Fireballs From Cyberspace – Staying Out of Trouble in Software Development and Technology Contracts

August 14th, 2009 at 12:42pm Under intellectual property

Staying out of Trouble

Whether as a buyer or seller of software services, if you have been in the software development industry for any stretch of time you will be well aware that contracts can go wrong for both commercial and legal reasons. Today’s technology services cast a wide net. They not only incorporate software license agreements but also embrace security systems, supply chain management, billing, customer relationship management, communications software and a host of others. Basic principles of contract law apply to all contracts. When products and services vary, so should the contract to deal with them properly. There are a number of areas that should be taken into consideration in each and every contract to avoid problems arising and make the most of the relationship – for both the supplier and customer. But too often these issues are not dealt with adequately or worse, ignored, which leads to uncertainty, disputes and potentially the ultimate failure of an otherwise profitable relationship. Some of the most important, yet often neglected areas come under the following headings.

Defining the Services

Behind price, the most important part of a technology contract will be the services to be performed. System specifications and performance capabilities should be stated clearly and precisely. Ambiguously worded requirements are an open invitation to ‘scope-creep’ and a permit for other uncertainties to be imported, so absolute clarity is needed in defining:

• What services are to be performed?

• When they are to be performed?

• By what means can it be unequivocally stated that the particular contract works should be and are complete?

• When does the supplier become entitled to payment?

Time frames for design, implementation, installation, integration, candidate testing and debugging cycles, beta (“bugs expected to appear”) testing, technical documentation, and user documentation should be catered for, preferably on a timeline. It makes sense to plan the implementation over time, rather than expect an instantaneous and flawless performance at go-live. And to add a context and background to the performance-to-contract, it will assist to name the operating environment, any existing or new hardware, network infrastructure and database management systems involved.

Updating the Services

In outsourcing and procurement contracts, updating technology and service performance on a periodic basis usually makes sense for the introduction of new technologies over the life of the contract. Benchmarking service performance provides an objective basis to assess industry standards over time and sets a reference point for improvements to services. Catering for service improvements helps preserve the relationship, as the customer receives increasing productivity and return on investment. Services provided under a contract otherwise typically deteriorate over time, leading to customer dissatisfaction. In most cases, the customer should be entitled to receive the benefit of improvements to technology over time. Flexibility should be built into the agreement to vary services where hidden costs arise. Tied in with this concept is the ability for the parties to change the services delivered over time, and setting out a change-control procedure in the contract assists for this purpose.

Poorly Drafted Contracts

The contract should be in plain English, readily understood by commercial people and mindful that verbosity and complexity are usually the enemies of clarity. Properly drawn contracts facilitate commercial negotiation and dramatically reduce legal costs. Standard contracts dealing with technology products and services should match the nature of the services to be performed. For instance, a software development contract is not suited for delivery of packaged software, and outsourcing agreements are not suited for delivery of special purpose database management systems because the nature of these transactions is completely different. Though it seems obvious that it does not serve the interests of either party to introduce ambiguity in the contract by using a document inappropriate for the purpose, it happens. Savvy in-house technical staff may be well placed to decide whether the document is suited to the nature of the product or service, if advisors are not competent to make a sound assessment.

If you cannot understand the language in the contract, you need to send your lawyer off for counselling.

Some of the danger with technology contracts arises due to the way contracts are interpreted. Once signed, the actual intentions of the parties in the agreement are largely discarded – the law imputes an objective intention to the parties with the result that the document will be interpreted in law differently from what the parties intended. The paramount need at all times is for clarity, clarity, clarity, in that order.

Intellectual Property

The fact that intellectual property rights are intangible does not prevent them from being dealt with like any other property and so, just as any other asset, they may be traded, sold, licensed, assigned or used as security. Copyrights, database rights and know-how created during the course of a technology contract should be dealt with explicitly to ensure that the party who should own the intellectual property does actually own it, rather than leaving the matter to chance. Getting it wrong may mean that using data requires payment of fees. And remember, consultants and freelancers are the first owner of intellectual property unless an exception applies.

In the case of software development, some provision for open source code should be incorporated, to either exclude its inclusion into the project altogether, or manage its inclusion after vetting the terms upon which the code is made available. A customer will probably want to include an indemnity that they will be protected if the deliverable infringes a third party’s intellectual property rights. And the supplier would be prudent to exclude their liability where the customer combines their deliverable with another product that infringes a third party’s rights.

Acceptance testing

In software development contracts, acceptance testing should cater for expected peak periods; and warranty periods should commence after acceptance. The customer may wish to obtain a warranty period for free rectification of defects.

Warranties and Indemnities

Warranties are essentially statements by a party as to a state of affairs at the time of the contract. Unless specifically excluded, statutory warranties will form a part of a B2B contract, however, the parties have the option of excluding all warranties other than those set out in the agreement. Although perhaps not an ideal approach, but as a minimum, warranties should be included to the effect that the deliverable is free from errors; is compatible with existing hardware and software infrastructure; and complies with the documentation produced.

Limitations and Exclusions of Liability

These clauses remove or set a cap on the liability of either party in the event of some failure to perform their obligations. Usually both parties will have a legitimate interest in limiting or excluding liability, and the key is to strike a balance between the interests of the supplier and the customer. Inappropriate inclusions or limitations of liability may extinguish a legitimate claim for losses sustained for a breach of contract or through negligence.

Managing People

Depending on the services to be provided and the degree of integration of staff from different companies, management of staff may be key to avoiding the supplier becoming a competitor and having their entry into the market being funded, in effect, by the contract fees. If the customer wants to avoid this kind of novel surprise, some attempt should be made to maintain exclusivity during and after the agreement has ended by catering for confidentiality of information and know-how, restrictions on competition in the same market and the post-contractual movement of employees, customers, consultants and suppliers. Courts are generally averse to anti-competitive provisions, so such provisions need to focus on legitimate commercial interests and go no further than necessary.

Exit Management

In the anticipation of entering into a contract, parties often overlook the back-end of the contract and how the parties will close their relationship. There is a good argument that, regardless of how the contract comes to an end, the service provider should assist the customer in a smooth change-over to a new provider. It may be sensible for the service provider to agree to provide its services after termination for a set period for time, either on a time and materials basis or against a payment regime set out in the agreement.

Information Security and Data Protection

Where personal data is moved between parties during the course of a contract, the obligations of either party need to be made clear with respect to the handling of the data and whose responsibility it will be to comply with the Data Protection Act. Providing services online heightens security risks, and a service provider should be in a position to warrant that adequate data protection mechanisms are in place.

Fault Logging and Managing Failure

An imperative in project management and managing liability is to maintain an audit trail. A failure to perform services or define losses sustained cannot be proven without evidence, and genuine claims fail without it. If software is involved, faults logs should describe the fault, its date and time, the program executing, version and release, other memory resident processes running at the time and the error messages generated. It may be in both parties’ interests for a contract to provide that audit logs for processes performed by the system be implemented and regularly archived. Regular backups of data are essential for commercial reasons and provide evidence of liability.

Service Levels

In outsourcing arrangements, where reliance is placed on a third party to perform, business continuity is key. Service levels set standards for response times, system availability and error rectification times. Failures by the provider to adhere to service levels usually result in service level compensation through some measure of credit to the customer for failing to meet these minimum contractual delivery standards. Such a mechanism may add management overhead to the contract, but the alternative of exchanging allegations of breach of contract is far less desirable.

Conclusion

I suspect you may have been surprised by some of the areas highlighted, but there are many others. Contracts are living documents that set out and regulate legal relationships and if well drawn up, will benefit both parties. One of the most neglected, yet the critical requirement towards assuring the success of any contract is the balancing of the parties’ responsibilities. A contract that works is likely to be mindful of the commercial interests of both parties; lopsided agreements, where one party bears the lion’s share of the risk and expense to make the service work should be steered well clear of as they have the greatest propensity to engender recrimination and mistrust. Getting the contract terms and structure correct at the start of the agreement should avoid subsequent business discontinuity – and have the added bonus that your solicitors can then have only have one bite at the cherry.

Starting a Franchise – 10 Important Steps to Remember

August 14th, 2009 at 06:41am Under intellectual property

Once you have mastered these tasks, you may reach the point where you would like to expand your current business. You can always hire additional employees, market more aggressively or expand your current product line. However, there is another very viable alternative you should definitely consider – franchising your business! I’m going to discuss some of the important elements of franchising to help you decide if this is the right route for you.

The decision to start a franchise should not be taken lightly, but it can prove to be very financially and emotionally rewarding. I’m going to discuss some of the steps you should consider to ensure your franchise succeeds.

Step 1: Understand What a Franchise Is

Before you begin, you need to understand the meaning of the word franchise. The term signifies a legal arrangement in which one party called the franchisor grants the rights to market products or services using the trademark of their business to an individual or group of people called the franchisee. The franchisee can then market the products or services using the methods specified by the franchiser. In return, the franchisee must pay the franchiser specified royalties and fees to use these rights. Rather than an actual business or industry, franchising is a method businesses use to market and distribute their products or services. Both parties share an interest in ensuring the company succeeds.

Step 2: Review the Benefits of Franchising

Another step before you actually decide to franchise your business is to list all the advantages. Consider that you will be able to expand much more quickly and less expensively by franchising. Another advantage is the fact that the more franchises that exist, the greater your purchasing power. If you are considering purchase a franchise, you can fulfil your dream of becoming self-employed and start running your business more quickly. As a franchisee, you will normally gain valuable ongoing support, training and advice from the franchiser. Raising finance to purchase a franchise is also much easier than raising the money to start your own business.

Step 3: Consider the Disadvantages of Franchising

Like any business venture, starting a franchise has its disadvantages. As a franchiser, you will lose a significant amount of control over your business. As a franchisee, you will lose creative freedom as you need to follow the requirements established by the franchise owner. You also have to pay a certain percentage of your profits to the franchiser.

Step 4: Requirements to Set Up a Franchise

You need to investigate the particular requirements to start a franchise in your country. The legal requirements vary greatly, depending on where you live. For example, the British Franchise Association requires that all franchisers possess at least one year of experience running a business before they can franchise. If you are a franchisee, you should consider a pilot operation that has an audited set of accounts. This makes it easier to evaluate if the business is going to be profitable.

Step 5: Intellectual Property Rights

At the beginning of the franchise agreement, the franchisee will obtain a package outlining all the intellectual property rights. It’s important to ensure that the franchiser’s rights are protected. The intellectual property may consist of a trademark, patent, registered design or copyright. The franchise agreement will specify exactly which licenses will be awarded to the franchisee and how they can be used.

Step 6: Operating Manuals

If you are planning to start a franchise, you need to obtain a detailed operating manual. This document will outline the essential information the franchiser has gathered while operating the pilot scheme. The manual will disclose any relevant information necessary to run the franchise successfully, including sales, reporting, equipment, marketing and accounting requirements. This document contains valuable information about the business. Hence, the franchise agreement will normally specify that the contents remain confidential and are never shared with any third parties.

Step 7: The Premises of the Franchise

You need to determine if the franchise you are planning to start is mobile or property-based. Some franchises may be run from your own home, whereas others are operated with customised vans. The location of the business may be crucial in the development of the franchise network. Hence, the franchiser may choose to retain control of the premises.

Step 8: Establishing a Franchise Agreement

If you are considering offering franchises, you have to prepare a franchise agreement. This document will permit the franchisee to run the business according to the specified legal obligation and intellectual property rights. The agreement must meet local law requirements, and it should protect the franchiser and present a workable document to the franchisee.

Step 9: Determining Franchise Fees

Before starting a franchise, you need to determine the fees involved. As a franchisee, you will be required to pay an initial fee to the franchiser for the privilege of joining the franchise network. Franchisees may also pay management fees, although they are sometimes included in the wholesale price of the product. Lastly, the franchiser usually receives ongoing royalty fees that represent a specified percentage of the profits.

Step 10: Understanding the Obligations of Both Parties

As a franchiser, you are obligated to provide support, training, a detailed operating manual and a franchise agreement to the franchisee. You also agree to promote the brand and to avoid competing by not granting other franchises in the same area.

As a franchisee, you must run the franchise business according to the guidelines established in the manual and the rights specified in the franchise agreement. You are responsible for keeping proper records, obtaining insurance, ensuring confidentiality, complying with intellectual property rights and maintaining the franchise premises.

Be Business Smart has been created to assist anyone who is setting up a new company and to offer valuable support and advice to individuals who wish to expand their current business.

Did you realise that approximately 80% of new businesses fail each year? You certainly don’t want to become one of those statistics. Fortunately, Be Business Smart can provide you with the help and support you need to ensure your business becomes a success!

Be Business Smart offers two levels of membership to suit your business budget. Here at Be Business Smart, we have a lot to offer any new business, but please don’t take our word for it. We encourage you to browse our website and see for yourself. http://www.bebusinesssmart.com

Yissum Takes Technology Transfer Services by Storm

August 14th, 2009 at 12:41am Under intellectual property

Founded in 1964 as a way to encourage the “inventiveness” of the Hebrew University of Jerusalem’s staff, Yissum Research and Development Company seeks to support and encourage research, development and education in their efforts to turn science into commercial products for society. Yissum is charged with the not insignificant task of protecting HU’s inventions, products and technologies. Serving as the Technology Transfer Services for the university, Yissum focuses on the ongoing assessment, protection and commercial optimization of the university’s intellectual property.
In their 40-plus year history, Yissum has perhaps surpassed expectations, with reported annual revenues in excess of $40 million, mostly from royalties, and properties ranging from long-shelf-life tomatoes to treatments for cancer and Alzheimer’s disease, placing the Hebrew University in the world’s top 15 academic institutions as measured by revenues from intellectual property sales.Protect, Partner, Perform
As the Technology Transfer University for HU, Yissum serves not only to protect the university’s intellectual properties, but also to partner with researchers and worldwide businesses to develop commercial markets, and through licensing, establishing companies, joint ventures and collaborative research, enhance the market value and performance of HU’s discoveries, increasing their availability to a global marketplace.
The arrangement has a track record of success. Hebrew University generates approximately $1 billion in annual sales from products in its IP base and Yissum represents over 250 licensed technologies and 60 spin-off companies. The numbers keep adding up with over 3,000 ongoing research projects, 1,200 researchers, 1,400 registered patents and 5 Nobel laureates, all representing 40% of Israel’s civilian scientific research. The range of intellectual properties includes a diverse mix of industrial and therapeutic areas, including biotechnology, nanotechnology, medical research and technologies, pharmaceuticals, agriculture and nutrition, water and environmental technologies, computer science and software development, homeland security and more.
The seemingly endless supply of promising research projects come from the university’s research base; supported by an annual budget of over $77 million, allowing Yissum to take advantage of Technology Transfer Opportunities by identifying appropriate commercial partners, negotiating license agreements, creating spin-off companies and working closely with local and global commercial partners.
Recent news items focus on the medical arena, with HU’s concept of using cellular technology to send X-rays and other medical diagnostics. The new technology would allow for the use of a smaller, less expensive and easier to use Data Acquisition Device (DAD) at remote patient sites, which would be connected via cell technology with advanced image reconstruction at a central site. The implications are far-reaching and could serve to bring advanced medical technology into areas that otherwise could not afford to have it at their disposal; bringing MRIs, X-Rays and other medical diagnostics into rural and third-world areas.Technologies Supported
Reading through Yissum’s list of products and companies is like reading a Who’s Who directory of the medical and technological worlds. The lists are full of recognized names, successful products and companies that make headlines on a regular basis.
Products from Yissum include Alzheimer and dementia treatment Exelon, dry-eye treatments Cationorm and LO2A (Lacrycon, Dropyal), ovarian cancer treatment Doxil (Caeylx), UV-protection product UV-Pearls-already adopted by major companies for sunscreens and cosmetics, and a variety of other pharmaceutical products. Oh, remember those long-shelf-life tomatoes? That would thanks to BonTom Vegetable Breeding and Research Group, from HU, of course. Another agricultural product from Yissum and Hazera Genetics is the Ram Onion. On the software side, there is Making Better Career Decisions, an interactive, Internet based career-guidance and information system.
Looking over a partial list of companies shows even more diversity, touching on pharmaceuticals, biotech, agriculture and irrigation, water treatment, software development, safety, nanotechnology, and medical technologies, research, development and devices.
Water treatment technologies like En Gibton Ltd and Treatec 21 Industries Ltd; agricultural endeavors Leafsen Irrigation Systems Ltd, Kovax Ltd-vaccines for the aqua culture world, Avian Tech Ltd, and Ravgalai Ltd-detection of antibiotic residues in milk, meat and food products are just the start of the list. Technology and software development come into play with Ex Libris Ltd-high-performance applications for libraries, Mobileeye Vision Technologies Ltd-with automated, on-board driver assist systems and MusicGenome Inc-a system of identifying musical taste based on artificial intelligence.
Perhaps the heaviest area of development is in the medical and pharmaceutical arenas with a long list of companies researching and developing treatments for cancer-including Algen Pharmaceuticals Inc-basically “tricking” cancer cells into “committing suicide.” Other treatment technologies focus on infectious and autoimmune diseases, rheumatoid arthritis and improving the efficacy of vaccines; even delving into the “nutraceutical” field with carriers for nutraceuticals to be incorporated in food systems and cosmetic formulations.Technology Transfer Services
Yissum serves the Hebrew University, protecting its intellectual properties and moving forward with innovations and technologies into commercial endeavors, ultimately, serving the world community as well as the university through applied chemistry, physics, life science and biotechnologies, water technologies, nanotechnologies, and even veterinary medicine and agricultural technologies. It’s easy to see why Yissum is so highly regarded in the scientific and academic communities and ranks among the top Technology Transfer Services in the world.

Patenting of Software- an Insight

August 13th, 2009 at 06:42pm Under intellectual property

An Overview Of Software Patenting

The concept of “intellectual property” in India over the last few years has taken on some epic proportions for a number of reasons. One of the primary reasons, attributable to the growing awareness among the urban Indian population, is of the significance and, more importantly, the commercial benefits in protecting its intellectual property rights both within and outside India. And under traditional principles of intellectual property protection, patent law is to encourage scientific research, new technology and industrial progress. The fundamental principle of patent law is that the patent is granted only for an invention i.e. new and useful the said invention must have novelty and utility. The grant of patent thus becomes of industrial property and also called an intellectual property. And the computer software is a relatively new recipient of patent protection.

The term “Patent’’ has its origin from the term “Letter Patent’’. This expression ‘Letter Patent’ meant open letter and were instruments under the Great Seal of King of England addressed by the Crown to all the subjects at large in which the Crown conferred certain rights and privileges on one or more individuals in the kingdom. It was in the later part of the 19th century new inventions in the field of art, process, method or manner of manufacture, machinery and other substances produced by manufacturers were on increased and the inventors became very much interested that the inventions done by them should not be infringed by any one else by copying them or by adopting the methods used by them. To save the interests of inventors, the then British rulers enacted the Indian Patents and Design Act, 1911.

With respect to patentability of software -related inventions, it is currently one of the most heated areas of debate. Software has become patentable in recent years in most jurisdictions (although with restrictions in certain countries, notably those signatories of the European Patent Convention or EPC) and the number of software patents has risen rapidly.

Meaning Of Software PatentingThe term “software” does not have a precise definition and even the software industries fails to give an specific definition. But it is basically used to describe all of the different types of computer programs. Computer programs are basically divided into “application programs” and “operating system programs”. Application programs are designed to do specific tasks to be executed through the computer and the operating system programs are used to manage the internal functions of the computer to facilitate use of application program.

Though the term ‘Software patent’ does not have a universally accepted definition. One definition suggested by the Foundation for a Free Information Infrastructure is that a software patent is a “patent on any performance of a computer realized by means of a computer program”.

According to Richard Stallman, the co-developer of the GNU-Linux operating system and proponent of Free Software says, “Software patents are patents which cover software ideas, ideas which you would use in developing software.

That is Software patents refer to patents that could be granted on products or processes (including methods) which include or may include software as a significant or at least necessary part of their implementation, i.e. the form in which they are put in practice (or used) to produce the effect they intend to provide.

Early example of a software patentOn 21st Sep 1962, a British patent application entitled “A Computer Arranged for the Automatic Solution of Linear Programming Problems” was filed. The invention was concerned with efficient memory management for the simplex algorithm, and may be implemented by purely software means. The patent was granted on August 17, 1966 and seems to be one of the first software patents.

Conceptual Difference Between Copyright And PatentSoftware has traditionally been protected under copyright law since code fits quite easily into the description of a literary work. Thus, Software is protected as works of literature under the Berne Convention, and any software written is automatically covered by copyright. This allows the creator to prevent another entity from copying the program and there is generally no need to register code in order for it to be copyrighted. While Software Patenting has recently emerged (if only in the US, Japan and Europe) where, Patents give their owners the right to prevent others from using a claimed invention, even if it was independently developed and there was no copying involved.

Further, it should be noted that patents cover the underlying methodologies embodied in a given piece of software. On the other copyright prevents the direct copying of software, but do not prevent other authors from writing their own embodiments of the underlying methodologies.

The issues involved in conferring patent rights to software are, however, a lot more complex than taking out copyrights on them. Specifically, there are two challenges that one encounters when dealing with software patents. The first is about the instrument of patent itself and whether the manner of protection it confers is suited to the software industry. The second is the nature of software, and whether it should be subject to patenting.

However, issues involved in conferring patent rights to software are a lot more complex than taking out copyrights on them. Specifically, there are two challenges that one encounters when dealing with software patents. The first is about the instrument of patent itself and whether the manner of protection it confers is suited to the software industry. The second is the nature of software and whether it should be subject to patenting.a) Different Subject MattersCopyright protection extends to all original literary works (among them, computer programs), dramatic, musical and artistic works, including films. Under copyright, protection is given only to the particular expression of an idea that was adopted and not the idea itself. (For instance, a program to add numbers written in two different computer languages would count as two different expressions of one idea) Effectively, independent rendering of a copyrighted work by a third party would not infringe the copyright.

Generally patents are conferred on any ‘new’ and ‘useful’ art, process, method or manner of manufacture, machines, appliances or other articles or substances produced by manufacture. Worldwide, the attitude towards patentability of software has been skeptical

b) Who may claim the right to a patent /copyright?Generally, the author of a literary, artistic, musical or dramatic work automatically becomes the owner of its copyright. The patent, on the other hand is granted to the first to apply for it, regardless of who the first to invent it was. Patents cost a lot of money. They cost even more paying the lawyers to write the application than they cost to actually apply. It takes typically some years for the application to get considered, even though patent offices do an extremely sloppy job of considering.

c) Rights conferredCopyright law gives the owner the exclusive right to reproduce the material, issue copies, perform, adapt and translate the work. However, these rights are tempered by the rights of fair use which are available to the public. Under “fair use”, certain uses of copyright material would not be infringing, such as use for academic purposes, news reporting etc. Further, independent recreation of a copyrighted work would not constitute infringement. Thus if the same piece of code were independently developed by two different companies, neither would have a claim against the other.

A patent confers on the owner an absolute monopoly which is the right to prevent others from making, using, offering for sale without his/her consent. In general, patent protection is a far stronger method of protection than copyright because the protection extends to the level of the idea embodied by a software and injuncts ancillary uses of an invention as well. It would weaken copyright in software that is the base of all European software development, because independent creations protected by copyright would be attackable by patents. Many patent applications cover very small and specific algorithms or techniques that are used in a wide variety of programs. Frequently the “inventions” mentioned in a patent application have been independently formulated and are already in use by other programmers when the application is filed.

d) Duration of protectionThe TRIPS agreement mandates a period of at least 20 years for a product patent and 15 years in the case of a process patent. For Copyright, the agreement prescribes a minimum period of the lifetime of the author plus seventy years.

Jurisdictions Of Software PatentingSubstantive law regarding the patentability of software and computer-implemented inventions, and case law interpreting the legal provisions, are different under different jurisdictions.Software patents under multilateral treaties:• Software patents under TRIPs Agreement• Software patents under the European Patent Convention• Computer programs and the Patent Cooperation Treaty

Software patenting under TRIPs AgreementThe WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), particularly Article 27, are subject to debate on the international legal framework for the patentability of software, and on whether software and computer-implemented inventions should be considered as a field of technology.

According to Art. 27 of TRIPS Agreement, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. (…) patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

However, there have been no dispute settlement procedures regarding software patents. Its relevance for patentability in the computer-implemented business methods, and software information technology remains uncertain, since the TRIPs agreement is subject to interpretation.

Software patents under the European Patent ConventionWithin European Union member states, the EPO and other national patent offices have issued many patents for inventions involving software since the European Patent Convention (EPC) came into force in the late 1970s. Article 52 EPC excludes “programs for computers” from patentability (Art. 52(2)) to the extent that a patent application relates to a computer program “as such” (Art. 52(3)). This has been interpreted to mean that any invention which makes a non-obvious “technical contribution” or solves a “technical problem” in a non-obvious way is patentable even if a computer program is used in the invention. Computer-implemented inventions which only solve a business problem using a computer, rather than a technical problem, are considered unpatentable as lacking an inventive step. Nevertheless, the fact that an invention is useful in business does not mean it is not patentable if it also solves a technical problem.

Computer programs and the Patent Cooperation TreatyThe Patent Cooperation Treaty (PCT) is an international patent law treaty, which provides a unified procedure for filing patent applications to protect inventions. A patent application filed under the PCT is called an international application or PCT application. Under the PCT, the international search and the preliminary examination are conducted by International Searching Authorities (ISA) and International Preliminary Examining Authority (IPEA).

Current TrendHowever, before we start hailing the advent of a new era and equating the patenting of software in India it would be well worth our while to take a pause and examine the realities of software patenting. We could do this by looking at examples of countries in which software patenting has already become the order of the day, such as in the US and Japan

United StatesThe United States Patent and Trademark Office (USPTO) has traditionally not considered software to be patentable because by statute patents can only be granted to “processes, machines, articles of manufacture, and compositions of matter”. i.e. In particular, patents cannot be granted to “scientific truths” or “mathematical expressions” of them. The USPTO maintained the position that software was in effect a mathematical algorithm, and therefore not patentable, into the 1980s. This position of the USPTO was challenged with a landmark 1981 Supreme Court case, Diamond v. Diehr. The case involved a device that used computer software to ensure the correct timing when heating, or curing, rubber. Although the software was the integral part of the device, it also had other functions that related to real world manipulation. The court then ruled that as a device to mold rubber, it was a patentable object. The court essentially ruled that while algorithms themselves could not be patented, devices that utilized them could.

But in 1982 the U.S. Congress created a new court i.e the Federal Circuit to hear patent cases. This court allowed patentability of software, to be treated uniformly throughout the US. Due to a few landmark cases in this court, by the early 1990s the patentability of software was well established. Moreover, Several successful litigations show that software patents are now enforceable in the US. That is the reason, Patenting software has become widespread in the US. As of 2004, approximately 145,000 patents had issued in the 22 classes of patents covering computer implemented inventions.

JapanSoftware is directly patentable in Japan. In various litigations in Japan, software patents have been successfully enforced. In 2005, for example, Matsushita won a court order barring Justsystem from infringing Matsuhita’s Japanese patent 2,803,236 covering word processing software.

Indian PositionWith respect to computer software, in Patents (Amendment) Act, 2002, the scope of non-patentable subject matter in the Act was amended to include the following: “a mathematical method or a business method or a computer programme per se or algorithms”.

However, the recent amendment changes (Ordinance, 2004), which amends the Patents Act, 1970, has been promulgated after receiving assent from the President of India and has came into effect from 1st Jan., 2005. Apart from change in pharmaceuticals and agro chemicals, one of the seminal amendments this Ordinance seeks to bring is to permit the patenting of embedded software.

Hence, the amendment means that while a mathematical or a business method or an algorithm cannot be patented, a computer programme which has a technical application in any industry or which can be incorporated in hardware can be patented. Since any commercial software has some industry application and all applications can be construed as technical applications, obviously it opens all software patenting.In any case, any company seeking to file a patent application for software under the Ordinance should ensure that its invention firstly, follows the three basic tests:• Inventive Steps• Novelty• UsefulnessTherefore, it is important that the software sought to be protected is not merely a new version or an improvement over an existing code.Further, in accordance with the specific requirements of the Ordinance with regard to patentability of software, the software should necessarily have a technical application to the industry or be intrinsic to or “embedded” in hardware. This is to prevent against any future litigation or claims of infringements being raised, which is a distinct probability even after a patent has been granted.

ConclusionIndia for its part seems to have adopted the more conservative approach of the European patenting norms for software. But the Ordinance definitely has its use and relevance in today’s India, particularly for our growing domestic semi- conductor industry. This, along with judicial tempering might definitely ensure a judicious use of patent protection while allowing the industry to grow through innovations and inventions, thereby, mitigating the risks of trivial patents chocking the life out of real innovations and inventions. This is the reason a patent should always be treated as a “double edged sword”, to be wielded with caution and sensitivity. Now whether, in reality this will be implemented on a rigid basis or will become broad in scope through application (as in the U.S.), and, more importantly, whether the Ordinance would, in fact, result in increased innovation and inventions in the software industry, remains to be seen.

Q&a: Oscar Sañez, Ceo, Business Processing Association of the Philippines

August 13th, 2009 at 12:43pm Under intellectual property

SSON: Oscar, what is the purpose of BPA/P, and how does the Association operate to achieve that purpose?

Oscar Sañez: The Business Processing Association of the Philippines was created in 2004 by members of the BPO industry, in order to present a single face of the industry to the world. Prior to this, there were several organisations that had been representing various sectors in offshoring and outsourcing in the country. It was apparent that there was a strong need to have a single industry body representing all the interests of these organisations in terms both of marketing the industry externally, and internally to be able to address many of the common challenges and opportunities that the industry was facing at that time. So there was an effort to consolidate several of these small organisations, and a single umbrella organisation – BPA/P – was formed.

Quickly after that the BPA/P board elected to create a full-time management team to do a couple of things: one, to develop and own a strategic plan to guide the growth of the industry short- and long-term; and the second was to have a fully dedicated team to be the leaders responsible for getting all the stakeholders committed to executing the strategic plan as it was developed. This is now called the “roadmap” for the industry which BPA/P is leading and working on with all the stakeholders.

SSON: BPA/P is running a successful scholarship program for advanced post-graduate training. Can you tell us a little about this and why it will benefit foreign companies looking to source to the country?

OS: Basically the BPA/P roadmap covers three major subjects, of which talent development is one. The scholarship programme falls under the initiative of ensuring talent development sustainability over the next several years, and is a programme that we have created in partnership with the government. We found there was a significant segment of the graduate pool that needed some kind of a completion course or supplementary training programme to ensure that we have a large available pool of talent, particularly in a couple of areas: English-language proficiency; and IT proficiency.

The industry tested a training programme a year ago to supplement the recruitment programme that was already in place. We had a very good experience with supplementary programmes that were being run in vocational schools as well as in independent training companies that were members of BPA/P. We approached the government and asked for support so we could train a lot more young people into the programme and convert them into full-time hires. The government responded positively by providing a budget of close to $10million this year, to be able to train about 50,000 young people into the programme: of course we don’t foresee all of them passing the completion course but at least 40,000 should pass and therefore get recruited into our pool this year, so if we’re able to convert them into full-time employment that is at least 40,000 additional available to us.

SSON: You’ve mentioned a degree of official support there: how closely does BPA/P work with the Filipino government?

OS: We work very closely and very collaboratively with the government, particularly on three levels. One is with the educational agencies of government, and the scholarship programme is a good example of how we have collaborated with TESDA [Technical Education & Skills Development Authority] which is the vocational institute government body coordinating group which works with us in providing supplementary training for young people here.

Another agency that we work with is the Board of Investments, which is the government’s investment-promotion group, as well as the attached agency to that which is the Philippine Economic Zone Authority: the body which supervises the IT parks for setting up BPO sites in the country. What we have done with them is work together on streamlining our investment promotion processes, including trade missions abroad as well as with investors who come to the Philippines, so we have a simplified communication process – a one-stop-shop mechanism if you will – so that when investors come in we have the private sector (which is BPA/P) working closely with key representatives of the board of investors on our overall presentation of industry opportunities. This is done very well; we have received a lot of positive responses.

Then lastly we work with the Office of the President through the Commission of ICT. This is the government body that coordinates with various telecommunications and software companies to support the overall regional development of what the government calls the Cyber Corridor: the ICT infrastructure which links Manila with the rest of the key cities in the country. Part of what we have in the roadmap is a way in which we can accelerate the development of new sites for expansion of BPO companies outside Manila, and we’re able to work with various ICT bodies within local government councils outside Manila to prepare them for investment. These ICT councils have simplified for us the work in getting all the key stakeholders in one place; property developers, the telco companies in each region, local government units and academia are able to work together to create new sites for expansion – and get investors to consider these places as potential new sites. So we have worked very closely with government on this effort and it’s given us a lot of positive gains for investment promotion.

SSON: So significant collaboration with government – but BPA/P is a purely private-sector organisation?

OS: We are purely a private sector group consisting of BPO players themselves as well as key vendors in the industry. The support we’re getting from government is more for collaboration and coordination, as well as the scholarship support – which is not only financial support, but also the way by which we are able to distribute scholarship vouchers to young people: the government then reimburses them directly on those expenses.

SSON: Moving on: the BPO sector in the Philippines is a great success story – but it’s not all plain sailing. What do you see as being the biggest challenges to the sector and how do BPA/P and big industry players intend to overcome or avoid those challenges?

OS: OK. There are a couple of big ones as far as we’re concerned. Firstly, though we have been able to successfully promote the Filipino BPO industry because of our available talent and the quality of our talent, we’d like to be able to accelerate our growth and the big challenge for us is how fast we can make our talent available in front of us because of the remarkable growth-rates that we have seen and will continue to see over the next few years. There is a big, straining demand for talent and we would like to make sure that we’re able to sustain that talent both in terms of quantity and quality – and not only in Manila but outside as well. And the challenge lies in making sure the system is responsive enough to the demand.

Right now we do face competition from the growth of other sectors – for example tourism and medical services – and the demand from outside the Philippines for OFWs [overseas Filipino workers] is also increasing. So we’re competing in the universities for talent that is required by other countries poaching talent from the Philippines, and by other fast-growing sectors. So a challenge for us is ensuring that we’re able to promote career prospects for the industry in many of these universities.

The challenge also lies in increasing access to more universities beyond the traditional sources that we recruit from, as well as being able to tune the curriculum programmes of many of the universities to be more in line with the requirements of our industry; for example, ensuring that we do have high-quality English-language and IT proficiency programmes made available early on in the university years. This is why in BPA/P we do have a director who is devoted to talent development challenges; she leads university partnerships to ensure that we’re able to get universities to respond more closely to industry requirements, as well as developing new training standards and skills-assessment methodologies that we’d like to implement at university level, so that we are able to sharpen our recruitment much more. That is our biggest challenge.

Another area would be related to what I said earlier about assimilating new site development. Right now most of our BPO population – about 80 per cent of the activity – is in Metro Manila. We would certainly want to see a lot more activity happening in new cities. In the same way that India has created Bangalore and Hyderabad and Chennai, we certainly are looking forward to at least ten more cities outside of Manila and Cebu to be able to host new companies. This will create a lot of positives: one, we will be able to access more talent available in those places; and secondly we should be able to have a lot more support from a wider range of resources available to us, whether it’s local government units or chambers of commerce in those places, or universities and the academic sector. So we do face strong challenges but at the same time we know that because of our roadmap we’re already able to implement a lot of initiatives to be able to address them.

SSON: Conversely then, what do you see as being the biggest assets of the Philippines in terms of BPO and how does your organisation leverage those assets to expand and enhance the sector?

OS: Certainly the most important asset is people. We are hearing more often from our locators here that they’re discovering a lot more capability in the Philippines than we had seen initially. For example, we are already very well known for our voice services in BPO: the quality of English-language proficiency and of the Filipino customer service agents is very well talked-about in the industry now, and I think part of that is the training as well as the culture and the western orientation of the Filipino people. But we have seen a lot of growth beyond that: it’s been particularly very evident in areas such as finance outsourcing, IT, engineering services and creative arts – particularly in animation and gaming – and we are seeing double-digit growth as well in those sectors. The captive centres here (the HSBCs, the AIGs, the P&Gs, the Citigroups, the JP Morgans) are expanding over the next two years particularly in areas like finance and HR outsourcing. And this is already booking a lot of new office space, even in the Metro Manila area.

Another important asset for the country is the strong infrastructure, and a cost-model that is very sustainable. We’re able to sustain talent with the developing progress we have there in combination with the quality infrastructure we have in terms of telco, and new expanded office sites, and we’re able to at least maintain the cost model in a way that does not create unnecessary inflation in wages or in office-space rentals because we’re able to create more capacity. So the combination of talent and an attractive cost structure, as well as new opportunities we’re seeing in the other new sectors which I mentioned, are all strong points for the Philippines with huge potential for growth in the future.

SSON: Is it realistic to expect the Philippines to compete against bigger players (in particular, obviously, India) in outsourcing sectors other than BPO: KPO, LPO for example? And if so, what is required for the country to compete on those terms?

OS: Certainly we do recognise that India will continue to remain very very strong, particularly in areas like IT and software development. But certainly there are also niche areas that will continue to be providing growth opportunities for the Philippines. Voice and non-voice BPO will continue to be big. We certainly don’t think that we can beat India in the strong points that it has, but we see the opportunities around new niche areas like KPO, legal outsourcing, and engineering outsourcing – in which India will remain really huge but in which the Philippines will start gaining some foothold. We see great value in being number two or number three in those sectors; they’ll continue to be contributors for growth in terms of the kind of overall credibility and capability that the Philippines has in the BPO space. So there will be a place for the Philippines, a continued strong position moving forward.

SSON: To what extent have recent currency fluctuations impacted upon BPO in the Philippines, and how far can foreign companies looking to source to the country truly rely on the stability of the peso?

OS: We were seriously affected last year when we saw an 18.5 per cent currency appreciation. That affected us – particularly the small players who did not have a lot of financial leeway to be able to support that gap. But many of the big operators were actually able to improve and grow their operations because we saw a lot of room for improving operational efficiency here. The peso is largely going to stay within what you would call a single-digit fluctuation, given the kind of interventions we’re seeing currently in ensuring that there’s enough investment going on in the right places of the country.

We see that last year’s appreciation was more of a correction – one that is not going to affect us in terms of being an annual event. What we are seeing is that because of better projections around FDI and foreign remittances we’ll see a more stable peso over the next three, four, five years. Plus we’re more conscious now of making sure that our operational efficiencies are in place to be able to withstand fluctuations over the next few years.

SSON: Are you confident of the security of data and intellectual property rights in the Philippines?

OS: We are confident that we are addressing the issues of data privacy and intellectual property very well. For one, we have in place data privacy guidelines drawn up by industry in partnership with the Board of Investments; as well, the multinationals that are here are guided very much by US laws on data privacy and recognise the importance of these principles. The other thing is that BPA/P is leading a very active effort in partnering with Congress to pass a single Data Privacy Bill that supports the APEC Privacy Principles. This is at an intermediate stage of development already and we see the bill passing late this year or early next year. We are also actively communicating with all the key stakeholders on the APEC Privacy Principles to make sure that we support the principles and ensure that our people are trained and our contracts are safeguarded because of the kind of accountability and responsibility that we do have in processing data.

In terms of intellectual property we work closely with the BSA [Business Software Alliance] group to ensure that our member-companies sign off on the intellectual property rights agreements – and at the same time we are also working with government on strengthening the IP law, as well as on a new bill that will ensure a stronger penalty provision for intellectual property rights violations. So moving very actively in this area, we feel that this will all contribute to strengthening our data privacy and IP requirements.

SSON: Finally, what are your ambitions for BPA/P over the next ten years?

OS: We think that we will continue to see strong growth over the next ten years in a couple of areas. We’ll continue to be strong in the BPO space, both voice and non-voice. The other thing that is happening is that we still see growth in higher-value services and that we will play a very important role in supporting the requirements of not only the US market but even many of the European and Australian markets that today are still largely untapped. The good thing about the Philippines, like I said earlier, is that while we’re seeing dramatic growth at the moment we’re able to create a lot of continuous capacity. It is very important that we maintain our cost structure as well as our capacity model.

We’ve seen what has happened in India and that there is benefit in being number two, and because of India’s experience we are able to anticipate issues like overheating growth – issues that affect things like supply – and to anticipate the requirements of investors so we don’t get into an inflationary situation, whether it’s in one city or many cities in the Philippines. We know that there are still a lot of untapped niches, as well as the trend towards multi-sourcing that will allow the Philippines to participate in a lot more geographies as well as a lot more verticals and horizontals in the BPO space.

A Look at Compulsory Licensing & Essential Medicines in the Pharmaceutical Industry

August 13th, 2009 at 06:41am Under intellectual property

Compulsory licensing of essential medicines doesn’t always provide the greatest help to the poorest people of the world according to a round table highlighted by The Policy Network. The danger of compulsory licensing is that it can be abused by some in developing countries and create a culture of disrespect for intellectual property. The solution, rather than overt compulsory licensing, is to encourage these governments to respect intellectual property, thus creating incentives for the development of new medicines or technology. As mentioned by Dr.Bibek Debroy, Research Director at India’s Rajiv Gandhi Institute, when a property owner is allowed to protect his rights to the land, it provides him an incentive to develop and improve the land. Pharmaceutical intellectual property protection gives the developer the ability to finance the further advancement of that medicine. A compulsory license that is granted without sufficient cause dilutes the incentive for the developer of the medicine to improve the product.

How Compulsory Licensing Works

The concept of compulsory licensing for pharmaceuticals was originally developed to give the poorest countries in the world access to essential medicines in a time of crisis. For example, let’s say an African country is being overrun by an AIDS epidemic, but they can’t afford the brand name medications to be shipped overseas in the quantity they need. A compulsory license allows them to use the patent of the medication to manufacture it on their own so long as a royalty is paid to the intellectual property owner. However, the concept could be abused by pirates in developing countries to create generics of the drug with intent on capitalizing on a business opportunity.

The Intellectual Property Solution

Fortunately, a 2003 amendment to TRIP by the WTO to give the poorest countries alternatives to receiving the medicine they need has helped restore the concept of the compulsory license to its original intent. The amendment gives more oversight to making sure the medicines reach their intended destinations and are properly distributed as well as ensures that compulsory licenses are granted only to countries that do not have the means to develop their own medicines.

A Look at Compulsory Licensing & Essential Medicines in the Pharmaceutical Industry

August 13th, 2009 at 06:41am Under intellectual property

Compulsory licensing of essential medicines doesn’t always provide the greatest help to the poorest people of the world according to a round table highlighted by The Policy Network. The danger of compulsory licensing is that it can be abused by some in developing countries and create a culture of disrespect for intellectual property. The solution, rather than overt compulsory licensing, is to encourage these governments to respect intellectual property, thus creating incentives for the development of new medicines or technology. As mentioned by Dr.Bibek Debroy, Research Director at India’s Rajiv Gandhi Institute, when a property owner is allowed to protect his rights to the land, it provides him an incentive to develop and improve the land. Pharmaceutical intellectual property protection gives the developer the ability to finance the further advancement of that medicine. A compulsory license that is granted without sufficient cause dilutes the incentive for the developer of the medicine to improve the product.

How Compulsory Licensing Works

The concept of compulsory licensing for pharmaceuticals was originally developed to give the poorest countries in the world access to essential medicines in a time of crisis. For example, let’s say an African country is being overrun by an AIDS epidemic, but they can’t afford the brand name medications to be shipped overseas in the quantity they need. A compulsory license allows them to use the patent of the medication to manufacture it on their own so long as a royalty is paid to the intellectual property owner. However, the concept could be abused by pirates in developing countries to create generics of the drug with intent on capitalizing on a business opportunity.

The Intellectual Property Solution

Fortunately, a 2003 amendment to TRIP by the WTO to give the poorest countries alternatives to receiving the medicine they need has helped restore the concept of the compulsory license to its original intent. The amendment gives more oversight to making sure the medicines reach their intended destinations and are properly distributed as well as ensures that compulsory licenses are granted only to countries that do not have the means to develop their own medicines.

Joint Venture -7 Steps of Key Drafting Issues

August 13th, 2009 at 12:42am Under intellectual property

(1) Clearly defined business objectives. The agreement must initially lay out the purpose of the joint venture, generally a common business interest or investment. For instance, paragraph one could say: “1.1. Business Purpose. The business of the Joint Venture shall be as follows:” and then describe the business purpose. This paragraph should also define the term of the agreement.(2) Degree of participation and the management roles of each joint venturer. Next the agreement should lay out the roles, management responsibilities, and degree of participation of each joint venturer. for more details www.joint-ventures-secret.com.This provision will be contractually enforceable, so it must be clearly drafted to accurately define the roles, obligations, rights, and duties of the parties. In the case of a new entity or where an equity investment is involved, it is typical to address representation on the joint venture’s or the other party’s board of directors or similar governing body.(3) Contribution of capital and ownership rights/Division of the profits and losses. The agreement should next describe the capital contributions and other resources each party will convey to the venture, as well as method and percentage of profit and loss sharing for the venture. Who will be primarily responsible for losses, and how and when shall profits be shared? Typically parties often share profits pro rata according to their respective equity interests. In cases where one company contributes more cash, however, that company may receive priority on the distribution of profits.(4) A dispute mechanism. The Agreements should lay out the terms of an internal mechanism for resolving any disputes that may arise between the joint venturers. This mechanism is necessary to avoid management impasses that may produce deadlock or litigation. Neither party would benefit from adjudicating claims externally by way of litigation or arbitration while the joint venture is in place. This provision could create a board, filled by executives from each venturer, who would be responsible for hearing and resolving disputes.(5) Termination of the Joint Venture / Buyout Provision. Joint ventures typically are not intended to last forever. The parties often provide a termination date, at which time contractual arrangements will terminate or one party will buy the other’s equity stake. Buyout provisions can be difficult to negotiate in advance because the parties may not be able to accurately predict the value of the strategic alliance or joint venture at the time of the buyout. One solution is to provide that the valuation will be based on revenues or profits at the time of the buyout, or that a third-party appraiser will determine the valuation. Alternatively, the parties can adopt a “shotgun” or “auction” provision, whereby one party initiates the process by proposing to buyout the other party at a specified valuation, and the other party must agree to buy or sell at that price, or begin an auction by proposing to buy at an increased valuation.(6) Confidentiality / Intellectual Property. The parties to a strategic alliance or joint venture should consider carefully how to allocate, control and protect confidential information and other intellectual property that is contributed to, or developed in, their business relationship. The parties may want to provide that all employees and consultants with access to confidential information must execute a separate stand-alone confidentiality and nondisclosure agreement. The parties also should consider how to allocate new intellectual property that is developed in the course of the business relationship. In a classic joint venture where the new intellectual property becomes the property of the new entity, the parties should consider who will own the new intellectual property if the entity subsequently is dissolved(7) Indemnification. Finally, an indemnification provision of a joint venture agreement must be in place to indemnify the manager and its directors, officers, employees and agents, and any person who is or was serving at the request of the joint venture as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against liability.like as www.joint-venture-guide.com. Most importantly, this provision should cover such a director or employee’s costs in defending a third-party law suit, including attorneys’ fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by such indemnitee in connection with the defense or settlement of such action, suit or proceeding, if such indemnitee acted in good faith or in a manner reasonably believed by such indemnitee to be in or not opposed to the best interests of the joint venture; provided that the indemnitee’s conduct shall not have constituted gross negligence or willful or wanton misconduct.

Do You Need Estate planning- Es Group

August 12th, 2009 at 06:42pm Under intellectual property

The sale of a business creates many opportunities for planning: estate planning, business succession planning, and income tax planning are just a few of the topics business owners are faced with at this critical juncture. However, all too often, the business owners and their tax advisors hyper-focus on the conversion of those assets into cash. This one dimensional approach, does not fully take into account what is the end goal of many selling business owners: repositioning the business owner’s value into income-producing investments which produce a more tax-efficient return on equity. In some cases, there may be tax savings opportunities.

Take for example a hypothetical coal company in Kentucky trading as Cleaner Coal Technologies. Cleaner Coal Technologies has been in business for twenty years. The primary owner, Henry Duggett, wants to sell Cleaner Coal Technologies, move to the Powder River Basin and reinvest the sales proceeds in new equipment, a new brand, and a new physical plant. The company recently received an offer to purchase all outstanding shares and the ownership entity for twenty million dollars. If Henry had significant negotiating power, he might be able to simply sell his stock and pay long-term capital gains on the sale. If he had the right buyer, he might be able to negotiate a tax free reorganization under IRC § 368 and then use his new stock as collateral for a loan to finance his new company. However, most buyers will either want to purchase the assets only or insist that the stock sale be classified as an asset sale under IRC § 338(h)(10). As such, the purchase price would be allocated among all of the company’s assets under IRC §1060 and Henry would have to pay taxes on the net capital gains taxes at the federal and state level. This gain would be exacerbated by depreciation recapture on any capital assets that were depreciated during the last twenty years. All-in-all, the sales price of twenty million dollars could be reduced as much as 35-40%.

If Henry considers an asset sale, then his tax advisor should be looking for other opportunities to save him money. In Henry’s case, he should exploring the possibility of like-kind exchanges. If Henry were to “map out” his sale and repurchase and convert his ownership in equipment, intellectual property, and real estate into new equipment, intellectual property, and real estate, Henry could bury his cost basis into his new investment and successfully defer a majority of his capital gain. Goodwill of one company is never going to be like-kind to the good will of another company. Treas. Reg. §1.1031(a)- 2(c)(2). Nevertheless, in ILM 200911006, the IRS clarified that intellectual property “such as trademarks, trade names, mastheads, and customer-based intangibles can be separately described and valued apart from goodwill.” The IRS further pointed out that exchangeclients must take heed of the like-kind definitions applicable to intellectual property and personal property and must make sure that their replacement property is like-kind in both the nature and character according to Treas. Reg. § 1.1031(a)-2(c)(1). Furthermore, Treas. Reg. § 1.1031(a)-2(b) provides that depreciable tangible personal properties are of a like class if they are either within the same General Asset Class (as defined in Treas. Reg. § 1.1031(a)-2(b)(2)) or within the same Product Class (as defined in Treas. Reg. § 1.1031(a)-2(b)(3)). Whether intangible personal property is of a like-kind to other intangible personal property generally depends on (i) the nature or character of the rights involved (e.g., a patent or a copyright) and (ii) the nature or character of the underlying property to which the intangible personal property relates.

Two examples are provided in the regulations concerning exchanges of intangibles. In Treas. Reg. § 1.1031(a)-2(c)(3), Example 1, Taxpayer K exchanges a copyright on a novel for a copyright on a different novel; these properties were of a like-kind. In contrast, in Example 2, Taxpayer J exchanged a copyright on a novel for a copyright on a song, and the properties exchanged were deemed not of a like-kind. Thus, both the nature or character of the rights involved and the nature or character of the underlying property are taken into account.

As tax advisors, deeper levels of planning provide more areas for you to create value for your clients. The tax planning related to the sale of a business, in particular, gives an opportunity to create a competitive advantage over your peers.

What Any Decision Maker Needs to Know About Patent Protection

August 12th, 2009 at 06:41am Under intellectual property

What Any Decision Maker Needs to Know about Patent Protection

Richard Neifeld, Ph.D., Patent Attorney and Robert Crockett, P.E., Patent AttorneyI. Introduction

This paper explains the basic information a decision maker needs to know regarding patents. There are certain concepts the understanding of which is a prerequisite for this topic. Those concepts are provided in section II. Section III relates patents to countries. Sections IV and V explain the legal requirements for getting patents and how long patents last. Section VI discusses patent treaties. Section VII provides ballpark cost estimates for acquiring patents.II. Prerequisite Definitions

The term “property right,” also called “ownership of property,” means the right to exclude others from using the property. Property was historically classified as either land or personal, personal property encompassing all property other than land.

The term “intangibles” means rights that are not land or tangible personal property. Intangibles include contractual rights, good will, and intellectual property.

The term “intellectual property” means property rights in certain intangibles, such as patents, trademarks, and copyrights.

Assignment means transfer of ownership of property. (For basic information on invention ownership issues, see http://www.neifeld.com/introart3.html.)

A patent is a property right that has the attributes of personal property. Those attributes include the ability to be bought sold (assigned), and licensed. Like all property, its exclusive right can be enforced. Enforcement of any property right includes the right to sue in a court for (1) damages and (2) an injunction to stop unauthorized use of the property.

There are different kinds of patents, including utility patents, design patents, plant patents, utility models, architectural design rights, and circuit architecture rights. This paper will describe only the most commercially important, which are utility patents.

Utility patents provide a property right to things having an industrial utility, including products, and processes of making and using products. Under current U.S. law, products include computers programmed to perform a useful function, including, for example, a business accounting function, and methods of using include computers running such programs. European law currently does not allow patents on accounting functions, also referred to as business method patents. On the issue of business method patents, Japan’s law is currently somewhere in between that of the U.S. and Europe.

The exclusive right is defined by the claims and the disclosure of a patent. What the claims cover is called subject matter. That is, claims define or delimit “subject matter” to which the patentee has an exclusive right.

Unauthorized use of an intellectual property right is called infringement. Remedies for infringement typically include damages (money equivalent to the harm caused to the owner of the patent by the past infringement) and injunctions (a court order forcing the infringer to stop his infringing activity).

A specification is a written description, often including figures, of subject matter sought to be patented, such as an invention. I try to limit the use of the word “invention” in this paper because it is in many senses mis-descriptive of what a patent can protect.

A filing date is the date that a national or international patent office recognizes its receipt of an application filed in that office.

Prior art means knowledge generally known by other than the patent applicants prior to when the applicants made their discovery or invention. This is a generally applicable definition in the sense that there are several exceptions and fine points that vary from country to country. One major exception is that almost all countries other than the U.S. define the date of discovery or invention claimed in the patent application as the filing date of the application, not an earlier date when work leading to the discovery or invention was done.III. Who Grants a Patent and Where is Each Patent Enforceable

Generally speaking, patent rights are granted by nations. Each patent is only enforceable in the nation in which it is granted. There are some international treaties that extend the one patent per nation concept. Europe, for example, has one agency, the European Patent Office, that grants European patents. There are a few other such regional patenting authorities, one for the states of the former Soviet Union, and one for certain states in Africa.

Currently, there is no international patent. That is, there is no single patent granted by any patenting authority that is legally enforceable everywhere. However, a world patent has been discussed for decades, and international organizations are making incremental progress towards such an international patenting system. Don’t hold your breath, though. Most people in the patent business expect no international patent in the near future. Also, see below regarding international treaties that ease the burden of obtaining a patent on one invention in many countries.IV. How Long Are Patents Enforceable

Generally speaking, patent are enforceable for twenty years from when the application for the patent is filed. There are of course exceptions and variations from country to country and application to application.V. What are the Core Conditions for Obtaining a Patent on Anything

A. The Substantive Requirements for Obtaining a Patent

The core requirements worldwide for obtaining a utility patent are (1) that the thing is useful and (2) that the thing is novel. There is a third requirement, which is referred to as either the “inventive step” or the “non-obviousness” requirement, which generally means that the thing being patented would not have been readily apparent or immediately obvious to someone working in that technology field. The U.S. applies the non-obviousness standard. Europe applies the “inventive step” standard. (The U.S. has imposed an additional requirement, called the “best mode” requirement, but that is a technicality not relevant to the purpose of this paper.)

B. The Procedural Requirements for Obtaining a Patent

The process of obtaining a patent includes the steps of preparing and filing an application for the thing to be patented, prosecuting the patent to issuance, and paying applicable government fees. While this sounds simple, it definitely is not. The preparation of a quality disclosure for a patent application is essential to the government eventually granting the patent and the resulting patent being legally enforceable and therefore accorded respect by potential business competitors.

Generally speaking, the specification must include a sufficient description to enable one of ordinary skill in the art to which it pertains to make and use the claimed subject matter in order for the application to result in a patent. This is generally true in all countries that issue utility patents. In addition, in the U.S., the specification must also disclose the best mode that the inventor had in mind for making and using the invention at the time of filing of the application.

Failing any of the substantive or procedural requirements can fatally flaw the attempt to obtain a patent.VI. Treaties that Facilitate Obtaining Patents in More than One Country on the Same Thing

There are currently two mechanisms to facilitate extending patent protection on something to more than one country. They are the Paris Convention and the Patent Cooperation treaty.

A. The Paris Convention

The Paris Convention’s core feature is that it allows the filing of a patent application in a second country that is a member of the Convention to be accorded the filing date of an earlier filed application filed in a first country. That allows a patent applicant to file the application in one country, and then to have copies of the filed application sent to agents in other countries for filing there. The Paris Convention has a time limit of one year (for utility patents). That is, the subsequently filed applications in the other countries must be filed within 1 year of the first filed application in the first country, to be accorded the earlier filing date. This right is incredibly important because, in most countries, public disclosure of the subject matter of a patent application prior to filing the application is an absolute bar to obtaining a patent for that subject matter. The Paris Convention allows the applicant to file a single patent application in one country, and then publicly disclose and sell products and processes disclosed in the application without automatically losing the right to a similar patent in the other countries that are members of the Paris Convention. Almost all countries of industrial/commercial significance are members of the Paris Convention. The Paris Convention has been in existence since about 1900 CE.

B. The Patent Cooperation Treaty

The Patent Cooperation Treaty goes one step beyond the Paris Convention. The Patent Cooperation Treaty allows a patent applicant to legally effect filing in every country that is member to the PCT by filing a single application, a PCT application, in any country that is a member of the PCT. The PCT application, however, will not issue into an international patent. Instead, if the applicant decides to obtain a patent in a country from the PCT application, the applicant must still file and pay for the “national stage proceeding” of the PCT application in that country. The benefits of filing a PCT application instead of national stage applications are (1) the PCT application allows for a minimum of 30 months to file “national stage” application during which time the applicant has no substantial patent related costs, (2) the PCT application reduces the formalities and costs required in filing applications in multiple countries, and (3) the PCT application process can provide an initial indication (prior to the 30 month period just noted) regarding the likelihood that the subject matter of the application is patentable so that the applicant can make an informed financial decision regarding cost/benefit of paying for the national stage proceedings in any country. Almost all industrially significant countries are members of the PCT. There are still some exceptions, like Thailand. The PCT has been in existence since the 1970’s and it has been tremendously effective, with tens of thousands of PCT applications now filed annually.

The PCT incorporates the Paris Convention. What this means is that a PCT application can claim Paris Convention priority to an earlier patent application. Therefore, a patent applicant can, for example, first file an application for a U.S. patent. Then, the applicant can file a PCT application which legally has the U.S. patent application’s priority date because of the Paris Convention. Then, the applicant can enter the PCT national stage in selected countries, for example, selecting the United States, China, Japan, Europe, and Korea for PCT national stage proceedings, and not selecting (and thereby abandoning patent protection in) all other countries.

C. Other Treaties Facilitating Obtaining National Patents

Europe has the European Patent Convention. The former Soviet Union has the Eurasian Patent Convention. Some African national have the OAPI treaty.

The EPC allows a single application to issue into a single European patent. However, generally speaking, that European patent is currently not enforceable in any European country unless the granted patent has been translated and filed in the country’s national patent office within 3 months of the date of grant of the European patent. Hence, the substantial translation and national agent costs, and annuities costs, also exist for European countries. The other two treaties are currently of negligible importance.VII. Costs and Cost/Benefit

No one can file a patent for an invention in all countries of the world. Anyone that thinks they can is fooling themself. Consider the following rough outline of costs. These costs estimates are ball park, and generally independent of country.

Initially, there is the cost of any determination whether to file a patent application (internal corporate patent committee review, patent prior art search and evaluation). Next, there is the cost of drafting a patent specification, claims, and figures. That currently ranges for typically patent applications from three to twenty thousand dollars, depending upon the importance of the invention, technological complication, budget, etc. Most of that cost is the cost of drafting the specification and claims, typical a few tens of hours of attorney time. There is the government cost of filing the application, which typically ranges between one and three thousand dollars. That is the cost to file a first application.

Consider now the cost to file Paris Convention or PCT national stage equivalents. This cost includes the foreign agent’s docketing and filing charges, typically one to two thousand dollars, and the foreign government’s filing fees, typically one to two thousand dollars. That is per country. If, however, the target country does not accept filings in the language in which the specification was originally drafted, then include the cost of a professional translator skilled in patent translations. That ranges from 0.20 to 0.40 cents per word. For a 50 page specification having 300 words per page at one and one half line spacing (15,000 words total), that will cost three to six thousand dollars. If you have a 100 page specification, double that value. If you have a 200 page specification, triple that value.

You have now considered the cost to get the application on file. Add to that the cost of complying with each government patent office’s formalities requirements, and responding to each government patent office’s examiner’s review and rejections or requirements, including both the foreign agent’s fees and the national agent’s fees.

Now add in each government’s charges for granting the application, the foreign agent’s charges for paying for the grant, typically about two thousand dollars, the costs for your national agent to handle those transactions, and then the foreign government annuities, the costs for the foreign agent to track and pay those fees, and the cost for your national agent to track report to you, and pass along your instructions. The foreign government annuities vary from country to country, the determination of the date on which they are due varies from country to country, and the fees typically increase from about one hundred dollars the first year to over a thousand dollars near the end of the 20 year patent term. The foreign agent’s fees depend upon the magnitude of the government fees but are never less than about one hundred dollars.

All of the foregoing assumes that no one challenges your patent application via an opposition proceeding or the like. Any proceeding involving more than just the patent application and the government will increase by tenfold the costs for that country, and impact the costs in the other countries as well.

Thus, to file for, obtain, and maintain a patent for something in all countries of the world would cost millions of dollars. Given those constraints, any patent applicant must make cost/benefit analyses to determine in whether and in which countries to seek patents. Moreover, the cost benefit analysis and timing of incurring costs in the patenting process are substantially influenced by the procedures (national, Paris, PCT, and EPC filings) used to obtain patent protection.VIII. Further Information

This article has discussed some of the basics of patent law that every decision maker needs to know. Additional articles and resources on patent law and intellectual property can be found at www.neifeld.com.