Put Yourself in Someone Else’s Shoes: Using Patents to Improve Attractiveness and Value for Acquisition

Many C-level executives in startups and small medium enterprises (SMEs) often say: "Why bother with patents? They cost so much to get and they're so expensive to enforce. I've got no hope of enforcing my portfolio if a large company with deep pockets infringe."

In business it's often a good idea to put yourself in another party's shoes, for example, your customer or supplier. So, when I hear C-level executives say the above about patents, my advice is to put themselves in another party's shoes: That of a potential acquirer.

Their objections are partially correct. Patent filings can be expensive. While there are ways to potentially reduce costs, it can be expensive to enforce patents. However, for a potential acquirer, a good patent portfolio increases their company's attractiveness and value as an acquisition target or as a partner. Also, the value of the portfolio is likely to be many multiples of the cost to obtain and manage the portfolio.

An example of this occurred in December 2019, when Adaptiv Networks acquired LiveQoS. Adaptiv Networks CEO Bernard Breton stated that:

"The expertise we are getting from the LiveQoS engineers, along with the patents and technology places us as a technological leader in the SD-WAN space with 20 relevant SD-WAN patents”

Adaptiv also stated the following in a press release:

"The addition of a highly skilled and experienced team will enable Adaptiv Networks to improve its offering, accelerate its plans to better serve its valued customers, and pursue its plans for growth. In addition, the combined patent portfolio will form one of the most comprehensive in the SD-WAN space."

Here's another example: In May 2017, Cisco acquired AI startup Mindmeld. Cisco stated that part of the reason was the MindMeld patent portfolio: 

"With ten patent assets* to its name, MindMeld brings industry-coveted AI, software and engineering talent and expertise to further the evolution of Cisco's collaboration suite."

I also suggest that C-level executives put themselves in the shoes of a potential investor. Increased attractiveness and value as an acquisition target would likely make their startup/SME more attractive to investors. Doesn't that make fundraising easier?

But what about large companies infringing? Well, what if another large company with deep pockets finds the startup/SME’s technology and patent portfolio attractive? The other large company has the resources to enforce the patent portfolio. Additionally, knowing that one large company uses the patented technology will likely increase the attractiveness and value of the portfolio to the other large company. This is especially true in a patent-litigious field such as mobile technologies. Doesn't that make the startup or SME a target for acquisition by the other large company? 

So, if you're not sure whether or not to file for patent, the best course of action may be to put yourself in another person's shoes, in particular that of an acquirer or an investor. Putting yourself in another party’s shoes is great business practice, and practicing it with regard to patents could benefit you greatly!

Intellectual property (IP) issues for hiring employees

Hiring employees is important for scaling and growth. However there are IP issues related to hiring employees. Margot Davis, Junior Partner at Innovate LLP, and I co-authored a blog post on IP issues for hiring employees. This blog post is available at:

https://innovatellp.com/2019/12/02/intellectual-property-ip-issues-for-hiring-employees/

IP issues when working with contractor or on contract

Companies and individuals work a lot with contractors or on a contract basis. Margot Davis, Junior Partner at Innovate LLP, and I co-authored a blog post on IP considerations when working with contractor or on contract. This blog post is available at:

https://innovatellp.com/2019/11/06/ip-issues-when-working-with-contractor-or-on-contract/

Maximizing portfolio value through smart claim drafting – claim diversification

This is part of an ongoing series of blog posts aimed at helping patent applicants in maximizing the value of their portfolio through smart and savvy claim drafting.

As explained previously, three very important factors in determining value of patent portfolio value are:

• Likelihood of use of the claimed invention by attractive target companies,
• Ease of enforcement of infringement of the patent claims, and
• Difficulty of invalidation of the patent claims.

-   Two well-known types of patent claims are system and method claims. A system claim covers the structural features of an apparatus which has been invented. A method claim is usually a series of steps describing how an invention is to be applied. Each jurisdiction treats system and method claims differently from other jurisdictions. Since the value of a patent portfolio is heavily driven by the value of the United States (US) patents within the portfolio, the rest of this discussion will focus on US patents.

Under US law each of these types of claims have advantages and disadvantages when it comes to ease of infringement and difficulty of invalidation. System claims may be more difficult to enforce than method claims, because of the need to point to an underlying apparatus. However this potentially makes system claims more difficult to invalidate. Also, to prove direct infringement of a system claim via use, the Federal Circuit Court has stated that in order to prove an infringing “use” of a system under 35 USC 271(a), a patentee must demonstrate use (i.e., “control” and “benefit”) of the claimed system by an accused direct infringer. Further, the Court held that “to use a system, a person must control (even if indirectly) and benefit from each claimed component.” The direct or indirect control required “is the ability to place the system as a whole into service.” For make and sale, the manufacturer would be subject to a direct infringement claim for having made, sold, or offered to sell the infringing apparatus.

Method claims may be easier to enforce due to not needing to show an underlying apparatus. However this also makes them easier to invalidate. Furthermore there are other legal defences which can be used against method claims. For example, the Federal Circuit Court ruled in NTP vs. RIM (2005) that for a method claim to be infringed by a process, every step in the process must be practiced in the US. In performing its analysis, the Court noted that Congress has expressed the view that method claims can only be infringed under the “use” category of infringement, and held that RIM had not sold, offered for sale, or imported the entirety of the method. If a step of the process is practiced outside the US, then the process does not infringe the method claim. The Federal Circuit has confirmed this reasoning in subsequent cases. A major issue with method claims in the US is “divided” infringement, that is, where different parties perform the steps described.

Claim diversification, that is, drafting different types of claims, is a good strategy to improve scope of coverage by targeting multiple potential infringement scenarios.

Here are two examples of how claim diversity can be used to improve the scope of protection:

Example 1: Patent for a software application or “app”

A high level approach to utilize claim diversification in a patent for an app is:

1)  Draft a set of system claims targeted towards the implementation of the system on the client side or user device side: This set of claims could be used to target either the producer of the app or the vendor of the app, as these parties would have made and sold the app.

2)  If the app performs functions on the server-side, then it is worthwhile to draft a set of system claims targeted towards the implementation of the system on the server-side. This set of system claims could be used to target a service provider.

3)  Draft one or more sets of method claims targeted towards the producer and/or the vendor of the app, using the previously described three step approach for writing targeted method claims towards software app producers/vendors.

Example 2: Patent for a physical product

A high level approach to utilize claim diversification for a patent for a physical product is:

1)  Draft one or more sets of system claims targeted towards the physical product: This set of claims could be used to target the manufacturer of the physical product or the vendor of the physical product, as these parties would have made or sold the physical product.

2)  Draft one or more sets of method claims targeted towards the manufacturer and/or the vendor of the physical product, using the previously described three step approach for writing targeted method claims towards physical product manufacturers/vendors.

As explained previously, the fact pattern of each case may be unique; and the future state of US patent law is uncertain and unpredictable. A further technique which can be employed by a patent strategist to address both these issues is by filing continuation applications to keep the family alive. The strategist can therefore adapt the claims to ever-changing patent law and to address different fact patterns and potential targets.

New USPTO Patent Guidelines and Important Considerations for Software Patent Applications

The USPTO issued new patent subject matter eligibility guidelines on January 7, 2019, which may improve certainty and make it easier to obtain software patents. Margot Davis, Junior Partner at Innovate LLP, and I co-authored a blog post on important considerations for software patent applications in light of these new guidelines. This blog post is available at:

https://innovatellp.com/2019/02/07/new-uspto-patent-guidelines-and-important-considerations-for-software-patent-applications/

Cybersecurity and intellectual property flight risk reduction

Cybersecurity has become increasingly important and relevant to businesses. According to the Canadian federal government, about 70% of Canadian businesses have been victims of cyberattacks. According to IBM the average consolidated total cost of a data breach in 2016 was CAD 4 million. This cost is likely to further increase.

A major reason for cybersecurity is the protection of trade secrets. In Canada, trade secrets are, as explained by Justice Biron in the Positron Inc. v. Desroches et al. case “…usually formulas, manufacturing processes unique to its owner and which have been revealed confidentially to an employee”. Justice Biron further explained that “[a trade secret is] knowledge or ‘savoir-faire’ belonging to the employer and revealed by him for the sole purpose of permitting the employee to produce what the trade secret enables him to do.”

In the United States (US), the Defend Trade Secrets Act (DTSA) defines a trade secret as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”

A key characteristic of trade secrets is that ownership is tied to confidentiality. If a trade secret is discovered or revealed to the public, then the organization ceases to own the trade secret. As explained in a previous blog post, IP flight risk is the risk of losing valuable IP from a company. Specifically then, the risk of losing a valuable trade secret is tied to its risk of loss of confidentiality.

Then for trade secrets, IP flight risk reduction practice ties together with cybersecurity policy closely. As explained previously, IP flight risk reduction comprises three steps:

          1) Instituting an “IP aware” mindset within the company via the formulation, implementation and dissemination of an effective IP policy. Such a policy will:

a) prompt the employee to proactively consider whether valuable IP is being created;

b) explain the processes necessary to identify and secure the ownership of the IP; and

c) identify the key people and their responsibilities in carrying out the processes.

        2) Securing the company’s IP ownership by using appropriate IP ownership clauses, and

        3) Running periodic IP mining or discovery sessions to identify IP created within the company.

Applying these steps specifically to trade secrets within the cyber realm:

Step 1: Instituting an “IP aware” mindset within the company via the IP policy.

A well formulated IP policy will:

a.       Prompt the employee to proactively consider whether a valuable trade secret is being created;

b.      Explain the processes necessary to identify and secure the confidentiality of the trade secret, including cybersecurity processes; and

c.       Identify the key people for process implementation, including cybersecurity processes.

Step 2: Securing the company’s trade secret ownership via agreements or clauses in agreements

The following should be used to maintain trade secret confidentiality:

a.      Appropriate agreements such as non-disclosure agreements, including outlines of “best practice” cybersecurity measures.

b.      Appropriate clauses in agreements such as employee, contractor and partnership agreements, including cybersecurity specific clauses.

Step 3: Running periodic mining or discovery sessions

Periodic IP mining or discovery sessions should be utilized to discover and document trade secrets created within the company. By doing this, vital trade secrets can be identified and ownership of the trade secret can also be documented. Finally, the value and importance of the trade secret can also be documented. The cybersecurity team should be informed of the results of these processes.

Good IP flight risk management practice complements cybersecurity in the following ways:

-       Identifying valuable trade secrets as a precursor to being secured: Good identification results in better tracking and securing of relevant trade secrets, resulting in more complete coverage.

-       Prioritizing trade secrets based on the importance to the organization: Once trade secrets have been identified and the value to the organization has been determined, the cybersecurity team can set the required level of protection accordingly.

-       Better regulation of access: As part of the prioritization process, the cybersecurity team can determine who has access and provide temporary access on an “as-needed” basis to trusted employees. This makes management and securing of trade secrets easier.

-      Deterrent to misuse and misappropriation: If an action involves misuse or misappropriation of a trade secret, then the party carrying out the action may be punished. The determination of misuse/misappropriation and corresponding punishment depend heavily on factors such as:

o   measures taken to maintain confidentiality;

o   the degree to which the owner regards and treats the information as confidential;

o   the degree to which the recipient regards and treats the information as confidential; and

o   whether the recipient ought to have known that the information was confidential;

Therefore the combination of a strong IP flight risk reduction strategy and cybersecurity policy makes it likely that misuse or misappropriation is likely to result in harsh punishment. It also signals message that the organization takes trade secret protection seriously. Together these act as deterrents to misuse and misappropriation.

Maximizing portfolio value through smart claim drafting - targeting potential infringers in method claims

Patent claims are the most important part of a patent, as the claims define the invention for which the patent holder holds an exclusive monopoly. Patent portfolio value is dependent on a variety of factors. Three very important factors are:

• Likelihood of use of the claimed invention by attractive target companies,
• Ease of enforcement of infringement of the patent claims, and
• Difficulty of invalidation of the patent claims.

Typically the main driver of value of a patent portfolio is the value of the United States (US) patents. Therefore US law is pertinent. Since a US patent is valid for 20 years from the date of filing, the state of US law at the time of discovery of an alleged infringement is pertinent.

Two well-known types of patent claims are system and method claims. A system claim covers the structural features of an apparatus which has been invented. A method claim is usually a series of steps describing how an invention is to be applied. Each of these types of claims have advantages and disadvantages.

For a method claim to be infringed in the US, it is necessary for every step in the method claim to be performed. A major issue with method claims in the US is “divided” infringement, that is, where different parties perform the steps described. For ease of enforcement of infringement, it is best to avoid divided infringement by asking the following questions:

1. Who is/are the potential infringer(s) to be targeted by the claim? 
2. What steps are they likely or not likely to perform?
3. How should the claim be written to cover the steps in (2)?

Here are some example implementations of this process.

Example 1: Patent revolving around a software application or “app”

To answer question 1, there is a need to determine the intended target of the claim. It would be in the best interest of the patent holder to target either

• The producer of the app, or
• The vendor who makes the app available for the end-user

and not the end-user.

For question 2 which concerns steps likely or unlikely to be performed, it is important to remember that the producer or vendor is unlikely to be using the app themselves. Rather the producer or vendor is likely to perform the steps of providing tools to the end-user to use the app, or enabling the end-user to perform a function via the app.  

Then to address question 3, the method claim can be written as a series of “providing” or “enabling” steps or similar. If in doubt, it may be useful to write more than one method claim. Furthermore, the drafter should revisit the specification and drawings to ensure that there is sufficient support for such method claims.

Example 2: Patent for a physical product

For question 1, it is likely that the patent holder would want to target either:

• The manufacturer of the physical product, or
• The vendor who makes the physical product available for the end-user,

For question 2, the manufacturer is likely to be assembling the physical product. The vendor is likely to be selling the physical product to the end-user.

  

Question 3 can then be addressed by drafting the method claim as a series of “assembling” or “providing” steps or similar. Again, if in doubt, it may be useful to draft two or more different method claims. As with example 1, the drafter should revisit the specification and drawings to ensure sufficient support.

 

Finally, it is important to remember that the fact pattern of each case may be unique. Furthermore, the future state of US patent law is uncertain and unpredictable. One mitigating strategy in the US to address both these issues is by filing continuation applications. This helps keep the family alive, and therefore adapt the claims to ever-changing patent law and to address different fact patterns and potential targets.