Protecting Your Intellectual Property – Common Sense Considerations for Online Retailers

Starting a business online comes with a range of challenges, not the least of which includes legal concerns. From protecting your intellectual property (IP) to avoidance of infringing upon another’s IP, there are a number of considerations to be aware of.

When Jane Rafter founded her online business, Slinks, she didn’t give much thought to the potential ramifications of sharing her unique product with the world. However, Rafter was soon to find out just how easily a novel idea can be subsumed by a third party intent on cashing in on her IP.

Rafter claims that her product, designer lady’s footwear with an interchangeable upper, had been copied by a competitor start-up business, and even with all the evidence at hand justice has been slow in coming.

Jane Rafter
Jane Rafter, Founder of footwear retailer, Slinks.

“They had copied my idea completely,” Rafter says. “I called and spoke to them on the phone and they openly admitted they tool my Slinks to China and had them copied. It was suggested I should be pleased that my design was good enough to be copied!”

Rafter, an Australian ex-pat living in London, first launched her business in 2006 and appeared on the UK version of Dragon’s Den in 2009, which is when her idea really began to take off. Two years later, an unusually large order came in.

“I often receive orders from Australia, but in this case the customers purchased over $1000 AUD word of stock, including a wide variety of bases, uppers, packaging styles and sizes.”

Rafter didn’t realise it at the time, but the order was everything an Australian-based pair of copycats required to clone her entire business model.

Of course, this isn’t the only case of this kind of IP theft occurring to online retailers the world over. In recent years, Rocket Internet has come under a large amount of scrutiny for openly reproducing successful business models and transplanting them into emerging markets.

It is understood that Rocket Internet’s Zalando, The Iconic, Lazada and Zalora are all clones of the Amazon-owned Zappos. However, in this case it is not clear if there has been any legal wrongdoing.

Closer to home, the founders of footwear pureplay Shoes of Prey have experienced IP theft of a different kind – in their case, proprietary software was appropriated.

“In Shoes of Prey’s case, we realised we had ‘smoking gun’ evidence to prove a competitor had stolen some of our proprietary code from our website,” explains Co-founder Jodie Fox. “The funny thing is, all of the three founders – including myself – all have a legal background and we were confident that we could bring a case against the involved parties. But in the end we realised the costs and time taken were just too great, so the legal battle never eventuated.”

While Shoes of Prey never took their complaints to court, this won’t necessarily be the correct path for every business.
Regardless of whether it’s physical product or proprietary software, legal proceedings may be able to be brought against individuals and businesses who are resident overseas.

Shoes of Prey editor
Shoes of Prey’s proprietary code – a key value proposition – was stolen by a competitor.

What must also be remembered is that any new business should ensure it is not encroaching on the IP rights of third parties, especially where the use of trade marks and domain names are concerned. A Facebook page can be shut down very quickly at the request of a third party if the ownership of a trade name becomes an issue.

Carmen Champion has specialised in IP law for over 30 years, both as a Solicitor and currently as a Barrister, suggests the following safeguards:

Before going ‘live’ with any new business venture get good legal advice – Every aspect of the proposed business should be reviewed to provide you with an overview of what is and is not protectable, or open to challenge.

Find the right legal adviser – You need a solicitor who has not only a sound grasp of IP law but also commercial good sense. Remember, any lawyer can promote himself/herself as an IP expert. Be discriminating. Don’t take what appears on a law firm’s website as a true reflection of their expertise, when it may be, especially in the IP field, no more than “puffery”. Check out the claimed expertise, especially by speaking to clients about the quality of the service and the manner in which it was costed. Also check whether the firm has a website which explains recent developments in IP law, identifies what IP associations they are members of, whether they have ever held a position in any of these associations, and what seminars on IP law the claimed expert has given recently and what articles has he/she published.

Get a written advice – In the case of litigation asking for a written advice has the benefit of wonderfully focusing everyone’s mind on the real issues, and what needs to be done by whom. It should provide you and your legal adviser with a roadmap. You will meet resistance on the basis of the cost involved. Keep in mind it is better to spend $5,000 – $7,000 on such an advice than finding that you have spent $20,000 on the preparation of affidavits/declarations only to be told by the newly briefed barrister that you don’t have much of a case. Proceeding on the basis of oral advice given in conference is not a particularly sound basis for the expenditure of what may become hundreds of thousands of dollars.

Make the process transparent – Remember that most IP litigation is quite capable of being satisfactorily managed by a solicitor with three or more years litigation experience and oversight by an experienced IP barrister. Beware the ‘team’ mentality. A lot of solicitors have a need to travel in pairs (at the client’s cost) for no justifiable reason. Remember a partner is perfectly capable of taking notes of what is said in conference. It is cheaper to buy a tape recorder than incurring the cost of having an additional solicitor at the conference to perform that function at $300 or more per hour.

Ask for accurate timeframes and costs – Not only should your legal adviser provide accurate figures for the cost of litigation, but also for the time and effort they personally intend to put into the preparation of the case. You should know exactly who is going to do what. Check the bills to seek who was involved in each task. Ask for details of what each person contributed. Pay attention in conferences as to what contribution each lawyer makes to the discussion. Neither nodding one’s head at what counsel is saying in conference nor the taking of notes rates high on the contribution scale. Remember you are paying a great deal of money for the exercise of forensic judgement by both your solicitor and your barrister.

The court will set a timetable for the completion of various steps in the proceeding. Most of these steps will take significant effort and time. Be concerned if things aren’t being done promptly. It can be a sign that your legal adviser is too busy, does not have the capacity to deal with the matter, or is simply out of his/her depth. Affidavits drafted at the last possible moment rarely live up to the best you should be able to put before the Court.

Assess the value of the IP to your business – Basically you’re performing a cost-benefit analysis: if the cost of litigation is likely to amount to more than what your IP is worth, there’s little point pursuing this route. But your legal adviser should have the knowledge necessary to achieve the best commercial outcome for you without, necessarily, resorting to litigation.

Ultimately, the decision to enter into legal proceedings must be made on a case-by-case basis. In the example of Slinks, Rafter is keen and confident that justice will eventually be done. On the other hand, the Shoes of Prey team clearly saw that their time could be better spent continuing to develop their offering.

According to Fox, sometimes the theft of a good idea really should be treated as flattery. After all, if you can come up with a good concept once, you can do it again.

“The fact of the matter is that someone will always be after your IP – the world is full of plagiarists and copycats,” she says. “To be honest, when it happens to you it certainly doesn’t feel like flattery. But ultimately we were copied because we had a valuable idea and that made us realise there was nothing to stop us continuing to come up with more.”

2 thoughts on “Protecting Your Intellectual Property – Common Sense Considerations for Online Retailers

  1. As Einstein said, success is 1% inspiration and 99% persperation. Until the copy cats can work out how to clone your drive and determination, they will fall behind.

    Reply
    • alewis
    • 15th November

    Very interesting story. On another note we the people should not buy imports from that region which would means almost every thing.Its rather sad weve just become a service and lost the industrial part, for what. their faucets are starting to show up and u cant find parts for them, treats are making dogs sick, the elderly park their wheel chairs outside because of the strong sickening odor rom the fake rubber weels. The governor in California is the only one that has the balls to keep this crap off the market despite the traders and stores trying to block it. We fell into the trap of of buying more for our money and screwed ourselves doing it.

    Reply

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