Intellectual property can be a crucial business tool, but not everyone thinks hard enough about protecting their big ideas.
In 2001, plumber Brad McCarthy got stuck on a remote beach in Cape York in north Queensland and spent about six hours getting his car out with a hand winch. He knew there must be a better way.
In response, he invented Maxtrax, a lightweight vehicle-recovery device for bogged off-roaders.
After designing the super-tough nylon product, he attended a Queensland Government business seminar, where the advisers stressed getting patent protection before his idea was publicised.
“One of the first things we did was speak to a patent attorney to see how we could protect the idea,” says McCarthy, who launched Maxtrax in 2005. It is now sold in about 30 countries worldwide.
McCarthy has patents in key markets such as Australia, Europe and the US, and the business also has a trademark on the distinctive original “safety orange” hue it uses for its moulded product.
Unlike McCarthy, however, many inventors and businesses with a great idea cruel their chances of success from day one.
Their big mistake? Ignoring patents or other intellectual property protection before they spruik their idea to investors, the public or even friends. It can be a costly error.
Bradley Postma, principal at patent and trademark attorney firm Cullens, says small and medium enterprises (SMEs), in particular, often neglect safeguarding their IP or think it will be too expensive.
“The vast majority of protectable IP goes unprotected,” he says.
Europe can be a particular trap for exporters because, unlike some other major markets, it does not have a grace period allowing for public disclosure of an invention without affecting the validity of a subsequent patent application. That opens the way for an idea or product to be copied.
“In Australia and the United States you can do something about it, provided you’re within a one-year window – in Europe you can’t, it’s too late,” Postma says. “In that case, businesses have shot themselves in the foot; they’ve forfeited their rights and anyone can copy [their idea].”
Postma observes that business owners often think their idea is too simple to warrant a patent. “However, if it’s successful and simple, it will be copied and you need to get advice.”
Unitary patents on way
Margot Fröhlinger is principal director of unitary patent, European and international legal affairs at the Munich-based European Patent Office (EPO), which oversees about 160,000 patent applications a year.
She recently completed a road trip warning Australian businesses that poor patent and IP safeguards could derail their European market opportunities. Companies need to innovate – and protect their inventions.
“You need the protection of your IP and, in particular, patent protection in order to get a good return on your investment,” she says.
Many international businesses have baulked at exporting to Europe because of complex patent processes across multiple jurisdictions that can end in potentially high costs and marginal protection. However, the EPO is promoting a new unitary patent system that promises to be a game changer. This will make it possible to get protection in up to 26 participating European Union member states with the submission of a single request to the EPO.
A November 2017 EPO study, Patents, Trade and FDI in the European Union, suggests better harmonisation of Europe’s patent system has the potential to increase trade and foreign direct investment in high-tech sectors, delivering annual gains of €14.6 billion ($A22.8 billion) in trade and €1.8 billion (A$2.81 billion) in foreign direct investment.
Fröhlinger believes Australian businesses across all sectors have opportunities to expand into the European market, which boasts more than 500 million people, high gross domestic product and strong consumer demand.
“It’s very important for Australian businesses to understand that there is a big change ahead in Europe. I’m not talking only about patents,” Fröhlinger says. “It’s very important to have an integrated IP portfolio considering patents and trademarks and (covering) design. If they don’t have (IP) people in-house they should try to get strategic business advice.”
The value of intangible assets
This call to action for Australian businesses comes as the Global Innovation Index 2017 reports on countries’ IP receipts as a percentage of total trade. In essence, the measure indicates how a country is performing on the IP front.
While Australia scores well in terms of inputs into research and development, the US (5.1 per cent), Japan (4.7 per cent) and Finland (2.9 per cent) easily outperform Australia (0.3 per cent) on IP royalties.
The message? As a general rule, Australian companies are not good at converting research into value and treat IP almost as an administrative function. The exceptions are health tech leaders, such as medical device company Cochlear and sleep-disorder business ResMed, which understand the importance of intangible assets such as brand and data use, and build their businesses around it.
In a knowledge-based economy, IP has become a crucial business tool and governing it is no longer just a matter of organising trademarks and patents. Intangible assets are rapidly becoming more important than tangible assets and require appropriate consideration.
A review of Australia’s top listed companies, released by Glasshouse Advisory in September 2017, endorses such a sentiment. It reveals that 38 per cent of the companies’ value (about A$550 billion) is not included on their balance sheets; this indicates that investors are operating without insights into a significant proportion of the corporate asset base.
Business execution - crafting a business strategy that executes. Learn how to evaluate strategic initiatives and then prioritise, assign accountability and translate those initiatives into short-term actionable targets.
Glasshouse concludes that if a company does not properly inform investors about its intellectual assets, it should not be surprised if they underestimate its competitive advantage and earnings potential. This, in turn, could lead to undervaluation of the business. One of the solutions is to value-map, an exercise where companies identify intellectual asset categories and assess their relative commercial importance.
Karen Sinclair, principal at IP specialist Watermark, believes SMEs especially need to better grasp the concept of intellectual asset management as a forerunner to taking out a patent. Assets to consider include the value of brands, contracts, licences, designs, copyright and databases.
“It could be any number of different pieces of data or information that they have in their business which they think is unique to them – and it does need to be unique to them,” Sinclair says.
She says cash-poor start-ups and mid-sized businesses can fall into a trap of focusing on what they see as mission-critical work to roll out a product or service and put off decisions about protecting their IP and intangible assets.
“The problem is that if you don’t get it right from the get-go, you can end up in a really difficult situation in terms of the ownership of IP.”
Foreign affairs: each country has its own IP laws
IP Australia, a government agency that administers IP rights and legislation relating to patents and trademarks, reports that patent applications from Australian residents for the Australian market rose 15 per cent from 2284 applications in 2015, to 2620 in 2016. Data from the World Intellectual Property Organisation shows that in 2015 Australians filed a total of 8562 applications in overseas jurisdictions.
Deborah Anton, deputy director general, policy and corporate at IP Australia, says SMEs tend to be better at trademark protection than they are at patents.
“Small businesses are a bit more switched on from a brand perspective, but the patent side is often more technical and it’s also a hard system for them to grapple with,” she says.
It’s important to realise that each country has its own IP laws, she says. In Australia and the US, for example, there is a first-to-file rule for obtaining patent rights. In Japan, if a company sells a product in advance of an IP application, it will not be granted protection. While China is making advances in terms of safeguards for companies, Anton says there are still traps, including a common issue whereby someone not involved in a company can still register that brand through the country’s trademark registration system.
“The IP system in China is still evolving and changing and it is doing a really good job,” Anton says. “However it’s such a big market for us that we want to make sure (businesses are) armed with contemporary information.”
Maxtrax inventor Brad McCarthy says his main frustration is that he cannot stop copycat products being manufactured in China.
“We’re a small business and we started with nothing, so it wasn’t like we had a million bucks to go and buy patents for every country in the world. You have to be selective.”
However, he can use patents to stop those copycat products being sold in markets outside China, including Australia. McCarthy says most people back off when they are sent a letter advising them that Maxtrax’s patent is being violated.
“It’s a constant battle, but if you don’t protect it you’re at the mercy of everyone.”
Innovation as a marketing tool
The EPO has recognised Australian innovation via a European Inventor Award presented to Professor Ian Frazer for his cervical cancer vaccine. Such acknowledgement highlights an often underestimated value of IP and patent protection; that is, for marketing, risk management and strategic planning.
There is increasing awareness that a company’s strength around intangible assets and IP can help generate revenue, bolster its position in negotiating applications for grants, assist with licensing deals to external partners and be a factor in attracting funding and investment.
Postma says the mere act of taking out a provisional patent can send a message to the market that an idea is special. “That’s attractive to consumers and investors,” he says.
According to Sinclair, IP and patent costs should be built into a business plan.
“If you do get that IP protection, then your margins can be higher because you should be the only one who can sell that particular version of the technology … If you do your business plan right and you’ve done your financial modelling right, you should be able to get those costs back.”
Fröhlinger agrees that boards and chief executives need to better understand the importance of IP, with many IP counsels telling her that it is easier for marketing professionals to get the ear of bosses.
“Yet very often the IP department is really key for business development and for the competitiveness of the company and its growth and development.”
She believes Australian exporters should be more aggressive in targeting European markets, especially with the new unitary patents.
“Just make sure you have protection there. It’s not sufficient to have protection in Australia if you want to export products, services and technologies into the EU.”
Europe's military patent
- Allows patent protection in up to 26 European Union member states through the submission of a single request to the European Patent Office (EPO).
- Gives SMEs and other small, cash-poor entities a cost-effective route to broad and uniform patent protection and dispute resolution.
- Dispenses with the need to meet validation requirements in the participating EU member states, in particular for translations, and provides a unified litigation system.
- Ensures a single renewal fee to the EPO, in one currency and under a single legal regime.
Bad mistakes in patent law can be expensive
“Patent law is complex,” says Bradley Postma from Cullens, and people make some common errors around their intellectual property. First, they often disclose the invention or idea before taking out patent or trademark protection. Second, they tend to undervalue their invention. Third, they do not get professional advice.
Postma suggests business owners have an initial, free consultation with a patent attorney to get an opinion on whether their business idea is protectable. If it is, they should then consider two broad strategies: an offensive plan to identify markets into which they want to sell and take out patents, and a defensive strategy to protect ideas in manufacturing strongholds, where copying of products could occur.
“Patents can be extremely expensive if you make poor choices,” he says, “but if they’re professionally prepared, patents are very hard to get around.”
China gets serious about protecting intellectual property