Meaning of Intellectual Property Rights
Intellectual property is the creation of the minds of an individual which has commercial and moral value. Intellectual property rights (IPR) grant exclusive rights to an author for utilizing and benefiting from their creation. However, IPR is limited in terms of duration, scope, and geographical extent.
IPR is a form of protection provided to inventors to help them reap benefits from their creative efforts. Owners holding IPR can prevent the use of their intellectual property. They hold the right to either license, sell or retain their property.
- Meaning of Intellectual Property Rights
- Objectives of Intellectual Property Rights
- Types of Intellectual Property Rights
- Trade Secret
- Industrial Design
IPR encourages creativity and permits the creator to benefit from the advantage arising out of their creation. These rights allow investors a fair return on their investments in the research and development fields.
Objectives of Intellectual Property Rights
The primary purpose of intellectual property rights is to stimulate creativity by providing an exclusive right to creative inventions and works. These protection rights inspire artists, authors, and inventors to share their work for the benefit of society.
Inventors did not have enough incentive to reveal their intellectual property. IPRs were therefore formed to reassure the creator’s full social and monetary value of their work. According to IPR, ownership of intellectual property is treated as ownership of real property. IPRs not only benefit the individual but also the overall economy. Let us know how.
Financial Impact of Intellectual Property Rights – IPR gives an incentive to entities and individuals to invest in the development of new ideas as they are reassured of a fair return on their investment. Investment into such research and development and later implementation and production supports the economy. This, in turn, leads to employment opportunities for the economy.
Types of Intellectual Property Rights
The following are the types of IPRs:
- Copyright – A copyright protects artistic and literary work. The holder has complete rights and control over the adaptation or reproduction of the work. Copyrights last for up to 70 years after the innovator’s death.
- Patent – A patent is issued to protect an invention. It gives the holder the right to prevent anyone from making, using, or selling the patented invention for a fixed time period (usually 20 years from the filing date).
- Industrial Design – A design protects the outward appearance or the visual style of an object. It does not protect unseen design elements of the product.
- Database – Database right is similar to copyright. It prevents the copying of significant sections of a database. The database right protects the information itself and not the form of information.
- Trade Secret – A trade secret is a practice, design, formula, process, or compilation of information. A company utilizes this information to gain a competitive advantage over others. Trade secrets are not disclosed to the world.
What is Copyright?
A copyright is a legal entitlement bestowed upon the author/creator to secure complete exclusivity and control over their original works. Their scope includes but is not limited to published and unpublished literary works, paintings, software, movies, advertisements, maps, and technical drawings.
Copyrights first evolved as an outcome of The Copyrights Act of 1790 of the U.S. constitution. Its founding purpose was to encourage learning and education. Therefore, authors of original works on academic subjects were granted incentives to publish more and license their work by means of copyright. The creative monopoly provided an incentive to publish more, thus benefiting the public at large.
Today, Copyrights mainly exist to protect original creators against plagiarism. It also enables authors to better monetize their work with effective licensing and royalty agreements in place.
In the USA
- The Copyrights Act of 1976 governs copyright law in the US.
- Registrations can be made by applying to the US Copyright Office Website.
- The application is reviewed for errors and confirms the existence of tangible subject matter. Upon satisfaction, the office grants the certificate of registration.
- The work sought to be copyrighted and deposited with the Office of Copyrights. The deposit copy then goes to the Library of Congress as a part of its records of work. It also serves as evidence in case of an infringement proving the work being re-claimed is the original work already submitted.
- All petitions for transfers, assignments, and termination of transfers must be first applied for with the US Copyrights office. The office then issues constructive notice to the public of any such events. Such notices also aid in establishing priority in case of any conflicts.
In the United Kingdom
- Governed by Copyright, Designs & Patents Act 1988.
- Originated from a concept of common law, Statute of Anne, 1709. It was the first-ever statute to provide for the regulation of copyrights by government and courts rather than private parties.
- Valid for 70 years (50 years in case of sound recordings) from the end of the year in which the author of the work dies.
- The government does not maintain a register of copyrights. Copyright automatically comes into existence upon giving tangible form to an original idea. For example, an idea of a book does not qualify for copyright. But translating that idea into a book inherently grants copyright to its author.
Why is Copyright Registration Important?
Public Record of Ownership
A copyright registration causes the work to be published in the Copyright’s Office Catalog. It also enables public access for review and knowledge sharing.
Registered copyright protects the creator in the face of alleged infringement and goes a long way in substantiating ownership.
Import of Infringed Works
The U.S. Customs and Border Protection (CBP) program seizes and detains imports of goods violating intellectual property rights, thus protecting the authenticity of original creators. Only a registered owner of a copyright can partake in this program.
Enforcement Rights with Copyright Registration
This is the most valuable benefit arising from registration with the U.S. Copyrights office. In the absence of a certificate, even a valid owner would not be able to protect his works against infringements. Registration of a copyright is thus critical to protect against potential trespassers.
Eligibility to Claim Damages
The owner is entitled to statutory damages upon registration of Copyright prior to infringement or within three months of publication of work. However, proving damages may be a tricky task. The security of statutory damages makes it easier to recover a certain amount upon infringement, notwithstanding the onus to prove actual damages.
In addition to exclusive ownership, there are five other rights flowing from registration:
- Reproduction Right – Right to copy, imitate, or transcribe in any form.
- Modification Right – Right to create new work based on existing work (derivative work).
- Distribution Right – Right to disburse a copy of work to the public by sale, rental, or lending
- Public Performance Right – Right to recite, play, act, or display the work or a part thereof to the public at large.
- Public Display Right – Right to show the direct copy of work by film, image, or any other medium to the public at large.
The Downside of Copyright Registration / Limitation of Copyright
Applications Process & Cost
Each individual piece of work requires separate copyright. Every application must be accompanied by extensive registration documents, which remain vulnerable to troublemakers. A single registration may cost anything between $35 to $220. These factors make copyright registration an expensive and time-consuming affair.
In the majority of cases, the subject matter of copyright is creative work. Therefore, by its inherent nature, it becomes difficult for the courts to distinguish between original works and derivative works not bordering on infringement. The court decides over every trial on a case-by-case basis. Petitioners often invest a huge amount of time and money in defending the authenticity of a work. Only to realize that no infringement has occurred as per the court’s definition.
Fair Use Limitation
This is perhaps the most serious limitation of Copyrights. It refers to the copying or limited use of copyrighted material under the pretext of “public benefit” or transformation purposes. However, “transformative” has not been clearly defined by law. Consequently, it is the most popular defense in cases of alleged infringement. This loophole, therefore, leaves legitimately copyrighted works susceptible to infringement.
How is it different from Patents or Trademarks?
Tangibility is the determining factor distinguishing Copyrights from other forms of intellectual property. As such, copyright only covers “material forms of expression” and not ideas, methods, or techniques.
|Authors, painters, artists, and other creative professionals
|Businesses, product owners
|Tangible works of authorship, photographs, films, sculptures, etc.
|Name, Symbol, and design exclusive to a business
|Machine Designs, Processes, Chemical compositions
|Validity lasts up to 70 years after the death of the author
|Valid indefinitely, however, with renewal every 10 years
|Valid for 20 years from the filing date
What are Trademarks?
A trademark is a unique characterization given to a product in order to distinguish it from other similar or competitive products. A trademark can take the form of a logo, design, symbol, or words that establish the uniqueness of that product. Additionally, trademarks are also a declaration of a product belonging exclusively to a specific organization. This enables trademark owners to prevent their competitors from mooching off similar designs or passing off dubious products under their brand name.
Going into the legality of the term, a trademark is essentially a form of intellectual property. In order to have enforceable trademark protection, one must register it as per the laws and regulations of their home country. In the United States, the USPTO (The United States Patent &Trademark Office) is the issuing agency for trademarks. They remain valid for a period of 10 years from the date of registration, with an option for renewal for additional 10 years.
Why must businesses secure Trademarks?
Protection Against Infringement
Registration of a trademark with the USPTO gives rise to exclusive legal rights and a higher degree of protection. Only a registered trademark owner can move to sue or recover statutory damages in cases of potential infringement. Registration indicates a clear-cut record and undisputed ownership in the eyes of the federal court. This makes it easier to get a favorable decision in the event of a challenge to authenticity.
Establishing Distinctiveness to Customers
Trademarks are also an effective branding tool enabling organizations to set themselves apart from competitors. With the use of creative and appealing designs for trademarks, organizations always seek to make their presence unforgettable and inviting for customers. After all, bling and attractiveness is always the first thing that makes a customer choose one product over another.
The Giffen Goods effect dictating how prestige and pride guide customers in making buying choices can also be seen extending to trademarks. Several luxury brands have recognized this and printed their trademarks not only on billboards and infrastructure but also extensively on their products—for instance, Louis Vuitton, Prada, and Chanel.
Creation of an Asset
A registered trademark gives rise to an intangible asset in the form of Intellectual Property. A definite value can be assigned to it and can be recorded on the balance sheet. Moreover, additional income can be generated by selling, assignment, or franchising of the rights.
Elimination of Replication Attempts
Once registered, trademark owners are entitled to use the ® symbol along with their logo on every product, service, or elsewhere. It conveys the conviction and confidence of the organization in its product. Also, it serves to let the competitors know of the seriousness of intention and readiness to litigate in case any attempt to plagiarize is sensed. Additionally, registration also creates an obligation on the USPTO to check all future applications for similarity and decline registration to such applicants.
Trademarks Regulations in The United States
Both the Federal and the State courts play an active role in the regulation of trademarks. The Lanham Act, or The Trademark Act of 1946, mainly governs trademark law at the federal level. This act, in turn, has delegated the administration and regulation of trademarks to the United States Patents & Trademark Office (USPTO).
Every state, in turn, has its own set of additional regulations complementing federal law.
It is worthwhile to note the two symbols entailing a trademark and the differences between the two:
Unregistered trademark owners use this symbol. It comes into force automatically on the use of a symbol or logo in the course of business. However, this provides very limited legal protection and is difficult to enforce or prove precedence in case of infringement.
Once the USPTO has granted a valid certificate of registration for the trademark, this symbol can be used. Such trademarks enjoy complete protection and enforcement rights. They are also almost impossible to trespass.
Some Creative Trademarks and Stories behind them / Real-Life Trademark Examples
The online retail giant has a seemingly plain logo at first glance. The name “Amazon,” taken after the amazon forests, seeks to indicate the abundance of the spread they offer. The same ideology seems to have been applied to their logo. Upon careful inspection, the yellow underline actually looks like an arrow pointing from A to Z. Thus, wittingly pointing out their vastness in scope. And hey, it also looks like a smile. That doesn’t hurt either.
Here is an example of a trademark so iconic that the brand name does not even need to be mentioned. Contrary to popular notions, this logo is not a “checkmark” but has a much more deeper meaning. Nike is the Greek goddess of victory. The designer intended to represent the “swoosh” as the goddess’s wings, thus embodying movement and speed. Unaware of the monumental status her work would achieve, the designer was paid only $35 at the time!
The apple logo is touted to be one of the most valuable logs in the world, with its trademark worth a whopping $29.5 billion! There are several theories as to why specifically this fruit was chosen to be the lucky one. But all stories were quelled when Mr. Janoff, the original creator of this logo, explained that Apple was chosen based on Steve Job’s preference who worked in an apple orchard as a boy. As to the bite on the Apple, it was merely included for scale so that a small apple logo does not look like a cherry!
This list cannot be complete without the FedEx trademark, the recipient of over 40 design awards for its subtle yet sharp branding. FedEx is the syllabic abbreviation for its original name Federal Express. As is widely known, it is a global logistics company taking pride in its super-fast and precise deliveries. This is very cleverly incorporated as an arrowhead found between the orange “E” & “X”, thus indicating the shipping of goods from one place to another.
What are Patents?
A patent is an exclusive right granted for the invention of a product, process, or design. It legally prevents any other party from making, using, or selling an invention, or even importing the same into the country.
U.S. Patents and Trademark Office (USPTO) is vested with the authority to grant patents. They generally remain in force for a period of 20 years. Think of it as a contract between the inventor and the government. The government grants complete protection and exclusivity of the invention in exchange for the total disclosure of the design and science behind the patent. Upon expiry of the patented period, the patent enters the public domain and remains free for use without leading to infringement violations. It is upon the inventor to make the most of his patent during the designated period. Licensing is one of the most common and convenient ways of harnessing maximum potential out of this arrangement.
Every discovery is not patentable. It is not possible to obtain a patent on a law of nature or scientific principle even if a person is the first to discover it. For example, Isaac Newton cannot be bestowed with a patent for discovering the law of gravity or Albert Einstein for his formula of relativity E=mc2.
Conditions to Qualify as Patent
Any addition, alteration, or modification cannot qualify as a patent. To get patent rights, an invention must satisfy the below-mentioned criteria.
There must be a tangible idea, concept, process, or product capable of transforming into reality. Appliances, pharmaceutical drugs, new production processes, and software are examples of “patentable subject matter.” On the other hand, artistic creations, mathematical models, and naturally occurring plant and animal varieties are abstract discoveries not patentable.
This condition requires an invention to be completely new, undiscovered, and unheard of. The test of “novelty” is assessed as on the date of application. For this reason, it is important to sign a contract of confidentiality before disclosing the product or process to anyone.
This condition emphasizes the innovation aspect of the product or process. An invention should be such that its application should not be obvious to anyone skilled in a related field. This condition restricts new uses of existing products from getting patents since it is difficult to prove that such use was not already in practice before the supposed invention.
This condition emphasizes “industrial applicability.” Here, the term industry construes in a broader sense and includes services such as transport, education, agriculture, etc. Industrial applicability requires a patent to practically perform as demonstrated in theory. So any invention that is only good on paper shall not pass.
Types of Patents
According to USPTO, 90% of all patents are utility patents. It protects the functional and utility aspects of an invention. They mainly cover machines, processes, methods, compositions, or any improvement of an existing function enhancing utility. Most of the inventions fall into one or more of the aforementioned categories. However, an invention will be granted only a single utility patent irrespective of the number of categories it falls into. The invention acquires a “patent pending” status upon the immediate filing of an application, and it does not provide the same protection as a valid one. However, it serves as a warning sign to the competitors of the probable consequences. It remains valid for a period of 20 years from the date of application filing.
A design patent protects the ornamental and visual characteristics of a product. It focuses more on the outside than on the inside. For example, a utility patent can protect the software of an Apple iPhone. However, a design patent must be used to protect the look, design, and finish of the hardware, i.e., the handset phone. It is difficult to trace since it comprises technical drawings and images. Also, they are very vulnerable. Protection is granted only for the exact image submitted. Competitors and imitators can thus roll out the same design with slight variations and get away scath-free. They remain valid for a period of 15 years from the date of application.
They serve exactly what they say: protecting plants. Plant patents are issued to discover new and distinct species of plants. The only condition is that the production of such plants should be asexual, i.e., not by the normal course of nature. Thus, this patent essentially covers sports, hybrids, seedlings, mutants, cultivations, and other varieties of plants. The scope is not extended to include genetically modified organisms and is restricted to horticulture. A plant patent must be filed within one year of its discovery at any place in the world. Thus, even the mention of the new spices in a magazine or internet marks the beginning of one year period. Like utility patents, these last for a period of 20 years from the date of filing.
Patents are intellectual property. A factory does not “produce” patents. They are, in fact, the brainchild of an inventor. Patents only have the physical shape and form of the piece of paper, bestowing the patenting right. However, a strategic patent brings exponential value to the table. It is therefore important to value patents. Apart from finding the appropriate value to record in the books, patent valuations are often the main point of contention in mergers.
We shall discuss some of the quantitative methods of patent valuation.
This method suggests the value of a patent to be equivalent to the amount of expenditure incurred in the present day to replace the product. Emphasis is on the present value of expenditure and ignores the historical costs. The cost method mainly considers the direct costs and opportunity costs. Direct costs include expenditure on man, material, machinery, licensing, etc. Opportunity cost refers to the market share lost due to delayed production and loss of sales of another product due to resource re-allocation.
Replacement Cost = Direct Cost + Opportunity Cost
This valuation method is very similar to that of fixed-income securities. As per this method, the patent value is the present value of the income likely to generate from exploiting the patent. A patented asset can give rise to two possible streams of income.
- From the sale of produce of the patented technology.
- Royalty income by licensing the patents.
- GoPro cameras are a patented invention whereby the inventor has patented the strapping of a camera device to any body part. Thus, the income from the sale of GoPro cameras will constitute direct income from the patent.
- The Microsoft operating system in our laptops is licensed software. The hardware (laptop) manufacturer must pay a royalty fee for pre-installing the software in the laptops sold by them.
Income from patent = NPV (Income/Royalty, i%)n; where i= discount rate & n = remaining life of the patent.
This method evaluates the viability and perception of the patent in the open market. This method heavily relies on a comparable transaction and an active market for the underlying asset. Therefore, it isn’t easy to trace markets and transactions for such a niche product. It is, therefore, difficult to gather appropriate sources of information to base decisions upon. Some of the suggested methods of gathering comparable data include:
- Hiring the services of market research and valuation companies such as Morningstar, Thomson Reuters, etc.
- Company annual reports
- Specialized royalty rate databases
- Court judgments and decisions in similar cases
Disadvantages of Patents
Patenting an invention provides obvious advantages of monopoly and complete control over the invention. However, it may not always be the best way to go and may do more harm than good. Despite the numerous advantages it offers, there does exist a downside.
Below mentioned are some drawbacks to patenting.
Loss of Privacy
The foremost condition for granting a patent is complete disclosure of the intellectual and technical design behind it. After that, upon patenting, the design and know-how of the invention enter the public domain. The invention becomes vulnerable to competition imitating and reproducing it with slight changes to circumvent the patent. Also, the law allows the patent to be exclusive only for a specific number of years, following which the inventor shall anyway lose all control and exclusivity.
An inventor will have to shell out several thousand dollars before he receives a grant for a patent. Even so, there is no guarantee that the patent will get approval. Some of the costs involved are:
- Legal expenses and attorney costs to process its applications and contracts.
- Technical fees for converting the idea into designs and documents presentable to the USPTO.
- Periodic maintenance fees to uphold its validity.
- Litigation expenditure in case of infringement and violation.
Limited Economic Life
Patents come with a clock ticking like a time bomb. Most of them have a validity of 15 to 20 years and are only renewable in some cases on payment of a hefty extension fee. The inventor, therefore, has very limited time to harness the patent to its maximum potential. Whether to sell or license, outsource or manufacture- all decisions must be quick without a margin for error.
Lack of Cross Country Validity
A patent only holds good in the country where it is filed. Therefore, an invention patented in the USA can be easily replicated in Europe without any repercussions. It only prevents the production, selling, and import of the protected product in and out of the country where it is filed. Therefore, this is typically disadvantageous for players who operate on a global level and hold a customer base across countries. Hence, in such cases, they must file for patents in multiple countries, which entails high costs.
The process from applying to processing to scrutiny to its ultimate approval is very time-consuming. And can easily take three to five years, depending upon the complexity and value of the patent. The inventor is always on the fence during this period. Therefore, his invention may lose validity due to technological upgrades, or consumer preferences may change to adversely impact his product potential.
Also, learn about other types of Intangible Assets.
What is a Database?
A database is a collection of data that is stored and organized in a systematic manner. These data include customer information, product information, survey information, etc.
The reason why the organization goes for database intellectual property rights is that if this data gets public then their competitors may use this data to play against them in the market.
U.S Law for Database
In the U.S. database protection falls under the copyright right. The database can be protected if they meet the threshold of originality. There is no comprehensive regime for protecting the database but it can be done through various ways like through copyright, trade secret, contract law, etc.
A point to remember is that it provides protection for the database as a whole for an organization and not the data within the database. For example, an organization has a database of its customer information regarding their names, numbers, etc. Here the law provides protection against the database of customer information and not against their name or number.
To overcome this limitation the U.S. law has come up with the sui generis database protection laws which provide additional protection for the database. These database protections are provides protection beyond traditional copyright protection and may extend to protect the data within the database.
Advantages of Database
Database protection can encourage innovation in the database industry, creators will likely to develop more innovative databases if they get protections against their innovation.
The database creators get more incentives from the investors because of their exclusivity and high quality maintenance of the database
Database protection also provides an edge over the competitors as the competitors now don’t have access to all that information which can help them to win.
Disadvantage of Database
The cost of creating and protecting the database may discourage the creator to enter in this field.
The lack of access to the data which was earlier available stops the competitors from innovating which leads to a lack of innovation in the market.
What are Trade Secrets?
Trade secret as the name suggests is secret organizational information that is not disclosed to the public and is handled with utmost care and confidentiality. These secrets are associated with the business and are important for a competitive advantage. The secret can be anything like any special raw material used in the product, or any innovation added to make the business different and exclusive.
U.S Law for Trade Secret
In U.S. the trade secret is governed by Uniform Trade Secrets Act (UTSA). The UTSA defines a trade secret as information that has economic value and is subject to reasonable efforts to maintain its secrecy. The Economic Espionage Act of 1996 also provides federal criminal penalties for theft of trade secrets. Under these laws, companies can take legal action against those who steal, misappropriate, or use their trade secrets without permission.
Advantages of Trade Secret
The trade secret provides protection to the organization which can help them to get a competitive advantage against their competitors which ultimately helps them to succeed for a longer period of time.
Trade secrets can be maintained for an indefinite period of time or till the time that secret is disclosed or not a secret anymore.
The trade secret doesn’t limit to a specific pattern or form which allows the organization to protect a wide range of confidential information. For example, the trade secret can be something that is in solid form, or liquid form, it can be text form or technique, etc.
Disadvantages of Trade Secret
There is always a risk of disclosure because once a secret is revealed there is no way to recover or stop the competitors from using it and definitely this will make the organization lose its competitive edge.
Unlike patent where it is easy to protect and all legal action are defined in case of infringement, it is very difficult to protect in terms of legal action in the trade secret.
What is Industrial Design?
Industrial design is an intellectual property right used to protect the artistic piece of work with respect to its appearance and design. It includes color, shape, pattern, texture, etc. It restricts other manufacturers to use, produce or sell the same kind of design in their product and this helps the manufacturer to protect its product from other manufacturers.
U.S Law for Industrial Design
In the US industrial design protection is granted by the United States Patent and Trademark Office (USPTO). To be eligible for this protection the product needs to be exclusive and should carry some uniqueness to be able to differentiate itself from others. The design patent gets protection up to 15 years from the date of grants and can be exceed through legal procedure.
Industrial design protection is also available under trade dress law which provides protection against the overall appearance or packaging of products. Here also the registration is obtained through the USPTO.
Advantages of Industrial Design
It provides exclusive rights to the owners which provides them a competitive edge over their competitors.
The uniqueness of the product helps to attract more customers increasing the brand value of the company’s product.
Disadvantages of Industrial Design
The design protection only includes the visual appearance and not the functionality and technology features.
Time and Cost
It is a costly procedure as requires various procedures to be done to obtain a license and also the protection is granted for a span of only 15 years and thereafter the extension requires legal action which makes it even more costly.
The scope of protection is limited to the country or area it has been granted, to get protection in other countries there are various procedures to be followed.