Business intellectual property cautionary tales - CAANZ
Most business owners know they should protect their company intellectual property. But few do it properly or understand the risks.
As part of a business briefing series, CAANZ (Chartered Accountants Australia and New Zealand) has released Maximising the potential of Intellectual Property for your business along with IP Australia and the Intellectual Property Office of New Zealand. It offers trans-Tasman guidance on identifying and managing IP, commercialising IP, the financial aspects and the effects of social media
"Effective management of IP can benefit businesses by assisting them to grow through commercialisation opportunities and to develop a strong brand and business reputation," CAANZ's policy head Karen McWilliams said.
"Ultimately, you will be able to minimise the risk of copycats, which can ultimately erode market share."
CAANZ also compiled ten cautionary intellectual property lessons from around the globe.
1. Volkswagen's takeover of Rolls-Royce
In 1998 Volkswagen purchased Rolls-Royce and Bentley. The purchase included the Bentley name but – as Volkswagen found to its detriment – it did not include the license to use the Rolls-Royce trade mark on cars. This trade mark is controlled by Rolls-Royce Plc. BMW subsequently acquired the rights to use the Rolls Royce trade mark after a four-year legal battle.
LESSON – In any Merger and Acquisition, ensure you have a clear understanding of all IP included and excluded from the deal.
Kodak invented the technology behind the digital camera in 1975.
This was a feat in itself given this was before personal computers were around. Kodak patented the first digital camera in 1978 but Kodak had a good existing business model based around film and no one at the organisation saw any reason to disrupt it. Every digital camera sold meant a film camera and its associated film sales were forgone.
The patent did earn billions for Kodak until its expiry in 2007. However, Kodak embraced digital photography too late and was left behind by its competition. In 2012, they filed for bankruptcy.
LESSON – Ensure you take advantage of your intellectual property, registration is not enough on its own.
Electrical manufacturer Kambrook potentially lost millions of dollars because it failed to protect its electrical power board invention. When it was released in 1972, the product was hugely successful and was the basis for Kambrook's growth into a major producer of electrical appliances.
As the product was never patented, Kambrook ended up sharing the market with many other manufacturers and losing its opportunity for millions in royalties. Today Kambrook has a number of registered rights for a range of consumer goods demonstrating their awareness of the importance of IP.
LESSON – Ensure you register all new inventions
4. Light bulb
Thomas Edison is famous for inventing the light bulb. However, Sir Humphry Davy first created incandescent light in 1802 and there were about 21 other inventors during the 19th century.
Sir Humphry refused to patent his invention. Thomas Edison was one of the first to turn his invention into a long lasting bulb that was commercially viable. He patented his light bulb in the US 1880 and later formed a joint company with Joseph Swan, who held the patent in England.
LESSON – If you don't patent your invention, someone else will.
5. The Hangover Movie II and Tyson's tattoo
The release of movie The Hangover Part II in 2011 was almost delayed due to an alleged IP infringement. In the movie, a character gets a tattoo which is identical to the one Mike Tyson has. (Mike Tyson had a cameo role in the original movie, The Hangover.)
Tyson's tattoo artist had obtained a copyright for the eight year-old "artwork on 3D'. He filed a lawsuit against Warner Bros. Entertainment just weeks before the movie's opening claiming the use of the design in the movie and advertisements without his consent was copyright infringement. Warner Bros. saw it as fair use. A confidential agreement was finally reached out of court.
LESSON – Get permission in advance to use other's IP.
6. Barbie v. Bratz
Barbie, a 42 year old toy from Mattel lost significant market share to Bratz, made by MGA Entertainment, in their first few years on the market. Mattel responded by suing MGA Entertainment in 2005 and they have been in a legal battle ever since.
Mattel's case was based on the fact that the Bratz designer, Carter Bryant, designed the Bratz dolls while still on Mattel's payroll.
Mattel claimed ownership of Bryant's ideas under his employment contract, even if they were not specifically developed for Mattel. Subsequent court decisions have centred around two key points: first, whether Mattel had claims to the Bratz drawings and prototype through its employment contract with Bryant and second, if they did own the copyright, whether or not the Bratz dolls infringed that copyright.
LESSON – Ensure all employment contracts are well drafted and precise.
7. Star Wars
In the mid-1980s, the US Government's Strategic Defensive Initiative (SDI) under Ronald Reagan's administration was nick-named the 'star wars' program by politicians and journalists. George Lucas's production company did not want the public to associate their movie franchise with the controversial plan to place anti-missile weapons in space.
Lucasfilm Ltd. filed a lawsuit in 1985 against two public interest groups that had referred to SDI as "star wars" in television messages and literature.
Lucasfilm Ltd. had a trade mark for Star Wars, however the court ruled in favour of the interest groups and their legal right to the phrasing so long as they didn't attach it to a product or service for sale.
The court noted that "creators of fictional worlds have seen their vocabulary for fantasy appropriated to describe reality".
LESSON – Be aware of the 'fair use' boundary for trade marks
8. Adidas and Payless Shoes
Adidas had been using its three-stripe mark since 1952, and had registered it as a trade mark. In 1994 Payless was selling similar athletic shoes with two and four parallel stripes.
The two companies reached a settlement, but by 2001, Payless was again selling the confusingly similar looking shoes. Adidas America Inc. demanded a jury trial, which lasted seven years, during which 268 pairs of Payless shoes were reviewed. In the end, Adidas was awarded $305 million and they have continued to defend their three stripe trade mark ever since.
LESSON – Be ready to defend infringements to your registered IP
9. Burger King's expansion into Australia
When American fast-food chain Burger King moved to expand its operations to Australia in 1971, it found that another company there had already registered "Burger King" as a trade mark.
They were forced to rebrand their restaurants as "Hungry Jack's" for the Australian market. Australia turned out to be their second-largest market outside the US – and yet the "Burger King" name is far less recognised here.
LESSON – Build a your IP strategy in advance and register relevant IP rights in all necessary jurisdictions
10. Donkey Kong and King Kong
In 1982, Universal Studios pursued aggressive litigation tactics against Nintendo over the King Kong trade mark as Nintendo's Donkey Kong game was perceived to have the same story line.
However, Universal Studios had earlier won a court case that they filed to have King Kong recognised as a public-domain property – a case that was cited in the decision to award damages to Nintendo.
LESSON – It's important to regularly review your IP assets.