Clendons :: Types of Intellectual Property, and IP protection

Introduction

This background paper addresses the role intellectual property plays in creating legal rights from ideas and concepts, and illustrates how the various categories of intellectual property can be employed to protect those property rights.

Types of Intellectual Property

There are seven main categories of intellectual property. These are

Patents
Designs
Trade marks
Copyright
Trade secrets and confidential information
Trade get-up
Unregistered trade marks

Our Objective

Our objective is to show you:

How to create property in an idea using the intellectual property instruments; and
When to use which instrument.

To achieve our objective we will place each instrument in a hierarchy based on their ability to protect an idea.

Hierarchy of Intellectual Property Instruments

Patents, Designs and Trade Marks

At the top level of the hierarchy are patents, designs and trade marks.

These instruments are governed by statute and are able to be registered. Consequently the creator acquires a statutory monopoly.

The advantages of registration are:

The ability to define the owners rights;
The improved ability with which an idea can be protected; and
The registered proprietor's right to charge monopoly prices (subject to anti-competitive behaviour in terms of the Commerce Act 1986 by charging such prices).

The disadvantages of registration include:

Complexity of the process;
Consequent expense;
Delays in obtaining registration;
Expense of defending challenges to the registration;
Cost of enforcement; and
Defects in the law on damages.

Copyright

It is nothing to do with physical ownership of the media the work is rendered on.

An example: if you draw a plan the paper might be owned by you but if your client commissioned you to draw that plan the client owns the copyright. You cannot copy that plan without your client's permission.

Copyright creates a semi-statutory monopoly as it has its foundations in statute but does not have a copyright registration system.

Therefore the owner's rights are defined by the statute but are not protected by registration. Instead protection commences as soon as the work comes into existence.

Trade Secrets and Confidential Information

The three remaining categories, trade secrets and confidential information, trade get-up, and unregistered trademarks, constitute the third and final level of the hierarchy.

Although these instruments also offer protection for intellectual property the instruments do not provide the same ease of protection as the instruments in the top level of the hierarchy. Nor do these instruments define the creator's rights.

"Black Boxing"

"Black boxing" is a concept which can be used to protect an idea, product, process or design, which does not have the novelty required to place it at the top level of the intellectual property hierarchy, as opposed to registration. A definite outcome cannot be guaranteed as with a statutory monopoly but it is the best way to create value to your ideas without a statutory monopoly.

Black boxing is the selling of the end result without selling the process.

In effect the information required to produce a product, process or design may be in the public domain or even obvious, but what remains a secret is how the proprietor combined the information to produce the end result. The information present in the public domain so combined must remain inaccessible and unavailable without effort and labour. This is the essence of the law of trade secrets and confidential information.

The success of the black boxing technique depends on taking a key component of the process in which the end result was achieved and making this component a secret.

A classic example of black boxing is illustrated by Coca Cola. Coca Cola has hundreds of distributors worldwide who provide the end users with the product yet Coca Cola has succeeded in maintaining the secret of the Coca Cola formula. Coca Cola achieved this by taking a key component of the manufacturing process and maintaining its secrecy. This component is of course the Coca Cola essence. The essence was provided to the distributors already made up and so far its secrecy has remained controlled.

The creator therefore should, when talking to a client, think of themselves as a factory. Think of your ideas going into a factory where there may be three, four or more ideas working together which produce an innovative product, design or process. You can reveal that your creation is the result of those three, four or more ideas but the key idea must be kept secret. (See diagram 2).

Alternatives to Black Boxes - Confidential Information

While black boxing cannot work successfully where the creator cannot separate the ideas from the end result, an idea may still be within the boundaries of the law of confidential information. As long as the information is of a confidential nature, the information was communicated in circumstances importing an obligation of confidence, and the wrongful use of the information would cause detriment to the proprietor, the product, process or design would be protected.

A case demonstrating the extent to which confidential information can provide protection is International Corona Resources Ltd v, Lac Minerals Ltd (1987) 44 D.L.R.(4th) 592.

In this case pre-contractual business discussions between two companies were protected as confidential information. During the discussions the plaintiff revealed information to the defendant, which the defendant then used to its own advantage by acquiring a property. The judge found an industry practice that imposed an obligation on parties engaging in pre-contractual discussions not to act to the detriment of each other. The judge found the information given to the defendant was confidential, and revealed only for the purpose of a possible business relationship. The defendant was in breach of its duty of confidence. As a result the property was held on trust for the plaintiff, the judge ruling that the plaintiff's relief should not be restricted to damages.

Conclusion

There are a number of instruments that can be used to protect intellectual property.

If an idea is novel it can be registered and the proprietor receives a statutory monopoly. A design can be registered under the Design Act 1953, an invention can be registered under the Patents Act 1953 and a trademark can be registered under the Trade Marks Act 1953.

However these are not the only means by which a design, invention or trademark can be protected.

A design, invention or trade mark may still be protected under the Copyright Act 1994.

A design or invention may also be protected under the law of trade secrets, and a trade mark may be protected under the law of passing off and the Fair Trading Act.

These methods avoid the time, complexity and expense of registration. These methods are also particularly useful when the design, invention or trade mark does not have the novelty required to place it at the top of the intellectual property hierarchy by which the registration system can be employed.

We have recommended that the black-boxing technique be employed when an idea does not have the novelty to place it at the top of the hierarchy. Black-boxing can be utilised where the information is confidential in nature or where an idea may be a self-evident solution for some problem once the problem has been recognised and which has required the elements of skill, effort and/or money.

What we strongly advise is that all intellectual property assets are developed within a clear strategy aimed at maximising the value and payback on the assets.

While an invention may be patentable it may be better to direct the available financial resources in the early stages of the product life cycle into gaining market share and trade name recognition, rather than misdirecting resources into the cost of registration and the cost of defending the patent. This does not mean that the patent is sacrificed. It may mean that a single country application is made as against choosing the expense PCT (Patent Convention Treaty) ‘world patent' route. A single country patent does not preclude you extending the patent to other countries later under the process provided by the patent treaties.

Our concluding point is that brands are often in the long much more valuable than patents. A good example of brands that have outlasted its patent is "Aspirin".

The patent may have lapsed but the brand name lives on and accordingly registration and protection of a trade mark may be the keystone for the successful creator's intellectual property strategy.

The key point is to have a clear well thought out integrated strategy that is understood by all involved in a project. One member of the team that breaches the strategy can do un-recoverable damage.

Disclaimer

This Background Paper by its nature cannot be comprehensive and contains generalisations that may not hold on all cases.

It cannot be relied on by clients as advice.

This Introduction is provided to assist clients to identify legal issues on which they should seek legal advice.

Please consult the professional staff of Clendons for advice specific to your situation.

James Carnie
Principal
Clendons
PO Box 1305
Auckland
New Zealand
Phone: +64 9 306 8000
DDI: +64 9 306 8002
Fax: +64 9 306 8009
Email: james.carnie@clendons.co.nz