Patent payoff comes from investors

Scenario 1: you have a brilliant idea. You write the code. You get it to market. You sell thousands. You make millions. Scenario 2 ...

Scenario 1: you have a brilliant idea. You write the code. You get it to market. You sell thousands. You make millions.

Scenario 2: you have a brilliant idea. You write the code. Your first customer says it is Great. Tells their millionaire friend. He pays to get similar code written that does much the same. He funds a major marketing campaign in the US. He makes a fortune. You never recover your initial investment.

Patents are to provide the inventor with a period of 16 to 20 years in a market free from competitive products which encapsulate your ideas so that the innovator may commercialise their invention and gain the financial benefits of their originality.

This approach is certainly valid for mechanical devices and 20 years used to be reasonable.

Does it make sense for software? Clearly it is reasonable that embedded software be included in some inventions. So when is software an “invention”?

It has never been possible to patent algorithms (because they are “pure” mathematics and hence always deducible by known methods) or procedures or methods because ordinary people may simply organise their work this way. Some software might be classified similarly.

A patent must have a declared specific scope — the “claim”. This is a factor which may reduce widespread applicability of a patent.

What is different about the Amazon “one-click” patent? It uses a cookie to identify a user and then extract the user’s details from a database. The purpose is to make it easy for a customer to return to the site and re-identify themselves. It was also registered as a trademark. It was widely publicised by Amazon. Most e-commerce systems use cookies and databases. So in what sense should Amazon be able to legally prevent others delivering similar functionality?

Few patent infringement disputes have been resolved by courts so there is little precedence available to evaluate whether patents for software are worthwhile.

A patent application with a provisional specification is lodged with the Patent Office, where it is held for a year and is not available to the public in detail. This establishes your precedence date in New Zealand. A year later you lodge another application with a complete specification, after which your patent (if granted) becomes public and can be “searched”. The precedence date in New Zealand is relevant if you subsequently lodge applications in other countries. A patent can always be ignored if the other party can establish that they had used the invention before the first date of application.

Software is protected by copyright, which is free and implicit (provided your code is not “confidential”). Copyright protection currently prevents directly deriving similar software from an original including by reverse engineering and rewriting similar code. Copyright violations require evidence of copying a substantial — read significant — part of the original. Copyright recognises that “compilations” of content are in themselves copyrightable. The applicability of copyright has been clarified by extensive court decisions.

Let’s begin again

You have a brilliant idea. You apply for the patent thus establishing the date of first use. You pay $1200 to $2000. Your patent description is not available to others for 12 months. You write the code. You get it to first customers within 12 months. You complete the patent at 12 months when the description becomes public. You pay $2000 to $3000. You register it in the US for $US6000. You sell millions and make billions.

If someone sells a product that seems close to yours, you take action against them, possibly getting an injunction, which stops them selling their product. Or the threat of the case damages their ability to obtain finance or get customers.

Some (not me) may say that the push for software patents is simply to create a revenue source for lawyers and rich litigious persons, round one being the application fees and round two being the dispute resolution and litigation costs.

In this complex, confusing and as yet unproven situation, what is my advice? (Disclaimer: I am not a lawyer.)

Have your brilliant idea. Make a New Zealand patent application. Get your product to market within 12 months. Complete the second part of the New Zealand application at 12 months. If you have confidence in your product and finance, register your patent in the US referring to your original New Zealand application as providing the precedence date. Enter the US market. Sell millions and make billions.

Financiers and venture capitalists will place great weight on the existence of the patent. Owning the patent will greatly increase the likelihood of successfully raising the finance. Indeed, most private capital sources will not consider you if you do not hold a patent on your work.

When you move to sell your company the biggest legal issue in the negotiation will be the clauses where the purchasers try to reduce their risk that your software violates patents held by others. There will be some clause that defers payment to you or claws payment back should a legal challenge arise that you have violated a patent unknowingly. Holding a patent will greatly reduce this concern.

And, yes, this advice comes with homework. As soon as you have your brilliant idea, go searching on the web for products that might use your approach. Wade your way through PR documents and white papers written by copywriters whose talents lie in telling you how great their product is without actually telling you how the product works. Researching for possibly pre-existing patents is difficult but you must do it. Your financier will demand it.

Ian Mitchell is an Auckland developer and fellow of the New Zealand Computer Society.

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