Intellectual Property ManagementContact: Mike Volker, Tel:(604)644-1926 firstname.lastname@example.org
Website for this document: http://www.sfu.ca/~mvolker/biz/ipm.htm
"Intellectual Property is that asset that can be found between your ears!"
Warning! The subject of intellectual property, the protection and management thereof is an evolving discipline as is the legal and regulatory environment in which we operate. At the end of this overview, there are some excellent links to more in-depth treatments, including extensive questions and answers. These are updated frequently.
I recall, back in the mid-seventies, when the sport of windsurfing was starting to surface. I just knew that this would be a craze and could reward those who got in early. The windsurfer was invented by Hoyle Schweitzer, a Californian, who liked both sailing and surfing and wanted to both - at the same time! He created a company, Windsurfing International Inc., to produce and sell windsurfers. I called him to ask him if I could obtain Canadian rights to sell, and possibly manufacture the product. Surprisingly, he didn't seem all that keen. His response was that he was a "laid-back sort of guy", not a businessman, and that he would ultimately profit from his invention by licensing other companies, once the sport caught on. Sure enough, companies like Mistral, BIC, F2, and others started production by licensing Schweitzer's intellectual property. Eventually, Windsurfing International Inc went out of business, but surely Schweitzer fared well. Like Lemelson, he gained protection, and profited from, his intellectual and creative endeavors. Not every mousetrap doth a business make!
There has been a recent surge in U.S. patent applications, possibly indicating future economic growth. A Harvard economist, Josh Lerner, reported recently that U.S. inventors in the 1985-1995 decade increased patent applications to 120,000 per year, an increase from 40,000 to 80,000 a year since 1900.
Intellectual Property Management is all about maximizing profitability. For the high tech venture, intellectual property is the lifeblood of the enterprise. Managers should develop a corporate culture which understands the importance of this. Engineering managers should be looking at licensing out that IP which is not commercially critical to the enterprise, thereby generating additional profits for the company from "old" technology. And, they should also be looking at licensing in technology which might tie in to their own. Furthermore, technical managers are well served if they make it a practice to review disclosures (patents and others) frequently in order to augment their knowledge base. A very popular source of very useful information is IBM's monthly Technical Disclosure Bulletin.
The internet's world wide web (WWW), which has evolved immensely since only 1995, has literally opened the doors to information. Intellectual property information is now easy to research. Patent searches, for example, used to be a fairly onerous exercise. Now, with the popularity of the WWW, it is possible to look up patents and trademarks with ease. It is even possible to, for example, complete USA trademark registration forms on-line! Recently, while consuming a Capuccino, I noticed a patent number on the thermal cup insulator. I went to IBM's patent website, then entered the patent number, and presto! - I could view the patent complete with its drawings and descriptions. The Canadian and USA Patent Offices also offer good tutorials on IP protection. The numerous websites are also a valuable resource for competitive intelligence.
In a scenario such as this we may or may not be successful in defending our patent. The cost of getting a patent in the first place pales in comparison to the cost of defending it! In many cases a patent violation may not be flagrant or obvious. In fact, maybe the violator had a similar idea to ours and is innocently implementing it without even knowing about our patent.
Intellectual property protection is a very complex subject. The technology manager must become familiar with both the legal and non-legal aspects of IP management and protection and, more importantly, must know when to call on expert, professional advice. Engineers often see the legal protection issues as a nuisance or deterrent from getting their jobs done. And they are correct. Whether you are the defendent or the plaintiff in an IP legal action, you will find yourself more often than not, spending a lot more time and money than what the IP itself is worth.
There may exist an inherent form of "economic protection" in that it may be very costly and risky for a competitor to "copy" an innovation, i.e. the risk/reward profile may very well give one a certain degree of protection.
For certain types of technologies, there may be a lead time advantage which will be a disincentive for others to copy or imitate in some way. It may be possible to establish market dominance because it will simply take too long for other entries to produce alternatives.
With respect to legal protection, i.e. the use of patents, copyrights, trademarks, etc., one must always bear two very important points in mind: 1)where (e.g. in which countries) is the protection valid? and 2)how enforceable is the protection (e.g. you may have a patent but cannot afford to defend it). Since lawyers are involved, rest assured that legal protection is a costly and complex matter!
Since the legal rules are constantly changing and evolving and since the laws differ from country to country, even though there are many similarities between Canada and the USA for example, this article will avoid being overly specific from a legal perspective.
In any event, when you do take measures to protect your IP, especially with strong patents, you actually add considerable value to that IP because you effectively have a commercial monopoly on that know-how.
It may not actually be necessary to know how much an IP item is worth. It may only be important when raising capital to commercialize the innovation or when licensing in or licensing out the IP. From a financial reporting perspective, companies generally do not place a market value on their IP. In fact, conservative accountants (they must do so in the USA), will write off research and development expenditures showing negligible value even though said IP may have significant value by virtue of its commercial viability.
A special area of expertise within the accounting profession deals with valuation questions. Often, companies will engage such professionals to provide independent third party opinions on value. This may even be dictated by regulatory bodies such as stock exchanges when companies seek to raise funds from public investors.
It is interesting to note that typical off-the-shelf applications software (e.g. spreadsheets) are licensed to users on a single fee (royalty) basis. The amount of the "royalty" paid is simply based on market conditions, i.e. competitive products.
There are a number if subtle and not so subtle differences between the patent laws of the USA and Canada. Certain inventions may be patentable in the USA but not in Canada. An illustration of this is US Patent #5,080,111 covering a surgical method which is not patentable in Canada. In some countries patentability is determined on a "first-to-invent" basis and in other counrties it may be determined on a "first-to-file" basis.
A few patenting tips to keep in mind, though, are: keep good records (the proverbial black notebook) to help in resolving possible conflicts, provide as much information as possible in the disclosure, work closely with your patent attorney (remember - claims make the patent!), file well before any public disclosure, and don't underestimate the time commitment that it will take.
The intent here is not to cover the details of patenting. There are scores of useful articles and books on this subject. For example, the Association of University Technology Managers (see web link below) publishes a good introductory booklet titled: "An Inventor's Guide to Patents and Patenting". The patent offices and others also provide useful background information (see links at end).
Provisional patents deserve some special mention because there are some mixed views on their usefulness. Although many lawyers aren't overly fond of them, they do offer some advantages to the technical person - especially a time and money advantage insofar as they allow you to file quickly in order to establish a first-to-file date and then allow up to a year to file a formal patent. This may be enough time to assess the value of the IP.
Like a patent application, the provisional application must be complete enough to enable one skilled in the art to practice the invention, and the application must disclose the best mode known to the applicant for practicing the invention. These requirements may cause problems for those who file sketchy provisional applications.
Another drawback of the provisional filing is that it postpones, by a year, any hint or clue from a patent examiner as to whether or not the invention is likely to be patentable. No search report or office action will come during the pendency of the provisional application; they will only be received after the filing of the patent application. For the applicant who is considering whether or not to file patent applications in countries outside of the U.S., the use of a provisional application means that no clues to patentability will be received from the PTO that might assist in deciding whether or not to spend the money on foreign filing. The applicant who files a full patent application may, in contrast, receive an Office Action before the year is up for making foreign-filing decisions, and the content of the Office Action may be helpful in deciding what to do about foreign filing.
Most importantly, a provisional application establishes a filing date which serves as the priority date for a patent application filed within one year.
Regarding filing, the Provisional Application requires a specification satisfying 35 U.S.C. § 112, except that it need not contain claims. (NB: It might develop, however, that the claims (of a full patent filed later) are not supported by the specification of the Provisional Application. To avoid such an unhappy result one might choose to draft the patent claims at the time the Provisional Application is being written, so that one may be sure to include in it whatever is needed to support the claims.) A drawing must be provided if needed to explain the invention. The Provisional Application must also identify the inventors who contributed to the subject matter disclosed in the application. A filing fee ($150 or $75) is required. A cover sheet is also required. The applicant is not required to use an official Patent Office cover sheet, but may employ any cover sheet containing the required information, namely the specific identification of the application as a Provisional Application; the name or names of the inventor or inventors, the residence of each inventor, the title of the invention, the name and registration number of the attorney or agent if any, the docket number (if any) used by the applicant, the correspondence address, and the name of the U.S. Government agency and government contract number (if the invention was made by an agency of the U.S. government or under a contract with an agency of the U.S. Government. Suitable Provisional Application cover sheets are available free of charge from the U.S. Patent Office, Washington, DC 20231.
All patent applications received at the US Patent Office are kept secret by the Patent Office. The most commonly occurring exception to this rule is that when a patent issues, the application file becomes public. (Note that the entire application file becomes public, not just the issued patent itself.) Another exception is that if a patent application is referred to by number in an issued patent, the application file becomes public. There are other less frequently occurring exceptions. (This is the case for both provisional applications and regular applications under 37 CFR § 111(a).)
The public searching resources contain no information about pending provisional applications.
Companies must be diligent in ensuring that all employees maintain secrecy and confidentiality. It may not be sufficient to have them sign employment and non-disclosure agreements. In the case of a product like Coca-Cola, for instance, it is unlikely that many employees would, in fact, know the famous formula.
Software programs are automatically protected by copyright. It is illegal for people to make copies of computer programs unless specifically allowed to do so by the software's creators. The period of protection for copyrighted works is longer than it is for patents. The protection period is 50 years for published works.
Information, e.g. data, cannot be protected by copyright. Information like a temperature, or stock price are in the public domain and can be freely used or quoted by others. Yet, the presentation or organization of that data is covered under copyright. Examples of copyrightable works are anything written, software programs, music, choreography, sculpture, paintings, recordings, etc. Here's a test for you: If you like a work of art, such as a Rembrandt painting, and you paint it by hand, i.e. copy it manually, are you violating copyright? If you hear a story and repeat it, are you violating copyright?
Copyright may be owned by the creator, e.g. author, of the intellectual work, an employer under whose employ the work was created. Contractors may own copyright unless specific assignment agreements are in place. Assignment of rights from the creator to another owner must be made in writing.
New technologies and new media such as the internet are creating interesting challenges with copyright laws. For example, can you freely print information which you view on a computer screen. If you "frame" someone else's web page within your own web page, are you infringing? If you download Java applets (which the operating system does without you knowing it), are you copying software? What about copies of photos or art appearing as GIF files on web pages? Indeed, there are more questions than answers!
Corporate names, like Acme Software Corp, are not the same as Trademarks. It may be possible to incorporate a company in a Province or State with a name that is in conflict with a trade name. The fact that a Provincial corporate registry might allow a certain corporate name does not in any way imply that it is acceptable to use that same name in promoting one's products. On the other hand, if one wishes to use one's corporate name as a brand name or trademark for a product, it would make good sense to also apply for a trademark. So, what's a trade name? A trade name may be the name of the incorporated legal entity or it may simply be the name a business - often not registered in any way. You may, as an individual, operate a personal proprietorship and call it Mike's Software Factory, for example, and do business under that name (all your legal liabilities, taxes, etc. are covered by you personally since you're not incorporated). You need not register that name. However, if you want to heavily promote products under the trade name, you would be advised to get that trade name trademarked. This will avoid someone else using your name. More importantly, it will ensure that no one else is already using a similar name who might then block you - just after you're starting to become recognized. If you fail to protect a trade name and then later someone copies your name, you might still be able to block their efforts if you can prove prior use. Often, but not necessarily, the letters "TM" may appear on trade marked items. Trademark registrations last 15 years (in Canada), but are renewable. In Canada and the USA, trademarks are registered by the patent offices. Registrations cost, on average, $1500 to complete and it takes approximately one year to obtain clear title. Costs are higher in the USA.
You may be surprised to learn that similar names are permitted if they do not appear in conflict. The names "VISA" or "VISTA" or seen in different contexts. In one case VISTA may refer to a travel service and in another case in might refer to a deodorant. However, the best trade marks are the "made-up" ones which are quite unique and don't draw on a regular word dictionary. Names like Exxon, Xillix, Kleenex, and Viagra come to mind and stay in mind. Generic sounding names like "computhis" or "computhat" are easily confused with "comp-something-or other". Place names like Vancouver Systems may be difficult to register because of implications to place of origin and may not sound overly unique in any event. Proper names like Smith or Jones might be disallowed because people with those names obviously cannot be prevented from using their own names. From an IP value point of view, a well conceived trademark may be worth millions, especially when a business is sold.
It is relatively easy to search the internet for registered trademarks (see web sites at end). The USPTO Web trademark database is a free search service. However, the database is only updated every two months and suffers from being "dumb", ie it has no artificial intelligence capability.
Trademarks can become very valuable corporate IP assets. Extensive promotional campaigns can add substantial value to a trademark if it becomes a "household" name. For non high tech companies, IP assets such as trademarks are as, if not more, valuable then patents and product inventions.
An interesting recent (1998) case involves retired movie actress Hedy Lamarr. She sued Corel Corp of Ottawa for using her image on the cover of its CorelDraw 8 program (the image was a likeness which was created by the winner of a Corel design contest). Corel made a settlement with her to use the likeness. Lamarr, interestingly, is no dumb gal. In 1941 she was awarded a patent for a form of "spread spectrum" wireless communications.
With respect to the development of IP through in-house research as well as through collaborations with Research and Development (R&D) organizations, Revenue Canada offers one of the world's best programs to fund research through its Scientific Research and Experimental Development (SR&ED) program. More then $1Bn in annual R&D funding is provided through this program. Companies can recover between 20% and 35% of their R&D expenses through this program. One "rule" of the SR&ED program is that the entity claiming the credit must have the right to commercially exploit the results of the R&D work. In other words, if a company is contracting another party, such as a university, to perform research, it may claim the credit if it has the commercial rights to the IP. When buying or selling (or licensing) IP, the contractual terms should be established so as to ensure that the SR&ED program is used to advantage. In some provinces, additional IP incentives are available and should be investigated. For example, it may be more economical to develop IP in Ontario and Quebec than in B.C.
A favorite cocktail party conversation topic is that of off-shore tax havens. This also applies to the holding of IP assets as well as to the holding of shares in companies which own IP assets. If a technology company is incorporated in an off-shore jurisdiction, such as the Bahamas or Hong Kong, it may be subject to much lower corporate taxes (as compared to Canadian corporate taxes of approximately 45%). Its owners may still be Canadians. It may also set up subsidiaries in Canada and the USA for sales and support, but the profits can be accrued off-shore. Often, companies and individuals do not give much thought to such opportunities until after value and profits arise. Then, it is too late. Some people may be skittish about setting up such structures, but it is worthwhile exploring the options and then making a decision based on one's risk/reward assessment. Again, good professional advisors can provide guidance with respect to such matters.
On a more practical level regarding day to day business dealings between
companies in different countries - the most common being Canadian - USA
dealings, managers must familiarize themselves with international taxation
issues. If a Canadian company licenses its technology to a U.S. or European
firm, will that firm's country require that withholding taxes be deducted
from royalty payments or license fees? Is royalty income treated as regular
income or some form of capital income? How much flexibility is there is
putting a deal together in such a way as to reduce taxes for all parties?
Ask your advisor! (By the way, get some references from your advisor and
talk to these references.)
Computer-related patents account for most of the new patents issued since the U.S. allowed the patenting of computer software in the early 1990's. A total of 147,520 patents were issued in 1998 of which more than 67,000 were to foreign entities. Japan, Germany, France, and Britain were the other countries ahead of Canada. For the past two years, IBM holds the record for receiving the largest number of patents.
One of the best ways to plug into the technology transfer and licensing network in the USA and Canada is the Techno-L list server. You can contact the List Server Administrator at: Owner-Techno-L@erg.sri.com - or sign up from the Techno-L web site.
CIPO also offers free booklets and guides on the various forms of IP Protection. These are available free of charge by calling (819) 953-5054 in Ottawa.
Oyen Wiggs Green & Mutala,
Tel: 669-3432, Contact: Gavin Manning,
Catalyst Corporate Finance Lawyers, Michael J. Roman, Web: http://www.catalyst-law.com
Bull Housser & Tupper, Tel: 641-4826, Contact: Herb Regehr, Brian Wood, Jane Baggott
Smart & Biggar, Fethersonhaugh & Co, Tel: 682-7295, Contact John Knox or Mark Fraser
McCarthy Tetrault, Tel: 643-7934, Contact: Karen Gilmore, Beth MacDonald, Karen Corraini
Lang Michener Lawrence & Shaw, Tel: 689-9111, Peter Botz, Leo Raffin
Ladner Downs, Tel: 687-5744, Contact: George Reilly
Richards Buell Sutton, Tel: 661-9211
David Wedge, Barrister & Solicitor, Tel: 290-9220
Deloitte & Touche, Tel:
640-3189, Contact: Paul Fletcher
PriceWaterhouseCoopers, Tel: 682-4711, Contact: Russ Jones
A great textbook on the subject of Intellectual Property is one titled, "Technology Transfers and Licensing" by John T. Ramsay, a Calgarian and active practitioner with a business and legal background. This book is published by Butterworths in Toronto and Vancouver.
A good American book on the subject is titled, "The Technology Transfer System", by Albert E. Muir, manager of technology transfer for The Research Foundation of the State University of New York. This book covers a lot of the basics and even includes some sample agreements.
These and other business texts may be found (and ordered) from Mike's Reference Texts.
AUTM also lists some useful handbooks on its website.