By Hung H. Bui
From the day it is founded, a technology company should consider adopting an aggressive IP strategy that would provide a strong IP portfolio. IP rights should be obtained to protect not only various aspects of the company’s core technology and commercial interests at various stages of design, manufacturing and product operation, but also technology that may be of interest to non-competing companies. At the design and development stage, copyrights and trade secrets can be immediately enforced. Core technologies embodied in novel products and methods (e.g., key methods and processes – whether these are manufacturing, distribution, or even business methods) that deliver the greatest performance advantage over rival products in the market can then be patented and trademarked. Once a product or service is developed, issued patents and registered trademarks protect the technology and associated names and symbols. An aggressive IP strategy can block competitors from the company’s present market and potential future market, and can also force a license bringing revenue to the company. A strong IP portfolio can be used to attract financing from venture capitalists, enhance future strategic alliances, and promote product differentiation.
However, securing IP rights could require significant resources (time, staff, and funding) that a startup company may not necessarily have. As a result, a startup company should adopt a Two-Level IP Strategy, which consists of using as much as possible the free-of-charge protection tools such as copyright and trade secrets, and of making a cost benefit analysis with respect to trademark and patent protection.
1. First Level IP Strategy:
A. Trade Secret Considerations
- Mark all company’s “confidential” documents and materials as such;
- Have employees, contractors, and 3rd parties sign non-disclosure, or confidentiality agreements requiring restrictions on disclosure, prohibiting misappropriation or misuse of trade secrets, and preventing disclosure of sensitive information to future employers;
- Have applicants sign a statement confirming that they will not bring to their new job any confidential or propriety information or trade secret from their former employer, and that they will not reveal such information either during the recruitment process or after being hired; and
- Conduct exit interviews with departing employees reminding them of their post employment confidentiality obligations.
B. Copyright Considerations
- Place a copyright notice (© plus year of publication or creation plus name of copyright owner) on all the documents, computer programs (both high level software and low level operational codes) and Web pages produced by the company; and
- Consider filling such computer programs at the U.S. Copyright Office for registrations (typically, for a nominal fee).
C. Ownership Considerations
- Have founders, employees, consultants, or 3rd parties sign agreements to assign all (current or future) IP rights to the company, including, for example, copyright in the software written by vendors or independent contractors; and
- When conducting joint research with other enterprises, universities, or governments, make sure that there is sufficient clarity on who will own potential IP generated from the research project.
Listed below are some example rights of universities, governments and co-inventors:
(i) Rights of Universities: Agreements between universities and inventors of the key technology should be studied to ensure that a university cannot assert rights in the company’s IP. Universities may have collaborator rights to a company’s IP as well.
(ii) Rights of the Government: A company funded by government sponsorship should be aware the government might retain rights in a patented or unpatented invention resulting from government support. Such rights may include the right of the government to practice the claimed invention or to have others practice the same on behalf of the government, all without compensation to the company, as well as unique reporting requirements which can result in complete forfeiture of rights if not followed.
(iii) Rights of Co-Inventors: In the absence of a contrary agreement, each co-inventor retains the right to practice the invention without compensating the other co-inventors. Therefore, if IP assignments are not rigorously enforced, a co-inventor that has not assigned IP rights to the company can assign those IP rights to another company to the detriment of the startup.
2. Second Level IP Strategy:
A. Trademark Considerations
- Select trademarks that are inherently distinctive, i.e., fanciful, arbitrary, or suggestive;
- Check trademark databases for clearance (for example, at U.S. Patent & Trademark Office “USPTO” at http://www.uspto.gov);
- Search selected trademarks, via known search engines on the Internet, such as Google or Yahoo, for common law problems; and
- Consider filing selected trademarks at the USPTO for registrations (typically, about $3000 – $5000 per registered mark).
B. Patent Portfolio Development:
A fundamental objective of a patent portfolio is to protect the core technologies (family jewels), core products and business practices of the company. Additionally, patents may be obtained that enable the company to enter into reciprocal (i.e., cross) licensing arrangements with competitors who assert patent infringement claims against the company in the same field of interest. Considerations should also be given to acquisition of patents from others in addition to patents resulting from internally developed technology. Obviously, significant financial resources are required to obtain protection for the core technologies and all core products. However, the high cost associated with obtaining proper patent protection can be controlled depending upon whether the patent portfolio is intended for “defensive” or “offensive” purposes. Either way, patentable subject matter needs to be identified early enough to avoid losing the invention to competitors. In addition, patentable inventions should not be disclosed, offered for sale, shared with others or published before filing a patent application, or at least within a 1-year grace period of such disclosure or publication.
(i) Defensive Strategy:
A “defensive” strategy should be considered if financial resources are limited, and if competitors are seen as unlikely to copy the company’s products. Patent applications should be filed to protect core technologies (family jewels) embodied in core products that deliver the greatest performance advantage over rival products in the market. Provisional patent applications should be considered for other types of technology until financial resources could be secured. The advantages of filing provisional patent applications will be discussed in a separate section below. In addition to provisional patent applications, defensive publications should also be considered with regard to various improvement features or incremental innovations so as to prevent competitors from gaining improvement patents that could block the company from effectively using the core technologies. Freedom-to-operate (FTO) opinions should further be obtained from outside counsel to ensure the startup company’s ability to function in the marketplace in view of the patent rights of others. In particular, FTO opinions should identify others’ patents that will block or severely limit the company’s ability to market a product or establish a dominant patent position. Such FTO opinions may be necessary because a patent does not provide the company the right to commercialize the protected technology but only the right to exclude all others from commercializing the same.
(ii) Defensive Values:
The following are typical values and uses of a well implemented patent strategy.
- IP assets
- Cross-licensing as bargaining chip
(iii) Offensive Strategy:
An “offensive” strategy should be considered if significant resources (time, staff, and funding) are available to lock up a new technology space, and create a patent wall of patent protection covering key differentiating features that reinforce and communicate the product’s brand positioning and key performance. In addition, key methods and processes need to be patented – whether these are manufacturing, distribution, or even business methods – that are essential to the building, marketing, or selling of the product. Listed below are different types of patents obtained for “offensive” reasons:
(a) “Picket Fence” Patents:
Obtain patents on all commercially available improvements or small incremental innovations around the core technology of a competitor, which can serve as a barrier to the effective use of the competitor’s core technology. The owner of the picket fence is then in a position to force a cross-license of patents to acquire the competitor’s core technology for its own use. For example, when faced with a fundamental patent of another for a new technology, the strategy is to file patent applications on every conceivable improvement so that as the technology develops, the competitor will not be able to improve upon the original invention without obtaining a license.
(b) “Design-Around” Patents:
Obtain patents based on efforts to design around a company’s own patents in order to prevent competitors from inventing around the patents. Usually, designing around solutions that avoid infringement of the patent can also be patented. Design around a competitor’s patents can be an effective part of a response to a competitor’s action for patent infringement. Moreover, design around efforts can also be a very effective method to prepare a new product introduction into a competitive market while avoiding liability for infringement.
(c) “Toll Gate” Patents:
Identify the direction of competitor’s patent portfolio or industry R&D, so as to obtain patents with very broad claims for the next generation of improvements or products, even when a company may have only a vague concept of the best products to implement these improvements. This way the patents can act as a toll gate to the industry when its actual products develop to that level of advancement.
(d) Acquisition of Patents:
Acquire key patents owned by others in areas of current or future interest.
(e) Competitor Watches:
Survey the existing patent landscape, and monitor the marketplace to identify infringing products and services. For example, on-line databases for patent related information can be used to search for patent activities centered around a key patent owned by the company in order to identify potential infringers of the patent.
(iv) Offensive Values
Among other offensive uses and values, the ability to obtain royalty income and to enforce injunctions are key.
3. Special Considerations:
In addition to patents on core products and processes, software and business method patents deserve special considerations.
A. Software Patents:
Software technologies such as computer programs, electronic databases, graphical display screens and user interfaces, and related media can be protected by copyright at virtually no cost. In fact, copyright protection is often suitable to secure digital media such as video and audio creative works, often even without compliance with copyright registration and notice requirements. However, copyright protection of computer software, both high level software and low level operational codes, is legally vulnerable to reverse-engineering efforts by competitors. In this scenario, perhaps patent protection may be more appropriate to secure the underlying ideas or functions of a novel algorithm, data structure, methods and computing software machines.
B. Electronic Commerce & Business Method Patents:
E-commerce and business method patents are important for Internet-based startup companies because these patents can be used to block out the competition from offering a similar product or service in a business climate with low barriers to entry. These patents can be a great “equalizer” for small companies attempting to enter a competitive market of large players. Listed below are example e-commerce and business method patents obtained for a wide variety of e-commerce business models:
U.S. Patent No. 5,727,163 Secure method of communicating credit card data when placing an order on a non-secure network.
U.S. Patent No. 5,960,411
A “1-click” ordering system that allows repeat online shoppers to buy items by clicking a single button, without having to fill out payment and shipping information each time.
U.S. Patent No. 5,794,207
Bilateral buyer-driven (so called, “name your price”) e-commerce system covering a “reverse auction” concept in which the buyer names a price it will pay (e.g., for airline tickets) and guarantees payment with a credit card.
U.S. Patent No. 5,761,648
Distribution of coupons, via the Internet.
U.S. Patent No. 5,699,528
System for bill delivery and payment, via a network.
U.S. Patent No. 5,930,764
Sales and marketing support system using a customer information database.
E-commerce and business method represent the new patent frontier. The Internet has redefined business, allowing anyone to create unique, automated business processes and to scale them rapidly. However, controversy continues to exist because of the relatively broad scope of coverage and the potential for inventors to own patents covering entirely new systems of commerce where the economic stakes are very high.
4. Patent Filing Considerations:
Since startup companies have limited resources (time, staff, and funds), the following are suggestions for an efficient approach to patenting inventions:
A. Avoidance of Statutory Bar Dates:
A patent application may not be filed in the U.S. if the invention has been published anywhere or has been in public use or “on sale” in this country more than one year prior to the filing date. An invention can be considered “on sale” where it has only been “offered for sale,” not actually sold. In most foreign countries there is no one year grace period for public disclosures.
B. Provisional Applications:
An alternative to the filing of a traditional patent application is the filing of a provisional application in order to obtain an early filing date. A provisional application does not require all of the formalities of a regular application, and is less expensive to prepare and file in the USPTO. Several aspects of a provisional application include:
- Does not receive substantial examination and cannot mature into a patent. A regular (utility) application must be filed within 1 year to receive the benefit of its earlier filing date;
- Does not trigger the start of the 20 year patent term; and
- Requires the filing of a sufficiently detailed specification to satisfy the (1) “enablement,” and (2) “best mode” requirements of the patent law under 35 U.S.C. § 112.
Other aspects of a provision application include: (1) no requirement for inventor signatures, (2) no requirement of patent claims, and (3) no publication of such a provisional application.
Especially useful for startup and companies starting their patent portfolio, one approach is to file a series of provisional applications at different stages of developments to capture all improvements and establish a filing date for these improvements. So long as one or more regular applications are filed within 1-year of the earliest provisional application, the later filed regular applications may claim priority back to all of the provisional applications.
C. Foreign Filings with Selective Key Markets – (PCT):
Foreign filings can be extremely expensive, even for established multinational corporations doing business in foreign markets. Nonetheless, startup companies doing business in countries outside the U.S. or faced with overseas competitors need to understand the differences between U.S. patent regulations and foreign patent regulations and deadlines, and to formulate a global patenting strategy that is consistent with the business plan in terms of potential foreign markets, competitors, and cost-benefit considerations.
For example, when overlapping patent applications are filed by two independent inventors, the United States uses the “first to invent” rule, whereas the rest of the world uses “first to file” rule to determine which inventor will be granted the patent. In addition, in the U.S., once an invention is placed on sale or disclosed publicly, a 1-year clock is started. Within 1-year, the inventor must file a patent application in the USPTO, or else the invention will lapse into the public. In most other countries, however, there is no grace period after a public disclosure or sale has occurred. Once an invention is placed on sale or disclosed publicly anywhere in the world, it is barred from patentability and is in the public domain. As a result, startup companies that want to sell their products overseas should learn the proper procedures for acquiring foreign patents. However, the Patent Cooperation Treaty (PCT) procedures could provide a platform for a single international patent application based on an earlier U.S. patent application to be processed and entered in the National Phase of all designated PCT member countries (except Taiwan) some 30 months after the PCT priority date for examination and issuance. This way, smaller companies could delay many of the filing costs until they have time to access those markets.
Because of the differences between the U.S. and foreign patent procedures, startup companies interested in developing overseas markets should consider the following steps: First, because most countries outside the U.S. award patents to the “first-to-file” a patent application, U.S. startup or small technology companies should keep their invention confidential until patent applications are filed, and then file U.S. patent applications as soon as possible. Then, within a year, a corresponding PCT application should be filed which would have the effective filing date of the U.S. patent application. Second, because placing a product on sale creates an immediate ban on its patentability in most countries, it is critical that U.S. startup or small companies file for at least a U.S. patent application before publicly marketing an invention. Finally, U.S. startup or small companies need to be sure to apply for foreign patents before U.S. patents are issued. If a U.S. patent is published before a company files a foreign patent application, most foreign patents will be barred.
Alternative strategies regarding to PCT filings should also be considered. For example, a corresponding PCT application could be filed claiming priority from an earlier filed provisional patent application, rather than a traditional patent application. As previously discussed, the provisional application is significantly less expensive than the traditional patent application and, more importantly, is not publishable so as to avoid publication barring events. The PCT application could then be entered National Phase in the U.S. at any time after the PCT application is filed for search and examination purposes. Similarly, a PCT application could be filed as a first filing in the U.S. to avoid redundant filing costs and to selectively speed up/streamline national processing. These options could be attractive for certain fast-moving technologies where long delay may mean product obsolescence before patent issuance.
D. Fast-Tracking the Patent Process – Petition to Make Special:
A patent application normally does not get examined initially for about 2-3 years from the original filing date; and the average pendency of a patent application in the USPTO from filing to issuance is about 3-4 years. However, a fast track procedure is available in the USPTO, whereby the applicant can “Petition to Make Special” for an accelerated examination. A requirement for the granting of the petition is that the applicant must perform a prior art search and submit the results to the USPTO along with the petition, along with a statement of the relevancy of each reference.
Consider filing a request for reissue to broaden the scope of claims (within 2 years) to create literal infringement of a newly developed product of competitor(s).
Consider filing a request for re-examination as part of a defense strategy (often time, anonymously) to challenge the validity of a competitor’s key patents on the basis of new issues of patentability raised by a prior art.
G. Continuation Applications and Continuation-in-Part (CIP) Applications:
Consider keeping continuation applications and/or continuation-in-part (CIP) applications pending in the USPTO for important technology that is still evolving. CIP applications should be considered when new features, improvements or future modifications are discovered and need to be incorporated into the original patent application, and claims could be shaped to follow the direction of technological evolution. Such continuation and CIP applications should be regarded as a bridge until a potential infringer is found. When a potential infringer is found, consider filing a Petition to Make Special and include claims that will capture the actual infringer literally.
 Most states, except California, recognize non-compete agreements with reasonable restrictions on employment practice.
 Most industrialized foreign countries (not Taiwan) are members of the Paris Convention which provides that one who files a patent application in any member country has up to one year to file subsequent applications in other member countries and be able to backdate the effective filing dates of the subsequent applications to that of the first filed application. Therefore, an application filed in the U.S. before any public disclosure will enable subsequent filings in other member countries within one year, even if an intervening public disclosure occurs.