Friday, June 23, 2006

Five Things Every Micro-ISV Should Know About Intellectual Property

Running a Micro-ISV is different from running a more traditional small business.  We don't sell tangible property like hammers or cheeseburgers.  Our products are intangible.  Our business model exists only because governments have intellectual property laws which allow us to exclusively own certain rights and to control the terms under which we trade some of those rights for money.  It seems rather important that we have a basic understanding of these laws.

I am not a lawyer.  Nothing I say in this article should be construed as providing legal advice.  I'm just providing some very basic information. 

1.  Copyrights, trademarks, and patents are all different.

In the United States, the law defines three main forms of intellectual property:

• Copyrights are used to protect a specific expression of something.
  
  
• Trademarks are used to protect a distinctive symbol or name which is used to identify a business or product.
  
  
• Patents are used to trademark an invention such as a method or process.

Unfortunately, many people tend to confuse these terms.  For example:

• It makes no sense to ask if the word "podcast" is copyrighted.  You can't copyright a word.  That's what trademarks are for.  .  If I develop a new database and call it Oracle, I am violating a trademark, not a copyright.
  
  
• Similarly, don't ask if HTML is patented.  You can't patent a markup language.  Rather, ask if there are any patented methods which are related to HTML.

These three concepts are distinct.  Every Micro-ISV will use copyrights.  Many will use trademarks.  A few will use patents.

2.  Copyrights are simple.

The owner of a copyright has the exclusive right to control the reproduction of something.  Copyrights protect a specific expression of something.  A song can be copyrighted, thus making it illegal to make copies of that song without permission.  A piece of software can be copyrighted, thus making it illegal to make copies of that software without permission.

Copyrights are the most important form of intellectual property protection for a Micro-ISV.  When I create a piece of software and start selling other people the right to use a copy of it, it is important to me that anyone who makes illegal copies of my software is violating the law.

Luckily, copyrights are also the most simple form of intellectual property protection.  There are no special steps to become the owner of a copyright.  When I create a piece of software, I implicitly and automatically own a copyright on my work.  The government allows me to register that copyright if I want, and doing so may strengthen my position in a court battle, but registration is not essential.  I simply label my work "Copyright 2006 Eric Sink", and that's enough.

3.  Trademarks are freaky.

A trademark protects the logo or name that you use to identify your business or product.  It would unfair for me to start selling a database product called Oracle.  Customers would get confused.  The law protects Oracle Corporation by granting them the exclusive right to use that word in the sale of database products.

However, trademarks are kind of freaky, for three reasons:

• A registered trademark is very different from an unregistered trademark.

Just as with copyrights, you don't have to register anything with the government to get trademark protection.  However, unlike the situation with copyrights, a registered trademark is very different from an unregistered one.

Registering a trademark is expensive and very time-consuming.  You should get a lawyer to help you.  Plan to spend $1,000 or more.  It will probably take more than a year to complete the process.  Your application might get denied.  However, if you successfully get your trademark registered, you end up with very strong protection.  With a registered trademark, you can put the circle-R symbol next to your mark whenever you use it.  If someone violates your mark, you are very likely to win a resulting lawsuit.

Proceeding with an unregistered trademark is simpler.  Just put (tm) next to your logo or name.  That's it.  By doing so, you are simply informing the world of your claim to the exclusive use of the mark.  If you find yourself in conflict with some other party, you might win, or you might not.

• A trademark is limited in scope.

You can't globally trademark something for all kinds of situations.  Your trademark protection is valid only for the industry or market segment in which you are doing business.  I can't start selling a database product called Oracle, but I am perfectly free to start selling a toothpaste called Oracle.

• If you don't defend your trademark, you lose it.

Trademark law says that your mark is protected by law only if you are actively protecting it.  If someone violates your mark, you must object.  If you don't, you have weakened your position for any situation that comes up later.

4.  Patents are absurd.

A patent is the strongest form of intellectual property protection.  Patents are used to protect a method or technique, regardless of its expression.

With copyrights, accidental infringement is more or less impossible.  If I start selling a spreadsheet product which is byte-for-byte identical to Microsoft Excel, nobody is going to believe me when I claim that I just happened to come up with the same string of bits that Microsoft did.

In contrast, accidental infringement of a patent is quite possible.  Microsoft Excel is probably covered by a whole bunch of patents.  If I create a spreadsheet product, the likelihood that I may use a patented technique is rather high.

Software patents today are primarily used in one of two ways:

• Companies like Microsoft are building up large collections of patents.  In general, their patent arsenal is a defensive weapon.  They have patents so that they can counter-sue whenever somebody sues them for patent infringement.  Microsoft gets sued regularly over patent issues.  I cannot think of a single case where Microsoft sued a small company over a patent issue.
  
  
• Patent Trolls are companies which do nothing but purchase patents and use them to threaten and sue other companies.
  
  

I am not opposed to software patents in principle, but I do believe patent law needs to be reformed.  Patents carry a 17 year term, which is far too long for software.  Patents are being granted for "inventions" which are obvious.  Patent trolls should be banned and violators should be sentenced to a lifetime of driving around Boston.  The current situation is absurd.

Obtaining a patent is even more costly and time-consuming than a registered trademark.  Plan to spend $25,000 or more.

Patents can be valuable, but a Micro-ISV can have a long and healthy life without ever obtaining one.

5.  Licenses are virtual.

From a practical standpoint, buying software is often very simple.  I run to Best Buy and grab a copy of Doom 3.  I give the cashier 50 bucks.  Simple.

From a legal perspective, the transaction was a lot more complicated.  First of all, it is important to note that I have not purchased any copyrights, trademarks or patents.  All that stuff is still owned by the publisher and developer of the game.  Because they own the intellectual property, the law gives them certain exclusive rights. 

Rather, I have purchased a box, a CD-ROM, and a license.  This license is not a physical thing, but a legal concept.  The license grants me certain rights, subject to certain restrictions.

Don't confuse the notion of a license with any of the things that are often associated with it:

• When I buy software, I may get something called a serial number, CD key, activation code, or license key.  This is not a license.  It is merely something which is designed to encourage or require me to comply with the restrictions of the license.
  
  
• When I buy software, I may get a printed license agreement booklet.  This is not a license.  It is a document which describes the license.  Photocopying that document does not increase the number of licenses I have.
  
  
• When I buy a computer with Windows XP, I may find a holographic sticker on the back.  This sticker is not a license.  It is a physical item which represents the license and which may be used to prove that I have a license.

Think of as two things:  Rights and restrictions.  The recipient of the license gets certain rights, subject to certain restrictions.

Further Information

Remember, I am not a lawyer.  Furthermore, this little article merely scratches the surface of a rather large subject. 

So, you have just read an article which is terribly incomplete and which was written by someone with no credibility at all.  You are worse off than you were when you started. 

To fix this problem, you should probably do two things:

1. Find a lawyer.  Try to find one that genuinely wants to help you succeed in your business.  Try to avoid working with any lawyer whose basic mission is to make you afraid of everything.
   
   
2. Read more stuff.  A few suggested books:
   
   
1. Web & Software Development: A Legal Guide  (I have an earlier edition of this book.  Excellent.)
   
   
2. Trademark: Legal Care for Your Business & Product Name  (I've got this book.  It's very good.)
   
   
3. The Entrepreneur's Guide to Patents, Copyrights, Trademarks, Trade Secrets & Licensing
   
   
4. Patents, Copyrights & Trademarks for Dummies

Final Thoughts

• Yes, I know, there are actually four main areas of intellectual property law, not three.  I omitted trade secret law here for simplicity.
  
  
• The comments on this post would be an excellent place to post your favorite lawyer jokes.  I'll start:

Q:  Why don't sharks attack lawyers?

A:  Professional courtesy.

:-)