Licensing – Intellectual Property Perspectives

3D Printing’s Impact on Patent Valuation and Enforcement

3D printing is an exciting field of technology and has made some great advances recently. It is a disruptive technology with the capability to transform the manufacturing industry. Relatively inexpensive hardware and openly available design files allow individuals and companies to manufacture “complex” components at any location. The nature of 3D printing technology will test the bounds of liability existing patent, trademark, and copyright regimes. The maturing technology has changed and will continue to change what can be printed. More specifically, it has made strides toward becoming a common household appliance. Companies now offer 3-D printers for just over $1,000, and prices are dropping rapidly. One recent study on the cost effectiveness of 3D printing at a household level.

What is often overlooked is that beyond just liability issues raised by the new technologies, the new technologies will impact the enforcement and valuation of the intellectual property. There will be issue in how the laws and courts evolve to address 3D printing and its legal impact. In making a decision to proceed with a patent application, the impact of possible liability changes AND the impact to valuation and enforcement of patent or other intellectual property rights of potentially 3D printable matter.

I have heard questions about 3D printing in relation to companies’ intellectual property, as these decisions must be made now in the infancy of 3d printing). I have also heard cries that 3D printing will be the fall of enforceable intellectual property rights. I believe that those cries are premature.

What is the infringement model and who is the primary infringer? Perhaps, the music industry holds some more predictive lessons. At one time, the dominant music pirate infringement model was the small scale manufacture, pressing CDs and street corner vendors selling the counterfeit CDs. The target for criminal action and lawsuit was that large scale pirate or the corner vendor. Then digital music and peer to peer sharing became a widespread model of infringement.

When one thinks of infringement in a product context, one typically thinks of the manufacturing line. One would focus on that manufacturer in order to abate infringement. However, 3D printing holds the possibility of changing that. If potential infringement shifts to small scale infringers, the ability and practicality to enforce against individuals lessens.

There is varying schools of thought as to how valuation might be impacted. One school predicts a negative impact. They reason that consumers will be able to scan and print any object thus the value of a product patent is negligible. Websites like Thingiverse will freely distribute designs and it would be impractical to enforce infringement for a single item. Other schools of thought predict overall neutral or positive impact. They reason that there are already patents for digital rights management for 3D printing technology. They also point to third party 3D printer policies restricting printing where it would infringe other’s intellectual property. Other arguments favoring neutral or positive impact may be drawn from the current music distribution model. Similar advantages that digital music facilitated for independent music may occur for some products. 3D printing may lower the threshold sales volume such that products that were not previously commercially viable can enter the market. Some potential patents with limited market prospects might meet a lowered minimum threshold market potential.

Some factors to evaluate how 3D printing might affect patent valuation and enforcement include:

Can the product currently be produced with a 3D printer?
If so, is the printing cost in the range of the purchase cost?
If so, is the printed product of similar quality?
Is the product likely to be capable of reproduction with a 3D printer?
Is the product a low price product?
What is the projected sales volume?

Of course, one doesn’t haven’t have a crystal ball to predict the impact of 3D printing on patent valuation and enforcement but the impact should not be ignored.

3 Key Terms of a Software License

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.

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.

Website Terms of Service and Privacy Policies – More Than Law

Some companies simply copy and paste the terms of service and privacy policies. This can be a costly mistake. The terms of service (“TOS”) and privacy policies (“PP”) should reflect the combination of legal, business, marketing, and ethical concerns of the company. Facebook has received a lot of criticism of its privacy policies over the years, ranging from the tracking beacon to the more recent outcry over granting Facebook application developers access to its user’s telephone number and address information. Even though Facebook’s action were likely permissible within its TOS and PP, the public outcry lead to a reversal of its policy, highlighting the extra-legal importance of the documents. [Edit: Facebook has resumed the policy.]

Legal
Part of the lack of attention to the TOS and PP is that they are, in fact, legal documents… so the website developers’ eyes glaze over reading the legalese (snooze). But because they are legal documents that can bind the company and the website visitor, proper attention should be paid to the documents. In hurriedly copying the documents from elsewhere, a meaningful TOS and PP for an opinion blog, a product website, an adult services website, a B2B cloud service, a server penetration business, etc. may not be implemented. Each type of business has its unique legal issues that should be addressed. All the terms from one set of documents may not be intended, useful, and/or enforceable in different business use cases.

Business
As a binding document, the TOS and PP can positively and negatively affect the direction of the business, including the monetization strategy. Facebook started with its users segmented in different silos, namely their schools. Originally, one needed a .edu email address in order to join and communication was generally limited to other people having emails with the same domain name. More recently, Facebook’s growth strategy is almost the opposite of that original strategy. It now encourages everyone to join and create relationships that did not previously exist. An inflexible TOS and PP may not have permitted that strategic change in direction.

Contrast that business scenario with the PP policy of the former eToys.com website. It read in part:

eToys respects your privacy. We do not sell, rent, loan or transfer any personal information regarding our customers or their kids to any unrelated third parties. Any information you give us about yourself or your kids is held with the utmost care and security and will not be used in ways to which you have not consented.

At a quick glance, that seems a respectable policy. However, the company went bankrupt. As the customer data was one of the valuable remaining assets in the bankruptcy estate, there was a dispute over the sale of the eToy.com customer list. In other words, the documents affected the ability of investors, creditors, and successors to recover value.

The potential reach of the documents as a whole (as well as the language of the above section) is further highlighted by the recent purchase of the free to use OkCupid.com dating website by the paid use Match.com website. If OkCupid had a privacy policy of similar to that of the above quoted eToy privacy policy, there may be questions whether Match.com is an “unrelated third party,” impacting any possible integration plans. In addition to the legal question, there would be a business valuation question for OkCupid and Match if OkCupid had been marketed with a strong privacy expection. OkCupid users may then leave in droves, decreasing the potential value of OKCupid to Match.com.

Marketing
It may seem counterintuitive, but the TOS and PP can support (or detract from) your marketing efforts. Currently, the industry trend is to move to the cloud. However, two key reasons why businesses are hesitant to move to the cloud are downtime and data access/use concerns. A cloud service provider of B2B applications where users enter valuable, sensitive business data has a more compelling message when it can state that the privacy policy explicitly states that business data will only be used for the purpose of the application and will not be processed individually or in the aggregate for marketing purposes.

Ethics
Again, it may seem counterintuitive that the TOS and PP dating can indicate the culture of a company, but podcast and technology guru Leo Laporte deactivated his Facebook account citing poor privacy control for a user account and stating that Facebook had incentive to not provide strong privacy (Note: he has since recreated a Facebook account). Yours truly only maintains test accounts on Facebook for similar reasons. In fact, Facebook’s privacy issues lead to startup Diaspora’s raising of ~ $200,000 based on creating a privacy oriented distributed social network. (Edit: And that little project called Google+)

A more pointed illustration of lack of ethics illustrated via the TOS and PP was shown in some now defunct dating websites. Those websites would send messages to male subscribers of the website that appeared to be from interested women. A few jilted men suspected that the messages weren’t from interested women and complained to the website operators suspecting that it was a ruse to entice them to sustain their subscriptions. The website “customer service” pointed those men to the terms of service, which stated that messages may be sent through the system from “likenesses” (read non-existent women) based on those men’s profiles and interests…. Those “unique” terms may be enforceable, but they are still ethically questionable. You can imagine that reputation of the company.

Conclusion
The above illustrations aren’t to endorse one approach over another but they should highlight that even though the terms of service and privacy policy are “contracts,” they should drafted to reflect the legal, business, marketing, and ethical goals of your company. Are your TOS and PP Google’s Terms, StartPage’s Policy, Twitter’s Terms, or your own terms?

Four Sources for Possible Patent Licensees or Assignees

Frequently inventors consider licensing or sale of their patent application or issued patent as the means for monetizing their intellectual property. One challenging step is to determine who might be interested in licensing or purchasing the patent rights. Determining potential licensees or assignees is a key step in developing the business plan.

1. Search Engines

This is probably no surprise, but the search strategy needs to differ from the typical internet search. The goal is to locate websites of companies that have licensed patents, news releases announcing licensing of patents, industry analyses of patent transfers, and the like. Be prepared to view more than just the first page of results.

Vary your search terms – You can start with a narrow search based on the features of the patent. For a fishing lure, the first search might be “patent license floating plastic fishing lure bass”. You can then alter the search to include different features and/or broaden the terms of your search to locate different results. Based on the above search, the next searches might be “patent pending clear plastic fishing lure” or “patented top fishing lures”.
Vary your search sources – Remember that a lot of the discussion of patent licensing and intellectual property sales is not on the general web. The discussion of companies’ licensing and technology transfers may be part of an article in a business journal. Instead of searching just the “web” option of the search engine, search other segments such as “news”, “finance”, or “directories”.
Vary your search engine – Even though Google is the preferred search engine for general use, other search engines can aid your search for licensees and assignees. There are industry specific search engines, thus you may look for an automotive electronics focused search engine if the patent application is in that industry (if it makes you feel better, you can search Google for the other search engines). Also there are search engines which group or “cluster” results. Thus a search with terms similar to the above fishing lure on a clustering search engine such as Yippy may present results categorized by “Business”, “Suppliers, Manufacturers”, or other relevant groups.

2. Trade shows

Trade shows are where a lot of suppliers and purchasers come together to buy, sell, introduce, and negotiate new technologies. Vendors, purchasers, sponsors, and suppliers listed on the trade show website may also be interested in acquiring rights to other technologies in the trade.

3. Thomasnet

ThomasNet is a comprehensive listing of more than 600,000 manufacturers, distributors, and services providers in more than 67,000 categories ranging from automotive equipment to chemical coatings. Some business in the relevant industries may actively acquire new technology.

4. United States Patent & Trademark Office

The United States Patent & Trademark Office (USPTO) website lists owners of patents and patent applications. One can search the patents records or search the patent assignments to look for owners of patent rights in the selected technologies. Owners of patent rights in the fields related to the patent may be interested in acquiring rights in related technologies from third parties.

Of course locating prospective licensees or assignees is only an early step in patent licensing or assignment. The inventor should still further research and qualify the company before proceeding. And the inventor should understand the value of a license or assignment of the invention the other party.

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.”

Intellectual Property Agreements – Write Them Down!

I know that you have heard it a million times, but I have to say it once more: Write it down! Entity agreements (of which a portion may include intellectual property issues) for the startup should be written down. By now, you’ve read about the Crunchpad lawsuit, where its looks like the Crunchpad is no more and one of the founders is seeking to create a similar product (the JooJoo) in a new startup. The lawsuit did not mention a signed agreement and it is unclear what each party’s rights are in the involved intellectual property. Some background information can be found in the below links:

http://www.techcrunch.com/2009/11/30/crunchpad-end/

http://mixergy.com/joojoo-crunchpad-chandrasekar-rathakrishnan/

Unfortunately, startups come and go all the time. Fortunately, new potentially successful startups can rise from the pieces of a failed startup. Some of the desirable leftover assets include the people and the intellectual property. However, there will be questions on both. What happens with the people and the IP on failure? Are the departing people immediately free to work in the same space as the failed startup? Who has what rights in the IP?

These issues should be addressed at formation of the startup, not when a failure or dispute occurs. Having the deal documented makes it easier to start making products and minimizes litigation potential and scope in the case of a failed business. Some issues relevant to this dispute often addressed in an intellectual property agreement include:

What intellectual property is being contributed to the startup? This should be a detailed description, not just a general intellectual property transfer. It appears that the Crunchpad included hardware, operating system, and application components. Did all of those exist and were they transferred to the startup?

What happens to rights on IP derived from the contributed IP? There were some reports that a Crunchpad prototype was the contribution to the startup? Assuming those reports are accurate, who has rights in the IP derived from the prototype. It is possible that the hardware, operating, system, and/or application components were further developed during the operation of the startup. Who has rights in those improvements?

What happens to the IP upon the failure of the new formed business or departure of its contributor? Does the IP remain with the startup? Do all rights revert to the contributor? Does the startup retain any rights?

Answering those and other questions at formation can minimize later problems with the intellectual property of a failed business. Failure to address the questions could lead to questions of ownership, unwilling investors, and product (read: income) delays.