Chapter 3
Head Knowledge – Modern Intellectual Property Rights

What Exactly are IPRs?

Intellectual property (IP) law is a major discipline within the law. The treatment in this chapter is only intended as an overview and an opportunity to explore some practical issues that will emerge for those involved in buying knowledge. Accordingly the treatment is necessarily brief and only intended to alert readers to potential pitfalls and opportunities. Specific legal advice may be necessary to determine the optimum course to adopt in particular circumstances. Intellectual property has been described as:

In today's global economic context, where knowledge creation may take place under differing legal jurisdictions, it may well be necessary to take legal advice about specifics. From the client's point of view, with regard to bought-in knowledge there are two conditions to be achieved:

• free and unfettered use of the knowledge is obtained
• knowledge does not find its way into the wrong hands – for example, a competitor's!

The traditional method of protecting IP is to grant its owner protection against infringement by others of an exclusionary (often exclusive) right of exploitation for a limited duration. The owner knows once he has been granted an exclusionary right over his IP that his exploitation of it will be free from unwanted competition (which would be theft of his intellectual property right) or he will have legal redress against that competition.

The acquirer of an intellectual property right (IPR), either by developing the IPR himself or by buying it from a third party, can derive no benefit from his ownership except by exploiting it commercially. Patent or other IP ownership allows its owner to derive profit from ownership. Consumers benefit from being able to buy and use the IP product, the nation's work force gain useful employment from making or distributing the product and the government derives tax revenue from every stage in the process! All of which represents a very virtuous circle and one that helps to explain why the State is willing to grant temporary monopoly rights in a society that is otherwise not well disposed towards monopolies.

Considering intellectual property from the perspective of the organization and its need to acquire and manage knowledge, it will be seen that there are a range of knowledge sources, as suggested in Figure 3. Each of these sources may also be owners or brokers of intellectual property, so strategies for the acquisition and management of the attendant legal 'rights' will have to be devised by knowledge client organizations.

Practical Protection for IPRs

The brief descriptions that follow represent the situation in the UK (except in the case of utility models). Equivalent protection is given in most developed countries, but specific advice should be sought in situations where knowledge is to be created wholly or partly in foreign legal jurisdictions.

Absolute Secrecy

By keeping an idea or invention secret an inventor runs little risk that anyone else will see or find it and therefore be in a position to steal it. Such IP may be preserved until its owner chooses to divulge it. There is, however, little prospect for commercial exploitation of IP whilst protected in this way and, as secrets are difficult to protect for long, it runs the risk of misappropriation or loss. More seriously, the owner of such secret IP will find there is nothing they can do if another person independently develops the same idea and decides to make it public. Independent discovery or rediscovery of ideas is more common than generally realized. Researchers in the same industries working for competing organizations are often directing their efforts at the same problems – it is not surprising that they sometimes 'trip over' each other's inventions.

The point has validly been made that the mechanical protection of trade secrets is likely to be overcome after a period of time:

Copyright

This is the monopoly use of one's personal creation (literary, music, art or software) in order to prevent others from exploiting the work produced by the IP owner, but without the right to prevent the exploitation of identical or similar work produced through the independent intellectual work of others. In theory this may seem a less adequate form of protection than absolute monopoly in the form of patents, but in practice it is rare for identical works to be created independently.

Copyright is, primarily, a right not to be copied without permission. It protects the form in which ideas are expressed, but not the ideas themselves. It gives legal rights to the creators of certain kinds of material (or their employers) so that they can control the various ways in which their material may be exploited. The rights broadly cover copying or reproducing, adapting, publishing, performing and broadcasting the material. It protects original literary, dramatic, musical and artistic works; sound recordings; films (including video) and broadcasts (including cable and satellite). Computer programs are protected in a similar way to literary works. Copyright protection is automatic in the UK, so no registration of copyright is required (indeed, no such register exists). In the UK copyright lasts for 50 years from the death of the author, except for computer programs where it lasts for 50 years from the end of the year in which the program was created.

To determine the extent of international copyright it is necessary to look at the membership of relevant multilateral IP conventions. It is prudent that all published material should bear the international copyright convention symbol ©. However, the © symbol should not be used outside the UK on material that is not to be published. Under the laws of many countries, the use of the © symbol implies publication and this could be undesirable in regard to plans or other information that is to be kept confidential. This is considered particularly important in regard to computer programs, where often a catch-all IPR clause similar to the clause below will be found:

Patent of Invention

A patent is a grant by a government of monopoly rights for a period (in the UK) of up to 20 years in return for full disclosure of an invention. It prevents others, without permission of the patent owner, using the invention defined by the wording of the patent. To be patentable an invention must be new, not obvious, and contain an inventive step. It protects the concept of practical commercial utility rather than the appearance of a particular article (in the UK this can be protected by unregistered designs – see below). Detailed rules vary from country to country but a patent can protect various applications of technology, a method (whether chemical or mechanical) an apparatus or the use of an apparatus.

Rights of Employed Inventors

In the UK an invention made by an employee belongs to the employer if:

• the invention was made in the course of the employee's normal duties or in the course of duties falling outside his or her normal duties but specifically assigned to the employee and the circumstances were such that an invention might reasonably be expected to result from the carrying out of his or her duties; or
• the invention was made in the course of the employee's duties and at the time of making the invention (because of the nature of the employee's duties and the particular responsibilities arising from those duties) he or she had a special obligation to further the interests of his or her employer.

It can be seen that ownership (and to some extent, compensation) depend on the employee's job description. If the job is defined narrowly, it is probable that an invention not covered by the duties detailed in the job description will belong to the employee. Conversely, if the job is scoped very widely, most activities of the employee will be covered by it and so any invention in these circumstances will belong, prima facie, to the employer. Note, however, that too wide a definition could well be overturned as a term that diminishes the employee's rights. Section 42 of the UK's 1977 Patents Act states that a contract (a) with the employer (alone or with another) or (b) with some other person at the employer's request or pursuant to the employee's employment contract which diminish the employee's rights is unenforceable.

If an invention that belongs to an employer is patented and the patent is, having due regard to the nature of the employer's business and to the business' size, of outstanding benefit to the employer, a British court may order the employer to compensate the employee who made the invention. (NB The position of an inventive employee who is acting under a contract between their employer and a client that assigns all inventions to the client is not clear if, for example, the invention turns out to be of outstanding benefit to the client.)

Trade Secrecy

The law of confidence or trade secrecy complements the patent system and may provide an alternative type of legal protection for inventions. It will prohibit, by injunction, the use or disclosure of information not in the public domain, if that would be a breach of confidence. The extent of information which may be covered is quite wide and includes the all-important concept of know-how, which comprises information that is secret, identifiable and substantial (that is, not trivial and is commercially useful) and information which gives its possessor an opportunity to obtain an advantage over competitors who do not know or use it.

The law will protect confidential information from publication or use by a party who receives it in confidence and undertakes (expressly or by implication) not to disclose or use it without the consent of the person who supplies the information.

The law of confidence is concerned as much with ideas as with their expression and will protect both of these to the extent that the necessary conditions for the protection of a trade secret are present. There is no property in information, as such, so it cannot be stolen.

Registered and Unregistered Design Rights

• Registered Design Rights in Aesthetic Designs – this is a protection for the outward appearance of an article and lasts for 25 years.
• Unregistered Design Rights in Industrial Designs – this is a uniquely British automatic right protecting three-dimensional industrial designs from copying 'for commercial purposes'. It lasts for 15 years from the date of design or 10 years from first marketing.

Utility Models

Some 50 countries offer specific protection for 'utility models' – these are often described as 'lesser inventions' and protect items that do not satisfy the inventive step requirement of the normal patent system. The current German system, which is adopted with variations by many other countries, protects tools and implements, chemical substances, drugs, electrical circuits, articles of daily use or parts thereof, foodstuffs etc. provided that the subject matter of the application (a) exhibits a new configuration (b) is capable of industrial application and (c) is based on an inventive step.

The initial period or protection is three years and this can be renewed for further periods up to eight years. Under German law the registered owner has the exclusive right to use the utility model and to prevent rivals from:

• producing, offering or marketing the product
• importing or stocking such product.

Foreground and Background IPRs – Ownership Issues

This is probably the single most difficult issue encountered by client organizations where they are buying knowledge with a view to future commercial exploitation. It is axiomatic that a supplier will be attractive to a client organization because of, and who will be persuaded to award a supply contract on account of, the supplier's existing knowledge of the subject covered by the contract. In principle, the greater the experience and skill level of the supplier (and therefore the greater the level of preexisting knowledge it brings to the contract work) the higher premium the client may expect to pay.

From the supplier's point of view, it has a legitimate interest in:

• preserving and extending their knowledge base
• not being used/abused as a 'knowledge mine' by clients
• not releasing valuable know-how to clients without suitable recompense.

Whilst recognizing these legitimate interests, the client also has commercial and technical interests, which are equally legitimate:

• it is funding the extension/deepening of the supplier's knowledge base
• what emerges from the contract must be of use to the client without the need to pay additional sums for 'corollary' IPR
• it is often true that the client brings their own background know-how to the
• research project which adds value to it and which directly or indirectly benefits the researcher/supplier.

What are Foreground and Background IPRs?

The term often used to describe IP that existed prior to the commencement of a supply contract (typically a research or consultancy contract) is pre-existing rights. The term acknowledges by implication that from the supply contract new IP rights will come into existence which may, to a greater or lesser extent, be dependent upon work carried out before which happens to be the IPR of somebody.

In October 1988, the Commission of the European Communities (CEC) published a useful Model Contract for use in EU R&D projects which, apart from being a useful benchmark of all R&D contracts (especially collaborative ones) provides a helpful definition of 'background' and 'foreground' IPRs. These definitions are as follows:

• Foreground information – means information including all kinds of results, generated by any contractor or third parties working for any contractor, in the execution of [this] contract.
• Background information – means information, excluding foreground information, owned or controlled by any contractor in the same or related fields to the research under [this] contract.
• Foreground patents – means patent applications, patents, copyrights, plant variety rights, and other similar statutory rights for inventions or improvements made or conceived by any contractor or any person engaged or employed by any contractor in the execution of [this contract].
• Background patents – means patent applications, patents, copyrights, plant variety rights and other equivalent statutory rights excluding foreground patents, owned or controlled by any contractor in the same or related fields to the research executed under [this contract].

The CEC model contract goes on to set out how background and foreground rights are to be used by and between the various collaborating partners and establishes a right of all parties to a royalty-free licence to use all foreground information (that is, information which emerges from the project) to the extent necessary for such other parties to carry out their work. Regarding background information/patents, the contract sets out that each of the contractors shall, to the extent they are legally allowed to, upon request and on non-discriminatory transfer conditions, make available background information and grant non-exclusive licences to its own background patents to the other contractors in the project to the extent necessary to enable them to carry out their work under the project. Foreground information and foreground patents are owned by the party generating them under the project. Background information and patents continue to be owned by the party to whom they originally belonged, subject only to the necessity to grant sub-licences as described above.

A Vexed Question – Ownership and Use of Background Rights

The first thing a client organization must do is to establish the extent to which any IPRs that emerge from his contract are, or may be, fettered by the supplier's pre-existing IP rights. Dependent on those rights, their nature, their extent, their value and the negotiating strengths of the parties, the client must then secure a royalty-free licence to use those background rights in order to exploit the full value of the IP that emerges from the contract.

But how do you establish what those IPRs are? How do you establish their extent? This again is a difficult issue. The best answer is a two-pronged attack on the problem:

1. Persuade the supplier to discuss and identify the principal IPRs that it will use in carrying out the project. Decide on an appropriate mechanism for enabling the client to utilize those IPRs necessary to fully exploit the 'foreground' IPRs (or 'results'). Identify those IPRs in the contract document.
2. Incorporate into the contract document a requirement that subject to any pre-existing rights vested in the supplier, all IPRs arising from the contract shall be the absolute property of the client and list in the contract those background rights that are specifically excluded.

The supplier may complain that it is not possible to list all the IPRs that are applicable: they may be far too extensive to list. What happens if they inadvertently omit one? Some may be too confidential to discuss openly, and so on. The client may have some sympathy with these difficulties, but they are not insuperable. Where there's a will, there's away...!

This can be strengthened with a contractual clause along the lines:

NB A clause similar to this is featured in the model contract which forms part of the Toolkit in Gower's The Outsourcing R&D Toolkit–see details in Appendix 1.

This may prove controversial but is not unreasonable, bearing in mind the quite legitimate need of the client to protect against any possibility that the investment it has made may be lost (or forced to be increased) by a supplier that seeks to deny the client necessary access to pre-existing rights.

A typical example of the problems that can be experienced over the use of preexisting rights is in the field of computer software, where a supplier may use preexisting software as a basis for work to be done for a client. The question then emerges, what happens if the client wishes to rewrite or amend the software, or to get others to do so? They may be prevented by the supplier on the basis that it will not allow source code to be used without further recompense.

Another example is where the use of the results in some way depends on a written document or a piece of hardware which the client did not, and could not reasonably have, known about. When the client tries to exploit the results for their own purposes, they may find an unexpected cost payable to the supplier for access to this pre-existing IPR. In extremis, the supplier may deliberately exploit this power over the client.