Mexico: Licensing Computer-Implemented Inventions: Challenges In A Heterogeneous Patent World

Last Updated: 21 February 2012
Article by Héctor Chagoya
Most Read Contributor in Mexico, November 2018

A new virtual reality vs. the patent system

The legal system of every country has evolved through different mechanisms to adapt to technological development and changes. While Civil Law countries adapt the codes to new realities through complex procedures, Common Law countries rely on the interpretation given by courts to the same laws in the light of the new social and technology environment.

Intellectual property rights are inevitably linked to technology advances and development. This is why perhaps they have been subject to international treaties very early, to ensure that all countries will provide protection according to certain basic principles that are expected to be common to all nations. Perhaps the best example of such standardization is the Agreement on the Trade Related aspects of Intellectual Property (TRIPS), which has been adopted by every country that is part of the World Trade Organization (WTO).

In spite of such treaties, the one definition that practically no international treaty includes is the definition of what is considered in each country an "invention". This lack of definition has leaded to different approaches, especially with regard to what is now known as "computer-implemented inventions" in the prosecution and enforcement of IP rights, particularly regarding patents.

Due to the fact that computer programs are subject to copyrights in many countries, but certain procedures may be patented in others, this area of technology is facing great troubles with regard to the certainty and scope of the rights conferred to the owners of intellectual property thereof.

Upon analyzing the development of patent systems, particularly with regard to patentable subject matter, the "tangible" aspect of an invention has been crucial for determining patentability. From the necessity to provide prototypes to the deposit of biological materials under the Budapest Treaty, the need to demonstrate a tangible result, or at least, that someone skilled in the art may reduce to practice an invention, has been one of the requirements of almost every patent system. This need is probably inherent to the definition of invention, conceived as a human creation that must be materialized or has the potential to be materialized. Basically the concept implies that something is not a creation if it lies only in the mind of a person.

Accordingly, in the beginning of the patent systems everything abstract was not considered an invention by default. This includes everything that needs to occur inside the mind of a person, that needs a human being to process information through his mind and then achieve a result or conclusion that is useful to make decisions that may, or may not, have a physical result.

Under this principles, a number of countries exclude from the definition of invention expressly business methods, mathematical methods, game rules, mental acts and the like, as the same occurred in the mind of someone and not in the tangible world, or at least they did not have a tangible effect in general.

However, advances in the processing capabilities of computers, in telecommunications and networks, and in technologies related to sensing all kinds of signals, together with software development that makes all of those operable, have been able to substitute the human mind (and many times humans) in several ways. In fact, all of those elements that formerly occurred in the mind of a person, have become true inventions, in the sense that they do not occur in the abstract arena of the mind, but are actually creations that are meant to occur in a physical instrument, namely, a computer.

This new "virtual reality" has pressured the patent system internationally, and the different patent offices and governments are handling this change differently, but without considering that the old rules were meant to deal with a technology environment that has made possible in the tangible world what otherwise would have been impossible, thus giving birth to new inventions of a different nature.

The different approach that countries are taking towards computer-implemented inventions and the recent changes in the local practices worldwide with regard to patentability of such inventions, imposes a challenge to licensing, particularly in international transactions.

The reason is simple: if the scope of protection is not clear and it changes from one country to the other, licensing strategies become more difficult and the management of a licensing program must take into account such differences.

Furthermore, the telecommunications world has nowadays no frontiers, and the consequences of such lack of frontiers are also a challenge to the patent systems, as will be hereinafter analyzed.

No frontiers?

Cloud computing and augmented reality, constitute perhaps the biggest business trends in the commercialization of computer-implemented inventions arena. Portability of data and interchangeability of systems is one of the key components of services regarding information technologies and the management thereof and all the systems, sensors and methods of all kinds that are developed in connection with such systems and its interaction with humans are driving the future of electronic products.

However, the lack of frontiers in the operation of such systems impose further challenges to the intellectual property systems and, consequently to licensing.

Assuming that all patent systems were homogeneous with regard to the criteria on patentability of computer-implemented inventions, the territorial nature of the protection granted by a patent would still be a difficult element to manage, because very likely not all of the steps of a process or method patent will be performed within the same jurisdiction, and the services derived there from will very likely be sold also outside the jurisdiction where the patent is in full effect.

In fact, even with homogeneous criteria, a patent could have been filed in one country and not in another country for either strategic or financial reasons, but in any case, the technology would be protected in some countries and not in other countries.

Accordingly, enforcement of patents in these areas of technology becomes harder, and the freedom to operate has become a very difficult issue to determine in this kind of technology.

In international transactions, if we consider that the scope of the rights might be different from country to country, worldwide licensing is not a simple task.

Furthermore, the connectivity demanded by users have made standards a must for all the players in the electronics arena, which we all know have tremendous implications regarding anti-trust and licensing of patents that are necessary (essential) for compliance of such standards.

The importance of standardization and the role of the patent system in connection therewith is more important than ever. As in the case of cloud computing, industry standards are applicable beyond frontiers, but patents have only regional effect. Therefore, the scope and need of the licenses of essential patents has become a key factor in the commercialization of electronics and will remain so in the future.

All of the above impose the need of being extremely careful in obtaining IP, managing the same, and of course in licensing strategies thereof, thus challenging IP professionals to develop strategies that can deal with this adverse, or at least complex environment.

Open Source?

Technologies that are derived from open source models pose an ever more difficult task for licensing in the computer-implemented inventions arena.

The combination of open source technologies with proprietary technologies and the difficulties inherent to the activities performed under an open source license are also a further consideration, especially because open source users are usually (with exceptions of course) fierce detractors of the patent system.

Accordingly, handling a licensing program that incorporates somehow open source technologies bundled with proprietary technologies and then trying to commercialize the same pose a further challenge in the due diligence of computer-implemented technologies, because inventorship dilutes and often is difficult to allocate, independently of the burdens or conditions that the open-source license in itself may include regarding ownership of future developments.

As in the cases explained before, both inventorship and open-sources licenses are determined in accordance with the laws of the territory, and therefore international transactions are very difficult when open source technologies are involved.

What to do?

From the IP system point of view, it is important to work internationally in standardizing the scope and kind of rights conferred regarding computer-implemented inventions. Clearly the current rules are blurry enough within jurisdictions and the need for international consensus will increase in importance as commercial activities with these inventions also increases.

Meanwhile, in designing a licensing program based on computer-implemented inventions, at least the following topics must be considered on a case-by-case basis:

a. Consider differentiated licenses market by market.

Even if the licensee is the same for different territories, it makes sense to have differentiated licenses for each territory taking into consideration the scope of patent rights, the applicable standards and the actual source of revenue of the product/service that is finally sold.

b. Consider the territorial source of revenue.

One of the areas that are more consistent regarding international treatment of transactions is taxation. Taxes are usually paid according to what is known as the "source of revenue", which in turn is determined on where is legally located the person that is receiving an income, the person that is paying, and the place where the service or product is performed/delivered. In the cases where it is not clear where infringement based on sales or distribution occurs, because of difficulties in defining the territory where the activities are performed, the source of revenue is a very good tool for demonstrating the territory where the exploitation occurred, which is a better standing in the case of infringement actions. In differentiated licenses by territory, this consideration will also make possible taking advantage of taxation treaties with more efficiency.

c. Consider ownership issues and the potential use of open source or other pooling practices in due diligence.

Due diligence regarding ownership must be very careful and most consider the potential participation of inventors in different countries with different laws and perhaps under obligations imposed by licenses on open source programming.

d. Analyze before obtaining IP the activities that may be performed inside and outside the territories.

Depending on the patent system in the territory, you should analyze always the activities that may be performed outside the territory and the rules for infringement applicable in every market of interest. This will ensure an IP protection strategy with greater possibilities of enforceability, which will give both parties more certainty in a licensing transaction.

e. Analyze before obtaining IP the activities that may be performed inside and outside the territories.

Depending on the patent system in the territory, you should analyze always the activities that may be performed outside the territory and the rules for infringement applicable in every market of interest. This will ensure an IP protection strategy with greater possibilities of enforceability, which will give both parties more certainty in a licensing transaction.

f. If you are licensee, be sure that you pay for what you should.

Especially with patents that are essential for standards, there might be relevant territories where the patent rights are not enforceable or simply do not exist. Accordingly, bundling territories might be considered an anti-trust practice that could or should be avoided. However, consideration of the above recommendations is necessary also because "bundling" might not be the case if different activities are performed in different territories.

Conclusion

Under the current circumstances, patent systems must evolve to develop more homogeneous criteria regarding computer-implemented inventions in terms of scope, patentability and international enforceability thereof.

Unfortunately this does not seem to be occurring soon. In the meantime, factors including the practices on a territorial basis must be considered in developing an IP and licensing program. Even if a transaction is made with a single licensee, there might be necessary differentiated licenses by territory that may take into account the specific circumstances in such territory regarding the breadth and availability of IP rights for computer-implemented inventions.

The environment will still continue evolving, hopefully, towards a more transparent and effective system that will allow business under clear rules for everybody in the computer-implemented inventions arena.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Héctor Chagoya
 
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