This seminar is part of the 2016 Gowling WLG Risk to Reward series, designed to address the most important legal, regulatory and corporate risks facing your organization.

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About this seminar

Patent filings and lawsuits have hit all-time records in recent years. In a marketplace where employees are highly mobile, and data and company secrets are easily transmitted, there is a significant need for organizations to have strong measures in place to reduce the risk of losing intellectual property assets. This seminar will address current and practical strategies for building a patent portfolio, and defensive strategies for reducing enforcement risks and preventing loss of valuable intellectual property.

This program counts for up to 1 hour of substantive credits towards the mandatory CPD requirements of the LSUC.


Full transcript

Luke: Good morning everyone. Welcome to this morning’s presentation on Intellectual Properties and Defense Strategies. My name is Luke Clare. I’m the regional manager of Business Development for the Ottawa office of Gowling WLG. Many of you likely are familiar with the name Gowling and this past February we added the WLG when we combined with the UK firm of Wragge Lawrence Graham. Gowling WLG is now a global 100 legal practice with more than 1,400 professionals in a range of business support teams working to deliver world class legal advice across 18 cities in the UK, Canada, Continental Europe, Asia and the Middle East. I want to get started. We have some great content and information to provide to you this morning. I also would like to get everyone out of here by 9:00 so we are going to get started.

A quick introduction of our speakers. Michael Crichton is a partner with the Gowling WLG Ottawa office. Michael has well over a decade of experience as an intellectual property litigator and strategic advisor. Both his domestic and international clients consist of companies engaged in a wide range of technologies including mechanical, electrical, computer hardware and software, manufacturing, fabrication, communications and related technologies. In the evenings and on weekends Michael Crichton is an accomplished novelist writing a number of highly successful fictional novels, including “Jurassic Park”, “The Andromeda Strain” and “The Lost World”. Do you get that joke a lot?

Michael: Every day.

Luke: Although I found out yesterday that that Michael Crichton is actually dead. Yeah, so not as funny but still funny for 8:00am, I think.

Mark Sprigings is going to kick things off. Mark focuses on patent and industrial design procurement with an emphasis on drafting and strategic advice for companies ranging from startups to large corporations and universities. He is also the co-chair of the Ottawa’s office tech group. I did Google Mark’s name last night and there are no famous people with that name, so I have no joke for you. We’ll kick things off with Mark.

Mark: I promise to be fairly quick. Hopefully I won’t rush through to it too quickly because Mike has a lot to say as well. I’m going to start with a bit of an introduction to general content of IP and what you can protect. I’m going to focus on patents as obviously it’s the most important thing to me. I think Mike would agree probably the most important aspect of protecting your IP. But you do have a number of different ways of protecting your IP and your company. Patents, industrial design, trademarks, copyrights and trade secrets, sort of in order of complexity and importance. Industrial design patents are a variant of patents. In the US they are called design patents and they protect the look and appearance of your product. Patents protect the utility and function of your product. These are all pieces of the portfolio. Some may cover your technology and product better than others. What is a patent? A patent is a bargain that you strike with the government and the whole intent there is that you are going to provide disclosure of what your technology is for the public good, with the eventuality that someone else will use it after the 20 year period and the rapid change of technology now, that 20 years is a long time, so you have to move through it pretty quick. You want to describe the implementation, operation and the invention and you want to ply the disclosure that’s for the public good itself. What it does, is it provides you the right to exclude others. However, that right is not inherent. You have to enforce that right. You have to hire someone like Michael, here, to enforce that right. You want to have a cover of what your product is going to be and how you’re going to sell it and who may might infringe it. I will talk a little bit about that later. The big thing that people miss is that what the patent provides you to protection is provided as defined by the claim. When you see an article on the web saying, “Apple has patented a new feature to do a face recognition” or something like that, most times people are just reading the abstract or they’re looking at the pictures. They’re not really getting what the protection is. There is a lot of uproar saying Apple is getting covered for certain things and that’s not necessarily true. The patent office is very good at narrowing your protection and you have to really look at the claims to know what you’re really actually getting in terms of protection of that patent itself. The big thing to remember is that patents are country specific. There is not a global patent. There is a not a unitary patent in any way. There is move towards unitary patents in certain countries. There has been talk for ages about having a North American patent. There is no sign of that’s going to happen. In Europe they are moving towards a European patent but, again, protection has to be done in each country. You do not have protection everywhere just because you have a patent. If someone says, “I have a patent” you say, “Where?’ and where the products are is depending on what protection you have on each country.

What are the business benefits? IP, and particularly patents, are an asset. They define your technology that you have. You have to have, depending on your business, if you’re selling product that is unique you have some IP, you have an asset. If you don’t enact a strategy to protect that IP someone will enact that strategy on you. You want to be ahead of the game. You want to have a strategy of how you’re going to build your assets, build your patents and how to leverage it to go ahead, to move forward with it. The big thing about patents is they show industry leadership. Sometimes it’s a marketing tool. Sometimes it gives you the ability to show that you have something unique over other people and other companies and it’s part of your whole portfolio that you have to leverage.

This, just to give you an idea of companies that deem patents important and IP important, IBM last year received 73,055 patents issued. For 23 years running they have been the number one receiver of patents from the USPTO. They see value in generating this IP and leveraging it. IBM, I think about now, the last reported number is they generate 1.2 billion in revenue just from their patents alone. They have a strategic division in how they manage the patents. If you look at all these companies you’d say, “Yeah, they’re all innovative.” They all have different strategies of how they leverage their patents. Google doesn’t necessarily enforce it. They are more defensive. Microsoft is in the top 10 list. A couple of years ago they generated 2 billion dollars a year on android phones. They have nothing on android. They generate it all from the IP licencing. Has decreased over time but they made more money from android phones then a lot of companies that were making the phones themselves.

How do you use your patents? They are a tool that you use in different ways. The biggest one is the barrier for competition. If you’ve got a product that is unique, you have a patent and want to exclude others from using it, you have that patent and you stop others in terms of litigation or they get concerned you might sue them. Generating licencing income, if you have a patent that you see value in terms of the market and you might be able to generate more money in terms of licencing, for example what Microsoft does, what Bellcom does, you give everyone access to it.

The last one is defensive cross licencing. This is very big in the wireless market. Pretty much all the cell phone companies and manufacturers cross licence. They say, “I’ve got 1,000. You’ve got 1,000. Instead of fighting we’ll cross licence.” Samsung and Apple decided to fight it out. At some point there’ll be some cross licencing deal because they’ll sue each other on different points. The biggest thing that’s not here is how to use patents. I’ve tried to find an analogy defining of what a patent is. It’s hard to describe to the layman actually how you use this legal document. The best one I’ve been able to come up with is, it’s insurance. It’s insurance. It’s your house insurance. It’s your car insurance. It’s your home insurance. It’s protection that you have that you may never use. You may use it all the time. At the end of the day you don’t go to your wife saying, “I wish I’d used my life insurance on you and I cashed out on it.” If you have a year where you don’t use your car insurance, you don’t use your life insurance you say, “That’s a good year. I had it in place, just in case.” But if you do have an eventually and you don’t have that insurance, that’s when you run into trouble. You may not necessarily use these. You may have it as an asset in the background but it has to be there to have it and leverage it. I have a number of clients who have fairly large portfolios and I’ve talked to them about enforcing it and how they want to use it. They’ve actually point blank said, “We do not want to enforce it. We think this is keeping people away from us. The more IP we, have we keep people away from us.” Because there are costs involved and that’s part of your strategy of figuring out how you want to actually leverage your patents going forward.

This is sort of a quick run through of the patent process. It’s a long process but from my perspective this is where I can come in. Michael comes in after here. Information gathering is the key one. That’s something where you really have to strategize internally, which I’ll talk about a bit more later, but getting the right information, knowing what your potential inventions are and what your IP is, is really important to figure out. There are a number of steps that you want to do internally to capture that. The worst thing you have is that when you figure out something after the fact was really importan,t and you could’ve really leveraged it, and you’ve already missed the dates that you can actually file applications. I think that’s where I come in. That’s the preparation of the application, that’s the preparation of the claim and the drawings. We then file and filing, as I said, is country dependent. You have to have decisions on where you want to file. What countries you want to file and there’s a whole strategy around that as well because filing is very expensive. You could file a patent in pretty much every country in the world but there is no company that actually does that just because of the sheer cost of it. Once you file each country does examination. Examination, like a lot of government processes, can be very slow. Examination can take from 12 months to 3 years to, in some cases, we’ve seen 10 years on some files. That’s when you negotiate the claims with the patent office. You negotiate the bargain with the government as to what your patent’s going to cover. Once you come out of examination, it might be positive, it might be negative, hopefully it’s positive, you have a granted patent. Once you have a granted patent you have claims that you can enforce. Those claims define what your protection is for your invention. Then you have an actual asset within your company that you can then leverage, you can sell, you can licence. You have something afterwards that you can use.

Patentability. What does the patent office look for to grant you a patent? There is three things. The first one is that it has to be useful. You sort of say, “That’s kind of obvious. If I’m going to file something it’s going to be useful.” You’d be surprised by the number of times we get people coming to us with non-useful inventions. Usually small inventors. Usually not companies. It does happen that there are non-useful inventions. The big test the patent office apply is novelty and obviousness. It has to be new and non-obvious. So new basically means one reference can’t anticipate your invention. If the patent office finds something that says your exact same thing or they find a product that is exactly the same, that would be anticipating it. Non-obvious is the challenge. Non-obvious can be the examiner can take one or more references, put it together, and say, “Hey. If I were someone skilled in the art I would see you as being obvious.” So add features together. It must not be previously disclosed. In Canada there is an exception. In Europe you have absolute novelty. You cannot have disclosed an invention before you file it. You have to have absolute novelty. You can’t have made it public. You can’t have done anything that is not under a non-disclosure agreement. If you put a publication on your website of your invention that may be enabling, you can file in Europe, you just won’t have a valid patent afterwards in Canada and the US and a number of other countries. You have a one year grace period for your own public disclosure. If you go to a trade show and you disclose your invention you have one year before that disclosure will come back and cause a problem for you. You just have to be aware of that. Ideally you file before there are any disclosures. In companies, the drive for marketing versus the drive of engineering, is a very hard balance to challenge and you got to make sure that you know when things are being disclosed. Just keep track of it. Worst case scenario is that you file an application, you get it issued, you go to court and it turns out someone finds a publication that you filed, your whole invention is out the door and your litigation is pretty short because you don’t have a valid patent.

The way to understand obviousness is that it changes over time. When you have a pioneer in technology, for example Thomas Edison when he invented the light bulb, he was the first one to figure it out. He could file a very broad patent of the light bulb because no one had thought of it before. But over time as technology develops the obviousness of something will get narrower and narrower as more references, or prior art, come out into the field. Over time your examination with patents can get more difficult because you become more obvious. You have to become more innovative. You have to be more pioneering to get over that obviousness. Edison, for example, had 2,332 patents to his name. You liken to at the time he had a lot of opportunity in terms of he could find a lot of things that no one had and weren’t obvious to the patent office.

The main part of the patents are the claims. They are the crux of the patent. They define the legal bounds. They give you the right to exclude others from making, using or selling only those things which are disclosed by the claims. The language, they are run on sentences. The language can be complex and we spend a lot of time arguing over interpretation of words that seem very simple to people. Litigators like figuring out different meanings to words and that’s the part where our value comes in defining what those claims are. They are jurisdiction dependent, more or less. Usually you can adapt a lot of claims between countries but there are variations between countries that you have to cover and they’re enforced by the courts, for the most part. In some countries, for example the US, they have the International Trade Commission and in the US you can actually get a judgment from the International Trade Commission to block importation of infringing products of your patents. It’s not quite the same as court proceedings. Canada, I believe with Customs, there is now a way to enforce importation of certain products if you can get a ruling.

What’s types of claims you have? These are just sort of some of the types of claims, the big ones that you have, so you have apparatus, system, method, composition. You want to cover your invention through different means. You want to describe it different ways because they have value in different ways. For example, a method of manufacturer, that type of claim might be valuable where the products being made, so maybe in China, maybe in a factory, but if the product is coming into Canada and it’s not actually manufactured here, it’s not as valuable. In that case the deal would be the actual apparatus claim which defines the structure or system claim if it’s a telecommunication that someone’s going to install. The issue with the claims is you want to figure out who is going to be infringing it and what type of claim you need to enforce that down the road. It may not be your direct competition that is going to be infringing. It might be a distributor, it might be a store, it might be a supplier. I had an example a number of years ago, not a personal example, I was at a conference. They were talking about a faucet manufacturer and basically he was saying that they went to Home Depot and they saw their faucet and then another faucet by another brand of the exact faucet right next to it. They couldn’t figure out what was going on. They didn’t want to sue their customer because they could have sued their customer. They wanted to find out who was actually manufacturing it. They end up going back to China and found a city called, basically it was called “Faucet City”, and there was their factory and right next to it was another factory that had taken the molds and was manufacturing it. In that case they had manufacturing claims in China that they could enforce as opposed to enforcing in the US. The claims change over the examination period. What you go in with in terms of your claim structure will change as you go through with the examination and they adapt over the life of the examination process. You have to be open to it. You have to be cognizant as market changes. As I said the patent process is a long process. As the market changes you have to be willing to adapt these claims until they issue. Once they issue they’re locked in. You have what you have.

Where do you find your innovation and where do find your patents from? Hopefully you find most of your innovation internally. R&D is sort of an obvious one. You can get innovation; you can get patents from other parts of the business. Sales people may have ideas that you can leverage with. A big one that a lot of companies I find miss is product releases. A lot of times I’ll get notification from a client that their product is about to go out and the first question is, “Did you scrub the product for IP to see if there is something there.” A lot of time they don’t think about that because they’ve been working with it so long they forget what the innovation was. It’s really important that you build processes in place to identify parts of your product that may be innovative and make sure you capture that technology and make sure you get protection on it before it’s too late. There are a number of times where products get released and I’ll get a call from a client saying, “Turns out this feature is really important and people are liking it but we released it a year ago.” Well, it’s too late. You’ve got to catch it at the front end of it. The strategic direction of a company is very important as well. You want to make IP an important part of it. You want to make sure that you capture that IP. If it comes from the top down that will drive other points within the company to capture it. The big thing is not to forget your external motivators for getting IP’s. You don’t necessarily have to file for protection of what you’re doing. You may want to file for protection for what your competitors are doing because they may be litigious. They may be coming after you so you want something in your tool box to block them. There’s a lot of times where you can look at where your competitor’s products may be going which may be different than yours but you still know they may come after you. You have to look at other areas outside of your business and your industry to make sure you’ve got coverage for it.

The supplier one is interesting. Probably about 10 years ago there were stories out of the US of customers getting protection to stuff that suppliers were using. The example I heard was Sprint, in the US, were buying equipment from certain telecom manufacturers. Sprint started filing patents around technology that their suppliers were giving them. What they would do is they would negotiate down licences saying, “Okay. I want to buy this product from you, but by the way, I have a patent for you. I can block you from selling from everyone else so we have to cut a deal.” Sometimes looking outside as to what you’re buying from other people that maybe you’re directing them to innovate from, is something to look at and consider.

Another one is acquisitions. You may be able to get IP from acquisitions. It’s the way the market is, startups can generate a lot of IP and you may have opportunity to get some very valuable patents, based upon other companies and their success or their failures. One of our partners had a story where back in the boom in Ottawa one of his clients went bankrupt. They had two patents. The investors thought they lost all the money. A couple of months later they had a knock on the door from Microsoft saying they wanted to buy the patents and they recouped all their money. The IP assets may outlive the company and they can have value in and of themselves afterwards.

How do you build a portfolio? I see three key areas that you have to focus on. It’s a cycle. Planning, you have to plan ahead. Planning really involves getting the company and moving in the right direction. Getting everyone on board of the importance of it. Getting on board as to what this process is and getting it part of the business objective. You got to generate the IP. You got to file the guy to get it issued and then you got to manage it. Managing it means something different to every type of company.

What is planning? If there is one take away from this, this is probably the most important from my experience in dealing companies, is this is the part that in your mind you have to get everyone on board in terms of how do we get this IP out of the company. Big thing is have a policy internally of what you’re going to do with IP. How you’re going to generate the IP. How you’re going to capture and what you’re going to do with it. You want this part of personal objectives in people’s plans. If you have an engineer and he doesn’t know that he has to generate patents, or patents are part of his job, he’s always going to focus on delivering the product. That doesn’t mean you have to redirect him on getting the patent issued but it has to make it known that the is measured against, and the management is measured against, generating IP. You want to have an education process. There are a lot of, I don’t want to say fallacies, but a lot of misconceptions of what patents are and how they’re useful to a company internally. A lot of people are pro open source so they don’t think they should talk about it. A lot of engineers are very big think, “Well, anyone could have thought of this.” But that’s not necessarily true. A lot of people will put down work that they are doing so you have to be able to convince people that this is an important process. You want to have a filing strategy. You want to know where your competition is. You want to know where your market is and you want to make sure that you have a filing strategy because of the costs can be significant. I’d love to take your money. I’d love to grow your patent but at the same time you’ve got to be smart about it and you don’t want to expend it. A patent is an entity that will grow on its own over time. It’s something that will live for 20 years. You’ll be paying for it for 20 years. So before you start down that road you want to know what your strategy is going to be if you move forward with it. You want to know what the landscape is for the market. You want to know what your competitors are doing. If you’re in a litigious market you want to protect yourself. You want to be ready for people who might come after you and you got to have a budget. Budgeting is a long term process. It’s something that if you say I’m going to generate five patents a year it grows over time. You want to make sure you understand how you’re going to use that.

Your collecting information, you’ve got information disclosure forms from your inventors, you’ve got, hopefully, a patent committee where people review and decide which patents are worth going for, you got to prepare the application. That’s where I come in. I may be involved in the planning side but I’m definitely involved in the generating side. You want to have a process for streamlining. The big thing about generating is you want to make it easy on the inventors. Even though hopefully it is a fairly painless process, it can be difficult, and you need to have inventors involved. You want to make sure that you have someone that can work with them and the internal processes aren’t an undue burden to them. You want to manage the prosecution as you go through. As I said it’s a long process; things change, you want to make sure that you’re reevaluating your product mix, that your products that you’re selling in your patent portfolio as you go along. Non-practicing entities or trolls, so to speak, this is what they do. They file a patent. They look and see what else is happening around. I had one client who received a troll letter, received a patent. They responded back and said, “Thanks but we don’t infringe because of X”. We then got another letter from the patent troll saying, “Great. We filed the continuation application. Now saying that, we will be calling you again.” You have to do that with your own portfolio. You have to make sure that you know that you’re managing it in relation to what you have. Just because you filed it, just because it’s issued, just don’t stick it on a shelf. You have to know what is going on with it. Again that comes to you have to adapt as the market changes. You have to be willing to groom your portfolio. Some people treat these like babies and they don’t want to be done. They don’t want to give them up as time goes on but you have to know when the value isn’t there anymore and knowing when you have to eliminate patents that are of no value to you. Or sell patents off. Of find other ways of leveraging them that may not be core to your business.

The management part. This is where Michael would come in. Enforcement, licencing, marketing, using it as a marketing tool, use it to influence standards. This is a very common thing too. Because you have a patent your industry may have standards bodies that you want to leverage it to. You want to find a way of getting your IP into those standards so you have more benefit to the market going forward and you want to use it to exhibit market share. As I said, managing may not may be just reevaluating occasionally. You may not have to enforce it. You may not have to licence it but you have to be ready to have it with you. You have that insurance policy in place before you move ahead with it.

When do you file a patent? What makes you want to file a patent? When you have an invention disclosure you want to be able to evaluate the technology and how you are going to use it. There’s many factors that come in and the only one that cost wouldn’t be on its own, you basically have to have known what you’re getting into. The breadth of what the patent might be, how it maps your existing products or how it maps to your competitor’s products, to design around. If you get a patent for something and you have one very specific implementation but your competitor can easily design around it, it may not be worth actually doing it. You want to know what else is around it and you want to know how enforceable it is. If you can’t enforce it then it’s not necessarily of value. It might be more of a marketing value to have that patent. You want to know what jurisdiction you’re going into, what types of claims you have protection for. Each country is a little bit different. US is a bit more agreeable on software. Europe is not so agreeable on software. Each country has different issues that you have to evaluate. The big thing about filing strategy to is knowing where you’re going to enforce it. Where your customers are, where your competitors are, where your competitor’s customers are. Because if you have the competitor customer and you can sue them and they’re never going to be your customer that might be more leverage against your competitor.

Portfolio maintenance. As I said before you want to groom and adapt it. You want to manage the cost and you really want to identify important inventions. An invention that you filed 5 years ago may not be as important anymore. You want to continually rank your inventions as you move forward. This is something that some companies don’t necessarily do all that well is that you want to know where your key IP and technology is. Because if you’re not grooming your patents or you’re not identifying stuff going forward, you’ll forget about them and you won’t know when someone is infringing. You won’t know what tools that you have. IBM, in their portfolio, they actually rank all their patents. So they basically classify each of them. So one of them is going to be quarter their technology they’re going to enforce. Two is going to be they’re going to cross licence it. They’ll give it into the industry. Three is called basically a filing cabinet patent which might be either cross licencing or if someone comes up to them and says, “Hey, you’re infringing my 10 patents.” they’ll come back and say, “You’re infringing my 100 patents.” It really depends on the importance to your business and where they fit into it.

This is a key thing to remember and we run into it now, especially in this day and age, is with a lot of collaboration with outside companies and contractors, is you need to know ownership. Who owns the technology? Just because someone in your company brought up the idea or brought up the invention disclosure, they may have collaborated with someone externally. They may have external contractors. You may have joint development agreements. You need to have that all ironed out because that will come back to haunt you later on down the road. A more interesting one is government employees now are an issue in Canada. The recent court decision where someone was on the reserve list and developed a patent for a sheltering system. He sued D&D over it because they went to another manufacture. D&D’s defense was you are a government employee, you are obligated to request approval from the Minister and they said he didn’t. So it potentially invalidated his patent. There are issues like that. You have to clear these things out ahead of time. Co-development is becoming a bigger issue now as companies work together. The biggest thing I can say about co-development is make sure you have the agreement in writing ahead of time of how it’s going to happen and move forward with it. Particularly as in companies when management changes, people changes, that corporate history, corporate memory leaves, and then you’re at a point where one company has a patent and they don’t know who to talk to at the other company and they don’t know what to do with the patent. It works both ways in that one company may decide to abandon the patent and not take the cost and the other one will. So you want to make sure you have that up front. You know who owns it, what rights you have to it and what impedances you might have going forward with it.

The other key thing to remember is inventors. They are the most important people besides me and Michael. They’re the ones that have to come up with the ideas and you have to develop a culture within the company of innovation. You have to show that they are being respected for what they are doing. Patents are very good at recognizing innovation within a company. It’s great to have a plaque for an inventor after they got something issued and make a big deal about it. It provides recognition with it. It provides something tangible to the company to show that they are respected and that this is a company that innovates. A lot of companies have, depending on your size of the companies, may have an innovation program. So inventors will be compensated for generating information disclosure or writing up an invention and then they’ll be compensated when the patent gets filed and compensated when the patent issues. It doesn’t take a lot to motivate inventors to do that but that’s sort of a side perk that gets them interested in generating IP and actually moving forward with it. You want to have some caveats on it. I’ve seen cases in certain companies where it’s been abused and all of a sudden you have a whole bunch of invention disclosures from the same inventor. He’s figured a way to kind of gain the system to get stuff out there to be rewarded for it. But it’s a way that you have to build into the corporate culture that you’ve got IP that is important to the business and is successful moving forward. Actually, one thing I want to add there to is make sure you have IP agreements in your employment contracts. Hopefully everyone does. If you don’t you want to make sure you have them because you may not have the rights to your inventor’s IP but you think you do. You want to make sure you have a good employment lawyer that has vetted those IP contracts to make sure that you have it.

The last part is enforcement. You want to watch the market place. You want to know what is going on. You don’t want to just stick these in a filing cabinet and just let them get dust on them because then you haven’t spent your money well. You want to make sure that you know what is going on. You want to know as things change and you want to be aware as threats come up. If your legal department gets a letter from someone threatening that your infringing, you want to make sure that you know that you have something to defend against. You want to re-evaluate your portfolio. Because of the costs involved you want to make sure you are always monitoring what’s going on. You want to make sure the team knows what IP you have because there may be other areas that your IP’s useful outside of what you do. Sometimes you can get a patent, for example, “Rockstar”. I think the key patent Rockstar enforced against Google was not quite a Nortel’s product, it wasn’t part of a Nortel division, and it turned out to be the most valuable patent they had. You have to really mine that technology to see what you can use. And the last part is you got to contact the litigant. You got to know when to call Michael and sort of say, “Okay. We’ve got a problem. We need to something with it.” or “Our rights are being infringed and we have to enforce it.”

The big thing to remember is sort of the key assets; you got to plan, you got to generate, you got to manage. If you don’t plan, the other two won’t happen and planning up front, like any other part of your business, is the most important part. You want to build it into your culture and you want to make sure that you stay on top of it.

Michael:          Thank you Mark. I’m going to now move on to defensive IP strategies and, specifically, I’m going to talk about defensive strategies from a patent enforcement point of view and defensive strategies from trade secret protection point of view, so internal strategies for your company and protecting your trade secrets.  Just a little bit of context, I’d say, in picking up a bit on what Mark presented on with respect to some of the companies that are very active and how they see value in IP. This graph shows the split between intangible assets and tangible assets within S&P 500 companies. Intangible assets being the bricks and mortar of a company versus the intangible assets, things like IP, trademarks and patents. As you can see, very small proportion of company value was in IP in the mid-1970’s and that has completely changed up until 2015, where it’s between 80%-90% of a company’s value, at least S&P 500 companies, in their IP. Also, in terms of, just to set the stage a bit, how active are companies in the patent area? If we look at the US, which is the most active patent office in the world, we have in the early 90’s, patent filings in terms of lawsuits as well as patents granted in the United States patent office, they were sitting at around 100,000 or so patents granted, and about 1,000 litigations. Fast forward to more recently, and especially about 5 years ago, those numbers skyrocketed. Companies are aggressive with their patent filings and with their patent enforcements. Looking a little more closely at 09-2015 the spike in patent lawsuits is really quite something. It went from around 2,000 and some only in 2009 all the way up to over 6,000 in 2013. Very aggressive and a lot of that was due to non-practicing entities and that business model really taking hold and really becoming more prevalent, so that’s what we’re seeing in the United States. Canada, just a quick look, actually a little bit different, I don’t know if you can see that very well, light blue is probably not the best colour there, but the point there is it’s actually been a bit flat in Canada. The jurisdiction here is not as aggressive when it comes to patent lawsuits or patent trolls coming to Canada and asserting their patents.

What else are we seeing, generally, in terms of the landscape, huge valuations on patent portfolios. A few years ago there was the Nortel patent auction. The portfolio sold for 4.5 billion dollars. That was more than the tangible assets combined. There was a 12.5 billion dollar sale of Motorola to Google and many have valued the patent portion of that as being the lion’s share of that purchase price. There was a billion dollar plus sale of AOL’s patent assets to Microsoft and even in the courts we’re seeing some pretty sizable judgments. There was the one billion dollar Apple/Samsung judgment at first instance on some patent rights. Pretty heavy valuations and we’re also seeing more players come into the fold. It’s not just Apple versus Samsung fighting over patents, we’re seeing a lot of patent assertion entities. These are the patent trolls or the NPE’s. We’re seeing privateers where these are companies that basically are used as an outsource by a big company with a patent portfolio that doesn’t want to monetize their patents themselves. They outsource that to a privateer. We’re also even seeing investment banks and litigation funders get involved who maybe help out smaller players that maybe don’t have the financial resources to go up against a big defendant. Or maybe it’s a big company that just wants to get the cost of litigation off their balance sheet and transfer their risk to an outside funder. Current landscape is basically that we are in a time, I think, that the business of obtaining patents and enforcing them has never been this complex. All-time records in terms of filings and applications and some huge valuations, as well as a lot of uncertainty. We’re seeing a lot of uncertainty, especially in the United States with some Supreme Court decisions like the Alice case that called into question business method patents and we’re also seeing new techniques for invalidating patents like the post grant reviews that we have in the United States for invalidating patents.

Turning now to patent enforcement risks. There are really two enforcement risks that a company is going to face when it comes to patent assertions. They can be from non-practicing entities or they can be from your competitors. So NPE’s. They don’t fare well in the main stream light. They get a pretty bad rap and some cases it’s deserved. If you go online you’ll see lots of funny pictures and cartoons as to what patent trolls are. But generally speaking, companies that are either patent assertion entities, so their sole purpose is to acquire patents and then enforce them for licencing revenue. Or they could be a non-patent assertion entity. Even a university could technically fall into the category of an NPE because they don’t make the product but they do generate the IP and in some cases will enforce it. The practice of NPE’s has actually existed for quite some time. The earliest NPE’s were back in the 1800’s when there was the sewing machine wars and the inventor of the sewing machine didn’t actually make sewing machines but he has asserted his patents against Singer. Why are NPE’s so popular, and in some cases, well positioned to asset their rights? Well, it’s because when an NPE sues somebody, the defendant can’t really countersue them with any patents that they may have, because the NPE’s not out there selling any product. They’re not competing. That gives the NPE a position of leverage and as well, especially when we’re talking about the United States, cost to litigate can be in the millions of dollars. The cost to defendant a lawsuit can be in the millions of dollars and a lot of these NPE’s will just seek settlements that are below the cost of litigation. In some cases they’ll only seek nuisance value settlements. This is all despite the fact there have been a string of court decisions that have come down fairly hard on NPE’s or at least the assertion of patents that NPE’s typically use and also looming patent reform that we may be seeing in the United States. All of these headwinds that NPE’s are facing, their still continuing with their business model, so they still are a risk that you need to be mindful of. Generally speaking, the bigger your company, the more products you’re selling, the more money you’re making, the bigger target you’re going to have on your back for being the subject of an assertion by an NPE.

What do NPE’s typically do? In many cases they’ll send you a demand letter before they’ll launch a lawsuit. As Mark mentioned, he’s had a client, I’m sure he’s had multiple clients, that have received demand letters from NPE’s. It’s typically the first time as a company you’re going to get any inkling of any patents owned by this NPE, or in some cases, ever even heard of the NPE. So what do you do? Do you respond and engage? Or do you ignore and toss that letter in the trash can? You should always follow at least a basic process anytime you receive those kinds of letters. At least initially don’t ignore it. Ask some basic questions. Who is the NPE? What are the patents at issue? Is this an NPE that is completely missed the mark on what your business is actually doing? Because there are some NPE’s that will fire out hundreds or thousands of letters indiscriminately and they may have completely missed the mark by sending one to you. Do the patents related to products or services that you actually developed and have control over, how they are sold or used? Or, did the patents related to something that you just bought off the shelf, like a photocopier, a Xerox photocopier that you’re using in your office, such that maybe there is some sort of agreement that you have that the manufacturer is going to indemnify you if you ever get accused of patent infringement. Look at those factors. See if there is somebody that you can refer the case to to defend it for you, such as a manufacturer that has indemnified you. In some cases an indemnity is not going to be in place and you’re going to need to deal with the allegations.

Consider a number of things. Number one, is this a well-known NPE? Is this somebody that is going to litigate if I don’t negotiate? Or is it somebody who’s got a reputation of just sending letters, never litigating and really just out there fishing for licences. Consider as well the likelihood of whether you infringe and also consider maybe you’ve got some smoking gun prior art. Maybe you’ve got some document to show, for example, your product was publicly sold before the patents owned by the NPE were even filed. That alone could possibly dispose of the case. Always take a holistic approach. Look at these initial questions and then form a plan for how you’re going to respond.

Where possible, it’s great if you can show non-infringement or that their patents are invalid. You might need to put together detailed claim charts to prove that or to really convince the other side that’s the case. You always want to keep the NPE placated and out of court and, to the extent you do get into a discussion on settlement and you’re trying to negotiate proper royalty, you always want to look back at the earlier agreements that that NPE entered into with others. Those are going to form the anchor for what is going to be a reasonable royalty in any future cases. Then remember, as I mentioned before, the cost to litigate can sometimes be much, much greater than the cost of settling and although it can be painful to negotiate with some of these companies, it’s sometimes in the end the most cost effective way to proceed.

In some cases the stakes are very high and settlement at an early stage without litigation is either not an option or is not the best approach and you’re going to want to litigate at least for a little while and push back on the NPE’s assertions. In considering litigation, if you’re going to go down that road, there are so many different options you can look at for how you want to go down that road. Maybe the NPE’s sues you first and drags you into court somewhere and you’ve got to deal with that. But that doesn’t mean you don’t have any other options. You could, for example, challenge their patents in patent office post grant proceedings. Right now in the United States the inter partes review is very popular and has been referred to by some as the “The Patent Death Squads” because a lot of patents that were granted by the US patent office are being invalidated after they’ve been granted in these inter partes review proceedings. So look at those options. Maybe that’s a way you can get leverage over the NPE by dragging them into a jurisdiction or into a forum that they don’t want to be in. If it’s an international dispute look at forum shopping. One of the things that I do a lot of is gather and study data on win rates in different countries. For example, in the United States in the eastern district of Texas, it’s a very favourable place if you are a patentee, whereas for years in the UK it was a very unfavourable place if you were a patentee. You only had maybe a 20% win rate. You want to look at all the different places where maybe you could go to invalidate the NPE’s patent rights, where you’re going to stand a better chance than where they may have dragged you. If there are other accused infringes you want to try and join forces with them, share in the costs, maybe share in defense.  To the extent that there’s any concern with things like treble damages, which is triple damages in the United States, you want to make sure you get the proper opinion letters in place so that you’re not exposed to that. Exploit weaknesses in the NPE’s business model. Typically NPE’s run their cases with law firms on contingency. They want to have a quick settlement and something that is low cost. Maybe you work against them on that and you drag out the litigation and exploit some of their weaknesses and try to drive their price down. In some cases companies will adopt a no negotiation policy. They simply don’t want to be known as that company that always settles with patent trolls so they always fight back.

Turning to competitor patent assertions, probably one of the most popular or well-known ones recently, is the Apple/Samsung patent wars. They’re ongoing. I believe they settled in most countries except the United States. Things are ongoing there. What motivates competitor patent assertions? Primarily market share preservation. That’s in contrast with NPE’s where they’re just seeking damages. When it comes to competitors, oftentimes you’re trying to actually get them completely removed from the market with whatever that product or service is, because you’re going for a permanent injunction at the end of the day. The risks, when we’re talking about competitor assertions, are actually somewhat greater than an NPE case. Not only could you be hit with damages, you could also have your product pulled from the market. A few different things for minimizing the risk of a competitor patent assertion. First, you want to have good non-infringement arguments. Second, you want to have strong invalidity arguments and third, and Mark touched on this a bit, you want to have a strong patent portfolio of your own for counterclaim purposes. I’ll talk about each of them.

When it comes to non-infringement you need to know who your competitors are and what their patent assets are. When you’ve identified their patent assets you want to identify which ones of those could be of potential concern to your products or services. They’ll probably have some patents that you don’t care about but then there will be others that maybe read on, or partially read on, what you’re doing. Identify the ones that are of concern and with those you want to start developing a strategy for minimizing your risks of infringement. The first thing you can do, the low hanging fruit if you will, is to design around. If that’s not something that’s going to be too disruptive in the company. If you can design around the patent and avoid infringement then that’s a pretty clear way of avoiding that risk. To the extent design around is not feasible then you want to look at invalidity.

With invalidity that is where you have evidence that the patent that your competitor has is invalid because somebody else, either you or a third party, actually publicly disclosed or used the invention before the patent was filed. You want to catalogue and make sure you keep good records of any prior art that a third party may have disclosed. As well, to the extent that you had disclosures related to your product, whether that be manuals or old webpages, things like that, keep good records of that. That could come in very handy down the road if you ever need it as evidence in a case to show what you were doing pre-dates when the patent was filed. It’s also important to have evidence, not just of what the prior document is or what it discloses, but also that it was indeed publicly available. A lot of times that gets overlooked. It just gets assumed while it was publicly available. You actually need to prove that. You need to show that something was publicly available. In some cases maybe you want to look at just a practice the prior art approach. You want to basically steer clear of anything that could be considered and infringement risk and just do things that are already in the public domain because if you’re doing what’s in the public domain, then you’re much less likely to be accused of infringing someone’s subsequent patent.

Then portfolio strategies. There’s the expression the best defense is a good offense or MAD, mutually assured destruction. So that is if you’ve got an arsenal of patent assets and your competitor’s got an arsenal of patent assets, you could have World War III over those portfolio’s, asserting them against each other and spend millions of dollars on litigation. Or you could cross licence and everybody walks away and saves a lot of money. And that’s often why the companies like the Google’s and the IBM’s and everyone builds these portfolios so that when one of their competitors comes knocking they’ve got some leverage for counterclaim purposes. Like Mark said, it’s like an insurance policy. It’s a strong deterrent against somebody coming after you because they know if they come after you, you’re going to fire back. There’s lots of ways to really build your portfolio and keep it strong working with people like Mark. You want to use continuations and divisionals and other different measures that are in the patent office to keep your claims pending and so that you can craft them around what your competitors are doing. Just a real world example of this. A client that we’ve worked with, they were a market leader in a particular product area. They had a competitor that had entered the market with some disruptive new technology, some new wireless technology and some new green technology that was real game changing for this particular product space. The client knew they had to go that way as well. They knew that that’s the way the market was going, they had to follow, but they needed to minimize their risk with respect to this new competitor that just came along and had this big portfolio it was building that covered all of their new innovations. So what did they do? First of all they designed around wherever they could to minimize risks on as many patents as possible there. The remaining patents that were of concern, they built up prior art records and got everything in line in case they ever needed to use that in any future lawsuit to defend themselves on those patents. Then thirdly, they built their own portfolio with forward looking innovations that eventually the competitor themselves started putting in their products and started using and so now, today, if there ever was a lawsuit by the competitor against our client, they would have some assets to fire back with. So far, so good. The client has escaped litigation all the while the competitor has sued others in the market that weren’t as forward looking with their planning and their infringement avoidance.

Just for the last few minutes I’m going to talk about trade secrets. This is kind of the second part of defensive IP strategies. We all know trade secrets are basically secrets. They are things like recipes, like the Coke formula or the KFC recipe. It really is a broad definition. It’s basically any information of commercial value that’s an organization or individual doesn’t want revealed to somebody else. What makes a trade secret a secret? It’s got to be obviously a secret, kept confidential. There should be some commercial value associated with it and, most importantly and what I’ll be talking about, is having reasonable measures in place to keep it a secret because you find yourself having to enforce a trade secret in litigation, the court is going to take a very close look at how you treated the information. Did you have the measures in place to keep it a secret? If you can fit within that criteria then you’ve got your trade secret and you can keep it forever. But the moment that it gets released to the public, either somebody figures out how to reserve engineer it, or maybe someone discloses it in a document, then the trade secret protection is lost. Examples of trade secrets can be business secrets like customer lists or it can be technical things like computer programs, source code, things like that. A wide variety of things can be trade secrets. Just a note about departing employees. For some this is a couple of surprising stats here. A little bit dated but still relevant, I think. Nearly half of Canadian employees don’t believe their organization would actually go after them if they took trade secrets with them. Nearly 60% of departing employees have indeed taken confidential information with them. A bit surprising. All the more reason to be very careful about how you protect your trade secrets. What do you do? First of all you’ve got to know what the secrets are. You’ve got to know where they are. Obviously, as I’ve said before, you’ve got to keep them a secret. How do you do that? You have non-disclosure agreements, you have company policies, procedures and I’ll talk about a couple of those in a moment. Record preservation is really key in the event that there is a breach because you’re going to want to move quickly if there is a breach. You may want to get an injunction. You may want to get into court very quickly and you need to have the evidence to show what the trade secret is and that you had kept it confidential in the company to satisfy the court that this deserves being protected. In some cases maybe you want to consider converting the trade secret to a patent. If you think that maybe some person or group of people are going to leave the company and they have a lot of knowhow with them and they’re going to take that with them somewhere else, maybe you take that IP and put it in a patent application so that it’s protected no matter what those people do down the road.

What are some practical measures for protecting your confidential information, and more specifically, for showing that you are keeping that information confidential and you have those reasonable measures in place for doing that. Probably the most important thing is an NDA. That goes for both your employees and any third parties you may be dealing with such as consultant. You want to have policies in place that deal with confidentiality and security of information. You want to make sure you’ve got proper building security in place, proper IT security in place to keep everything that’s confidential locked down. That includes any dealings you have with cloud providers. You want to have strong labeling practices for labeling hard copy documents and electronic documents as confidential, where applicable. Technology systems and equipment use policies so things like laptops taken outside of the business. Public statements and social media policies. Make sure that there are strong policies in place about what people can say publicly and their use of social media, obviously not disclosing confidential information. A code of conduct for employees is also helpful and having employees sign that. It’s an extra layer of protection and an extra bit of evidence that you can eventually show a judge that you’ve taken the protection of the IP seriously. Just a few others, you know, really courts do look at how much a company emphasizes the importance of confidentiality within the company. How much a company polices and monitors their systems for compliance with their confidentiality restrictions. You want to have where possible some exit interviews or termination agreements to reaffirm an employee’s obligations of confidence. Generally speaking take a need to know approach to confidential information and it’s dissemination within your organization and ask yourself, “Does somebody really need to know this or have access to this?” and control the flow of information in that sense.

So, I guess any questions for either me or Mark? I realize it’s 9:00am and people probably got to get going but we’re happy to take questions one on one afterwards as well, if anyone has any. Before we go I do have an announcement. That is just in relation to some future talks that we’re going to have. For the first time publicly, we’re announcing this, we’ve got this year a Risk to Reward series that we just finalized. It’s a series that’s going to run through 2016. We’ve recognized that your companies are being faced with important legal regulatory and corporate risks and we’ve created a seminar series to assist you with addressing these issues. The seminars are geared towards business owners, executives and professionals. The series is also a course for lawyers and we’ve made the series comprehensive so that not only will it cover many issues that you’re companies are facing today but it will also allow you to collect all nine of your substantive and three hours of your professionalism CPD credits. You may have noticed on the event reminder for today that went out earlier that registration is open now for the next seminar and that’s going to be held on June 2 and it’s going to address the topic of working and lobbying with government. That’s going to be hosted by Gowling WLG lawyers, Jacques Shore, Phuong Ngo and Guy Regimbald. Additional information on the remaining seminars along with registration information will be sent out to you shortly.

Thank you very much for coming and hopefully we’ll see you again at future events.