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Supply chain changes could give rise to patent issues

22 Jun 2020

Engineering capacity news posted by Andy Sandford

Manufacturers are being warned to tread carefully if changing their supply base, as in some cases their products could be more vulnerable to copiers – writes Alex Harvey of  Withers & Rogers.

Depending on the circumstances, they should consider taking steps to minimise their exposure.

As the lockdown restrictions in the UK and other parts of the world begin to ease, many OEMs are keen to avoid any further disruption by ensuring that their supply chains are fully operational. Depending on which products they are sourcing, and from where, any breaks in supply could force production lines to shut down again, almost as soon as they come back online.

To avoid this, OEMs may need to review their supply chains in the light of Covid-19, as some countries will have lockdown restrictions in place for longer than others. Some supplies may also be experiencing increased demand due to the pandemic, making them much harder to source.

Before modifying their supply chains, manufacturers may need to consider the impact this could have on their patent portfolios. For example, substituting constituent parts of a product for alternatives that are easier to source could potentially undermine their product’s existing patent protection.

Most patents are broad in scope, which means they should provide effective coverage for minor changes to the product. However, in fast-moving markets or competitive areas of R&D, patents tend to be more specific. In these instances, if significant changes are made to a constituent part of a product, it may then fall outside the scope of the original patent, and no longer have commercial protection. This could allow competitors to freely copy the product without risk of legal action.

To illustrate, one potential area of risk affects manufacturers of stainless steel components. Stainless steels are typically made using large quantities of chromium, which gives the product its beneficial corrosion-resistant properties. However, over half of the world’s chromium production is concentrated in South Africa and, therefore, global chromium supply lines could be affected if significant lockdown restrictions come into force. To mitigate this risk, some manufacturers may opt to source alternative materials, such as Molybdenum, instead of chromium, which has comparable anti-corrosion properties and has reserves which are much less geographically concentrated. However, this obviously isn’t a like-for-like substitute, and depending on the precise terms of any existing patents that may have been secured by OEMs further up the chain, the modified steel product may no longer be protected.

To protect their innovations, OEMs should consider the implications of any supply chain changes carefully, and take action appropriately. Firstly, if at all possible, OEMs should try to ensure that any alterations that they make to their products remain within the scope of protection afforded by their existing patent portfolios.

Another option could be to seek patent protection for the modified product, which should be possible as long as it can be shown to be novel and inventive. If not, as a last resort, some existing case law might also help.

A ruling by the UK Supreme Court in Actavis v Eli Lilly in 2017 looks to have made it easier for OEMs to bring action against competitors making subtle variants of their patented products. In practice, this means that an OEM may still be able to bring an infringement claim against a competitor for copying their product, even if the product does not fall within a ‘normal’ interpretation of their patent. However, the caveat to this is that the infringing variant must only differ from the patented product in ways that are deemed to be ‘immaterial’. Consequently, while this is still an evolving area of case law, the OEM may be able to argue that a variant still infringes their existing patent, even if the variant seems to fall outside of a strictly literal interpretation of their patent.

In uncertain times, manufacturers may need to make operational changes to their business at short notice. However, any changes affecting their supply chains should be considered with care. In most cases variant products should still remain protected by robust, well-drafted patent applications. However, in some instances other strategies may need to be employed to minimise exposure to potential copiers.

Alex Harvey is an associate at European intellectual property firm, Withers & Rogers.

www.withersrogers.com

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