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Intellectual Property and Charity

Lately there have been a significant number of important and constructive conversations on CharityChannel regarding patenting and its place, if any, in the charitable sector.

I will start by saying that I am biased. I have several patents in the environmental products sector, have been involved in the non-profit sector since 1992, and a previous company I founded, eContributor, had filed several patents regarding a new hybrid donor-advised fund management system (the company was sold and the patents abandoned). I am also not a lawyer, nor have I played one on TV.

What is intellectual property? I think it is important to put all of this in perspective. Patents are but a part of a larger legal sector called intellectual property (or IP). IP includes trademarks, patents, and copyrights. Within patents, there are two types: design patents, which are typically product designs, such as the shape of a glass; and, utility patents, which can be new electronic circuits, new chemical structures, new drugs and genetic combinations, new products, and new ways of doing something known as process patents.

I doubt that anyone can disagree with the importance of trademarks and copyrights in the charitable sector. IP prevents the hijacking of our valuable trade names (Red Cross, World Wildlife Fund, Habitat for Humanity), trade symbols or marks (college logos), domain names (, and content by people that would use the confusion for their own financial good. Without the specific and legally tested IP laws in place at the federal, state and local level, there would be no way to protect the branding that is critical to a charity?s marketing and fundraising success.

So, how does this compare to a patent? Patents historically have been used to help inventors benefit from their hard work and innovation. At first, when technology was entirely mechanical in scope, the patent application had to include a working copy of the item being patented. As technology shifted towards chemical, physical and electronics innovation, the patent office dropped the model part of the application and allowed applicants to propose ideas that did not yet exist but were possible through scientific application.

This created a boom for inventors — and a lot of chaos. Inventors could now create very broad patents that may cover a variety of subject matters. For instance, an inventor could create a new molecule or chemical formula that created a way for detergent to be in a liquid form. This has application not only for laundry detergent, but also for hand soap, hair shampoo, auto cleaners, industrial cleaners, and the like. In fact, the molecule could also be key to suspending other chemicals for drug delivery or for space research. Most importantly, however, the inventor could try to increase the scope of the patent by claiming a range of chemical formulas (3 to 15 carbon atoms for each water molecule, for example) to insure that others could not come up with a similar formula that was close enough to have the same effect without violating the patent.

A new development in the past 15 years is the advent of what is called a ?process patent.? To best explain a process patent, it?s easier to use chemicals again. A chemist may come up with a powerful new anti-bacterial cleaner. The secret to this cleaner is not in the combination of various chemicals, but rather the order in which these chemicals are combined. The application would be both of the chemicals needed and, more importantly, the order in which they are mixed and the conditions during the mixing.

However, in all cases, there are very strong restrictions on what can and cannot be patented. For instance, the idea has to be workable. The patent office receives numerous patents each year for so-called perpetual motion devices. As these are physically impossible, they are dismissed. Also, ideas that are considered public domain are not patented. Ideas can become public domain through a variety of methods: Something that has been in use and is not patented is public domain; an idea in a patent that has expired (patents have typically a 17 or 20 year life, depending upon when they were patented, unless they are extended by an act of Congress); or an idea that is purposely put in the public domain — open source software being the best example. Other aspects of intellectual property have similar characteristics.

These are all simplistic descriptions, but are relevant to how patents affect charities. Since charities have very broad missions, from drug development to services delivery, I want to focus on a small section that has garnered a great deal of attention on the CharityChannel forums: fundraising. There is concern that an organization or person could cripple on-line fundraising through patents.

Using the concept of public domain and common practices, it would be very difficult to have a patent that could cover basic electronic fundraising. This is because the concept of fundraising is common knowledge, as is the concept of collecting information via an electronic medium. Combined together, this is electronic fundraising. The components related to on-line fundraising, namely the transfer of funds via credit cards or checks through the merchant banking system from the donor to the charity are established processes that may already have patent protection for the service provider. Other aspects of online fundraising, such as sending out email asking for donations, responding to donors or keeping the information in a database are also items that have been around for a long time and are not likely to be patentable.

What could be patented is some unique process that adds a unique value to the inventor. For instance, if someone could figure out a way to transfer stock from any brokerage account to a charity directly, immediately and automatically, they could patent this process (by the way, it would be easier to develop cold fusion). This would not impinge on-line fundraising, nor would it cripple the emerging on-line philanthropic movement, but it would impact a particular sector — namely on-line stock transfer to charities. A patent such as this would undoubtedly impact the entire securities sector as well. In fact, a systematic change such as this would probably emerge from the securities sector first, and would, secondarily, impact the charitable sector.

There has also been considerable concern about the patent office not realizing the prior art that exists or the basic operating processes of the charitable sector in terms of the impact on on-line philanthropy. This is unlikely for a number of reasons. First, prior art is carefully maintained at the patent office and there are a number of patents in the charitable sector that can be referenced. The second reason is because anything that happens regarding on-line donations will equally apply to other on-line financial transactions, such on-line commerce and on-line bill payment. There is a tremendous amount of prior art surrounding these types of patents. Finally, the courts are the final arbiter regarding patents and enforceability. Even if a patent is granted, a court could overturn or severely limit the patent?s scope.

The final point is a critical safeguard. There has been discussion that if the patent holder wanted to enforce the patent and went after a small charity, the small charity would not be in any position to defend itself against a large or cash-rich corporation or individual. The main reason why this scenario is unlikely is because of the rules regarding patent violations. Any patent violation has a maximum penalty of three times damages. So, if a court finds in favor of the patent holder, the violator would have to pay a maximum three times the damages that a jury feels necessary (likely it would be the amount of money saved by using the technique patented). Because of this, it is more likely that the patent holder would go after a large on-line merchant, charity, or financial institution. These organizations have the resources to properly defend themselves.

I strongly believe that the likelihood of a patent being issued that will dramatically affect on-line fundraising is very unlikely. If anything, a patent regarding on-line transactions would have an impact and it would impact the merchant banking systems (for all I know, there may already be several patents in this sector and we pay licensing fees to the inventors as part of the merchant banking fees). I also believe that many, if not all, of the patent applications regarding on-line transactions in the charitable sector will see their scope narrowly focused to specific applications of the technology. This will not impact the sector in a wholesale way. Instead, it will force the patent holder to explain why the method they invented provides value to the sector and is worth paying extra to use versus other possible methods or not using the method at all. If it?s truly a novel and more efficient or effective approach, the sector should be more than willing to pay for it. We do this every day for things such as CD ROMs, photocopiers, digital photographs, and cell phones. This is part of the cost of doing business and the cost we share to encourage innovation and invention.



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