The Lockdown Crisis and the IP Opportunity

The Lockdown Crisis and the IP Opportunity

Of the many, many uncertainties surrounding the long-term impact of the coronavirus on human civilization, primary among them is its toll on the global economy. The prognosis is, sadly and predictably, not good. Alistair Darling, the former UK chancellor who steered the country through the 2008 financial crisis, predicts that Covid-19 has ushered in an economic crisis “far, far worse” than that caused by the credit crunch. Global unemployment has soared, with more than 40 million Americans claiming unemployment allowances in the last ten weeks alone, this figure being the highest since the Great .

However, with every crisis, it is said, comes opportunity, and in any emergency resides the potential for innovation. At Metis, we have been encouraged, but not at all surprised, to see that intellectual property (“IP”) has proved a catalysing force for commercial innovation, powering companies in their drive to flourish during these troubling and uncertain times.

Even as companies enjoy IP-powered growth, however, it is essential that they expand and utilise their IP responsibly, adopting robust risk-management strategies to ensure their growth remains sustainable.

In this article, we look at two ongoing cases of IP boom, consider what risks are associated with their growth, and finally examine what strategies they and companies experiencing similar growth can adopt to manage their IP.

TikTok: A revolution behind closed doors

Despite its novelty on the tech scene, TikTok is hardly new. ByteDance, the Beijing-based internet technology company which launched TikTok, was founded in 2012. TikTok itself (named ‘Douyin’ in China) was launched in China in September 2016, and became available internationally in August 2018.

TikTok has become a phenomenon, recently surpassing 2 billion downloads, and its popularity has soared in times of lockdown. In Q1 of 2020, the TikTok app was downloaded 315 million times, an increase of nearly 100 million on the results from Q4 of 2019. We see an even greater leap among millennials, 3% using the app regularly in 2019, versus 19% today.

The driving force of TikTok’s success is its IP: its slick and no-nonsense interface, its user-friendly video-editing capability, and its seamless algorithm for making content newly available to users.

Yet the touch-of-a-button simplicity that has powered TikTok’s enormous growth carries with it an inseparable risk, especially as it relates to copyright. Given users can share video and sound content with such ease – the TikTok video having already become a genre of its own – there is little to stop users sharing copyrighted video or audio content. TikTok of course operates a copyright policy, the briefest perusal of the TikTok home page testifies to just how much copyrighted content is shared and re-shared.

TikTok have predictably taken steps to ensure adequate licensing is in place with publishers, yet risk still proliferates. In March, Billboard reported that TikTok had struck licensing deals with major music labels including Sony, Warner, and Universal, but these agreements are short-term and subject to renewal. However, the publishing arm of Universal does not have any licensing agreement in place with TikTok, meaning the sharing of any content by songwriters signed to Universal, including the uncrowned Queen of TikTok Billie Eilish, infringes Universal’s copyright over their artists’ songs and, therefore, TikTok’s copyright policy. The Financial Times has reported that Universal is seeking payment from TikTok in lost royalties in the form of an international lawsuit, the cost of which could be enormous for the Chinese company.

The Zoom boom?

With face-to-face interaction now widely restricted, the global demand for video conferencing, both in business and social circumstances, has never been higher. Under lockdown, quite literally everybody and their grandparents have turned to video calls to sustain vital human interaction.

Enter Zoom. Like TikTok, Zoom is not new technology: Eric Yuan, formerly of Cisco Webex, founded Zoom in 2011, and launched its technology in 2013. Its foundational principle is simple and not unique: Zoom is not dissimilar to well-established video conferencing software like Skype and now-defunct software like iChat. Additionally, Zoom is in a saturated and growing market, with social media firms like Facebook and Instagram now offering their own Zoom-esque video services to capitalise on the boom in demand.

Zoom’s appeal and success is due in large part to the strength of its IP: a brand synonymous with reliability and simplicity; an easy-to-use minimal interface; and straightforward transparency regarding its (optional) pay-to-use features.

However, since lockdown, the Zoom brand has been plagued with abundant security concerns. While boasting end-to-end encryption, Zoom has been forced to concede that Zoom employees, as well as law enforcement agencies, can acquire access to the content of Zoom calls. Other reported warnings include the risk that hackers could easily steal user passwords using Zoom on Windows, and that hackers could capitalise on flaws in the Zoom app for Mac to hijack users’ cameras and microphones.

IP risk management in times of growth

In times of crisis, it can be tempting to fly too close to the sun. Yet in these very times it is essential to adopt robust, scalable, and proactive IP risk management strategies.

The coming months are pivotal in defining the long-term staying power of both TikTok and Zoom. For both businesses, strong brand management is essential: for TikTok, in deftly handling legal disputes; and for Zoom, in sustaining its image as a reliable and stable service despite the threats posed by hackers and online techno-vandals. For TikTok, central in its IP risk management will be the negotiation and drafting of licence agreements, which must make business sense in providing legal certainty, even as they preserve the ease of content creation that made the platform the force it is today. For Zoom, pivotal in its IP management will be the constant improvement of its software platform, both to firefight security concerns, as well as to see off entrants in the market.

Metis Partners are experts in helping companies navigate the choppy waters of IP risk, having drafted bespoke IP risk management manuals for firms across a wide range of industries, and assessing the strength of highly complex IP portfolios in ongoing valuations and due diligence projects.

We will continue to watch both cases with interest.

 

Author: Ryan Diamond, Junior Analyst

Email: Ryan@metispartners.com

 

 

 

 

 

 

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