IP and the impact of coronavirus

30 June 2020

IP and the impact of coronavirus

The coronavirus has companies around the world looking for places to save some cash. Lawyers warn that intellectual property property is not the place to cut. Espie Angelica A. de Leon reports.

It all began with furloughs, salary cuts and layoffs. 

Now that some governments have eased restrictions and lifted lockdowns, companies are enforcing more measures to further cushion the losses they incurred due to the novel coronavirus Covid-19 pandemic. 

It is a given that companies are now reviewing their budgets, slashing those they deem as non-essential or postponing payments. Budgets for advertising, marketing and recruitment may have been the first to be reduced. Other budget items could also be strong candidates for belt tightening. 

Intellectual property may be one of these, and law firms are bearing the brunt.

“Businesses facing a resource crunch, particularly those in the hospitality, travel and tourism sectors, are requesting discounts and deferment in raising bills,” says Ashwin Julka, managing partner of Remfry & Sagar in Gurugram.

“So far, fewer than 10 companies have advised us specifically to stop activities such as anti-counterfeiting and suspend the filing of new trademark applications due to budget cuts. More than 10 companies have requested special discounts or extended payment terms,” says Darani Vachanavuttivong, co-managing partner and managing director, IP, at Tilleke & Gibbins in Bangkok.

“Some clients have already informed us that they are holding IP enforcement activities for now due to the Covid-19 situation,” says Edmund Jason Baranda, managing partner at Baranda & Associates in Manila, a member of the Rouse Network.

 

Lawyers who spoke with Asia IP expect IP budgets and strategies to be affected. But they believe there is a way of doing so without weakening IP assets and allowing opportunists to infringe rights. After all, IP is essential in any business. Therefore, its maintenance and protection should still be part of the company’s business strategy.

“In the increasingly technology and services-driven world that we live in, IP assets are often amongst the most valued assets of organizations. I don’t believe it ought to be the first sector companies should look at when it comes to addressing budget deficits,” says Julka. “IP is an asset with a two- to three-year lifecycle. Anything filed today – a patent, trademark or design – will mature into a protected right a few years into the future and that may be the time when the world economy is on the upswing again.”

Bee Yi Lim, partner at Tay & Partners in Kuala Lumpur, agrees that companies should not sacrifice their IP in the event of any pandemic. “It would be penny wise and pound foolish to do so,” says Yi. “In the long run, a strong IP protection strategy would allow a company to reap the most benefits out of the IP thereby retaining or gaining market share. Without IP strategy or protection, other companies may seize the opportunity to exploit the IP or protect it in their name which may cause further loss of revenue to a company through loss of commercialization opportunity, infringement risks and unsustainability of the business that the company is involved in.” 

Cost cutting is not the only solution to budget deficits, she explains. There are other ways to solve the problem that should not impact the company’s IP assets. As there may not even be excess spending on IP budget to begin with, Yi says the company should first undertake a budget variance analysis. 

 

Stanley Lai, a partner and head of IP at Allen & Gledhill in Singapore, “sacrifice” is not the correct term. He prefers “optimization” or optimizing value and commercialization potential. 

“It means undergoing a process of rationalization of existing rights whilst being mindful of not detracting from the innovations and product lines that have made the business successful in the first place, pre-Covid-19. What is key is that all IP strategies undergird the R&D effort and serve as a reward for successful and transformational outcomes,” explains Lai.

“Non-performing IP assets may be let go if budget does not permit their maintenance anymore,” says Baranda. “Luxury and hospitality industry brands are the hardest hit and so some businesses in these sectors may consider abandonment of certain portfolios. However, this may be taken advantage of by bad faith applicants so monitoring of trademark filings around the world should still be considered.” 

Companies in these industries – including those in travel and tourism – may trim their budgets to protect only key IP in key markets, according to Julka.

“FMCG companies may face medium or low impact. At the same time, clearly there is rising demand in the e-commerce sector and technology-backed businesses in education, health, entertainment and others. New opportunities may lie in the food packaging business. For businesses that have not faced a huge resource crunch, it may not be wise to slacken IP protection in the near term for the worth of their rights could be eroded in the long term. For example, reports suggest that online piracy has surged nearly three times and counterfeiting is up more than a third during the ongoing lockdowns, so I think that this is certainly not the time to drop one’s guard. Instead one would do well to prepare for a new world and identify strategies to capitalize on the changes it will bring,” says Julka.

 

Turning his focus to medical and health-related items, Baranda says the availability of counterfeit products is not a remote possibility. Hence, he says that companies engaged in the production and distribution of medical and health devices, PPEs and pharmaceutical products which are now in high demand, should keep enforcement a part of their IP strategy. They should also consider licensing opportunities for these essential items.

Lin Li Lee, partner and head of IP and technology at Tay & Partners in Kuala Lumpur, says that the move from brick and mortar stores to the online space should be taken into consideration. This means IP budgets and strategies should prioritize protection for a company’s foray into the digital economy. More than ever, a strong IP protection and strategy are required now to lessen incidents of infringement, she says.

Thus, this shift from the offline to the online world should force lawyers to think more innovatively.

“Law firms should clearly look for innovative ways to assist their clients given the ‘new normal,’ especially in the online space where commerce – both for legitimate and counterfeit goods – has shifted to more and more,” says Baranda. “Law firms can perhaps assist their clients in identifying the IP assets that should be most protected and think of ways to maintain the least essential IP assets at no or almost zero cost. Licensing opportunities, as mentioned above, should be explored.”

 

According to Lai, it is important that law firms should place their clients’ interests before their own. The law firm can assist a client in managing its liquidity and recurring legal fees.

“As IP advisers and service providers, it is upon us to assist businesses by coming alongside them to pursue liquidity enhancing measures. This can result from assisting our clients to audit the IP that is owned and making strategic recommendations against the short term and medium revenue objectives of the business. We can also manage our billing cycles to stretch timelines for payments of professional costs as opposed to official registration or renewal fees.  If this is carried out on a per trademark/patent basis in all the jurisdictions of concern, it can result in substantial savings,” says Lai.

He adds that law firms can also assist their clients in IP disputes. They can do this by reviewing the original premise for litigation to see whether mediated settlement via a speedy resolution may be an option. This may generate greater savings compared to a prolonged litigation cycle that would end after 12-18 months.

At present, Allen & Gledhill is advising its clients in liquidity maximization, risk management and dispute resolution outcomes.

 

“For example, trademark portfolios can be further streamlined by purging dated marks and specifications. Patent maintenance can be further rationalized by deciding whether to pay annuities until the end of the patent term or whether further savings can be gained by not ‘renewing’ patents that are de facto at the end of life where cost of maintenance of a patent exceeds its licensable return. When you apply this exercise across multiple jurisdictions,” says Lai, “it can translate into significant savings for a business.” 

Of course, this isn’t saying that law firms don’t have their own issues in connection with the pandemic. Aside from being at the receiving end of cost-cutting measures implemented by their clients, they themselves are economizing as well.  

“Law firms, like other businesses, will need to be careful in using cash for any investment that will not see returns in the next 12 months,” says Vachanavuttivong. “I think many law firms will delay recruitment activities for a while until they see clear evidence of greater legal needs from clients.” 

For Julka, a drop in variable incentives and a halt in expansion plans may come into play if it will take a long time before things normalize.

Not everything is ugly or unfavorable though. Some law firms seem to have come out unscathed from Covid-19’s negative impact.

 

According to Jiancheng Jiang, managing partner at Peksung Intellectual Property in Beijing, that firm has not seen significant slashing of IP budgets among their major clients as of this writing.

“It is true that when faced with financial difficulties, companies would try to cut down costs in each and every area, if possible at all, and IP is no exception. However, given the long-term nature of IP protection and management, it is also believed that, at least for industry sectors in which reliance on IP is vital to the stakeholders such as pharmaceutical, telecom and others, financial support for IP will be prioritized over others,” says Jiang. “This has been proven true in the past when firms were faced with other kinds of crises such as the financial crisis in 2008.”

Instead of cutting down on IP spending, he believes it will do companies more good if they step up efforts in IP development at this time.

“IP is a long-term investment. When other business activities cannot be done as usual due to lockdown for example and there are a lot of uncertainties, IP development is an area which could remain continuous and which could secure business resurgence after the pandemic,” says Jiang.


Law firms

Please wait while the page is loading...

loader