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Tuesday, 19 October 2010

Is IP Ultimately Not About Rights But About Trust?

The challenge of weaving IP into an MBA class is two-fold. First one must distill IP down to workable didactic components that are both compact and student-usable. Secondly the course must take great care to remember that it is not "IP law lite", but a free-standing inquiry into the ways that IP expresses itself in issues of management and strategy. I want to focus on the first component of this challenge: how do I present IP on the basis of generalizable categories while at the same time transmitting at least some of the particularity of each of the IP rights? The manner by which I have attempted to accomplish this is by describing two basic categories of IP rights.

The first is comprised of patents, copyright, trade marks and designs. Each of these rights is, more or less, a right that is good against the world and the validity of each does not depend upon any particular issue of personal trust between parties vis-à-vis such IP right. In contrast stand rights in trade secrets and know-how. Here, the key to the right is the personal relationship between parties between whom the know-how has been disclosed. Unless the "owner" of the know-how does not need to share the know-how with any other person, he will have to deal with the circumstances of its disclosure to employees and various third parties. Unlike the first category, here the issue of trust is paramount since, at the end of the day, in the absence of trust between the parties, no disclosure of the know-how can reasonably take place.

The upshot, under this formulation, is that the two categories are distinguished by the factor of trust, which is effectively irrelevant for the first category but essential for the second.

This conception of IP rights and trust was robustly challenged as a result of an encounter that I had last week with a senior official of a prominent international organization. The position set forth by my colleague was both simple and powerful. From the point of view of commercialization, all IP rights ultimately are embedded within a broader set of arrangements that ultimately rest on the issue of trust and goodwill. A patent may be granted or a copyright work may be created but, for such an invention or work to have commercial significance, there must be a sense of trust in the commercial value of the right by all persons who come into contact with it.

This is true, he argues, whatever the IP right; the issue of trust is not limited to know-how and trade secrets. What is important is that all persons in, e.g., the channel of distribution or the chain of supply, must believe in the quality of the products or services being provided or sold. A patent is therefore important not because it is valid but because it contributes to a supportable sense of trust regarding the goods or services.

Stated otherwise, in the hierarchy of IP rights, at least from the commercial point of view, it is goodwill that stands at its pinnacle. For this goodwill to have commercial value, there must be trust in the goods and services that are being provided. To become bogged down in the proprietary aspects of IP rights is to fail to appreciate the broader commercial context in which IP rights exist.

I am not certain if I fully accept the view of my colleague. What is true, however, is that it does force me to re-evaluate how to understand IP when the focus is on commercialization rather than legal creation and protection of the right. From such an angle, it may well be that I need to take trust into account in a different and more comprehensive way.

While I ponder all of this, I recall the following incident that occurred last week afer the meeting with my colleague. One of the great challenges in being the owner of any MP3 player is finding a quality set of durable earphones. I thought I had found my answer when in April I purchased an up-scale set of ear buds, sold under a well-known brand, with the kind of packaging and documentation one would expect from this brand. The earphones worked fine, but the soft cover fell off after three months and the further layer of cover fell off two months later.

I don't know how many patents, if any, are embodied within these ear buds, whether there is a protectable design or copyright, and whether protected know-how was brought to bear on the product. What I do know is that I face the prospect of purchasing yet another set of earphones and that I will shun, Typhoid-Mary like, any product in this space sold under this brand. The brand owner has lost me as a customer, now and for the foreseeable future. Because, at the end of the day, IP ultimately may not be about rights but about trust.


French said...

Don't you think that your colleague was referring to the trust in the validity of the IP title ?
Besides the trust that is necessary to maintain the secret nature of a trade secret, there is no question of validity of a trade secret.
To the contrary, patents and the other IP "titles" that you have cited bear this validity dimension. And for a third party to be willing to access (and pay for) such an IP title, it first needs to trust that this title is valid enough. And precisely because nobody can guarantee absolute validity, here come an element of trust.
Thinking while writing this comment, it seems that the trust necessary for the transfer of a trade secret is borne by the owner of the trade secret, while the trust necessary for the transfer of an IP title is more on the shoulders of the licensee/assignee.

mcvooty said...

"From the point of view of commercialization, all IP rights ultimately are embedded within a broader set of arrangements that ultimately rest on the issue of trust and goodwill."

This statement may apply with equal force if you delete the word "IP." That is, all commercial arrangements depend, at bottom, on trust. That is a characteristic of all legal arrangements. Society couldn't function if we had to depend too much on the courts to mediate commercial life.

Anonymous said...

How about respect? The owner of a patent puts their trust in the system to provide them with a monopoly for sharing openly their trade secret/know how. All the owner seeks from others is respect for these rights. Others trust the system to only provide the patent owner with what they are entitled to. If they trust the system then they should respect the right. But many don’t respect rights. They are not trustworthy. They show a lack of goodwill to the patent owner and society.

The ear bud saga has very little to do with trust in patent rights but trust in brands. You may have lost trust in the brand (not untypical in this cynical world of brand owners) but you will probably have to indirectly respect any patent rights as competitors of the brand holder will more than likely respect these rights if they exist.

Patent rights do not give you a monopoly on excellence in the execution of the invention or require the owner to do so. The owner of a patent just has the option to ensure that their shoddy implementation is the only game in town unless of course the owner can be persuaded to trust someone else with the implementation.

I don’t think in the world of IP that we do not depend too much on the courts to mediate because of trust in the system. We avoid the courts simply because of the disproportionately high costs of gaining respect compared to securing trust.

Kharol said...

Well, like the cat I see a huge aspect of trust in trademarks. For me that's all they are about. They build trust in the quality of a product (or work as a warning to the consumer not to buy..).

Then, for patents - sorry for the cheap pun - there's of course the power to form something like a trust by patent pooling.

But otherwise I trust that patents - at least since the good old times of James Watt - are foremost a tool to continue sale of a lesser quality product and inhibit marketing of articles of better quality by other parties.

Anonymous said...

I think that there are three different aspects here.

The first, more general one, is that an IP right is only worth as much as the underlying product. In fact, given that obtaining and maintaining the IP right usually has a significant cost, the value of the IP right may even be negative if the product is worthless.
I've explained this to my clients using a graph with a vertical axis for product demand and a horizontal axis for the strength of the IP rights. Ideally, one wants to be at the top right corner, that is, with both a high demand and strong IP rights. But the top left corner (strong demand with weak IP rights) is still preferable to the bottom right corner (weak demand with strong IP rights). Obvious as this may seem, it sometimes needs to be reminded to people who try to fit the product to the IP rights (adding patentable but unnecessary features, for instance, or giving it a more distinctive but less attractive or useful design) rather than the other way around.

A second, more specific aspect, is that a significant part of the product's value lies indeed in customer goodwill. The value of a brand, which may be embodied in a registered trademark or design, is indeed worth just as much as the customer goodwill. I don't think, for instance, that the Enron or Lehman Brothers trademarks are worth much these days, even if they may have been quite valuable just a few years ago.

Finally, a third aspect is that the value of IP rights is proportional to their enforceability. If the enforceability is doubtful, either because their validity can be disputed, their infringement difficult to prove, or the legal system untrustworthy, the IP rights aren't going to be worth much either.

Anonymous said...

With regard to your defective ear buds...simply take them back to the shop and complain - surely you have rights under (non-IP) law to expect that the product be of sufficient quality and durability. Thus, you can simply obtain a replacement rather than face the prospect of purchasing a new pair...! Unless you complain, the brand owner will never find out about the problem and will not have the opportunity to rectify the problem.

In my view, the manufacture quality has little to do with patents but everything to do with goodwill in the brand.

Anonymous said...

My understanding is that objection is generally raised to the use of trade marks in patent claims, specifically because a trade mark does not provide any guarantee of the composition of the item that is identified by the trade mark, only the origin of the item. See the UKIPO Manual, paragraph 14.137; EPO Guidelines, C II-8, 4.17.

This was confirmed to me many years ago by an acquaintance who was a chemist in the paint industry, and who told me that the paint you buy in a DIY store under a brand name this year will not necessarily be made to the same formula as the paint sold under the same name last year. The DIY market was highly driven by price, the choice of ingredients was driven by cost rather than quality, and that to ensure consistent quality it was necessary to go to a trade outlet and buy paint that had been manufactured to a recognised British Standard.

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