Licensing Agreements & theProtection of Intellectual Property Rights

Chapter 17

Reasons for Licensing IP Rights

• This allows a foreign company to have an international presence without the hassle of direct foreign investment.

• This is the fastest growing method of doing business internationally.

• Remember back to chapter one (p. 6): There are 3 categories of international business:

(1) trade,

(2) licensing of technology and intellectual property, and

(3) foreign direct investment.

Remember Franchising?

• Business Format Franchising allows a company to expand rapidly without a big expenditure of capital by granting franchisees a license whereby they can utilize the company’s way of doing business (intellectual capital) and at the franchisee’s expense provide all of the necessary infrastructure (i.e. investment in plant, equipment, etc.)

• This same concept allows a company to grow globally without raising lots of additional capital.

• Plus it frees the company from many of the problematic issues we’ve discussed that come with FDI.

• But, there are still risks (see p.559).

Typical License Provisions

• Licensor may provide assistance & technical expertise • Limits on licensee’s use of the IP, including geography• Limits on the specific uses to which the IP applies• Output restrictions• Customer restrictions• Output quotas on the licensee • The licensee must keep the technology confidential• What happens if licensee improves the IP?• How can the license be terminated?

What is Intellectual Property?

• “Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.”

• “IP is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. “

From WIPO at http://www.wipo.int/about-ip/en/

The Paris Convention on IP

• The Paris Convention – The International Convention for the Protection of Industrial Property (first agreed to in 1883). Covers trademarks and patents.

• Two key features: 1) national treatment (same as locals receive, if any), and 2) a priority right – file at home and get one year to file in other countries (without “first to file” competition).

• Two big problems: 1) if locals have no protections, neither do you, and 2) lack of an effective enforcement mechanism (technically enforced by the International Court of Justice).

• Ultimately the problems were resolved by TRIPS.

The Patent Cooperation Treaty (1970)

• The PCT supplemented the Paris Convention.• Signed by 137 nations, but only covers “utility” patents, not

design patents.• Provides a standard form to file with WIPO (a UN agency HQ’d

in Geneva), which forwards the processed application to countries specified by the applicant.

• It provides a 30 month priority claim in which to decide whether to file in each of those countries.

• The EU is considered one country for this purpose (pursuant to the European Patent Convention) and filing is with the European Patent Office in Munich, Germany.

• Design patents are covered by the Geneva Act, which the U.S. has not ratified.

Design vs. Utility Patents

• See Wisegeek’s “What is the Difference Between a Design Patent and a Utility Patent?”

• Available online at at http://www.wisegeek.com/what-is-the-difference-between-a-design-patent-and-a-utility-patent.htm

International Trademark Protection

• Covered by the Paris Convention and given a six month right to priority.

• Given national treatment, but on a nation-by-nation basis (i.e. no common treatment among the nations), except in the EU where there is single multinational treatment since 1996’s Community Trademark Regulation handled by the Office for Harmonization in the Internal Market (OHIM).

• Seventy-three countries have signed the Madrid Agreement that provides centralized filing on a standard form, but the U.S. hasn’t gone along with this.

Internet Domain Names

• ICANN with international assistance came up with the Uniform Domain Name Dispute Resolution Policy.

• Works on a first to file basis, subject to an exception for “bad faith filings.”

• Most cybersquatting claims are covered under the bad faith filing exception.

Copyrights

• The Berne Convention for the Protection of Literary and Artistic Works has been signed by 163 nations.

• Provides for national treatment, but with the proviso that each nation enact certain minimum protections.

• As in the U.S. there is no filing requirement, just the affixing of the copyright symbol ©.

• Protection starts at the moment of creation, not the time of any filing.

• In 1996 WIPO agreed that computer programs are protectable under copyright law.

• Weaknesses in this law also helped spur TRIPS.

TRIPS

• This is the GATT Agreement on Trade-Related Aspects of Intellectual Property Rights (2000). Shouldn’t it be TRAIPS?

• It is Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, signed in Marrakesh, Morocco in 1994.

• Requires all WTO members to follow the Paris and Berne Conventions.

• Again, national treatment is the standard.• There is a 55-year copyright protection period.• Patents protection must be at least 20 years (from filing).• Trademarks protected for no less than 7 years.

More on TRIPS

• See “TRIPS: TEXT OF THE AGREEMENT” available online at http://www.wto.org/english/tratop_e/trips_e/t_agm0_e.htm

• From the Preamble:

“Desiring to establish a mutually supportive relationship between the WTO and the World Intellectual Property Organization (referred to in this Agreement as “WIPO”) as well as other relevant international organizations”

TRIPS cont’d

• WTO nations must adopt effective rules to assure the protection of intellectual property.

• If a nation believes that another nation is out of compliance with this law, it may bring an action under the WTO dispute resolution mechanism.

• It contains an escape clause where developing nations can exclude from patent protection where necessary to provide for public order (orde public) or morality (i.e. Brazil refusing to grant pharmaceutical patents).

• The AIDs crisis resulted in the DOHA Declarations that allows poorer nations to make or import drugs without following the IP rules.

Enforcement Issues

Laws Don’t Enforce Themselves

• Developed nations complain that less developed nations don’t take enforcement of IP laws seriously.

• China’s role in IP protection is considered a particular thorny situation. See page 572 for some examples.

• See, DISPUTE SETTLEMENT: DISPUTE DS362

“China — Measures Affecting the Protection and Enforcement of Intellectual Property Rights” online at http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds362_e.htm

See also, “RIAA COMMENT & IFPI RELEASE ON PASSAGE OF U.K. DIGITAL ECONOMY ACT” at

http://www.riaa.org/newsitem.php?news_month_filter=&news_year_filter=2010&resultpage=&id=3A4CBBB0-EBE7-152C-8624-E72C234F5747

IP Transfers

• Three different regulatory methodologies:– No regulation– Prior-approval– Notification-registration

The Gray Market

• Problems arise when a company has to compete with its own technology because goods produced by it abroad find their way back into the home country.

• Think about “international editions” of textbooks that can be found online. These books are made for sale in poorer nations and then find their way back here.

• U.S. courts have been more solicitous of the rights of the gray market sellers than have been the courts of the EU.