The Logical Philosopher

Thursday, December 15, 2005

Managing Intellectual Property & Business

I was asked to write a short summary of an article with some commentary, so I thought I would post it as well. I based the summary on an article entitled Intellectual Property - from Management to Litigation, as published in The Deal on April 25th, 2005. A PDF of the article can be found here on the Brinks Hofer Gilson & Lione website.

Several months ago the Grokster case was argued in the US Supreme Court. This 2005 case was to our digital generation to what the Betamax case was to 1984. The Betamax case answered for the affirmative when looking at if Betamax could be used for substantial noninfringing uses and thus legal for Sony Corporation to sell. Now we have new digital music and video files capable of being transmitted over any remote digital network. This means the issue, albeit more technical, appears to have come up again but in reality the peer to peer based Grokster case needs to be viewed from a different perspective than Betamax was. The content owners, who claim their intellectual property is being given away for free with these file-sharing sites, realize they can't stop technology and thus are simply trying to limit their use.

Balance between intellectual property protection and innovation can best be viewed through a blending of economic, intellectual and legal issues.
First, one must consider the fundamental reason for intellectual property protection was created to ensure the protection for innovators - through legal avenues inventors are given economic incentive to continue to invent. But at what point does old protected innovation stifle new innovation? Open competition is also required to prevent unhealthy economic monopolies and stimulate more business. It is this perspective of "fair use" that most proponents of technology over intellectual property state their cases on. As the global economy is starting to shift to more of a knowledge base economy, the there is a need for proactively managing a company's intellectual property protection and exploitation, instead of reactively managing within the marketplace.

To add a third dimension of complexity to the issue of protection & innovation the growth and change of a company's structure in today's working global environment should be considered. This suggests for mergers and acquisitions the intellectual property (IP) of a company is becoming more important to consider. One reason is due to the increased knowledge economy of software and other intangible literature. The second is some firms that are up for acquisition may not realize the potential of their IP, instead being too focused on their tangible products and their markets. IP also extends beyond the traditional business merger and can be used for two competitors to create a larger user base and thus a potential standard to which they can both benefit instead of fighting for the existing customer base. A third is the realization that global business is a necessity to stay competitive. Global outsourcing mixed with differing intellectual property legal protection across country jurisdictions can create a complex environment to structure an acquisition. Having IP enforced or protected differently in multiple jurisdictions where certain portions of a company's operations reside may impact the way product or services can be handled.

But with the cost associated with acquiring IP, one must be willing to enforce it.

One obvious component in enforcement is litigation, which has showed no signs of weakness in the past few years. While new technology cases such as Grokster are expanding into unchartered legal territory, many of the recent cases have honed current law. Recent casts have been clarifying more mundane, but necessary, portions of IP law, such as claim construction and willful infringement.

The most recent willful infringement case, the Festo case, deals with the issue of treble damages when a corporation is held to have willfully infringed a patent. Historically part of a successful defence to treble damages was to produce a good faith non-infringement opinion of counsel. This caused an issue of adverse inference for defendants if they chose to not use counsel for an opinion, or reveal the opinion in court. This means the judge or jury could assume an opinunfavorablevourable and award treble damages. With Festo eliminating this adverse inference rule, companies have larger legal latitude in their handling of potentially infringing patents at the time an opinion is drafted.

The recent Phillips case relates to the issue of claim construction. Presently claim construction is taken as a matter of law and defined by the judge and dictated to the jury. But with this being a point of law it resulted in over 50% of the patent cases tried in district court being overturned by the court of appeals. With a $2 to $5 million cost to take a case through litigation, it posed huge financial uncertainties for parties of the court as it moved to appeals. After accepting amicus briefs the Federal Circuit panel issues it's en banc ruling giving a detailed recitation of claim construction principles, but it did not address the differences applied to the district courts over the federal courts. This infers the issue of large amount of reversals in the federal courts may still stand for the time being.

So where does this leave us?

There are two common ways to manage a firm's intellectual property - from the business perspective of products and markets, and from the focused legal perspective of asset protection.

Within both views the goal is to ensure any existing IP is being utilized to its full potential. In either case IP is a complex issue to deal with and should not be considered as an afterthought or add on to corporate growth and strategy. Strict interpretation and enforcement of IP law is becoming more fluid as technology continues to evolve and mature, leaving many IP issues such as open-source software and peer-to-peer programs unguided by the courts.

As the courts and legal field have typically move slower than the technology growth of our generation, I suggest it will provide an interesting wild west type free for all at least for the next few years of IP business.

I think I'm gonna get me one of them there patent six shooters when I get back to work.