To NDA or Not to NDA, this isn't really a question...

There is a stain of thought, one prevalent in the venture capital community and elsewhere, that NDAs some how mark you as a novice, neophyte, or worse, a rube.

This line of thinking starts from the moderately dubious premise that VCs are all honest money, and they are too busy being efficient stewards of capital flow to even contemplate, let alone effectuate, the misappropriation of the finer points of your next big thing(TM). Secondly, the argument flows, if investors signed NDAs, what is to stop jilted Founders from suing them every-time the failed to back their company over a competitor. "Law suits are expensive, and we just don't want to risk exposure for an unlikely event."

I tend to find this reasoning akin to a hotel telling its customers that they don't provide locks to the room doors. The reasoning would be "Locking your door is, in essence, an insult to the ethics of our employees, and it passes a cost in terms of "locks" onto hotel, which is impermissible." Agreeing to this is totally reasonable, right? The odds that someone is going to break into your hotel room are statistically slim, so why worry about locking that door, or even have locks to begin with?  A hotel break-in is a low probability, high impact event. One that has an absurdly low risk control component. The cost of locking your door is low to you, given the potential down side of not locking it.  The cost of the Hotel providing locks to all its doors is high given how often people break into rooms.  

Therein lies the rub. Whose job is it to manage risk. The customer, or the seller.

The truth is that VCs see hundreds of companies, lots of time these companies are direct competitors to your company.  No amount of NDA language is going to give you complete comfort that some portion of your next big thing isn't going to get passed around like a handle of fireball at a Tennessee wedding.

However, that doesn't mean that you shouldn't make sure that you protect as much as you can. Big capital players usually have some form of internal control to at least minimize law suits, so it is not the end of the world if they don't sign, remember execution is much more important than  conception.  But ask questions, be knowledgeable about how they safeguard confidential information. If there are no locks, are there burly security guys on every floor?

However, if you are dealing with small angel investors and syndicates (potentially first time investors) that might a) not have the institutional controls, and b) internal discipline to keep things confidential, then make sure that you are using some form of NDA. Some of the smaller players might not have the systems in place to protect information, so a NDA can focus the mind. If you are dealing with anyone less than a household name in the industry, there is no harm in the ask. 

Asking for NDAs goes beyond investors. If you are outsourcing any part of your Dev team, NDAs are a good way to get people on the same page, as well as giving you legal recourse for straight up IP theft. (This does happen, regardless of what people tell you.)

All things being equal, even if no one agrees to sign an nda, you can still protect yourself.  We advise filing low cost provisional patent applications that cover your pitch deck. That way, even if your disclosures become public knowledge, you still have the potential of protecting the IP through the patent office. 

Never forget that VC money is not doing you a favor. Their job is to allocate capital, maximize return, and minimize risk. It is not your job to make their job easier by not protecting your intellectual capital.

Jordan Garner. 

What should be in my site's Privacy Policy?

A client recently contacted me in a panic. They had seen the recent FTC settlement (see here) with Snapchat and were concerned about their own App's privacy policy. We talked through their concerns and determined that their privacy policy was sufficient to cover current usage of their App.

It is important for a Start-up developer to know the purpose of a "Privacy Policy" and its cousin "The Terms of Use."  They are not simply "make work" hassles for lawyers, or something to be copied blindly off of a Git repository. {Ed. Except if it is a Privacy Policy template from www.Baselex.com}.

The purpose of both can be summarized as the contractual obligations of each side, the user and the App provider, that exists when the App is used. {Ed. For our purposes, App covers any minimally interactive website.}

Terms of Use
The Terms of Use are fairly straight forward and mostly deal with the User obligations. In an effective ToU, the App Provider lays out some explanation of the functionality that will be encountered in using the App (such as forums or comments) and a code of conduct that the users agree to be held to when using the App. For example, many apps have a "non-harassment" component to their Terms of Use. Users that violate this, generally find themselves on the wrong side of the "Ban Hammer".  The Terms of Use are similar to an End-User License agreement, and tend to contain similar language. ToS, when effective, provide a User of an App with a clear list behaviors, rights, and obligations (such as honoring Intellectual property) that exist when they use the App.  

Privacy Policy
Privacy Policies differ in significant way from Terms of Use and generally lay out how the App Provider will use the data of the User. The goal of any effective Privacy Policy is to highlight the ways that a User's personal identification and data might  be used by the App Provider. Aggregated stats, geolocation, and preferences for Ad-Targeting are all pieces of data that an App Provider might collect about individual or collective users. There is no explicit rule in the U.S. that limits the data that an App provider can collect to specific categories. (with the exception of various HIPPA relevant issues which are beyond the scope of this brief post.)

What is required is that the App Provider lay what those pieces of information that are being collected. A well drafted Privacy Policy provides enough scope to the App Provider to modify their data collection practices based on market need, while not deceiving or misleading Users as to the scope and extent of the data collected.

Where SnapChat ran afoul of the FTC was in failing to abide by this primary role. The Snapchat Privacy Policy (according to the FTC) provided explicit statements on what data was and what was not collected through the use of the App. Specifically, Snapchat claimed that the communications sent to recipients was ephemeral to the recipient and not stored in any database or server.  Through a series of hacker data breeches, it became clear that not only was this not true (there were vast databases of Snaps retained by Snapchat) but the data was not ephemeral to the recipient. The recipient of a Snap could, through various technological methods, obtain a permanent copy of the snap.

 Furthermore,  the Snapchat privacy policy explicitly disclaimed the storing of geolocation data. Again, after a review of the data stored by Snapchat, it became clear that geolocation data was being stored for future use.

As a result of these revelations, it became clear that the Privacy Policy and Terms of Use for SnapChat's app was woefully deficient and confusing. The natural outcome when consumers feel deceived and confused about the true nature of a product is an investigation by the FTC.

Therefore the first thing to ask when crafting a privacy policy is what does your app or website seek to accomplish, and how does it use the user data in order to accomplish task?  There is no benefit in making a statement about specific functionality and features if these features are not present. Quite the contrary, there is a significant downside to telling App users one story about functionality, while the truth tells another. Likewise, if you need geolocation data, or contact lists, explicitly state that you need them and use them in your privacy policy. It is better to lose a few privacy adherents in the early use stage then have potentially millions of potential plaintiffs in a class action suit based on deception.

As final matter, Privacy Policies should not be drafted and locked in a drawer under the TOS/PP file folder in your server root.  Every iteration of the App, from customer feedback, to posts, to direct messaging might change what type of data you need to collect from your users. Similarly, if you are changing revenue models, you might need to update your privacy policy to indicate the structural change in how you are using the data (from purely analytic, to a data broker model). A quaterly review of both the ToS and PP are a good way to ensure that you are not providing inadvertently misleading information to your Users about the App and their privacy.

Jordan Garner

Patents on Bitcoins

One of the questions that comes up often for IP attorneys is  "who owns Bitcoin'? 

In a sense, no one owns Bitcoin.  It is a distributed peer-to-peer unit of exchange. However this answer rarely satifies people who have come to you for your indepth legal opinion.

It should be noted that the concept of a network wide, anonymous, crypto-currency was only really implemented in 2009 by an individual known as Satoshi Nakamoto. Mr. Nakamoto (we have no way of knowing if that individual was/is a he/she/cybernetic construct from the future) published a paper describing the basic elements of the bitcoin system and released the software that underpins the peer-to-peer networking aspect. This software was released open source, without restriction. As such, no one legally has the right to prevent others from modifying or using the software for their own purposes. Thus while the Nakamoto Hivemind owns the software that bitcoin are mined with, it does not own the underlying conceptual framework.

There is some speculation that a Neil King, et al, listed inventors on US 2010-0042841 A1 (now abandoned for failure to respond to an office action) are the true inventors of bitcoins. Even if true, the patent office found several prior art references. Thus, the attempt to patent the concept appears to have been abandoned.  However, there is a thriving trade in bitcoin patent applications. People can, and do, attempt to file patent applications on the use of bitcoins for all manner of transaction. However, these patents do not reach back to the underlying concept of the Bitcoin and its use as a digital currency.

The actual software implementation of bitcoin generation is somewhat complex, but involves scanning for a value that when hashed twice with SHA-256, begins with a number of zero bits (you don't want me to explain this in more detail that that but ... a hash is an algorithm which takes a arbitrary amount of data and generates a fixed length of data. This is useful when attempting to use encode something for privacy. It is easy to hash something, and it is easy to verify that the data matches the hash, but hard to fake the data if you were up to no good. I am not a cryptanalysis guru and this was all distilled from 3 or 4 really good Wikipedia articles).

This is all a long winded way of saying that the process of generating bitcoins is technically complex and rests on the security and usibility of the SHA-256 Hash Function. However, in one of those ironic twists of fate that only happens in America, the NSA, bane of anonymous privacy advocates everywhere, actually owns the patent on the SHA-256 Hash function.

US Patent 6,829,355 to Lilly, and assigned to the NSA, covers the technical details employed in using the SHA-256 function to authenticate data (e.g. bitcoin transactions). All is not lost, the US has granted the world a royalty-free license to the patent.

However, the terms and conditions of this royalty agreement are murky. The royalty-free notice was filed in 2004. However, there is no easily available record of the exact terms of the grant of a royalty free (i.e. is it irrevocable?).

Thus, the long answer to the question of "who owns anonymous peer to peer government agnostic pro-privacy transaction crypto-currency" might, in fact, be the United States Government.  It is their world, we are just trading digital currency in it.

Jordan Garner
jgarner@leasonellis.com
(c)2013

Swiss-style Basic Income and IP

To the ill-informed, "Basic Income" is a social security system in which the government regularly gives each citizen a sum of money — with no conditions. No questions asked, no obligations. 

There is a referendum in Switzerland, which if passed would give each adult resident the equivalent of 2750.00 dollars a month. You can read the proponents thoughts here.  In short, the theory is, without the necessity to obtain income necessary to live, people could make more resumed choices about their careers. They could made different choices about how they spend their time. As a result, you might have a more efficient economy. 

Obviously, there are people, including economists, who think this is a terrible idea. The argument against Basic Income is that the whole system will collapse in a morass of lack of motivation to actually work. People will move their expenses down to the level of the Basic Income and then forego employment. Opting instead, it is argued, to just sit around all day. 

I take no position on which one of these outcomes is likely (or the likeliness of this idea gaining traction in the US). Wikipedia has a good run-down on the pros and cons.  However, I do take a position on the economic outcome of people sitting around. I tend to lean on the side of "that's great". 

Why? Because people freed from the restraints of taking ANY job to make ends meet, will naturally gravitate towards their hobbies. When people focus a lot on their hobbies, they tend to turn those hobbies into occupations. We see that with the craft "everything" movement. A zest for baking becomes a bake shop, a thirst for brewing your own beer becomes a craft brewery. A love of reading has become self-published media empires (Ed. a bit close to home....).

Freeing everyone from the constraints of occupation would lead to some people just sitting around. It would also lead to an explosion of new businesses financed by the Basic Income. 

Some of these new businesses would create new works of intellectual property. New artistic, musical, literary works; new software platforms; new devices and new methods could all spring from Basic Income. These works could be licensed world-wide; generating taxable revenue to feed back into the Basic Income system. 

Many Venture Capital organizations have an "Entrepreneur in Chief" position - a person paid to basically think stuff up. We are constantly being told that America needs more "innovation" and "entrepreneurship" and that IP is a step in the wrong direction. Basic Income matched with IP might allow the America to realize the dream of being a "Start-up" Nation where everyone is paid to "think stuff up."

Product Design IP in the age of 3D Printers

Dieter Rams designed Coffee Maker

Intellectual property protection for industrial design and industrial designers has always been a fraught process. The nature IP does not lend itself easily to the tasks Industrial Designers might put to them. However, new technology might begin to change how Industrial Designers see Intellectual Property protection.

IP Limits

Conventionally, industrial design is protected through a design patent.  Design patents allows the designer to get protection on their purely ornamental design for 14 years from filing.  Unfortunately, this means that if the product has a functional component (enhanced ergonomics etc.) then the designer relinquishes that functionality, or they are forced to obtain the more expensive and time consuming utility patent. A utility patent covers the function of a device , process, compound or article of manufacturer. For example, a designer could hold a patent on the manufacture of a particular item. While this might successfully deter large scale copying, it does not prevent wide spread dissemination of the construction methods and processes.

Copyright protects artistic and literary works for 70 years, plus the life of the author. Text and audio-visual works are the primary focus of copyright. Once you move beyond the artistic realm into the functional, Courts have held that copyrights no longer apply.  However, the age of 3D printing might be about to change the rules of the game.

Charles Eames Design Patent 

3D Printing

For the uninitiated, a 3D printer is a device that builds an object, usually out of some resin, layers at a time. It is the electronic opposite of a very fine mandolin slicer. MakerBot, and companies like them are pioneering a way to have an "internet of things." The eventual goal would be a repository of templates for the production of all manner of goods, ready to be downloaded and printed, the way one might download a song and burn it to a CD [ed. do kids ever do that any more ?].

 The software used in 3D printers vary from device to device. However, they all use some form of stereolithography file to instruct the device on how to lay down layers of material. Once all the layers have been deposited, you should have a reasonable copy of object described by the file.

It should be apparent that 3D printing allows for the production of many useful things, it also allows for the re-production of industrial design elements without authorization from the original creators. Where 3D printing has created a problem, it might also offer a solution.

IP Incorporation into Designs



Since the procedures for manufacturing the item begins with a digital file. It is possible to encapsulate the design within the boundaries of Copyright law. If the software file, the instruction set for making a particular design is complete (that is, it does not require additional tooling, or minimal machining) then the software encapsulates the design.

It might still hold true that the tangible representation of the software (i.e. a chair or lamp) is not covered by copyright, the software code that executes the 3D printer is a valid piece of IP.  Therefore, the nexus of IP infringement of the design would occur when the digital file is copied (i.e. on a file share network). Thus, developing code for the 3D designs will become as important as the conceptual prototypes. Court are well positioned to hear arguments on the illicit trade and sale of pirated software. This presents an opportunity for Industrial designers and software coders to collaborate on clever implementations of the software to render the designs with minimal post processing. The closer the code is to representing the object, the stronger the case for infringement. Once the code base of a portfolio has been engineered, a simple licensing program [not in bitcoins!!!] (think Itunes) could offer people the world over the chance to download an use a particular firm's designs.

Alternatively, or additionally, a designer could include a structural trademark element. For instance, the design of a chair could,  incorporate a logo. In this instance, merely printing the object does not create a cause of action. However, once an unscrupulous manufacturer attempts to sell the copied design, they are engaged in trademark infringement.

There are likely more elegant solutions than these two for the potential problems posed by 3D printing. However, these solutions show that IP in 3D printing can be maintained and creators can be protected.

Jordan Garner

Flat Design and the Decline of the GUI Design Patent

 With the advent of IOS7, Apple has joined Microsoft (Metro) and Google (Now) in putting to rest (for the time being) digital skeuomorphic designs. While a good thing for designers who like clean lines, it might complicate future GUI Design Patent Strategies.

A quick primer, digital skeuomorphic design elements are when the interface or the icon is designed such that it looks like the physical world object that it is designed to digitally replicate. For example, the bookshelf in Ibook, is digital skeuomorphic design. There is no reason that a digital container of book files needs to look like a bookshelf; other than to relate to you, the user, what is the purpose of the digital program. Additionally, buttons with dropped shadows, or clever isometric representations of objects within the icon space, are all examples of digital skeuomorphic design.

However, with the advent of flat design across the three major mobile development platforms, things like icons designed to look like bookcases is going to be a thing of the past. Flat design, like its "Modernism" architectural equivalent is premised of reducing the ostentation ornamentation. In the same way that neo-Gothic architecture like this gave way to boxy simplicity of like this, so too does flat design trend to simple geometric forms and a studied lack of ostentation and ornamentation.

Part of this change has been led by a difference in attitudes regarding the purpose of the GUI in the first place.  Digital skeuomorphic designs were originally used to help people with no inherent knowledge of the inner workings of computers to easily map real world actions to digital ones. A digital file was made to look like a physical office file. A digital delete function was made to look like a trash can, etc. Now, with at least two generations of American consumers raised on digital entertainment, there is less of a need to visually explain the functions of each icon. It is simply enough, in most instances, to state its function and designate an area for the user to interact with that function.

lots of rectangles, no shadows 

GUIs, flat or not, can be protected by design patents. In 1996, the USPTO created guidelines for the protection of GUIs based on its decision in Ex Parte Strijland.  GUI design or surface ornamentation is protectable as long as it is shown to be novel, not obvious, and not functional. The claimed design may be presented as a line drawing or a digital image. Color and grayscale are allowed to be presented in the same GUI application, but line drawings and digital images are not. Animated designs are also patentable in the United States, and must show a minimum of two views of the animation. 

This is all a long winded intro into the point. Of the recent victories that Apple has achieved against Samsung, Apple succeeded in proving that Samsung had copied a design patented GUI (seen at left). As you will note,  this Apple design is chock full of skeuomorphic elements. This includes not only the icons themselves, but their placement, the shape of the icons, their slightly beveled appearance etc.

However, by moving to a flat design paradigm, Apple and its competitors are moving into a field whose sole purpose is to simplify the display elements, not add ornamentation. As noted above, design patents mush have a non-functional use, and must be directly related to the ornamentation. If flat design takes hold, it will be increasingly difficult for designers to obtain protection for flat designs as they  essentially become functional identifiers for computer tasks. As a result, we are going to see a lot of convergent design elements that people will accuse other people of stealing, but no one will be able to obtain a patent on.

As a result, it is preferable to augment your GUI design patent strategy with a screen shot copyright strategy. This way, if it is an instance of blatant copying, you are still protected by an enforceable IP right.

Jordan Garner

Developer's IP checklist

Awhile back I got a call from a video game developer that was about to go live with their product. The lead developer/CEO had just discovered that there was a trademark registered to a major company, that happened to be the same name as their game.

Luckily, we were able to resolve the issue prior to them going live, but it raises an interesting point.

A lot of the discussion relative to IP in the start up / developer space is colored by the larger market discussion on software patents and their role in, or hindrance on, innovation.  This discussion has sucked all the air out of the room as it applies to the multiple forms of IP that are pretty critical to a successful brand.

As such, I figured I would just do a quick check list for all the app/game/social media/ tech start-ups out there that maybe thought that having a position on patents was their sole IP issue.  Here is the quick check list, followed by some in-depth discussion.

1. Do you have Copyright Assignments for Coders, Designers and UI/GFX Modelers
2. Do you have a Trademark on your company / product name. Do you have a domain name on the same?
3. Do you have a firm wide confidentiality policy?

Copyright  Assignment Documents:
 In the U.S. any works of authorship, which includes drawings, character models, wireframes, code, or text, is covered by copyright.  The copyright vests in the creator at the time of creation. So, as soon as your character modeler generates an awesome character for your app, the copyright in that character vests in the creator. Not, I repeat, Not the company who they they are working for.

This is always true, UNLESS, you have an agreement in place that assigns all of that work to the company.

This can be done in two ways. The first is to have everyone that is working on the project sign a document that assigns all of their work to the company.

Second, which is more subject to legal challenge, is a Work For Hire Agreement. A Work For Hire Agreement that states that the works created were done so as a commissioned work of authorship. This is the language you will find in employment contracts for large media companies and software companies alike. The problem is, if you and your buddies are coding the killer app, when did you sign employment agreements? Odds are you didn't Once you are ready to go live, pitch investors, or hit Kickstarters, everyone who has contributed to the project should agree, in writing that they are assigning their rights over to some entity.  However the agreement is made is largely irrelevant, the goal is to get the assets essential to the company under the ownership umbrella of the company.

As a second point, I always suggest filing a few federal copyrights on art assets or screen shots, just to deter scrapers, clones and knockoff artists.

Trademarks:

Trademarks are source designations of origin. They identify the good or service as coming from a particular entity. As I stated at the beginning of this piece, an invaluable use of time is to check the trademark office to see if the name of your game, company, or app is already in use. If so, is it is the same field of use. There is nothing worse then having to go back through code looking for references to a company name that needs to be changed at the last minute. Securing a trademark relative to a patent is a cheap and easy process. Once it is secured it can be used as your brand and the public show case of all your company has to offer.

I always remind clients that Twitter did not Trademark "Tweet", a decision that came back to bite them in terms of money and attorney fees. See here.

Confidentiality

As a rule of thumb, anything that pertains to proprietary technology, that gives you a perceived edge in the market place (google's search algorithms, Coke's formula, Zucherberg's Hoodie), should be kept confidential.  Not only is this just good practice, but it also lays the foundation of a strong Trade Secret Policy.  As I pointed out in an earlier post here, the rules for protecting valuable IP via Trade Secret Laws has been greatly enhanced.

Every Company should take advantage of that, not just vampire squid banks. The best way to do so, is to make sure that everyone has signed confidentiality agreements that lay out their responsibility to keep the companies secrets...secret.

For the large majority of start-ups and developers, this is all the IP you need. In the future, when you begin driving technology, Patents will become a critical component of your IP strategy. However, you will never get there if you don't secure your IP in the beginning.

Jordan Garner