Patenting your invention in eight easy steps

Step 3: Is it yours?

You have managed to keep your invention secret (step 1). You have come to an informed conclusion that your invention is new (step 2). Now it’s time for step 3.

You need to ask – is the invention yours? The answer is not as simple as you might think.

In New Zealand, legal title to inventions vests in the inventor that creates the invention. Where there are two or more inventors involved, legal title is held by each inventor.

There is another title known as a beneficial title. Beneficial title gives the holder the right to call for full legal title. This means that a party with beneficial title can insist on formal legal transfer of the invention to that party. The inventor is said to hold the invention on a constructive trust for the beneficial owner. Formal legal transfer must be by written agreement.

What does all this mean? Consider an employee who invents something in the course of employment for an employer. The employee probably owns legal title to the invention. So long as there is no prior agreement, the employer would own beneficial title.

Consider a company that contracts an individual to invent something. The inventor would own legal title to the invention even if the inventor has been paid to invent. The company would own beneficial title, subject to any prior agreement. If there is no prior agreement, the inventor may own beneficial title too.

The law is a little murky in this area and depends on any agreements the inventor has with third parties and the circumstances around how the invention came about. It is always a good idea to have a written agreement in advance.

Watch out for the next issue of CHIP CHAT for step 4 – is it an invention?

Domain name “parking” and “tasting”

A practice known as domain name 'parking' has recently developed internationally. Parking refers to the practice of generating advertising revenue from internet traffic to a domain name that is “parked” at a landing page. This page will often have a search engine function and a number of links to third party advertiser websites. Traffic arrives at the landing page from consumers who type the domain name in question into their browsers or from old bookmarks or search engine results. A pay per click revenue is generated from these pages. Often these domain names are spelling errors of well-known trade marks (eg, www.wwwharcourts.co.nz) or another variation of a company's real address, such as the same name with a different top level domain.

In respect of .com and other gTLD domain names, there is a five day grace period in which a newly registered name can be surrendered and fees refunded. Domain name “tasting” consists of a temporary registration of a domain name to identify its revenue potential. If the name is deemed unworthy of keeping, it is surrendered for a full refund. According to Bob Parsons, CEO of godaddy.com, tasting accounted for over 32 million of the 35 million domain names registered in May 2006.

As with domain name parking, a number of domain name registrars themselves are reportedly among the speculators engaged in tasting.

Patent trolls

Everybody knows what a troll is. A mythical monster with bad teeth squatting in the mud and interfering with the business dealings of hapless goats. But how does that definition of a troll fit with patent owners?

What is a patent troll?

A patent troll is a patent owner who does not use its patent or patents to develop products. The troll waits for others to develop markets for the products and then approaches them for licensing revenues, under threat of litigation. This definition is probably too wide and catches unfairly patent owners with an active licensing program of both technology and patents.

Chip Chatters will have much sympathy for an inventor with a great idea but no funds. The cost of securing patent protection for the idea in New Zealand and offshore is only a fraction of the cost needed to bring an ICT product to market. What about software development costs, user acceptance testing, marketing, distribution, after sales training and service?

What’s wrong with an inventor licensing the entire patent portfolio to a company with the smarts and the money to run with it? Nothing. What about a company firmly entrenched in the New Zealand market with no need or wish to penetrate foreign markets. Can the company license its foreign patents to market players outside New Zealand? Can the company license patents for inventions outside its core business to others? Sure. No problems there.

What about a university that rightly focuses on research and development? The university licenses out patented technology to third parties already set up for manufacturing and distribution.

And what of the entrepreneur who does not provide software solutions to customers, but recognises a direction in which the market is heading? The entrepreneur files patent applications the entrepreneur knows will be infringed by software solutions that will inevitably be developed. A little dodgy perhaps?

How about an investment company with deep pockets? The company is in the business of buying patents from others that it knows are being infringed by software solution providers. Some of the buying is by bidding for patent portfolios in US bankruptcy Courts. Troll material surely.

Where are the patent trolls?

Patent trolls are not limited to particular geographic areas and industry markets. However the main victims seem to be in the US ICT, software and financial services industries. Why is this? A few suggestions:

• A US patent is good value for money. The US scores highly on objective factors such as per capita purchasing power, population and the cost of securing a patent. Subjective factors on which the US scores highly are good quality of examination and ease of enforceability. Potential licensees are also likely to be active at least in the US.
• The US patent system is receptive to inventions in the ICT, software and financial services spaces. Other jurisdictions for example Europe, place restrictions on patenting this type of subject matter.
• Some US forums are patent friendly. In the Eastern District of Texas, for example, juries decide the level of damages. Jurors known to keep a shotgun under the bed have a healthy respect for property rights. Patents are just another form of property.
• Contingency arrangements are not unknown in the US. Texan attorneys are known to charge up to 50% of the damages awarded in a win. No win, no fee. Contingency fees are less common in other countries.

How do you deal with patent trolls?

The easy answer is to avoid putting yourself at risk in the first place. Perform regular searches of the US Patent Register during product development. You may find patents that cover one aspect of your product. Can you design around that so the aspect does not infringe the claim? If not, can you find prior art that invalidates the claims of the patent you are worried about?

Prior art can be used to attack the validity of a patent. The same prior art can also be used to force a narrow interpretation of what the claims cover. Your product may fall outside this narrow interpretation. One Texan attorney is on record saying that he will drop a case if the defendant comes up with good prior art.

If you and your competitors are all faced with the same threat, why not share the prior art you know about with others? This is always a strategic decision. A third party patent for which you have invalidating prior art keeps out competitors who have no prior art. Invalidate the patent and you remove the barrier for your competitors.

Patent trolls are really patent holders whose licensing activities you don’t like. They operate in all markets and are certain to make themselves known to you once your pockets are deep enough. Treat them just like any other patent holder and seek advice early.

Bio of the month: Damian Broadley

Damian Broadley is a partner at A J Park who oversees the activities of the international trade marks team in the Wellington office. Damian’s work covers all aspects of trade mark, copyright and related intellectual property law, and in particular domain names. He advises on commercialisation of intellectual property rights and the development, management and protection of intellectual property strategies.

Damian manages the intellectual property of a major local telecommunications company, local exporters and a number of Fortune 500 companies. He has particular experience in intellectual property issues facing the film, television, music and IT industries.

Damian was a member of the InternetNZ committee which established a dispute resolution system for .nz domain names and he is an active member of the International Trademark Association.