3 Key Terms in a Copyright License

Licensing is one method of commercializing copyrighted material. A license is an agreement which permits another (“the licensee”) to use the intellectual property of the owner (“the licensor”) in a certain manner, typically to sell products based on the intellectual property. A license can be a lengthy document with many options to negotiate, but three key terms will be discussed in this post:

1. The Grant – What is being licensed?

The first step is decide what is being licensed. This may not be as simple a questions as it seems. Take the scenario where a “song” is being licensed. The valuable components of a song might include music, lyrics, artwork, video, and the name of the band. If a licensee only seeks to “sample” the song, the license may only grant rights to use a derivative of the music.  If the song is being used in a commercial, the license may only grant rights to the chorus of the music and lyrics. In a complex software system with multiple APIs and interfaces, perhaps a license might grant rights in a single interface.

2. Terms of Payment – Who, What, When, How?

The terms of payment should vary with the situation. The most commonly discussed approach is royalties, where the amount remitted to the licensor is based on sales of a product based on the licensed material. This may make sense where the subject of the copyrighted subject matter is simply being resold, such as the song of an artist. Even then further details need to be addressed, such as the frequency of payment and allowance for returns.

A royalty may not be appropriate for some situations. If the license involves use of part of a song in advertising, a royalty . Perhaps the terms of payment require the licensee to pay the licensor based on the number of times the advertisement is broadcast.

3. The term of the license – When does it end?

Many a content author has been disappointed by failure to consider this term. Those authors have entered in an exclusive license with a perpetual term and were unable to pursue alternate means to monetize their intellectual property when no sales (and thus no royalties) were being generated. For this reason, a licensor may use alternate approach to terminate the license. Perhaps the license may be for a certain time period or if net sales drop below a threshhold amount for a certain period of time, the license is terminated.

There are many other terms to negotiate, such as the scope of use, territory of use, warranties, and choice of law. However, these three terms are an excellent starting point for discussion between a potential licensor and licensee.

Licensing is a method of commercializing your invention. When you strike a licensing deal, you grant another company the right to make, use, and/or sell products based on your “intellectual property.” The intellectual property at the heart of any such licensing agreement is typically covered by a patent you’ve been issued. The party granting the rights is the “licensor,” and the party acquiring the rights is the “licensee.”

Post Bilski Commentary For Software Startups

By now you’ve probably read about the “Bilski” decision recently released by the Supreme Court. Most of the coverage has been more focused on the policy aspects of the decision. This post focuses on where a software startup stands from a patent prosecution perspective in light of the decision.

Stepping back for a moment, I’d like to clarify the terms business method and software. In the coverage of the decision, the terms business method patent and software patent have sometimes been used interchangeably. The software startup should have a deeper understanding, as the Supreme Court states a holding for business method patentability but not directly for software patentability. The term business method usually refers to processes for doing business where the process does not require any tangible elements. An example might be a process for administering and accounting for mutual funds. Software, as popularly understood, is generally a set of instructions to be executed by a computer. In the case where the software of a patent application implements a business method, that software might be claimed in the same manner as a business method ie without any tangible elements. In other cases, the subject matter of the software patent application may lead to claiming the software in a different manner. For example, in software that processes radio waves reflected from a surface and generates images, the tangible components, such as a processor, may be claimed. Thus some “software” may fall directly within the scope of the recent decision and some may not.

In the Bilski decision, the Supreme Court rejected the exclusive use of the more restrictive “machine or transformation” test for business method patent applications, which essentially required tangible elements in the claims. It stated that machine or transformation test may be useful, but other tests may also determine whether the patent application contains eligible subject matter. Unfortunately, the Court did not provide any other specific tests, leaving it to future courts to do so.

It should be stated that the Court expressly refused to rule on the patentability of software, stating “[it] is important to emphasize that the Court today is not commenting on the patentability  of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection.” However, the Court also quoted an older court decision saying to “freeze process patents to old technologies, leaving no room for the revelations of the new, onrushing technology[,] … is not our purpose.” I believe a fair inference from this and prior decisions is that software will remain largely patentable. Thus the software startup seeking patent protection should view the decision favorably.

Patents – An Overview of the Application Process

Frequently, the creator of an innovative new product or process may seek patent rights in order to exclude others from practicing the new product or process. The typical steps involved in the process of applying for a patent include:

  1. performing a search;
  2. preparing and filing  a patent application; and
  3. responding to rejections raised by the patent office.

A search is not required by law before submitting a patent application, but it may be prudent to do so. The search can help determine whether a patent application should be filed. Moreover, if a patent application is filed, locating prior and related literature can help the inventor and patent attorney focus on the key features of the invention. The search sources can vary, but may include a general internet search, United States patent records, European patent records, Japanese patent records, commercial patent databases, industry databases, and trade journals.

After the search report is reviewed and discussed, a decision may be made to proceed with a patent application. Additional details for the invention may then be gathered. The inventor and patent attorney will work together to collection sufficient data in order to illustrate the invention, describe how to make and use the invention, and disclose the best manner of practicing the invention. From all of the disclosure, drawings, a specification, and claims will be included in a patent application filed with the patent office.

In time, about one to three years after filing, the patent office will review the submitted patent application for compliance with patent law. The patent office will perform its own patent search, as well as review the application for other compliance issues. Common issues raised by the patent offices include:

  • Ineligible subject matter – An invention’s subject matter must be products or processes made by man. Impermissible subject matter includes laws of nature and abstract ideas. Recent controversial and developing categories of subject matter include business method patents (in which some software may fall) and “gene” patents.
  • Lack of novelty – An invention must not currently exist in order to be patentable. In other words, it must not already be publicly known. If a reference document contains all of the features of the claimed invention, the invention lacks novelty and the patent office will issue an anticipation rejection.
  • Obviousness – Not only must the invention be novel, it also must be nonobvious. That is to say that the invention should not be obvious to a person having ordinary skill in the field of technology of the patent application reviewing reasonably related references. If it is obvious, the patent office will reject the patent application.

The patent applicant and attorney need to address the rejections raised by the patent examiner. If successful in addressing those rejections, a patent will issue and the inventor may then exclude others from practicing the new product or process.

Startup Myth – First Come First Served for Domain Names

Frequently I encounter businesses seeking to protect a brand name. In discussing the actions taken to date taken, owners frequently state that they have registered the domain name corresponding to the desired brand name. Frequently, they believe that their name is “reserved” or protected because they have already successfully reserved the domain name. It is also often stated that because they were the first registrant of the domain name that they may do as they please with the domain name. Two common  incorrect beliefs include that one is entitled to operate a website with the domain name or freely sell the domain name. This is often not the case.  Just because one registers a domain first does not mean that the domain name can be lawfully used or sold. Not only does merely registering a domain name frequently confer only limited rights in the domain name or the underlying name, it is also possible that use of the registered domain name may lead to negative consequences.

The most known scenario is where one registers a domain name which is substantially a name in which another party has rights. If I (somehow) was the first registrant and operator of ibm.com, it would not be of much value. Ignoring the .com domain suffix, the relevant part of the domain name just contains the “IBM” trademark. Most people understand and agree that there could be trouble in this scenario, as IBM is a household name. However, most domain name registrants don’t realize that this scenario can occur with lesser known brand names as well. So being the first to register a lesser known domain name may place one in the same questionable situation.

A lesser known scenario is where one registers and uses a name which is similar to the name in which another party has rights. If I sought to register ibmsoftwaresolutions.com, my status as the first registrant of the domain name is again not very helpful in establishing rights in a “IBM software solutions” brand name nor in operating a similarly named website. Again this may not seem surprising using the IBM name as the context. However, as above, this scenario can occur with lesser known brand names as well.

There are times when registering a domain name may be helpful in establishing some level of rights, but being the first to register a domain name does not automatically lead to superior rights in the domain name or in the words contained in the domain name. Use of that domain name or attempted sale of the domain name can lead to loss of goodwill in the name, cease and desist letters, domain name arbitration, trademark actions, or anticybersquatting protection act claims, among possible consequences.

Top Startup Trademark Mistake – Failure to Research and Protect the Business Name

For emerging businesses, the business name is often synonymous to its branding. The business name may be used in the first product name, domain name, and advertising. A lot of time, money, and thought can be expended while creating that business name and building goodwill in it. An often overlooked aspect of this process is researching and protecting the business name when it is desirable to do so. Inexperienced business owners frequently believe that because they have formed a corporation, limited liability company, or filed an assumed name certificate with that new name that they are lawfully permitted to use the new name in their branding and that the new name is protected from use by others. This is an incorrect belief and may lead to problems in the future.

One reason why the belief is incorrect is that the standards and requirements for a state permitting a business name to be used are different than the standards for granting a trademark registration. A business may be formed for tax, legal, securities, or other many other non-branding purposes. A business name used for those purposes is not used for branding and not generally publicized and warrants a lower standard in registering that business name. Contrast that scenario with a business name which is explicitly used in advertising and in connection with sales of goods and services to consumers. To illustrate, most of the flying public thinks of American Airlines as a source for travel. However, AMR Corporation, a holding company for American Airlines is not generally recognized by the flying public.

A second reason why the belief is incorrect is that business names, product names, and other sources of brand names are not centrally stored. Brand names can be located in many different registries, or even be unregistered. Today, businesses can more easily reach out to consumers across the country (or world) thanks to the internet. A common example affecting startups is where an internet based business incorporates in one state and focuses its branding efforts in a different state. Thus, a business may incorporate in Delaware and focus its initial branding activity in Kansas. A second startup may later organize in Kansas with a similar name and product. Each business would likely have no problem registering in the respective states. In this case, there may eventually be a clash between the two companies. One of the businesses may be forced to changes its branding and/or compensate the other business for the damage to that business’ brand. For a business with limited funding, this could be a business ending mistake.

In closing, it may be prudent to perform a detailed search, submit a trademark application, and use the new business name. Such action can minimize the chances of unlawfully using another entity’s brand name and increase protection for one’s own brand name.

Small Business Innovative Research Funding for Your Patentable Concept

Funding is a concern for many startups and small business creating new products.  The Small Business Innovation Research (SBIR) is a congressionally authorized, federal program that may be an option for funding for some of those businesses operating in select fields of technology. Two of the key driving policies of the program are to help the government agencies solve their problems and to bring innovative solutions to the public. Even though there is no man in a question-mark covered suit marketing the SBIR program, it is real and money has been and is currently being awarded. To be sure, the program is only available in select situations and is a difficult process. That being said, eligibility and successfully completing the process brings two key advantages:

  1. Funding – The recipient can receive from about $100k in early phases to slightly less than $1,000,000 throughout the phases of a project.
  2. Intellectual property – The recipient maintains substantial ownership of the involved intellectual property.

The program primarily operates at the agency level. An agency may have a very specific problem that needs to be solved or may be open to solutions to more broad problems. The range of problems is broad as some of the participating agencies include the Department of Agriculture, Department of Health and Human Services, Department of Defense, Department of Education, Department of Energy, Department of Homeland Security, Department of Transportation, and NASA. Those agencies create a diverse technological demand, which makes the SBIR program worth exploring for a lot of innovators. The titles of some prior awarded projects under the program indicate research across the spectrum and include:

  • Color Sorting of Post-Consumer Glass and Plastic Containers to Improve Their Recyclability
  • Improving Business-Consumer Commerce Via Mobile Social Networking Services
  • Household Hazardous Substances Data System
  • Hearing Aid Connectivity to Consumer Electronics
  • Device For Aiding Memory Dysfunction in Elderly
  • A Pollution Free Aerosol Dispenser

The first major step in seeking SBIR funding involves identifying the timing and  solicitation topics of the various agencies. The agencies themselves do not post all SBIR solicitations in one location. They are typically posted on the individual agencies’ websites. However, there are some sites to aid your cross-agency search. The Zyn website allows robust searching of SBIR solicitation data.

The next major step involves registering and completing a detailed application in response to a solicitation. The instructions vary by agency and are complicated. The instructions must be followed with diligence or the application may be rejected without substantial review. In fact, about half of applications are rejected because of noncompliance with the rules. The application will take significant time to complete, as it involves detailed project planning, staff information, commercialization strategies, cost information, and other data requirements.

The Small Business Innovation Research program is arduous, but can be worth the reward and should be explored as an option for funding your innovations!

Provisional Patent Applications Must Have Sufficient Technical Description

Frequently I hear the misstatement that one can just submit some notes and pictures of one’s product in a provisional patent application. People think this is so because the application is “informal” and will not be examined by the patent office. Unfortunately, I have seen multiple situations where an entrepreneur had an inadequate disclosure because “Someone said I could just submit my notes and sketches and I’m covered.” WRONG! Even though provisional patent applications are not directly examined by the patent office, the provisional should be thought of as a “patent-lite” and prepared diligently.

The goals of a provisional patent application include securing a filing date, which is a critical date in the process. Sufficient technical disclosure should include enough detail to disclose any sold or publicly used versions of the product, support the claims and description of the future nonprovisional application, and support arguments which distinguish the product from the prior art. Failure to disclose adequate information can place the filing date or the scope of patent protection in jeopardy.

Imagine the following scenario:

  1. Inventor creates a product on 1/1/10.
  2. Inventor publicly demonstrates the product on 6/30/10 to promote the product, thus starting a one year period in which the inventor must have a filing date.
  3. Inventor files an insufficient provisional patent file on 1/1/11.
  4. Inventor files a thorough nonprovisional patent application on 1/1/12.
  5. The patent office reviews the nonprovisional patent application  on 1/1/14 (it is common for a couple of years to pass before examination) and determines that the invention as claimed in the nonprovisional patent application is not supported by the provisional patent application.

One possible result is that the effective filing date is now the filing date of the nonprovisional patent application, which is 1/1/12. That filing date is more than one year after the inventor publicly used the product, thus the inventor is barred from receiving a patent (Even if the bar to patenting did not exist, any relevant technology created between the filing date of the provisional and the nonprovisional can now be prior art). Another possible result is that the issued patent is limited in scope to what was sufficiently disclosed in the provisional, thus it has less less value.

Don’t fall prey to the myth and take great care in the preparation of your provisional patent application.

Beware: Patent Application Drafting Software

I have reviewed a few situations where someone has sought direction after submitting a patent application which was created using patent application drafting software. Such software is typically marketed as allowing one to create quality patent applications without having any prior experience. Of the applications that I have reviewed where the applicant used such software, I have yet to see a quality patent application. Each had a questionably specification and questionable claims. I don’t know whether it was the user or the software, but I knew some of the likely results for the applicant: higher difficulty in being granted a patent, lesser scope of protection on any granted patent, and/or the need for an additional patent application on the same  product.

A patent is a technical document that is supposed to communicate nuanced technical information to the patent office  and others having skill in the technology at issue. The language is typically college level with technical terms and frequently uses non-primary definitions of terms or self-defined terms. Having been a software developer and software enthusiast for several years, it doesn’t seem that off-the shelf software could produce such a result. When I think about some of the results from commonly available language related software, such as Babelfish, Google translator, or the word processor grammar level ratings, it seems consistent with that view. It is a far leap to take natural language input and consistently produce a nuanced technical document that complies with the goals of the applicant and the non-intuitive requirements of the patent office. That view has been supported by the poor patent applications that I have seen from such software. Problems from those poor applications included very weak applications to the need to effectively start over.

Disclaimer: This post was written by a patent attorney… but you probably knew that when you came here.

Warning: Inventor Assistance Companies

It is tough to sit across the desk from someone and tell them that I think someone took advantage of them, especially when that money could have been better used to help them with prototyping or other steps in their business plan. When I have spoken with people who have used inventor assistance outfits, it appeared they spent a lot of money and received little value in return. In one situation, an inventor and his/her associates paid about $20,000 to an inventor assistance outfit. From what I could tell, they were delivered the following:

  1. the filing receipt for a submitted provisional application (they did not have the actual submitted application).
  2. the filing receipt for a later filed nonprovisional application (they did not have the actual submitted application).
  3. a five to ten page marketing presentation for their product with illustrations, advantages of the product, and other information.
  4. about 200 addresses for companies that might be interested in purchasing the product (the addresses were general and not directed to a specific person at the company).

For argument, let’s assume a value of $5000 – $10,000 for the preparation and filing of the patent applications, which may or may not be fair given the product at issue. That leaves a range of $10,000 to $15,000 for the remainder of the deliverables. That value for those deliverables  seems very questionable. Moreover, the inventor assistance company was still marketing further “services”  to the inventor and associates (for additional fees or royalties, of course).

Make no mistake, the invention and entrepreneurial process can be difficult, expense, and time-consuming. Furthermore, it is rare that an individual will possess all of the skills, time, and money necessary for the complete invention and commercialization process. Thus it is tempting to fall prey to an outfit that markets “one stop shopping” support and relief to the time and stress involved in the process.

I am not sure why such low value was delivered, as the above $10,000 – $15,000 is enough to deliver higher value deliverables and still have a good profit margin. Nonetheless, the situation is fairly typical of what I have seen from inventor assistance companies. For this reason, I suggest talking to other inventors, business counselors, intellectual property attorneys, business attorneys, or others to seek professionals to help you in your invention and entrepreneurial process.

Common Factors in the Decision to File a Patent Application

When working with an inventor or  startup, a frequent question is whether it is prudent to proceed with a patent application. More often than not, I am not in a position to concisely answer the question, as the question may hinge more on economics than intellectual property. A patent search may shed some light on the prudence of moving forward from an intellectual property standpoint, but it doesn’t help answer whether the cost and effort involved in a patent application are worth it. For people at some large business entities or educational institutions, the value may be easier to determine. Moving forward with the process may increase that person’s salary or credibility. For an individual inventor, startup, or small business, the choice is not that simple.

For the startup or individual inventor, a patent should be thought of as an asset. The goal for a patent application should not be a certificate to hang from the wall. In other words, what will moving forward do for your business. You purchased a computer to easily enter, store, search, and communicate data (reducing labor and storage expense). You purchased hosting services for your website to inform others of your product or service (increase revenue) and to enhance your other marketing efforts (reduce expense). You worked with a product designer to optimize the experience of your product for your customers (increase revenue). Even though you probably did not formally analyze purchases for the above, you at least made a “gut level” feel as to how the purchases were beneficial.

There are several formal methods of patent valuation, such as the cost approach, the market approach, and the income approach (the dominant approach for intellectual property). Typically, those approaches may require the expense and effort equal to the cost of moving forward in the patent process. Thus they may not be suitable at this stage of the process. Some questions that might give a “gut level” feel as to whether to move forward to not include:

  • How does your idea help increase revenue or decrease expense?
  • Will a patent application help investors better understand and evaluate the concept?
  • Is the idea in a new field of technology?
  • Is your idea operable only as an improvement to another product or can it be sold independently as a complete product?
  • How large is the total market for your idea (or a related market)?
  • What percentage of the market can your idea help you gain?
  • How many related products exist as your competition?
  • How fast is the industry changing?
  • What are the alternatives to your idea?
  • How much does it cost to manufacture your product?
  • Is the idea in a growing, stable, or declining industry?

Those questions may not lead to a definitive answers,  but they should provide guidance on the decision as to whether to proceed towards a patent. When you made the decision to purchase (or not purchase) a computer, hosting services, or other products and services, you analyzed how it would help your business. You should do the same in deciding to move forward in the patenting process.