How to Explore the Potential and Avoid the Risks of Additive Manufacturing

“ A once-shuttered warehouse is now a state-of-the-art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything.”

Barack Obama US President, State of the Union Address, February 2013

What is additive manufacturing?

Additive manufacturing is based on the principle of joining

thin layers of materials, both solid and liquid, in horizontal

cross-section, to build up a real, three-dimensional object

from a digital model. Although often referred to in the media

as 3D printing, this is a misnomer. 3D printing is merely one of

a number of technologies used in additive manufacturing and

you ignore the wider industry at your peril. The technologies

differ (fused deposition modeling, stereolithography and

direct metal laser sintering are further examples) but they

all take three-dimensional computer aided design file and

the appropriate materials, and use additive manufacturing

hardware to build objects. In practical terms, imagine breaking

a car part, the door handle on a washing machine, or for that

matter a component on a telecoms satellite – and instead

of having to wait for the manufacturer to replace it through

traditional methods, being able to produce it yourself, or

source it locally, within hours.

This is now a reality.

Technology, oil, gas and defense companies are already using

additive manufacturing processes to produce hugely complex

parts on demand. And this is only the beginning. Research is

well underway into using the technology to make everything

from medicines to meat.

The 3D printing referred to by President Obama is only one

of a host of technologies known as additive manufacturing,

or sometimes, rapid prototyping. Additive manufacturing

has been around for decades. But a reduction in the cost

of additive manufacturing hardware in recent years means

that, for some applications, you can now create your own

three-dimensional designs at home on a machine costing

less than £1000. It is not surprising then, that additive

manufacturing has captured the imagination of the general

public and the media and is spotlighting innovative materials

and manufacturing processes. For some applications it’s

no longer the exclusive domain of large Original Equipment

Manufacturers nor some theoretical science fiction concept,

it’s the here and now.

Of course additive manufacturing has its limitations - at least

at present. The materials used are key to the usefulness of the

end product, so using it works only if the material used in the

process has the right properties. And some products may only

ever be capable of manufacture by traditional methods.

From the ethics of creating human organs to the complexity

of managing intellectual property rights in a world where

products can now be manufactured by anyone from designs

downloaded from the internet, additive manufacturing is

calling into question the frameworks that underpin global

commerce. And its significance is only going to increase. It

brings with it many opportunities, as well as risks. But the

biggest risk of all is to be unaware of its potential significance,

and to miss the chance to be at the forefront of this

constantly evolving sphere of technology.

How does additive manufacturing work?

Section 1

Credit: Form Labs, Andy Ray Photography

www.mayerbrown.comSection 1 | How does additive manufacturing work?

Aerospace

Selective laser melting (SLM) has been used by NASA’s Marshall Space Flight Center. The additive manufacturing process has created nickel alloy rocket engine parts for the largest rocket ever built. The organisations forming the Aeroswift manufacturing pact are looking at using laser additive manufacturing to develop even bigger and faster machines with an objective of reducing production costs on titanium aircraft and satellite components. By the middle of this year, Aeroswift expects to be able to produce large complex parts at a rate 10 times faster than traditional methods.

From Satellites to Cells – What additive manufacturing can create

Biomatter

Medical research company Organovo makes functional human tissues using three dimensional “bio printing” technology. In a press release dated 22 April 2013, they state that they “have achieved excellent function in a fully cellular 3D human liver tissue.” Organovo’s three dimensional “bio printing” technology was selected as one of the “Best Inventions of 2010” by TIME magazine. This is a major development in medical research and the potential impact these developments may have on the health care industry is immense.

Building

Currently, green homes prefabricated offsite save considerable resources over the average site-built home. However, they’re often shipped over long distances, upping the carbon footprint of even the most environmentally friendly materials. Additive manufacturing processes potentially can remove this problem. DUS Architects, a Dutch firm is aiming to use additive manufacturing to construct components of a complete house on site, using equipment housed in a shipping container, and work through the house room by room. This building will then form the basis of a center for research into architecture produced by additive manufacturing.

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Just like economics, technology has its own barometric powerhouses to whom we look for the next big thing. When NASA, MIT, BAE,

Loughborough University, DARPA and others get mentioned together as interested parties you can’t help but sit up and listen in.

Commerce

Another important area of development is the creation of online portals where designs can be bought and sold. Shapeways, a spinoff from Dutch conglomerate Philipps, is one of the most succesful movers in this space, selling digital designs online for a range of products from bracelets to chairs.

Recent price reductions in certain machines means additive manufacturing is not just out of the research lab

- its within consumer reach. For example, there is already a wide range of companies making 3D printing machines. Prices for a desktop 3D printing machine for home start at less than £1000.

It is easy to see how, with low cost 3D printing technology and equipment now being available to consumers, that public interest will continue to grow around the additive manufacturing industry. True personalisation will no doubt be a driving force and as interest grows it will be interesting to see how the different technologies become available to the public at large. Shops, both traditional brick and online, allowing consumers to manufacture personalised goods are already starting to open up and as high end additive manufacturing technology becomes more accessible we will no doubt see new consumer focused business emerging.

With many additive manufacturing technologies, it is only possible to manufacture items one substrate at a time - and only with specific materials, mainly polymers and metals. It can also be a slow process compared with conventional manufacture and consequently not currently cost-effective for large-scale production.

It’s more about creating the bespoke item, be that a toy, or a unique piece of jewelry. But there are problems at the moment with creating many types of high precision products – and it’s not a technology that often can be used for assembly either. Over time, developments in additive manufacturing technology may change some – or all – of these factors.

Consumer interest in additive manufacturing technology

What are the limitations of additive manufacturing?

Section 1 | How does additive manufacturing work?

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Whilst the media recently has focused on specific 3D printing technology it is important to remember that additive manufacturing technology in the commercial environment has been around for many years. It is typically more complex and advanced. High-quality industrial additive manufacturing equipment is capable of manufacturing intricate objects of a higher quality and in a faster timeframe than the lower end consumer machines.

Because this form of manufacturing removes the drive for economy of scale – it being as cheap to produce one item as many, it is already being used widely in the creation of industrial prototypes. For example, the shoe company Converse is now able to create prototypes swiftly in the West, rather than having to send the designs to its manufacturing base overseas

– which is both costly and time consuming. However, mass production is still not cost-effective - and may never be.

Commercial development

Additive manufacturing could now represent a major boost for first world economies based on knowledge rather than cheap workers. Peter Dickinson, a Partner at Mayer Brown’s London office, says: “Additive manufacturing has the potential to create new opportunities and challenges. The opportunities are clear to see: speed to market, on- demand production and consequent economic growth in those countries from which creative and innovative engineering solutions originate. But the challenges need careful consideration also. The new world IP risks are enormous and the boundaries of multi-jurisdictional IP law are yet to be tested by what this technology has to offer. If ideas increase in value and R&D budgets swell, the C-suite will need to focus on that aspect of their business, and how best to protect it.”

Technology Strategy Board Chief Executive Iain Gray accentuates the positive with domestic growth in mind:

“We want to make the UK a world leader in 3D printing. We are setting our sights high.” But copyright owners are anxious. As the Civil Society Group points out, “Because it allows people to create, copy, and modify objects,[3D printing] will have a large impact on our existing intellectual property laws.” As components become less expensive and intellectual property rights expire, programmers, designers, hackers and hobbyists are collaborating to bring the technology to the everyday consumer.

Big benefits. Big risks

“ Three-dimensional printing could shift manufacturing jobs back to Britain, reduce the environmental impact of goods and offer consumers far greater choice but would put major strains on the UK’s legal framework.”Big Innovation Centre

Section 2 | Big benefits, big risks

Section 2

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It’s a new era for IP law in the area of manufactured goods. A whole industry of people creating and selling three-dimensional data files – both legitimately and illegitimately

– is about to spring up. While wide scale commercial additive manufacturing is in its infancy, small and medium size objects made of just one material (generally either plastic or metals) will be the most commonly created. So in terms of IP infringement, the toy, fashion and jewelry industries could well be the ones most affected in the early life of this industry. There could also be an early lucrative market in replacement parts – particularly for white goods.

The original data files created for the design of a product are protectable by copyright law – and dealing with misuse of these files should be fairly legally straightforward – if difficult to enforce due to the potential scale of illegal copying. Much more problematic will be the creation of “rival” data files to create objects very similar to the original protected product where the scope of protection for the same work may vary in different countries. The experience of the recorded music industry indicates there will be practical difficulties in attempting to target the domestic end user

who is manufacuring the object from a counterfeit data file – due to the numbers of people doing so and the difficulty of

tracing them. It is also possible that new entities will emerge; like Amazon or Apple, providing consumers with easy access portals to download three-dimensional files from a wide variety of sources and that the power of the original manufacturer will be reduced. In addition, new licensing models could develop with central bodies acting like the music copyright collecting societies making it possible for consumers to account for reuse of such files.

The ease with which the technology to create a product can be distributed (and redistributed) is also likely to force product originators to review their patent strategies and the geographical scope of the protection they need to preserve their markets.

Fundamental questions about the nature of trademarks and what exactly they indicate may emerge – it will be hard to say, in relation to some products, that a trade mark is an indication of who exactly manufactured a product.

Intellectual Property

“ It is likely that cheap access to additive manufacturing will further strengthen the power of internet distribution brands and channels at the expense of the originators of novel products.”

Mark Prinsley, Partner, Intellectual Property/IT Mayer Brown, London

Michael Molano, Partner, Intellectual PropertyMayer Brown, Palo Alto, California

www.mayerbrown.comSection 2 | Big benefits, big risks

What might some of the ramifications be in the world of product liability under EU law? In many ways, someone creating your product using additive manufacturing is not dissimilar to a third party manufacturer making your branded product by more conventional means. If there is third party liability, it’s immaterial whether that liability is with a factory in China using traditional methods of manufacture, or an additive manufacturer two miles down the road. (Although a rise in manufacture in first world economies, might make it easier to recover damages once liability has been established.)

Just as in traditional manufacturing processes, a consumer will be able to pursue the brand or trademark owner of the product, the manufacturer or the importer who brought the product into Europe. However, in addition, the manufacturer of the equipment itself could in some circumstances itself be liable, if damage resulted from a fault in the equipment.

Once again, just as in traditional manufacturing, the regulator can pursue the retailer, the designer of the software file from which the product is printed, or the manufacturer themselves.

In a world where this type of additive manufacturing becomes commonplace, it will be up to the consumer to check that they are buying product design software from a reputable, traceable source. In that way, they will have recourse should a product they produce be defective and/or cause damage or injury.

Supply chain and traceability will become increasingly important. Data files can be sent with such ease all over the world, that consumers will have little recourse to compensation if they are not using branded or trademarked data files. Similarly, it will be important for brand owners, digital designers and manufacturers alike to be sure of the recovery rights in their supply chain. There is likely to be an increasing amount of contention over liability issues between digital designers and the manufacturers of print machinery, as designers become increasingly independent entities, rather than affiliated to a company or brand.

The increased ease and accessibility of additive manufacture could also raise issues around the creation of dangerous objects. It’s a manufacturing process that allows anyone to print any object for which they can download a digital design. There is already much controversy around use of additive manufacturing to produce gun parts. As a result it could be important for the equipment manufacturers to make sensible disclaimers – for example, around the materials that should or should not be used, or regarding the creation of dangerous objects such as guns. A system of licensing around the sale of designs online, the type of objects that are admissible to be produced on a particular machine and the sort of materials to be used is also likely to spring up, which could help protect companies and designers from both intellectual property theft and product liability claims.

Product Liability

“ I can see the automotive and life science sectors being two of the most likely to be affected by product liability issues.”

Miles Robinson, Partner, Litigation and Dispute Resolution, Product Liability

www.mayerbrown.com

“The risks involved in this type of three-dimensional production are multi-faceted”, says Ingrid Hobbs, Insurance Partner at Mayer Brown. “There are intellectual property risks, potential professional indemnity risks associated with design, as well as product liability risks and product recall risks associated with defective products.”

“In relation to product liability in particular, there are also important supply chain issues. When additive manufacturing comes to be used more regularly, it will create complexities around traceability. So insurers need to understand their client’s businesses very well – if there are multi-jurisdictions involved, if there are different regulators involved and how that will impact on the risks they’re underwriting.”

An area of insurance that could be affected by this evolving technology is Professional Indemnity cover. Product designers producing CAD files may face exposure if one of their designs for use in three-dimensional production could be shown to have caused a defective product to be created. If that resulted in damage to property or personal injury due to a design fault, there is potential for Professional Indemnity insurers to be notified of any third party claims.

The product may be distributed worldwide giving rise to multi-jurisdictional risk. As the prevalence of this form of manufacturing looks set to grow, and as a file can be downloaded a huge number of times, this creates increased risks for insurers.

Many designers, who work with CAD software, will buy specialized IT Professional Indemnity insurance and insurers will need to consider carefully, at inception or renewal, if there is any increase in the risk insured due to activity in this sector of manufacturing. Brokers can also play an important role in advising clients designing for additive manufacturing technologies to disclose this when arranging cover.

If the PI policies have an intellectual property element, it will also be important to ensure that designers are aware of the IP infringement issues surrounding using or refining someone else’s software in their own designs.

“ Insurance firms may need to reassess the risks associated in providing cover to Product Designers and Manufacturers/ Suppliers using additive manufacturing equipment”

Insurance

Ingrid Hobbs, Partner, Insurance Mayer Brown, London

www.mayerbrown.comSection 2 | Big benefits, big risks

Dominic Griffiths, Head of Banking and Finance Mayer Brown, London

The evolution of additive manufacturing processes will afford

a range of interesting investment opportunities. Not least

in the area of the manufacture of addictive manufacturing

machines, where demand will increase in a number of areas.

The creation of retail outlets capable of machining larger

items that cannot be created on smaller domestic equipment

(such as bespoke furniture for example) will be an important

commercial development. As will the rise of the “desktop”

3D printer in people’s homes, and the increased use of larger

manufacturing machines in a more industrial environment

for the creation of larger or highly technical items (for the

aerospace or biotech industries for example).

The potential for growth is huge. In the meantime, there is a

current – and growing – demand for machines from a range of

small businesses in a wide range of areas, from design studios

to architects’ offices, and in larger businesses where additive

manufacturing technology is being used to create prototypes.

This is an area where crowd sourcing is proving to be particularly

relevant. Crowd sourcing also has the advantage of creating a

ready-made market - the large number of investors acting as

both customers and brand advocates.

Furthermore, this form of manufacture slims down capital

costs for several reasons. It reduces the need for large-scale

investment in factories and machinery. It also requires far

fewer staff - and the people who are needed will be less

skilled, as they won’t have to operate complex traditional

machinery. All of which means that businesses utilizing

additive manufacturing processes will be easier to start than

conventional manufacturing businesses, as they’ll require

less capital.

Clearly, such businesses will have fewer tangible assets, too.

With less machinery, smaller premises, and no manufactured

goods stored in warehouses, there will be few physical assets

to provide security to investors. This will affect both the way

companies are structured – and the way that money is lent to

these new businesses.

Due to the nature of additive technologies, where the digital

design rather than the end product holds the most value,

Intellectual Property will become increasingly important as

an asset in the world of manufactured goods. In addition, the

license to print (from certain digital designs or from newly

created materials) could also become a valuable asset.

Another area of investment could be in the development of new

types of materials suitable for this type of manufacturing – and

in businesses involved in the creation of those materials.

With the logistical patterns for the global movement of

raw materials seeing big changes, as the manufacture of

some goods moves back to the first world, there will be

opportunities for investment in the companies that spring

up to feed this demand.

In short, developments in additive manufacturing look set to

change everything from the manufacturing supply chain to

the way businesses are created, valued and financed.

Investment and Finance

“ Crowd sourcing will be an important investment stream in additive manufacture.”

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How the world might change

Section 3 | How the world might change

Section 3

For those making strategic and global decisions, which may affect even a five-year view, here are a few things to consider:

Global manufacturing

The normal rules simply might not apply. Why over-produce parts in factories hundreds or even thousands of miles away that can be made on demand, closer to home, using additive manufacturing technologies? You don’t need to hold valuable stock, just equipment, files and materials. You don’t need huge resources, large workforces and plants when you can make things locally. Will those countries that have become wealthy on the back of cheap labor lose out, and manufacturing return to the UK and USA? Will the skills required change?

Environment

The transportation of goods could be reduced as local manufacturing becomes commonplace, reducing carbon footprint considerably. (Although the movement of materials to more destinations will obviously offset this effect.) As many of the products made with additive manufacturing processes use powdered forms of a substrate, one could also argue a case for the technology’s recycling credentials: there are already companies investing in the supply chain to the manufacturers, looking at how to produce additive powders from recycled waste. Furthermore, the process itself produces little waste.

Capital demand

If you’re not manufacturing large volumes because you don’t need economies of scale, you don’t have to invest in manufacturing lines and expensive tooling – so how will the balance sheets of the future look? Will capital demand decrease and spending shift from stock to R&D? Will international trade slow? How will IP be taxed?

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ConclusionsBig change is on the way. Although maybe not as rapidly as some are predicting.

Technological advances are still needed for large-scale change to happen. Particularly important to ensuring this change spreads extensively will be developments in the various technologies available, new materials, improved software and the wide scale creation of online design portals where digital data can be bought and sold.

But as the technology becomes more economically viable, and more versatile, then the automotive, aviation, white goods, architectural and arts industries will likely be changed irrevocably. The pharmaceutical and health sectors are already seeing big changes - but it’s only the start

When it comes to manufacture, the goalposts could be about to move forever – which in turn will have important legal implications.

Everything from the way companies are created and financed, to the role of Intellectual Property in manufacturing and the way the insurance industry values risk in the digital design sector is potentially about to change.

Political change

If design IP is realizable almost instantaneously and the value of that design extricable at the same speed, is it not therefore tradable? It is effectively capital and worth securing. Will the case for secure state regulated frameworks, digital fingerprinting and cyber security get stronger? If a technology or skill currently delivered by one country’s unique manufacturing sector is undermined, what will that mean for its government’s role in international trade?

East vs West

The availability of additive manufacturing could provoke a Luddite political response when countries whose economies are predicated on low-cost subtractive manufacturing realize that it could cause a paradigm shift back towards the western economies that have turned to service industries, intellectual transactions and the markets to generate GDP. Their response might be to refuse to cooperate when it comes to raw material supply, or to charge a premium on whatever unique commodity or service they can provide. For the Chinese this could mean stern covenants on the trade of rare earth elements, electronic goods and those components that cannot be manufactured cheaply by a single substrate approach.

Valuation of assets

Listed manufacturing companies can have a significant asset value based on money in stock, which can be held in the supply chain or in stock at the point of retail. Imagine if we moved to a JIT (just in time) model. Would intellectual property need to be valued in terms of potential, and categorized as a different type of asset? Does that mean that the board will have new concepts of governance in regard to the allocation of IP, and will there be different classes? The reality is that stock might change from completed widgets to amounts of powder ready to turn into widgets, and the margin between stock and raw materials will therefore become blurred.

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Get advice

To find out more about how your company can prepare for the opportunities and risks additive manufacturing will bring, contact one of our team.

Section 4 | Get advice

Section 4

Miles is a Partner in the London office of Mayer Brown’s Litigation and Dispute Resolution Practice, having joined Mayer Brown in 1996. He represents clients in substantial contractual and commercial claims, often with a cross-border element. He has a particular focus on product liability issues, and is co-head of the London Product Liability Practice, as well as being co-group leader for the Global Product Liability and Mass Torts Practice.

Tel: +44 20 3130 3974 E: mrobinson@mayerbrown.com

Miles Robinson, Partner, Litigation and Dispute Resolution, Product Liability Mayer Brown, London

Mark Prinsley, Head of IP and IT UK Mayer Brown, London

As well as being Head of the Intellectual Property and IT group in London, he is also head of the outsourcing practice. He is regularly named as a leading individual in the areas of business process outsourcing, information technology and intellectual property by Chambers’ UK and Global Guides. His practice involves acting for customers at all stages of outsourcing transactions.

Mark Prinsley concentrates on non-contentious intellectual property – especially IT project and outsourcing work.

Tel: +44 20 3130 3900 E: mprinsley@mayerbrown.com

Michael Molano is an IP Partner who litigates intellectual property cases in federal courts and before the International Trade Commission. Mike is also a registered patent attorney with substantial experience in prosecuting patent applications in the electrical arts, as well as experience in drafting, negotiating and advising clients on IP aspects of corporate transactions.

Tel: +1 650 331 2035 E: mmolano@mayerbrown.com

Mike Molano, Partner, IPMayer Brown, Palo Alto, US

www.mayerbrown.com

Dominic Griffiths, Head of Banking and Finance Mayer Brown, London

Dominic represents financial institutions and companies across a broad spectrum of domestic and international financing transactions.

His practice is particularly focused on commercial and investment bank asset-based lending and structured finance. Dominic has in-depth experience with regard to European and Trans-Atlantic cross-border secured loans and trade receivables financings. He also represents clients engaged in the structuring and execution of finance transactions in Italy.

Tel: +44 20 3130 3292 E: dgriffiths@mayerbrown.com

As well as being Head of the Corporate group in the UK, he is also a firm practice leader in Mayer Brown’s global Corporate & Securities practice.

Peter’s practice focuses on mergers and acquisitions, joint ventures and other significant commercial transactions including, in particular, large scale multi-jurisdictional outsourcing projects.

Tel: +44 20 3130 3747 E: pdickinson@mayerbrown.com

Peter Dickinson, Head of Corporate Group Mayer Brown, London

Ingrid concentrates on insurance matters. Her extensive experience includes policy coverage disputes, including those involving product liability insurance, professional indemnity risks, directors and officers insurance, financial institutions, technology companies and media and publishing houses. Ingrid advises regularly on complex policy issues regarding the validity and application of insurance contracts, including investigating issues of non-disclosure, breach of warranty and misrepresentation.

Tel: +44 20 7398 4616 E: ihobbs@mayerbrown.com

Ingrid Hobbs, Partner, Insurance Mayer Brown, London

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