Industries who have experienced challenges during the covid-19 crisis and the role that IP has played – Case study: Manufacturing

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The following case study has been taken from the “Implications of Covid-19 on SMEs – reassessing the role of IP in multiple sectors and industries” report written by Naomi Korn Associates and Mathys & Squire Consulting, November 2021. This case study reviews the impact on SMEs (small, medium enterprises) of the COVID-19 pandemic since its appearance in early 2020 through the first quarter of 2021. It focuses on the industries most affected by the crisis and whether intellectual property (IP) and IP management may have helped mitigate its impact through adaptation and change.

Sector overview

The manufacturing sector has been hard hit by COVID-19. A recent report suggested that due to staff furloughs and job losses, customers are likely to curtail spending except for groceries, medicines, and home entertainment. This has a knock-on effect for the manufacturing sector including cars, apparel, textiles, furniture, and appliances as well as the broader business to business industry. Furthermore, the report estimates that across Europe, up to 25% of jobs in the manufacturing sector may be at risk, which equates up to almost eight million jobs across several manufacturing industries. This figure can be multiplied many times over looking at the challenges facing the global manufacturing sector.

Analysis

In the earlier days of the pandemic, there was a global shortage of ventilators, required for treating COVID-19 patients. Similar shortages were observed for PPE, alcohol hand sanitiser and anti-COVID-19 drugs. These challenges resulted in existing producers ramping up production, and many businesses and inventors coming up with innovative solutions and alternative technologies. One technology area that benefited from increased innovation as a result of the pandemic driven demand increase is additive manufacturing and 3D printing. The digital technique allows extreme flexibility in production and easy customisation, meaning that prototypes for new products can be easily generated. As such, this technique has been used to generate specialist parts to help fight the pandemic. Italian company Isinnova produced a 3D printed Charlotte valve capable of connecting to snorkelling equipment, allowing for production of positive air pressure devices from standard snorkelling kit. Likewise, 3D printing has been used to produce mask filters and face shield parts [1]. In this context, German multinational Siemens enabled access to its additive manufacturing network for any parties needing assistance in medical device design and manufacture. Being a partially digital tool, complex 3D printing designs were shared globally online. An obvious issue in this context is infringement of IP rights such as patents, designs or copyright, however, initially it was assumed that good intentions and an ethical approach would prevent potential legal actions or wilful IP theft.

At the beginning of the pandemic, countries across the world experienced severe shortage of hand soap and alcohol sanitisers, caused by a boom in consumer demand and the supply chain unable to cope with it. In the case of PPE, this shortage was caused by panicked bulk buying of unsuitable equipment. Many manufacturing facilities were faced with a level of demand they were not designed for and never intended to deliver for, however it has been noted that many operational changes occurring in manufacturing due to COVID-19 were already underway and the arrival of the pandemic has simply accelerated these processes. This challenge has had several interesting consequences, many of which have impacts on IP rights moving forward.

In the case of ventilators, numerous governments and regulators, temporarily reduced requirements to enable non-medical industry manufacturers to produce ventilators and promoted production under forced collaborative manufacturing arrangements. In the UK, the VentilatorChallengeUK Consortium, comprising businesses across multiple industries was established to meet the increasing and urgent demand for ventilators. The UK government indemnified participants from accidental infringement of IP rights, competition and procurement law and aspects of product failure. Consortium designers and manufacturers were offered an IP indemnity by the UK Government, thus allowing the various partners to push forward with the task of producing ventilators without worrying about potential infringement. While the level of indemnity was not released, it was believed that the government undertook a contingent liability in excess of £3m, which gave consortium members confidence to partner with other firms.

Several governments, such as Chile or Canada, have also gone as far as issuing compulsory licences to produce PPE or ventilators, as well as anti-COVID-19 medication, such as Kaletra in Israel [2]. These compulsory licences have been issued with the caveat that the product being produced is free of charge for emergency use only and future commercial production would require the appropriate licence agreement [3]. The demand for PPE and hand sanitiser has also caused a number of manufacturers to modify their business models, including moving towards ecommerce and teleworking environments, as well as modifying their supply chain and using existing facilities to produce new products to meet demand. Going digital has not simply meant a move to online sales, but the development of a robust digital plan, which offered many SMEs the chance to streamline and automate many aspects of their business, resulting in improving efficiency and reducing costs. This digitalisation, along with new working patterns and shaking up of existing supply chains will create many new offerings for SMEs, especially those who have also carefully managed their cash flows during this period.

In addition to changes in business models, many businesses have also pivoted towards completely new goods and services offerings. Textile manufacturers such as Zara or Prada have produced face masks, while perfume manufacturer LVMH has used their facilities to make hand sanitisers. Many of these expansions into new markets by established companies have been successful in their new activities by growing their existing brand recognition and trade mark portfolios.

Some companies have sought to assist during the pandemic through a more direct use of their IP. The Open Covid Pledge providing a patent pool offering use of COVID-19 related patents is a good example. Under the pledge, companies with patents covering COVID-19 related inventions offered the open COVID-19 standard or open COVID-19 compatible licences to external businesses. The licences are offered royalty free for use by their owners for the duration of the pandemic until one year after its official end, as declared by the World Health Organization.

However, for companies producing crisis critical innovations such as PPE, sanitising gel and medications, the boom in demand has caused an increase in passing off and counterfeiting. In March 2020, a joint international police operation (Operation Pangea XIII) made 121 arrests and confiscated over 34,000 counterfeit surgical masks, ‘corona spray’, coronavirus packages and counterfeit medicines [4]. Similarly, in May 2020, the Italian Guardia di Finanza seized 900 counterfeit children’s masks [5]. With the innovation and licensing programs seeking to exploit all available technologies in the fight against COVID-19, innovative companies may find their IP being infringed, their products being copied, as well as a loss of enforceability of IP where compulsory licences have been granted. These companies will need to ensure that they do not miss out on potential commercial opportunities, but also that they remain sympathetic to the harsh economic and health circumstances, whilst understanding the potential reputational damage suing an infringing party during the pandemic might cause. For example, the non-practicing Labrador diagnostics sued the practicing company Biofire for alleged infringement of two of its patents. However, this misfire from Labrador has caused reputational damage and it delayed the development of potentially useful critical crisis technologies. Labrador diagnostics has since announced a royalty free licence to anyone developing COVID-19 tests, as well as extending the deadline for potential infringing parties to come forward. In another more positive example, truck manufacturer Scania provided some of its manufacturing experts to Swedish company Getinge to enable them to ramp up their ventilator production. In doing so, the company clearly improved the production capacity of Getinge, and thus the fight against COVID-19, without risking the core technology IP of Scania.

The European Commission is also putting in place an action plan to help SMEs impacted by COVID-19 by introducing new licensing tools and a system to co-ordinate compulsory licences [6]. In addition to this, the Commission is aiming to simplify the sharing of information and introduce mechanisms for quick pooling of patents, in order to efficiently meet the needs of those fighting COVID-19. Action points include backing of the Unitary Patent system, optimisation of the use of supplementary protection certifications, as well as the revision of EU legislation surrounding designs and plant variety protection. Furthermore, to directly assist EU based SMEs, IP vouchers will be available for one year to help such businesses manage their IP portfolio. Importantly, the Commission will also investigate methods of support for IP backed financing and seek to support SMEs in this context, in a similar manner to the Japanese government’s support on IP securitisation.

In the context of the current pandemic, when a company believes it is infringing someone else’s IP right, it should contact the relevant IP owners with the aim of securing a licence (potentially royalty free for the duration of the pandemic). Alternatively, companies may decide to drop enforcement of specific patents for the duration of the pandemic, similarly to AbbVie not enforcing Kaletra patents. However, companies failing to be flexible with their IP enforcement and licensing policy during the pandemic may find their products being reverse engineered and alternative, non-infringing products, being developed, thereby causing both reputational damage and loss of market share.

[1]Choong, et al (2020): The global rise of 3D printing during the COVID-19 pandemic, Nature Reviews Materials

[2] Tietze, Frank et al. (2020): Crisis-Critical Intellectual Property: Findings from the Covid-19 Pandemic, University of Cambridge

[3] Baker McKenzie (2020): COVID-19: A Global Review of, Baker McKenzie

[4] International Chamber of Commerce (2020): Disruptions caused by Covid-19 increase the risk of your business encountering illicit trade risks, ICC

[5] Verducci Galletti, S (2020): Challenging times: anti-counterfeiting in the age of covid-19, WTR

[6] European Commission (2020): Communication from the commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions- Making the most of the EU’s innovative potential, European Commission