My name is Jim Jacobs and I will spend a few minutes talking about protecting intellectual property, particularly as it applies to the information technology and the communications industry.
A few years ago the idea of protecting intellectual property and especially using patents to obtain such protection was foreign to the communications and the information technology industry. Today, patents form a key element in the corporate strategy of many of the large players in the communications and the information technology industry.
Why is protecting technology so important to these corporations. First, patents are critical to these corporations to maintain their competitiveness. Through patents corporations are able to exclude their competitors from those areas of the industry where they have pioneered new technology. These corporations invest enormous amounts in research and development. Patents permit them to prevent their competitors from freely appropriating that technology.
Even in those cases where alternative technologies permit a competitor to avoid the web that existing patents casts, the necessity to develop this alternate technology may still present a substantial cost to the competitor. And quite possible is that the alternative technology is not as good or desirable as the patented technology.
Alternatively, patents may provide an additional source of revenue. Through licensing of their patent portfolio many corporations have gained substantial benefits and substantial revenues. For example, it has been said that IBM receives almost $1 billion per year on its patent royalties. Often, these license royalties derive from patents on technology which a company might not even use in its own business, but has developed either previously for a business that it has abandoned or as a by product of its research and development.
Patents can also provide the tool to gain access to your competitor's technology. Without patents the only weapon that you are likely to have to your convince your competitor to license its technology to you is money. However, with patents you have another bargaining chip, one that is often more powerful than pure cash. Indeed, access to your technology may convince an otherwise reluctant competitor to license its technology.
Additionally, a patent publishes to the world the invention and prevents competitors from obtaining patents on that technology. In this regard a patent serves at least two purposes: it not only prevents a competitor from practicing the technology, but also forecloses the competitor from obtaining his own patents
Many companies have long been engaged in patenting their technology; others are relatively recent converts. A few examples may illustrate the new found enthusiasm that some companies have found in building patent portfolios. An example of a company that has long been successful in exploiting patents is IBM. IBM today has approximately 17,000 patents in force. In calendar year 1966 through1977 to date, approximately 1 3/4 years, IBM has obtained 3,387 patents, a rate of approximately 1,800 patents a year. And of course as I have already mentioned, IBM has been well rewarded for its efforts. In the past year its been reported that they garnered almost $1 billion in royalties.
A company that has newly discovered patents is Microsoft. Microsoft for many years only sought a few patents on its principal product: software. Not until the early 1990's did Microsoft start to patent in earnest, and not until recently has it done it with vim and vigor. For example, in the years 1988 through 1991 Microsoft had issued to it an average of two patents a year. In 1992, Microsoft obtained 8 patents, but since January 1, 1996, i.e., the last one and 3/4 years, Microsoft obtained 442 patents. One can only guess that in coming years Microsoft will be harvesting 300 to 500 patents a year. Estimates are that Microsoft is spending approximately 50% of its legal budget to obtain patents. Quite a difference from the eight patents only a few years before.
Not only companies in the computer industry are obtaining patents. Companies in the communications industry, such as Sprint and Northern Telecom, are also pursuing patents. In the last year Northern Telecom obtained approximately 160 patents and Sprint obtained 9 patents". Based upon my personal experience with other companies in the communications industry, who formerly did not seek to patents, no doubt Sprint has well over 30 patents pending.
Why has Microsoft changed its view of patents and why has IBM and Northern Telcom continued to pursue patents? The reason is quite simple. Today without patents a company stands naked before its competitors without any means of protecting its valuable technology.
The figures of recently filed patent applications in the United States Patent and Trademark Office attest to the recently found value of patents. The patent applications filed in the United States Patent and Trademark Office in the four year period from 1992 through 1996 rose approximately 10%. It is interesting to examine the source of these additional patent applications.
The patent filings from the US only increased 6.1%. However, the number of applications of foreign origin increased overall 12.6%. Significantly, the number of cases from Canada increased 19%. That is, the number of patents that emanated from Canada have increased at a rate over 3 times the increase from the United States.
Some of the reasons for the disproportionate increase in patent filings by foreign corporations are not hard to guess. The United States is still today the largest single market. And of the large industrial countries the United States is among the most liberal in granting patents, and may be the most liberal in granting patents on software and business practices. Because of international treaties, filing a patent in a foreign country may be more advantageous than filing in the home country. Indeed, many companies follow the strategy of filing patents first in the United States, later optionally filing in their home country. For example, Northern Telecom, which is a Canadian corporation, during recent years filed most of its patents in the first instance in the United States. We explore later in this paper another significant reason why a company may want to file patents in a country other than its home country.
What do patents offer? Patent, copyrights, trade secrets (confidential licensing), and, trademarks are the various methods of protecting intellectual property. The last on the list, trademarks, protects the brand name and provides no substantial protection to the underlying intellectual property. The others, trade secrets, copyrights and patents are pursued in varying degrees by all companies and should be so pursued. However, copyrights and trade secrets provide substantially different rights than do patents.
Copyrights are easily obtained—all one need do is fix some original expression in a tangible media, such as writing it down or filming it. Copyrights prevent another from copying the artistic expression in the particular work. However, copyrights do not protect the idea or concept. Furthermore, they cannot cover functionality. Thus in a recent case where Lotus sued Borland for Borland's appropriation of Lotus' menu structure in its 1-2-3 spreadsheet, Lotus lost. The court found that the menu structure was functional.
Trade secrets provide a broader type of coverage than do copyrights. They can cover the underlying function. However, trade secrets and licensing have a singular disadvantage. To preserve a trade secret the intellectual property must be maintained in confidence, either through internal corporate secrecy or though license agreements with third parties. Once the intellectual property becomes public, even wrongly so, all protection is lost to the owner, and the public may freely use that intellectual property.
Patents suffer from neither of these two disadvantages of copyrights and trade secrets. Patents protect function. Patents also cover that which subsequently becomes public.
Indeed, that is the very purpose of patents. Patents are granted because the owner of the intellectual property agrees with the government to publicize in the patent document his invention. In return for disclosing the invention to the public the government grants the patentee a limited monopoly of twenty years from the date the patent application is filed.
What is a patent? A patent prevents others from making, using or selling the claimed invention. (I discuss later what is meant by the "claimed invention".) The alleged infringer need not copy the invention; he could have developed it as an original work. Nevertheless, the patentee can prevent that person from using his own development.
On the other hand to obtain a patent the inventor must meet a higher standard than needed for a copyright. Not only must the invention be new, but it must be also unobvious, i.e., to a person of ordinary skill in the relevant art, assuming that person had the knowledge of everything that went before, the invention must not be obvious.
In most countries any public disclosure of the invention, even by the inventor, bars the issuance of a patent. Although, in Canada and the United States there is a grace period of one year from the date the inventor discloses his own invention, that grace period is of no aid in the remainder of the world.
Therefore, it is key that a patent application be filed on an invention prior to the date that that invention is made public or first sold. Companies often through eagerness of attempting to exploit their products or through their employees desire to publicize his or her accomplishments lose the rights to file for a patent.
Contrary to common understanding one thing a patent does not grant to the patentee is the right to make the patented product. A patent is a governmental grant that gives the owner of the patent the right to prevent others from making, using or selling the patented invention; it does not give the patent owner the right to make, use or sell the invention.
An example might help to understand this dichotomy. Suppose that I came up with a patent on a three legged stool. In my patent I claim a block of wood with at least three legs. You come along and then invent a four legged stool—that four legged stool has at least three legs. Your patent claims a block of wood with at least 4 legs.
Your four legged stool would infringe my patent which claims at least three legs. Thus, I can through my patent prevent you from making, selling, or using your four legged stool. Similarly, you can prevent me from making a four legged stool. I can make a three legged stool, but I cannot make a four legged stool. One solution would be for each of us to cross-license our respective patent to the other. Then, I would obtain the advantage of being able to make a four legged stool and you gain the right to make your stool free from my claim of patent infringement.
We have talked a lot about patents and why people should get them. A few words for some of us who have never seen a patent. The patent includes a cover sheet, which includes all of the relevant important information relating to the patent: the patent number, the date of issuance, the name of the inventor, the title, and the abstract. The abstract is a brief description of the invention that helps the public to understand to what the patent pertains. Also on the cover sheet is a drawing that the patent examiner selects as being most representative of the invention.
Following the cover sheet are a series of drawings. The drawings illustrate the invention, and in the case of software or business practices, often take the form of flow diagrams.
After the drawings is the written specification. In the United States, as in most countries, the specification has a particular format which starts with the title, an introductory paragraph often having to do with prior related applications, and reservation of copyright in the disclosure. Thereafter follows the background of the invention, which sets forth the prior art and the objects of the particular invention. Then comes a summary of the invention, which is a more detailed description of the invention than that that is contained in the abstract, a brief description of the drawings, and finally a detailed description of the invention.
Following the detailed description of the invention are the claims. The claims are the most important part of the patent. They set forth the meets and bounds of what the government has granted to the patent owner, what the patent owner can prevent others from making, selling or using.
There are two general types of patent claims applicable to software in the United States, one called method or process claims, the other apparatus claims. Method or process claims set forth a series of steps; whereas apparatus claims set forth a combination of hardware elements. To infringe a claim, an infringer has to have in his apparatus each and every one of the claimed elements. To determine whether the person infringes a claim, one examines the infringing apparatus, and starting at the beginning of the claim, determines if each element in the claim can be found in the alleged infringing apparatus. If the claim sets forth an element which cannot be found in the alleged infringing apparatus, then that apparatus does not infringe.
Claims can be either independent claims or dependant claims. The independent claim stands on its own—it does not refer to any other claims. A dependant claim incorporates another claim by reference. A dependent claim can be thus viewed as reciting the elements in the claim from which it depends plus the elements recited in the dependent claim. Accordingly, to infringe a dependent claim the infringing device must also have not only the elements that are found in the dependent claim, but also the elements found in the dependent claim.
You probably have heard of a broad claim. A broad claim has a scope that covers more infringements than a narrow claim. Accordingly, a broad claim has fewer limitations than does a narrow claim. Since to infringe a claim an apparatus must practice each and every limitation of that claim, by having fewer limitations a broad claim will drag into its scope more infringements than will a claim that has more limitations.
On the other hand, the fewer limitations that a claim has the more likely it is that that claim will also cover not only infringing apparatuses or processes, but also apparatuses or processes in the prior art. The prior art is everything that has gone before the date that the patented invention was conceived. By including prior art in the scope of the claim the claim will be invalid.
Thus, we have two competing considerations; one is the desire to have a broad claim to include as many infringements as possible, and the other is to have a narrow claim so as to exclude as much prior art as possible, and therefore insure the validity of the claim. It is these competing considerations that give rise to the skill in drafting a good claim.
In order to build a solid foundation for a patent portfolio, the first rule is that a company must maintain good records. A company should be able to document both the conception and the reduction to practice of the invention. Good documentation enables the inventor to prove an early invention date in the case where there is a dispute over who is the first inventor.
Another consideration, and probably the most important, is the invention disclosure. Without inventors submitting disclosures to the company for its review, it is unlikely that there will ever be a patent application. One of the most difficult tasks of corporate management is to encourage inventors to submit disclosures. To this end, many companies have established inventor award programs. Pursuant to these programs, a company may grant an inventor stock options or cash awards or both for submitting a disclosure and the eventual issuance of a patent on that disclosure.
Once with a patent disclosure in hand, the patenting process can start in earnest. The first task is to gather the prior art. Often inventors can supply much of what is needed. Another source is to have a prior art search done by the patent attorney. Having amassed the prior art, the company can then with its attorney review the desirability of filing a patent application. Among the considerations is the patentability of the invention, i.e., is it new and unobvious in view of the prior art.
Another consideration is the corporate and strategic worth of the invention. Is it an invention in the mainstream of the corporation's business? Does it have a commercial value outside of the corporate business? Does it foreclose competition? Is it a patent in a competitor's field? And does the invention have independent technological value?
Balancing all these considerations, the corporation will decide whether to file and invest in a patent application. This decision should not be taken lightly. A patent application and the subsequent expenses can be large. The initial filing on an average software patent may cost between $8000 and $12000, including attorneys fees and government fees. One person has estimated that a patent application during its lifetime, including filing the application in foreign countries and maintaining each of the patents for their entire life, can cost upwards of one quarter of a million dollars.
A patent attorney should draft the application and its claims. The Supreme Court of the Unites States has stated that a patent application is probably the most difficult to draft of all legal documents.
When drafted, the attorney will file the application. In due course, the patent office in which it is filed, will pick up the application and examine it for patentability. The patent examiner will search the prior art which he has available and determine whether the claims as written are sufficiently narrow to insure that they do not include the prior art and that the claims when viewed by a person of ordinary skill in the art are not obvious in view of the prior art.
In an effort to gain the broadest protection the attorney drafting the claims will undoubtedly make the claims slightly broader than that which the patent examiner will allow. By doing this, the attorney assures that the claims that are eventually allowed are as broad as conceivably possible, yet just define around the prior art.
If the examiner believes that the claim are too broad, he will reject the claims. Upon receipt of the rejection, the attorney may contest the rejection or narrow the claims. The document by which the attorney narrows the scope of the claims to define around the prior art is called an amendment. That is, the attorney files a document with the patent office that amends the claim to narrow them. Included with the amendment are various remarks arguing to the patent examiner why the claims, as amended, are allowable.
If the patent application indeed includes patentable subject matter, the examiner will eventually allow the claims. At that point issue fees will be due, and subsequently during the passing years additional annuities (annual or periodic fees to maintain the patent in force).
After the patent issues, the patentee's obligations do not end. In order to insure damages in case of any infringement suit, a company should mark its product with the patent number. Without marking a patentee is not entitled to recover damages in an infringement suit unless the infringer has actual notice of the patent.
Having obtained a patent the day may come when it may be necessary to consider enforcing it. Patent infringement suits are notoriously expensive. Various estimates and studies have shown that only a relatively few patent suits that are prosecuted through trial cost less than $1 million. It is not at all unusual for patent suits to cost $2 and $3 million dollars, and it is not unheard of for a patent suit to cost $40 to $60 million dollars. Accordingly, the decision to sue, to license, or to do nothing should only be made with full and careful legal counsel.
Of key importance in maintaining a patent program is to insure that a company does not inadvertently lose its right to obtain a patent. In most countries of the world any public disclosure of the invention bars a patent on that invention. That includes disclosure by the patentee himself. Fortunately in the United States and Canada, there is a one year grace period when a public disclosure or sale is made by the inventor. However, as I have mentioned, that grace period does not extend to most foreign countries.
Accordingly, it beholds most companies to engage in the patent process, including filing the patent application, prior to any sale or public disclosure. Since at that early date most companies do not recognize or have not been able to evaluate the full economic value of the invention, companies often determine to file the patent application in only one country. More often than not companies choose their home country as the country in which to file.
However, the home country may not be the best choice. That is clearly the case with small countries that do not have a substantial market for the product. It generally does not cost substantially more to file a patent application say in the United States than it does in Canada or in Australia. However, by filing in the United States for the initial application, the applicant gains the advantage of assuring at least having patent in the biggest market. If the invention subsequently proves to be economically valuable, the company can then expand its filings to other foreign countries, including their home country for additional monies.
The most popular process through which a patent applicant can secure patent application filings in addition to the initial country is the PCT, the Patent Cooperation Treaty. This treaty permits through relatively small expenditures a patent applicant to postpone the decision of whether to file in countries in addition to that of the initial country for up to thirty months from the date that the first application is filed.
This delay is usually welcomed. Filing in more than one country is extremely expensive. For countries that accept applications in the same language as the initial application, for example, Australia, Canada, England, the United States, the cost of filing in a foreign country can be as little as $2,000.
However, in the case where a translation is necessary, depending on the length of the application, each application in such a country can cost anywhere from $5,000 to $10,000 per country. Thus, foreign filing costs mount very quickly. As a help to an aid to reduce the cost of filing, where a party intends to file in a number of European countries, a person can elect to file for a European patent.
It has been pleasure to be able to present this brief summary. I stand ready to answer any questions.
Copyright ) 1997 - 1999 Baker & McKenzie