Intellectual property rights and the sharing economy

Thursday 7th September 2017

The "sharing economy" is a phrase we are hearing more and more frequently in recent times. This article explains what the phrase means and in particular what it means for intellectual property rights holders.  

This article originally appeared in LawNews, Issue 29. LawNews is the weekly publication of the Auckland District Law Society. 

In recent years, the Oxford Dictionary, a trustworthy source of the English language, has added the phrase “sharing economy” to its pages. The Oxford Dictionary defines the sharing economy as “an economic system in which assets or services are shared between private individuals, either for free or for a fee, typically by means of the Internet”. We may be familiar with this definition at a high level when we think of new enterprises such as the revolutionary property rental service, AirBnb, but the sharing economy is much more complex than the simple definition above.

One potential complication of the sharing economy is its effect on traditional notions of intellectual property ownership, characterised by one entity holding an exclusive monopoly over their brands, patents, copyright and other intellectual property.  Below we discuss how the sharing economy has the potential to challenge traditional ownership and outline some practical points for protecting intellectual property in this new economy.

What is the sharing economy?

The term “sharing economy” is often used to capture other terms that have been bandied about in recent times such as collaborative consumption, ‘uberization’ and P2P or peer economy. All of these terms encompass similar features such as technology, use of social media, environmental sustainability, monetary benefits and community. Global and local New Zealand businesses are helping consumers share a range of goods, including bicycles, surfboards, text books, clothing, cars and houses. Businesses are also able to reduce overheads operating in co-working spaces; people are able to borrow funds from other people through peer-to-peer lending; and individuals or start-ups are able to raise funds through crowdfunding platforms such as Kickstarter. It is estimated that five key sharing sectors globally – travel, car sharing, finance, staffing and music/video streaming – have the potential to increase revenues from roughly $15 billion in 2014 to approximately $335 billion in 2025 (PWC, Consumer Intelligence Series: The Sharing Economy).

Through sharing goods and services, in some cases, it is possible to cut out the middle man employer or company selling goods and services, resulting in positive implications for the cost and convenience of these goods and services for consumers. Of course, as with other 21st century developments, there are some perceived drawbacks of the sharing economy including privacy and data concerns, problems with insurance arrangements, consumer guarantees for goods and services and also the reliability of business relationships based on trust. In the sharing economy, businesses are required to understand the changing expectations of their consumers, constantly evaluate how they market and sell their goods and services, and be open to disruption and working within a different business model.

Traditional intellectual property ownership

The unique innovations, goods and services of a business, and the reputation and goodwill a business builds in these, are protected by intellectual property rights such as trade marks, designs, patents and copyright. Intellectual property rights such as these grant the rights holder an exclusive right to use and develop their intellectual property to the exclusion of others in the marketplace. At first impression, the above mentioned intellectual property rights may seem contradictory with the idea of a sharing economy, as rights are founded in the monetisation of ownership and a monopoly rather than sharing. However, as intellectual property makes up around 80% of a global corporation’s value, it appears an opportunity awaits for businesses to facilitate the sharing of their intangible assets (PWC, Consumer Intelligence Series: The Sharing Economy).

Branding and trade marks – remaining in control

Branding, and more specifically registered and unregistered trade marks, are signs (i.e. words, logos, symbols, slogans, designs) that distinguish the source of goods and services of one trader from those of others. Trade marks also enable the building of trust in the quality of products from a specific source. Seeing as the shared economy is based on notions of trust, it appears trade marks will continue to have significant value in this new economy, provided companies remain in control of their brands.

Brand control is an important business tool but as the sharing economy develops, this power is being shifted into the hands of consumers. For example, through social media and sharing platforms, brand owners no longer have total control over the representation of their brands and their distribution channels. Where consumers are the source of goods rather than the brand owner, it becomes more difficult for brand owners to protect their reputation and goodwill in goods and services. Furthermore, on the Internet consumers can post reviews of goods and services and these posts have the potential to reach millions of people worldwide. If these posts are negative, the impact on a business is limitless.

Another facet to protecting your brand is policing of the marketplace and enforcement of your intellectual property rights against infringers. With the rise of the Internet and sharing economy, there is greater potential for others to copy brands they see online or for consumers to imply a false sense of company affiliation through sharing images of them wearing, eating or using a product when, in fact, the brand owner has not authorised such an endorsement. There is also no clear answer to the question of ownership of user generated content.

Patents – competitors to collaborators?

Patents are the legal rights that protect invention and innovation, and the immense time, effort and cost that goes into this. As the sharing economy progresses, patents are in a constant state of flux. Technology, platforms and legal frameworks are evolving to offer businesses to share innovations while still retaining the value of their underlying intellectual property.

For example, in mid-2017 Google and eight others including Samsung, LG and HTC agreed to share patents covering Android and Google apps. Other players are also allowed to join the agreement known as PAX. The aim of the agreement is to defend against patent trolls (where one company obtains the rights to a patent in order to profit by means of licensing or litigation, rather than by producing its own goods or services) and to ensure “innovation and consumer choice continue to be drivers of the Android ecosystem” (Jamie Rosenberg, Android and Google Play). Another earlier example of a similar arrangement was when General Electric shared its patents with innovation platform, Quirky, and innovators were free to use any of General Electric’s patents to develop their own devices. In return, Quirky and General Electric profited from a joint-venture arrangement with the launch of successful products such as a smart-phone controlled window air conditioner (PWC). 

In both of these situations, the intellectual property owner, through sharing, is able to profit from co-branded product development and increase revenue from its existing intellectual property. Further, by opening up patents to inventors, this has the potential to inspire new ideas, accelerate innovation and provide consumers with access to new products a lot faster than if the intellectual property holder worked independently.

Practical considerations for protecting IP in the sharing economy

Overall, we can see from simple examples related to trade marks and patents, the sharing economy is changing the way innovation and intellectual property is approached. Below we outline some key advice for intellectual property owners operating in the sharing economy:

  • Companies should take a fresh look at their brand and their products, weaving sharing into the consumer experiences they are creating and considering new marketplaces, business models and consumer values.
  • Companies can remain in better control of brands by monitoring distribution of their products, protecting themselves from false endorsements or affiliations and remaining vigilant to trade mark infringement such as domain squatting or counterfeit products.
  • Companies can employ modern marketing tools and engage directly with consumers via social media channels, assisting in the control of brand image and also establishing a community around a brand.
  • Leveraging existing and new intellectual property through collaborating with other companies and using technologies that allow for sharing will enable innovators to profit from their intellectual property with greater efficiency and potentially less cost.
  • Business relationships need to be backed by watertight licensing and other legal agreements.
  • Seek strategic intellectual property advice early in the ideation phase.

This article is intended to summarise potentially complicated legal issues, and is not intended to be a substitute for individual legal advice. If you would like further information, please contact a Baldwins representative.

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