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Be Smart About Intellectual Property
Understand the rights, responsibilities, and
pitfalls of using others’ great ideas
By Arthur Zatarain, P.E.
I’m not an attorney, nor do I play one on TV. Yet
my engineering career has often involved legal issues, the most
interesting of which is intellectual property (IP). Inventors and
product developers expect to protect their novel ideas, while others
want to freely use what they consider “prior art” from the public
domain. Expensive legal sparks can fly when those sides disagree. My
recent experience relevant to instrumentation and controls reflects
the fertile ground of IP disputes:
• The simple display of process data from a
connected PLC cost several companies many millions in patent
licensing fees.
• A spreadsheet template to record instrument
testing spawned a $25 million infringement claim.
• Flow computing methods used by a service
provider were claimed to be stolen trade secrets.
• Monitoring of equipment cabinet temperature
infringed a patent for cooling remote computer systems.
• Uninterruptible power supplies connected to
personal computers infringed a data link patent.
Do these samples of recent IP infringement seem
frivolous, and perhaps a bit too familiar? They should, as such
seemingly ordinary technology likely can be found within 100 yards
of your desk. So, the reality is that nearly every industrial
facility is a potential candidate for IP disputes over mundane
equipment and controls.
When pondering your present and future IP
situations, consider these basic questions:
• What are the common risks of intellectual
property?
• How can potential disputes be minimized?
• Who will pay the defense and royalty costs if my
company ever faces a claim?
What is IP?
Intellectual property generally involves patents,
copyrights, trademarks, and trade secrets. Each avenue addresses a
different aspect of novel ideas that are protected by law. For
convenience, this discussion targets patents in an industrial
setting. However, every form of IP has similar concerns that deserve
equal consideration in any IP initiative.
Some wise person (perhaps me, or maybe Dilbert)
noted that “a patent is a good idea.” That seemingly obvious
statement reflects far more than mere words suggest: a patent is
indeed a good idea, but also one that has been granted a period of
sole ownership with the right to charge others for its use.
An often misunderstood IP concept is that an
issued patent, no matter how seemingly trivial, is legally
enforceable. In a practical sense, the alleged infringer is,
therefore, essentially guilty until proven innocent, or until the
relevant patent is invalidated through a costly process. Because the
cost of IP litigation often is rounded to the nearest million
dollars, every instance of IP use – be it intentional or otherwise –
deserves advance consideration throughout the process of automation
system specification, design, fabrication, and ownership.
The legal landscape
Most patents and other IP with easily recognized
novelty earn their revenue through undisputed contracts and license
agreements. Real value is bought and paid for. But I've also spent
time on both sides of legitimate IP disputes that had to work their
way through the legal process before reaching an equitable
conclusion. In my experience, most IP litigation is productive and
far from frivolous. The legal system, therefore, works fairly well
for intellectual property – but often at costs that bring a small
company to its knees.
Unfortunately, a growing trend exploits
not-so-valuable ideas to earn revenue in court rather than at the
negotiating table. The technique uses the high cost of a potential
defense as leverage to dislodge a relatively low license fee, even
for what seems to be a frivolous claim. Therefore, an undisputed
settlement is often the path of least resistance. That no-win
situation is similar to a “slip and fall” lawsuit, but without the
wet floor. Right or wrong, money might change hands without much
resistance.
There’s been a slight reduction in patent
litigation during the recent economic slump (Figure 1). However,
that data doesn’t reflect the many infringement disputes that settle
without formal litigation. The fewer number of actual lawsuits might
reflect only the unwillingness of cash-strapped defendants to fight
a costly legal battle. Because IP risk never gets laid off, the
revenue from claimed infringement is likely immune from hard
economic times.
FIGURE 1
GOES HERE
A trend in check
Figure 1. Intellectual property patent cases had
been rising and it might be only the recession that slowed the
growth lately. (Source: IP Litigation Clearing House)
Three key considerations
The right to use intangible intellectual property
is just as important as the right to use the physical material and
labor that vendors provide. The production and consumption of IP
should, therefore, be addressed adequately in any commercial
agreement to clarify the delivery terms going in, and to secure
future protection going out.
The three key areas to consider include:
• Rights to existing IP
• Rights to IP arising during project development
• Protection from inadvertent infringement, both
claimed and actual, arising from outside parties
Use of preexisting IP
The most common forms of IP found in
instrumentation and controls include device and method patents,
software copyrights, and proprietary technology. These elements
usually are known in advance to project developers, who should
address three aspects of ownership: 1) payment for the intended use,
2) protection of confidential information, and 3) how an initial
agreement carries over to later modifications, additional
applications, or changes of ownership.
Note that the existing IP being negotiated can
belong to either side of a buy-sell agreement, or to a third party
who deserves payment or protection. The intentional use of IP,
regardless of its source, must be accommodated clearly within each
vendor-consumer relationship.
The flow computer dispute referenced above
resulted from inadequate advance agreement between an end user and
the company hired to develop a prototype. Although the technologies
were well established, the developer thought the upfront use of his
unique experience would pay royalties in the future. The end user,
however, expected to own the design outright. Here, a few simple
paragraphs could have eliminated a dispute that neither party
wanted, nor could either of them easily afford.
Newly developed IP
Most new IP evolves over time, often as a
derivative of other work, and frequently involving multiple players.
This already complex arrangement is further complicated when
external parties participate in an internal development process. For
example, the nifty production scheme or handy CAD template you think
you designed for your facility might later be declared proprietary
by an outside contractor working on your team. Without adequate
advance planning, ownership of such disputed IP can be determined
only with a few hurt feelings and lots of legal dollars.
The instrument calibration spreadsheet mentioned
above was developed partially by a low-level contractor who – after
being terminated – claimed it as his own. The disgruntled worker
whipped up a legal frenzy against the multinational company that had
distributed “his” intellectual property around the globe. That
dispute has been underway for several years – in Africa – so you can
imagine the substantial legal costs involved.
Third-party indemnification
Establishing an equitable agreement between IP
supplier and consumer eases concerns over “yours, mine, and ours.”
But what about those other guys whose IP inadvertently finds its way
into your project? Those rights also must be considered upfront,
especially for third parties outside the negotiated vendor-customer
agreement.
To paraphrase Mr. Webster, “indemnify” means to
secure against or make compensation for hurt, loss, or damage.
Unfortunately, the indemnification section in a typical commercial
agreement often is ignored until after a dispute arises. Properly
defining the desired indemnity for IP infringement – including even
a mere claim of infringement – is an important contract element that
should be crafted by experienced legal hands.
Consider the process data display mentioned above.
We've all seen this for decades now: a personal computer linked with
a PLC to form a human-machine interface (HMI). Yet, an obscure
patent for a specific and outdated form of that simple link spawned
an historic dispute over what is sometimes termed the Solaia patent.
Note that the patent owner first targeted the many
individual end users rather than the few equipment suppliers. In
most cases, the inexperienced end users chose to pay a relatively
small license fee rather than risk untold legal dollars. And they
weren't necessarily spending their own money to make those problems
go away; depending on their particular vendor-customer agreements,
those end users could potentially pass infringement costs on to
their suppliers. Therefore, every player in the
designer-supplier-owner triangle had stakes in this dispute.
Accordingly, a few key contract terms might have determined the
swing in millions of defense and licensing dollars.
Eventually, the Solaia patent was invalidated
after suppliers banded together to fight on behalf of their
customers. However, the many millions of dollars accumulated by the
“patent troll” who instigated the litigation remain legendary within
the IP community.
The key lesson here is to establish
indemnification agreements that are practical and fair to all
parties. An owner who expects a supplier to assume risk for
unforeseen infringement should make this clear when an order is
placed. Likewise, a vendor denying IP risk should state so at the
proposal stage.
Indemnity should be a two-way street, and that
street must be open for negotiation based on the dynamics and
economics of individual projects. The indemnification burden is just
another cost of doing business, and is as real as that of licenses
and royalties. That cost should, therefore, be appropriately
addressed well before a jury takes the matter under consideration.
What to do?
From a practical standpoint, standard text
approved by competent legal counsel is the most expedient way to
establish a baseline for IP rights and indemnification. Appropriate
pre-approved terms belong in every specification, proposal, and
purchase agreement.
Unfortunately, such boilerplate clauses can delay
project delivery while various legal egos beat up each other over
tiny details. The best approach is to establish language that's fair
and practical, and remain flexible and involved when negotiations
are required.
Edwin Armstrong, the true inventor of FM radio,
once opined that the American legal system is a world in which “men
substitute words for realities, and then talk about the words.” He
wrote that following decades of costly and endless patent disputes,
shortly before stepping to his death from a 13th floor window. His
inventions have served us well, but his words had let him down. So
keep in mind that the words you write today might become the reality
in which you fight future IP battles. The best legal defense is
often a good offense as you prepare for the IP challenges that you
hope will never come.
Arthur Zatarain, P.E., is an engineering and
operations consultant in
More resources at www.PlantServices.com
Data collection - “Connecting outside the box”
Fuzzy logic - “Fuzzy logic”
Decentralized monitoring - “The power of
decentralization”
I&C trends - “Mighty motes”
I&C options - “Engineer a flexible facility”
Patents - “Safety versus profit”
Interface strengthening - “How to FISH”
Motion control - “Keeping motion predictable”
Automation system flaws - “Outwit control system
gremlins”
Redundant controls - “How to validate critical
controls”
For more, search www.PlantServices.com using the
keywords contract, IP and risk.
End of sidebar 1
Start of sidebar 2
More resources on the Web
General patent research - www.google.com/patents
The Solia patent -
www.controldesign.com/articles/2005/242.html
The original patent troll -
www.law.com/jsp/article.jsp?id=1153299926232
Obscure or ridiculous patents -
www.patentlysilly.com and www.delphion.com/galleryarch
end of sidebar 2
co: An often misunderstood IP concept is that an
issued patent, no matter how seemingly trivial, is legally
enforceable.
co:A vendor denying IP risk should state so at the
proposal stage.
for TOC:
Automation
Be Smart About Intellectual Property
Understand the rights, responsibilities, and
pitfalls of using others’ great ideas
By Arthur Zatarain, P.E.
contact:
Arthur Zatarain, P.E.
Artzat Consulting, LLC
401 Arlington Dr., Metairie, LA 70001
504-837-3090
arthur@artzat.com
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