CENSIS white paper: Intellectual Property in Business

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Intellectual Property in Business: IP basics, IP management, IP strategy IP Management during Growth (continued) Given such litigation threats, it is reasonable to assume that OEMs and retailers do scrutinise more carefully any offerings of the component suppliers and do pay attention that IP rights are respected since they happen to be more exposed to patent litigations than before. However, this does not mean that suppliers can shrug their shoulders and avoid repercussions. On the contrary, it is to be expected that targeted OEMs will confront their suppliers. After all, contracts include elements such as liability, insurance, warranties and IP, so they will likely reimburse OEMs for patent/IP infringements. What do such shifts in litigation practices mean in terms of IP strategy? At least two aspects should be considered: IP risk assessment and licensing/ commercial strategies. With regard to IP risk assessment, understanding the dynamics in the supply chain of the addressed market is crucial when negotiating contracts with suppliers and/ or retailers. Indemnity clauses are of particular concern when it comes to any lawsuits and repercussions for tier-suppliers. Such clauses define the supplier’s responsibility against the buyer (retailer, OEM) and can oblige the manufacturer to pay (or participate in) trial costs and damages. In addition, more attention is being paid to ethical conduct with IP rights. Therefore, all stakeholders of the supply chain should be diligent about respecting IP rights. In terms of strategic actions, implementing proper IP policies can ensure that goods are manufactured and shipped with a lower risk of IP infringement. 54 With respect to licensing strategy, the analysis of the supply chain should shed more light on the best licensing opportunities in terms of royalties. The closer towards the OEM, the more the higher prices of the components influence the royalty rate, up to the final commercial unit. This, however, does not mean that a Tier 1 supplier will license the components to an OEM and receive royalties. The supply contract can include licences from Tier 2/3 suppliers, but it might be a ‘simple’ sale transaction between the Tier 1 supplier and the OEM. Every market has own peculiarities, and it is extremely important to understand these – for example, what the transactions between suppliers and buyers in each tier look like (licensing, sales), which licensing fees are common among the addressed industries, and whether the industry respects IP rights. 54 Giler (n 51). 34
Intellectual Property in Business: IP basics, IP management, IP strategy IP Management during Growth (continued) 15 A few words for code developers: open-source software Integrating open-source software (OSS) into the code is almost a standard in software development nowadays. From an IP perspective, using OSS is neither good nor bad. The assessment depends entirely on the adopted business strategy and whether the use of OSS supports it – more precisely, whether the types of OSS licence a company implements are compatible with its policy and the business model it aspires to. It is important to remember that OSS licences are copyright licences – multilateral licences with each of them representing the agreement of a specific community and reflecting the norms of a community. 55 Open-source software licences range from strictly copyleft licences, where the proprietary code must be released on the same conditions as the copyleft code it is based on, to so-called permissive licences, where the code release remains at the discretion of the company. Without an open-source licence, the software component is unusable by others, even if it has been publicly posted on GitHub. 56 Comprehensive and useful overviews of most common OSS licences can be found at: • https://choosealicense.com/licenses/ • https://opensource.org/licenses • https://www.whitesourcesoftware.com/resources/ blog/open-source-licenses-explained/ • https://en.wikipedia.org/wiki/Comparison_of_free_ and_open-source_software_licences It is important that OSS is used according to the licence conditions, and these must be checked beforehand. If the use violates the conditions, it will be recognised as a breach of contract or a copyright infringement. Reviewing the conditions of a licence beforehand has a profound importance for a business: licence requirements/obligations should comply with your business strategy, and not the opposite. Therefore, there is a need for company protocols and policies defining which and when OSS licences should be used in code development. 57 Software developers within the company should also be made aware of their obligations under the company policies. Last but not least, open-source-based businesses can be commercially successful. After all, companies play with diverse features and business models to capture the value from their developments. My experience shows that code developers are aware of diverse OSS licence regimes and can navigate quite well through the jungle of OSS licences. The challenge is much more about knowing first what the business direction is and how to manage the OSS components in your product. 55 ‘Frequently Answered Questions’ (Open Source Initiative) accessed 2 December 2022. 56 Ayala Goldstein, ‘Open Source Licenses Explained’ (WhiteSource, 24 January 2021) https://www.whitesourcesoftware.com/resources/blog/open-source-licenses-explained/ accessed 2 December 2022 57 Harroch (n 1). 35
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CENSIS white paper: Intellectual Property in Business

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