The following is some information about early patent strategy that I often provide as a good primer for any company starting out with little or no knowledge of patents.

Background:
In the U.S. you cannot file for patent protection more than one year from the date the invention was first patented or described in a printed publication in this or a foreign country or in public use or on sale in this country. This includes disclosures you make as well as disclosures someone else who independently invents the same invention makes. For foreign rights you generally must file an application before ever publicly disclosing the invention. In addition, the earlier you file an application the more likely you will predate potential prior art that is used against your application during the process of getting a patent. Although the U.S. is technically a first-to-invent system (meaning that whoever invents something first has superior rights to a patent) rather than a first-to-file system (meaning that whoever got to the Patent Office first has superior rights to a patent), the reality is that it is often very difficult to prove to the Patent Office an invention date earlier than the filing date. Thus, filing an application as early as possible is the best strategy to protect against anything anyone else is doing.

Provisional Applications:
What most people refer to as a patent is called a nonprovisional utility application. However, the Patent Office also provides a provisional utility application that is designed to have less stringent formal requirements and allow you to file an application in situations where there is too little time or money to prepare a nonprovisional application. A provisional application secures a filing date and allows you to use "patent pending" in association with your product or service. However, a provisional application is not examined by the Patent Office and will never, by itself, become a patent. A provisional application expires one year after it is filed.

Nonprovisional Applications:
A nonprovisional utility application is examined by the Patent Office and if it meets all of the requirements and is found to be novel and nonobvious (i.e., not done before and not an obvious variation of what has been done before), then it will become a patent. A nonprovisional application can claim priority to a provisional application, which causes the nonprovisional application to be treated as if it were filed on the date of the provisional application. The caveat is that the nonprovisional will only get the benefit of the earlier date for subject matter that was described in the provisional application. For example, if you describe Component A in the provisional and Components A and B in the nonprovisional, then Component A would get the benefit of the earlier filing date, but Component B would not.

Strategy:
The Patent Office costs for filing a provisional and a nonprovisional application are similar, and the bulk of the cost of filing a nonprovisional application is for the attorney's drafting time. A provisional application is generally filed to save time and/or money, so the goal is often to reduce the amount of attorney drafting involved. A provisional can often be filed using whatever materials about the invention are already available. For example, an inventor may have prepared a business plan, marketing materials, a presentation, or a journal article that describes the invention. Or, the inventor may be willing to prepare a write up describing how the invention works. When these are not available and a substantial amount of attorney drafting is involved, it is usually more cost effective to go ahead with preparing and filing a nonprovisional application.

Costs:
A provisional application can be filed for about $1,000 (including Patent Office fees and attorney fees). The attorney time involved is spent preparing the Patent Office documents and reviewing the materials provided by the inventor and revising any statements that could hinder the breadth of a later nonprovisional. A nonprovisional on the other hand costs about $12,000 to file (including Patent Office fees, attorney fees, and drawing draftsman fees). Thus, there can be significant advantages for a company seeking funding to start by filing a provisional. The provisional filing provides another year before more significant costs are incurred, and gives many of the same benefits, including being able to use "patent pending" to ward off competitors, assuring investors that steps have been taken to protect your core idea, and so on.

Risks:
There are several risks involved with filing a provisional that need to be considered carefully. First, if the provisional fails to describe some important detail about the invention, the patent may later not get the benefit of the earlier filing date. This could cause the patent to be found invalid if there is similar art filed in between the filing of the provisional and nonprovisional applications. Second, you cannot stop others from using your invention or collect license fees from them until you have a patent, and waiting to file a nonprovisional delays the date you ultimately receive a patent. In fast moving technology areas, this can be a problem as the techniques protected by the patent may be irrelevant several years down the road. On the other hand, you will extend the life of the patent by an extra year (21 years instead of 20), since the life of the patent is determined by the nonprovisional filing date.

Value:
The last thing I want to cover is the value of a patent. One question I am often asked is, “why do I even need a patent?” The answer varies. In some cases you may not need a patent. For example, some companies derive their value from their brand, such as Coca Cola. It would not have benefited Coca Cola very much to have 20 years of exclusive use of the soda making process. On the other hand, for many technology companies their value is in their discovery of a great idea. These ideas often take years to develop but relatively little time to copy once they are discovered. Patents are ideal for preventing this type of copying. It is important for a company to determine what exactly its secret sauce is and to focus early intellectual property protection efforts on covering that. For some companies, a trademark on the name of the company (e.g., Match.com) may be much more important than the way the company's product works. For others, a patent on the core process is critical.

Although a patent may never be asserted in litigation, it can have numerous other benefits that are difficult to quantify. A patent may ward off competitors, convey careful planning to investors, solidify an exit strategy, or boost marketing of a product. Regarding exit strategy, if a company wants to be acquired, being able to prove that the company owns the technology being sold increases value. Even if a company fails, patents can often be the most valuable asset left in the company and they provide an alternative exit strategy through selling the patents or using them to extract license fees from a competitor that has done a better job executing on the idea. Regarding marketing, both Washington Mutual (who patented their banking center experience) and Amazon (who patented one-click shopping) have gained enormous marketing value by being able to project one-of-a-kind experiences to the marketplace.

This article discussed Microsoft head of Research Rick Rashid’s comments that the key to a technology company’s survival is research. The article provides some great examples of how Microsoft is finding new areas of revenue through their research.

Rick’s comments go right along with a message about the importance of patents to protect the research and development a company is doing. In my experience, I have met three types of companies:

• 1) The first type of company realizes the importance of patents and other intellectual property (IP) from the start. Often there is a founder or advisor that has been through the process of building a business before and has seen the long-term value of IP protection. These companies work to get patents for their early ideas and prioritize IP funding for at least the core idea of the company even when the early money is tight.
• 2) The second type of company wants to protect their IP after everything else is done. These types of companies always seem to put something else first, whether it is sales, development, or the many distractions that go with starting a business. These companies often are too late to get protection on their core idea (because of the U.S. rule preventing patent protection one year after public disclosure) and are stuck getting protection for minor improvements or later enhancements to the core idea.
• 3) The third type of company is openly hostile to IP protection. Usually there is a vocal team member that has read an article about abuse of the patent system that offends their core beliefs, and they do not want to be part of it. The sentiment is understandable, but often those holding it are wrong to equate themselves with those abusing the system. These companies often truly do have a very unique idea that deserves protection, and by not protecting their ideas increase the percentage of bad patents in the system.

This order of this list also often corresponds to the rate of success that I see from these companies. All of the big players, such as Microsoft, Intel, IBM, and others, make major investments in both research and IP and see the rewards of those investments to their bottom line. However, what is less visible is the enormous benefits that come to small to medium sized companies that protect their IP. These companies can ward off competitors seeking to copy their hard work, and they provide themselves with a defensive position when competitors try to assert IP against them. These companies are also often the targets for acquisition by bigger companies that view the IP the company has built as an asset as valuable as the team and products of the company.

It is an unsettled question whether the first-sale doctrine of copyright law applies to software, and today the U.S. District Court in Seattle said no. The first-sale doctrine says that once you legally buy a copy of a copyrighted work, you have the right to sell or give away your copy after that as you please (but you still cannot make additional copies). It has been debated for years whether a copyright owner that distributes software is giving the purchaser a license or selling a copy of the software. If the original transfer is treated as a license, then the first-sale doctrine does not apply and the copyright owner can control how the item is transferred (or even prevent transfers). If the original transfer is treated as a sale of a copy, then the first-sale doctrine applies and the copyright owner has no further control over the sold copy.

In the case today, Verner v. Autodesk, the District Court held that the original transfer was a sale, and that Verner could legally resell the software. The case involved Timothy Vernor's EBay store where he sold legitimate copies of AutoCAD among other things. Autodesk asked him to take down the software and he refused, so AutoDesk got EBay to take down the software. Verner sued, and today won.

This still doesn't resolve the overall conflict, it is just one more point on the board. The 7th and 8th Circuits of the U.S. Court of Appeals have held in cases that the original transfer is only a license, while the 3rd circuit has held that the original transfer is a sale of a copy. We will have to wait and see if Autodesk appeals this case to the 9th Circuit.

In the meantime, software manufacturers should look at their end-user license agreements (EULA) based on the court's decision and not rely on preventing subsequent transfers of software as a key element of their business model.