Suki’S EntErpriSESIP Case Study

Office de la propriétéintellectuelledu Canada

CanadianIntellectual PropertyOffice

Office de la propriétéintellectuelledu Canada

Un organismed’Industrie Canada

An Agency ofIndustry Canada

CanadianIntellectual PropertyOffice

Un organismed’Industrie Canada

An Agency ofIndustry Canada

ip Case Study 2

AcknowledgementsThis case study was developed at the request of the Canadian Intellectual Property Office (CIPO). CIPO would like to recognize and thank McMaster University and the members of the Advisory Development Team who participated to the project:

Marc Banik Professor, Départment de management et technologieUniversité du Québec à Montréal

nick BontisAssociate Professor, DeGroote School of BusinessMcMaster University

Eric BrownProfessor, Biochemistry and Biomedical SciencesMcMaster University

tom CorrAssociate Vice President, Commercialization, Office of ResearchUniversity of Waterloo

Scott inwoodDirector, IP Management Group, Office of ResearchUniversity of Waterloo

Cheryl JensenVice President, Technology, Apprenticeship and Corporate TrainingMohawk College

David JonesAssistant Professor, Electrical and Computer EngineeringMcMaster University

rafik LoutfyProfessor, Chemical EngineeringMcMaster University

Christopher J. MckennaDean, College of Management and EconomicsUniversity of Guelph

Marcel MongeonProject ManagerMongeon Consulting Inc.

Elsie Quaite-randallExecutive Director, Industry Liaison OfficeMcMaster University

Permission to reproduce or use

© Industry Canada, 2009. This publication may be reproduced for non-commercial, personal or internal use only without permission provided the source is fully acknowledged. However, multiple copy reproduction of this publication in whole or in part for purposes of resale or redistribution requires prior written permission from Industry Canada.

Catalogue No. Iu71-4/14-2009E-PDF ISBN 978-1-100-12978-5

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notE: The facts described in this teaching case are fictional and not based on any true case. Although the principles relating to patents, trade-marks, copyright and trade secrets are correct, references to particular software names are purely fictitious and should not be relied on as actual available software.

Who has ownership of the software?Suki owned a small software development business that designed and sold software for business purposes. Her company, Suki’s Enterprises, was well known for its application programs using various database systems such as SQL Server and Oracle. Her company’s competitive advantage was that rather than just using the standard programming tools provided by the database vendors, her programmers would frequently develop special programs at a very low level which could dramatically increase the efficiency of the overall database and the programs which used it.

The code which John had just shown her had the potential of revolution-izing her business. John was working on an application for a customer that required a lot of sorting of the records in the database. He had been concerned that the subroutines that were available in the “standard” programming environment he was using did not sort the database records as efficiently as he wanted. In this application, which involved tens of millions of records, he was looking for something that could sort records very quickly.

Suki (pronounced soo-ke-)

was wondering what

she was going to do.

Her lead programmer,

John, had just been

showing her some code

that he had written for a

database application

that she had been very

impressed with.

Suki’s Enterprises

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In order to have the application run as efficiently as possible, John had rewritten some key subroutines.

Although normally a programmer would just use the standard subroutines for the reads, writes and sorts in the database, John had provided routines of his own. Written in basic machine language through an old-style programming technique known as assembler code, John had achieved almost incredible improvements in efficiency. For example, while it would take the standard sub-routine 186 seconds to sort his test database of 10 million records, his newly written sub-routines could do the same task in only 14 seconds!

He had been able to achieve this dramatic increase in efficiency by thinking outside the box of normal programming. Although most modern database systems would use something called binary sort techniques, John had reverted to a method that had fallen out of favour long ago known as bubble sorting. Through a unique modification that he had devised, he had been able to use the old-style method to achieve the dramatic improvements in efficiency.

At the same time that John had been doing his work on the programming routines, he had also been thinking about a name that could be used to describe the new routines. He had devised the name ADASORT being a crude contraction of advanced sorting. Despite its simplicity, the name seemed to stick. John had been referring to his work as the ADASORT ROUTINES and the name was being used by the other programmers in the company.

Suki was now trying to determine what steps, if any, should be taken around the intellectual property (IP) related to the ADASORT ROUTINES.

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Only last week she had been at her local Chamber of Commerce for a workshop on the importance of IP to businesses. The speakers had presented an almost bewildering array of information on IP. What Suki did remember of the workshop could be summed up in the following points:

IP could have significant value � if it was properly protected

It was always important to determine who owned any specific innovation �

Computer programs could be protected by copyrights and may be �

protected by patents or trade secrets

Patents could be very expensive to obtain but copyrights were almost �

automatic

Trade-marks could also protect the name of the software in �

the marketplace.

She had to admit that she had been a little confused and, at the time, wasn’t sure how anything she learned at the workshop would apply to her business. Now she wished she had taken better notes of the information that she had received.

She did remember that there was some good resource material available for someone like her on the Canadian Intellectual Property Office’s website at www.cipo.ic.gc.ca.

She reviewed the Guides on Patents, Trade-marks, Copyrights and some additional information on trade-secrets she found in CIPO’s IP Toolkit.

These were a good starting point to understanding some of the issues.

One point was really bothering her: who owned the ADASORT ROUTINES? She wasn’t sure if it was her company or the client company that they were writing the routines for. She also wondered if John had any ownership rights.

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When Suki went to review the agreement her company had with the client, she found that, as part of the negotiations for the contract, the client’s lawyer had inserted the following clause into the contract which she had agreed to:

The client shall have the right to use and modify the software system provided by Suki’s Enterprises for any purposes without any further payment. Suki’s Enterprises shall provide the source code for the software system to the client and the client may make any modifications to the source code provided that Suki’s Enterprises has no liability for any such modifications.

Suki remembered that this clause had been important for the client’s lawyer although she hadn’t really worried about it. Now she was wondering if she should have paid more attention to the issue.

Suki also wondered if John would have any ownership rights. Although John had been an excellent lead programmer, he hadn’t really taken any interest in assuming a management role over the other programmers.

In fact, his own work habits made him difficult to manage: although he worked 10 and 12 hour days, he would work those hours when he chose to, sometimes coming in after the other employees left and working through the night. Because his work had been excellent, Suki had always overlooked these habits and considered them to be the cost of keeping John motivated.

In addition to his work habits, Suki had a more significant concern about John. Three months ago, Suki’s lawyer had suggested that she get all of her employees to sign an employment agreement that required them to keep information confidential and ensuring that Suki’s Enterprises would own all of the work they did for the company. Although most employees signed the agreement without even reading it, John did not. It wasn’t because he disagreed with it; rather John thought he could use the occasion to pressure Suki for a raise. John said he would sign the agreement when Suki raised his salary by 40%.

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The issue of the raise was a little contentious for Suki. Although she had considered increasing John’s salary at the annual review period which wouldn’t occur for another five months, she had only considered an amount of about 25%. She would be able to justify this amount easily based on John’s productivity and the client billings that he was able to generate; she might even have been convinced to increase it by the 40% he wanted. But what really concerned Suki was John’s attitude. When they had discussed the matter, he was pretty rude about it and suggested that if she didn’t give him the raise, he might find someplace else to work. She had let the matter lie since it was first discussed and John hadn’t raised it again. However, without a contract, Suki wondered who owned the ADASORT ROUTINES — John or her company?

Another important question that Suki was considering was: what was the IP relating to the ADASORT ROUTINES? And should she worry about taking steps to register any of this IP?

In considering the answers, Suki tried to work out the information that she had received at the workshop. She considered that the actual code could be considered to be a trade secret. However, she wondered if the client’s rights to receive the source code would affect this.

Moving to patent protection, she remembered that computer software could sometimes be protected by patents. What she especially recalled from the workshop was that a patent application could cost up to $10,000 in legal fees to start with and then there would be additional fees depending on which countries she decided to obtain a patent in.

On the issue of copyright, Suki remembered that copyright protection was automatic for written works which could include computer software. The protection was for a long period of time and didn’t require registration although at times it was a good idea to register the copyright.

Finally, Suki wondered about trade-marks. She considered a comment that one of the presenters made at the workshop that trade-marks could become quite valuable and that they have an easy registration process. Some trade-marks like Coca-Cola® and Microsoft® could have values in the hundreds of millions if not billions of dollars! Was the ADASORT ROUTINES trade-mark worth anything?

There are a number of questions Suki needs to answer.

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Discussion Questions:

Which form of intellectual property should she pursue for the �

new software routines? Should she focus on trade secrets, patents or copyrights?

Does Suki have to worry about the fact that others in the company �

know about John’s new software routines?

Who owns the rights to any future IP associated with ADASORT �

ROUTINES? Will it be Suki’s Enterprises, John, the client or someone else? If it isn’t Suki’s Enterprises, what should she do?

Should Suki do anything to protect the IP behind the name ADASORT �

ROUTINES? If so, how can this benefit her business? What type(s) of protection should she seek?

What would you advise Suki to do? �

Guidelines for preparing to discuss this caseThe objective of this teaching case is to answer the questions that are asked and, in the process, learn about IP protection in general. All students will be expected to participate in the class discussion, and so will have conducted additional research on the topics and points raised. Some suggested Internet sites are given at the end of this section in order to begin your research.

An important aspect of using a case study is to identify the different issues that are raised. Are there other questions that you think should also be asked or other information you should have before you can answer?

When you have identified the relevant issues, assemble information on those issues. For example, in answering the question in this case about whether or not the ADASORT ROUTINES software should have patent protection, you will need to consider if it meets the tests of Novelty, Utility and Ingenuity. Also, you will need to consider IF software can get patent protection in Canada.

Ultimately in a case like this, you need to decide on what you believe the best course of action is and why. Be prepared to defend your choices with relevant facts and information.

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Useful websites to start your research:

www.cipo.ic.gc.ca �

Canadian Intellectual Property Office

www.uspto.gov �

US Patent and Trademark Office

www.wipo.int �

World Intellectual Property Organization

www.jurisdiction.com �

Canadian information on patents

You should also search relevant terms in general Internet search engines.