Gatorade - A cautionary and success story on the importance of having a university IP Policy

I just came back from a very productive trip to Cebu and Dumaguete. My mission there was to teach university administrators and faculty members about intellectual property rights (IPRs) and why every school should have its own IP Policy.

Conducting Basic Orientation Seminar on Intellectual Property Rights to university administrators and faculty members from different schools all over the Visayan islands.

It was no surprise that there wasn't much accurate knowledge about IPRs floating around. I have been visiting schools all over the country for some time now and the same old recurring theme always comes to greet us: educators need to be educated about their IP rights and those of their students. They need to learn how their copyrights, trademarks, industrial designs, trade secrets, utility models and patents figure into their daily work.

After the basics, we then go into the more difficult task of crafting IP Policies for each individual school, institution or university. 

So what is an IP Policy and why is it so important when we already have the IP Code? 

IP Policies are rules set by a group, institution or even an individual to govern the ownership, management and transfer of IPRs. It's important for institutions and schools because the people working for them need to know how much of their IPRs they get to keep and how much they need to give up to be part of that group. 

Even if the IP Code is sufficient to provide protection of IPRs, the law also leaves us with a wide latitude of contractual freedom so that people and institutions get to decide how IPRs are managed among them. Upon this wide space, institutions need to craft a predictable rulebook on IPRs so that those who create them are able to manage their expectations as to how much money and credit they will receive for their work.

Universities and colleges are IP manufacturers of the highest grade. It's only a matter of time before that student stumbles upon that formula to destroy that formerly incurable disease or that professor invents human teleportation. What we believe to be science fiction is explored and made real every day in these schools. With such prolific intellectual activity, there is great potential for creation and commercialization of intellectual assets. 

The classic success and cautionary story on the importance of IP Policies is the story of how Gatorade came to be.

What we recognize today as the gold standard in sports drinks was created in the laboratories of the University of Florida in 1965 by a team of university researchers, upon the request of Florida Gators assistant coach Ray Graves -- the drink of course was later named after the team.

Taken from Wikipedia.org and used for educational & historical illustration only.

This drink was designed to quickly hydrate a player and replenish the carbohydrates and electrolytes lost during physical exertion. The invention was a massive success and was considered to be the tipping point that led the Gators to win their first Orange Bowl championship against the Georgia Tech Yellow Jackets.

Word would then spread to the different schools and the different states and sports teams started ordering Gatorade by the truck. Gatorade was then purchased by the Quaker Oats Company and then by PepsiCo. It would be marketed worldwide and was accepted as the official sports drink of the NFL, the NBA, the NHL and even NASCAR. Today, Gatorade makes roughly a billion dollars in revenue each year. From this, the University of Florida has received $100 million in royalty payments alone. (http://www.gatorade.com/history/default.aspx)

Taken from www.gatorade.com and used for educational & historical illustration only.

So what's the problem here?

Well, for starters, there were a number of serious lawsuits as to the ownership of the Gatorade formula. Because there was no clear IP Policy in place during the time of its creation, the government was said that the researchers had no proprietary rights over the formula because they were using federal money to fund their research. The University of Florida also claimed IP rights over the formula because its facilities were used for its creation. 

After the bloody legal battle, a settlement was reached awarding 20% of the royalties to the university. 

Indeed, the story seems to end well. But one can't help but wonder how much more the university could have received if it only had an IP Policy in place. 

Going even further, could the researchers have had a larger share in the revenue? could the coach who initiated the project have received a small cut? could the student assistants who helped the researchers have received a portion of the rewards or at least credit for the invention?

All these things could have been clarified a school's IP Policy. A mere chapter in the student handbook could have spelled the difference between a million dollars and nothing. 

Discussing Copyright and IP Policy with faculty members of the Notre Dame University in Cotabato City (Photo by M.R. Dy © 2010)

Here in the Philippines, these same questions and conflicts arise every day. Each time a student submits a thesis or dissertation, the faculty member who spent long hours refining the work and advising the student wonders if he or she should get credit for the extra effort. Such credit could have been used to secure a professorial promotion or a study grant had there been a policy in place.

Each time a professor publishes a book that was edited by a team of students, they wonder if they should be credited as co-authors or if they deserve tiny bit of the royalties as a reward for their work. Such acknowledgement could have been included in the student's CV, giving him or her a chance at better employment and further studies.

Fair is only fair if you agree upon a set of rules before playing the game. People working in a university setting miss so many opportunities to improve their careers, their portfolios and their incomes because no IP Policy exists to manage their rights. I myself have been a victim of this. If we had an policy when I was still in college and law school, I could properly claim to be an author of at least three books. Right now, I don't even know what rights I have over my thesis.

A hotbed of invention and innovation -- The Agricultural Engineering Workshop at the University of Southern Mindanao, Kidapawan Campus (Photo by M.R. Dy © 2010)

We have been traveling the country from Baguio to General Santos City and have found the response of the different schools to be very encouraging. Today we have over 30 colleges and universities with active IP Policies and 20 others that are drafting theirs. This gold mine is slowly being excavated one school at a time.

Genius is everywhere. We simply have to manage it. 

What are Collective & Certification Marks?

As an attempt to replicate the success of foreign GI systems, the Philippines is crafting new rules to accommodate the use of collective marks and certification marks as GIs. Without creating a new law or a sui generis system, we intend to include the use of GIs into the mainstream trademarks system. 

Collective Marks

A Collective Mark is defined as any visible sign designated as such in the application for registration and capable of distinguishing the origin or any other common characteristic, including the quality of goods or services of different enterprises which use the sign under the control of the registered owner of the collective mark. 

Said marks are owned and used in common by a group or organization. Members of the group who comply with its rules are free to use the mark to show their affiliation. Through this mark, the members of the group or association are able to use its reputation and goodwill on their products or services.

The Triple A logo is used by the members of the American Automobile Association and serves as a mark of quality service.

U.S. Reg No. 1066462

Like trademarks, collective marks  can be powerful marketing tools that strengthen the identity of goods and guarantees of quality that protect the consumers from substandard counterfeit items. In addition, they may also be used to protect the territorial origins of the product and the people carrying out the industries in those territories.

Collective Marks may indicate geographic origin.

Example: Thai Jasmine Rice.

When used as a GI, a collective mark protects local industries from outside competition by giving the members of the group the exclusive right to use the mark to show genuineness of origin. 

Certification Marks

Certification marks are badges of approval managed by certifying agents that license their use to producers and merchants who are able to comply with specific standards. 

These marks may be used as GIs and are usually managed by local government units or local offices of the trade department in the territory indicated. 

However, private entities are free to register and manage these marks if they can demonstrate their capacity to set and test specific standards fairly. To ensure this, certification mark owners are prohibited from using the mark in business. They only act as certifying agents who test standards and license the mark for others to use. Consequently, they may charge fees for the use of the mark and other incidental services they provide, like marketing.

GIs are usually registered as certification marks in the U.S. because they are flexible enough to be used on a wider range of goods and services, compared to a collective mark, which is necessarily limited to the group’s collective business interest.

Certification Marks guarantee standards.

Example: ISO 9002 mark managed by the International Organization for Standardization.

One particular success story in the use of certification marks is Cotton USA. Since its launching in 1989 with a multi-million dollar advertising campaign, demand for garment, furniture and other products bearing the Cotton USA mark have spiked worldwide. Cotton USA imposes strict standards upon producers who apply for licenses to use the mark, requiring their products to be 100% cotton products with at least 50% U.S. cotton. 

Cotton USA requires licensees’ products to be made of 100% cotton with at least 50% U.S. cotton.

Today, the Cotton USA mark is a symbol of quality and value. Consumer awareness of the mark has grown from an average of 12% in 1989 to 40% in 2006. Studies made in countries like Korea, The Philippines and Taiwan, show that awareness of the mark is reported to be almost 90%. 

A good example of a certification mark used as a regional geographical indication is the famous Idaho Potato mark. It is managed by the Idaho Potato Commission and licensed to growers, packers-shippers and processors to certify the genuineness and quality of their Idaho potato products.  

The Idaho Potato Commission certifies the genuineness and quality of the Idaho Potato products of its licensees with the Grown in Idaho certification mark.

U.S. Reg No. 2914308

Certification marks may also be used to show that the goods were produced by the members of a certain group. For example, a mark can indicate that a labor union or guild created the product, thereby telling the consumer that the workers were given fair wages or that coffee farmers were paid a fair price for their harvest. With the use of the mark, value is added to the product, which can justify higher prices in the market.

The Fairtrade mark managed by the Fairtrade Labelling Organizations International (FLO) certifies products that comply with certain environmental, labor and developmental standards.

Another possible use for certification marks is to prompt consumer behavior by adding social value to a product. A mark can, for example, certify a product as “100% Produced with Green Technology”. It can provide critical information to health-aware individuals as in the case of marks certifying that toys are “Lead-free” or that food products have “Zero Sugar”. 

Example: Halal mark certifying that a product is permissible under Sharia law.

Finally, certification marks may be used to emphasize the quality, history and the cultural relevance of these products. A mark can, for example, suggest that the product was prepared exclusively by members of lumad groups in Mindanao, using traditional methods. The mark provides a back-story that can lead to greater consumer understanding and allow producers to fetch better prices for their wares.

Potential of GI use in the Philippines

The Philippine islands are teeming with local goods and produce that are world-class in quality, but not yet in reputation. IP Philippines seeks to promote the use of trademarks, collective marks and certification marks by these target producers to enhance the market. 

Examples of these target products are Cebu Mangoes & Chicharon, Iloilo Butterscotch & Piaya, Bicol Pili Nuts, Iligan Peanuts, Cagayan de Oro Cashews, Davao Durian, Batangas Barako Coffee, Vigan Longganiza, Ilocos Norte Bagnet, Bukidnon Coffee, Camiguin Lanzones and hundreds of other products open to GI registration.

When blended together strategically, trademarks, collective marks and certification marks create a formidable marketing device that can raise the competitiveness of locally produced goods in the world market. Managed wisely, these marks will not only promote Philippine products, but the Philippines herself. This is a massive opportunity for business, tourism and national publicity.

This is possible for the Philippines. In fact, it is a close certainty. All we need is to give our producers a little education and encouragement. IP Philippines is ready to take the lead in this endeavor.

Fruit of our Land - Dreaming a Philippine GI System

Just last week, I was in Bangkok to attend a regional seminar called ASEAN-ECAP III Regional Workshop on the control of Geographical Indications (GIs). 

This seminar was designed to discuss the GIs of the different ASEAN and European countries. 

Before I go further, I am obliged to discuss the concept of GIs to the general public --

The TRIPS Agreement defines Geographical Indications (GIs) as 

...indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin. 

(Trade-Related Aspects of Intellectual Property Rights under the General Agreement on Tariffs and Trades, § 3, art. 22.1.)

Simply put, GIs are marks or labels that tell you where a good or service comes from. In order to qualify as a GI product or service, it must come from that place and that place alone. This might be because of some special physical characteristic of that territory or it can be as simple as the reputation of the product itself or the people producing it.  

Image found at www.thewinedoctor.com

The most popular example would be the wine coming from the Champagne Province of France. The grapes, soil and climate from this particular region have certain unique qualities that allow the production of the high-quality Champagne wine as we know it. Because of its popularity, the term Champagne once became generic as a term to describe any type of white wine, but because of GI protection, no wine can bear the name Champagne except those that are produced from the Champagne Province. Others will have to be called sparkling wine.

The Philippines, along with all the other states that signed the TRIPS Agreement, is bound by international law to protect GIs as intellectual property. Under our system, GIs would be protected under the trademark system, although with substantial modifications.

Nakorchaishri Pomelo protected by the Thai GI System.

Regionally, GIs are starting to be protected and promoted across the ASEAN. Our visit to Thailand gave us a chance to visit the pomelo farms of the Nakorchaishri province, where the producers explained to us how these fruits are to be planted, tended and harvested in order to meet GI standards.

At a glance, it's clear that the Philippines has a wealth of local products that have  deserve GI recognition because of their quality and reputation. The mangoes of Cebu and Guimaras have been well received in Europe and the US for many  years. The Barako coffee of Batangas is legendary among Filipino consumers. From these islands, we have so many food products, beverages crafts, and services that have the reputation and quality that could make potential GI-protected assets.

So what are the advantages of using GIs?

1. Quality Control and Consumer Protection. For products to qualify for GI protection, the producers have to follow standards and specifications. This may include the use of organic fertilizers, avoidance of pesticides and the respect for normal seasonal changes.
2. Price Increase. Because quality control increases, so does price. The consumer does not only buy the product but also the guarantee that the product is of good quality. This is true for both the domestic and the international market. In effect, this improves the reputation of a certain region or town, providing better jobs and opportunities locally. 
3. Market Access. Some countries, especially those of the European Union require very strict quality control measures for products entering their countries. Having GI protection helps in meeting these standards. Although it is not an assurance of market access, GI-protection effectively guides producers into the right direction of producing quality products rather than mediocre ones that would be rejected outright.
4. Promotion. Because the GI system is well-known in the global market, having your product qualify as a GI-protected product instantly includes it in the marketing scheme of GIs globally. 

All in all, it is predicted that this system has the potential to supply tremendous benefits to local producers by bolstering the marketability and quality of their goods. It can also protect these producers by providing them with a niche market that can withstand competition from large companies that attempt to invade the industry. This secures both the identity of their products and the commercial success of their enterprises.

So why haven't we established a GI system yet?

Because we are caught between adapting the sui generis system of EU & ASEAN and the certification/collective mark system used by the United States. It's a battle of IP systems that mirror our own history and foreign policy. Adapting the EU system would give us better market access to the old world, while inviting the ire of our largest trading partner. Using the US system will isolate us from the rest of our ASEAN neighbors and prevent regional harmonization of IP laws and the integration of markets.

Difficult choice. But we need to make it soon. Our neighbors are waiting.

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More on Collective and Certification Marks on my next post.