3 Key Terms of a Software License

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Who owns your software?

If your company has developed software, it should create a software license prior to distribution of that software. A software license is the key instrument that defines the rights in ownership, usage, and distribution of software between the company and user(s). Developers seek to protect rights in the product developed with their time, money, and staff. Users want to know what is being licensed and whether that license will meet their needs. A software license should be employed in enterprise software, consumer software, “cloud” software, customized software, and even in “open source” software contexts (it is a misnomer that if one desires software to be open source, that the company needs only to forego a software license). Failure to draft a carefully considered software license can lead to loss of ownership of key aspects of the software, loss of control of the business model, bad publicity, and other consequences. There are many options to think about for a software license but three key terms include:

Scope of Use – This element of the software license states the permitted and prohibited uses of the software. A license may, for example, limit the use of the software to the licensee’s own internal use or primary business activity. Such a restriction may support the licensor’s business model or effectively be required by law. For example, in credit card processing software, the software provider may also be providing related services and would seek to limit the uses of the software so that the licensee does not deprive it of revenue opportunities from those third parties. Additionally, the credit card processor may not be able to fulfill IRS reporting obligations if the user processes credit card transactions for third parties.

Intellectual Property – Since you’re reading an intellectual property blog, you probably knew this issue should be addressed. However, this issue should not be overlooked or oversimplified. Innovation in software can invoke multiple areas of intellectual property law and contract law, including patent law, trademark law, copyright law, and trade secret principles. Where software patents exist, notice of the patents should be provided. Copyright almost always exists in software, thus it should be addressed. Furthermore, the intellectual property clauses should not be oversimplified. For example, the intellectual property rights may not be as simple as “Developer owns all right, title, and interest in Software… we own it all, you can’t use it, the end…” Unreasonable restrictions on use of the software may lead to a backlash, lot revenue, or just may not fit the company business model. The intellectual property clauses may be more nuanced due to contemporary business models and social media influence, where the users may make substantial contributions. For example, use of the “Android” name and logo (ie trademarks) by third party developers is advantageous to the Android Market ecosystem. Likewise, the prolific placement of Twitter and LinkedIn logos on third parties websites promotes the use of the Twitter and LinkedIn systems, respectively.

Rights in User Data – Some user data is mission critical. For example, customer relationship management (CRM) can be  the lifeblood of a business. Judging by some of the posts on Twitter, other user created data may not be so critical. In light of the software, the business model, and customer profiles, the software license should address the licensor’s and licensee’s rights in user data. This may include user created data, data about the user, or information generated about the user from the user environment. For CRM software on an in-house workstation and servers, where the business model is that the enterprise pays for the software, the license may state that the licensee has complete ownership of the user data and the licensor has no rights in the user data. For a mapping application, the license may state that the mapping company has complete ownership, including the right to redistribute user supplied corrections.

Older language and terms may not apply to the current environment, so a company should periodically review the software licenses. Newer paradigms such as software as a service, virtualization, and multi-core processors have changed the software landscape and thus may lead to ambiguity or undesired results from an existing license.

The above terms are just three terms among many for consideration for inclusion in a software license, so do your research for your specific software and situation.

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Taking Advantage of the Timeline for the PCT “International” Patent Application

In the global market, today’s prudent company must evaluate patent protection for its innovative products or services. In doing so, the question arises as to which countries a patent application will be submitted. The general rule of thumb is that a business would evaluate patent protection in countries where the technology is manufactured, marketed, and sold. But that still begs the question, in which countries will those activities occur. Those questions are often not known early in the stage of innovation. Furthermore, the America Invents Act first to file provisions mean that companies will likely file at the earliest possibility in order to have the earliest priority date. In a field of technology, such as chemistry, the innovative compound and synthesis may have occurred in the laboratory, but the profitability of large scale production, precursors for the commercialization, and target markets remain unknown. The costs for filing foreign patent applications can be high. Such costs can include official fees to the foreign country, translation costs which are necessary in most countries, as well as service fees for local agents or patent attorneys. When the innovative technology is in its infant stages, it difficult to know which countries in which to submit a patent application.

 

The dominant methods for multinational patent filings include the Paris Convention and PCT international patent applications. Under the Paris Convention, the decision as to where to file foreign applications must be made within one year from the date of the original United States filing. Contrast this with the PCT “international” patent application. By filing an international patent application under the PCT, you effectively defer the need for selecting and filing in the target countries by up to 30 or 31 months from the priority date, that is to say the earliest filing date of an earlier filed provisional patent application, earlier filed nonprovisional patent application, or the filing date of the PCT application. By filing an international application you will get an additional 18 months before it is necessary to decide on the specific countries on which to enter.

 

In order to take advantage of the additional time, the company would evaluate the technology, evaluate possible countries for filing, and prioritize countries for filing. Specific actions might include, evaluating the distinguishing features of the invention, determining the value of the technology to the business, researching competing technologies, assessing market potential and segments within the countries, and gauging patent laws and enforceability of the countries. Those and other actions could easily consume more than twelve months. The additional eighteen month deferral is generally to the company’s benefit. But note that the 30 month period is the latest possible date to file. The applicant need not wait the full 30 months. To illustrate, the full rights of the patent grant do not vest until the patent application is successfully prosecuted through the patent office of the country. Thus it may be desirable to initiate the examination process earlier. In another scenario, the applicant may wish to stagger the time period over which the patent applications (and associated costs) are directed to the selected countries.

 

In closing, the cost of filing the PCT is actually an additional cost. Eventually, the inventor will still have to pay the national filing fees for the selected countries. However, the option to defer those national filing fees for an additional 18 months can provide the advantage of making a more informed decision in selecting countries.

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Overview of the PCT “International” Patent Application

Patents are granted on a country by country basis. If a company is considering “international” patent protection, that is to say patent applications in multiple countries, there are two primary approaches:

1. Filing patent applications on a country by country basis directly in the patent office of those countries – This can present several concerns. First, it forces the company to select the target countries early, prepare the patent applications, and pay the fees for each selected country early in the process. At this early stage of product development, the company may not yet know which countries are desirable for pursuing patent rights. Furthermore, there are timing issues in filing the patent applications in each country which must be followed to avoid the loss of patent rights. Fortunately, agreements such as the Paris Convention permit a one year timespan for filing of the patent applications within the multinational patent family instead of having to file all of the applications on one day.

2. The Patent Cooperation Treaty (PCT) streamlines and provides more flexibility in the filing and expenses of multiple patent applications compared to direct filings in the national patent offices. Using the PCT procedure, the applicant initially needs only to file a single patent application in the receiving office for which the applicant is eligible. This initial filing accords the applicant a single international filing date and preserves the option to direct this patent application to selected PCT member countries at a later stage. Although more than 125 countries are currently a party to the PCT, the company should confirm that its likely target countries are parties to the PCT. Notable non-member countries in Asia include Taiwan and in South America include Argentina.

After the PCT patent application is filed, the International Search Authority (commonly the United States Patent and Trademark Office, the European Patent Office, or the Korean Patent Office) will perform a search on the PCT patent application for the most relevant prior art and deliver a written report regarding the patentability of the subject invention. This international search report can help the applicant to decide whether it would be worthwhile to seek national protection, and if so, in which countries. Optionally, while still in this international stage, the applicant may amend the application and “demand” a preliminary examination by an International Preliminary Examining Authority (IPEA). This is typically requested when the initial search report is not favorable.

The applicant selects the desired PCT member states before moving into the next stage (“national” or “regional”), where the international application and the search results are transmitted to patent office of the selected countries. Typically within 30 months from the filing date of the international patent application, the applicant continues the patent application process in the desired countries, where the patent application will be examined according to the patent laws and procedures of each of those selected countries. It is at this stage where the cost of preparation and fees multiply based on the number of countries selected, due to translations, revisions, filing fees, and other expenses. During the examination, some patent offices place great weight on the ISA and IPEA search reports (often saving time and money) while others will perform their own search. The applicant then prosecutes the application until the patent is hopefully granted.

Each of the two primary international filing approaches has advantages and disadvantages, especially in light of the business plan. The PCT patent application can preserve the option for  filing in many countries for a relatively low upfront cost. It also effectively permits more time to select target countries and more flexibility on the timing of the spending. Additionally, the PCT option can be combined with other agreements such as the patent prosecution highway. This makes the PCT an effective tool in international intellectual property strategy.

 

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3 Key Terms of a Patent License

Congratulations! You’ve filed your patent application. The next step is for the inventor to commercialize the newly created intellectual property. The three primary options are to completely assign the patent rights to another party, license the patent rights, or to manufacture, market, and sell the product disclosed in the patent application. Frequently, inventors wish to maintain some level of rights in the invention and do not wish to manufacture, market, and sell the product or process described in the patent application. For this reason, inventors often choose to license their technology. While the inventor is creating a list of potential licensees and creating a marketing plan for those potential licensees, he or she should also start thinking about the terms of a patent license. There are many options to think about for a patent license but three key terms include:

1. Payments – The most well known approach for payments are royalties. Royalties are typically agreed upon as a percentage of net sales, but there are also other methods of compensation. For example, the royalty may be a fixed amount for the term of the license, a fixed amount per year,  or a fixed amount per unit sold. The royalty rate varies and is influenced by factors such as:

  • The industry of the product
  • Whether the technology is a complete self-contained product or an improvement to an existing product
  • Whether the technology is patent pending or the patent has issued
  • Current market penetration of the product
  • The number and nature of competing products

2. Termination – What causes the license to come to an end?

  • Time – The license may be for a fixed term.
  • Time Period – For example, as long as the patent is enforceable.
  • Ongoing Performance Metrics – Minimum annual net sales, minimum annual royalties, minimum unit sales
  • Milestones – Where the product is a pharmaceutical, the license may be valid for a certain period after FDA approval

3. Geography – The licensor may wish to grant  licenses on a country by country basis (or other regional divisions).

4. Field of Use – Field of use licensing permits the technology owner to divide license rights among various market segments. For example, the licensor of a chemical patent may grant an exclusive license to one party for use in the field of human medicine and a second exclusive license to a second party for use in the field of veterinary medicine.

Bonus – Other valuable assets may be licensed in addition to the patent or patent application. Commonly, proprietary information, trade secrets, know-how, or trademarks may be licensed in addition to the patent rights. For example, a patent application may disclose the best manner of making a composition that was known at the time it was filed. Later, the chemists might have determined a more cost-effective method or environmentally friendly of synthesizing the composition. Software patent applications might have related source code. That other valuable proprietary information may be part of the technology transfer.

There are many other terms to consider, but the above terms should be helpful in the early stages  of planning for terms in a patent license.

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Misconception About First to File Provisions in Patent Act

In receiving questions from clients and others, some incorrectly believe that the new first-to-file provisions of the recently passed patent legislation mean that the first party to file a patent application unconditionally has lawful rights in the patent application, even where a second party misappropriates or derives the intellectual party from the first party. This is incorrect.

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