Intellectual Property crash course:

Patents, copyrights, trade secrets, and trademarks.

Notes taken by Sumana Harihareswara on Monday, Feb 12 2007, on a Columbia University lecture given by Mark Kesslen, an IP lawyer at Lowenstein Sandler (evidently some muckety-muck big important firm) in a Law & Technology class.

http://www.lowenstein.com/mkesslen/

His focus at work: trade secrets, copyrights, and copy protection. Did an undergrad major in electrical engineering, then took a job at JPMorgan in 1977, early in the IT/intellectual property era of today.

BACKGROUND

IP is now crucial to Chief Technical Officers and their ilk. In the 1990s, banks were just buying technology, and just cared whether it got up and running. They commonly bought software. Then financial services firms started hiring developers.

In 1998, a landmark case, State St. Bank v. Signature Financial, raised the question: is a business method patentable? In this case, one firm had a spoke-and-hub daytrading model (spokes draw money from the hub at the start of the trading day and return it at the end of the day), and infringement was raised.

The courts ruled: ANYTHING is patentable if it has a concrete, tangible result. Converting the signal of input into output is a patentable method. Suddenly, business methods -- AND SOFTWARE -- were definitively patentable.

Also in the late 90s, the internet tech boom occurred. The patent office saw record filings. The applications included regular tools, processes, etc. that could process information. These were mundane things! And it wasn't just the big players filing.

So the question arose in companies of many types: who has to worry about the IP that the company owns or creates? The CTO, the Chief Information Officer, the product manager? Businesspeople or lawyers? On the whole, we started turning to CIOs and CTOs. Today, even companies such as USAA and TimeWarner have patent counsel.

Patenting what? Well, after software sellers, financial services (FinServ) companies make for the 2nd biggest software skill employer. They have to figure out how to differentiate their (commodity) offerings, and tech is one way. For example, it took a LOT of innovations to transmit and store check images instead of sending cancelled checks back to the writer. The innovation on this started in the early 90s, and reduced the cost of processing a check from $3 to pennies.

Before the patent frenzy, companies depended more on copyrights, trademarks, and trade secrets. Now they and we think differently.

GENERAL TIPS ON MANAGING IP

Kesslen believes that patents do represent/lead to value, not just in licensing it to others, but in being able to reward employees (pride and ego benefits), marketing value (our stuff is so great it's patented!), and enforcement.

One nice thing about IP is that ownership can be sliced very finely and in a lot of different ways. We can parse IP rights to give the right bits and parts to the right people as needed.

Usually, as a rule, the creator owns IP, unless you have an agreement to the contrary. So, for example, a contractor who comes in to build a new piece of software that you can use will own that code himself. And usually, if an employee does something on her own, she owns it. However, if you're hired as an employee specifically to do something, then the company (employer) owns it.

So what can the customer get when the contractor owns the IP? Well, maybe a lead time where you're guaranteed exclusive user rights. Or an industry monopoly on its use.

So carve it out. What rights do you need? Don't overpay for rights you don't need!

What questions should a new CIO ask re: contracts with employees? Start with: what do the current contracts say about IP? Are people signing Non-Disclosure Agreements? Who owns their work? (You don't necessarily need a noncompete agreement.) Also: look at contracts, relationships with consultants, vendors, and 3rd-party service providers. That's what also gets litigated a lot.

Any given work might have copyright, patent, trade secret and trademark aspects to it. It's an overlapping Venn diagram. Windows Vista, for example. So think about all of them.

[So now on to the actual IP type-specific tips and tricks.]

TRADEMARK

A trademark is a word or symbol that designates the source or sponsorship of a particular good or service.

Trademarks are for goods; service marks are for services.

You file your application with the Patent & Trademark Office (PTO), and they judge the strength of your application and suggested trademark. There are 3 types of trademarks: arbitrary/fanciful, suggestive, and generic.

  1. Arbitrary or fanciful. Ex.: Kodak, Haagen-Dazs. There's no relation to the good in the name. Very strong.
  2. Suggestive. Ex. Microsoft. Suggestive of the good/service.
  3. Generic. Regular, very descriptive, or an arbitrary one that hasn't been protected.

Look for a mark that will pass through the process. The PTO prefers non-descriptive names that are not already out there. So try for an arbitrary/fanciful one, or a suggestive one (a little harder). The PTO checks your trademark against others in that classification of goods.

1st priority: prior existence
2nd priority: possibility of consumer confusion

You MUST litigate to keep your trademark strong and protect your TM from any infringement/dilution, or you lose it. Also, a few years after filing the trademark, you have to re-certify that you're using it. Then you just keep on using it. If you stop, and anyone comes along in the future to file a PTO application for it, and you haven't been using or protecting it, the PTO might award it to that future applicant!

It's rare for a trademark to be overturned. Usually that would be in a suit between the two parties. There's also a mechanism for grievances within the PTO. To prove infringement, one must prove confusion [or possibly intent to confuse; this wasn't clear in the lecture].

An application for a trademark is nationwide. So you will need to file an application for the trademark in each country where you may ever want to expand!

Technically, you don't have to register federally to get a TM. You can just start selling the product while using the relevant name to get some common-law rights. "TM" just means those common-law rights; the (R) (circle with an R in it) means legally federally filed & registered.

[Classmates of mine asked questions about the Apple/Cisco iPhone fight. Also pointed out: there's a Cadillac car and a Cadillac dog food! Again, the crucial question is whether the consumer would be confused. As for the iPhone: they're both phone products with a networking component. Dog food v. cars: clear distinction. Also, I believe the dog food was there first. And you're generally safe using your own name, even if someone else also has that name. (Lucky me.)]

You might have different strategies for your trademark portfolio. JPMorgan Chase just puts their arbitrary/fanciful name in front of everything, branding it "JPMC + (generic product name)." Procter and Gamble brand-names and TMs each individual product. Is the JPMC one more cost-effective, since they only have to register, search, and protect one TM?

A mark search is usually a flat fee of a few hundred or thousand dollars.

COPYRIGHT

Copyright protects the expression of an idea, not the idea itself. So Shakespeare, writing today, couldn't sue "West Side Story" for copyright infringement on "Romeo & Juliet." The idea is borrowed but the expression, and thus the copyright, wouldn't be violated.

Word & WordPerfect are both word processors. But they have different interfaces, different expressions. Yes, there are some functions that work the same. But functional components of the way humans already conventionally work are not protectable.

How do you get copyright? Just fix your expression in some tangible way, physical or electronic. You don't NEED to register officially with the government.

(c), [year], [owner's name].

The simple explanation is that copyright lasts about 100 years....ish. Disney manipulates this to their advantage (lobbying legislators for copyright extensions). Copyright also protects look-and-feel -- any unique expression. This includes fabrics and web pages.

You can register with the copyright office (check copyright.gov for more info), and this basically entitles you to walk into federal court and collect some statutory damages if someone's infringed.

Until software was patentable, copyrights were the main way software was protected. This is still true in some ways and places. Most software houses don't actually file for copyright. The code changes so often, and it would need to be redacted, and also if you suspect a conflict you can file right away on an expedited basis.

How do you enforce copyright? You need to prove:

Access (by malfeasant)
Substantial similarity in the work

You need to protect yourself against employees & consultants, mostly.

FAIR USE OF COPYRIGHT

What can you use from a copyrighted work without infringing? Well, how much are you taking? Are you trying to unfairly trade upon it? As with porn, there's something of an on-sight rule.

It's really good practice to get into the habit of putting a copyright notice on any document, even though this is kind of not necessary since the Berne Convention. Also put notices of confidentiality on your documents!

Log and watch the FLOSS (Free/Libre Open Source Software) that you use or reuse. Mergers & Acquisitions folks look out for it in agreements. There's worry over the viral aspect of the GPL. A shortcut in using FLOSS now, at the beginning stages of an endeavor, may lead to trouble in your exit strategy. Manage it so that your proprietary/business advantage is never at risk of being given away due to FLOSS license provisions.

TRADE SECRETS

Trade secrets are like copyright, except that it's about reasonable protections to protect something that gives you a competitive advantage. Examples include client lists and strategy plans, or the formula to Coca-Cola. You don't have to file for it or register. You have to show you're protecting it: use NDA, security guards, ID cards, etc. Once the secret gets out, all protection is lost.

Enforcement: as with copyright, it's a claim of misappropriation -- someone took it. Watch out for clients, consultants, employees, and 3rd-party service providers. But independent creation is an absolute defense -- if you can do a cleanroom reverse engineering, you're fine. But be careful it's really an isolated cleanroom!

Protect your trade secrets! Get the inconvenient NDA before the meeting. And just because you have an NDA, don't open the kimono! Only share what you have to. And NDAs still come down to trust and relationships.

You can keep a trade secret a really long time. Patents you have to file within a year of invention, and then they expire and anyone can see and use them. So the trade secret protection works for Coke, since it's useful for generations. (Two Coke execs recently got in trouble for trying to sell the Coke formula trade secret to Pepsi; Pepsi turned them in.) But in software, the useful lifespan of the tech is maybe a generation. Short shelf life means that patents might be good for you. Who cares if everyone can use it in 17 years?

And that leads us to a biggie:

PATENTS

Patents cover IDEAS themselves, not just (as copyright does) an idea's expression. Patents can be methods, devices, new ways, new uses, new applications.

Note that the patent is not a right to use/make the patented idea! It's a right to EXCLUDE others from making, using, or selling the patented idea.

Example: Val patents the concept of the telephone. Misha patents the rotary dial for use on the telephone. Now Misha still can't sell rotary-dial telephones without licensing the phone patent from Val. But Misha can stop OTHERS from selling rotary-dial phones without licensing Misha's patent.

Patents are often sci/tech innovations, such as processes for processing information more quickly.

What's patentable? Ideas that are useful, nonobvious, and new -- no one has done it before. They can be incremental innovations.

Right now there's a Mutually Assured Destruction (MAD) situation among the giants; they all have defensive patents, and will turn them on industry newcomers. IBM will do this. Some industries are more litigious than others, and some have patent trolls. Software unfortunately does.

Look at IP in IT versus in pharmaceuticals. In pharma, one product depends on one patent. In IT, one product will have many patented things in it, and the patents are from many sources. So IT folks think patents are broken and too limiting, and pharma thinks that we need more protection!

We don't know where the FinServ industry will go. It's building a portfolio right now, and will the firms all sue each other? Look at semiconductors: the firms don't sue their brothers and sisters. [Sumana speculates: "coopetition"?]

But you NEVER want to defend against a patent suit. The bills are insane. $2-3 million in total, maybe $1K or $2K per month!

More details about patent filings: the filing for a patent must include a SPECIFICATION of the idea, and the CLAIMS.

*The spec: a detailed written description, such that an ordinary person skilled in the art could build it without undue experimentation. This is basically a functional spec, a flowchart. You never have to include code, or build or prototype it.

Algorithms are a tricky case. It's a hard line with give and take. Once you disclose it, it's public, and how can you avoid infringement? You can avoid disclosing that with some creativity.

*The claims: in essence, what's new here? What's different and unique? What's not prior art? This is what gets infringed. "A system, or a method, for doing A, B, and C..." Genericize the essence; Doctrine of equivalence. [unclear to Sumana]

After you file, the patent examiner looks for prior art. It may or may not be a competing claim.

If your patent filing is rejected, you can argue and amend your claims. The give and take could take years. Or you could just abandon the claim.

You don't have to police a patent to keep it alive, so you can selectively enforce it. Ignorance and independent creation are NOT defenses if someone else patented it first! However, there is a prior use defense on business method patents.

[Side note: an interesting set of readable essays on IP by Kesslen are at the Lowenstein Sandler site, including http://www.lowenstein.com/files/Publication/0a7cb796-fc47-4c41-b44a-00244cfc592c/Presentation/PublicationAttachment/9b60a2e1-eadc-473e-800e-079afcc6619a/NJTech%20-%20MPK%20%26%20HKB%20-%20February%202006.pdf:

"Blowing Your IP Rights When Shopping For Venture Funding" by Kesslen and a co-author: The U.S. allows a one-year grace period after public disclosure of an invention to the time of actual patent filing. No one can get a patent on the invention after this time. This is considered a one-year statutory bar. A public disclosure can be as simple as a conference speech, a white paper, an offer for sale or a marketing brochure. It's often hard to monitor the actions of all employees of a company familiar with the invention so a thorough understanding of patents rights by all is essential in order to adequately preserve those rights."]

Other countries say that you absolutely lose your right to file for a patent immediately after any public disclosure. Be careful! As with FLOSS, be disciplined!

There's complexities and trickiness with foreign filings. Europe very much frowns on business method and software patents these days, so maybe software firms should depend on copyright and trade secret protections in Europe. And developing countries are pretty anti-patent (look at India and pharmaceuticals).

It's tens of thousands of dollars to file a patent in the US. And that doesn't even cover the examination process! A foreign patent might cost $5,000 per country!

The PTO is underfunded and overworked. There's a big backlog in some industries/classes. The life sciences and software face a 3-5 wait for an initial exam. Sometimes the PTO extends filing deadlines [Sumana wonders about those circumstances] based on the delay. And sometimes companies bring product to market without a patent!

If you're short on time, do a provisional patent filing: long on spec, short on claims. That gives you a year to convert your filing to a full application. If you don't file, it's just a trade secret. There's complexity involving filing internationally and filing a full utility application if you do want a patent after the provisional application.

The PCT is an international group that covers most developed countries, but not Taiwan. Filing a proto-filing in the PCT gives you 30 months to file a real filing.

Lots of countries don't have strong IP protection. So don't throw good money after bad. In software, it's hard to determine patent infringement. So you probably shouldn't patent everything.

Be smart about the overlapping circles of IP. Should you have a patent committee? Should it all be with the CIO?

The recent court environment is changing, internationally and domestically, around patents. Merck, eBay, TRIPs [Sumana doesn't know the actual cites on these, but there's a Kesslen essay on the Merck case at the Lowenstein Sandler site]. A patent is a right to exclude, to get an injunction, yet some courts are ruling that they won't grant irreparable-harm injunctions, in some cases.

A case last year was a test: KSR v. Teleflex was about the test for obviousness. The question for a patent: is there a teaching or suggestion to combine? We have to give common sense to it. [Sumana's not sure what that means.] So maybe courts/PTO will only start granting or recognizing pioneering innovations, not just incremental ones. Already the PTO only grants approval to about 20% of software patent applications, compared to 70+% of regular applications. The PTO is terrified of enabling patent trolls. The SCOTUS is granting certiorari to a lot of patent cases (it has heard them or will hear them soon). Perhaps they are trying to limit the rights, and don't like the appellate courts' decisions.

WHAT ISSUES WILL HIT US?

Contract, claims (litigation), & innovations.

Contracts: We need to make sure that we own, protect, and transfer rights properly. Exit interview all your R&D folks? Mark things "confidential"? Have good habits. Talk about NDAs, copyright, and confidentiality footers on the documents you have. Small, simple details will protect you in court.

Claims/litigation: deep-pocket companies WILL BE subject to trolls. Bank on it. But watch your competitors and file protectively and prudently. Patents are bargaining chips to use later in countersuits or cross-licensing deals. But litigation drains resources and everyone loses except for the lawyers.

[no special tips on innovations]

Kesslen thinks the patent system is broken. And reform will be slow.

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