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Discussion and summary

Introduction

Throughout your study of the various modules, you have learnt about various types of intellectual property and their different types of protection. The modules have stressed the benefits of the various forms of protection in terms of the holder's rights. An underlying theme in all of these explanations was that creators of intellectual property can generate financial rewards by the exercise of their rights. Simply owning intellectual property rights does not generate money. To produce income the owners of the rights must exploit them financially through various types of commercial agreements including licensing arrangements and/or assignments of rights. In a sense, all of these commercial agreements are an attempt to turn intellectual property into intellectual capital.

The next few audio segments are longer than usual, you should use them to help you recall the concepts covered in the earlier modules, as well as listening to examples of the creation of wealth from intellectual property rights.

Intellectual property is based on laws that provide for the protection of certain creations of the mind such as inventions, films, books, music and so on. Intellectual capital includes intellectual property, but also other things that a company can use to gain a foothold in the market, for example, customer lists, training methods, quality control methods or quality testing procedures. All of this is intellectual capital, but we should not forget that a company's greatest intellectual capital is its labor force.

Intellectual property may not always be intellectual capital in a strictly monetary sense, because a patent, for an invention that has not been placed on the market and used to generate income for the company, is not worth the paper that it is printed on. The patent for an invention has to be used in a commercial environment; it will give the company a competitive advantage because, by using it, and thereby preventing others from placing a similar product on the market, the company can generate increased profits. The same applies to registered trademarks. A trademark that is not known to the public is not worth much, but a trademark like Coca-Cola, say, is worth billions. And yet some people say the Coca-Cola trademark has no price as it has never been offered for sale. So we have to make a difference between cost, price and value.

How do you distinguish?

The value of a trademark is actually based on how much somebody would be ready to pay to acquire it. For example, if somebody is ready to pay a million dollars for a trademark, that might be the value but it is not the price, because the owner might not want to sell. So, there is no set price if there is no transaction; the price would be determined by the transaction itself. And intellectual property then becomes a known value if it is offered on the market and there is somebody ready to buy it.

Take the example of an invention. For example, the famous Velcro textile fastening material was invented by a Swiss inventor who unfortunately didn't make much money out of his invention, which today is used everywhere, because he was unable to get it on the market during the lifetime of the Velcro patent. Indeed his only income was from a contract with NASA, which used part of his invention for the fastening of spacesuits for its astronauts. In the meantime, however, the invention has generated a great deal of income for the follow-up user who has used it since it became public property; companies that use Velcro today do not have to pay any royalties or license fees to the inventor. This is just one example. Other inventions have generated considerable income for their owners; I could also give you the example of the Dolby system of noise reduction for high-fidelity stereophonic equipment, which was invented and then efficiently marketed by means of licensing agreements throughout the industrial sector and other arrangements that demonstrated the advantages of the Dolby system for the licenses when the technology was passed on to the eventual user, namely the consumer in search of superior quality music.



So briefly, as I do know a bit about the system, the licensing arrangement was that every manufacturer who incorporated the technology paid a fee to Dolby?

That's it. Every manufacturer would pay a fee to use the Dolby system on certain conditions; for instance he was obliged to make it clear to the consumer that the Dolby system was being used, which in turn was indirect publicity for him, and that nobody could use the Dolby system without entering into a license agreement with the owner.

Do you have another example of how intellectual property can be made commercially successful?

We all know how strong pharmaceutical companies are in the intellectual property field. All the pharmaceutical companies, when they invest in the development of new treatments, medicines, and drugs, expect to be the only providers on the market for a time so that they can make more profit than they would if there were more than one company offering the same product.

You will notice that some new medical drugs appear on the market at quite a high price and that, towards the end of the lifespan of the patent, the price goes down for users as generic forms also appear on the market. The generic forms are in fact the same medication and use the same formula, but their patents have already expired and the technology is in the public domain. The pharmaceutical companies try to maintain their advantage by intensive marketing of the trademarks relating to the specific medications. No one but the Bayer company can produce Bayer aspirin today because the trademark is owned by the company. However, there are many companies that produce a medical drug with the same ingredients as aspirin which has the same effect, but they use a different name. So the consumer may be drawn by the traditional name and well known qualities of the Bayer trademark, but when he is persuaded that he can buy an alternative product for the same price or cheaper, then that is probably what he will do.

So the example you have given us concerns two forms of protection, namely the patent, which has now expired, and the trademark, which continues?

That's right. The trademark, unlike the patent, can be kept forever, for in perpetuity. And this is very important to companies that produce staple products. Trademarks are usually associated with staple products, being less important when associated with specialized products. By specialized products, I mean purpose-built manufacturing equipment, for example, or mining or drilling machinery. In that case the industrial consumer would not be using the trademark to lead him to a known product, he would be buying the technology, and then only every 10 or 15 years. He would therefore be looking at technology, as he wants the best quality and the best equipment for his money, and the trademark, if it belongs to a source known to produce the type of equipment he is after, would give him a sure reference to the reputation of the producing company. In a mass consumption market, a trademark will have a powerful effect: people buy with their eyes and hands; only later do they check what's inside the box.

Can you tell us a bit about the economic benefits of intellectual property for developing countries?

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Certainly. Developing countries can benefit from the intellectual property system in the same way as industrialized countries. The disadvantage for developing countries today is that many of their companies do not yet fully appreciate how to use the intellectual property system to their own advantage. But as awareness increases, certain products start to appear on the market; I cannot give exact examples, but generally speaking Indian multinational companies trade and sell branded products, which are a reference for their clients, so the clients go and are able to find the products that they are looking for, because they know the origin of the products and use that as an indicator of quality.

In technology too, if a research center in a developing country develops a technology that might be useful to another country, and does not secure patent for its inventions or industrial design, it will lose its advantage. It will lose the possibility of selling the technology and thereby earning additional income for its intellectual product. Another example springs to my mind; it concerns pineapples. In Europe, you will find pineapples on the market that come from various countries. Sometimes the shop will state that it's a pineapple from Ghana, from Central America or from Ivory Coast, but as far as I know only Ivory Coast has so far actually introduced a label "Pineapples from Ivory Coast," and certain shops have observed that customers are looking for those pineapples in particular. This is not a trademark as such; it's more of a certification mark, but it is registered as a trademark, and exporters from Ivory Coast can use the label to distinguish their products from the pineapples of other foreign producers. And I believe that developing countries would benefit from making more use of the various appellations of origin, geographical indications or trademarks that are available as a means of selling their goods as local produce, not as standard goods from no identifiable regional source.

The terms licensing and royalties often come up in connection with the exploitation or marketing of intellectual property. What's the difference between licensing and royalties?

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Licensing is a process whereby something is allowed. It's the giving of permission. It comes from the Latin noun licentia, meaning permission. The owner of the intellectual property right or IPR is the only person who can permit the use of that IPR by somebody else. If somebody wants to use my technology, he has to enter a license agreement, a form of contractual arrangement, with me, and that agreement will specify the conditions on which he will use my intellectual property rights, namely how, where and when. This amounts to permission by law, and it is the legal way of exploiting intellectual property rights. If somebody uses my intellectual property, say my technology, my invention or my trademark, without permission – that is illegal, it's infringement or an act of piracy, and it only becomes legal if and when he enters into a license agreement with me.

The Royalties on the other hand are the remuneration payable under license agreements, usually calculated as a percentage of the number of units or the quantity to be produced under the license. For example, if you license the production of tires to somebody, you have two ways of setting the price in the license agreement. Either you opt for a lump sum, in which case you decide that your technology and the know-how that goes with it is worth a million dollars, and the agreement specifies how the licensee is to pay the million dollars, or you provide for royalties, which are regular payments of remuneration based either on production quantities or on other factors.

Royalties are used by licensors when they want control over the licensee's output and also to some extent on its quality, because the volume of royalties is an indicator of how much the licensee is manufacturing and ultimately a means of checking on the licensee's manufacturing capacity. For the licensee, the advantage of agreeing on royalties is that the amount payable for the technology is spread over years and the benefit he derives from the license depends on his output. It is useless if a licensee has to pay a huge amount as a technology fee, which we call a lump sum royalty, and then does not use the technology to secure a return on the investment made.

Can you tell us something about innovation centers?

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Innovation centers are a concept that appeared in the late 1970's and 1980's in some industrialized countries. Basically, they appeared for the first time in conjunction with university research or government-funded research laboratories in Western Europe and North America. The main function of an innovation center is to bring a new technology and new development from the researcher's desk or the laboratory to the market. It's easy to say that you have to transfer technology. It's much more difficult actually to do it, because the stage of development of an invention will greatly influence the cost of the transfer.

If you have an invention that has been proved new and is therefore patentable, and you have been granted a patent, you have taken the first step, but this does not mean that the technology will actually work. It may work well in laboratory conditions but never work in industrial applications. Sometimes the market is not ready to receive it. Sometimes other conditions or human factors interfere and you cannot transfer the technology. So in fact innovation centers are similar to the business incubation centers of a government or chamber of commerce.

The innovation center would help the inventor or researcher bring his invention or other IPR on to the market. It could offer various services like, intellectual property advice, assessment of inventions for economic viability and technical feasibility or in relation to the legal environment in which the invention has to work, and it would assist the inventor or researcher in developing a business plan with which to attract investors and manufacturers more easily, as a business plan gives a better idea of how one would like to see the invention develop and be exploited as a marketable product. Basically, it would serve as a bridge between research and development on one hand and manufacturing on the other.

So in a way, the innovation center is an attempt to turn intellectual property into intellectual capital?

That's right. That is indeed what an innovation center would do, ideally, to facilitate the transfer of the invention from the research stage to the market. There are successful innovation centers in many universities, not only in industrialized countries but also in Mexico, Brazil and in Argentina, and I've heard that they are also to be found in countries of the Far East.

Our task at WIPO is to encourage developing countries to establish innovation centers as structures that will facilitate the marketing of intellectual investments, in other words, the research results achieved at national or university-based research laboratories, or by national inventors.


Date: 2015-02-03; view: 760


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