SYNOPSIS

Intellectual Property (IP), as the name suggests, is the product of the creative human mind and gains the status of property only when ownership is established and recognized. The rights acquired are only consequences of such ownership of IP. Increased rate of generation of new ideas and applications has redefined the rules of doing businesses. This requires a judicious management of science & technology for value creation and sharing of knowledge. Thus rapid realization of the intellectual capital in the market place has become the key business-led imperative for corporations, nations and entrepreneurs.

Use of the IPR framework offers legal and strategic options to innovators for protection of their creations. They also provide deterrents/measures to discourage unauthorized copying. 

The Internet and Cyberspace applications have created a multitude of avenues for e-commerce, remote person-to-person contacts, enhanced information sharing, cohesive group working, in virtual borderless nations. Consumers now have the opportunity to view and experience product brands and services originating in different parts of the world. Tribal communities holding traditional knowledge, innovations and innovators are becoming increasingly accessible to professionals for exploitation. Innovation life cycles have crashed leading to fast technological obsolescence. Intellectual assets depreciate rapidly and therefore it needs to be exploited in the shortest possible time. In recent years consolidation of intellectual property has lead to major restructuring of companies through strategic alliances, mergers and acquisitions. It has also opened new avenues for the novel supply chain processes, cooperative working, and outsourcing of services. Pressures of "profitable survival" in a "value-based knowledge economy" pose interesting management challenges to owners, creators, generators, traders and users of intellectual assets. It is now recognized that decisions on IPR involve an elaborate consultative process between the innovators, business managers, IPR coordinators and attorneys. This is generally true for a wide range of institutions such as educational institutes, private research centers, corporations, SMEs, MNEs, government funded R&D centers, etc. The State must play a major facilitating role by enacting balanced laws that are fair to the innovators and the consumers. In several countries governmental and non-governmental organizations have already started playing effective facilitating role in promoting IPR and its use in their respective countries.
 
 

TECHNOLOGY EVOLUTION AND CONVERGENCE

The unprecedented progress in science and technology has resulted in the convergence of technologies creating new high-tech applications resulting from seemingly unconnected fields. Examples of these are biotechnology, bio-informatics, non-evasive methods in engineering, telecommunications, smart materials, space technologies, nano-technologies, biomaterials, microsystems, etc. Intellectual property rights and associated ownership issues in such convergence technologies are complex and a micro-mapping of their interfaces is crucial. The dynamics of such an environment is presented in Figure 1.

The rapid emergence of advanced technologies and their applications are outpacing the evolution of logical frameworks in law. On the other hand, the boundaries of law are being continually pushed ahead by technological advances. Thus the techno-legal progress takes place when a new situation arises. Landmark judgements especially in the USA in cases such as

• Diamond v. Chakravarti (in a matter dealing with biotechnology; 

447 US 303 [1980])
• Diamond v. Diehr (concerning patenting of computer related inventions; 

450 US 175, 209 USPQ97 (1981))
• State Street Bank & Trust Co v. Signature Financial Group (related to patenting of business methods; 47 USPQ 2d 1596 [Fed. Cir.1998], cert. Denied 

(US 1999 No. 98-657) 

The challenge today is in the formulation of appropriate Intellectual Property Laws that are compatible with the emerging technologies. Simultaneously the appreciation, utilization and enforcement of these techno-legal structures by the creators and users of such technologies are essential. The National Intellectual Property Offices in various countries have a major role to play in these endeavors. 

Providing the Cutting Edge

Figure 2 illustrates the diverse tools that constitute the IPR tool kit. It should be realized that each of these instruments of IPR protects specific aspects of intellectual creations. However, when combined strategically they provide options to erect formidable protective barriers with strong enforceability. 

Ref: "Intellectual Property Rights… Unleashing the Knowledge Economy," P. Ganguli (Tata McGraw-Hill 2001) & Gearing Up for Patents.. The Indian Scenario," P. Ganguli (Universites Press 1998)

International treaties and agreements provide for a harmonized set of minimum standards for IPR.

It should be appreciated that an appropriate combination of the items in the toolkit can be exploited to achieve optimal protection for an intellectual property. The following paragraphs highlight some of the characteristic features of each of these tools.

Patent

It protects inventions that are novel, non-obvious and useful. The invention must be disclosed in a specified format in a patent specification. A granted patent has a specific "term" (generally 20 years; in some countries it is 14 years, and in some cases 5 or 7 years, under special circumstances) and must be periodically renewed up to the end of the term to maintain the rights from it. If not renewed periodically as required by the statute or at the end of the term, a patent becomes a public property that can be used without fear of infringement. It may be noted that there are several million patents that were granted but have not been renewed in all countries. A critical analysis of such information is of immense use to businesses as they can be freely exploited.

Trademark and Service Mark 

Distinctive marks such as words/signs/or their combinations that are capable of distinguishing the goods or services in connection with which it is used in course of trade are registrable. Initially a trademark is valid for not less than seven years but it can be renewed from time to time and can be done perpetually.

Industrial Design Registration 

Registered design includes features of shape, configuration, pattern, ornamentation or composition of lines or colors, applied to any article either in two or three dimensional or in both forms by any industrial process or means whether manual, mechanical or chemical, separate or combined which in the finished article appeal to and are judged solely by the eye. This does not include the mode or principle of construction or anything which in substance is a mere mechanical device and does not include trademark or property mark. As in the case of patents this registration has a specific term (initially 10 years and renewable for another term of 10 years). If it is not periodically renewed as required by statute or at the end of the term the registered design becomes a public property that can be freely used without fear of infringement.

Copyright 

It protects creative works that are musical, literary, artistic, lectures, plays, art reproductions, models, photographs, computer software, etc. The rights under this also have specified duration of protection. The term of a work, [other than a photographic work or a work of applied art] is calculated on a basis other than the life of a natural person, a term not less than 50 years from the end of the calendar year of the authorized publication or failing such authorized publication within 50 years from the making of the work. For example, the term of protection available to performers is at least 50 years computed from the end of the calendar year when the performance took place.

Layout Designs for Integrated Circuits

In this case substantive provisions of the Washington Treaty for Protection of Layout Designs for Integrated Circuits must be respected. The scope of protection not only includes the protected chip but also the articles incorporating it. Term of protection is 10 years. An innocent infringer must be free from liability, but once he has received notice of infringement, he is liable to pay reasonable royalty.

Trade Secrets and Undisclosed Information

This provides protection to persons/institutions on information lawfully under their control from being disclosed to, acquired by or used by others without their consent in a manner contrary to commercial practices so long as the information is secret and has commercial value because it is secret. It is expected that the person/institution has taken reasonable steps to keep the information secret. This also applies to test data whose origination requires considerable effort (e.g., for marketing approval/FDA clearances, etc.) submitted to government or governmental agencies for statutory clearances. In the case of technology and innovation-led organizations, they should have strong and enforceable information classification policies. It is also very important to have legally valid confidentiality clauses in service contracts with employees/associates so that the interests of the organization is protected. Organizations should conduct focused awareness sessions with their employees on the implications of trade secrets, undisclosed information and their roles and responsibilities. Trade secrets is of immense importance in advanced technologies due to the short life cycles, competitive positioning in the market place, and frequent change of employees.

Competitive Practices in Contractual Licenses

It is accepted that some licensing practices related to IPR which restrain competition may have adverse impact on trade and impede transfer of technology. Examples of such restrictive practices may include exclusive grant back conditions, conditions preventing challenges to validity and coercive package licensing, etc. Countries are at liberty to introduce legislation that discourage such restrictive practices in contractual licenses but remain consistent within the provisions of TRIPS. This is generally linked to the national anti-trust/competition laws and "compulsory licensing" provisions that regulate and discourage "monopolistic practices". These are country specific but are guided by international principles.

Institutional Seeding and Nurturing of IPR 

The key institutional imperative is in setting up a process for early recognition of its potential intellectual assets, speedy actions taken to register or file them in countries where one has business interests and enforcing them to gain optimal value from them.

Ref: "Intellectual Property Rights… Unleashing the Knowledge Economy"; P. Ganguli (Tata McGraw-Hill 2001) and Gearing Up for Patents.. The Indian Scenario," P. Ganguli (Universites Press 1998)

A business perspective of IPR is essential and several factors must be taken into consideration to effectively utilize the system. This should be based on a sound and well-crafted institutional intellectual property policy that supports and integrates with the business mission of the organization. Enabling institutional support on IPR issues and individuals’ awareness of the IPR essentials are imperatives for innovation management. Fig. 3 suggests a practical model for such a management process.

It would involve:

• formulation of institutional IPR policies;
• organizational structure for IPR;
• information classification and ownership criteria;
• implementation procedures for generation, protection and exploitation of IPR;
• enforcement and monitoring process;
• litigation policies to challenge competitors’ patents, trademarks, industrial designs, copyright, including alternate dispute resolution mechanism;
• IPR valuation and audit;
• maintenance of IPR portfolios;
• departmental responsibilities;
• disciplines compliance with the policies by the people;
• rewarding of innovators and IPR holders.

Ref: "Intellectual Property Rights… Unleashing the Knowledge Economy," P. Ganguli (Tata McGraw-Hill 2001) and Gearing Up for Patents.. The Indian Scenario," P. Ganguli (Universites Press 1998)

• are of core value and need continued protection and enhancement;

• are of strategic significance;
• the company may either dispose off either as gifts or sell off as they are not of any strategic or productive value to the institution;

• overlap with those of the competitors and need careful analysis to avoid possible infringement. 

• are vulnerable to being bypassed or easily copied in the market;

• have tax implications nationally and internationally, especially when it is involved in technology transfer of taking tax benefits on R&D, etc.

• may be interpreted by the anti-trust or competition and government authorities as falling within the domain of unfair competition, unfavorable moral and ethical impact on environment and society.

Support of Business Incubators (BI)/Business Angels and Venture Capital for high technology innovations is significantly based on IP portfolio. Hence entrepreneurs, SMEs and others need to rigorously monitor, audit and manage their IPR. The website www.ukbi.co.uk/other/home may be consulted for worldwide approaches to BIs. 
 
 

Some key questions for the institutional intellectual property evaluation processes are:

• Will the innovation meet all the tests for IPR protection?
• If granted, will it survive opposition/revocation proceedings?
• Which are the countries where one should seek protection?
• Where should it be filed first to take priority?
• What would be the strategy for its enforcement?
• What would be the competitive advantage of seeking IPR protection for the innovation?
• Who else would be interested in this IPR and would either license it or be prepared to partner in its further development?
• Should this be assigned to another group who would progress it in their own business interests?
• Will it be possible to cross-license the IPR to gain access to some other IPR or protected technologies and intellectual assets of another group?
• Would it be more appropriate to maintain this innovation as a trade secret rather that making a public disclosure through a patent or other forms of IPR?
• What price would this invention fetch if the organization pursued it as compared to licensing it or assigning it at this stage?
• How does it fit into the organizational IPR portfolio?
• Where would a patent fit into the product / process life cycle?
• Which are the other IPR tools that would comprehensively protect the invention in the market place?

• In 1998, IBM registered 2,658 patents in the USA as against 1,724 patents registered in 1997. IBM topped the list of the highest number of US patents annually registered for six years in succession. It realized over $1 billion from licensing of its protected technologies during the year 1998. 
• Canon earned over $1 million from its patent portfolio in 1998. It registered 1,925 patents in USA during 1998. 
• Samsung Electronics earned $400,000 from IPR in 1998. 
• Hitachi earned $455 million in patent royalties in 1996. It paid approximately $91 in patent licensing fees on the technologies it got from others. Thus it made a profit of $364 million in 1996 in its patent trade and patents made a significant contribution to the company’s bottom line. 
• In early 1980s Texas Instruments (TI) reverse engineered the 64KB and 256KB Dynamic Random Access Memory (DRAM) chips that were being manufactured by several Japanese companies such as Hitachi, Mitsubishi, Oki, Fujitsu, Toshiba, Sharp and Samsung to investigate whether they were infringing any of Texas Instruments/patents. Interestingly, they did find that these companies were infringing 10 of their patents. With adequate evidence, Texas Instruments (TI) filed a complaint with the International Trade Commission (ITC) in 1986 alleging infringement from imported goods. The Japanese companies, except for Samsung, took licenses for the use of the TI patents. In 1992, TI earned $391 million from these licenses as royalties. In the period 1986 to the first half of 1993, TI earned $1.5 billion in royalty payments from these licenses. 
• A recent analysis of the patenting profiles of leading Japanese companies show that 41% of the patent filings are defensive in nature, 10% of the filings lead to cross licenses, 45% are filed to prevent manufacture and sale of look alike products and 4% are for other strategic reasons.

Trading with IPR of high-tech innovations is a common phenomenon. The most common approaches are assignments and licenses. Non-disclosure agreements (NDAs) are crucial before progressing any discussions with possible partners, collaborators, joint ventures, potential licensors, third party developers, etc. The MOUs between the parties should clearly define the terms and conditions on the IPR generated royalty structure, or other benefit sharing arrangements during and beyond of the term of the agreement.

In this context one should also appreciate the basic difference between an assignment and a license. 

Through an assignment the assignor passes on his ownership of his IPR to the assignee. In the case of patents the assignee is then fully entitled to deal with the patent or application as the owner of the patent. 

In contrast, a licensor grants the rights in the property without transferring ownership of the property to the licensee. A license is permission given by the licensor to a licensee to perform certain acts with respect to the IPR, which would otherwise not be permitted without the license. 

One has to exercise extreme caution while drafting licensing agreements so that they do not slip into the domain of anti trust or competition laws of the country in which the license is to be effected.

Licensing agreements support business to:

• Supplement resources of the licensee with those of the licensor.

• Procure right to market and distribute the licensor’s product, penetrate new markets both in terms of product / services and territory.

• Generate capital and gain distribution network by linking to other firms. 

For example, several small companies license their intellectual property to large companies not only to maximize the earnings of their innovations but also distribute their product to more people and also beat their competitors to market. 

• License at the request of a firm in a non-competing field. Licensing for this purpose works between the licensor who has no interest in exploiting the intellectual property in the non-competing field. 

• Barter for technology it would otherwise have to buy. Cross licensing is another form of barter of technology. Cross licensing occurs when two competing firms with different research and development strengths can take advantage of each others intellectual assets. Cross licensing creates the same sort of synergy as a joint venture without the inconvenience and delay of setting up joint operations. These are fairly common in high technology and knowledge-led fields.

• When the licensor’s trademark is licensed for use in the market along with the intellectual property, then the licensee’s marketing efforts benefit the licensor’s reputation and goodwill (as long as the licensee maintains quality in product, service and sales).

In any licensing agreement one has to consider: 

• Financial, jurisdictional, technical assistance, duration, sub-licensing, quality control and related issues.
• What is exactly being licensed. What will the licensee get as a result of the license. Also, it is important to define what the licensee will not get as part of this license. For example, will the IPR covered in the license also bring with it the corresponding know-how and other proprietary technical information?
• The status of the IPR being licensed. Is it granted? Is it in the process of examination? Has the validity been challenged? What is the vulnerability that it may become invalid if fiercely challenged? What will be the responsibility of the licensor if the IPR is challenged and further invalidated?
• The conditions under which the license agreement can be terminated (in part or in whole). In this regard one should clearly indicate what would happen to the sub-licenses given during the tenure of the main license agreement. 
• Issues related to product liability as to who would be held responsible for a defective product or damage caused to consumers. This would require clearly worded indemnity clauses. 
• Unambiguous definition of the terms used as the same term can have different meaning in different countries; e.g., under the Anglo-American law the grant of an exclusive license in IPR means that even the owner of IPR himself cannot operate within the defined territory using the rights which have been licensed. In contrast, under French law, the term "exclusive" has traditionally been understood to mean that the patentee, trademark owner, etc. will not license anyone else to operate within France.
• Royalty or any other form of compensation as consequence of a licensing agreement. Though the royalty is normally a negotiated amount between the licensor and licensee, many countries around the world impose maximum royalty that is payable by a licensee to a licensor. Such limitations should be borne in mind while drafting a licensing agreement.
• Milestone payments with exact definition of the milestones.
• Who owns further developments in the items under license.

EMERGING TRENDS IN IPR MANAGEMENT 

An integrated approach to IPR is bringing corporations, small- and medium-scale entrepreneurs, academia, governments and the society on a common working platform to maximize benefits of global resources and innovations. 

There are over 45 million patents published growing at a rapid rate of more than half a million new applications every year. Interestingly, 80% of the disclosures made in patents are not published elsewhere, i.e., in journals, periodicals, etc. It should also be noted that patentees do not file every patent in all countries. This means that significant number of patents is available in the public domain that can be commercialized by anyone in specific countries where the technology is not protected. This calls for a judicious and strategic use of patent information. 

The emergence of Internet has significantly enhanced information flow into the public domain by adding a soft-avenue to the existing hard form of publishing. Standard search engines and comprehensive databases of patent information coupled with diverse modern scientometric techniques provide semi-quantitative or, in some cases, quantitative analysis of patent information. 

Technology mapping exercise is normally undertaken using patent information. Technology protection grids are used to identify fields that are protected by patents. These help researchers and business strategists to look for open avenues around the patent grids or develop new approaches. In recent times the "spider diagram" or a radar chart has become a powerful tool with patent analysts. Such a diagram gives a visual representation of the relative strengths and weaknesses of competing companies. Another visual plot deals with specific patents and the time remaining for the term of the patent. This would reflect the distribution between old and new patents in the company’s patent portfolio. Based on these plots the company can identify the products that will or will not be protected by patents in future. Such an analysis should go hand in hand with the product life cycle analysis. Investments in R&D and marketing can be planned accordingly. Other representation techniques involve plotting of search results in the form of "topography maps" highlighting areas from which further searches can be initiated. Topographic maps, when created from patent abstracts, show relationships between materials, processes, and use of technology, as well as which companies own which parts of the landscape. This kind of search shows all those who are involved in a specific technology area. For marketing professionals such topography maps can also indicate likely areas of new market opportunity. 

IP management is of vital significance in successful mergers and acquisitions. One will have to develop skills in the use of IP information to evaluate potential partners, valuation of IP assets, structuring of transactions, performing IP and technical due diligence and perfecting security interests in IP assets. Such approaches are of great significance especially in today’s fast moving world of innovations in advanced technologies.

Some of the emerging trends in corporate knowledge consolidation for strategic benefits are illustrated by the following examples: 

• Technology-led mega deals and knowledge consolidations in most advanced technology systems, mergers/acquisitions and setting up of joint ventures involving diverse businesses including those in the services sector.
• The merging of global pharmaceutical companies.
• Formation of giant petrochemical companies through mergers (such as ExxonMobil, BP-Amoco, Union Carbide-Dow Chemicals, BASF-Shell, Phillips Petroleum-Chevron).
• The consolidation of several corporations in the aircraft industry.
• The phenomenal growth in the concept of contract research. This is an opportunity for SMEs with niche expertise to service large corporations dealing with advanced technology.
• Creation of cooperative licensing frameworks as the 3G patent platform. For example, in February 1998, the global telecommunication manufacturers and operators formed an international independent grouping (UMTS IPR Working Group) bringing together 41 companies and organizations to arrive at an agreement on the specification of a 3G Patent Platform offering voluntary low cost but fair arrangement for evaluating, certifying and licensing.

• Setting up of one stop shop for licenses such as the DVD Consortium. It has attempted the pooling of patents in the field by a leading group of DVD companies. It made sure that every DVD member participating in the development of DVD standards signs an agreement to provide their IP in a fair, reasonable and non-discriminatory manner. The IPR Module, meanwhile, has also been working to forge a patent-pooling arrangement of the most essential patents owned by the members. It would also function as a one-step license system, which can be offered to all hardware and hard disk manufacturers.

There are several high impact contentious issues in the context of IPR and trade that need urgent resolution. The easing of global trade makes "Exhaustion of IPR and parallel imports," "Government control on export of technology" and "Trans-border issues on trademarks, copyrights, especially involving use of cyberspace" very special issues. Similarly "Material transfer agreements and bio-prospecting," "Rights on traditional knowledge," "Researcher’s rights," use of "proprietary databases," and "Tax implications on technology transfer and IPR" are aspects that will take the center stage in international debates on IPR.

ROLE OF OTHER AGENCIES IN MANAGEMENT OF IPR

In recent years several governmental and non-governmental agencies have initiated programs to facilitate the utilization of IPR and awareness/capability building exercises in their respective countries. Intellectual property offices can play a pivotal role in such activities. Industry associations should play the integrating role to create an enabling environment for dynamic protection of IPR of its members through technical/legal assistance at reasonable costs, pooling of IPR, setting up systems for collective protection using provisions in trademark laws such as collective marks/certification marks and effective licensing arrangements.

A few examples are given below. The list is by no means exhaustive.

• On December 28, 2000, the Korean Intellectual Property Office (KIPO) and The Korea Patent Attorneys Association (KPAA) signed a business cooperation agreement to initiate a partnership that provides small- and medium-sized enterprises (SMEs) with free patent management services from pre-filing to registration. The purpose of the agreement was to pave the way for small- and medium-sized enterprises’ first procurement of patent rights in a convenient and economical manner. Currently, more than 700 patent agents throughout Korea provide free consultation services to SMEs which satisfy the necessary conditions as a "SME" stipulated in Article 2 of the Framework Act on Small- and Medium-sized Enterprises. During the year 2000, about 600 requests from SMEs were received by KPAA and 230 SMEs finalized the filing or were in the process of filing an application with the help of a KPAA designated agent’s free services. To promote further utilization of patent information and to enhance its services for the general public, including SMEs, the Korean Intellectual Property Office (KIPO) is providing applicants with free education on the patent information search systems. (http://www.kipa.or.kr/) 

• The National Research and Development Council (NRDC), an organization of the Government of India, has geared itself to offer services in IPR to various innovators and institutions (individuals, SMEs, R&D institutions, government-funded laboratories, IITs and Universities) in terms of providing IPR information to companies and research institutes across the country. NRDC’s IPR Consultancy Division guides and assists the entrepreneur with legal, technical and financial assistance for patenting the processes or manufacturing technology and the products. (www.nrdcindia.com)
• The Patent Facilitating Cell of the Technology Information Forecasting and Assessment Council (TIFAC) of the Government of India has taken a major initiative in IPR capability building activity through awareness workshops (just completed its 100^th awareness workshop in July 2001). It extends patent search facilities and also coordinates with patent attorneys to help individuals, university innovators to patent their innovations in India and other countries.(www.tifac.org.in)
• The European Commission has put up Innovation Support Services that offers a variety of services especially to SMEs to network across Europe. The Innovation and SMEs program’s IPR-Helpdesk (http://www.cordis.lu/ipr-helpdesk/) is a central reference point for all IPR issues by attempting to plug the information gap, by providing:

• a multilingual ‘one stop shop’ for information on all aspects of IPR arising from community-funded programs; 
• customized assistance to the program’s research contractors;
• basic information on research planning, technical cooperation and the protection and exploitation of results;
• signposting to other specialized sources of information and advice on IPR and patents, including contact points in each Member State; 
• direct access to esp@cenet, the European Patent Office’s searchable on-line database of 25 million European patent documents;
• a bulletin board for the exchange of information and best practice by users of the service. 

• The British Technology Group (BTG) is a group that finds, develops and commercializes technologies for the emerging markets. Their expert team analyses the commercial potential of the developed technologies, protects and manages intellectual property rights (IPR). Through selective investment they create value from their portfolio of diverse technologies. They create a revenue stream through a variety of commercialization routes including licensing, incubating technology start-ups and joint ventures. Their aim is to make money for the sources of their technologies, their business partners, BTG and their shareholders. They continuously evaluate their portfolio and maintain the diversification and balance, by terminating failed or unproductive technologies while continuing to attract high quality, innovative and leading edge inventions that will have a lasting impact in the areas of life sciences and physical sciences. They create their portfolio through licensing revenue streams and equity in new ventures. Companies responsible for developing and bringing a technology to market are offered incentives to maximize product output and sales. Once a product is launched they receive royalties on sales over the patent life or gain from the equity appreciation in their investee companies. They monitor royalty obligations and have a forensic audit group that assesses and collects licensing revenues as appropriate. BTG shares revenues, including equity realizations, with the technology source. It’s a win-win partnership where they invest in creating, developing and communicating IPR. This allows BTG to share the risks and the substantial rewards with the technology source. (www.btgplc.com)

A few case studies are being cited here to illustrate how IPR has been strategically used for business benefits. These have been taken from the book "Intellectual Property Rights… Unleashing the Knowledge Economy," P. Ganguli (Tata McGraw-Hill 2001)".

Case Study 1

Stac Electronics vs. Microsoft [(Civil Docket for Case # 93-CV-413, 
(DC C Cal CV-93-413-ER, 1994)]

This illustrates how software patents provide the protective cover against infringement as compared to that provided by copyright. 

The facts: 

• Stac Electronics had a software patent on the algorithm for its PC hard disc data compression software product.
• Microsoft had expressed an interest in working with Stac, and did due diligence on the Stac product. In this process, Microsoft determined to copy the compression algorithm of the Stac product.

• Microsoft then wrote its own code to execute the Stac algorithm and used the code in the Microsoft DOS 6.2 product.
• Stac sued Microsoft for patent infringement, copyright infringement and trade secret violations. 

• Stac lost on all counts except the patent infringement count, on which Stac won. 
• On June 8, 1994, a permanent injunction was given against Microsoft Corporation. On June 13, 1994, the amended judgment was passed and Microsoft was ordered to pay Stac $120 million. The calculation for damages were based on the fact that Microsoft had included the infringing code which precluded Stac from marketing millions of copies of its separate data compression software.
• After the litigation, for about a week, a lobotomized version of DOS was shipped with the compression feature disabled. DOS manuals were shipped with stickers on the cover warning to ignore the chapter on compression, because the feature had been disabled (pursuant to the federal injunction).
• After about a week of this, Microsoft cut a deal with Stac by which Microsoft received a license to use the algorithm in DOS. Microsoft also agreed to pay $1 million per month for 43 months and to purchase about $40 million of Stac convertible preferred stock. 

The software patents only which covered its basic algorithm was crucial as it survived the arguments in the infringement suit. Microsoft had bypassed the copyright as they did not copy Stac’s source code; instead, Microsoft just wrote a new code for the same algorithm.

In this regard, patent protection for software is superior to the traditional copyright protection. This is because copyright protects little more than copying of source code, and perhaps screen displays and user interfaces, while patents can protect the basic concept of a software product, regardless of the actual source code. In several copyright cases involving software, fixing unambiguous boundary between an idea and its expression has not been possible by the court and has led to difficulties in proving infringement of software.

The key issue is in developing and implementing a disciplined IPR policy in an organization. Every innovation must be evaluated for the best possible protection using all the IPR tools. Follow-up and policing of IPR are essential to derive optimal value from the protected intellectual assets. On the other hand, if any intellectual property is to be bypassed or worked around, a good techno-legal analysis is necessary.

Case Study 2

Fonar Corporation v. General Electric Company, and Drucker & Genuth, MDS, PC, d/b/a South Shore Imaging Associates [No. 96-1075,-1106,-1091, 1997 Fed. Cir. 
February 25, 1997]

The Facts

Fonar was awarded US Patent No. 4871966(‘966 patent) dealing with the use of magnetic resonance imaging technique (MRI) in order to obtain multiple image slices of a patient’s body at different angles in a single scan referred to as multi-angle oblique (MAO) imaging. This resulted in shortening of imaging times and hence allowed for more patients per day. 

US Patent No. 3789832 was also awarded to Fonar for using NMR imaging technique to detect cancer by measuring electron spin relaxation times T1 and T2 in the sample tissue and then comparing them with the standard values in normal and cancerous tissue of the same type.

Fonar sued GE for infringement of these two patents asserting infringement of claims 1, 2, 4, 5 and 12 of ‘966 patent and claims 1 and 2 of ‘832 patent. Fonar had also sued Hitachi for infringement but Hitachi reached an out of court settlement with Fonar.

The jury at the Eastern District Court of New York returned a verdict finding that the asserted claims were not invalid and were infringed by GE [902 F. Supp. 330 
(E.D.N.Y. 1995)].

As compensation for the infringement, the Jury awarded Fonar 

• $27,825,000 as lost profits on 75 machines of the 600 MRI machines GE sold
• $34,125,000 as reasonable royalty on sales of remaining 525 machines

• $13,625,000 as damages for GE’s inducement to infringe the patent (this was withdrawn by the Fed. Circuit in a subsequent appeal by GE ).

• $35,000,000 as reasonable royalty damages for GE’s infringement of the ‘832 patent.

Fonar cross-appealed. 

The Federal Court of Appeals re-looked into the matter and concluded: 

• The ‘966 patent satisfied the best mode requirement as it disclosed adequate and appropriate information of the invention for anyone trained in the art to practice the invention.
• There was direct infringement of the ‘966 patent.
• Though Fonar ‘s patent had expired for a short period due to failure to pay a maintenance fee the lapse period did not apply to GE which had infringed the patent since 1992 and did not first begin infringing during the lapse period.
• The machines that GE serviced were not marked so that damages were not recoverable before Fonar gave notice to GE. Therefore GE did not induce infringement of the ‘966 patent.

• There was evidence that GE machines performed an equivalent step (b) and step (c) of claim 1 of the ‘832 patent and hence the patent ‘832 is indeed infringed by GE. 
• The court reinstated the $35,000,000 as reasonable royalty damages for GE’s infringement of the ‘832 patent.
• GE was finally ordered to pay $128.7 million ($110.5 million as damages plus interests). 

Fonar is a strongly innovation led and IPR sensitized company. It has a sound corporate IPR policy. It drafts its patents with extreme care especially as it is involved in complex convergence technologies. Despite this focused thrust on its IPR, it failed to pay maintenance fees on time leading to the lapse of patent rights on the ‘966 patent for a short period. It also failed to mark the instruments with "patents pending" which helped GE to escape the charge of " inducing infringement" while servicing the Fonar instruments. However, its litigation strategy and approach shows a good coordination between its technical and legal teams.

It may be noted that Fonar’s annual revenue was only $17 million. However, it won an award of 128.7 million for the infringement of its 2 patents. The amount obtained from the out of court settlement with Hitachi is not known but was substantial.
 
 

Case Study 4

GERON – ROSLIN INSTITUTE DEAL

(Source: Managing Intellectual Property, September 1999 pg. 94)

• GERON is a NASDAQ listed pharmaceutical company with expertise in nuclear transfer techniques in biotechnology.

• A subsidiary company called Geron – Bio Med was subsequently formed.

• Roslin Institute had applied for two broad patents PCT/G96/02099 and PCT/6B96/02098 with a priority date of 31.08.1995 to cover their nuclear transfer technology. These are being pursued worldwide. These patents were licensed to the commercial arm of the institute, i.e., "Roslin Bio-Med".

• Under an agreement the new company GERON BIO-MED was assigned the technology for all applications of Roslin research except for two distinct applications.

• Use of nuclear transfer technology in producing therapeutic proteins in the milk of transgenic ruminants and rabbits, which is licensed to PPL Therapeutics under an earlier agreement.

• Human reproductive cloning which was excluded on ethical grounds. This illustrates the importance of previous obligations of confidentiality while striking a deal.

• The technologies under the agreement linked to GERON BIO-MED, are complimentary to GERON’s own expertise and research in nuclear transfer as the company aims to use it to produce commercially viable products for human health and agriculture. Through this agreement, GERON broadens its intellectual territory with enhanced "freedom to operate" and builds on GERON’s earlier collaborations with University of Wisconsin-Madison, Johns Hopkins University and University of California at San Francisco.

• It may be noted that before the formation of GERON BIO-MED, ROSLIN BIO-MED had no granted patents, no sales and had only six employees and just two rooms. The deal was $40 million cash and shares in May 1999. The deal demonstrates that the net asset value of the company Roslin Bio-Med that was acquired was essentially its intellectual and intangible assets. Only recently the patent has been granted and is already the subject of intense debate.

This will require the institutions to build new IPR strategies to achieve well-balanced IPR portfolios to protect their business interests and profitably survive in the era of fierce competition.
 
 
 
 

This also demonstrates that size of a company is of little or no consequence when it comes to IPR litigation. If a case is strong and finances can be made available to take on the litigation, it is possible to take the matter to its logical conclusion. For small companies, one may look at the possibility of seeking Venture Capital funds for such purposes. IPR insurance is another emerging possibility.
 
 

ACKNOWLEDGEMENT

I would like to express my gratitude to Dr. Guriqbal Singh Jaiya of WIPO for his thoughtful comments and suggestions that have significantly contributed to the preparation of this article.