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Module 2B: SOFT IP
This PPT has been created with the participation of:
L. BIRKETT
G. COLAK
A. KAVAK
K. TAUBER
A. DINTRICH
G. FRIEDRICH
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Industrial Prop., Intellectual Prop. & Intellectual Assets
Inventions
Brands, logos
Designs
Patents, UMs
Reg. TMs
Reg. Designs
Musical, dramatic,
literary & artistic works
Databases
Reputation / Goodwill
Designs
Copyright
Database right
Unreg. TMs
Unreg. Designs
Know-how
Trade secrets
Confidential
information
Restrictive
covenants
Confidentiality
agreements
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What is Soft IP ?
•
A category of rights which:
–
–
Are not protected by registration and legislation,
But fall under the category of intangible rights, which
are usually associated with other intellectual property
rights
–
–
Are free of charge
Do not involve long or complex procedures
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What can it be worth?
• Why are we bothering with this topic? Is not
confidential information just at the margins of IP?
• 13 September 2007 - the McLaren Formula 1 Racing
Team was fined $100 million by the FIA for illegal
possession of technical data from rival team Ferrari
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SOFT IP
I.
Know-how, trade secrets, confidential
information
II. Restrictive covenants, confidentiality
agreements and non-disclosure agreements
III. “First Mover Advantage”
IV. Business methods
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I. Know-how, Trade secrecy, confidentiality
• Know-how and trade secrets are protected by
means of keeping the information confidential
• Misappropriation procedures of trade secrets
and know-how are actionable under:
– contract law, by restrictive covenants
– commercial law as a tort and as unfair competition
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I. a) What is Know-how ?
• Information which is secret, substantial,
identified and valuable
• Non-patented practical information, resulting
from experience and testing by the supplier
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I. a) What is Know-how ? (2)
• “Secret” means a component which is not known or easily
accessible
• “Substantial” refers to a functional information, such as:
– a method of production;
– a product or a service;
– the development of a method of production and/or a product and/or
a service
• “Identified” means that the information is characterized or can
be found on a material support, in such a way as to make
possible to ensure that it satisfies the requirements of secrecy
and substantiality
• “Valuable” means that the information has a monetary value for
use or exchange
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I. a) What is Know-how ? (3)
• A know-how:
– constitutes an economic asset, which belongs to
whoever has developed it or properly acquired it
– is transmissible by contract or other means in
accordance with national laws
– can be protected against misappropriation and
wrongful disclosure
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I. a) What is Know-how ? (4)
• There can be wrongful disclosure, if all or part of
the know-how which should have been kept secret or
confidential has been published or revealed against
the will of the possessor of the know-how, by a
person having an obligation to keep the know-how
confidential
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I. b) What is Trade Secret ?
• Any information that:
– is sufficiently secret to derive economic value,
actual or potential, from the fact that it is not
generally known to other persons
– is kept secret thanks to its holder's reasonable
efforts
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I. b) What is Trade Secret ? (2)
• Protection requirements:
– the trade secret must not be known
– owner of the trade secret must obtain an
economic advantage from the trade secret
– owner of the trade secret must take necessary
steps to preserve the confidential nature of the
trade secret
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I. b) What is Trade Secret ? (3)
• Main advantage:
– contrary to patents there is no limit to the length of time
– with a trade secret, as long as it is kept confidential, it will
benefit only the owner of the trade secret
– no registration fee
• Examples of well known trade secrets:
– the formula for Coca-cola
– the Colonel Sanders recipe for fried chicken
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I. b) When can Trade Secrets leak ? (4)
•
•
•
•
•
•
•
Venture Partners
Consultants
Sub-contractors
Departing staff
Suppliers
Marketing Team
Customers
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I. c) What is Confidentiality ?
• Confidentiality should only be claimed if:
– the information is confidential
– and the information is given in confidential circumstances
• Confidential information has a limited range of
disclosure that includes:
– know-how
– trade secrets
– business methods
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I. c) What is Confidentiality ? (2)
• Advantages:
– the protection offered by keeping an idea
confidential is potentially infinite and will only be
lost once the idea enters the public domain
– it is a relatively cheap form of protection
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I. c) What is not Confidentiality ? (3)
• Information is not considered as confidential if:
- it is in the public domain
- it has entered the public domain other than through the fault
of the receiving party
- at the time of disclosure, the receiving party already had it in
its possession or has acquired it from a third party
- the disclosing party has been able to disclose it to another
party without restriction
- it is or was independently developed by the receiving party
- it is disclosed as required by law or governmental rules or
regulations
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II. Restrictive covenants
• Definition of a restrictive covenant:
– contractual agreement between an employee and
an employer that requires the employee to refrain
from certain behavior that is contrary to the
employer's interests
– restrictive covenants may be the object of a
specific contract or may be included within a more
general agreement
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II. Restrictive covenants (2)
• Object: contractual protection of trade secrets or
other business assets during or after employment
– to create awareness within the company’s employees to
protect know-how from inadvertent (e. g. pretext telephone
calls, rubbish inspection, elicitation) and conscious
disclosure*
– to create an inhibition threshold in addition to existing laws
– to prevent behavior that is not prohibited by law
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II. a) Relevance of restrictive covenants
• Trade secrets
• Examples for trade secrets include:
– know how, good will, customer and supplier relationships
(e. g. customer identities and preferences, vendors), product
pricing, marketing strategies, company finances,
manufacturing processes and other competitively valuable
information
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II. a) Relevance of restrictive covenants (2)
• Case study for Germany shows (Focus online, 24 June 2007,
“Wirtschaftsspionage vernichtet 50.000 Jobs”):
– 50.000 lost jobs, approx: 10 - 50 billion Euros p. a.
– 1 company on 4 is affected; the number of affected SMEs is raising
– in most cases the offenders are insiders!
• NOTA BENE: PRECAUTION IS THE BEST PROTECTION
• Stolen business assets can cause serious economic damages:
– litigation takes a long time and is expensive
– lost trade-secrets may be embarrassing to the company (negative
publicity)
– lost trade secrets may cause loss of faith of stockholders and other
investors
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II. b) Types of restrictive covenants
• Non-competition agreements
• Non-solicitation agreements
• Non-raiding agreements (also known as “no-hire” or
“anti-piracy covenants”)
• Non-disclosure agreements
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II. c) To be spoilt for choice?
• The various types of restrictive covenants are subject
to different legal restrictions
• It is important to identify the restrictive covenant that
protects the company sufficiently and - at the same
time - affects the employee least
– the appropriate restrictive covenant has to be determined by
a case to case basis
– the scope of a non-competition covenant is very broad and is
subject to stricter legal requirements than other restrictive
covenants*
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II. d) Best time to conclude a restrictive
covenant?
• Possible point in times:
– outset of the employment agreement
–
–
during employment (e.g. change of position, substantial promotion
or pay increase)
after termination of employment
Employment
t
outset
change of position,
substantial promotion,
pay increase
termination
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II. e) Who should sign restrictive covenants?
•
•
Unnecessary and overly broad use of restrictive
covenants may negatively impact an employer’s
ability to enforce these agreements
In this context the answers to the following questions
are relevant and need to be checked from time to
time:
1. Legal relationship between the company and the staff
person?*
2. Identify key personnel**
3. Is or will the staff person be in a position to harm the
employer’s business if he uses this information on behalf of
a competitor?
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II. f) Legal restrictions
•
•
European law does not provide harmonized standards for
restrictive covenants; therefore criteria may differ from country
to country
Possible criteria for an enforceable restrictive covenants may
be:
– formal requirements (written form!)
– necessary with respect to the protection of the employer’s
legitimate business interests
– reasonable with respect to geographic and time scope
– compensation (e. g. German law requires at least a compensation
amounting to 50 % of the former paid remuneration)
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II. h) Legal consequences
•
Is the restrictive covenant enforceable?
– the lack of a specific requirement can make a restrictive
covenant void
– courts do not regularly revise the restrictive covenant to
make it valid
•
Legal consequences of an obligation breach:
–
termination of the employment if the breach happens
during employment
– preliminary injunction to prevent further obligation breach
– damages (penalty clause)
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II. i) Examples of Restrictive Covenants
• A software developer working in a bank told not to work in
any other bank for 2 years after leaving the bank.
• A solicitor told not to work in the same town for 3 months
after leaving their current employer.
• A locksmith told not to work in the same town as a
locksmith for 6 months after leaving his current employer.
• A plumber told not to use – ever – the trade secrets of his
current employer if he leaves.
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II. j) Non-disclosure Agreements – NDAs (1)
• Why to use NDAs?
– Used between people who are NOT working in the same
company
– In such situation Restrictive Covenants (RCs) cannot be
used
• When to use NDAs?
 Before patenting, because:
– Disclosure of the invention prior to patent filing will destroy
the application
– It is vital that any discussion with investors, business
partners, etc. be done CONFIDENTIALLY
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II. j) NDAs – General rules (2)
• Once an agreement is signed then proceed with caution
• An NDA is only valid if you can prove that you tried your best to
keep the information confidential
• Even if an inventor has filed a patent application, he must be
careful to cover any features of the invention which are not in
the patent application with an NDA
 NO POACHING / STEALING
• Keep in mind that inventor and manufacturer may have opposite
interests
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II. j) NDAs – Example of a NDA(3)
 Open Communications Architecture Forum
Multi-Party Nondisclosure Agreement
•
The Parties agree as follows:
1.
2.
3.
4.
5.
6.
7.
8.
Confidential Information
Obligations of receiving party
Period of confidentiality
Termination of obligation of confidentiality
Title
No obligation of disclosure; Termination
No warranty
General
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What kind of protection is appropriate?
EXERCISE 1
"Happy Baby" - an innovative nutrition
company specialized in organic baby food
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Workshop exercise 1
• What kind of soft IP does Happy Baby own?
• What is the best protection for this soft IP?
• Which employees should be bound by restrictive
covenants? What other issues have to be observed
content wise?
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What kind of soft IP does Happy Baby own?
• Know how
• Trade secrets
• Trademarks
• Advertisement slogan
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What is the best protection for this soft IP?
• Registration of trademarks
• Keep certain sensitive information such as food
recipes, customer names etc. restricted to key
employees
• Conclusion of restrictive covenants such as nondisclosure agreements, non-solicitation agreements,
non-compete agreements and anti-raiding
agreements
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Which employees should be bound by
restrictive covenants?
• Sales employees
• Production employees
• Director of production
• The three key assistants
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III. First Mover advantage
• First mover advantage is the advantage of
the first entrant in a market
First mover advantage does not always refer to
advantage of the first entrant in a new market,
but to the advantage of the significant first
occupant to that market
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III. First Mover advantage : examples
• Be first and brand it:
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III. a) What is First Mover advantage?
• The advantages of the first occupant in a
market segment:
– ability to register patents, trademarks, designs… in order to
protect the first occupant from future competition
– access to resources
– reputation of being the first in that market
– ability to affect the economic conditions of the market
especially with regard to following entrants
– ability to invest the early profits to new resources
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III. a) What is First Mover advantage? (2)
• A firm can be the first-mover in the market:
– by creating a new product,
– by using a new process, or
– by entering a new market
• Benefits of first mover advantage with regard
to technological developments:
– effectiveness of legal protection instruments such as
patents and copyrights
– acquirement of the control of the technology which is the
basis of the innovation
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III. a) First Mover advantage and IP
•
•
•
•
•
•
Patent protection may provide first movers a monopoly position during
the life of a patent
However, there is always the risk of imitation since the data shows
that around 60% of successful innovations are subject to imitation
approximately in four years
In addition, it can be difficult to protect the rights against “2nd
generation of patents” strategy of following entrants
Patenting offers a broader scope of protection for product innovations
than for process innovations
If the innovation is included in the process, trade secrets may provide
protection as well as patents.
Technology within a product is under the risk of reverse engineering
whereas process technology is discovered more slowly
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IV. Business Methods
• What is a Business Method ?
A method of operating any aspect of an economic
enterprise, which supports and facilitates business
operations and practices such as billing processes,
investment decisions, fund allocations etc.
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IV. a) Are Business Methods patentable ?
•
The situation in Europe:
–
business methods and software per se are excluded from
patentability under the European Patent Convention
however, the European Patent Office grants patents for new
inventions which are implemented through computers
such new inventions need to have technical features and/or
solve a technical problem to be patentable. A business
problem is not considered to be technical. So a patent
application for a new business method implemented in a novel
way on new equipment could be granted in relation to the
technical features of the equipment, without regard to the
business method.
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–
–
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IV. a) Are Business Methods patentable ? (2)
•
•
The situation in the U.S.:
Business method patents are granted in the U.S. under certain
conditions for new business methods (ex: new types of e-commerce,
insurance, banking…). Business methods patents are examined
according to the same criteria than any other invention. Furthermore,
accordingly to the USPTO Guidelines, a business method is
patentable if it produces a result which is:
–
–
–
–
•
“Useful”: Specific, Substantial, Credible utility
“Concrete”: The result should be assured or reproducible / Does not
always require 100% accuracy / May require a certain level of skills
“Tangible”: “Real world” result is required / Does not have to be necessarily
tied to a machine / Thoughts are not considered as “real world” results
BM patents are not required to use traditional technological arts.
U.S. examples of business methods patents
-
reverse auction procedures (Priceline.com)
one-click online payment system (Amazon.com)
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IV. b) Debates on Business Methods
• Debates on the patentability of business
methods continue with respect to:
– patents for electronic commerce methods
– standards for business method patents
– the traditional business settings
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V. Useful links
•
http://www.shewchukip.com/index.htm: Dedicated
Expertise in Intellectual Property, easy to
understand information
•
http://www.wipo.int/sme/en/: World Intellectual
Property Organization, SMEs pages
•
http://www.ipo.gov.uk: responsible for IP in the UK
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Which risks for soft IP rights?
EXERCISE 2
Protection of soft IP
The case of a new banking product
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Workshop exercise 2
• Which soft IP rights are involved?
• Which formal rights are involved?
• Which soft IP right could be patentable?
• Establish a contract with the marketing company
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Which soft IP rights are involved?
• Know-how
• Trade-secret
• Business-method
• Confidential and sensitive information
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Which formal rights are involved?
• Copyright
• Trademark
Which soft IP right could be patentable?
• Business-method
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Establish a contract with the marketing company
• Disclosure and misuse of information about:
–
–
–
–
calculation method
commercialization method
business method
sensitive personal information
• Confidentiality clause:
– making the printing factory liable for any disclosure
• IP-clause:
– the bank remains the only owner of IP
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Thank you for your attention
Questions / Comments / Suggestions?
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