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Software Intellectual Property Strategy - Step One: Preserve your rights

© 2001 John Moetteli, Esq., US Patent and Trademark Attorney with Da Vinci Partners, Geneva. Based on a presentation given on October 26, 2001 at the Association of International Business Lawyer's luncheon at the Metropole Hotel, Geneva, Switzerland.

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Introduction

Intellectual Property Strategy compliments a company's business strategy by helping the company achieve its business objectives and to realize its vision. For start-up software companies, a very important part of the business strategy is to obtain angel or venture capital funding. For many investors, it is crucial that the start-up demonstrate a competitive advantage such as a barrier to entry in order to interest them in investment. Never has that been more evident than it is in today's soft capital market.

Barriers to entry can be established through contracts as well as through intellectual property rights, such as Copyrights, Trademarks, Trade Secrets, Patents, and sui generis protections available through the European Database directive.

Here we will briefly examine what start-up software companies need to know to preserve their intellectual property rights and discuss a very important and relatively new right available for software--that of patent protection. In particular, we'll discuss a relatively inexpensive and effective strategy for preserving the startup's patent rights.

Preserving Rights --Timing is everything

First and foremost, a successful software company must be aware of its rights and be conscious of the fact that timing has much to do with whether or not such rights will be preserved.

Copyrights have been the paradigm of protection for software companies for many years. Although the fact that copyrights are created instantly upon creation is an advantage, there are pitfalls. For example, it is absolutely critical to define who owns these automatically-created rights. If contracts and assignments are not put in place in a timely manner, the company may one day be shocked to realize that although valuable copyrights exist in their software, these rights belong to their developer or some other party!

This raises the issue of the timely application of the contract laws. For the sake of the proper placement of copyright, trade secret and patent ownership, contracts need to be in place early in the software development cycle to avoid loss or "misplacement" of rights. For example, a trade secret technology that is openly divulged to a third party (say by a disgruntled employee who leaves the company) is no longer a trade secret and may limit patent rights as well. Further, an invention developed by an employee who doesn't have the company-assigned task of inventing may remain the property of the employee.

As for Trademarks, the more time that passes after public announcement of the company name, the greater the likelihood that others will have filed applications using a trademark confusingly similar to the start-up's mark, thus blocking the start-up from entering into these markets. The likelihood of a cybersquatter squatting the start-up's mark increases with time as well.

Further, of all IP rights, none is as sensitive to timing issues as patent rights. Some readers may now be thinking that patents are primarily an issue for companies based in the US where software and even business method patents are and have been available for years, due to a commonly held misconception that software patents are not so important to European-based companies. On the contrary, software and business method patents are clearly patentable in Europe as well.

Is Software is Patentable in Europe?

On the 31st of August, 2001, the President of the European Patent Office issued a press release announcing amendments to the Examination Guidelines for European patents. These amendments essentially "codified" certain EPO Board of Appeals decisions published over the last 10 years that favor the patentability of computer software and business methods. Now, European Patent Examiners are required to treat computer software and business method applications having a "technical effect" just as they would other subject matter (however, pure business method inventions, in which the invention lies in the method itself are not patentable in Europe).

The fact that patents may now be a strategic choice within the framework of a company's Software IP Strategy considerably complicates matters because the rules that must be respected in order to obtain limited patent monopoly rights are rigorous -- thus the potential for loss of rights is significant.

Unlike copyrights, patent rights are fragile and error sensitive. For example, if the start-up hasn't already filed a patent application, any one of the following can destroy its patent rights:

  • Nonconfidential disclosure of the invention to a third party
  • Publication of a description of the invention
  • Giving a speech describing the invention at a conference
  • Showing the invention at a trade fair or show
  • Description of the invention in a newsgroup or chat room environment
  • Offering the invention for sale in the US
  • Using the invention commercially in secret
To avoid an inadvertent loss of rights, the start-up should file its patent applications before it promotes its product or, at the very least, require that anyone with whom they discuss the project sign a nondisclosure agreement. From a practical standpoint, however, many companies and potential partners refuse to sign nondisclosure agreements. Also, start-ups typically are looking for funding in part to be able to afford to pay patent professionals to prepare and file these applications--until they have funding, they believe that they just can't afford to take the necessary steps to protect their software inventions. Thankfully, for Swiss applicants, an effective and inexpensive interim solution is available.

US Provisional Patent Applications

Swiss individuals and companies can take advantage of the fact that they can file the first priority patent application as a provisional patent application in the United States in the French language no translation will be required until a regular US application is filed. Further, there are few formal filing requirements and therefore, it is possible to file quickly and inexpensively. Still further, inventors can file follow-up patent applications in most industrialized countries of the world within a year of the filing of the US provisional patent application and claim the filing date of the provisional US application as their effective filing date for the applications filed in these other countries. Having filed only in the US first, a start-up's right to decide to protect their invention via the trade secret laws may be preserved as well, provided that their attorney takes the necessary steps.

Conclusions

Software is now clearly patentable, both in Europe and the US. Software IP strategic options are first and foremost time-sensitive. Early identification of issues and pitfalls preserves IP strategic options—errors are not often forgivable. The US provisional patent application is very often the best choice for the first filing, as it is relatively simple to prepare, can be filed in any language, and can act as the priority document for later applications filed in just about any other industrialized nation in the world. Preserving intellectual property rights will provide start-ups with more tools with which to form their Software IP Strategy as well as significantly increase their chances of obtaining funding.

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