Stepping Carefully Through a Digital-Age Mine Field

Entrepreneurial notes from the Last Survivor of the Pre-Internet Era.

I was having lunch recently with several of our firm’s new summer associates, many of whom (regrettably for me) were not alive when I started with my firm as a summer associate in the summer of 1993. We discussed the beginning of a legal practice, the importance of finding a good mentor, and the excitement of becoming a counselor to actual clients, as opposed to the artificial experience of law school.

Our conversation then turned to changes in the legal practice since I began my career. You can imagine the shock on their faces when I told them that my career began before our firm was connected to the Internet. Their faces reflected a punchline from the locally syndicated “Pearls Before Swine” comic strip: “Are you one of the last survivors of that era?”

Although those new technology challenges seem like yesterday, there have been several changes in intellectual property law over the past few years that affect companies in Kansas City. Many of those changes are obvious to patent lawyers, such as the America Invents Act, which took effect in 2012, and the Supreme Court’s 2014 Alice v. CLS Bank International decision. Other developments such as the FTC v. Wyndham Worldwide Corporation decision regarding FTC regulation of data security or the European Union’s General Data Privacy Regulation (“GDPR”) are a little less obvious, but similarly important. This article addresses some of the biggest developments over the last few years that affect entrepreneurial and established companies in Kansas City.

1. America Invents Act and the Alice Decision. The AIA changed the American patent system from a “first to invent” to a “first inventor to file” system, in addition to eliminating interference proceedings and developing post-grant opposition procedures. AIA resulted in a sea of change for patent lawyers and their
clients in the United States. Businesses must now adapt their internal patent procedures to ensure that they make their patent filings as soon as reasonably possible to avoid competitors beating them to the United States Patent and Trademark Office.

In addition to the procedural changes reflected in the AIA, the U.S. Supreme Court’s decision in the Alice case changed the way that companies and their investors think about protecting patent-able assets. In Alice, the court found that an abstract idea could not be patented just because it is implemented on a computer.

While the courts continue to interpret AIA and Alice, the effects on public companies and entrepreneurial entities are profound. In particular, Alice effectively nullified patent assets that were previously part of a potential investor’s valuation of a company. Companies must now contemplate internal patent policies and whether they should focus instead on trade secret and copyright protection for their software assets.

2. Big Data and the Internet of Things. Although data are not technically intellectual property assets under U.S. law, due in part to the Supreme Court’s Feist decision in 1992, the contractual protection, use and security of data are among the most material developments for American companies. Data protection and security issues have become critical in recent years when advising clients on licensing, marketing, and “software as a service” agreements.

This is partially a result of the emergence of Big Data and the Internet of Things, which have enhanced the value of a company’s data assets. Kansas City companies should pay particular attention to their own data-collection policies and to the regulatory treatment of Facebook, Google, and Amazon, as that treatment will also affect local companies.

In that respect, the Third Circuit’s Wyndham decision last year confirmed the long-held assumption that the FTC could use the prohibition on unfair practices in Section 5 of the FTC Act to challenge data-security lapses. More recently, recent statutory activity relating to the GDPR and the California Consumer Privacy Act,
which provide individual rights to consumers in how their data is collected and used. Further, GDPR regulates the export of personal data from the EU into the U.S. Local companies need to assess their compliance, not only with new U.S. state privacy laws, but also with GDPR and
similar regulations in Canada.

3. New Technologies: AI, Blockchain and Cryptocurrency. Finally, many of our local companies should contemplate the legal effects of the latest technology developments. In the past year alone, I have worked on transactions that involved the use of artificial intelligence in such varied areas as M&A due diligence, soft-ware agreement analysis, and college cam-pus security reports. We anticipate how blockchain might solve the handling of our medical records or the long trip that a salmon fillet made to our dinner table. Similarly, companies will consider the possible effects of cryptocurrency on our financial markets and related digitized assets in our real property system.

Recent developments in the field of intellectual property law stress the importance of constant vigilance by local companies. I enjoy thinking about a lunch
table group in 2045, discussing technology enhancements that are incomprehensible today.