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Leverage legal issues: innovating in a complex regulatory environment

Take advantage of legal issues to boost value and minimize IP risks.


February 24, 2017
by Jake Bullen and Stephen Selznick

Real-time monitoring may increase exposure to cyber risks. PHOTO: FOTOLIA

Manufacturers must innovate and adapt to succeed in today’s highly competitive global marketplace. Effectively managing the inevitable legal issues will enhance productivity and value, while minimizing risk and litigation expenses.

Take the Internet of Things (IoT). It represents the ability to utilize machine-to-machine and machine-to-human systems to collect and monitor data internally and externally. Functionality includes real-time monitoring, deep learning and predictive maintenance. Early adopters are already using IoT to optimize both production processes and consumer targeting. But there are legal challenges and sensitivities to consider.

Collecting internal data to optimize production processes increases exposure to cybersecurity risks. Implementation of any data collection system goes hand in hand with system security audits and upgrades that involve all levels of the organization.

On the consumer side, collecting data to improve the customer experience and focus marketing efforts raises privacy concerns, such as the risk of unauthorized disclosure of personal information resulting from a cyber incident. Minimize potential liability by monitoring and understanding the evolving legal and public policy regime and being prepared to modify compliance, risk management and IoT policies.

More capable and less expensive robotics are contributing to increased automation across a number of sectors to lower operating costs, improve productivity and achieve a higher level of output consistency. As processes further automate and robotics become more prevalent, legal liabilities will be magnified.

Companies should deal with custom system providers (or aggregators) that assume contractual responsibility for all aspects of the development, installation, operation and maintenance of their automation/robotics systems. One set of agreements and a single relationship addresses the allocation of any potential liability in areas from personal injury to property damage to IP infringement.

Detailed indemnification and insurance provisions, as well as governing law and forum clauses ensure a manufacturer can enforce its rights in a specific court or with an arbitrator. Also consider requiring a guarantee from a vendor’s parent company or affiliate of the vendor if there are financial concerns about the primary supplier.

Provisions, representations and warranties should ensure the licensor has the ability to license the use of the software and that it and the system will perform as advertised. Avoid costly and disruptive disputes by contemplating where they might arise and have solutions prepared.

Protect your advantage

To protect competitive advantages rooted in proprietary processes, systems, methods and designs, appreciate domestic and international IP regimes that apply to domestic and outbound commercial activities.

IP might include patents, copyrights, trademarks and industrial designs; or, surprisingly, trade secrets, which are not registered, but maintain their value by being kept confidential. These rights enable active enforcement of proprietary interest against infringing third parties and makes the work-around by competitors more expensive.

The assessment and protection of proprietary rights also provides assurance that a manufacturer is not unknowingly infringing on another company’s rights through the use of a protected method of manufacture, composition of matter, design, system, process, unique expression or identification of origin.

Risks associated with infringement may extend up and down the supply chain. Even where no intellectual property is owned, have suppliers confirm their equipment, systems and products don’t infringe on any existing IP.

Companies that outsource manufacturing to foreign jurisdictions should be aware that most forms of IP protection are determined on a country-by-country basis. Limiting IP protection to only one or a few jurisdictions when sources supply from, sell to, or trans-ship through other unprotected jurisdictions may result in a loss of rights or infringement of third party IP rights.

Protecting your company’s IP is also important for building value. A potential investor or buyer will request evidence appropriate steps were taken to protect all IP in the supply chain, and will want details of any adverse IP claims and litigation.

With the shift to advanced manufacturing techniques and processes, companies that want to compete globally are focusing more on innovation. Success is worth protecting through proper legal safeguards.

Jake Bullen is a partner at Cassels Brock, and chair of the Private Equity group. Stephen Selznick is a partner in the Intellectual Property Group and a certified licensing professional.

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