A key part of maintaining a strategic technical advantage is intellectual property. Intellectual property forms a “barrier to entry” that keeps competitors at bay. Careful attention to intellectual property (both your own and that of others) will prevent a number of future problems. Remember that to make money you must create a situation where you essentially have an advantage in the marketplace that is difficult for your competitors to overcome. You need the breathing room to develop your solution and your market. This is particularly true when the potential competitors are very much larger than you are.
warning: There are a number of legal issues in this post. This post is no substitute for good legal advice.
A key concept about intellectual property is that it only gives you the right to sue someone for violation. You cannot force anyone to do anything. Intellectual property only allows you to stop other people from doing certain things and provides legal remedies for what they have done. Also these posts should not substitute for good legal advice. The purpose of this discussion is to help you craft an intellectual property strategy. To execute your strategy, find good legal counsel.
This overview of intellectual property is based on U.S. law. Other countries vary in detail but the principles are generally similar. Again, consult a lawyer for details.
Types of intellectual property
There are four types of intellectual property that relate to a software business. They are:
- Trade Secret
Trademarks are essentially part of the branding of your product and are more part of your marketing effort than your technology effort. They will not be discussed here.
A trade secret is the simplest form of intellectual property to obtain. Just don’t tell anybody. Legally there are three components to a trade secret
- Information that is not publicly known (a secret)
- Reasonable measures have been taken to protect the secret
- The secrecy provides economic value
A trade secret must actually be secret. A trade secret can be applied to any information that is known only inside of your company or shared only in protected ways. The secret also must be protected in reasonable ways. For example, posting a secret on a website that does not have password protection would probably damage your rights to trade secret protection. However, your protection does not need to be impervious, just reasonable.
A trade secret gives you the right to sue someone who reveals your secret. This is important because if you give a secret to someone who has few assets, any legal remedy against such a person will probably not compensate your loss. You do not get to sue anyone who knows your secret, only those who obtained or revealed the secret by illegal means.
Advantages of trade secrets
- There is no time limit on your protection. It is protected for as long as you keep it a secret.
- There is no registration of the secret. You do not need to do anything other than maintain secrecy.
Disadvantages of Trade Secrets
- Once the secret is legally known you have no protection. Once it is illegally known you only specific protection from those who revealed or illegally obtained the secret.
- If someone independently develops the same information, you are not protected.
- If someone reverse engineers your technology, you are not protected.
Actions to protect trade secrets
Always label anything that you want protected as a secret. This includes documents, code, studies, data, etc. If it is clearly labelled then nobody can use the defense that they did not know this was secret. Note that the mere labeling of something as secret only helps if you can prove that someone stole your secret. To make the labeling effective, you need non-disclosure agreements with anyone who shares the secret. It is the non-disclosure agreement that gives you contractual grounds for a law suit.
Limit people who have access to the secret. If everyone in the company knows the secret or has access to it, your secret will get out (if it is valuable) and your recourse against individuals is limited by their assets.
In all of your contracts, include language that specifies that information marked as secret cannot be disclosed. Anyone who has access to your secrets should sign a non-disclosure agreement (NDA). This is a reasonable protection of the secret and gives you grounds to sue them and/or their corporation if the secret is revealed.
Use of trade secret protection
In a software business, trade secrets are a good option for algorithms or data that drive your solution. Other forms of protection are less robust in their protections. Copyright protects your code but does not protect you from someone rewriting that code in a different way even if it uses the same algorithm. Patents will not protect against a solution that takes a different approach. Data cannot be copyrighted or patented. A particular way of organizing the data can be copyrighted but any other organization is legal once they know your data. Trade secrets are a good option for these kinds of materials. Patents can be used to protect algorithms, but there is a difficulty when trying to discover infringement as will be discussed below.
Any original work of authorship that you create is yours for your lifetime + 70 years once it has been “fixed in a tangible medium”. If you created the information for hire at the direction of a company (this applies to employees and sub-contractors) then the copyright is good for 95 from first publication or 120 years from first creation, whichever is shorter. Copyright applies to many things such as software, web pages, images, video, music, paintings, etc.
Advantages of copyright
- No registration required. When you create the work it is copyrighted. However, if you do register the copyright it can help increase the damages you receive.
Disadvantages of copyright
- Protects the actual work, but not the ideas behind the work
Anyone can read your copyrighted materials, learn something from them and then recast them in a different form. That does not violate your copyright. In the software world it is common for one company to look at another company’s code and then rewrite that code in a similar way using different names and comments. This does not violate copyright.
It is possible to use copyrighted information without the permission of the copyright holder under the provisions of fair use. If you are making a profit from “fair use” of copyrighted material, make sure you have obtained legal counsel. Here are some principles that are applied when deciding whether something is permitted under “fair use.”
- Purpose of the use: commercial, educational or criticism. Using material for profit is generally not protected. Using material for teaching about it or as part of some other teaching discussion generally is protected. Quoting copyrighted material for the purpose of comment or criticism of generally is permissible.
- The amount of the work used. Copying whole chapters or entire algorithms is generally not permitted. Quoting or displaying small excerpts generally is.
- Effect on economic value: If the copying generally diminishes the economic value of the copyright, that is generally not permitted. The test her is not whether it hurts the value, as in negative reviews, but whether the copy offers an alternative to buying whatever the copyright protects.
Fair use is a legal defense when you have been accused of copyright infringement. If you claim fair use then your are admitting infringement but arguing that you should not pay damages.
Copyright cautions for software
In building a software business, copyright generally is your friend. Copyright is the primary legal remedy for software piracy. People cannot copy your code, websites, manuals or anything else without your permission.
There are cases where copyright can hurt you. Make certain that images, music or other materials included in your software or website are not protected by copyright. Copyright holders are generally positive about giving you permission in exchange for a small fee. They can be quite brutal when suing you after the fact.
Code copyright is a special problem for software developers. When schedules are tight and deadlines must be met, developers may reach for a piece of code that they found on the web or in a source code repository. Developers are frequently not careful in checking the copyright of such code. This can lead to a painful lawsuit or block a sale of your company when someone does due diligence on your source code in an acquisition. Be particularly careful of “copyright viruses.” There are open-source licenses that specifically make your code open source if you use their code in yours. This can prevent you selling your software at all because of that code use.
Patents are a mechanism for protecting your inventions or ideas in exchange for you disclosing those ideas to the public. Governments offer this protection both to protect your ability to benefit from your invention but also to make knowledge of your invention available so that others may build upon it.
Patents are important to a technology business but they require more detailed treatment that we can do here.