Patents and Contracts

Trademarks/Patents/Copyrights
One of the very first considerations of most companies venturing out is whether their brand names are protected. Unless you protect your trademarks in the destination country, you may find that it infringes the rights of another trademark owner in that country. You will then be faced with the prospect of either being required to litigate its rights, purchase the mark from the foreign owner or sell under a different mark. The result can be that you are required to use different brand names in different countries.

A preliminary question is whether the trademarks will work from a marketing point of view in the destination country. A trademark may have an entirely different connota­tion in the destination country. This alone would be a reason to use a different trademark in that country.

If the trademark is likely to be successful from a marketing point of view, it may nevertheless be required as a matter of law. In some countries, for example, it may not be possible to protect trademarks at all.

Another possibility is that the mark may be unavailable in the destination country because someone else has already registered it. Before launching a business, you should have a search firm do a full trademark search to be sure that the trademark will not infringe the rights of anyone else. If the search results indicate that the mark is available, you should seek trademark registration in the destination country.

Trademark registration abroad is especially important abroad because trademark rights in most countries are based on registration and not on use. Generally the first to register is the one who has the rights.

Contracts
A written contract is essential in any trademark licensing arrangement. A trademark owner can lose its rights in a country if the licensee has not signed a written license agreement.

License and distribution agreements can serve many purposes in addition to specifying pricing, delivery and payment terms. A written agreement can define the scope of any exclusivity, the extent of any restrictions against competition, and the term, renewal and termination rights.

Contracts can also help protect trade secrets and other confidential information. Not all countries have laws that allow for the protection of trade secrets. The contract may be the only legal basis on which the company can guard against the unauthorized disclosure of its trade secrets.

A well-drafted contract can also provide performance incentives and put the business relationship on a solid foundation for success.

The negotiation process fleshes out important business issues in advance, thereby reducing the likelihood of disputes. If a dispute does arise, a well-drafted contract will establish a mechanism for dispute resolution.

Reasons for Patenting Your Inventions

• Exclusive rights – Patents provide the exclusive rights which usually allow your business to use and exploit the invention from the date of filing of the patent application.
• Strong market position – Through these exclusive rights, you are able to prevent others from commercially using your patented invention, thereby reducing competition and establishing yourself in the market as the pre-eminent player.
• Higher returns on investments – Having invested a considerable amount of money and time in developing innovative products you could, under the umbrella of these exclusive rights, commercialize the invention enabling you to obtain higher returns on investments.
• Opportunity to license or sell the invention – If you chose not to exploit the patent yourself, you may sell it or license the rights to commercialise it to another enterprise which will be a source of income for you business.
• Increase in negotiating power – If you are in the process of acquiring the rights to use the patents of another enterprise, through a licensing contract, your patent portfolio will enhance your bargaining power. That is to say, your patents may prove to be of considerable interest to the enterprise with whom you are negotiating and you could enter into a cross licensing arrangement where, simply put, the patent rights could be exchanged between your enterprise and the other.
• Positive image for your enterprise – Business partners, investors and shareholders may perceive patent portfolios as a demonstration of the high level of expertise, specialisation and technological capacity within your company. This may prove useful for raising funds, finding business partners and raising your company’s market value.

What Happens if You Don't Patent Your Inventions?

• Competitors will take advantage of your invention – If the product is successful, many other competitor firms will be tempted to make the same product by using your invention but without having to pay for such use. Larger enterprises may take advantage of scale economies to produce the product more cheaply and compete at a more favorable market price. This may considerably reduce your company’s market share for that product. Even small competing enterprises can produce the same product and often sell it at a lower price as they do not have to recoup research and development costs incurred by you.
• Possibilities to license, sell or transfer technology will be severely hindered – Without IP rights, transfers of technology would be difficult if not impossible. Transfer of technology presupposes ownership of a technology which can only be effectively obtained through appropriate IP protection. Moreover, wherever negotiations do take place for transferring a given technological development without IP protection over the technology in question, parties are suspicious of disclosing their inventions, fearing that the other side may “run away with the invention.” IP Protection in particular patent protection, is crucial for acquiring technology through its licensing.
• Somebody else might patent them – In most countries (with the exception of the United States), the first person or enterprise to apply for a patent for an invention will have the right to the patent. This may in fact mean that, if you do not patent your inventions or inventions of the employees of your SME, somebody else – who may have developed the same or an equivalent invention later – may do so and legitimately exclude your enterprise from the market, limit its activities to the continuation of prior use, where the patent legislation provides for such exception, or ask your SME to pay a licensing fee for using the invention.