Last month, I co-authored an article on IPWatchdog.comabout the legal, technical and academic communities’ over-a-decade long debate about the boundaries, legality and wisdom of software patents. Now, on June 19, 2014, the U.S. Supreme Court has issued a decision in its review of the U.S. Court of Appeals for the Federal Circuit’s en banc May 10, 2013, decision in CLS Bank v. Alice. Unfortunately, the clarity that many had hope for has not come to fruition!
What we do know for sure — for at least a 150 years now — is that U.S. Patent Law recognizes four broad categories of inventions eligible for patent protection: processes; machines; article of manufacture; and compositions of matter. 35 U.S.C. Section 101. We also know for sure, despite the oft-quoted recognition that the patent laws were made to cover “anything under the sun that is made by man,” Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (quoting S. Rep. No. 1979, 82d Cong. 2d. Sess., 5 (1952)), the U.S. Supreme Court has long recognized that there are three exceptions to these four broad patent-eligibility categories: laws of nature; physical phenomena; and abstract ideas. Id. This is where the certainty ends.
The Supreme Court’s Alice decision has again left the IP bar without a clear, repeatable test to determine when exactly a software (or computer-implemented) claim is patentable versus being simply an abstract idea “free to all men and reserved exclusively to none,” Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948). This is perhaps not surprising as Alice is a case more about so-called “business method” patents than software patents! (In fact, three justices in a succinct, 116-word concurring opinion indicated that they would impose a per se ban on patenting business methods!) With respect to software patents, however, we still find ourselves with a myriad of USPTO Section 101 guidelines, flowcharts and presentation slides – the latest of which is a March 4, 2014, 19-pager which may very well get fatter after Alice!
For more than a decade, the legal, technical and academic communities have debated the boundaries, legality and wisdom surrounding the issue of software patentability. The debate, to say the least, has been spirited with many organized movements, websites, articles, blogs and law review articles, as well as a lot of lobbying dollars, devoted to both sides of the debate. Yet, as the U.S. Supreme Court currently reviews the U.S. Court of Appeals for the Federal Circuit’s en banc May 10, 2013, decision in CLS Bank v. Alice, we take the opportunity here to dispel some myths, state some of facts and offer a test with respect to software patentability.
This is not your Parent’s Software Industry
There are those who argue against the patentability of software as a whole – never mind finding a test as to what software (or computer-implemented) claims should be patentable. We disagree. Why? Well, the notion that software should not be patentable necessarily indicates that the software industry itself is not capable of innovation worthy of patent protection! Yet, in a country where patent rights are guaranteed by the Constitution, should not all fields of innovation be treated equally under the law? Should we not avoid becoming a country where one field of endeavor (e.g., pharmaceuticals or electronics) is deemed more “patent worthy” than other fields (i.e., computer science and information technology)!? To answer these questions in the negative seems silly to us.
Entering into a corporate transaction without a careful review of the intellectual property (IP) involved can have negative consequences on an enterprise’s future IP strategy. This is especially true when IP owners do not adequately supervise the corporate attorneys who are preparing the “customary” documents for a merger, acquisition, joint venture formation, equity investment, bridge loan or any other type of corporate transaction. Such adequate supervision involves a careful review of the “deal docs” for IP issues. Why? Because the corporate attorneys may often not appreciate or be aware of the unintended consequences of the language typically employed in such corporate transactional agreements, an IP-focused review is prudent to avoid such unintended consequences.
Invariably, a part of drafting (and negotiating) the deal docs involves preparing one or more IP-related schedules. That is, the specific patents, trademarks, copyrights, trade secrets, know-how and/or software involved in a transaction will be listed in one or more schedules. These schedules are then referred to in the transaction (i.e., “main”) agreement as the IP being licensed, acquired, divested, pledged, contributed or exempted – depending, of course, on the particular transaction.
As the year quickly comes to a close, I recently engaged in some file cleanup. During this cleanup, it struck me that the most common type of agreement – by far – I worked on for my clients in the past year was the Non-DisclosureAgreement (NDA). While NDAs are no doubt considered “routine” or “standard” by practitioners and business clients alike, I suggest that each time you engage in the drafting and negotiating of one in the New Year, you actually question the forms you normally use by considering the following:
1.Parties. Who is the contracting party? That is, does the Non-Disclosure Agreement (“NDA” or Confidentiality Agreement) specify a parent, affiliate or subsidiary company? Does the NDA allow the party receiving your client’s confidential information to share it with a parent, affiliate or subsidiary?
2.Personnel. Does the NDA need to specifically list the employees and other personnel of the receiving party who can rightfully access the confidential information?
3.Direction. Does the NDA contemplate a mutual (i.e., “two-way”) exchange of confidential information or just a “one-way” exchange?
As the late Judge Rich famously wrote in 1990, “the name of the game is the claim.” Extent of Protection and Interpretation of Claims—American Perspectives, 21 Int’l Rev. Indus. Prop. & Copyright L. 497, 499. That is, a beautifully-written Detailed Description section of a patent’s specification is pointless if the patent’s claims are drafted in a manner that renders their infringement remote or even near impossible! Okay, so why is this important? Well, let’s start with one of the Patent Bar’s best-kept secrets: not all of us, despite having earned our USPTO registration numbers, are truly gifted at drafting claims! With that said, we have taken a keen interest in studying the specific issue of how practitioners employ the conjunctions “and” and “or” in patent claims.
For those of us of a certain age, we can probably remember the School House Rock series of musically-animated, educational short films produced by the American Broadcasting Company from 1973 to 1985. One of the more well-known titles of the series, “Conjunction Junction: What’s Your Function,” sought to teach grade school children how to use conjunctions to connect words, phrases and clauses. (For older readers seeking some nostalgia, or younger readers wondering what we are talking about, the three-and-a-half minute film can be found here.) Fast forward a decade or two, now that we are registered patent attorneys, is a refresher course in order? More specifically, when writing patent claims, have we mastered when to use the conjunctions “and” and “or”? Have we even recognized the difference in the two?
Recently, it has struck me that many business folks who “negotiate tons of IP license agreements,” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements. Well, that is not too surprising. What is very surprising, however, is that many of their lawyers also fail to appreciate the differences as well! Many think the terms are synonymous and thus use them interchangeably. They are not. So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”
A covenant is a promise by a party by which it pledges that something is either done, will be done or shall not be done.
Example 1: “Licensee shall pay Licensor a flat royalty based on 2.5% of Gross Revenues received from the sale of Licensed Products.”
Example 2: “Company A hereby covenants not to sue Company B under any patent listed in Exhibit A for infringement based upon any act by Company B of manufacture, use, sale, offer for sale or import that occurs after the Effective Date.”
In a recent article, I presented a taxonomy consisting of nineteen IP business models in the United States intellectual property marketplace. Although, admittedly, the taxonomy presented was not perfect, it adequately described what I observed as the continuing rise of intermediary business models in the marketplace. In that taxonomy, I included “IP middlemen” such as: Licensing Agents, IP Brokers, IP-Based M&A Advisors, IP Auction Houses, On-Line IP/Technology Exchanges, and University Technology Transfer Intermediaries. Individual inventors and corporate IP owners are used to dealing with accountants, lawyers and investment advisors – all professionals who are governed by state and/or federal professional regulations, and/or national association guidelines. Well, the question I pose is: What professional regulations govern the qualifications and conduct of all these IP middlemen?
The short answer to the above question is “none!” After all, there is no IP brokerage or IP middlemen governing body. Further, we should all realize that IP rights are not “securities” subject to state and federal (e.g., SEC) regulations. Lastly, we all know that all states’ bar associations regulate attorney conduct regardless of whether the attorney is “practicing law.” An informal survey I conducted, however, suggests the percentage of IP middlemen who are attorneys is less than 20%, with the remainder having business, financial and engineering backgrounds. Has the USPTO stepped in? No. That is, individual inventors and corporate IP owners should not feel at ease because the invention promotion industry has been the focus of a USPTO anti-scam public awareness campaign. This campaign, is simply not aimed at the numerous IP middlemen identified in my taxonomy.
A few months ago, I posted a three-part series entitled The Real McCoy: Should Intellectual Property Rights be the New Civil Rights in America? In that article, I explained that, in the last thirty years or so, there has been a shift from a labor economy to a knowledge economy. Consequently, intangible assets (with intellectual property rights (IPR) being chief among them) have emerged as the most powerful asset class, overtaking more traditional capital assets such as real estate, plant and equipment. I then went on to define and point out that there is an “Innovation Gap” – disparities between classes of people, caused by societal hindrances, which prevent them from securing the IP rights necessary to economically exploit the fruits of their creativity. I then argued that given the existence of an innovation gap, and the fact that we are in an information age with another industrial revolution on the way, IPR should be the focus of a renewed civil rights movement. After all, the world’s natural resources may be shrinking, but the opportunities for there to be new candidates for IPR ownership are ever expanding!
I ended my three-part article by recommending that members of the IP Bar should strive to volunteer more pro bono hours in order to help bridge the innovation gap. Encouragingly, I received some emails from IPWatchdog.com readers asking, “how can I help?” Well, after some research, here is a list of some organizations around the country seeking patent, trademark and copyright pro bono attorney volunteers.