Not enough to educate and raise awareness, staff must also disclose the IP that they create to their employer § Reward § How can staff be motivated to disclose ? § The most successful disclosure mechanisms in a business plan involve recognitions and reward to staff that create / identify, and disclose IP to their employer § Recognition amongst peers § Salary bonus § Prize – eg, a holiday 9

Business Plan and Identification of IP § Business Plan should set out the SME’s plan for § Staff awareness of IP § Education of staff about IP § Induction of new staff about IP § Disclosure of IP by staff to employer § Reward and Recognition of staff who create IP and disclose it to employer 10

Secure the IP § To exploit IP the SME must own the IP (or have a license to it) § IP created by an SME’s staff is owned by the SME. § The law is that IP created by staff in the course of employment is owned by the employer § Correspondingly, IP that is created § by someone other than an employee is not owned by the SME § By an employee outside the course of employment, is not owned by the SME 11

Secure the IP § Amongst the biggest leakages of IP from an SME is that it was created by someone who was not an employee, and its ownership by the SME was not secured § If the SME does not own the IP, it cannot exploit it § Contractors own their own IP 12

Secure the IP § Examples of contractors owning their own IP: § An SME engages a software engineer to write a computer program § An SME engages an engineer to assist to develop a new product § An SME engages an industrial designer to design a new product or tool § An SME engages a tool manufacturer to design and manufacture a tool § An SME engages a marketing consultant to design a logo, or create a trade mark 13

Secure the IP § In each case the IP is owned by the contractor § Even though the SME paid for the creation of the IP, the IP is still owned by the contractor § It is necessary to have an assignment of the IP from the contractor to the SME § This is best done at the time of the contractor’s initial engagement. May be problematic to secure ownership later 14

Business Plan and securing the IP § A Business Plan should § Require that contractors assign IP to the SME that engages them § Identify the most likely contractors that are engaged that may create IP § Include a protocol to ensure that on each occasion a contractor is engaged, at the outset § The assignment of IP is secured § The assignment of IP in writing is secured 15

Register the IP § A Business Plan should deal with the registration of IP, when that is appropriate § One situation where registration is inappropriate is copyright. § Copyright subsists upon creation, and registration is unnecessary § The other situation where registration is inappropriate is where an SME decides that IP is best left as a trade secret, rather than being registered 16

Register the IP: Trade Secret or patent ? § An invention may not be patentable, but may still have value as a trade secret – its knowledge may be in limited parts of the public domain § An invention may be patentable, but a decision may be made that it is best left unpatented § An invention may be best patented, but some parts of it may be best left outside the patent specification, and left to remain as a trade secret 17

Registering IP § But usually the decision will be that it is prudent to register the IP § Registration confers benefits §The right to exclude others from using that IP §The ability to leverage off it by licensing and other strategic relationships § If IP is not registered, there is the risk that §others will learn of the IP, or §Others will independently develop the IP, and will be able to exploit it, competitively with the SME 18

Business Plan and registering IP § § What IP might be registered: Patents Trade marks Designs § Business plan should identify the process and criteria for deciding when to register IP, and when not to, appreciating in each case the consequences of the decision 19

Business Plan and registering patents § A business plan should in particular contain protocols, processes, and criteria for making decisions about each critical step of the patent application process: § Provisional application § PCT application § National phase § At each phase a decision to proceed or not proceed needs to be taken § Who makes that decision ? § What is the criteria for decision ? § What information needs to be collected and researched for the decision to be one made on a best informed basis 20

Business Plan and registering patents § Example of business plan treatment of decision making for each phase of the patent application process: § Company that has a large R&D staff dedicated to generating IP § At each phase a written evaluation needs to be prepared that evaluates § The technology at its particular state of development § Competing technology – preliminary patent searches § The market § The opportunity § The economics of proceeding with patenting and reports upon each matter 21

Business Plan and registering patents § The decision to file a provisional application is made by the IP Manager, based on that written evaluation § The IP Manager will principally base the decision on the opportunity that the IP represents § IP Manager may file approx 20 provisional applications each year § The decision to proceed to a PCT application is made by an IP committee which considers a new evaluation, and a robust search report, and upon which there is a filtering expectation § The IP Committee may approve that 4 – 8 provisional applications proceed to the next stage of PCT application § The decision to go to national phase is made by the CEO, with the recommendations of the IP Committee, and yet a third evaluation § The CEO may approve 1, 2, or 3 patents proceeding to national phase each year 22

Business Plan and registering patents § Business plan: § Contains the policies upon which that protocol rests § Explains the protocol § Functions etc of § IP Manager § IP Committee § CEO § Explains the tools § Written evaluations. § Analysis and Reports, § Search reports, literature searches, etc 23

Protect the IP § Business plan would ideally deal with § Confidentiality § Restraints upon staff § Confidentiality § When disclosures of IP are made to persons outside the SME, 24

Protect the IP - Confidentiality § What are the conditions of disclosure § What terms are to be expected in a confidentiality agreement § When would the SME be prepared to be the recipient of another person’s confidential information ? § What protocols are there for § Disclosure § Assessment of the IP § Record keeping 25 § Return of documents

Protect the IP: staff employment agreements § Key staff that move to another employer and take knowledge with them represents the largest leakage of IP from an enterprise § In a new employer a staff member uses knowledge gained from the SME § Represents loss of competitive advantage § Competitor may become better equipped § Loss of competitive advantage results in economic disadvantage 26

Protect the IP: staff employment agreements § Pricewaterhouse. Coopers IP Loss Survey 1998 27

Protect the IP: staff employment agreements § Pricewaterhouse. Coopers IP Loss Survey 1998 28

Protect the IP: staff employment agreements § What should the business plan require an employment agreement to say § That staff will maintain confidentiality § That staff will not use IP § Directly (employee of another) or § indirectly (director of a another company, manager, consultant § That staff are restrained from competing with the previous employer § In a defined area § For a defined period § Restraints are a legitimate form of IP protection 29

Exploit the IP § Business plan should cover what strategies there will be to exploit the IP § Bear in mind two ways of exploiting: § By using § By granting licenses to others to use the IP § So often a business plan focuses on an SME using IP itself, without giving consideration to exploitation by licensees 30

Exploit the IP § The two are not inconsistent § Two situations where you might license out § 1. License in other territories § 2. License other applications § License in other territories: § Retain rights to exploit in your own country § License another person, who is not a competitor, to exploit in other countries 31

Exploit the IP – Exploit in other applications § Retain rights to use in your own application § License others in other non competing applications: 32

Exploit the IP – exploit other applications § Retain rights to use in your own application & License others in other non competing applications: § Example: a new plastics formulation Fields of Application Pipes Spectacles Bottles Rainwater tanks Car parts and trim Boating trim Appropriate Licensee Plumbing Industry Optics Industry Injection Moulding Industry Rotational Moulding Industry Motor Vehicle Industry Boating Industry 33

Business Plan § A business plan is the blueprint for IP to be § Recognised § Identified § Secured § Registered § Protected § Exploited § A business with a business plan that addresses these IP issues will be likely to outperform one that 34 does not.