Protect Your Property!
A presentation on
intellectual property
September 2013
Law Office of
Barbara B. McFadden
Disclaimers
• The views in this forum are those of the
presenters and not of their organizations
• The views of the individual presenters may not
be supported by all of the presenters
• This presentation does not constitute legal
advice
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Introductions
• Presenters
– Chris Wilson - NC Dept. of Justice
– Robin Chacon - CSG Government Solutions
– Barbara McFadden - private attorney in South
Carolina
– Gordie Neff - SC Dept. of Health and Human
Services
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Barbara B. McFadden
Overview of Topics
• What is intellectual property?
• Creating an IP strategy
• Regulatory requirements pertaining to states
• Using open source software
• Using software-as-a-service and cloud
computing
• IP terms and conditions that help a state or that
run off vendors
• Lessons learned
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What is Intellectual Property?
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What is Intellectual Property?
• A product of human intellectual activity in which
someone has property rights protected by law.
– “Property Rights” include more than “Ownership
Rights.”
• “License Rights” are a major focus of this
presentation.
– License rights may give you all that you need.
CW 10:49
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Barbara B. McFadden
Ownership Rights
•
You can’t count on “Ownership” to trump all other rights in IP.
– Owning IP can be like owning a house.
– An owner’s control over IP may be limited by law or the interests of
others, just as control over your house may be limited by zoning laws,
restrictive covenants, easements, and promises you made to your
mortgage lender.
•
You can own an “embodiment” of IP without owning all underlying IP.
•
When you buy a copy of a book ...
– You own the physical copy.
– The author or publisher continues to own what’s expressed in the book
as IP.
•
Rights in IP can be divided up and held by more than one owner or
licensee.
– The terms of an IP license are limited only by the imagination.
CW 10:50
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Barbara B. McFadden
Categories of IP Rights
•
•
•
•
•
•
Patents
Copyrights
Trade Secrets
Trademarks & Service Marks
Rights Relating to Unfair Competition
Right of Publicity
CW 10:51
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Barbara B. McFadden
“Utility” Patent
• For an invention patented under U.S. law, a
grant by the U.S. government of the exclusive
right to:
–
–
–
–
–
Import
Sell
offer to sell
use the product or output of the invention
manufacture or sell certain components to be
assembled abroad
• A new patent lasts 20 years from the date of
application for that patent.
CW 10:52
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Barbara B. McFadden
Patentable Invention
• “Any new or useful process, machine,
manufacture, or composition of matter, or any new
and useful improvement thereof.”
• To qualify for patent protection, an invention must
be
– Novel
• It has never been revealed or described before
– Useful
• There must be a current, significant beneficial use for the
invention
– Nonobvious
• Not obvious to a person having ordinary skill in the pertinent
art
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Barbara B. McFadden
Copyright
• Protects “original works of authorship fixed in any
tangible medium of expression, now known or later
developed, from which they can be perceived,
reproduced, or otherwise communicated, either
directly or with the aid of a machine or device.”
• Under U.S. law, a grant by the U.S. government of the
exclusive right to:
–
–
–
–
–
–
Reproduce
adapt (create derivative works)
distribute to the public
publicly perform
publicly display
perform by digital audio transmission
CW 10:54
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Law Office of
Barbara B. McFadden
Trade Secret - Definition
• Uniform Trade Secret Act
– Information, including a formula, pattern, compilation,
program, device, method, technique or process, that:
• (i) derives independent economic value, actual or potential,
from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and
• (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
• Trade Secret rights last as long as the definition of
a Trade Secret continues to be satisfied
CW 10:55
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Barbara B. McFadden
Protected “Marks”
• Trademarks
– indicate the source of products
• Service Marks
– indicate the source of services
• Collective Marks
– indicate membership in an organization
• Certification Marks
– “Underwriters’ Laboratories”
– “Good Housekeeping Seal of Approval”
CW 10:56
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Barbara B. McFadden
Trademarks & Service Marks
• Indicators of source
– The source may be unknown to consumers. It’s
enough that relevant consumers recognize a
consistency of source.
• Trademarks & Service Marks
– Rights in marks arise under “common law”
without registration
– Federal registration is available only for marks
used in interstate commerce
– State registration is available for marks used in
intrastate commerce.
CW 10:57
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Barbara B. McFadden
Duration of Rights in a Mark
• Rights in a mark arise with use in trade that is
regular and more than token
• Rights last as long as the mark continues to
distinctly indicate the source of goods or
services
• Rights arising under federal registration last for a
term of 10 years, and may be renewed
indefinitely.
CW 10:58
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Barbara B. McFadden
Takeaway Concept
• You must understand what each type of IP
is in order to create an IP strategy and in
order to protect your IP
CW 10:59
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Barbara B. McFadden
Creating an IP Strategy
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Factors
Understand “Why?”
• What is it that you are trying to achieve with new technology?
•
What are the organizational goals that are most important?
•
How do your Department or Agency objectives align with state-wide
and federal objectives?
Research the current Marketplace Capabilities and Solutions
 Conduct a Market Scan to understand what is available today

Fasten Your Seatbelt! The Health IT industry and technology is
advancing so fast it’s hard to keep up!

Define what you want to achieve; let the vendors tell you how
RC 11:00
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Barbara B. McFadden
Budget and Schedule Drivers
Establish your Budget
•
Know what you can afford to spend and set Service Levels
Agreements (SLAs)
•
Prioritized objectives will help you focus on what you can afford to
buy
Know Your Timeline
•
Do you need everything at once?
•
Or is a phased implementation approach an option?
Budget and Timeline are important components to setting your
IP Strategy
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Barbara B. McFadden
Balancing the Strategy
Ownership Type
Definition
Pros (+)
Cons (‐)
Direct Ownership
The State owns the ₊ The State system
receives
ownership rights
₊ Vendor may be replaced and system retained
Shared Rights
The State owns ₊ Provides the state ₋ Need to be careful some of the ownership of in design to ensure ownership rights; core system; system is not software licenses ₊ Flexibility to use dependent on are acquired for “best of breed” licensed certain components components for components to of the system
certain function
functionality
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₋ More costly due to full turnover of system
₋ May be restricted to more customized solutions
Law Office of
Barbara B. McFadden
Balancing the Strategy
Ownership Type
Definition
Pros (+)
Cons (‐)
Proprietary (non‐COTS)
The vendor owns the custom‐built system
₊ Potential for lower cost of maintenance that State Ownership model if vendor has large footprint in Medicaid and shares costs across customer base
₋ The vendor goes – the system goes
COTS
The vendor retains ownership;
the state “leases” the system (usually a license fee)
₊ Lower Cost/Time to ₋ The vendor goes implement and maintain
– the system goes
₊ Potential flexibility to use ₋ Less flexibility for “best of breed” customized components
configuration ₊ Software Maintenance is (i.e.: unique the responsibility of the Medicaid vendor
policies)
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Barbara B. McFadden
Takeaway concept
You must have a well-crafted IP strategy
or your strategy by default is:
"we don't care"
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Barbara B. McFadden
Regulatory Requirements
Pertaining to States
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Barbara B. McFadden
IP Rights in Software
• Most important rights in Medicaid context:
– Copyright
– Trade Secret
– Patent
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Barbara B. McFadden
Important CFR Sections
• The Medicaid-related sections of the Code
of Federal Regulations focus on copyrights
– 45 CFR § 92.34 Copyrights
– 45 CFR § 95.617 Software and Ownership
Rights
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Barbara B. McFadden
Copyright in Federal Government Works
• The Copyright Act provides there is no copyright in “a work
prepared by an officer or employee of the U.S. government as
part of that person’s official duties.”
•
However, the Federal Government can receive and hold
copyrights that have been transferred to it. The Federal
Government may also hold copyright-based license rights.
• Through 45 CFR § 92.34 (Copyrights) and 45 CFR § 95.617
(Software and Ownership Rights), the Federal Government
tells States that whenever they use federal funds to pay for
development or State ownership of software, the States must
make sure that comprehensive license rights in the software
are granted to the Federal Government.
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Barbara B. McFadden
45 CFR § 92.34
Copyrights
•
The Federal awarding agency reserves a royalty-free, nonexclusive,
and irrevocable license to reproduce, publish or otherwise use, and
to authorize others to use, for Federal Government purposes:
– (a) The copyright in any work developed under a grant, subgrant, or
contract under a grant or subgrant; and
– (b) Any rights of copyright to which a grantee, subgrantee or a
contractor purchases ownership with grant support.
•
The Federal Government cannot simply proclaim that it has these
rights. A State must either:
– 1) Grant the rights to the Federal Government, if the software is owned
by the State, or
– 2) Cause the State’s contractor to grant the rights to the Federal
Government, if the software is owned by the State’s contractor (such as
when the development contract provides the contractor shall own
derivative works that are based on the contractor’s pre-existing work).
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Barbara B. McFadden
45 CFR § 95.617
Software and Ownership Rights
•
•
•
•
(a) General. The State or local government must include a clause in all procurement
instruments that provides that the State or local government will have all ownership
rights in software or modifications thereof and associated documentation designed,
developed or installed with Federal financial participation under this subpart.
(b) Federal license. The Department reserves a royalty-free, nonexclusive, and
irrevocable license to reproduce, publish, or otherwise use and to authorize others to
use for Federal Government purposes, such software, modifications, and
documentation.
(c) Proprietary software. Proprietary operating/vendor software packages (e.g.,
ADABAS or TOTAL) which are provided at established catalog or market prices and
sold or leased to the general public shall not be subject to the ownership provisions in
paragraphs (a) and (b) of this section. FFP is not available for proprietary applications
software developed specifically for the public assistance programs covered under this
subpart.
Software that is excluded from mandatory State ownership by subsection (c) of 45
CFR § 95.617 is still subject to the license requirement of 45 CFR § 92.34(a), ), but
only to the extent the software undergoes further development with Federal funding
CW 11:13
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Law Office of
Barbara B. McFadden
Takeaway Concept
• While often brief, IP sections in contracts
have substantial impacts on IP rights and
ownership. States and contractors must
understand the ramifications, and
contracts must accurately reflect these
requirements
CW 11:14
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Barbara B. McFadden
Using Open Source Software
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Important concepts
• “Free” as in beer vs. “Free” as in speech
• “Copyleft” vs. copyright
• Usage rights vs. distribution rights vs.
modification rights
• Open source is not public domain
• “Free COTS” is not an oxymoron, but that
doesn't mean it's open source
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Barbara B. McFadden
What is Open Source Software?
•
Criteria from the Open Source Initiative (OSI)
(http://opensource.org):
–
–
–
–
–
–
–
–
–
–
Free redistribution
Must include source code
Must allow for derived works
Must maintain integrity of original authors' works
No discrimination against persons or groups
No discrimination against fields of endeavor
No need to execute additional license
License must not be specific to a product
License must not restrict other software
License must be technology neutral
Most
important
factors
This list is an OSI recommendation
It does not have the force of law or regulation
GN 11:07
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Law Office of
Barbara B. McFadden
Major Types of Open Source Licenses
• “Mods”
– Must publish modifications to open source if
distributed
• “Linked”
– Must publish your own linked code if distributed
• “Hosted”
– Must publish everything even if only hosted to
external users and not separately distributed
GN 11:18
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Law Office of
Barbara B. McFadden
Popular Open Source Licenses
License Type
Mods
Linked
GNU General Public License (GPL)
X
X
GNU Lesser GPL (LGPL)
X
GNU Affero GPL (AGPL)
X
X
Mozilla License
X
X
Eclipse License
X
Hosted
X
MIT License
Berkeley Software Distribution (BSD)
Apache License
Note: this table is a simplification for illustrative purposes. Please read the actual
licenses for details.
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Law Office of
Barbara B. McFadden
Non-Standard Open Source Examples
•
“The Software shall be used for Good, not Evil”
– This is actually in a license for software procured by South
Carolina DHHS!
•
“Permission to use and/or redistribute this work is granted under the
terms of the LGPL License, with the exception that any usage
related to military applications is expressly forbidden.”
•
“You agree you are not developing or manufacturing products, and
where applicable their ingredients, which involve, or have involved,
testing of any sort on animals conducted at the initiative of the
manufacturer or on its behalf, or by parties over whom the
manufacturer has effective control.”
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Law Office of
Barbara B. McFadden
Things to Think About
•
Prior to using open source software, think about:
– Do you understand what source code must be distributed and when? Is that
acceptable? What happens if someone makes a mistake in distribution? (GPL v2 has
very punitive provisions for failure to distribute source code...relaxed under GPLv3)?
– Does the software use one of the "standard" OSI-approved licenses, or a unique
license? Are the terms of the license acceptable?
– Do you need indemnification for intellectual property infringement?
– Is the open source package you want to use well-supported? If support wanes, do you
have the ability to make changes on your own? (or can you hire someone to do it for
you?)
– Will the use of open source cause legal issues with contractors that may work on a
project (either government-to-contractor or contractor-to-subcontractor)
– The lack of any license (like some software on GitHub) may mean that code is
automatically protected for exclusive use by the author...i.e., it's not open source!
GN 11:22
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Law Office of
Barbara B. McFadden
Takeaway Concept
• Open source licensing can be very tricky
– Do not assume that you can use it as you please
• Research license types and get legal advice
prior to working with or committing to open
source software
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Barbara B. McFadden
Using Software as a Service
and Cloud Computing
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Barbara B. McFadden
What is SaaS?
• What is cloud computing?
• How does licensing apply to SaaS and cloud
solutions?
• What happens at the end of a contract? Or if the
contractor defaults?
• Who owns the data? What can be shared? How
is the data protected?
• Recommended contract terms for SaaS/Cloud
RC 11:26
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Barbara B. McFadden
Takeaway Concept
• With SaaS and cloud computing, ease of
use comes hand-in-hand with lack of IP
rights or ownership
• Make sure that you can live with the terms,
conditions, and risks prior to committing to
these types of solutions
RC 11:27
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Barbara B. McFadden
IP Ts&Cs that Help a State or
Run Off Contractors
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Barbara B. McFadden
Terms and Conditions:
The Battle of Words
• Vendor proposed terms
– COTS license terms favor Vendor and limit rights
• State mandatory procurement terms
– Consider what the State Law and regs require for
valid competitive procurement
• Federal mandatory terms
– Don't miss the requirements to obtain the
necessary funding and/or create compliance issues
for State
• Terms must incent behaviors desired and be fair to
both parties as well as protect interests of State
BM 11:29
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Law Office of
Barbara B. McFadden
Terms and Conditions:
The Battle of Words
•
Terms should be strategy driven
– Every choice on terms will influence cost of project: IP ownership and or
license rights, indemnities, limits of liability, insurance, requirements for
maintenance, software escrow all impact cost of transaction opportunity
to Vendor
•
Ownership will cost most
– Power to exclude others from use or reuse comes at high cost since it
directly impacts value proposition to Vendor
•
Decide what the strategy is before you draft the terms
– Are you planning to be the GC building a stand alone system to be
operated in house?
– Want an outsourced solution of design/build/install operate/exit at end of
term with a single vendor taking responsibility for all aspects of the life
cycle?
– SaaS or cloud solutions using a standard, mass customized or bespoke
service?
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Law Office of
Barbara B. McFadden
Bespoke in-house system
•
Old school paradigm: most expensive and riskiest solution
•
Must decide on maintenance and update strategy
•
Critical to assure that terms include proof of originality if built from ground
up
•
If incorporating non-original content, critical to have licenses in place for all
pre-existing works and watch scope of licenses plus open source issues
(license must be perpetual, at least for all US territory, include rights to
prepare derivatives and authorize others to do so on Customer's behalf)
•
Ownership of all IP rights must be in Customer per regs and remember
licenses if funded with Federal monies
•
Should Vendor receive license back to use code developed for others?
•
Must get source and object code versions and provide for updates of total
system during performance to assure that Customer has current and
complete version of code developed if performance problems arise
BM 11:31
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Law Office of
Barbara B. McFadden
How to Design Payment Plan that
Incents Desired Behavior
•
•
•
•
•
•
•
•
Design meaningful IP Indemnities and Warranties
COTS Stand Alone---Or Vendor Proprietary
Is it "true" COTS and does this really matter?
Tension between State mandatory terms and vendor desire to license on its
terms or unique terms if not COTS (most dangerous for State)
The SC solution: mandatory terms/COTS amendment to assure critical
terms meet State requirements
What is upgrade/regulatory changes/maintenance policy and does vendor
standard provide sufficient strategy? If not, how to assure cost to maintain
not open-ended time & materials
Source code escrow with meaningful triggers for release (more than
bankruptcy) and periodic escrow of current source and object version plus
maintenance updates
Training strategy: who can maintain if vendor fails to do so
Negotiate rights for third party to operate including in a shared data center if
outsourcing could be a possible future alternative
BM 11:32
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Law Office of
Barbara B. McFadden
Outsourced, SaaS, and Cloud Solutions
•
Is this a COTS or providers proprietary system?
– If COTS, see above, if proprietary, need to understand maintenance
strategy and obligations (who pays/how much/upgrades and reg
changes) and assure IP ownership and indemnities adequate to protect
operations
•
Who will operate and where (your place, their place or "cloud")
•
Degree of customization available for solution: lowest common
denominator functionality and maintenance may not be enough
•
Protection of data and confidentiality requirements
•
Performance standards for availability and other critical objective
measurement with financial consequences (penalties/incentive
schemes)
•
Termination scenarios and end of contract transition strategy critical
and must be negotiated at contract inception ("breaking up is hard to
do")
BM 11:33
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Law Office of
Barbara B. McFadden
Takeaway Concept
• Be careful what you ask for in an RFP
because it might cost you more than
you're willing to pay or it might run off all of
the competitors; however, don't roll over
and accept anything that the contractors
propose
BM 11:34
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Barbara B. McFadden
Lessons Learned
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Barbara B. McFadden
Lessons Learned
• Applying notices to your IP
• When COTS isn't really COTS
• Contractor-owned IP vs. Third Party IP - they aren't the
same, and contractors generally can't give what they
don't own
• Vendors claiming ownership of items that appear to
come from other state’s projects
GN 11:36
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Barbara B. McFadden
Wrap Up
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Barbara B. McFadden
Takeaways
•
You must understand what each type of IP is in order to create an IP
strategy and in order to protect your IP
•
You must have a well-crafted IP strategy or your strategy by default is “we
don't care”
•
While often brief, IP sections in contracts have substantial impacts on IP
rights and ownership. States and contractors must understand the
ramifications, and contracts must accurately reflect these requirements
•
Open source licensing can be very tricky. Do not assume that you can use it
as you please. Research license types and get legal advice prior to working
with or committing to open source software
•
With SaaS and cloud computing, ease of use comes hand-in-hand with lack
of IP rights or ownership. Make sure that you can live with the terms,
conditions, and risks prior to committing to these types of solutions
•
Be careful what you ask for in an RFP because it might cost you more than
you're willing to pay or it might run off all of the competitors; however, don't
roll over and accept anything that the contractors propose
GN 11:37
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Law Office of
Barbara B. McFadden
Reference Material
•
Open Source Initiative
– http://www.opensource.org
•
SCO – Linux controversy
– http://en.wikipedia.org/wiki/SCO%E2%80%93Linux_controversies
•
CFR References
– 45 CFR 92.34
• http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&rgn=div8&view=text&node=45:1.0.1.1.49.3.17.12&idno=45
– 45 CFR 95.617
• http://www.ecfr.gov/cgi-bin/textidx?c=ecfr&rgn=div8&view=text&node=45:1.0.1.1.52.4.24.8&idno=45
•
Commercial Item Acquisition: Considerations and Lessons Learned
– http://www.acq.osd.mil/dpap/Docs/cotsreport.pdf
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Barbara B. McFadden