We are at the point where companies are really understanding there is a lot of money at stake…..there is greed and fear. There will be winners and losers and that could happen pretty soon….’(Bryant Walker Smith,FT 15.04.17) Nina O’Sullivan, Legal Director at Mishcon de Reya LLP, reflects on the growing threat of IP wars disrupting the disruptors.

A series of high profile patent and trade secrets lawsuits has shone a spotlight on the significant challenges facing emerging technology businesses, both in protecting their valuable innovations, but also in ensuring that they do not encroach on their competitors’ rights.  Recent and forthcoming legislative developments are likely to fuel further litigation, perhaps even on the same scale of the ‘smartphone patent wars’ of recent years. The risk of a product being pulled off the market due to IP infringement, together with the significant costs involved in defending a lawsuit, underlines the importance of proper freedom to operate analysis and a comprehensive IP portfolio.

Patents are registered rights protecting a technical invention comprising a product or a process.  They are extremely valuable, giving a 20 year monopoly in an invention from the application date of the patent.  This means that the patent owner can go to court to obtain an injunction to stop others making a product which falls within the claims of their patent, whether they were aware of the patent or not, and even where the patented aspect forms only a component part of that product.  In return for this monopoly right, however, the invention is disclosed to the world. Others can then seek to work around it, and/or use the patent’s teaching when it expires.

Whilst patents drive investment in innovation, particularly in emerging technologies, patent over-reach and other abusive patent practices (particularly by patent assertion entities i.e., so-called patent trolls) are a real concern.  Newly formed coalition IP2Innovate, comprising small and large innovative companies including Google and Spotify, has recently called for a more ‘robust, balanced and flexible European patent ecosystem’ to curb such practices.  In particular, it argues that defendants are often forced to submit to excessive licence demands on weak patents.  IP2Innovate has its eye in particular on EU proposals for a Unified Patent Court (UPC).  The Brexit vote, and subsequent political fall-out, has caused some doubt about when the UPC might open its doors for business, and whether the UK can participate at all once it leaves the EU but, assuming it does go ahead, patent owners will have an extremely powerful weapon in the form of an EU-wide injunction.

Perhaps due to concerns about the cost of patent protection, or the necessary disclosure, a business may prefer to rely on confidentiality obligations. However, trade secrets protect a broad spectrum of information, including aspects that cannot be patent-protected.  Trade secrets litigation also appears to be on the rise in the sector, no doubt due to challenges in obtaining patents for certain technologies, but fuelled also by a mobile workforce and the difficulties of maintaining confidentiality.  Trade secrets have also attracted the attention of legislators on both sides of the Atlantic.  The Defend Trade Secrets Act 2016 has introduced a federal trade secrets law, and EU Member States have until July 2018 to implement the Trade Secrets Directive, which does away with the current patchwork of protection.  However, enforcing trade secrets in the event of a breach is not straightforward, or cheap.

Some suggest that a greater focus on trade secrets, in preference to patent protection, may impact adversely on innovation, but the two regimes are far from mutually exclusive.  And, where there are challenges, there are of course opportunities, the most recent example being Google and Intertrust’s launch of a service giving start-ups access to patent portfolios in order to counter-sue when faced with a patent lawsuit, in return for a share of equity.

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