Strategic IP for Protection of Product Manufacturers

Strategic IP for Protection of Product Manufacturers

Product manufacturers must aggressively protect their markets by managing a comprehensive intellectual property strategy. Depending on the nature of the manufacturer, patents, trademarks, copyrights, and/ or trade secrets are essential to reducing external competition. A strong IP program may also dissuade existing employees and executives from becoming a future competitor. Many manufacturers have learned the hard way that the cost of not having a strong IP program is ultimately more costly than not having one.

Manufacturing products requires a company’s full commitment for successful execution. Manufacturing is an all-encompassing activity, starting with conceiving a product to create, then performing research and development (R&D), and ultimately performing production. Depending on the nature of the product being produced, the magnitude of complexity can range from simplistic to futuristic. Those in manufacturing know that no matter how simple a product is to produce, the cost of manufacturing can be significant due to labor and materials.

One risk that a manufacturer often cannot control is competition. Competition comes in various forms, ranging from fair competitors, who produce products that perform similar functions, to unscrupulous competitors, who “knock off” or copy a product. Another type of competitor is the one that intentionally creates a product that is very similar but strategically avoids intellectual property of the product being produced (commonly referred to as a “design-around”). Yet another type of competitor is that of a former employee who learns (or steals) from you and competes using what was learned or inappropriately taken.

While competitor risk is unpredictable, one way to minimize competition is to strategically create, procure, and enforce intellectual property. With the significant costs of R&D, manufacturing, and market risks, the ability to protect the investment of creating and marketing products is important. With the added risk of unscrupulous “knock-off” competitors (often from non-U.S. countries) and competitors that design-around intellectual property meant to protect the investment, the value of a strategic intellectual property program is that much more of an imperative.

Intellectual Property and Manufacturer Types

Intellectual property includes patents, trademarks, copyrights, trade secrets, and know-how, and each of these assets perform different functions that protect against would-be and actual competitors. In protecting manufacturers, a holistic approach to intellectual property is strongly recommended, meaning one IP type is often not enough.

There are two types of manufacturers considered in this article: (1) contract manufacturers who produce products for marketers of products and (2) brand product companies who either manufacture their own products or have the products manufactured by contract manufacturers. In each of these manufacturer types, managing intellectual property is an important factor for protection of products and/or manufacturing processes to produce the products.

IP Considerations for Protecting Products

Manufacturers in the 21st century must be nimble and capable of fast execution. Competition has never been so fierce because of the proliferation of the global economy, including typical market competitors, former manufacturers, and future competitors who currently work within the company, just to name a few.

Historically, companies mainly faced competition within the U.S., but the ease of transportation and ecommerce makes anyone around the world a potential competitor. While technology increases the speed of product development, technology, such as 3D laser scanners and mass spectrometry, increases the speed of reverse engineering and copying others’ products.

Manufacturer Competition Challenges

For brand product companies, copycats can weaken or erode a product marketplace or create significant pricing pressures. And the more popular the brand, the faster the competitors show up. To make business even more challenging, the ability of competitors to distribute knock-off or competitive products has become much easier on ecommerce sites on which manufacturers or distributors create listings or virtual stores.

For contract manufacturers, competitor manufacturers can be a “race to the bottom” in terms of manufacturing margins, especially if the contract manufacturer spent time and resources to develop manufacturing processes. By way of examples, for a glass manufacturer that develops improved glass, an antenna manufacturer that develops antennas, or a pharmaceutical manufacturer that develops processes that increase production yields, the cost of developing those products and processes can be very expensive.

Patents can be used to protect the products (e.g., glass, antennas, or medicines) but also may be used to protect the systems and processes for producing the products. Patents protect the structure, function, and ornamental appearance of the physical goods, but may also protect software and processes to produce the products. Trademarks are used to protect the names and logos of the goods but also may be used in some cases to protect the trade dress or physical appearance of the physical goods. Copyrights may protect software used to operate the physical goods (e.g., automobile) but also may be used to protect the equipment used to produce the physical goods. Trade secrets may protect the physical goods (e.g., formula of medicine or beverage), but may also be used to protect how the physical goods are produced (e.g., techniques for producing glass or chemical compositions). Each of these intellectual property types are usable for the different competitive situations that both contract manufacturers and brand product companies face.

Quality Intellectual Property and Strategic IP Program to Protect Manufacturers

The stakeholders of manufacturers include investors and employees. If competitors begin to erode market share, the choice a company has is to either enforce their intellectual property rights or win the marketing game. To enforce intellectual property rights, however, quality intellectual property and a strategic intellectual property program is typically needed. “Quality intellectual property” means that quality patents, strong trademarks, timely filed copyrights, and well-managed trade secrets exist or are at least in process. “Strategic intellectual property” means that intellectual property assets are created during the early stages of product development (e.g., while R&D efforts are underway) and are carefully crafted. Strategic intellectual property must continue throughout the lifetime of a product or production cycle (e.g., maintain a pending patent application to allow for alternative protection when the competitors arrive). Also, as new technologies are developed, new intellectual property should be created.

When competitors appear, a thoughtful analysis of all facets of the intellectual property of a manufacturer should be considered for existing infringement and for whether future IP can be procured based on pending patent applications, common law trademarks or trade dress, or common law (unregistered) copyrights. Intellectual property takes time to procure — as little at 10 days for an expedited copyright filing when an infringement exists, four-to-six months for an expedited patent application, a year for a trademark, and potentially years for patents, depending on the nature of the invention. Hence, a strategic and comprehensive enforcement plan needs to be determined as early as possible when a competitor appears.

It is important for companies to complete some IP housekeeping to protect their ideas. These include:

  1. Patent Assignment Provision: All executives, employees, and contractors/consultants need to be under a duty to assign intellectual property, most notably inventive ideas. An inventor is the first owner of the inventive ideas, even when written into a patent application paid for by a company. Without a written assignment, the invention owner is the employee or even executive. If that employee or executive leaves the company with the idea to either become a competitor or join a competitor without that innovation being assigned in writing, an instant competitor may exist. Worse yet, if that same inventor licenses that unassigned innovation to a competitor (yes, it is legal!), a bigger problem may exist for the stakeholders. Include the patent assignment in an employment agreement to help deter executives, employees, and contractors from becoming competitors.
  2. Copyrights: For products that include software, a copyright application should be filed with the U.S. Copyright Office for each and at each major update. A copyright filing within three months of publication ensures statutory damages (and often attorney fees) in the event of infringement. Although copyrights are automatically assigned to the company by employees, contractors do not have the same automatic assignment, so absent a work-for-hire provision in a consulting agreement, for example, the software, photographs, videos, etc. may not be owned by the company.
  3. Trade Secret Protection: Maintain a list of trade secrets and limit access to individuals with a need-to-know status in the event an employee, executive, or other individual leaves a company with the “crown jewels” of the company. For software, file a copyright application with redacted source code to claim trade secret protection where possible.

Intellectual Property Tips for Manufacturers

Keep Your Finger on the Pulse: Manufacturing and new product development happens fast and has the ability to change manufacturing techniques and product specifications rapidly. As a result, it is important to ensure the intellectual property for protecting the manufacturing techniques and product specifications ultimately reflects the final product. Hence, manufacturing and product managers should be tasked with ensuring the IP stays current for each product.

Identification of IP Rights: Engineers tend to dismiss their own creativity by thinking whatever they develop is just common sense, but solutions to problems during the development stage can be the difference between great IP protection and a competitor appropriating a good idea. As such, “patent harvesting” with engineering design teams is important to adequately identify IP rights for manufacturers.

Create an IP Game Plan: Quality IP requires a solid game plan to continuously monitor and protect valuable IP throughout a product lifecycle, starting from R&D to multiple generations of a product.

Avoiding Other IP: Avoiding IP owned by others can be a challenge, but as part of the IP game plan, material reduction in time-consuming and expensive IP infringement of IP owned by others can result. Freedom-to-Operate searches can be performed on both the patent and trademark sides, and instructing employees to avoid copying from third parties can help to avoid all areas of IP.

Here’s a strategy for better integrating your IP program with product development to secure the IP earlier in the product lifecycle. Communications should occur in three phases:

  • After Concept Acceptance but Before Design/Engineering: For consumer products, because the cost of patent infringement is so high, it is strongly recommended to conduct a Novelty Search and/or Freedom-to-Operate Search to help ensure the concept has innovative features that are potentially patentable and help avoid patent infringement. From the search results, the patent counsel can focus on inventive features to protect the product and guide the company on how best to avoid patent infringement. Consider filing a provisional utility patent application and/or design application(s) at this time.
  • After Engineering Design is Completed: Once the inventive features are learned, file patent application(s). These should be either provisional or non-provisional depending on the potential for the product to further evolve. Budget may also play a factor in the decision. (Note: for products with unique ornamental design features, file design application(s) to avoid unintentional loss of international rights).
  • After Prototyping is Complete and Prior to Production or Product Announcement: Perform a final check to see if any additional product features need to be protected. Make sure the company’s workflow includes IP attorney signoff to ensure all patent filings are complete before announcing or releasing the product! Also, ensure trademarks and copyrights are filed and patent and trademark clearance assessments are within acceptable risk tolerances.

Conclusion

Without a comprehensive intellectual property program, product manufacturers are subject to greater competition. Depending on the industry of the manufacturer, patents, trademarks, copyrights, and/ or trade secrets are essential to reducing external competition. Manufacturers should also maintain an IP program to dissuade existing employees and executives from becoming future competitors. Many manufacturers have learned the hard way that the cost of not having an intellectual property program is ultimately more costly than not having one.

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