Friday 29 January 2010

The Costs of Confidentiality

As previously noted by Neil Wilkof on this blog, IP is only one aspect of a company’s competitive advantage, sometimes more crucial, sometimes less crucial to the success of a company’s activities. This was highlighted in Wednesday’s edition of The Times, which reported the measures taken by Air New Zealand (ANZ) to secure a first-to-market advantage for its lie-flat bed for economy passengers. “Such was the secrecy of the programme”, the newspaper notes, “that simulated flight tests were conducted on actors sworn to silence. Aviation seating is a cut-throat business.”

However, a role for IP in ANZ’s activities is also apparent from the comment of ANZ’s long-haul boss that he expects to license the seat design to other airlines. Such a business model was the subject of the 2009 litigation between Virgin Atlantic and Premium Aircraft Interiors, first in the Patents Court for England and Wales and subsequently in the Court of Appeal. According to the Patents Court decision, Virgin were successful in licensing their “Upper Class Suite” flat-bed seat design to Air New Zealand for a “substantial fee”. Air Canada were also interested in taking a licence but found it difficult to justify the Virgin fee, buying instead an alternative “Rock” flat-bed seat design from Virgin’s seat manufacturers, Premium Aircraft Interiors. Virgin then sued Premium for infringement of patent and unregistered design rights.

The Patents Court decision provides an interesting insight into the measures taken by Premium both to maintain the confidential status of information received from third parties (in this case Virgin and its seat designer) and to prevent that confidential information from contaminating its own work for other customers such as Air Canada. Premium initially claimed that they operated a “clean room” approach that employed different teams for different projects, the design data for different projects being kept securely on different parts of Premium’s server. However, as noted by the Patents Court judge, Mr. Justice Lewison:
“The position as it eventually emerged was rather more complex. First, there are at least two kinds of design data. Design data known as CATIA, which are three dimensional modelling data, are stored in a digital file. It can be sent to a manufacturer who can use the file to make a mould or tool in order to manufacture the required component. These data can be kept securely. In addition there are two-dimensional design drawings. These could not be kept securely once UCS had gone into production in the autumn of 2003. Second, once Virgin Atlantic had entered into a licence with Air New Zealand in about June 2004, the UCS had to be modified in order to fit onto Air New Zealand's aircraft. A separate design team was created in order to deal with those modifications. That design team (as well as the original design team) had access to the UCS design data (including CATIA). Third, contrary to the pleaded case there were at least two people at Contour (Simon Allen and Bruce Gentry) who had roles to play both in UCS and Rock/Solar Eclipse. Indeed, since Contour employ a large number of short term contract designers, it has not been possible to identify all the designers and engineers who worked on the UCS project, or whether some of those short term contract staff worked on other projects within Contour. Accordingly, Contour now admit that their relevant employees had the opportunity to copy both UCS itself and also UCS design data.”
For non-IP managers, there is a temptation to view protection by trade secret/confidentiality as a cost-free option. Certainly, there are no patent office fees to pay. However, as illustrated by the cases above, the measures necessary to ensure that confidential information is properly managed are far from being without cost.

No comments: