Overview of IP

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An Overview of IP Considerations for High-Tech Practitioners: 

An Overview of IP Considerations for High-Tech Practitioners Presented: NCVAA September 30, 3006 San Jose, California

Table of Contents: 

Table of Contents Introduction Importance of IP Protection Types of IP Protection Considerations for Developing IP Portfolios IP Management Program

A. Introduction: 

A. Introduction 1. Intellectual Property (IP) is a fundamental part of any business model 2. Practitioners must understand the forms and advantages/disadvantages of IP 3. Secure IP rights early, avoid mistakes later

A. Introduction (Cont.) : 

A. Introduction (Cont.) 1. IP and the business model IP is not only a process that brings products/process to market IP portfolios can: Attract investment dollars, enabling further product development Generate income through commercialization, licensing and related services Increase profits, market share, investor return and leverage product/power with respect to other companies

A. Introduction (Cont.): 

A. Introduction (Cont.) Advantages of different forms of IP Patents, copyrights, trademarks, and trade secrets have unique features—no one-size fits all approach to portfolios Startup companies face different challenges than established larger companies Cost considerations for larger companies can result in different strategies of IP protection than for startups e.g. pursuing patent protection versus maintaining trade secrets Proper protection can avoid large scale litigation and damage awards - Consider costs of licensing, competition, patent pooling, royalties

A. Introduction (Cont.): 

A. Introduction (Cont.) 3. Avoiding mistakes Secure IP rights early to protect core company assets IP rights have offensive and defensive use Know the landscape Determine what level of protection is desired/needed Carefully manage interactions with employees and customers (existing and potential) NDAs, assignments, etc. For patents, don’t short-change your rights—better to claim broadly Document all IP-related activities!

B. Importance of IP Protection: 

B. Importance of IP Protection Impact of IP Past Damages and future profits (such as royalties) Injunctions Polaroid Corp., v. Eastman Kodak Co. In 1990, Polaroid was awarded a record-setting $925 million in damages after Eastman Kodak was found to have infringed seven (7) Polaroid's patents relating to instant photography. As a result of such patent infringements, Kodak was forced to shut down its $1.5 billion manufacturing plant, lay off 700 workers, and spend nearly $500 million to buy back the 16 million instant cameras sold to consumers between 1976 and 1985. Kodak’s entire instant photography business was destroyed Tivo, Inc. In January of 2000, the company’s stock dropped 44% when a patent infringement complaint was filed against the company In May of 2001, the company’s stock price increased 127% after the announcement of a key patent’s issuance In early December 2001, the company’s main competitor announced the issuance of a key patent and TiVo’s stock price dropped 10% One week later, TiVo announced the issuance of two new patents and its stock price rebounded with a 17% increase in price

B. Importance of IP Protection: 

B. Importance of IP Protection Five Recent Patent Infringement Verdicts Advanced Medical Optics v. Alcon (12/16/05) Alcon intentionally copied several medical devices used in cataract surgery Award: $213,000,000 Immersion v. Sony (3/28/05) Sony infringed video game software Award: $82,000,000 Medtronic v. brainLAB AG (9/30/05) brainLAB infringed Medtronic’s patents relating to image-guided surgical techniques Award: $51,000,000 Z4 Technologies v. Microsoft Corp. (4/14/06) Microsoft Corp. and Autodesk Inc. infringed Z4’s anti-piracy software Award: $133,000,000 ($115M-Microsoft; $18M-Autodesk) Applied Medical Resources v. Tyco U.S. Surgical (8/29/04) Tyco infringed patents covering trocar surgical devices Award: $43,500,000

B. Importance of IP Protection: 

B. Importance of IP Protection Five Recent Patent Infringement Settlements NTP v. RIM. (March 2006) Research in Motion’s Blackberry product allegedly infringed NTP’s patents Settlement: $612,500,000 Karlin Technology v. Medtronics (April 2005) Medtronic settled infringement claims by buying spine-related medical patents Settlement: $1,350,000,000 EMC v. Hewlett Packard (May 2005) HP paid cross-licensing agreement to resolve software patent litigations Settlement: $325,000,000 Masimo v. Tyco-Nelcor (January 2006) Tyco settled patent infringement claims related to pulse oximetry devices Settlement: $265,000,000 Sun Microsystems v. Microsoft (April, 2004) Microsoft paid Sun Microsystems to resolve patent, anti-trust issues Settlement (patents): $900,000,000

B. Importance of IP Protection: 

B. Importance of IP Protection Largest Money Damages in Trademark Lawsuits 1995–2003

B. Importance of IP Protection: 

B. Importance of IP Protection Pitfalls of Not Protecting Inventions: Examples: In early 1979, Xerox’s Palo Alto Research Center (PARC) developed the very first graphical user interface (GUI) that later formed the basis of Apple’s Macintosh and Microsoft’s Windows PC operating system (OS). The GUI technologies included everything from pull-down menues to pop-up dialog boes to scalable windows. But Xerox decided against filing patent applications. Had Xerox patened the GUI, then even at a conservation royalty rate of 1% of sales, the license fees that Xerox might have been earned during the terms of the patent would have easily topped ½ billion dollars. In Lotus Development Corp. v. Paperback Software International, 15 U.S.P.Q.2d 1577, 740 F.Supp. 37 (D.C.Mass. 1990), Lotus Development Corp., ("Lotus") which had only copyright protection, but no patent for its famous spreadsheet program, Lotus 1-2-3, sued Paperback Software International ("Paperback") for copyright infringement in 1990. The court found that Paperback had reverse engineered Lotus 1-2-3 spreadsheet program, copied the structure, sequence, and organization of the Lotus menu command system, including the choice of command terms, the structure and order of those terms, the presentation on the screen, and certain long prompts. However, Paperback did not literally copy the actual Lotus source code. As a result, no copyright infringement was found. Evidently, Lotus did not pursue filing patents covering the spreadsheet program because it was under the mistaken impression that software could not be patented. At the time, the market for spreadsheet software was about $1 billion in sales a year in the U.S. alone, and Lotus was the market leader with about 40 percent of the market. Had Lotus obtained a patent covering the functionality of its spreadsheet software, it would have still monopolized the spreadsheet market

C. Types of IP: 

C. Types of IP Patents Trademarks Copyrights Trade Secrets Article 1, Section 8 of the U.S. Constitution reads Congress shall have Power… to the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.

C. Types of IP (Cont.) 1. Patents: 

C. Types of IP (Cont.) 1. Patents Patents are governed exclusively by federal law, 35 U.S.C. §101 for utility, design and plant patents Criteria: What is Patentable? Utility patents: inventions and discoveries of a new and useful Process (including computer software and related processes as well as methods of doing business), machine, manufacture, composition of matter, or new and useful improvements of the same. “New” not previously invented or discovered by another, or obvious in view of what was previously known “Useful” Not frivolous or immoral What is not Patentable? Abstract ideas, mental steps, laws of nature, natural phenomena (e.g., electricity and magnetism) and pure mathematical algorithms.

C. Types of IP (Cont.) 1. Patents: 

C. Types of IP (Cont.) 1. Patents Patent Right: Exclusionary/monopolistic power Prevent others from exploiting, i.e., making, using, selling or offering to sell the patented (claimed) invention in the U.S., or importing into the U.S. Right to exclude covers products that are not only identical but also “equivalent” to the patented (claimed) invention Term: 20 years from filing for utility patents; and 14 years after issuance of design patents [relatively short compared with other forms of IP, such as copyrights (70-90 years), trade secrets and trademarks (potentially indefinite) However, coverage is stronger and broad. There is a presumption of validity, when infringement is asserted

Types of IP 2. Trademarks: 

Types of IP 2. Trademarks Trademarks are governed under federal, state and common laws. A trademark or service mark is a word, name, symbol or device or combination thereof Mark is adopted or used by a manufacturer or merchant to identify his goods/services and to distinguish them from those manufactured or sold by competitors The purposes of trademarks and service marks are: To indicate source of the goods/services To guarantee uniform quality to purchasers, and To advertise the products and services Non-traditional trademarks may also be protected under trademark laws, such as colors (e.g., pink in Owing Corning’s fiberglass insulation), sounds (e.g., sound of Harley Davidson’s motorcycles), visual appearance (e.g., Time magazine’s cover) and scents (e.g., embroidery yarn having distinctive floral flagrance)

2. Trademarks (Cont.): 

2. Trademarks (Cont.) Criteria: Mark cannot contain immoral, deceptive or scandalous matter Mark should be distinctive, and should not be “merely descriptive” of the associated goods/services Mark must not be confusingly similar to an existing mark Fanciful, arbitrary and suggestive marks are inherently distinctive and can be registered immediately Coined words such as "Xerox", "Kodak", “Exxon”, and “Apple” in context of computers Merely descriptive or generic marks are not eligible unless they have acquired “distinctness” through secondary meaning in the marketplace. However, exclusive and continuous use of 5 years are considered to have attained secondary meaning Immediately describe something about the product or service (e.g., “Dryfast" paint) Designate a general type or class of product (i.e., “Aspirin“)

2. Trademarks (Cont.): 

2. Trademarks (Cont.) Common Law Rights: Created when start using mark and consumers begin association between marked good and manufacturer Can be enforced in the U.S. courts if can show used as source identifier State Registration Rights: Each state maintains its own register of marks which can be enforced under state law The state registration system functions primarily to afford protection to marks which have not been used throughout the U.S. and which therefore, cannot be federally registered Term: 10 years and renewable indefinitely Federal Registration Rights (the Federal Lanham Act, 15 U.S.C §1127): Used in interstate commerce, in foreign commerce with the U.S. If activity can be regulated by Congress (broad authority) Term: 20 years and renewable indefinitely

2. Trademarks (Cont.): 

2. Trademarks (Cont.) Federal registration has important legal advantages over state and common laws. Federal court jurisdiction. Increased money damages and attorney’s fees against infringers. Incontestability (during the sixth year after registration, the mark may acquire “incontestable” status meaning that a competitor cannot claim prior rights). Conclusive evidence of owner’s exclusive right to use. Prima facie evidence of ownership and validity. Constructive notice nationwide. May be used to exclude importation through U.S. Customs of goods bearing infringing marks.

3. Copyrights: 

3. Copyrights Copyrights are governed exclusively by federal law Statute is in Title 17 U.S.C. § 102 “Original works of authorship” fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated Fixation (not necessary permanent) Words fixed to a page Voices fixed to a compact disc Images fixed to a videotape or Computer software fixed to a memory medium Original work includes, both published or unpublished, literary works, musical works, dramatic works, artistic works, choreographic works, pictorial and sculptural works, motion pictures, sound recordings, architectural works and certain other intellectual works (such as computer software) Original work does not extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work

3. Copyrights (Cont.): 

3. Copyrights (Cont.) Original works need not be registered with the Copyright Office, nor a copyright notice (© plus year of publication or creation plus name of copyright owner) needed on the work to receive copyright protection. However, registration remains desirable because of its proof of validity and its requirement in an infringement action. Notice is still recommended because of its ability to maximize damages in an infringement action Rights include exclusive rights to: (1) to reproduce the copyrighted work; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies of the copyrighted work for sale, transfer, rental or lending; (4) to perform the copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, motion pictures and other audiovisual works; and (5) to display the copyrighted work publicly, in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works

3. Copyrights (Cont.): 

3. Copyrights (Cont.) Term (For U.S. work published with notice on or after 1978 (Berne Convention)) Author: Life + 70 years Corporation: shorter of 95 years after 1st publication -or- 120 years after creation Subsisting works: Copyrights before 1978: Sonny Bono Copyright Term Extension Act, Public Law No: 105-298, incorporated into 17 U.S.C. §§ 302-304, extended the term of earlier works by 20 years. Fair Use Exception: a comparative advertisement is a fair use a “Parody” may also contribute to fair use Problem: All infringers think their infringement is “fair” Test: Does use affect commercial market of copyright owner

4. Trade Secrets: 

4. Trade Secrets Trade Secrets are governed solely by state law. However, the Uniform Trade Secret Act (USTA) provides a model, uniform treatment of trade secrets among the states California defines “trade secret” as: (1) information of any type not generally known or readily ascertainable by the public, and (2) Owner has made reasonable efforts to keep it secret. Such information includes: a formula, pattern, compilation, program, device, method, technique, or process that is actually or potentially valuable to its owner. Such “reasonable efforts" can include: advising employees of the existence of a trade secret, limiting access to the information on a 'need to know basis,' requiring employees to sign confidentiality or non-disclosure agreements, and keeping secret documents under lock

4. Trade Secrets (Cont.): 

4. Trade Secrets (Cont.) Examples of confidential technical and business information that gives the business a competitive advantage: Data compilations, for example, lists of suppliers or customer Designs, drawings, architectural plans, blueprints, and maps Algorithms and processes that are implemented in computer programs Instructional methods Manufacturing or repair processes, techniques and know-how Document tracking processes Formulas for producing products Business strategies, business plans, methods of doing business, marketing plans Financial information Personnel records Production or maintenance schedules Operating, maintenance or training manuals Ingredients of products Information about research and development activities of an enterprise

4. Trade Secrets (Cont.): 

4. Trade Secrets (Cont.) Trade Secrets exist until made public, then no longer valuable As long as the secret is kept confidential Potentially longer than for patents, copyrights Potentially shorter than for patents, copyrights No specific term limits as with patent or copyright

D. Considerations for Developing IP Portfolios: 

D. Considerations for Developing IP Portfolios 1. Trade Secret Considerations Mark all company's "confidential" documents and materials Non-disclosure, or confidentiality agreements requiring restrictions on disclosure, prohibiting misappropriation or misuse of trade secrets, and preventing disclosure of sensitive information to future employers; Have applicants sign a statement confirming that they will not bring to their new job any confidential or propriety information or trade secret from their former employer, and that they will not reveal such information either during the recruitment process or after being hired; Conduct exit interviews with departing employees reminding them of their post employment confidentiality obligations. 2. Copyright Considerations Place a copyright notice (© plus year of publication or creation plus name of copyright owner) on all the documents, computer programs (both high level software and low level operational codes) and Web pages produced by the company; and Consider filling such computer programs at the U.S. Copyright Office for registrations

D. Considerations for Developing IP Portfolios: 

D. Considerations for Developing IP Portfolios 3. Ownership Considerations Assignment agreements to assign all (current or future) IP rights to the company, including, for example, copyright in the software written by vendors or independent contractors; When conducting joint research with other enterprises, universities, or governments, make sure that there is sufficient clarity on who will own potential IP generated from the research project 4. Trademark Considerations Select trademarks that are inherently distinctive, i.e., fanciful, arbitrary, or suggestive; Check trademark databases for clearance (for example, at U.S. Patent & Trademark Office "USPTO" at www.uspto.gov); Search selected trademarks, via known search engines on the Internet, such as Google or Yahoo, for common law problems; and Consider filing selected trademarks at the USPTO for registrations

D. Considerations for Developing IP Portfolios: 

D. Considerations for Developing IP Portfolios 5. Patent Considerations Patent Portfolio to protect core technologies, core products and business practices. Such a patent portfolio can cover a single technology (common for small companies), or wide variety of unrelated technologies (common for large companies). For example: NTP Inc., has a patent portfolio of 7 patents and 3 pending continuation applications all of which relate to wireless email technology, and all of which share the same original specification, but contain different sets of claims directed to different aspects of the wireless email technology. Nevertheless, NTP’s patent portfolio was recently valued over $1 billion, including the $612 million settlement reached with RIM in February 2006 In contrast, GE, which is made up of 6 businesses, each of which includes a number of separate units, has approximately 30,000 U.S. patents and tens of thousands of foreign patents covering every products and technologies conceivable, from jet engines to power generation, financial services to plastics, and medical imaging to news and information.

Primary Reasons for Developing a Patent Portfolio: 

Primary Reasons for Developing a Patent Portfolio Protecting core technologies, core products and business practices, while preventing competitors from copying those core technologies, core products and business practices Pricing flexibility with new products Securing the basis for continued development and manufacturing Creating barriers to entry Generating revenue through licensing or litigation Creating bargaining chips for cross-licenses, counter-suits or other business transactions

Ancillary Benefits: 

Ancillary Benefits Securing proof of ownership to the patented technology Securing a “constructive reduction to practice” of the technology, which may entitle priority over other inventors of the same technology; Providing the basis for priority rights in foreign patent applications; Providing better opportunities to form strategic alliances to access needed technologies or markets Facilitating R&D cooperation with others Providing better bargaining position in standard-setting Providing motivation for employees to invent Providing a measure of R&D productivity Identifying technology conditions and trends in the market Creating a favorable corporate image Attracting investment capital Used as collateral in debt financing

Strategic reasons for developing a patent portfolio can be categorized as defensive, offensive, or both. : 

Strategic reasons for developing a patent portfolio can be categorized as defensive, offensive, or both. Defensive strategies - Small companies (business strategies and objectives) (1) protecting only core technologies embodied in core products that deliver the greatest performance advantage over rival products in the market (2) defensive publications regarding various improvement features or incremental innovations to prevent competitors from gaining improvement patents that could block the company from effectively using the core technologies (3) mapping patent landscape to determine a likely zone of freedom within which the core technologies may operate (4) creating bargaining chips for cross-licenses as a way to create freedom to operate or further technological and business cooperation

Defensive strategies - Large companies (business strategies and objectives): 

Defensive strategies - Large companies (business strategies and objectives) Creating, primarily, bargaining chips for cross-licenses as a way to create freedom to operate or further technological and business cooperation. In mature industries (e.g., PCs, telecommunications and semiconductors), an effective patent portfolio can deter litigation and encourage cross-licensing due to the threat of a counter-suit. In addition, such a portfolio can also help: - to avoid being excluded in a particular field of use, or “held up” by other parties; - to obtain more favorable terms in cross-licensing agreements - to safeguard against costly patent litigation, or - to gain access to external technologies on more favorable terms of trade

Offensive Strategies: 

Offensive Strategies Protecting core technology advantages: patent core technologies embodied in products that deliver the greatest performance over rival products in the market Reinforcing the product’s differentiating features: create a patent wall of patent protection covering the key differentiating features that reinforce and communicate the product’s brand positioning and key performance advantages Controlling the process choke points: patent key methods and processes- whether these are manufacturing, distribution, or even business methods-that are absolutely essential to the building, marketing, or selling of the product Adopting targeted licensing strategies for royalty income - the “revenue source” strategy to recover the cost of R&D; patent claims should be scrutinized for validity or unenforceability - the “exclusive market” strategy to allow use outside intended market, while protecting the company’s competitive edge in its chosen market or reserving product fields for new product lines Monitoring the marketplace to identify infringing products and services

E. IP Management Program: 

E. IP Management Program IP Goals Protection of a company’s products, services, and income Driven by a company’s desire to protect its share of the market Focuses on a company’s current and near-term products, services and customers Review business lines to find opportunities for patent monopolies Generating cash by assigning (selling) or licensing (renting) patent rights to others Company may decide it does not want to develop a certain technology, but realizes it can make money by licensing patent rights on that technology to another company Obtaining legitimate monopoly for future exploitation Put new technology “on hold” until a decision is made about how it can best be used Protecting R&D investments Spending $10-$20,000 on obtaining a patent, to protect a $1 million R&D expenditure is good insurance Creating bargaining chips Developing a large patent portfolio can be used as “chips” to negotiate cross-licenses with potential competitors that may, in the future, claim that the company is infringing on the competitor’s patents

E. IP Management Program (Cont.): 

E. IP Management Program (Cont.) Prudence Steps (patents and other types of IP) Obtain Disclosure of Inventions Encourage employees/consultants to disclose their ideas for inventions in return for cash incentives One-time payment or a regularly paid percentage of the income resulting from an invention Patent counsel should meet with technical staff to discover innovations that may yield patents of value in the marketplace Focus on new product/service just before its market introduction For companies with intense product development schedule, regular monthly meetings can yield good results in identifying important patent opportunities Review the Disclosed Ideas Review board typically includes manufacturing, R&D, marketing, and finance personnel to review options Decide to patent an invention immediately, keep as a trade secret and develop further, or disclose to the public domain without patenting (preempts patenting by others)

E. IP Management Program (Cont.): 

E. IP Management Program (Cont.) Prudence (patents and other types of IP) Establish a Confidentiality Program Staff must be trained in confidentiality procedures Prevents normal business practices (advertising, press releases) from allowing ownership of new inventions to lapse into the public domain by default, before exclusive ownership can be acquired by registering patents and copyrights Avoids title conflicts with employees/consultants, who may exercise exclusive rights in competition with the company Signed confidentiality and non-competition agreements with all employees (post employment included) Written confidentiality policy document signed by all employees, indicating agreement Review publications/speeches by company personnel before such presentations to public Date laboratory research notes by technical staff Label trade secret documents as “confidential”; use paper shredders, locks and other security means to protect secrecy; computer/fax passwords, copy-protects, and phone-line scramblers for modem and fax lines Exit interviews reminding employees of post-employment confidentiality obligations

E. IP Management Program (Cont.): 

E. IP Management Program (Cont.) Establish Licensing Program Optimal when regarded as independent profit center whose staff is compensated with a percentage of the income they obtain through licensing of patents, rather than when the program is administered by a staff on salaries Productive to combine with authority to close a transaction, or at least an environment in which a practical decision can be approved Establish an Enforcement Function Ensures no infringements of company’s patents Usually requires constant policing/monitoring of the market; includes invalidly issued patents owned by others Foreign patent applications should also be monitored, and, when necessary, companies can initiate opposition proceedings in foreign patent offices Should include a method of negotiation allowing company to suppress infringement without having to engage in litigation; tougher cases may require companies to litigate against infringers domestically and abroad Avoid Infringement Before spending substantial money to develop/market new products/services, make sure ideas do not infringe patents of other companies Current law encourages seeking written opinion by outside counsel regarding non-infringement Could save company from paying treble damages for infringement

E. IP Management Program (Cont.): 

E. IP Management Program (Cont.) Monitor Patent Activities of Others Domestically and abroad Excellent way to obtain information about operations of competitors and keep up-to-date on technologies of interest to one’s own company Difficult for software developments Ensure Company Retains Title to New Developments Contracts should be signed by employees/consultants making it clear that all rights to development are property/assignments of company Similar agreements must be obtained from third-party business associates, including joint-venture partners and suppliers Determine in Which Foreign Jurisdictions Counterpart Patent Applications Will Be Filed U.S. patent application yields only U.S. patent, giving rights only within jurisdiction of the U.S. If company is interested in marketing product internationally, it should decide in which foreign countries counterpart applications should be filed