Featuring three essential Q&As on trade secret applicability, overseas filing strategies, and protection of innovative business models.
With the revised Patent Examination Guidelines effective as of January 20, 2024, “computer program products” have officially become a patentable subject matter in China—marking a significant advancement in software patent protection. While protection previously focused on systems, methods, or computer-readable storage medium, developers can now directly protect computer program products through patent claims, making the path to protection clearer and more direct.
In this context, we have selected three essential Q&As from Chapter 11: Software Patent Protection Under the Amended Patent Law of the Practical Q&A Guide to Cutting-Edge Intellectual Property Issues, co-authored by Wolters Kluwer, Lusheng Law Firm, and its strategic partner Rouse, exploring the suitability of trade secret strategies for software inventions, considerations in global patent filing, and approaches to safeguarding business models.
Strategies for protecting software intellectual property typically involve two primary legal instruments: trade secrets and patents. Each of these methods has its own unique strengths and limitations. When choosing the right protection strategy, it’s crucial to consider the characteristics of the software, the business strategy of the company, the competitive landscape, and the desired outcomes of protection.
A trade secret is a form of intellectual property protection that does not require official examination. The category includes business and technical information that is not publicly known. Technical secrets fall under the umbrella of trade secrets. The key to safeguarding trade secrets lies in implementing sufficient confidentiality measures to prevent information leakage. One of the main pros of trade secrets is that they do not have a fixed term of protection; as long as the secret remains undisclosed, protection continues. However, there are limitations. For instance, trade secrets do not prevent competitors from independently discovering or developing the same technology, nor do they stop the legal acquisition of secret technical information through reverse engineering. According to the Anti-Unfair Competition Law, reverse engineering involves disassembling, mapping, and analyzing products obtained through open channels to extract technical information, but illegally acquiring technical secrets does not qualify as reverse engineering.
In contrast to trade secrets, patent protection grants an officially recognized and exclusive right to a software technical solution. To obtain a patent, the technical solution must demonstrate novelty, inventiveness, and industrial applicability through a process of application, examination, and publication. For the same invention, the patent is awarded to the first person to file the application. The core advantage of patents is that they provide a clear scope of protection and legal exclusivity, allowing companies to share technology through licensing without forfeiting their intellectual property rights. Patent protection typically lasts for 20 years from the filing date. Determining patent infringement usually involves comparing the scope of protection outlined in the claims with the characteristics of the allegedly infringing product or process, applying doctrines of full coverage and equivalence.
In some cases, software may be better protected by trade secrets. For example, if the software contains algorithms or technologies that are difficult to uncover through reverse engineering, or if the company has a robust trade secret management system along with legal and technical safeguards, trade secrets may be the more suitable option. Additionally, if a company seeks protection for more than 20 years, trade secrets might better align with its needs.
In contrast, patent protection may be preferable for software technologies that can be easily reverse-engineered or in situations where there is high turnover among software developers, making it challenging to prove ownership of trade secrets. Patents provide clear proof of intellectual property ownership, even amid personnel changes, and offer legal recourse in cases of infringement.
A notable case highlighting the importance of both technical secrets and patent protection involved Zhejiang J Holding Group Co., Ltd. vs. W Automotive Technology Group Co. Ltd. Zhejiang J claimed that W Automotive illegally obtained and used its technical secrets, involving 40 employees who changed jobs and applied for 12 patents based on those secrets. The Supreme People’s Court ultimately ordered W Automotive to pay approximately CNY 640 million (~USD 90m) in compensation and mandated that it takes specific measures to cease the infringement. This case underscores the value of protecting technical secrets and illustrates the critical role of patents in safeguarding intellectual property, especially when employees transition between companies.
Ultimately, there is no one-size-fits-all answer to whether software is better suited for trade secret or patent protection. Companies must make decisions based on their specific circumstances and strategic objectives. Trade secrets and patents can be overlapping and complementary. In practice, many businesses adopt an ‘all-round protection’ strategy, utilizing both trade secrets and patents to safeguard their software products. For instance, a business might protect the core algorithm of its software as a trade secret while simultaneously applying for patent protection for key processes, modules, interfaces, and user interfaces. This approach allows companies to protect their technical secrets while ensuring exclusive rights to all aspects of their software.
In today’s globalized business environment, international protection of software patents has become increasingly crucial. When developing a strategy for ‘going global’ with their patents, software companies must carefully consider several key factors to ensure their intellectual property rights are effectively protected worldwide. Here are some core elements to remember when it comes to the international protection of software patents:
1. Eligibility
Eligibility is the primary requirement for patent protection. In China, computer program-related inventions are generally considered eligible if they address technical problems and produce technical effects. However, in jurisdictions such as the United States, patent applications may face additional challenges under Section 101 of the U.S. Patent Act. Thus, the claims of a software patent must be meticulously crafted to ensure eligibility in the target countries.
2. Accuracy of language
Linguistic precision in patent application documents is essential for ensuring that the scope of patent protection is effective. In the United States, Section 112 of the U.S. Patent Act imposes strict requirements for adequate disclosure and clarity of claims. In Europe, patent examinations are even more stringent. When filing overseas applications based on Chinese priority, issues often arise from ambiguous Chinese expressions, such as limitations in quantity and citations, which can lead to ambiguities in overseas applications and potentially affect the scope of protection of claims. Thus, international applications for software patents must ensure that the language used in their specifications and claims is accurate and meets the requirements of different jurisdictions.
3. Rules of Patent Examination
Patent examination rules vary across countries and regions, directly impacting the drafting and filing strategies for software patents. For example, China’s Guidelines for Patent Examination explicitly support claims for virtual devices, while such claims would be classified as Means Plus Function under the U.S. examination rules. The discrepancy can cause issues, such as insufficient support for the description during the examination process and a narrower scope of protection in subsequent rights enforcement. Thus, when applying for patents overseas, companies should adjust their application documents according to the examination rules of the target countries to enhance the likelihood of patent approval.
In practice, software companies should consider the following strategies when applying for patents internationally:
In summary, software companies must consider the eligibility requirements, linguistic accuracy, and examination rules of their target countries when applying for patents abroad. By developing a well-structured patent filing strategy and documentation, companies can enhance the competitiveness and protection of their software patents in the international market.
Protecting innovations in business models has become a significant legal concern in today’s rapidly evolving business landscape, particularly with the swift advancement of software and internet technology. Based on the Guidelines for Patent Examination and relevant case law, the following are some key points to consider when it comes to safeguarding business models through software patents:
1. Identify Technology Anchors: While a business model may typically be viewed as a purely business method, patent law is designed to protect technical solutions. Therefore, the key to obtaining patent protection lies in integrating the model with its technical features. For instance, if a business model implements methods using computer programs that involve technical adjustments or enhancements, these relevant technical means can be presented as technical features in the patent application.
2. Incorporate Algorithmic Features: In patent applications that include algorithmic features alongside business rules or methods, it’s essential to provide a detailed description of how these algorithmic features interact with the technical aspects. The description should explain which technical problems are addressed and what technical effects are achieved. Additionally, the distinguishing features of the technical solution should not rely solely on the algorithm or business method. If they do, the application may be deemed to lack an inventive step, as it would not present a technical contribution to prior art.
3. Focus on Specific Technical Fields: Patent applications for business models should demonstrate their applicability in specific technology domains, such as artificial intelligence, big data, or blockchain. The technical characteristics inherent in these areas can enhance the potential for patent protection for business models.
4. Ensure Sufficient Disclosure: The patent specification must thoroughly detail the technical implementation of the business model, including aspects like system architecture, workflows, and data processing methods. This level of detail is necessary to meet the requirements for full disclosure.
5. Draft Claims Carefully: Claims should define the scope of protection, encompassing the commercial methods as well as the technical features that enable them. The claims must articulate how the technical features interact with the business methods.
6. Include Non-Essential Technical Features: In some instances, certain technical features may not be essential for realizing the business model but can still be included in the patent protection scope, provided they are closely integrated with the business model's implementation and address specific technical problems.
7. Responding to Office Actions: During the patent examination process, applicants may face inquiries regarding whether their application meets the requirements of patent law. At this stage, it’s vital for the applicant to prepare robust arguments and evidence to demonstrate the technical features of their business model and how these features comply with patent law.
For example, consider QR code payments. By integrating QR codes with payment processing, a new payment method has been commercially realized. Although QR code payments do not in themselves constitute a technical solution, the underlying systems and methods, such as the collection and analysis of multi-field QR codes and technologies related to transaction processing and user account security, are indeed eligible for patent protection.
In summary, the key to protecting a business model through software patents lies in identifying and emphasizing the technical features within the business model implementation and illustrating how these features interact with business methods to solve technical problems and produce tangible effects. Precise and detailed descriptions in the patent application documents are required. A strong defence during the patent prosecution process also should be planned. By following these guidelines, innovations in business models can effectively be protected under patent law.
In collaboration with our strategic partner Lusheng in China and Wolters Kluwer, Rouse has developed a valuable resource for rightsholders: “The Practical Q&A Guide to Cutting-Edge Intellectual Property Issues in China”. This guide, compiled by over 30 senior China IP experts from the two leading IP firms, addresses the key concerns of businesses by providing insights on patents, trade marks, copyright, trade secrets, internet unfair competition, intellectual property investment, and punitive damages in an accessible Q&A format. It offers readers the latest legal interpretations, case studies, and practical guidance applicable to their operations.
To request a full copy, please complete the form through the link here.
Li Mi, Principal, Lusheng Law Firm, mli@lushenglawyers.com
Jensen Li, Patent Attorney, Lusheng Law Firm, jli2@lushenglawyers.com