WELCOME TO ... Intellectual Property Rights and Business Opportunities for SMEs in the Textile Sector www.mocoloco.com __________________________________________________________________________ WIPO NATIONAL SEMINAR ON INTELLECTUAL PROPERTY FOR Damascus, October 13 and 14, 2010 SMALL AND MEDIUM-SIZED ENTREPRISES (SMEs) Larysa Kushner IN THE TEXTILE INDUSTRY 1 1

Overview How can you generate income from your creations protected by IP? Direct Use Selling and Licensing Franchising Merchandising Joint ventures and strategic alliances New business models

How can you generate income from your creations protected by IP?

IP as a business asset of your company The crucial importance of the IP protection: Transformation (even though for a limited time) of the intangibles that add value and differentiate a product into the proprietary rights = IP rights The IP system provides exclusivity over the exploitation of innovative products and services, creative designs and business identifiers to be acknowledged as an owner and prevent anyone else from using them to exploit the their potential to maximum

Exploiting IP Assets Direct Use: Core to the competitiveness of the product or service Indirect Use: Sale, license, franchise or merchandise Joint ventures and strategic alliances Other possibilities: Defensive patenting, publication Finance

2. Direct Use

Direct commercialization of the IP assetrs by yourself Individual Exploitation to maintain the competiveness of the product Make/produce copies of the products and sell them Reproduce the works on different types of products Exhibit the works in craft exhibitions, fairs, online catalogs, etc. Enforce your IPRs against infringers Advantages: direct quality and exploitation control Disadvantages: high costs and risks

Case Study: Burqini From SmartStart Project of Australian IP Office Aheda Zanetti, originally from Lebanon, is a Australian Designer and Entrepreneur who designed in 2003 an innovative solution to this age-old problem for women of Muslim or Arab descent who wished to preserve their modesty when enjoying sport and swimming: Burqini Design registration and later Trade Mark registration for the logo and company name The Burqini is now distributed worldwide through online sales and key retailers in Bahrain and the Netherlands, along with a stand-alone store in Sydney’s Punchbowl The head-to-toe two-piece suit is made from a high performance innovative fabric and takes its name from the Burqa with its unique element Hijood – a variation of the hood shaped Hijab worn by Muslim women to cover their head From http://www.ahiida.com/

Indirect Commercialization of IP Assets Mediate exploitation of IP Assets by third parties based on contractual agreements with the IP owner Advantages: Low investment / Low risks Potentially high return Drawback: Lack of control Special attention to contracting

Indirect Exploitation by the third parties Concerning: All (registered and not registered) IPRs: trade marks, patents, industrial designs, copyright, know-how Part of IPR (type of right) Combination of IPRs Can be in a form of: Assignment of the IPRs to a third party vs License of the IPRs to a third party

3. Assignment and Licensing

Why should business consider Licensing IP... Selling (Assigning) IP … Grant of a right to use the IPRs to a third party under contractually agreed conditions (// lease): possibility to limit Market; Geography; Time; Specific Application; Grant of Rights Usage Direct way to increase the value and benefits of your IPRs: Can generate lucrative fees and royalties New markets: Allows business to enter into new product categories or in new geographical areas in a relatively risk-free and cost-effective way Marketing tool: Increases the business’ exposure and recognition Transfer of the ownership of the IPRs (//sale) Loss of all future income-earning potential Buyer becomes a new owner of all assigned IPRs If no alternative If adequate price If no interest for further commercialisations Note: Sandvik's subsidiary company, which holds the IP, has only 12 employees and has a book value of EUR 1800 million (in 2007). Dolby Laboratories Invented noise-reduction technology in the 1960s. Used a combination of patents to protect the technology and trade marks. Became a successful high-tech company. W.L. Gore Founded by the Gore family in the basement of their house in 1958. PTFE (Teflon®) related high-tech products. Patent protection and strong trade marks (Gore-Tex®). Now has 8 000 employees. Additional examples for audiences familiar with the concept of licensing technology: ARM Ltd. Develops energy-efficient microprocessors but does not make them (earns licensing royalties) Founded 1990, now market leader in microprocessors for mobile phones ARM founder Hermann Hauser: "I gave (the design team) two things which National, Intel and Motorola had never given their design teams: the first was no money; the second was no people. The only way they could (design a microprocessor) was to keep it really simple."

Licensing that might be of interest for your business might concern... 31st March 2008 Licensing that might be of interest for your business might concern... Strategic, core technology or patents Non-core or “mature” technology and patens, products Struggling businesses or products (new or mature)‏ Technology that can be applied to other markets Trademrks, designs, copyright, know-how, any combination of them Services 13 13

For the Licensee Why to license … For the Licensor Earn revenue Strengthening relations with partners in the value chain Capital saving Expanding an existing business (extending your territory or the nature of business) Access to markets Turning infringer/competitor into a partner Create standard Lower costs Starting a new business Access to new technologies and know how Possibility of creating innovative products Settle infringement dispute Manufacture standardized product

Bad choice of licensee could damage reputation Why NOT to license … For the Licensee Create competitor Bad choice of licensee could damage reputation Loose control of proprietary information Royalties add cost Secrecy requirements Administrative burdens - audits, reports etc May be obliged to grant back improvements

Case Study: Non exclusive licensing strategy From Case Studies Collection of WIPO SMEs Division Intelligent Textiles: patents, trade secrets Innovative process of weaving complex electrical circuits into conductive fabrics such as cotton, wool and polyester was developed by two academics Selling back the patent rights from the university, establishing a company, registering trade mark Operating out of a two-room studio near London with limited staff Use of technology in the jackets’ sleeve to control an MP3 player; in an easy chair that reclines at the squeeze of the armrest; and in foot-warming insoles for shoes and ski boots Selling the technology through consulting contracts to a range of industries in Europe and the United States Outsourcing what they do not have time to do themselves

Case Studies: Non exclusive licensing strategy Examples of licensing Patents Patented technology for the treatment of “stone washed” denim jeans of Novozymes, a Danish, biotech company specializing in enzymes and microorganisms Novozymes’ technology for improving production methods and fabric finishing has been licensed worldwide Trademarks Certification marks Treatment of cotton without cellulase with cellulase Novozymes

Case Studies: Non exclusive licensing strategy Copyright Su Embroidery Studio http://www.suembroidery.com/ Embroidery Stock design: Library of designs for commercial embroidery companies to sew on garments for sale Download online License agreements to use design Allows embroiders to choose according to their preferences and project needs Dakota Collectibles Embroidery Design Center http://www.dakotacollectibles.com Jammin' People Sm. Jumper

Case Study: Combined licensing strategy Industrial Design: BABY AND CHILDREN The small French enterprise BABY AND CHILDREN designed and produced a baby hammock for the bathroom. Obtaining design registration on the hammock Commercialization of the product in over ten countries in three different continents directly and by granting licenses

Case Study: Exclusive Strategic Licensing Based on the materials of Julian Nolan Avionics system mature product commitment to support customers high cost to change still profitable, but none core Licensed to main customer Deal structure NPV increased, GNPV Regain strategic focus Win-Win result

You don’t have capacity to distribute elsewhere Licensing Consider licensing: You are an artist/designer/inventor and don’t want to be involved in manufacturing You don’t have capacity to produce more items You don’t want to produce elsewhere (in Syria/abroad) You don’t have capacity to distribute elsewhere You want to benefit from a better reputation of a partner

How to develop a proper licensing strategy ? Protect your IP rights Find right licensee Assess foreign markets Tailor scope of license to actual needs of licensee Preserve control over the commercial use of your works Negotiate fair compensation Draft a solid license agreement Management of licenses Protect your IP rights Deposit and register, if possible Keep confidential information secret 5. Tailor scope of license to actual needs of licensee Avoid assignment of rights Prefer non-exclusive licenses Limit the scope to the specific needs and interests of the licensee (intended business goal) If assignment or exclusive license  negotiate fair compensation Once you assign your rights, you loose all its future income earning potential Place notice on the works 2. Find right licensee Look for potential users Internet, licensing organizations, specialized merchandising companies, etc. E.g. International Licensing Industry Merchandisers’ Association (LIMA) Trustworthy and diligent partner 3. Assess foreign markets Usually, the licensee will be responsible for local manufacture, localization, logistics and distribution 4. Preserve control over the commercial use of your works Licensee must place IP notice Require samples of the products  QUALITY Protect your IP in the relevant markets IP rights are territorial (except for copyright ) International treaties Differences in national IP laws (term, etc) 6. Draft a solid license agreement Content In written + signed In many countries: must be registered with Copyright Office in order to be able to enforce rights against others (Syria) 7. Negotiate fair compensation Fee Royalty Regular analysis To identify the compliance with current licenses; To identify the necessity for new negotiations to get access to the IPRs owned by others; To identify absence of necessity to license the IPR owned by others because it is not used any more; To identify possible violations of the IPRs owned by others because of the absence of license

Key elements of a licensing agreement Licensor: grant of the right to use specified IPRs by licensee Licensee: payment of royalties to the licensor Scope of the license: Exclusivity Scope of use (manufacture / distribution) Territory Right to sublicense Representations and warranties Validity of the IPRs (best knowledge?) Indemnification (limitation of) Enforcement of the IPRs against third party infringers Liability of the licensor ? Standing to sue of the (exclusive) licensee ? Various systems of remuneration: flat upfront fee, unit-based royalties, profit-based royalties (etc.) Right of the licensee to register a domain name corresponding to the licensor’s trademark ? What should be mentioned in a licensing contract? Parties: Who bill be bound by it Subject matter: What exactly is being licensed Goods: Types of products/services the IP right will be used for Targeted Use: manufacture and/or distribution of the goods sale of those goods use on corresponding packaging and advertising materials use for advertising campaign, Internet Territory: Countries where the goods will be sold or manufactured Term: Number of months/years; or number of units; or time to achieve the intended business goal Can the agreement be prolonged after that period? Can the agreement be terminated before that period under certain conditions? Consequences of such early termination Conditions after termination Compensation One-time payment (flat fee); periodic payments (royalties); combination Basis of calculation of royalties (sales, hits) Timing of payment Exclusive or non-exclusive? Sub-licenses? If allowed  prior agreement? Materials to be provided to the licensee E.g. mould of garments Requirements as to the use of the work Size, placement, format, quality, resolution Attribution (copyright notice, trademark notice, etc) Prior approval (reproduction proof) Requirements as to the commercialization of the products Selling points Minimum production Obligation to inform about the number of products manufactured, distributed or sold, etc. Marketing duties Requirements as to publicity and promotion In television, newspaper, radio, etc Third party infringements Obligation for the licensee to keep you informed about any infringements of your IP rights by third parties of which he becomes aware Indemnification clause Licensee will protect you from any lawsuit that might arise from licensing activities General clauses Applicable law Jurisdiction Dispute resolution Confidentiality, etc

Key elements of a licensing agreement Control over licensee’s accounting methods (for purpose of checking the amount of the royalties) Control over licensee’s use of the IPRs with respect to: Quality of the products sold under licensor’s IPRs Prohibition to misappropriate licensor’s IPRs Confidentiality Term of the agreement: early termination / termination for breach of the agreement / post termination obligations Governing law Jurisdiction / dispute settlement (mediation – arbitration under the WIPO rules) Problematic elements of a licensing agreement Obligation of the licensee to use the licensed IPRs ? Prohibition to challenge the validity of the licensed IPRs ? Obligation to pay royalties after the expiration of the relevant IPRs ? Contractual constraints resulting from competition law

You don’t get the deal you deserve, you get the deal you negotiate Licensing You don’t get the deal you deserve, you get the deal you negotiate www.lapiana.com

4. Franchising

Franchising Specialized license where the franchisee is allowed by the franchisor in return for a fee to use a particular business model and is licensed a bundle of IP rights (TM, service marks, patents, trade secrets, copyrighted works…) and supported by training, technical support and mentoring All franchisees are licensees but not all licensees are franchisees

Franchising Franchising vs licensing Licensing of IPRs is an element of franchising Licensing of IPRs is the means to reach the end Goals of franchising For the franchisor: geographically expand its business without taking financial risks For the franchisee: benefit from the brand, experience and know-how of the franchisor

Why … Why enter into a Franchise? Why not enter into a Franchise? Lower risk of failure • Recognizable image • On going support • Easier to obtain financing • Benefit from franchisors R&D All IPR owned by the Franchisor • Payment of fees • Obliged to follow the business model • Depend on the success of the Franchisor

Key elements of franchise agreement Franchisor: Making available its commercial concept (including IPRs) Instruction / assistance to the franchisee (services) Supply of products to the franchisee Exclusivity Franchisee: Payment of royalties Following the guidelines of the franchisor Promotion + Non-Disclosure Document: Confidentiality agreement contract between franchisor and franchisee to keep the information secret

5. Merchandising

Merchandising Commercial exploitation of a name, symbol or distinctive sign which has acquired a certain brand recognition in a specific field(s) for the purpose of selling goods or services in other fields Often distinctive signs or characters themselves derive from television, film, toys, books, comics, and computer games

Merchandising Merchandising vs licensing Merchandising is based on licensing Goals of merchandising For the merchandisor: expand its business to other lines of products / services without taking financial risks For the merchandisee: benefit from the brand recognition of the merchandisor’s products / services

Merchandising Examples: Taj Mahal, India Picasso Collection of Licensed Products embroidery design Licensed by Warner Bros. Consumer Products, Inc Picasso Elvis '68 Fabric by Cranston Village Licensed by Elvis Presley Enterprises

Case Study: Mary Engelbreit From WIPO SMEs Division Case Studies Collection Mary Engelbreit is known throughout the world for her colorful and intricate designs, and has become a pioneer for art licensing Beginning: "drawing to order" for free-lance clients Went to New York  illustrating greeting cards Several well-known card companies bought her designs, and sales were brisk into a million-dollar-a-year business. Decision to license her cards to Sunrise Publications to free up more time for her art and to grow her business in other areas

Case Study: Mary Engelbreit Other companies were anxious to merchandise Mary's distinctive artwork on a wide range of products including calendars, T-shirts, mugs, gift books, rubber stamps, ceramic figurines and more www.maryengelbreit.com

Case Study: Mary Engelbreit Mary Engelbreit Studios now has contracts with dozens of manufacturers who have produced more than 6,500 products in all. Mary takes extreme care in choosing only the best companies to work with and goes to great lengths to make certain that her artwork is reproduced as faithfully to her original work as possible “A Day At The Beach” new collection of fabric designs

6. Joint ventures and strategic alliances

Case Study: Gustavo De Negri & Za.Ma A small Italian company established in San Leucio in 1998 as a continuation of a long family tradition Specialization on a exclusiv tailor-made silk fabrics, produced for the business to business sector Constant self-renewal by creating new fabric designs Strategic alliances with Milanese loom maker to incorporate the improvements in their new machines and with local university researchers to develop new techniques for finishing fabrics to gain technical innovation in the mill’s mechanical, chemical and finishing processes with three other renowned silk textile makers from the district to market silk fabrics from San Leucio Foundation of a consortium, Registration and management of San Leucio Textile Silk Quality collective trademark Easier to enter into alliances when you have a strong IP portfolio

Case Study: Heng Yuan Xiang Group (HYX) HYX was founded in 1927 till 1987 was a small wool store Shanghai Creation of an eye-catching trademark and development of a successful branding strategy Continuous R&D and promotion of the brand Strategic Alliances with a textile factory that had the necessary assets for production – equipment, factories and capital By 2010 with over seventy factories that help to manufacture its products with thousands of franchisee ( 5,000 franchise stores) to sell its products in more than seventy categories via a comprehensive franchise system Easier to enter into alliances when you have a strong IP portfolio Mr. Liu Ruiqi took over as General Manager and Chairman of HYX in 1987

New business models in textile sector

New business models in textile sector The computer-implemented, software-based business models supply of a limited quantity of fashion products based on stealth and speed Trademarks, copyright and trade secrets as core elements to protect such competitive advantage

Case Study: ZARA Spanish retail chain ZARA, uses a proprietary information technology (IT) system to shorten their production cycle Entire process takes 30 days (most competitors take from 4-12 months) Electronic communication and management system ensures quick reaction on new trends and fabrics to develop new designs Automated cut facility and a high-tech distribution system ensures the finished items are shipped and arrive in stores within 48 hours

yourself…Bear in mind that third parties may want to use them ! Conclusions Protect your IP Choose the best protection All forms of IPRs can be used in combination for the best effect In light of the recourses and market opportunities choose the right strategy to benefit from the IP Even if you can’t or don’t want to use your IPRs yourself…Bear in mind that third parties may want to use them !

Thank you for your attention! Any Question? WIPO’s website for SMEs : www.wipo.int/sme Contact address: larysa.kushner@ehu.lt A link with the first slide