Guest article: Relation between patents and digital escrow

This blog post and parts two and three of this post are guest posts by patent attorney Matthias Winter.


I. Introduction

Commercial legal protection is indispensable for the vast majority of companies. The same applies to escrow or escrow services, which, to follow the meaning of the word, are used where security is required for a transaction.

In the following I would like to present the basics of commercial legal protection. I will focus on patents, as these can play a special role in connection with software or digital escrow.

A. The term “intellectual property rights”

The term "industrial legal protection" basically includes all industrial property rights that natural or legal persons may hold. This includes, among other things, the rights to an invention, in particular patents and utility models, but also non-technical property rights such as brands or designs. There is also a certain overlap with competition law, for example when it comes to trade secrets - in connection with inventions - or exploitation of reputation - in particular in connection with trademarks.
Patents and utility models protect technical inventions. These can be technical products such as machines or consumer goods. But processes, such as production processes or uses of certain products, can also be protected.
Trademarks and designs, on the other hand, protect non-technical intellectual property. Trademarks always consist of a sign and a list of goods and services that defines the extent to which the use of the sign is protected. The main task of the mark is the function of origin, which assigns the origin of a specific company to goods or services marked with the mark.
Designs protect aesthetic configurations of objects, such as shape, color, surface quality, etc. Graphic surfaces of software applications or websites or their elements can also be eligible for design protection, provided they meet the requirements of property rights. There is a small area of overlap between brands and designs. However, it is important that designs have a maximum protection period of 25 years, whereas trademark protection can theoretically be maintained indefinitely.
All industrial property rights offer protection against piracy to the extent of the respective scope of protection. The market in many sectors is highly competitive. And any investment in R&D or corporate image may promise supremacy, but it also needs to be funded. Accordingly, companies price the newly developed products and the services offered in such a way that the investments are taken into account. Businesses also legitimately have an interest in making a profit from their products and services. The money received therefore consists of the sums for the production of the products or the implementation of the service, a share of the development investment and the profit.
A pirate who steals an invention or takes unfair advantage of the company's reputation has not had the said investments and only has to bear the cost of making it. The remaining amount can be booked as profit. This means that he can sell the product below the price of the rightful owner and possibly even make more profit.
With industrial property rights, their owners can take action against this piracy, since they allow the use of a protected object to be prohibited. The term use is to be understood here in the broadest sense and refers not only to the sale, but also to the offering, the production as well as the import and export from the protected area of corresponding goods and services. For this reason, industrial property rights are also referred to as prohibition rights.

B. The Importance of Patent Rights

Patents are monopoly rights. With them, the owner receives an exclusive right to the invention, albeit for a limited period of time. This means that the protected inventions may only be used by the owner and the companies associated with it. A patent applicant enters into a kind of trade with the state. The invention is published to serve the general advancement of technology. In return, provided the requirements of patentability are met, it receives the exclusive right of prohibition in the form of a patent, to which competition is bound as if by law.
Of course, an invention can also be kept secret and thus develop a monopoly-like position. In the case of some inventions, this actually makes sense, for example if the use of the invention cannot be proven or can only be proven with difficulty. However, patent-protected products can be dismantled after purchase so that the secrets of the invention hidden within them can be revealed. This is called reverse engineering.
However, a patent does not give you a free pass to use an invention as you wish, because there is always the possibility that a fundamental component of your invention or part of it is protected by a patent from a third party.
An example can easily illustrate this.

Suppose Company A has a patent for a screen with a specific function. The function is based on a combination of components that are known for themselves. However, one of these components is protected by a patent owned by company B, so B can prohibit A from using the components. If A were to use the components without B's permission, this would be a patent infringement. At this point it should be noted that the legal acquisition of components is usually accompanied by corresponding rights of use. However, if A manufactured these parts itself, A would not be entitled to use them.
Such a scenario occurs regularly and across all industries. One solution to this may be for companies to license each other to use each other's inventions with permission. In such a case one speaks of a cross license. At the level of large corporations, entire patent portfolios, which then comprise several hundred patents, are often exchanged in this way. Another possibility is to look for alternatives in order not to be dependent on the protected bases.
Patents usually improve their owner's position in the market. For even if an invention can only be used by accepting cross-licensing, all those competitors who do not have viable alternative technology or the ability to negotiate cross-licensing are at a disadvantage. These companies either have to buy a license for the invention, which ultimately reduces the margin, or are completely excluded from participating in the market with the products in question.

Part 2 of the post

Part 3 of the post

Information on patent attorney Matthias Winter

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