Series Info...Trials, Triumphs & Trivialities #148:

Online Games & The Law, Part Three: Patents, Trade Secrets & Licenses

by Shannon Appelcline

Over the last two columns, I've been talking about intellectual property: how the law treats various types of IP, and how those might relate to your experiences as an online game designer. If you haven't already, you might want to read my discussions on IP & Copyright (Part One) and on Copyleft & Trademark (Part Two).

This week I'm going to finish up this decidedly dry discussion of intellectual property by covering the last two main types of IP, patents and trade secrets, before finishing up with a brief mention of licenses.

As before: I'm not a lawyer, these are simply my personal experiences with IP.


Patents are IP that protect inventions. In the United States, at least, they must be "novel, useful, and non-obvious". Traditionally, patents have just covered machines. The light bulb, the automobile, and the television are all examples of things that might have been patentable under the traditional understanding of the system. However, more recently, the US Patent Office has begun allowing patents on "processes", and this has opened up huge cans of worms.

This means that ways of doing things can be patented if they meet the novel/useful/non-obvious criteria. Likewise, software algorithms are being allowed patentability if they can be used in a "practical" application. The current state of Internet-related patents shows what an unholy mess this has made of the whole patent system, but we'll get to that shortly.

When defining a patent, the "novel" criteria is of particular note, because it means that if anyone has every used the idea before you, you can't patent it. This is how most patents are challenged. Someone shows prior art which proves that the invention was in use before a patent filing.

Patents last for 20 years. If you try and build an invention that's an extension of someone else's patent during that time, you won't be able to produce it, because it's derivative. Worse, the original patent holder can in some cases gain rights to your extension.

If you ever want to write a patent, you'll need to have someone very skilled in the particular language of patents to help you. This might be a lawyer, or it might be someone who's been churning out patents for your company for the last decade or two.

After filing, you can expect it to take 2-5 years for your patent to get through the labyrinthine USPO office. Fortunately, the term of your patent backdates to its filing date, which means that, 2-5 years later, you can start suing anyone who came up with the same idea as you, and had absolutely no way to know that you'd already made a filing.

Why Patents Suck

Overall, the idea of patents is laudable. I want inventors to be encouraged to come up with neat new ideas which improve my life. I want drug companies to be churning out new formulas which may extend my life or the lives of those I love. However, the current system is grossly flawed and largely used as a money-gouging weapon rather than a protection.

Here's why:

  • The Patent Office is Badly Overburdened & Bureaucratized. First, this means that it's going to take years for your patent to get resolved (and on the other hand that other companies never know when a five-year old patent will suddenly be sprung on them). Second, it means that USPO makes terrible, terrible decisions about what is actually patentable. The vast majority of patents that are challenged in court are overthrown (I've heard numbers as high as 85%), but along the way millions of dollars are spent on litigation and the path is strewn with the corpses of young companies who couldn't afford to protect themselves from unjust prosecution.
  • The Patent Term is Overly Long. (And, it was just extended from 17 to 20 years thanks to global treaties that the U.S. signed in the 1990s.) The biggest problem here is that the patent term is based on a business cycle that might have been appropriate a hundred years ago. Then, 17 years would have been a fairly small delay when considering the pace of invention. Today, 20 years represents between 5 and 10 cycles of technological change. Think back to 1984 and consider that people might have been patenting 16k memory chips, 8-color monitors, or miniaturized hard drive technology. Now, consider how far we are beyond those innovations of two decades ago. Sure, the patents are entering the public domain now, but they might as well not, because they're now effectively useless.
  • Patents are the Weapon of the Rich. Increasingly, patents are a barrier of entry to new businesses. Cash-rich companies can spend time writing up patents, and prosecuting companies who violate them, and cash-poor companies have little recourse.

This recent Slashdot article points out how out of control patents are. One money-grubbing company called PanIP has consistently been going after small e-commerce sites in recent years claiming that they've patented the entire idea of Internet commerce. Another patent holder without a soul, Witold Ziarno, tried to sue the American Red Cross claiming that he had a valid patent on the idea of Internet donations. Another famous Internet Patent case involved a patent on the idea of hyperlinks themselves! In the gaming industry, Wizards of the Coast patented the idea of turning a card ninety-degrees to show a change in state.

Clearly, the "novel" and "non-obvious" criteria are pretty liberally ignored by the USPO (let alone the fact that many of these patents have obvious prior art).

How Patents Will Affect You

It's going to work like this: one day you're going to go out to your company mailbox, and you're going to find a thick FedEx package. It'll contain a letter proclaiming how you're violating a patent and a lengthy copy of the patent in question. You'll be told that you have to pay a licensing fee or face a lawsuit.

The patent will probably have been recently issued, though it was probably filed five years ago. You'll probably think that the patented technique is utterly obvious, and with a bit of work you'll probably be able to turn up some prior art that clearly shows that the technique or invention was in some usage prior to the patent filing.

Nonetheless, if you decide to take this clearly invalid patent to court, it'll probably cost you $100,000 to prove that the USPO should never have issued the patent in the first place (and that's money out of your company's pocket, not the USPO's).

There are three general methods you can use to try and ward off this problem:

File Your Own Patents. This is what most big companies do. They have teams sitting around, scouring through their company's work for inventions or processes that are patentable, and so form a patent portfolio. Then, if anyone tries to sue them for patent infringment, they just go into their protfolio and find a patent that the suing party is probably violating and threaten a counter-suit. The end-result is usually an exchange of patent portfolios: you can use my patents if I can use yours.

Of course, this solution is totally out of question for any small to medium-sized company, and it only really works, even for big companies, if the suer is another company, not just an individual trying to make a quick buck.

Try To Warn the Big Guys. People trying to make money off of patents can try and use one of two general techniques: they go after the big companies, hoping for big "nuisance" payoffs; or they go after the small companies, knowing that the latter won't be able to face them in court. If you're the target of the latter type of patent suit, and you have any appropriate connections at a larger company in the field, you might want to warn them of the new patent. Some companies will proactively sue the patent holder, to try and get the patent thrown out before it gains steam from many smaller companies signing up, which might give it more weight when the patent holder finally came after the large company in question.

Band Together. As a small company, your best answer might be to simply band together with other companies who are or may be affected by the patent. This is what happened when PanIP tried to sue a number of small companies for violating their "e-commerce patent". The small guys banded together, each put in some money, and made PanIP back off. Chilling Effects is an EFF-supported organization which can give you an opportunity to get in touch with other people who have been effected by the same patent as you. (It also provides connections for people under unjust attack from other types of IP holders.) Finally, the EFF has also announced a new patent-busting strategy. (Take a look at the link, it provides a good list of the many ridiculous patents that have been approved for Internet-related activities, and gives some more discussion on the harm being done by illegitimate patents.)

So, that's patents in a nutshell. If you're reading this column, you're more likely to be at the receiving end of a patent lawsuit, rather than the patenting side, but I'll talk a bit more about how you too can patent at the end of this article.

Trade Secrets

Trade Secrets are Intellectual Property (typically non-patented inventions) which are protected by secrecy rather than specific federal protections. In order to be kept secret, they must be well-protected--often by confidentiality agreements and/or non-disclosure agreements, for a start. Unlike patents, they don't protect someone else from using the invention, if they came up with it through no breach of security (e.g., on their own, or through a non-secretive disclosure). The upside is that there is no term length on a trade secret. As long as a company or individual follows the correct procedures to keep a secret a trade secret, he may be able to keep using his invention exclusively forever.

The best example of a trade secret is probably the Coca-Cola formula; if it had been patented it would have entered the public domain long, long ago. Instead, as a trade secret, it continues to enjoy protection today.

Traditionally, trade secrets have not been heavily protected by law, but recently the Federal government has started abruptly stepping up that protection. Most importantly, the Economic Espionage Act of 1996 makes it a felony to steal a trade secret for commercial or economic reasons (or to give it to a foreign power).


Thus far, I've talked a lot about how you can protect intellectual properties, through copyright, trademark, patent, or trade secret. Eventually, however, you're going to want to give someone else the rights to use your IP, because they have resources that you don't have, because they want to give you money, or whatever.

Thus, you write up a license.

A license needs to say:

  • What property is being licensed (e.g., a novel).
  • What use the licensor can make of it (e.g., hardcover or paperback publication and derivative merchandising).
  • The cost of the license (e.g., a one-time fee, or a continuing royalty, usually with an up-front advance).
  • The length of the license (e.g., three years).
  • Terms for terminating the license early (e.g., non-payment or non-publication).

Unfortunately, because the world is overly litigious, a license also needs to include tons of boiler-plate disclaimers, about who is responsible for the originality of the IP, who is responsible for inappropriate usage of the IP, etc.

If you're going to write a license for the first time, you need a template, provided by a book, a lawyer, a trustworthy Internet site, or whatever. Afterward, once you've got a feel for licensing legal language and a good knowledge of what needs to be included, you can probably write licenses yourself.

(Personally, I've written most of Skotos' licenses, and I've gotten a real good feel for the language. I had some lawyers write up an initial license or two, before I got the flow of how they read, and also two of our very important licenses [at least one of which would have been better if I'd done it myself], but beyond that a skilled writer at your venture should definitely be able to write your licenses for you.)

Patents, Trade Secrets, Licenses, and Online Games

As usual, I want to finish off by talking more specifically about how these types of IP might impact online games.

Patents are most likely to bite you in the butt through a patent claim made against you, as I've already discussed. Technically, you can file patents of your own, I just don't particularly suggest spending the time and effort. If you're trying to figure out how to protect the specific mechanics of your game--a unique method you have for soliving a common online game problem--then it's patents which are the correct tool to use.

Trade Secrets are something you should carefully consider, because there are probably many things you want to keep secret in your game, from the deep backstory to how certain mechanics really work. You'll probably want to protect these as trade secrets, which means getting a standard NDA that everyone privy to the knowledge needs to sign, and otherwise making sure that the information remains confidential. This is pretty much de rigor for most tech companies nowadays. It might be more important for an online game than most other ventures.

Licenses should be an important part of your game if it's successful at all. Perhaps you want to license someone else's IP to create it, for example, a Wheel of Time game. Perhaps you want to let other people publish your game in other languages, or make t-shirts, or whatever. As I said earlier, get comfortable with a couple of standard licensing agreements, then be ready to make your own.

And that's the end of my talk on types of Intellectual Property. I'm not a lawyer, but I think I've picked up a lot of good understanding of the topic over the last ten years, and hopefully you now have too. I have lots of other topics I want to talk about regarding legal issues you might face as an online game producer (or as any type of company in this space, really), but for now I'm going to leave off and take on some more game-specific topics, lest I lose my core audience.

I'll see you in 14.

[ <— #147: Online Games & The Law, Part Two: Copyleft & Trademark | #149: It's Not Fair! —> ]

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