What Founders Need to Know about Patents, IP, and Invention

For any founder looking to maximise, exploit and commercialise their software inventions, considering whether to patent their software technology should be a top priority.  It is no surprise that we are often asked about patenting software inventions: Should I file a patent? When is it too early? When is it too late?

Patent law can be complex and highly technical.  The process is further complicated by the fact that there is no central patent registry that applies globally.

This article aims to assist founders in navigating some of the key issues in developing a patent strategy as a key part of your overall growth and strategy from the early days of your company.

Biztech Lawyers partners with some of the best patent attorneys in Australia, the US and Europe to help devise cost effective, global protection strategies for ambitious founders.

What is a patent and what are the benefits?

Before we delve into the ins-and-outs of the patenting process, it is important to understand what a patent actually is.

Put simply, patents are a form of legal protection granted by a government to protect technical inventions that are new, useful and non-obvious. 

A granted patent creates a property right which allows the patent owner exploit it in the same way as any other forms of property: commercialise the property, protect it from theft, license it to others and allow others to use it for a fee.

If a competitor creates, copies, uses or sells an invention which is already covered by a valid patent, in the market in which the patent is registered, the patent owner will have the right to bring a legal action for patent infringement, even if the competitor was unaware of it.

A patent specification is the document that contains a highly technical definition of your software invention which is the document that the relevant patent office will assess.  

Patents are not the only protection you can seek for your software invention, however it is generally considered the strongest.

Should I file a patent at all?

The patent application process will inevitably involve the disclosure of some of the invention to the public — including to your competitors.  For this reason, some clients choose not to file a patent at all, and just keep the invention secret (a trade secret).

This could be the right strategy if filing a patent results in the inventor giving up some of sort of competitive advantage.  Examples of this include Coca-Cola, WD-40 and KFC, whose 'formulas' for their products to this day remain a trade secret.  Had these companies protected their formulas with a patent, competitors would have been able to use the formula after the expiry of the patent.

Is my software invention patentable?

Software patents have been notoriously difficult to obtain in recent years in Australia and the United States, however the United States Patent and Trademark Office have recently changed its approach and inventors are having more success there of late.

Our friends at Rokt scored a major victory in the face of Australian Patent Office in December 2018, but that decision is now on appeal.    

The patentability of software inventions depends on a number of guiding principles which is a whole story in itself. We will explore this more in a future article.

The thrust of an 'invention' can be narrowed down to a key issue: 'has anyone tried to solve this particular problem in this particular way'.   Think of a tyre tread - while the concept of a tyre tread is well established and may not be patentable, if an inventor comes up with a new pattern for tyres no one else has thought of to disperse water away from the tyre, then this will be patentable even if the idea of a 'tyre tread' is not a new or novel concept.

 An invention may not be patentable:

• If there is a patent already available for the invention — an inventor should conduct a patent search prior to filing a patent application, to determine their invention is already subject to an existing patent. If it is, there is no point in filing the application, unless you can distinguish it from the already-existing patent.  
• Even if your code is different from a granted patent  — software that is developed to make a computer work in the same way as another software as a granted patent is not patentable, even if the source code is different.
• If the subject matter isn't patentable — for example if the substance of the invention is a mere scheme (ie a business process) or an idea (e.g. a mathematical algorithm).
• If the invention has been publicly disclosed — an invention must ‘novel’, so if the patent is disclosed to third parties, there is a risk that the invention is no longer novel.  Founders should avoid disclosing their inventions to others, including potential investor and customers before filing a patent application.  If your business strategy requires early disclosure of the software invention (for example, to attract investment), ensure disclosure is always done through an enforceable NDA (this is not considered disclosure).

When should I file a patent? 

This will depend on your business' strategic direction.

A provisional patent (or better yet, a granted one) can be a positive signal for potential investors and partners that demonstrates you have created real value in your business and have taken steps to protect it.

It can also be used to help monetise your invention, stake a claim in an emerging area or field of endeavour or to deter others from competing in your market.

That being said, there are two very important timing-related 'book-ends' that Founders should be aware of for filing patents:

• You can't patent an invention if you have yet to actually work out how the invention works - you need to be able to describe the invention in reasonable detail, so that it is clear and complete enough to be performed by a person skilled in that expertise.
• You must file a full patent application within 12 months of commercialising the invention or the invention being 'published'. This 12 month grace period applies in both the US and Australia.

Utilising 'provisional' patents in your patent strategy 

If your priority is to file to obtain patent protection as early as possible, then a 'provisional' patent application (as opposed to a full application) may be useful, as this can be filed even if you haven’t necessarily worked out all the use-cases of your invention.

A provisional application must still set out the overall concept in sufficient detail, but a provisional patent application acts more as a placeholder to build upon, and is not itself examined by the patent office. 

A provisional application can be viewed more as an ‘option’ to file a patent application.  While the application must still include a detailed disclosure of your invention — once lodged provisionally, an inventor additional time to lodge the full patent in the local market within 12 months of filing the provisional application.  If you fail to do so, the provisional patent application will merely lapse.

The benefits of lodging a provisional application in your home market are:

• You can write 'patent pending' on your marketing materials — this can be useful to attract investment or if you are looking to qualify as an Early Stage Innovation Company.
• You obtain an earlier priority date, even when you are still finessing some details of your invention. Once a provisional application is lodged, it will give you priority over any subsequent patent applications.
• You effectively 'buy' extra time to protection of your invention. 

The down-side of lodging a provisional application are:

• the extra protection time might not be useful for software patents;
• there may be other more appropriate applications to be made, such as an 'innovation patent', for products with a shorter life cycle). 

Where should I file my patent?

Patents are geography-specific, so filing in one market will not protect the invention from being copied elsewhere.

If an applicant files an Australian patent, its competitors can easily obtain the details of the patent in Australia (from publicly available information) and then exploit it outside of Australia.  Given most software businesses are adopting a 'global from day one' approach, they will be looking to file in their key current (and future) markets from the onset. For Australian companies this will often mean looking to file in the United States, China and the EU, at the very least.

When deciding which markets to seek patent protection, inventors should consider the following:

• Which countries/markets do we wish to do business, now and in the future?
• Do we want to exploit my invention in more than one market? If so, which are the most attractive?
• Do we want to obtain protection from as many countries as possible? Do we have the budget for this?
• Where are our competitors located?
• Where are our customer’s located?
• What is the budget?
• What is the opportunity cost?
• Do we need to file a patent application asap (for example, due to competition or litigation), or can we wait to delay filing in other markets for now? 

Using the Patent Cooperation Treaty process to your advantage

Once an application has been filed in a home patent office, you will be able to use the 'Patent Cooperation Treaty' (PCT) to file the same patent in other markets within the following 18 months. The PCT covers 152 markets, so if a competitor pops up in any one of those markets, you have priority of filing your patent in that market and can do so within that timeframe.

This strategy provides 'protection' for an inventor for up to 36 months, without making any significant investment, and giving optionality in the future.

The advantages of utilising the Patent Cooperation Treaty are:

• a centralised examination process.
• flexibility regarding potential markets — e.g. where protection it is unclear which countries may be of commercial interest, the PCT can defer costs while you gather further market information.
• you gain an early priority date in other potential markets —  you can file a PCT application in other countries in which you require patent protection, but it claims earlier priority from the date of your home office application.

The disadvantages of utilising the Patent Cooperation Treaty are:

• different costs apply to enter the 'national phase' in each market.
• during the ‘national phase entry’, you must satisfy the different requirements of each mark and pay the national fee.

Using a market-by-market filing approach

The other option is to file in specific markets only.  This strategy would be more appropriate if an inventor is certain they only require protection in specific markets.

The advantages of using a market-by-market approach are:

• A useful method if you want to obtain patent protection asap in foreign countries, or for a small number of foreign countries.
• Minimises costs.

The disadvantages of using a market-by-market approach are:

•  You must comply with the patent laws and registration of each country, which differ from country to country.

Most inventors will opt for the PCT if they are unsure, which gives optionality for minimum incremental cost.

Key takeaways

The patent process is essential to the success of your software invention and must be considered at the outset as part of the overall growth and strategy of the company.  There are different strategies that can be adopted depending on your business objectives and competitive position.

Here are a few essential considerations we have put together for you.

Early stages

• Allocate or develop a budget for protecting your IP
• Avoid disclosure of your software invention prior to making any patent application  
• If disclosure is necessary, ensure it is is disclosed under an enforceable NDA
• Ensure you set a regular time to consider whether the software invention contains enough information to satisfy a provisional patent

Once you are finalising your software invention

• Consider the relevant markets to exploit, the geographical location of customers and competitors
• Consider whether filing as early as possible is a key strategy for the company
• Consider whether you should file a patent or keep your invention a trade secret

Disclaimer

This article contains general information only.  You should not rely on this information as legal advice.  You should obtain legal advice to ascertain how the law applies to your particular circumstances.

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