Build Your Companies Intellectual Portfolio 

In Silicon Valley and many other technology centers in the United States and increasingly in other parts of the world, significant seed or early-stage investment capital is being placed in emerging electronics, chips, systems, and software companies.  The perceived valuation of each prospective investee company, at least from the point of view of venture capital firms or other early-stage investors, may vary significantly depending on many factors, such as quality of management team, market size and opportunity, and strength of technology position.  Increasingly, one key factor that often influences investor decisions is the quality and scope of the prospective company’s intellectual property portfolio.

For system or chip design and related tool companies, the process of ensuring strategic intellectual property rights protection can be a difficult task to manage, and especially, value.  Beginning with the start-up company’s business plan or executive summary, keen interest by the investor audience, (as well as other members of the startup company, who may be being recruited,) is directed at the proprietary technical and marketing advantage of the new venture.  Often, such strategic innovative information is presented in the proposed business plan, for example, under the proprietary technology or product definition section in the plan. 

During the early funding stage, for example, before any chip design or tool products are actually built or delivered, substantial company value may be already generated, at least potentially for seed or early-stage investment purposes, when the company’s intellectual property is initially defined and organized.  Preferably, preliminary technical concepts and other raw business ideas are identified, organized, prioritized, and described for future or immediate patent filings.  In the case of system, electronics, or software companies, technical or performance breakthroughs, solutions, or improvements in architectural, logic, or circuit designs are documented, thereby serving potentially as primary bases for patent protection. 

For many start-ups, early-stage company valuation may be significantly enhanced by an aggressive effort by the management team to document invention disclosures for patent protection – not just their original technical and engineering concepts, but also any related proprietary business advantages, such as new design and transaction methodologies, user or third-party interfaces and protocols, and emerging industry platforms or architectural trends.

Strategic intellectual property portfolio-building should also focus on current and likely competitive activity.  Under U.S. patent practice, it may be possible for a patent applicant to file claims directed at or related to various conceptual aspects of emerging industry standards as well as competitors’ future technologies or product functions and features, as long as the applicant is, in fact, the first one to invent the claimed ideas, and such ideas are deemed new and “unobvious.”  

Although no actual reduction to practice or prototype verification of the invention is required, the applicant is still required to describe how one would make and use a preferred embodiment of the invention, at least in writing and preferably illustrated in various technical drawings.  This offensive type of patenting strategy may produce important patents which may impose compelling blocking or licensing effects on emerging industries and competitors, but requires significant early engineering and/or marketing insight with respect to how various products and industry practices are likely to unfold.

To maintain a dominant intellectual property position, the company should routinely monitor internal and external technical and business developments for possible patent filings.  Depending on which countries the company or its competitors currently or plan to conduct business operations, the scope of the company’s international patent filings may also influence potential investor valuation.

In addition to considering the strengths and weaknesses of a new business venture, investors often look carefully at the overall scope and enforceability of the venture’s intellectual property rights portfolio.  Since patent rights may typically take a number of years, if at all, to obtain after the initial filing, it is important to understand and perfect other appropriate legal forms of intellectual property rights which may be available for protection in the meantime, such as copyrights, trade secrets, maskworks, and trade secrets.  Such other non-patent rights, however, tend to provide less or no effective means for protecting conceptual or functional innovations.

Of particular strategic value to start-up companies is the effective protection of the company’s proprietary system or chip architecture and design methodologies.  Here, legal protection usually needs to focus on patenting various high-level architectural aspects and functional abstractions of the system design, as well as the overall methodology for generating, verifying, and prototyping such system designs.  Such system architectural concepts may be patented when presented as unobvious apparatus or methodology, typically having some combination of components or operations that define some patently novel invention.

Moreover, in some system or circuit applications, patentable architectures and methodologies may arise in so-called multi-modal or otherwise functionally distributed implementations, such as client-server networks, partitioned hardware-software functionality, wireless base station-handheld unit communication systems, and various embedded processing functionality.  Here, multiple patent claims scope may be drafted and targeted to cover various dimensions, combinations, or other functional slices of such distributed technologies.  Depending on how particular industry practices eventually become deployed or adopted, such distributed claiming strategy may actually define and protect critical functions or operations, such as signal processing paths, communications protocol, or network gateways.

A recent court ruling of the Court of Appeals for the Federal Circuit, Festo et al. (November of 2000) has become a landmark event for the patent community, because the Festo ruling has changed the interpretation of the doctrine of equivalence.  Specifically, if any claim amendment is made (e.g., claim amendments made in response to an Office Action), then the doctrine of equivalence no longer applies, even if the amendment was a merely technical correction, not to overcome prior art.  As a result, claim amendments potentially narrow the enforceable scope of a patent, and patent practitioners need to avoid them where possible.

In practice, however, during the patent prosecution phase, negotiation with the Patent Examiner on reexamining rejected claims often necessitates claim amendments.  As such, according to the Festo ruling, the patent application in question is prevented from using the doctrine of equivalence. 

Fortunately, even when accepting that claim amendments are often unavoidable, several strategies still exist for retaining the effect of the doctrine of the equivalence

For example, one strategy is to load up the patent application with additional embodiments, then draft independent claims corresponding to these additional embodiments.  In so doing, probability is increased that certain independent claims might not be rejected at all.  As such, the rejected independent claims are simply canceled, leaving the remaining independent claims as is without making claim amendments.  Consequently, because no claim amendments have been made, the patent application still enjoys the doctrine of equivalence

As another example, another strategy is to intensify the effort in performing prior art searches.  By performing a comprehensive prior art search, a patent application can be drafted in anticipation of the prior art that the Patent Examiner is likely to cite against the patent application.  In so doing, the chance of having rejected claims is reduced, thereby reducing the chance of having to amend the claims. 

Searching for prior art can be something of a black art in itself.  The principal difficulty lies in the definition of prior art.  Under Title 35 section 102a of the United States Code, a patent can be invalidated if “the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country.” So, just about any document, written in any language, located anywhere in the world can qualify as prior art, as long as it was in some way publicly available.What this means is that most of the universe of potential prior art documents are not available in digital form, in databases, or on the Web. By all means, one should search the US patent office filings and those of major foreign offices for patents.  And one should definitely comb the available fee-charging databases for prior art documents and references to them.  But there will always be a nagging uncertainty over whether one has captured every document that could later be used against the patent if the patent is ever challenged. 

BountyQuest is a relatively new company that has developed a method for flushing out obscure and hard-to-find prior art, including foreign patents, as well as documents that are only available in print.  For those looking for “one stop shopping”, BountyQuest offers a range of traditional search services through on-staff attorneys and information professionals who manage search protocols that include patent database searches, non-patent database searches, and expert searching using human beings.  BountyQuest’s core service is a community-based Web site that allows companies and law firms to post precise descriptions of the prior art they are seeking, along with large cash rewards, starting at $10,000, as a powerful incentive.  The prior art request is broadcast to a worldwide network of thousands of scientists, engineers, entrepreneurs, graduate students and other academicians, and even patent attorneys, who vie for a chance at the cash award.  The first to submit matching prior art wins the cash award.  Staff attorneys flesh out the core service by managing the entire search process, including private searches conducted using old channels. BountyQuest essentially has a “human search engine” approach.  That approach has already unearthed things searchers don’t find with a conventional search engine.  As an example, an online advertising pioneer submitted his own business plan and prospectus from his failed attempt to form an Internet ad-serving empire similar to what DoubleClick later successfully established.  Another hunter, an executive in a laboratory automation company, sent in a copy of a Japanese patent.  While the abstract of that patent is available online in English, the body of the patent, where the winning references were located, was only available in Japanese.  A combination of a traditional search through reference documents and online resources, combined with a posting on BountyQuest, say, is probably the best way to insure the most comprehensive prior art search.  In doing so, one can both avoid the negative consequences of the Festo doctrine and simultaneously establish the true value of the intellectual property portfolio in question


DENNIS FERNANDEZ is a partner at Fernandez Associates LLP, a specialty patent law practice based in Menlo Park, CA.  Dennis is a registered patent attorney and has an Electrical Engineering Degree from Northwestern University and Law Degree from Suffolk Law School.  He can be reached at dennis@iploft.com. 

 CHARLES CELLA is CEO of BountyQuest Corporation, a Boston firm funded by Jeff Bezos and Tim O’Reilly that specializes in patent research services. Charles is a registered patent attorney and has a physics degree from Princeton, University and a law degree from University of Virginia. Before forming BountyQuest, he practiced law at Foley, Hoag & Eliot in Boston. Cella can be reached at ccella@bountyquest.com