Kiwi businesses can no longer afford to ignore intellectual property (IP) assets while drawing up their risk management strategy. That’s the key finding of a review of IP risk management by New Zealand company Delta Insurance, Protecting Your Competitive Advantage, which crystallises over a year of investigation into the IP landscape for local businesses.
The review traces major trends in IP-related issues in two important Kiwi export markets: China, where product counterfeiting has long been a major issue, and the US, where “patent trolls” – unscrupulous operators who use IP litigation to extort money out of businesses – are rife. It also outlines the challenges that can come from legitimate organisations simply wielding a big legal stick to protect their interests.
Review author Avani Vyas (pictured below), a senior underwriter at Delta, says IP registrations are rocketing globally as part of a major surge in the growth of intangible assets which now comprise almost 90% of the asset value of businesses – “and patents, copyrights, registered designs and trademarks make up a big proportion of that.”
She says patent filings worldwide increased by 8.3% in 2016 over the previous year and the figure for trademarks was 13.5% – 9.7 million were filed in that year. In 2016, China applied for 3.7 million trademarks and 1.3 million patents; the corresponding figures in the US were 545,000 and 605,000. “The global scale is astonishing.”
Alongside that, IP litigation also did brisk trade: 31,000 patent infringements went to court in the US between 2012 and 2107, while Chinese courts handled 213,000 IP-related cases in 2017 alone – twice the figure of 2013.
Kiwi companies invested around $1.6 billion in R&D and registered around 7000 trademarks and 300 patents in 2016. “We have this incredible record of innovation in New Zealand. But our innovative businesses haven’t always been meticulous in shoring up their IP and even when they have, they often aren’t prepared for the significant costs which can arise from IP challenges.”
The review provides several cautionary tales of Kiwi businesses which had to face crippling consequences from IP violations, predatory IP attacks or other challenges and outlines steps businesses can take to improve their risk management.
Notable examples include costly copyright violations of Sealegs’ amphibious vehicle system by rival engineering companies, and the stoush between Lewis Road Creamery and Fonterra over milk packaging. Kiwi hi-fi manufacturer Phitek also got a sobering taste of the power a multinational can exercise to protect its interests when Bose stopped an export consignment in the US over alleged IP violations. Vyas says the financial impact of IP litigation can be shocking; Fisher & Paykel Healthcare, for example, incurred almost $15.6 million in legal expenses to enforce its IP against a competitor.
The situation in the domestic market is also changing, says Vyas. “Kiwi companies are increasingly facing global competitors who are proactive and have resources to protect their IP. A recent case in point involved Coca-Cola who threatened a Wellington café with legal action if it didn’t change its name – ‘Innocent Café’ – which clashed with a UK juice brand trademark owned by Coke. A similar fracas also arose over My Food Bag’s use of the phrase ‘hello fresh’ in its marketing – which was challenged by global food company HelloFresh.”
Delta Insurance General Manager Craig Kirk (pictured above) says the growing record of IP litigation draining New Zealand business’s finances led to the launch of the country’s first comprehensive IP expense insurance by Delta earlier this year.
“The time had definitely come to establish some form of cover for the often-staggering costs arising from, for example, fighting off a malicious patent attack in a US or Asian court or a legitimate challenge from a multinational. Unfortunately, even with strong IP protection, businesses can still fall prey to costly IP litigation, which is why we felt this new insurance product was needed. And we can see nothing on the horizon to suggest that threat will reduce any time soon.”
Kirk says the response of insurance brokers and businesses to the IP expense cover was heartening. “We got an all-round thumbs-up.” He says investors have also been supportive: “They can see their capital investment being eroded at both ends because of IP disputes – hefty legal costs to fight the actions, but also the loss of revenue while the business is distracted, or worse, paralysed by the action.”