Don’t be David – why SMEs should avoid Goliath IP battles
Many of us will have probably read news stories about battles between companies over intellectual property (IP). Such stories can really capture the public imagination when it involves a small or medium sized company embroiled in a dispute with a large corporate. The British public seem to love an underdog story, with the classic David vs. Goliath scenario winning hearts and minds as people cheer on an SME’s attempt to fend off a challenge from a big business.
These types of situations, which often positively position the plight of SMEs, combined with the amount of personal effort invested by owner-managers in their businesses, can create a temptation for smaller and medium sized companies ‘to be David’ when they face an IP issue with a large company.
There’s often an incorrect belief that, no matter what the outcome any dispute is, and even if an SME actually loses from a legal perspective, they will always be a winner. They wrongly believe any dispute will be worth it because they will benefit from free PR and goodwill, which money simply can’t buy. This misguided thinking can encourage SMEs to take needless IP risks and to even be deliberately provocative to assert their challenger positioning. The lesson for SMEs is don’t do this – don’t be David.
IP infringement claims can prove particulary costly and time-consuming, and in increasingly competitive and difficult trading conditions, the most savvy businesses will work even harder to protect the IP that drives their revenue. This involves litigating (or threatening litigation) when suspected infringement takes place. A dispute about IP may end up distracting an SME from its core operation, diverting energy and resource from running the business and making it a success.
Rather than get excited about potentially taking on the big boys in IP battles, SMEs are better placed to focus efforts on how they can protect IP to avoid complex infringement disputes. At its heart, this involves thorough due diligence in order to ensure that third-party IP is not inadvertently infringed.
What steps can a business take to protect itself against infringing third-party IP?
Fundamentally, there’s two main IP issues that a business needs to be concerned about. Firstly, a business needs to ensure that their venture is not inadvertently infringing a third party’s IP rights, and secondly to ensure that any IP that arises in connection with that venture is properly protected, this can be via applications for registration or otherwise within contractual documentation. The most important step for any business, no matter its size, is to carry out due diligence in relation to its brand to try and avoid these types of infringements. At Forbes Solictors, we find that the vast majority of IP disputes arise because one party has failed to carry out adequate due diligence.
A thorough due diligence process will ensure that there are no competitors already trading under a potentially similar or identical trade mark, or that similar products/ideas have not already been protected as a registered design or patent. If there are existing IP rights of concern, it is better to rebrand at this stage as opposed to in the future when IP infringement proceedings have been threatened by a third party.
By taking steps to prevent any further IP litigation and ensuring all ducks are in a row at the outset (which includes securing registration of registrable IP where possible), businesses can put themselves in a stronger position as they grow in the future.
What happens if a business decides to defend an IP infringement claim and loses?
When the Intellectual Property Enterprise Court or the High Court is considering an IP infringement case, it is first concerned with establishing liability, which means working out if a breach has indeed taken place.
If this can be established, it will then look at what the claimant is seeking as a remedy, with the most common example being injunctive relief, coupled with an order to deliver up or destroy infringing stocks or materials.
Although very fact specific - and depending on the IP right in issue - a claimant can also elect for an inquiry as to either damages, or an account for profits that the defendant has made as a result of the infringement. The reasoning here is not necessarily punitive, but is instead intended to put the claimant in the position it would have been in had the infringement not occurred (I.e. whether a licence had been granted to use the IP in question).
The costs for IP litigation can become very expensive, with typical cases leading to an excess of £50,000 of costs for each party. In the latest high-profile IP battle between Tesco and Lidl, both parties have estimated their legal spend to be in excess of £1,000,000. This is a considerable sum for a small business and, in most circumstances, the losing party must also pay the winners’ legal costs (in addition to damages or an account for profits, referred to above), representing an increased financial risk. There are also reputational risks to consider, which is why out of court settlements are preferable wherever possible (especially where the infringement in question is deliberate).
Lastly, there are the very real and considerable costs associated with rebranding and product recalls if a business loses an IP claim, as well as the disruption to any brand awareness and equity the losing company has already spent time building.
So, while it can be very tempting to battle over IP, the financial and reputational risks are sizeable and businesses would be well advised to take the steps to avoid infringements.
Are the consequences made worse if it’s proven that a company deliberately infringed another company’s IP?
For the most part, the law is not concered about how flagrant a breach is. However, there are certain exceptions which allows for damages awards to be increased where the defendant knew there was a breach of IP and they continued anyway.
There are also various criminal offences in relation to registered trade marks, designs and copyright, which are intended to prevent counterfeit goods and which may be applicable circumstances where the defendant knowingly committed an infringement offence.
Under the UK Government’s IP strategy, it intends for UK IP rights to be the best protected in the world. SMEs ought to ensure that they have the best possible degree of protection for their brand, whilst avoiding David and Goliath battles as much as they can.