Written by: Suzanne Van Arsdale
Edited by: Michelle Sohn
On May 21, 2013, Twitter launched version 1.0 of the Innovator’s Patent Agreement (“IPA”), which formalizes a company’s commitment to non-offensive patenting and leaves some control in the hands of inventors.
This Comment addresses the incentives for and legal implications of adopting the IPA. Part I broadly discusses the content of the IPA and its adoption. Part II reviews the software industry’s concerns and current practices. Part III examines the practical effect of adopting the IPA, its scope, and its binding and defensive nature. Part IV reviews other defensive patenting mechanisms and compares them to the IPA.
I. An Introduction to the IPA
a. What is the IPA?
Twitter introduced the IPA on April 17, 2012 on the Twitter blog. The agreement was drafted by Ben Lee, legal counsel for Twitter, and was reviewed by other attorneys, including Julie Samuels, staff attorney with the Electronic Frontier Foundation (“EFF”). It has undergone edits on GitHub since, with a forum dedicated to raising and closing “issues” with the agreement. Twitter launched version 1.0 in May 2013, and licensed it under a Creative Commons Attribution 3.0 Unported License. The license allows users to share and “remix” the agreement as long as they attribute it to Twitter.
Under the IPA, a company agrees not to assert any claims of one or more patents, unless for a “Defensive Purpose.” “Defensive Purpose” is defined broadly to include lawsuits (1) against an entity that has filed, maintained, threatened, or voluntarily participated in a patent infringement suit against the company, (2) against an entity that has done so against anyone in the past ten years, unless done defensively in response to a patent litigation threat, or (3) filed to deter a patent litigation threat against the company, users, affiliates, customers, suppliers, or distributors.
To enforce this, the IPA grants inventors a license allowing them to grant nonexclusive sublicenses to a party being improperly sued by the company in violation of the IPA. Such a sublicense must be granted without threat or additional consideration, otherwise it is void.
Twitter has agreed to adopt the IPA for all of its patents, but companies can opt to use it on a case-by-case basis by adding it to employment contracts or adopting it for specific patent applications. The “Quick Start/Deployment” guide recommends recording the IPA with the Assignment Services Division of the U.S. Patent & Trademark Office (“USPTO”).
b. Adoption in the Software Industry
Twitter has applied the IPA to its recently assigned U.S. Patent No. 8,448,084 (“the ‘848 patent”). Loren Brichter developed the pull-to-refresh feature for popular Twitter app Tweetie while working at atebits, a company he founded. Brichter was concerned about how the patent would be used, so when Twitter acquired Tweetie in 2010, he asked them to agree to never use it offensively as part of the terms of sale. Under IPA Version 1.0 § 1, the agreement will also apply to divisional, continuation, and other related applications, which would include U.S. Patent Application No. 13/770,979 filed on February 19, 2013 (according to continuity data for the ‘848 patent in public PAIR). Twitter has promised to implement the IPA for all patents issued to its engineers “both past and present,” so it should also apply to the one other patent assigned to it, U.S. Patent No. 8,401,009.
Other companies, including Jelly, Lift, Stack Exchange, and TellApart, have also adopted the IPA, and Union Square Ventures and Spark Capital have talked to their portfolio companies, hoping that they will choose to adopt it.
II. Industry Context and Incentives
a. Standard Employment Contracts[i]
Standard employment contracts generally assign full intellectual property rights to the company.[ii] The company can then decide whether to file a patent application and how to use those rights, independently of the inventor’s wishes. These provisions tend to be widely disliked in the open source community, where source code for software is freely redistributed, without limitation to a specific product or restrictions on use, and modifications and derived works are allowed. Some employment contracts, such as the one signed by Docracy engineers, allow inventor ownership of side projects or contribution to open source projects.
b. Software Companies and Inventor Motivations
While contributors to open source projects and communities often reject proprietary models of innovation underlying the patent system, developers of closed source, or proprietary, software also share concerns about the system.[iii]
Julie Samuels with the Electronic Frontier Foundation (“EFF”) notes that “[e]ngineers and inventors tend to feel most uncomfortable with the way the patent system works. They’re not lawyers, oftentimes they’re not businesspeople. [The IPA] gives them some assurance their inventions won’t be used in a harmful manner down the road.”
One inventor whose software patent was subject to litigation commented on TechDirt that “It’s a complex issue. I don’t think they are inherently bad, however the loose examination standards and a lack of guidance from the courts let a lot of bad patents through.” Others, including Marc Cuban, propose eliminating software patents completely. According to one report on National Public Radio, software engineers believe that the patent system hinders innovation and issued patents may be so broad that “everyone’s guilty of infringement.”
Companies that adopt the IPA may also attract more competitive talent interested in how their intellectual property is used. Innovators reassured by the agreement may also be more likely to disclose and facilitate patent applications, rather than being concerned about how their ideas would be used. Absent such an agreement, engineers may choose not to patent particularly interesting things because they would be more useful to the industry as a whole.
Software companies have also attempted to minimize or discourage lawsuits. Newegg and Twitter have fought back against patent trolls. When Facebook acquired 750 patents from IBM in March 2012 in light of investor scrutiny and in anticipation of additional patent lawsuits, it asserted them only after Yahoo filed a patent infringement suit.
c. Software Patent[iv] Concerns and Proposed Reforms
The IPA comes at a time when patent trolls and patent wars threaten to slow innovation and discourage engineers from applying for patents. Some view software patents as a barrier to entry and tax on innovation, with patent thickets and trolls[v] preventing companies from introducing innovative software to the market for fear of being sued.
The EFF has proposed substantial changes to the patent system through its Defend Innovation campaign, including shortening the length of software patents, requiring running code in patent applications, and codifying an innocent infringer defense. Government bodies have tried to address these issues with studies and proposed legislation[vi], and the Federal Circuit has even published a model order to stem “excessive” patent litigation.
III. Practical Effect of Adoption
a. Commercial Flexibility
Whether the IPA is feasible for a company depends on several factors, including the business model and long term goals. For example, a company that generates substantial revenue from patent licensing fees will lose more. The agreement terms allow inventor sublicensing, which could also make it difficult to build or maintain a licensing program, particularly when potential licensees know that it cannot easily assert patents.
Twitter responded to concerns about the IPA destroying corporate value, suggesting that it is practical for companies whose business model “is based on competing by innovating and providing the best product or service.” Since the IPA allows unrestricted use with the inventor’s consent, a company could still use patents offensively if the inventors agree that it is necessary, such as for a developing startup that needs the flexibility.
However, Karl Barnfather, a patent attorney at Withers & Rogers, argued that the IPA could harm Twitter’s commercial development and flexibility in the business landscape. “For example, the company could find it more difficult to draw up inter-company commercial agreements in the future because in certain circumstances the inventor would need to be included as a party . . . . The fact that the inventor owns the patent rights could also impact on the perceived value of the business if it is later seeking financial investment or wants to dispose of some assets.”
b. Intellectual Property Ownership, Licensing, and Litigation
The IPA has sparked debate over whether it will foster innovation by keeping patents defensive and giving inventors real control or simply serve as posturing, without real enforceability or recourse for inventors.
i. Carve Outs and Loopholes
Marco Arment, inventor of Instapaper, assessed use of the IPA as “a nice sentiment, but the loophole potential is simply too great, and it doesn’t (and can’t) address the fundamental problems and dysfunction in the patent system.”
The definition of “Defensive Purposes” is especially troublesome. Section 3(b) considers claims against a company that has “voluntarily participated in a patent infringement lawsuit” to be defensive, unless the company sued in response to a patent litigation threat. This phrasing allows companies to take action against patent trolls; however, voluntary participation is ambiguous and does not address how to handle defendants with counterclaims or cross-claims. The test for whether a lawsuit was filed to “deter a patent litigation threat” is subjective, and that exception could be invoked at almost any time by the company. Since many of the major software companies have been involved in patent infringement litigation in the past 10 years, even a narrow definition of defensive purpose would likely allow suit.
If the company intends to file suit that is not for a defensive purpose it must obtain “prior written permission” from all inventors. The IPA does not specify permissive language, leaving the scope at the company’s discretion. This provides some flexibility in allowing the company and inventors to negotiate permission for an initial lawsuit and stages of appeal, narrowed to specific claims and defendants. However, it also presents an opportunity for overbroad permission, effectively contracting out the inventor’s discretion to grant a sublicense.
ii. Company Influence on the Innovator
If a company wants to assert the patent for a purpose that is not “defensive”, then it must obtain inventor consent. Section 3 of the IPA requires the “prior written permission from all of the inventors without additional consideration or threat.” In Startups and IP Strategy, Leonid Kravits voiced concern that “while an inventor remains an employee of the company, management has significant control over the actions of the employee, especially if the employee is looking to advance their career. It appears unlikely that employees would be able to deny the use of the assets if management feels it is in the best interests of the company to do so.” A “best interests” argument would be particularly strong when the infringement is obvious and the infringing company is in direct competition, although the inventor may request a cease-and-desist letter before consenting. After giving permission, the inventor would be unable to grant the defendant a sublicense to use the invention under section 5.
If another company were aware of the potential lawsuit, nothing in the IPA would prevent it from compensating an inventor to withhold consent. Similarly, an inventor could withhold consent to sue a new competing company, even one founded by the inventor. However, once the lawsuit commenced, any sublicenses granted with “threat or additional consideration” would be considered void ab initio per section 5.
iii. Assignment and Licensing
Although the IPA mentions exclusive licensees in section 3, any licenses granted by the company or sublicenses granted by the inventors would likely be non-exclusive by virtue of inventors’ ability to sublicense. Licensees would thus lack exclusionary rights and standing to sue or join a suit for patent infringement.[vii] State law would control licensure and any other transfer of ownership not deemed an assignment.[viii]
Assignments[ix] would be subject to section 5 of the IPA, which reserves in the inventor some rights to the patent, e.g., the ability to grant sublicenses. The agreement explicitly states that its promises are “intended to run with the Patents and are binding on any future owner, assignee or exclusive licensee who has been given the right to enforce any claims . . . . Assignee covenants with Inventors that any assignment or transfer of its right, title, or interest herein will be conveyed with the promises herein as an encumbrance.” This clause makes the IPA binding on the company and any assignee, regardless of change in management. In the event of bankruptcy or liquidation, the assignment would remain subject to that provision, and inventors would retain their license to sublicense.
iv. Reliance on Trade Secrets
Since patent applications and the final patents are published, adopting the IPA could have the unintentional result of forcing companies to rely upon trade secrets to avoid competition. This would be particularly tempting when the invention solves a known and difficult problem and could not be easily reverse engineered. Kilpatrick Townsend & Stockton discusses factors a company should consider in choosing between patent and trade secret protection, although a mix of the two can be used to maximize protection.
Increased reliance on trade secrets would shift business practices for employees, as protecting a trade secret requires reasonable protective measures more burdensome than patent disclosure. Enforcement mechanisms also vary, as employers have the option of contacting authorities to initiate criminal proceedings or pursuing civil causes of action.
Dale B. Halling warns in State of Innovation that “[t]rade secrets decrease innovation, because the information is not shared. Inventors cannot build on the work of previous inventors and they are more likely to waste resources rediscovering other people’s work (reinventing the wheel).”
v. Alienability and Inheritance
An inventor may also be concerned about the alienability of the license to sublicense and requirement for consent to sue. According to section 5 of the IPA, the license is not assignable; however, the inventors may appoint a representative to act on their behalf in granting sublicenses. The license passes to the inventor’s heirs upon death, but “heirs” is not defined, potentially leaving it to intestacy statutes to provide meaning, and the inventor with no choice but to leave it to those who would inherit the estate if there were no will. The inventor may still be able to provide a living will to instruct the heir on how to use the sublicensing discretion or appoint a representative, although validity would depend on state statutes.
The downsides of this limitation are somewhat mitigated by fixed patent terms — utility patents are limited to seventeen years from issue or twenty from filing, and design patents to fourteen years from issue (both subject to patent term adjustments for delay and other circumstances).
IV. Alternative Defensive Strategies
A purely defensive approach would be to simply publish the invention. Under the America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011), the publication would be an immediate bar to patentability by others under 35 U.S.C. § 102(b). This approach has been adopted by many smaller companies, which simply publish more of their work to create prior art, which narrows the scope of other parties’ patents on related technology. Not filing patent applications frees time, money, and other resources to focus on development, customer service, and more effective business processes.
Contributing the inventions to the public domain through publication would present ideas to the public earlier and possibly more fully than a patent publication, and could deter litigation more broadly. However, the IPA presents an intermediate that enables countersuit and retains an intellectual property asset, making the agreement more palatable to boards of directors.
b. Patent Pledges
Companies can also promise not to assert the patents under certain conditions by making a promise to an individual for a specific patent or by distributing the benefit to an open source community. Red Hat promises not to enforce its software patents against “Open Source/Free Software,” and IBM and other companies have made similar pledges. However, it is unclear how enforceable these pledges are, since they require no reciprocal agreement.
When inventor Andy Baio helped file patents applications for Yahoo, he was assured that the patent portfolio was a “precautionary measure.” After Yahoo sued Facebook in 2012, he stated in Wired, “I’m embarrassed by the patents I filed, but I’ve learned from my mistake. I’ll never file a software patent again, and I urge you to do the same.” Unlike similar pledges of defensive purposes that may not be enforceable, especially when complicated by change in management or bankruptcy, the IPA is designed to stay with the patent, even if the company sells or transfers the patent to another company.
Agreements like the IPA allow the inventor to rely on a company’s promise to use the patent only for defensive purposes, rather than being disappointed to discover an aggressive lawsuit later.
c. Defensive Patent License
The IPA bears similarities to the defensive patent license (“DPL”) proposed by Jason Schultz and Jennifer Urban. The DPL is geared toward Open Innovation Communities and is similar to the copyleft Creative Commons licenses and GNU General Public License. The DPL would grant DPL users a perpetual, worldwide, royalty-free license to every other DPL user’s current and future patent portfolio. As with the IPA, DPL users would forgo offensive patent infringement actions against other DPL users and bind successors-in-interest. Unlike the DPL, the IPA does not rely on network effects, so any company can use it effectively, regardless of adoption by others.
d. Patent Protection Groups
Organizations and companies can also gather patents to aggregate enforcement. The Open Invention Network adopts this approach by making its patents available to an individual or entity royalty-free in exchange for an agreement not to assert patents against the Linux System. Since this strategy focuses on a specific technology and relies on aggregating patents within one trusted organization for enforcement, it could be costly and burdensome to apply across the industry.
The patent system still needs fundamental changes to deal with the flood of low quality software patents and the rise in patent trolling. IPA author Lee acknowledges that loopholes exist, and that the agreement is a balance, but he’s proud of its role in involving engineers and giving them some voice in the patent system. In The Verge, he comments that “[s]o many engineers are taught to just not even bother looking at the application — to just sign and pretend it doesn’t exist. That’s not good. They’re not part of the process in a way where they can actually help the situation.”
While the IPA does not appear to pose any real restrictions on Twitter and other adopting companies, the message that it sends may reflect and influence the direction they will take. The agreement is a promising development that begins to empower innovators and promote innovation by superficially addressing concerns about how technologies are used, while still protecting companies’ business interests. One of the goals of the IPA is to spur constructive dialogue on making the patent system work better for companies, inventors, and policymakers, and the wealth of commentary and initial adopters suggests that it has succeeded there.
The IPA may initially be more popular with companies, like Twitter, that have a smaller patent portfolio and startups that have a more personal relationship with engineers, who might have a larger say and more flexibility in their contract terms. If similar agreements are widely adopted and companies stand by the underlying principles instead of exploring the boundaries of the agreement, there should be fewer lawsuits, more competition, and more input from inventors about the direction of intellectual property policies.
[i] For a discussion of contracts assigning intellectual property rights for independent developers, see Thomas H. Buscaglia, “The Game Attorney,” IGDPA IP White Paper: IP Contracts that Independent Developers Sign, The Game Attorney, http://www.gameattorney.com/gamearticle7.htm (last visited Jun. 29, 2013). The Institute of Electrical and Electronics Engineers also created a guide to familiarize employee engineers with intellectual property and pre-invention assignment agreements. Orin E. Laney, Intellectual Property and the Employee Engineer, IEEE-USA Professional Guideline Series (2001), available at http://www.ieeeusa.org/members/IPandtheengineer.pdf.
[ii] See Ann Bartow, Inventors of the World, Unite! A Call for Collective Action by Employee-Inventors, 37 Santa Clara L. Rev. 673, 683–84 (1997) (“Almost every technologist . . . of an American company involved in any sort of research is compelled to sign a pre-invention assignment agreement as a condition of employment.”), available at http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1473&context=lawreview; see also Marc B. Hershovitz, Unhitching the Trailer Clause: The Rights of Inventive Employees and Their Employers, 3 J. Intell. Prop. L. 187, 197 (1995) (“[E]mployers frequently require employees to sign ‘intellectual property agreements as a condition of employment.”).
[iii] Karl Barnfather, a patent attorney at Withers & Rogers, stated “[i]n my experience, inventors are not really interested in owning patent rights as such. They are much more interested in the kudos of being named inventor and in being rewarded for their endeavor . . . .” Twitter’s Move to Gift Patent Rights to Inventors Could Prove Limiting Commercially, Withers & Rogers, IP News in General (April 20, 2012), http://www.withersrogers.com/news/251/112.
[iv] Questions about software patentability were raised as early as the 1960s. S. Comm. on the Judiciary, Subcomm. on Patents, Trademarks, and Copyrights, Rep. of the President’s Commission on the Patent System, S. Doc. No. 5, 90th Cong., 1st Sess. at 13 (1967), available at http://digitalcommons.law.scu.edu/historical/9/. The Federal Circuit first held in In re Alappat that an algorithm implemented in a general-purpose computer is patentable. 33 F.3d 1526 (Fed. Cir. 1994), available at http://www.utexas.edu/law/journals/tlr/sources/Issue%2089.5/Golden/fn161.InReAlappat.pdf. This led to a flood of software patents, with the number granted per year increasing dramatically, with around 40,000 granted in 2009. James Bessen, A Generation of Software Patents, Boston University School of Law Working Paper No. 11-31, 26 Fig. 1 (June 21, 2011), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1868979. In CLS Bank v. Alice, a divided Federal Circuit voted to strike patent claims to a “computer system” hinging on whether an abstract idea can be patented by claiming a computer system that implements it. CLS Services Ltd. v. Alice Corp. Pty. Ltd., No. 11-1301 (Fed. Cir. May 10, 2013), available at http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1301.Opinion.5-8-2013.1.PDF; see also Dennis Crouch, CLS Bank v. Alice Corp: Court Finds Many Software Patent Ineligible, PatentlyO (May 10, 2013), http://www.patentlyo.com/patent/2013/05/cls-bank-v-alice-corp-court-finds-many-software-patents-ineligible.html.
[v] Lawsuits by patent trolls comprise the majority of new patent cases and demand letters in 2012 exceeded 100,000, with targets ranging from Fortune 500 companies to corner coffee shops and regular consumers. Gene Sperling, Taking on Patent Trolls to Protect American Innovation, The White House Blog (June 4, 2013 1:55 PM EDT), http://www.whitehouse.gov/blog/2013/06/04/taking-patent-trolls-protect-american-innovation; see also Colleen V. Chien, Patent Assertion Entities, Presentation to the Dec. 10, 2012 DOJ/FTC Hearing on PAEs, 33 (December 10, 2012), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2187314.
[vi] President Obama has spoken about patent reform, the White House released a study on the issue, and in January 2013 the USPTO published a Federal Register Notice of roundtable events and request for comments on software patent quality. In February 2013, Representative Peter DeFazio sponsored the SHIELD Act to the House of Representatives. The bill is similar to the EFF’s fee shifting proposal, and would deter patent trolls by requiring them to pay legal fees if their patent is invalid or if there is no infringement. Senator Schumer also introduced the Patent Quality Improvement Act, which would amend the America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011).
[vii] See Sicom Systems, Ltd. v. Agilent Technologies, Inc., 427 F.3d 971, 976 (Fed. Cir. 2005) (“A nonexclusive license confers no constitutional standing on the licensee to bring suit or even to join a suit with the patentee because a nonexclusive licensee suffers no legal injury from infringement.”).
[viii] Sky Technologies LLC v. SAP AG, 576 F.3d 1374, 1379 (Fed. Cir. 2009).
[ix] The assignment would have to meet the requirements of the Manual of Patent Examination and Procedure (“MPEP”) § 301 by transferring the entire “bundle of rights that is associated with the ownership interest.” See Minco, Inc. v. Combustion Engineering, Inc., 95 F.3d 1109, 1117 (Fed. Cir. 1996) (citing Waterman v. Mackenzie, 138 U.S. 252, 255 (1891)). Since the IPA restricts patent enforcement, future assignments may be valid as conveying “substantial rights.” Vaupel Textilmaschinen KG v. Meccanica Euro Italia S.P.A., 944 F.2d 870, 874–75 (Fed. Cir. 1991).