Cross border data flows will become one of if not the most important consideration for corporate counsel in the future given the implications for intellectual property (IP), privacy, competition, trade, compliance and innovation, writes Ronald Yu*
The need to look at IP anew
As we move further into the age of Industry 4.0, the need for expertise in IP will only continue to grow particularly in the context of international data flows.
Consider the facts.
Not only are the key assets of most companies today intangible, with much of this is in IP of some form – inventions, strategic know how, content, brands, etc., but the proportion of intangible to tangible assets continues tilting towards the former as companies introduce new innovations, apps, products, services, etc.
How are all these services and products being created? Increasingly through networked collaboration and cooperation, often across borders helped along mightily by improved communications and IT applications; and the recent Covid-19 crisis has only served to supercharge this trend.
Recently though, there’s been a new twist – companies not typically associated with tech, entertainment or content publication, are now arming themselves with large IP portfolios. For instance, in 2019 American Express, Visa, Mastercard, Bank of America and Walmart (through Walmart Apollo LLC) ranked among the top 30 holders of blockchain patents worldwide.
The overlooked implications
While IP and IP rights are typically viewed in a protection framework – i.e. you get patents to protect inventions, copyright protects movies, art, literature, music, etc., trademarks protect indications of origin – more IP sophisticated players have used IP rights to increase revenues (e.g. through licensing) or further strategic corporate objectives such as promoting the wider adoption of their technologies or technologies with which they have an underlying interest as Tesla has done by pledging not to take legal action against parties using their technologies in good faith, even without prior permission, or as IBM did earlier with its patent pledge that was ultimately designed to promote wider adoption of the Linux operating system.
There have also been other companies whose business models are based around monetization of IP rights – notably patent assertion entities (PAEs), pejoratively known as ‘patent trolls’, seeking license fees from users who may intentionally or unintentionally infringe their patent rights.
While overly aggressive PAEs, such as the one that threatened small businesses with expensive infringement suits over their use of Wi-Fi systems, have given PAEs a bad reputation, there are legitimate players who license important technologies and help ensure that the developers of these technologies are fairly compensated.
Furthermore, as more companies adopt ever advanced technologies, the threat that their business operations can be disrupted or their costs of doing business increased by key IP holders is now a real possibility. But things don’t end here.
When in doubt spell it out
As more and more work is being conducted over networks, particularly now when extensive work at home arrangements are in place, worries over the potential loss of valuable IP, whether content or sensitive information – i.e. trade secrets – have grown, leading companies to issue warnings about cybersecurity and employ technological solutions such as VPNs or surveillance software to keep tabs on remote workers (both of which have their own set of legal issues beyond the scope of this article).
Yet companies should also worry about IP ownership in networked environment, not only when a participant is not technically an ‘employee’ but also where other business parties are involved and rights to any newly created IP are ambiguous.
The complications of confluence
The confluence of technologies, combined with increasing networked collaboration and development, particularly across borders, has brought about another IP related concern that has so far escaped greater attention – the IP consequentiality of privacy legislation and free trade agreements (FTAs) that regulate cross border data transfers.
Such a situation is not unprecedented; health regulations, for instance, have long proven more effective in protecting vulnerable wildlife than animal conservation laws themselves.
International data flows are not only necessary for operational reasons but also for product development – particularly for the localization of applications or services and for artificial intelligence (AI) applications that require massive amounts of training data.
FTAs limiting the transfer of data or calling for data to be locally stored potentially limit product development, raise costs and complicate compliance matters (e.g. because data now has to be stored in multiple locations under heterogeneous sets of rules and regulations).
Provisions in FTAs that could potentially favor companies in one jurisdiction over companies outside that country are also potential red flags as are clause in, for example, privacy regulation that may require disclosure of important trade secrets, such as the algorithms used in an AI application, under certain circumstances. Given that companies are increasingly employing bespoke AI systems, whose key critical IP lies in their data and algorithms, this is no trivial consideration.
And of course, where international data flows are concerned, there is always the possibility that an IP rights holder in another jurisdiction might try to use its IP to block its rival’s ability to conduct business there.
Going Mainstream
In short, the concerns that tech and content companies had regarding IP rights are now finding their way to other industries. Given that IP is now a major asset of most companies, increasing IP awareness is now a necessity particularly as privacy legislation and FTAs have become so important to the protection of valuable IP and data flows, so critical to operations and product development.
Related training
In June, Ronald Yu will be presenting as part of Empowering Transformation: Connectivity and Cross-Border Data Flow, a series of related online interactive talks and webinars organised by Professor Bryan Mercurio of the Faculty of Law, Simon F.S. Li Professor of Law and former Associate Dean (Research) at the Chinese University of Hong Kong, examining the most important emerging legal and policy challenges brought about by the critical importance of data to Financial Technology (Fintech), Blockchain, Cryptocurrency, Artificial Intelligence (AI), Innovation, Digital trade, and Internet of Things (IOT).
For more information go to: https://dev.inhousecommunity.com/events/empowering-transformation/
*About the author
Ron Yu has taught intellectual property law and Fintech at the University of Hong Kong, Chinese University of Hong Kong and the Hong Kong University of Science and Technology. He has also been an advisor to the World Intellectual Property Office’s Green initiative. He currently researches in the areas of cross border data flows and wildlife conservation law and has been involved with start ups in Biotech, Legal Tech and AI.
By the same author: The techlash is coming