LICENSING EXECUTIVES SOCIETY

Britain and Ireland

NEWS EXCHANGE
Issue 64: Nov-Dec 1998

Trevor Baylis OBE to speak on the Academy of Invention project during the Society's annual lunch at the Café Royal

The world-acclaimed inventor of the wind up radio, Trevor Baylis OBE, will be joining members and guests at the Café Royal on Thursday 28 January for the Society's annual lunch.

Trevor will be talking in the main about his plans for an Academy of Invention. This is an idea born out of his early career as a professional swimmer, stunt man and entertainer, his work with the handicapped, and his present position as a distinguished inventor.

At the age of 15 Trevor was swimming for Britain and after National Service and a spell as a swimming pool salesman he set up his own aquatic display company. He then made enough money performing in a Berlin circus as an underwater escape artist to form a pool company, which is still flourishing.

In 1985, aware of the needs of injured stunt players and other performers, Trevor developed the Orange Aids range of products for the disabled.

Six years later, concerned about the spread of AIDS in Africa, Trevor began developing the Freeplay Wind Up Radio. And in 1996 this won the BBC Design Award for Best Product and Best Design.

A year later he produced a new wind up version for the Western consumer market and this has now been updated to include a solar panel.

Among many awards, Trevor has received the Presidential Gold Medal of the Institute of Mechanical Engineers and has been honoured by the Universities of East Anglia, Nottingham Trent, Brunel and Buckinghamshire, the University of Wales Institute and Southampton Institute.

Further information about the lunch will be circulated to members.

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Book now for the Advanced Licensing Course and the chance to get up to date with IP Law

There is a growing demand for places at the Society's Advanced Licensing Course to be held on Friday 20 November at the Royal Over-Seas League, London. Readers and colleagues keen to keep up to date with the fast changing law on intellectual property and how this will affect the business of licensing should book now. Course fees are £140 for members and £190 for non-members. Send your remittances in favour of the Licensing Executives Society to Renate Siebrasse, c/o MEDTAP, 27 Gilbert Street. London, W1Y 1RL.

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President’s Diary

Edinburgh aftermath

I am pleased to say that we have now finalised the figures for the Edinburgh International conference, and allowing for the payment which we have to make to LES International there will be sufficient left to greatly assist LES Britain and Ireland's finances. Thanks to all of you who assisted with or attended the conference and helped make it such a great success.

Society well represented in Miami

It seems no time since Edinburgh but, as these notes go to press, officers and members of LES societies throughout the world are assembling in Miami for the International Delegates meeting. LES Britain and Ireland is well represented with seven delegates, each prepared to take an active part in the proceedings.
I have asked Reg Peplow to include reports in the next issue of NEWS Exchange, so watch out for that.

European focus

At Miami, there will be an opportunity for European Presidents to get together. This is a new ad hoc initiative that began in Edinburgh. It is designed to encourage the European Societies to focus more on joint activities and on managing the LES European web site. Barry Quest is to be congratulated for all his efforts in bringing this together. There is certainly a lot more that we could be doing with other European Societies. Obviously, there are areas of practice where it would be very useful indeed to have a more European focus on events and sharing of speakers.

Reaching the magic 700

Mike Holt, European Patent Counsel for Texas Instruments, gave a stimulating talk at the last London meeting, and I am delighted that he has become one of a growing number of people to join our ranks. Indeed, we are hopeful of reaching the magic number of 700 members by the end of the year. Anything you can do to help the Society achieve this would be appreciated.

A chance to learn

None of us are too old or experienced to learn, particularly at a time of great legislative change, so the forthcoming advanced licensing course will be a must for many of us. I hope to see you there.

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How will the new Competition Act affect IP rights and their licensing?

The Committee is busy tracking numerous developments in the UK and Europe, which may affect the activities of LES members. These include the imminent enactment of new UK competition law; the Commission's proposal to introduce a Community Patent system and a Europe-wide utility model law; developments in relation to international exhaustion of trade mark rights; proposals to introduce a new unfair competition law in the UK; and, slightly less directly relevant, the implications for licensing in the biotech industry of the recent report of the House of Commons Select Committee on the British Biotech affair.

The UK Competition Bill is, at the date of writing, about to become law, and we are aiming to organise a half-day seminar on the new legislation very soon. In Manchester members are to be briefed on the effect of the new law by Jonathan Davey at "The 39 steps" on 10 November. The aim of the Act is to bring UK competition law into line with that in Europe by adopting an article 85/86-based approach. Exactly how this will affect intellectual property rights and their licensing remains somewhat unclear. We are awaiting guidance from the DTI, in particular on block exemption issues.

Two recent documents have recently been issued on the Commission's Community Patent proposal: the report of the outcome of the consultation exercise following the Green Paper published in the Summer of 1997; and the report of the European Parliament's Legal Affairs Committee. Both reports support the introduction of a Community Patent System provided it is cost effective and judicial arrangements can be established for the cost effective enforcement of these new rights.

There remains disagreement on the thorny issue of translations. The results of the consultation exercise support translation into only one language (English) or possibly only the three official EPC languages (German, French and English), but the legal affairs committee's report recommends a requirement for full translation into all languages. Neither document is specific about the future timetable, but we understand that the Commission intends to publish draft legislation (probably in the form of a draft Regulation) early next year.

Discussions continue in Brussels on the terms of the draft Utility Model Directive. The views of LES Britain and Ireland members seem to be split as to whether a utility model system would be a good thing in the UK. As members will be aware, we do not currently have such a system, in contrast to most of our continental neighbours. But most will, we believe, agree that if there is to be a new system, it must give clear guidance on the requirements for registration. We have therefore recently written to the Commission urging clarity in the drafting, in particular on the standard for the inventive step requirement.

As regards the international exhaustion of trade mark rights, recent developments include the landmark decision in the `Silhouette' case (reported widely elsewhere). Very briefly, the European Court of Justice held that EU Member States couldn't have international exhaustion for trade mark rights, only EU-wide exhaustion. This does not, however, appear to be the end of the story: the Commission has appointed an outside consultancy firm to conduct a study on the economic implications of international exhaustion of trade mark rights. We will be monitoring this study closely.

On proposals for a new UK law of unfair competition, we are communicating with the British Brands Group to emphasise that, if there is to be a new law (as to which, we believe LES members' views are split), it must increase certainty, not confusion. The group had hoped to persuade Parliament to include unfair competition provisions in the Competition Act, but appear to have failed. Further attempts may nevertheless be made in the future to introduce such law.

Jonathan Davey, a partner in the trade and regulatory department of Addleshaw Booth, will be speaking on The new Competition Act at a meeting of the LES North West region in Manchester on 10 November.

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Ben Goodger, chair of the IT & E-Commerce
Industries committee, presents his first report

E-Commerce ... a critical target for business growth>

Having shuffled off the mantle of President, I find myself returning to my old LES job _ chair of the IT and E-Commerce Industries committee (formally Software and Multimedia committee). This I am delighted to do, since it is a subject I have been interested in for a long time, and now is a very exciting time for this sector, There have been a very large number of new developments both on the formal legislative front and also in terms of initiatives at an industry and governmental level.

For example, in September 1998 the Future Unit of the DTI launched an important report titled Converging Technologies: Consequences for the New Knowledge Driven Economy. This essentially highlights the unprecedented speed of developments of electronic commerce and calls for the UK to make itself a world centre for the new `knowledge-driven' economy.

If anyone would like a copy of this report, it can be found at www.dgi.gov/uk But this comes hot on the heels of similar calls for action from the Dutch Government, the Norwegian Government, the Singaporean Government, the Malaysian Government, the US Government etc. So the UK is not alone in identifying e-commerce as a critical target area for business growth.

The European Commission has also been extremely active in this area for a number of years, producing a plethora of papers, initiatives and reports starting with the Bangemann Report back in 1994, leading to the Green Paper on the Information Society and the Report thereon earlier this year.

Three points in favour of electronic commerce

Why is electronic commerce of particular interest to licensing executives? The answer to this can be broken down into three points.

One is that it is another, and very exciting, medium for getting the message about your business out to a very wide audience. In particular it is a way in which small and medium sized enterprises can tap into a huge market without expensive start up and distribution costs. Our very own President's firm in Glasgow, Maclay Murray and Spens, recently published a report showing that small enterprises are actually more Internet-literate than bigger enterprises, which seems to underline this point (at least in Scotland).

The second is that it involves licensing itself. Actual product is being licensed over the Internet _ software, music, video or text _ upon payment whether by credit card or `cybercash'. Confidence in the security of such digital payments method is increasing all the time. New products and technologies are being created and licensed in order to support this industry. Examples are software and digital signature software. An enormous amount of content, visuals and trade marks materials is therefore passing to and fro on the Internet. All of this needs to be licensed properly. Very often it is not.

The third is that Internet users and traders are often ignorant of licensing. The `anarchic' origins of the Internet have meant that it is sometimes an up hill struggle to make licensing in the traditional sense work in the context of digital commerce. 

I think there is an enormous role for our Society to raise awareness of the need to license properly on the Internet. Unlicensed use can take many forms:

• deliberate, abandonment of licences in the form of shareware or even the anti-intellectual property concept of `copyleft' (as opposed to `copyright');

• the innocent infringer who is not aware that he should have a licence at all (a huge majority);

• those who are indifferent, knowing they should have a licence but knowing also that they can get away without one, and

• the calculating counterfeiter and infringer who is deliberately copying for his own financial gain at the expense of the IP owner.

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Sharon Finch, a member of the LES Healthcare special interest group, attended the second International Licensing Symposium, the first to be held in Japan for pharmaceutical licensing and business development people to get together to exchange views and experiences. She sends this report.

Pharmaceuticals: a candid exchange of views in Japan

The meeting was hosted by the Japanese Licensing Association (JPLA) and organised by Dr. Keiji Nakamura, President of the Pharma Forum Institute, at Yokohama. The meeting was a great success and was attended by more than 200 delegates, mostly senior business development or licensing personnel from both Japanese and European companies. The setting for the meeting was the Pacifico conference centre at Yokohama overlooking the bay.

One key objective of the meeting was to improve communications and minimise cultural differences by enabling a candid exchange of views and the promotion of personal friendships.

Europeans have become generally concerned about the Japanese pharmaceutical and business environment so the first presentations covered the respective standpoints of therapeutic economics (Prof. S. Nishimura of Kyoto University), healthcare, insurance, and drug pricing policy (Dr. Fujii of Japan Health Science Foundation), as well as the future of the Japanese drug market (P. Reed Maurer of Nippon Pharma Promotion).

This session considered the main issues in Japan; how the Ministry of Health and Welfare's practice of continual decreasing drug prices (finally reaching international levels), neglecting GCP problems (difficulties in recruiting patients in the present well-covered insurance system), as well as the protracted investigation procedures have together produced a very hostile market environment.

The next topic addressed the forthcoming ICH _ `International Harmonisation of Preclinical and Clinical Data Package' _ and was covered by two papers, one from the Japanese perspective Dr. Holdner of Nippon Roche, and one from the European side by Dr. George Butler from Zeneca.

One difference between Europe and Japan is in OTC and generics. There is concern that OTC and generic drugs are unpopular in Japan giving no alternative to higher priced ethical products. Two papers (from Dr. Y. Noro of Taisho and Prof H. Saito of Nihon University) addressed this issue.

At the luncheon seminar, John Ansell from the UK presented on the topical subject of `Mergers and Alliances'. He reviewed the mega-mergers of 1995-96 and analysed why mega-mergers may turn out to be the wrong type of deal.

There were several company presentations reflecting the views of both medium sized and major businesses. Jean-Bernard Borfiga (Servier) presented an in-depth analysis of mid-size companies as business partners. Ake Johansson of Abbott reported the multi-national view on the use of licensing as one of the cornerstones in its strategy for growth. Dr. M. Yamasaki of Tanabe presented a paper on recent issues in Japan that affect licensing practices and strategies for Japanese companies in general.

Facing an explosion in biological knowledge and the use of genomics to understand diseases, companies need to collaborate with experts from academia outside the industry; S. Wren from Glaxo Wellcome covered this topic. Finally, T. Nagae of Rhone-Poulenc Rorer Japan presented on marketing scenarios and risk evaluation of new chemical entities.

Richard Binns of Simmons & Simmons gave an update on intellectual property licenses, European competition laws and technology transfer regulations, and international enforcement of intellectual property rights. He spoke on European licensing policy, taking various factors into account. Giving the Japanese view, Y. Ishida from the TCL Institute discussed possible trade-secret leaks in NDA investigations and how they can be prevented.

This conference is now established as an annual event. The Third International Pharma Licensing Symposium will be held in Paris during Autumn 1999 and co-ordinated by Dr. Jean Bernard Borfiga (Servier).

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Education committee maintains licensing awareness as key theme of its busy national programme
Kurt Deutsch reports

The year 1997-98 has been a successful one, thanks to efforts by all committee members. They are Stephen Powell, secretary (London and the South East); Robert Handscombe (Sheffield); Trevor Hunter (Yorkshire and Humberside); Ian Traill (Scotland), and of course myself in the chair (Midlands).

Being very much a hands-on committee, we would be pleased to hear from any keen and active members willing to help with our work. Please contact me on tel/fax 01926 857636 or Stephen Powell on tel 0171 329 4400, fax 0171 329 8800.

Our main aim is to create awareness of IP and licensing among future users and practitioners of the art and to disseminate information on relevant current issues, as I now report.

In London, Stephen Powell and I represent LES on the Intellectual Property Awareness Working Party.

In the Midlands, I am in contact with the University of Coventry about possible academic courses and short seminars on IP and licensing.

In Sheffield, Robert Handscombe has been educating SMEs about IP and licensing at short seminars supported by European Union funds. He has also taken part, as session chair, in a Department of Trade and Industry sponsored meeting publicising the results of Economic and Social Research Council funded research into IP and technology transfer.

In Scotland our President Fiona Nicolson is helping to re-establish contacts with local universities with a view to arranging guest lectures on relevant academic courses.

In Yorkshire and Humberside, Trevor Hunter has maintained close contact with the Centre for International Business at the University of Leeds Business School (CIBUL). Here a 10-week MBA elective module, International Licensing _ Strategies and Management, was successfully completed in the Feb-May 1998 semester. This module is to be repeated in the same semester next year. It is unique in that eight of the ten sessions are delivered by external lecturers, all members of LES.

LES and CIBUL are also planning to run a one-day Licensing Awareness seminar for SMEs in March next year.

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London meetings

The role of patents in the electronics industry
Report by Ray Charig, Eric Potter Clarkson

If the life span of a typical semiconductor product is about five years and its price falls rapidly after only three to four years, why are patents of such great relevance in the electronics industry?

Mike Holt, European Patent Counsel with Texas Instruments, provided the answer at a recent evening meeting in London. During a talk full of facts and figures, he showed published patent families of more than 6000 per annum filed by a sample of the major component manufacturers.

This was a clear indication that patents are indeed important, and increasingly so. A major microprocessor manufacturer was illustrated as having patent filings rising well over six-fold in the period 1990 to 1996.

Mike explained that traditional patent strategies in the electronics components sector included the concepts of mutual non-assertion or "Mexican stand-off", and cross-licensing of whole patent portfolios between the major companies.

Cross-licensing agreements were typically implemented on the basis of the relative size and strength of the portfolios. A graphical illustration of the relatively small numbers of licences recorded at, for example, the UK Patent Office for those companies, was evidence of such strategies.

Mike identified the considerations taken into account when pursuing these strategies. These included the importance of maintaining a significant R&D contribution to patents, obtaining a sufficient degree of patent coverage in given technological areas to offset exposure in other areas, and being prepared to litigate when necessary.

Others considerations he noted were being ready to admit to the value of competitor's intellectual property, acknowledging that other parties may be able to manufacture one's own technology cheaper than oneself, and being willing to licence all patents.

Members discussed with the speaker the importance of patents and licensing on the industry and how this was increasing. They were aided by a illustration showing that the proportion of patent and licence costs on yesterday's discrete components might, for example, be less than 1%. This was compared with today's layered product solutions, for example a DSP modem, where the total cost of licensed technology incorporated within the product solution might run to as much as 50%.

The conclusion? It is impossible to ignore the increasingly important role that patents are playing in the electronics industry, notwithstanding short product lifetimes and rapidly falling prices.

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The ups and downs of licensing strategies

Licensing strategies adopted by companies to develop their businesses worldwide were highlighted by LES International President Rodney De Boos at an evening meeting in London on 23 September.

He quoted the case of AWI, an Australian hot dip galvanising concern, that maintained world leadership by licensing its technology on a non-exclusive basis and on fair and standard terms. AWI also included grant back and improvement clause so that licensees could benefit while the company as licensor maintained its technology at the cutting edge.

Rodney illustrated the importance of trade marks by referring to the Dolby story. In this case Dolby greatly enhanced the demand for its technology by granting free licences to record and CD producers on the condition that the Dolby trade marks were used. This strategy assisted the Dolby name to become synonymous with high quality sound reproduction.

But, as he observed, some strategies can go wrong. IBM decided to out source the major components for its PCs without any restraints on suppliers. The great success of the product coupled with IBM's inability to meet demand led to the creation of IBM clones. These clones used components from IBM's suppliers that actually superseded IBM's own product. Ultimately, this situation also led to the launching of Microsoft and Intel.

Innovation and Invention on the rise in the UK, says Patent Office

The United Kingdom is a growing nation of innovators and inventors _ that's the verdict of the Patent Office. In its Annual Report and Accounts, the Office reveals that applications for trade mark registrations rose by 14% from 52,206 in 1996-97 to a record 59,760 in 1997-98. Over the same period patent applications published rose from 11,452 to 12,474, and applications for design registrations rose trom 9,293 to 9,528.

Electronics was the busiest sector for trade marks with 7,132 applications. Other important areas for trade marks included paper, stationery and office supplies with 4,707 applications, clothing with 3,705 and education and entertainment with 3,595.

Major users of the system included Unilever with 156 applications, BT with 110 and the BBC with 87.

With 1200 patent applications published _ up to 32% over the previous period of 908 _ the telecommunications sector showed itself more inventive than any other. Other important areas of patent activity included mechanical engineering with 897 applications, civil engineering and construction with 739 and electrical engineering with 684.

Samsung had more UK patents granted, 158, than any other company, followed by Mitsubishi Denki with 152, Mercedes-Benz with 149, Bosch with 148 and Mitsubishi Electric with 100.

The centre of the greatest activity in designs registration was packaging with 1,147 applications, up 12% on 1996-97. Other sectors of the economy making widespread use of design registration included radio, TV and the optical industry with 993 applications, measurement and calculation with 827, furniture with 672 and games and toys with 582.

Nike International had more designs registered than any other company in 1997-98 with 180. Other major users included Swatch with 109 and the Sony Corporation with 107.

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Keeping the integrity of the brand
Maura Canavan of Rouse and Co. International comments on the continuing fall out from the recent `Silhouette' decision

As reported in the last edition of NEWS Exchange, the European Court of Justice's decision on the `Silhouette' case has clarified one aspect of Article 7 of the EC Trade Mark Directive.

A proprietor of a trade mark is entitled to stop third parties from using its trade mark without its consent on genuine goods imported into the EEA and which had originally been put on the market outside the EEA.

Supermarkets and others within the EEA who import and sell genuine branded goods from outside the EEA, and who do so without the brand owner's permission, may well be infringing the brand owner's trade mark rights.

Following this judgement, the integrity of the brand is therefore still protected for the time being. After all, it is the brand owner who creates the brand, it is the brand owner who promotes the brand and it is the brand owner who quite reasonably wishes to control so far as he can the image for his brand.

Retailers argue that there is a public interest in keeping prices as low as possible for the consumer. Accordingly, supermarkets in the UK have continued to import and sell high-quality branded `designer' goods at low prices in defiance of the Silhouette judgement.

To date, no brand owners have taken steps to stop them although recent reports in the press have stated that Levi Strauss has decided to confront such retailers by sending letters to them threatening action unless they cease selling these `infringing' products. Whether action is taken will remains to be seen.

The brand owners' reluctance to capitalise on the judgement may be due to the considerable uncertainties that remain unresolved. For example, the European Court of Justice did not address the important issue of what constitutes the proprietor's `consent' to the placing of goods on the market in the EEA for the purpose of Article 7 and upon whom the burden of proof rests.

A separate case, Sebago Inc and SA Ancienne Maison Dubois et Fils v SA G-B Unic was referred to the European Court by the Brussels Court of Appeal on exactly this issue in April of this year. Here, the plaintiffs tried to stop the importation of genuine branded shoes into the Community through unauthorised channels. They argued that specific express consent is required in order to exhaust one's rights; the defendants, on the other hand, argued for a much wider definition, suggesting that implied consent is sufficient for the purpose of Article 7 of the Directive. As I write, a decision is eagerly awaited.

So what happens next? This is no longer just a legal battle over trade mark rights. It now covers sensitive political and commercial issues stretching throughout the European Community which will be debated at home and in the Community in the forthcoming months.

Until the Sebago judgement is handed down the full effects of Article 7 of the Directive cannot be considered and even then we cannot be assured that this will be the end of the issue. This is likely to be a very hot topic over the next few months. Watch this space!

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New Design Directive rules out the need for eye appeal

The EC Designs Directive has been adopted by the Council of Ministers in Brussels. Member States of the European Union now have three years in which to adjust their national laws for protecting designs to comply with the Directive.

The Directive will modernise UK law (the Registered Designs Act 1949). The most important aspects are:

• the ability to protect products where the appearance of the product is pure decoration, has no eye appeal, or is a combination of functional and aesthetic elements. The current test that a design must have `eye appeal' will no longer apply.

• a new test of `individual character', which involves an assessment of the overall impression that a design creates in comparison to known designs and which will provide a creative buffer zone around protected designs to reduce opportunities for plagiarism; and

• a grace period of 12 months, during which designers can publicise their designs in order to assess their commercial worth without fear that this will invalidate eventual registration of the designs at the end of the period.

The Directive addresses the protection of spare parts needed to repair larger items, such as motor vehicles. However, concern about the consequences of such protection for competition in the supply of parts needed to restore the original appearance of motor vehicles following, for example, accident damage, has led to a temporary provision in the Directive.

This requires Member States to keep their present laws as they relate to the designs of such parts, unless they choose to liberalise their laws in this area. Thus, the present exclusion from protection of such designs under UK law will be preserved until at least 2005 when the Commission is required to produce a new proposal for harmonisation in this area. In the meantime competition throughout the European Union in the supply of these vehicle spare parts will be unaffected or possibly even liberalised by the Directive.