Under lock & key

The issue of intellectual property protection is simmering on the boating industry’s front burner these days. And it’s an issue that touches most marine manufacturers, whether they know it or not.

Trim tab manufacturer Bennett Marine concluded a lengthy series of patent infringement suits regarding a U.S. competitor just last year, for example. And while it’s on the decline, companies like marine instrument maker Thomas G. Faria Co.
continue to face counterfeit issues in Asia.

Intellectual property theft is actually quite common in today’s boating marketplace — both in the United States and abroad. Without a strategy to protect one’s products from being copied, uncover instances in which theft is occurring and enforce the law when the violation is illegal, it will continue to flourish.

Most recently, Jimmy Fulks has been making headlines for his lawsuits against U.S. boat builders. While Fulks, past owner of Mariah Boats, has settled two of three lawsuits claiming infringement of his two “Boat with integrated floor and stringer system and associated method of manufacturing” patents granted in March and December 2000, there is speculation that he intends to file more lawsuits.

Fulks’ tactics have created much controversy, but regardless of one’s take on his or other infringement lawsuits within the industry, such legal fights speak to the importance of developing a strategy for safeguarding all intellectual property.

The good news is there are a variety of tools and strategies available to do just that. And with Congress considering amendments to the 1998 Vessel Hull Design Protection Act, new hope is on the horizon for marine industry innovators looking to protect their products.

Immediate protection
Any boat builder will tell you: The Vessel Hull Design Protection Act has yet to live up to its promised protection against “splashing” — that is, stealing a hull design by making a direct-cast mold and using it to manufacture unauthorized copies. But amendments passed by the Senate, and now under consideration by the House, will significantly improve protection for boat builders.

A law specific to the boating industry, VHDP defines infringement as copying without the consent of the owner of the design. It’s up to the owner to prove that the design was actually copied and that the copy is substantially the same design. Because the law allows for an independent creation of a substantially similar design, the definition of what is “substantially similar” is of critical importance.

As written, VHDP uses the term “hull” to include both hull and deck. Therefore, an infringer can splash a hull and, by modifying an inexpensive deck feature, not be liable for copying the design. The amendments separate and clarify the definitions of “hull” and “deck,” and may make infringement easier to prove.

“The hope is that there will be fewer lawsuits [with passage of the amendments],” says Bryan Zumwalt, legislative counsel for the National Marine Manufacturers Association. “But the real gist of this law is that when somebody puts their time and effort into designing something, they can have the peace of mind that their efforts will be protected. And hopefully, those who have been stealing designs will be more wary about trying to get away with it.”

VHDP’s strength is that it automatically protects both the design and the utilitarian function of a vessel hull from the time the new boat is introduced.

“I call it ‘market entry protection,’ ” says William Fryer, a patent lawyer and professor of law at the University of Baltimore School of Law, “because the protection starts when the boat is finished and ready for commercial sales.”
This protection lasts for two years. Then the boat builder must register the design, paying a nominal fee for ongoing protection.

Because VHDP is administered by the U.S. Copyright Office, it is often confused with copyright protection, but it is neither a copyright nor a patent law. Nor does it preclude the need for additional intellectual property protection.
The boat builder might apply for a design patent for long-term, exclusive rights to the appearance of certain features, for example, as well as utility patents on particular functions. Once issued, a design patent cancels VHDP protection.

The strategic mix
In fact, regardless of the passage of VHDP amendments, or any other legislation, all marine manufacturers should have an intellectual property strategy based around their business goals.
“You never want to put all of your business eggs in one basket,” says Marti Elder, a commercialization and licensing expert located in Bozeman, Mont. “The best strategy for protecting intellectual property is to take advantage of everything you can.”

For example, Elder worked with a company that was developing a silver coating process for an electronic application just as the owners were in the process of selling the business. Elder explains that the company was in a tough position: “They wanted to make it easy to transfer the technology, so embodying it in a patent did make that easier and more visible and transparent to the company making the purchase. But they really didn’t want the patent to issue, because then it would be published and all of their competitors could read what they were doing and do it too.”

With her help, the company filed the patent, but kept it pending long enough to get through the sale. The company then abandoned it before the patent was published.

“So there was a very distinct strategy there to preserve the process but not make it available to the public,” she says.

Southco Marine is another company with an IP strategy crafted to support its mission. General Manager Rich Hipp explains that, while the marine hardware company’s goals are to design and manufacture innovative products to help boat builders differentiate their boats, “This strategy takes a lot of up-front time and investment, which only gets a return if there are sales going forward. Therefore, it requires an IP strategy to protect our innovative designs.”

When innovative product designs are copied by a company’s competitors, those products can often be manufactured for less because the competitors didn’t have to invest in the product’s design. That puts the innovator in a bad position. The company can either compete on price, in which case it is often forced to reduce or eliminate its profit margin on the product, or it can maintain its original price, hoping customers appreciate the additional value it offers as an industry innovator, and stay loyal, despite the price gap.
Costs are another consideration when developing an
IP strategy.

“There is always the question of how much you want to spend and what you get for what you spend,” Fryer says. “With VHDP, you get protection without charge for two years …. [A] design patent application has to be done by a patent attorney, so it will cost you $500 to $1,000, but the rights are exclusive.”

A utility patent can cost several thousand dollars and take a few years to be issued. So, again, what is your strategy?

“Do you see yourself selling this product for only three years?” Elder asks. “And, if so, does it make sense to go through patenting when the patent is unlikely to issue within three years?”

Southco Marine’s Hipp admits that “the cost to file and maintain a patent is not insignificant.” Therefore, the company decides whether to patent based on the market significance of the product.

International patent protection is even more expensive, but can be critical to defending infringements and outright counterfeiting by foreign manufacturers. Just take the example of Thomas G. Faria Co. It took the company two years after learning that an individual in China, suspected of counterfeiting its products, had applied to trademark the Faria brand, to reach an agreement with the man to drop the application. (For more information, visit www.boatingindustry.com and search for “Hot Property,” an article from Boating Industry’s September 2005 issue)

Southco Marine, which has a presence in major boating markets around the world, considers its ability to enforce international patents in assessing whether to file for such applications outside the United States.

“The location of where the product will ultimately end up, in terms of sales, is another consideration,” says Hipp.

Value awareness
Two areas that are too often underemphasized by companies in developing their IP strategies are trade secrets and employee agreements.

In Elder’s earlier example, the silver coating process was more valuable to the company as a trade secret than as a patent. But a trade secret is only valid if it is kept secret. How do you keep it from walking out the door with an employee?

Employee theft is an enormous problem in the United States, and a lot of times it results from employees simply not being aware of the value of what they know. An employee might be friendly with someone who works for a competitor, and innocently reveal a trade secret. Elder encourages companies to do annual training that lets employees know about these intangible goods so that they fully understand what trade secrets are and why they should be protected.

Of course, deliberate employee theft also occurs. To protect themselves on this front, Elder recommends that employee agreements be part of the overall IP strategy and address issues such as confidentiality, ownership of inventions and noncompete requirements. IP awareness training should extend to dealers as well.

“Retailers don’t want to be unwittingly supporting infringement,” she says, “so certainly if they see a design that doesn’t look right, they should question it … but they also have a responsibility to support the brand name.”

That can range from not disparaging the brand to not copying manuals protected by copyright or distributing proprietary information.
“We train and expect our employees to respect IP rights, not just Southco’s designs and business data, but also those of our customers and suppliers,” notes Hipp. “We are also trying to get this message out into the marketplace where cost and market pressures will sometimes drive people to compromise important values.”

Elder recommends periodically taking an IP inventory survey to determine if all IP is adequately protected. Perhaps an innovation has evolved beyond the original patent and needs additional protection. At the other end of the spectrum, perhaps a protected process or product is no longer used by the company and should be abandoned. Or maybe it has value in being licensed to other manufacturers.

Constant vigilance
Elder and Fryer are both often asked why companies should go to the trouble of filing for patent protection when it’s so costly to defend it. A typical infringement case can easily cost a million dollars.

As Elder points out, however, there are a lot of shades of protection before prosecuting someone.

“Part of it is making yourself known. Using a copyright symbol isn’t required, but it makes people aware that there is something that is owned by someone,” she says, adding that you should always include the patent number or note that an invention is patent-pending as well.

Most importantly, she stresses, be vigilant in watching for infringers so they don’t get so far established that there is no option but to go to court.

“Things like legal arbitration tools and contingency fee representations, if you do have to take action, are all steps to avert having to settle in a court of law where nobody really wins,” she says.

Ultimately, an IP protection strategy is a valuable tool to the extent to which it can help a company better meet its goals in the marketplace.

“Our ability to keep and grow business is based on bringing value and supporting our customer with many things, not just the product or price,” says Hipp. “The decision to patent or not patent is not going to stop us from moving forward on innovative designs. Our vision to be a global trusted source for integrated marine hardware solutions depends on it.”

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