Navigating the IP minefield

Constant innovation and convergence continue to increase technology overlap across products, markets and organizations. With increased overlap, the risk of infringing third-party intellectual property (IP) also intensifies. In this environment, having a comprehensive view of the competitive and IP landscape is vital. This can be extremely challenging without the proper processes and resources, especially since the biggest problem is not knowing what you don't know.

The risks posed by an unknown IP minefield need to be addressed early in the product development cycle. Each stage of the cycle-product concept, product architecture, product design and product manufacture-has its own set of concerns to consider. However, certain types of IP protection are common across all stages, including managing your patent portfolio, protecting your trade secrets and taking precautions when using a third party's IP.

Before beginning product development, have employee agreements in place and be sure employees understand that their obligations are key. While having these agreements in place does not guarantee protection, it does provide a framework that allows everyone to understand their obligations to protect company IP.

As employees move from company to company, they run the risk of IP moving with them. Examples of this abound: Cadence-Avanti-Synopsys, Synopsys-Magma and the latest disputes involving TSMC-SMIC and Microsoft-Google. In the case of Cadence-Avanti-Synopsys, the dispute involved the theft of source code by former Cadence employees to establish Avanti and the subsequent patent infringement relating to the patents covering the code. In the case of Synopsys v. Magma, the dispute is over ownership of patent rights and who is infringing whom. The patents at the center of the dispute are authored by one of the founders of Magma, who is a former Synopsys employee. The issue is whether the idea was conceived while he was an employee of Synopsys or after he had left his employment to start Magma.

In a more recent case, Microsoft vs. Google, the protection of trade secrets is at the center of the dispute. Kai-Fu Lee, a former high-level executive at Microsoft, was hired away by Google. The issue in this case is the confidentiality and noncompete agreement that was in place between Lee and Microsoft and the sensitive trade secrets that he had been exposed to before leaving Microsoft. What will make a difference in this case is whether the trade secrets at issue were actually treated as trade secrets by Microsoft.

In another recent example, TSMC, the Taiwan foundry, accused SMIC, the Shanghai foundry, of recruiting a number of TSMC employees and asking them to bring TSMC technology with them to SMIC. The two parties eventually agreed on a settlement that has SMIC paying TSMC $175 million over six years. In all four cases the common thread is employee movement and ownership of IP. In each case, large sums of money, time and resources were diverted, which could have been otherwise used for future product development.

Inadvertent infringement
Developing a product or a manufacturing process has huge associated costs, as evidenced by the TSMC case. After making a large investment to develop a product or process, you'd want to avoid lowering your return on this investment due to inadvertent infringement of someone else's IP rights.

During the product concept stage, much time is spent identifying customer needs and potential market applications. Before a company invests the money and resources to produce a product, management needs to understand the target markets, market potential, competing products and potential available revenue.

At the product concept stage, there are a few steps that if taken will minimize the number of IP land mines. However, the likelihood of taking these steps depends upon the maturity of both the company and the product. The first step to consider is performing a patent landscape. This will help to identify patents that the product could potentially infringe, identify potential competitors (obvious and not so obvious: patent trolls or companies whose patents cover other technologies and can be read on the product) and potential white space in the technology area where it may make sense to strategically file patents. But one potential land mine is failing to consider patents that could be applied across technologies. For example, in one recent client project, Semiconductor Insights identified DRAM process patents that could be read on CMOS image-sensor technology.

The second step involves performing a portfolio review, which helps you to understand the state of your patent portfolio in relation to your product plans. This includes reviewing the portfolio for relevance to the product technology, how strongly the patents can be supported, the patents' life spans and whether the targeted market regions have been covered. With the results of the patent landscape and patent review in hand, a strategy for patent development and threat avoidance can be put into place. This could also include licensing or buying patents that are relevant to the portfolio to cover identified gaps. Another option to consider: extracting revenue from the portfolio to help increase the product's R&D budget.

At the product architecture stage, the product concept comes to life. The product architect determines what is technically possible, develops the specifications and determines what industry standards will be used. In an attempt to get to market faster and to reduce development costs, it may make sense to reuse the platform of an existing product.

Just as in the product concept stage, knowing the patent landscape and portfolio becomes important because it will help you to avoid infringement during design. To further protect the product development investment, any new technology related to the architecture of the product should be patented in the relevant markets. If design reuse is being considered, determine whether the design contains any third-party IP and the associated terms of use. Ensure that any terms that may have been accepted previously are suitable for the future product's plans. For example, the previous license may have been taken under single-use, multiuse or perpetual-use terms, which may impact product plans. If unfavorable terms were accepted in the past, it may be difficult to renegotiate new terms for this product. Likewise, should it be determined that the defined architecture requires the use of industry standards, being able to use these standards may depend on whether your company is a member of the organization. If not, then i t should be determined what is required to use these standards, such as obtaining a license from the standards body or related patent pool, or joining the relevant standards body as a member to get access to the related patents. Using unlicensed third-party IP or industry standards will put a product and company at risk should the licensors come knocking at the door.

As in the earlier stages of development, adhering to employment agreements, knowing the competitive landscape, patenting in the relevant markets and following policies and procedures remain important. It becomes equally important to protect any IP claims or to be able to show prior art, and to be diligent in maintaining proper records, documentation and archiving of design work.

Design decisions
During product design, the product is developed to the stage at which it can be manufactured. During this stage a number of decisions are made, from deciding on whether to use third-party IP blocks, to using open-source IP, from outsourcing of design work, to selecting the process and manufacturer(s)/suppliers for the product. Each of these decisions raises concerns with respect to the product's IP.

When incorporating any third-party IP into a product, due diligence should be completed. Outsourcing design work raises many issues. At a minimum, having agreements to address confidentiality, IP ownership, warranties and indemnity are a step in the right direction. If the choice is made to incorporate open-source content, it is best to remember that nothing in life is free. Consider these things before incorporating any open source:

• Is the distribution source credible?
• Do the contributors of the content have the rights to contribute it?
• Does the content infringe on any patents?
• What are the terms of use, and will these limit the product's use or impose any obligations on the product and/or your customers?

The decision to use IP design blocks, either internal or from a third party, requires a certain amount of due diligence. If the choice is to use internal blocks, perform the due diligence to see whether it contains any third-party content requiring a license. If the choice is to go with a third-party block, there are a number of issues. But from an IP point of view, the following are potential concerns:

• What is the warranty if the block does not work?
• What happens to the warranty if the block is modified?
• What type of indemnity is offered?
• Does the block infringe on any patents in the markets relevant to the product?

Performing the due diligence will go a long way toward minimizing the number of IP land mines.

When the product is ready for manufacture, the design may be sent to another company. Having taken a number of precautions up to this point to protect your product's IP, it is equally important to take the necessary steps with the people you are bringing in under contract. It is important to have nondisclosures and indemnities in place. Does the manufacturer place sufficient importance on protecting its customer's IP, and does it use correct data management procedures? Some companies have strict policies regarding the handling of their customer's IP and their employees have access to the data on a need-to-know basis. In addition, the manufacturer should disclose the use of any subcontractors, and how it manages and monitors those subcontractors and the handling of your IP.

The following is a checklist to keep in mind during product development to successfully navigate the IP minefield:

• Put employment agreements in place.
• Implement policies and procedures to protect your IP.
• Maintain records, notes and archives of information related to the product.
• Manage the patents within the company's portfolio.
• Identify obvious and nonobvious competitors.
• Patent novel ideas that are key to your product and its future development and target markets.
• Obtain necessary licenses for any industry standards used.
• If you are reusing any design, identify the existence of any third-party IP and obtain the appropriate licenses.
• Before incorporating any third-party or open-source IP, ensure that the distributor of the IP is credible, the IP is clean, the distributor has the rights to distribute the IP and any needed licenses are in place.
• Before sharing information with suppliers, ensure that nondisclosures and agreements are in place.
• When outsourcing design work, the following steps are recommended:
• Have appropriate agreements in place.
• Ensure your IP is protected.
• Clearly identify who owns the IP being developed.

For any selected suppliers and/or manufacturers, ensure that:

• All the necessary agreements and indemnities are in place.
• All of the subcontractors have been identified.
• The supplier/manufacturer will sufficiently protect your IP.

Even after taking all the necessary precautions to navigate the IP minefield, there is no guarantee that your IP is 100 percent protected or that someone else's IP will not be infringed. But raising IP awareness and taking precautions to protect IP will minimize the number of land mines you face.

While protecting your product has a cost, it can be rationalized against the potential risks to the product and the company of not doing your diligence. It is better to be in a position to assert, or defend your rights, as well as cross-license, as required. Remember, ignorance may be bliss as long as you have not been asserted against, but knowledge will give you the power to defend and protect your IP and investment.

Carolyn Hayden (carolynh@semiconductor.com), IPinsights account manager at Semiconductor Insights (Ontario, Canada)