North Carolina Department of Justice
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Reply To: Richard H. Bradford Elections Section (tele) 919-716-6800 (fax)919-716-6755

January 15, 2002

Sheila Stafford Pope General Counsel

N.C. Department of the Secretary of State

P.O. Box 29622 Raleigh NC 27626-0622

RE: ADVISORY OPINION: SECTION 15.1(A) OF S.L. 2001-424 REGARDING PROPOSED OR PENDING TRANSFERS OF PATENTABLE INTELLECTUAL PROPERTY

Dear Ms. Pope:

You requested an advisory opinion determining whether the Secretary of State must, pursuant to Section 15.1(a) of S.L. 2001-424 regarding potential transfers of patentable intellectual property, complete the reporting requirements therein prior to licensing certain computer software application(s) and coding developed by the Office of the Secretary of State. Because analysis requires distinguishing procedural and substantive aspects of your question, this letter addresses three subordinate queries. First, whether the principal software application is patentable. Second, whether the subsequently developed “RA9” application specifically addressing the requirements of Revised UCC Article 9 (adopted in North Carolina as SL 2000169) is patentable. Last, the question of the meaning of “transfer” in the context of Section 15.1(a). Thank you for presenting a comprehensive context and history of the software application(s) denominated “the Secretary of State Knowledge Base” or “SoSKB”.

We must first advise you that we are not licensed patent attorneys, and that this letter does not express any opinion as to the substantive patentability of any invention comprising the SoSKB, nor RA9, at the time of first use. A timely determination of an invention’s patentability requires an opinion of patent counsel; i.e. an attorney licensed to practice before the US Patent Office.

Preparation of a patentability opinion includes substantive comparisons with existing similar technology, methods, etc. (typically referred to as “prior art”) and procedural review to ensure compliance with applicable law and regulations. This generally involves a patent search, review of the proposed invention and development of patent claims describing the invention and at least a portion of the patent specification. Although such substantive review is outside the expertise of members of the Attorney General’s office, we do address your first question on Sheila Stafford Pope February 14, 2002 Pg 2

procedural grounds and some guidance is provided on the remaining questions.

Patentability refers to whether something, presumed an invention, is suitable to be patented. This is first determined with reference to subject matter, novelty, and obviousness: see generally 35 USC §101 (subject matter), §102 (novelty), and §103 (non-obviousness).

The subject matter of patents most likely to affect the State pursuant to Section 15.1(a) comprise software operations and functionality, hardware, and processes. Processes may exist as a combination of hardware and software, or software alone. These will likely involve methods of conducting internal operations or “business” of the State. The SoSKB certainly falls within this area.

The SoSKB software application(s) may have been patentable when first reduced to practice on or about February 2000. But 35 USC 102(b) requires filing a patent application within one year of publication or placing the invention in use. Hence, if an inventor discloses the invention more than one year before filing an application, the inventor is barred from obtaining a patent. In re Katz, 687 F.2d 450, 454, 215 USPQ 14, 17 (CCPA 1982). This requirement has lead to the practice of filing within one year of reducing an invention to practice. The time limitation refers to disclosure in this or other countries wherein disclosure is understood to mean "prior art" or disclosure by the inventor sufficient to make the invention obvious, not novel, etc. and therefore non-patentable under §§101, 102 or 103 of the Patent Act. DeGraffenried v. United States, 16 USPQ 2d 1324, 1330, N.7 (Cl. Ct. 1990). If an invention is reduced to practice before being sold or offered for sale more than one year before filing the application, however, the inventor is barred from obtaining a patent. Vanmoor v. Wal-Mart Stores, Inc., 201 F.3d 1363, 1366-67, 53 USPQ 2d 1377, 1379 (Fed. Cir. 2000). You reported that the SoSKB uses extensible markup language (XML) as the current standard for exchanging web page content. You also reported that the SoSKB was placed in use (i.e., reduced to practice) on or about February 2000, and that some disclosures of its features and functionality have been made. These facts and the foregoing cited authorities resolve the issue of patentability on procedural grounds. Section 15.1(a) of S.L. 2001-424 specifically limits its application to patentable intellectual property (understood herein as patentable subject matter). Therefore, the SoSKB program need not be reported under Section 15.1(a) because the program is not patentable.

The second question regards RA9, and other subsequently developed components or modules. Your letter indicates that the RA9 application(s), components or modules were developed subsequent to the principal software comprising SoSKB, and that use of the RA9 began in July 2001. The time restrictions of §102(b) may not preclude a patent application for the RA9 component of the SoSKB. Absent a patent opinion, it is not possible to assess the application of Section 15.1(a) to RA9 or other developments at this time. Although this Office cannot provide a substantive patentability opinion, we offer some further guidance regarding Section 15.1(a) and the licensing Sheila Stafford Pope February 14, 2002 Pg 3

initiatives evident in your letter and sample licensing agreement. Developments or components such as RA9 may be patentable if the requirements of §101, §102 and §103 are satisfied.

Section 15.1(a) is intended to identify a particular class of potentially valuable property, and to ensure sufficient management of any positive economic potential to protect the State’ s interests. This statute does not provide an exclusion from reporting if the “patentable intellectual property” lacks economic value. The Secretary of State’s licensing program is revenue neutral, but preserves the State’s interests in the licensed technology regardless of its patentability. The license agreements also provide a synergistic benefit to the State by requiring licensee states to provide their modifications, enhancements, etc. to the N.C. Secretary of State on a non-royalty basis. Your letter refers to this program as a multi-state collaborative effort with concomitant economic benefits derived from savings of time and appropriations to the licensees. North Carolina’s benefit derives from preserving ownership of the asset(s) and required control and/or use of any further developments, enhancements, modules, etc. from the licensees. These benefits may be reportable pursuant to Section 15.1(a)(1)(b) as the “potential value” of the State’s interest. We believe the safest course of action would be to disclose the existence of the software application(s) as potentially patentable property as required by Section 15.1(a) even though business and economic issues may lead the Secretary of State to choose not to obtain a patentability opinion.

Finally, the question of when a transfer occurs must be addressed. The term transfer is not specifically defined in Section 15.1(a). However, the meaning of transfer or license from licensing law is well established. The precise nature of the rights conveyed depends upon the nature of the intellectual property right(s) licensed. Because the law recognizes personal property interests of a licensee, we conclude that transfers of SoSKB copies through licenses, etc., should be included within the meaning of Section 15.1(a) when such transfers include patentable subject matter.

Paragraph 1(c) of Section 15.1(a) requires a reporting agency to identify the best method of protecting the State’s interest in the technology, but does not provide further guidance. Other potential intellectual property protections include copyright and trade secret in addition to patent law. Registration of the SoSKB and any components as copyrighted works is strongly recommended. This may be accomplished with a minimum of cost and effort; see generally Copyright Circular 61, Computer Registration for Computer Programs. This document, Application Form TX, and other relevant documents may be obtained from the Copyright office, or online at http://lcweb.loc.gov/copyright/. Paragraph 10 of your license agreement contains standard notice and warning language regarding claims of copyright and concomitant rights of use. Enforcement of the rights identified in 17 USC §106 and remedies provided in 17 USC § 501 et. seq. for copyright owners requires registration prior to taking action to enforce such rights and remedies. 17 USC §§ 411, 412.

In summary, we conclude that the principal SoSKB software is not patentable based upon procedural analysis, and that separate developments may be patentable if the substantive Sheila Stafford Pope February 14, 2002 Pg 4

requirements for patentability are met. Absent a patent opinion, it is not possible to assess the application of Section 15.1(a) to the RA9 component at this time. We strongly recommend completion of the copyright registration process.

Sincerely,

Ann Reed Senior Deputy Attorney General

Susan K. Nichols Special Deputy Attorney General

Richard H. Bradford Assistant Attorney General

RHB/prs