IP Protection and Innovation

Before I begin, just a word as to why there was no Tidbits last week. Lots of things going on in my personal life, which has, unfortunately, affected my “career” as well. This is no excuse, however, for neglecting my promises to myself, and I’ll do everything within my power to rectify certain processes to prevent such an occurrence in the future.

But back to the main story.

This was going to be a Tidbits section last week, but upon further reflection, it felt more befitting that it be its own article. After all, it’s a huge point of contention for most entrepreneurs and investors alike in the market today. It’s a huge debate that rages on even outside the realm of corporate America, with consumers, creatives, and even legislators all having a stake in the debate.

That debate is one surrounding IP, or intellectual property.

Fortnite v PUBG

The big story between gamers last week was the imminent lawsuit launched by PUBG corporation against Epic Games, concerning the similarities between Fortnite and PUBG. As soon as the story broke, gamers were divided into two camps. One side argued that the similarities were blatant, and did warrant a defensive maneuver from PUBG to protect its IP. Most, however, seemed to disagree. Most argued that this was a rather pathetic last ditch effort by the company to fend off a more innovative, creative, refined competitor, rather than trying to innovate itself.

Moreover, the same people argue that the battle royale format could not be “patented” as it was a genre with a mixed history that could be traced back to games like Minecraft.

It begs the question, what should the scope be in protecting intellectual property? Moreover, how strongly should we enforce these protection measures?

Patents, Copyrights, Trade Secrets, Trademarks

I feel it befitting that we define some key terms before we begin. In colloquial speech, these terms are, more or less, used interchangeably, especially the terms “patent” and “copyright”. These are, however, very specific legal terms that provide very different protections. Though the legal jargon is a bit more complex than the following, in general, we can take these terms to mean:

  • Patents: protection for scientific/engineering applications that are unique and specific
    • EX: New technologies
  • Copyrights: protection for creative works pertaining to the arts and media
    • EX: Movies, music, TV
  • Trade Secrets: undisclosed corporate competitive advantages that may be unique to the company
    • EX: Coca-Cola secret recipe
  • Trademarks: protection for assets that pertain to corporate identity and image
    • EX: Logos, names, slogans

A more simplified explanation of the four would be that patents and trade secrets protect ideas, while copyrights and trademarks protect expressions of ideas (albeit there are many caveats).

Now, while most of these don’t overlap, the problem arises when you talk about trade secrets. Technically speaking, there’s no limit to what constitutes a trade secret, so long as the information is not available publicly. If you have a new technology that’s under development, that’s not yet ready to be patented, that could fall under a trade secret. A new recipe, too, falls under this umbrella. Even manufacturing processes and optimizations, if not patented, could fall under this umbrella.

But, at the same time, it’s the most well defined of the bunch (relatively) as it’s protected by NDAs, which has a very well defined legal scope.

The others, however, are a bit more complicated.

For example, the single largest asterisk for copyrights and trademarks pertains to parody — if it’s being used in a parody, protection under the law is no longer guaranteed. A great example of this is Dumb Starbucks (until it was forced to close).

Trademark protection also disappears if the trademark becomes so widely used that the term becomes part of the public domain. Google is currently fighting to prevent this with its trademark.

Then, there’s the whole issue with partial infringements with all of these. How much is too much when you’re copying something?

But that’s not what I want to focus on with this piece. I want to focus on what actually can be protected under these categories, and whether PUBG’s battle royale genre is eligible.

Protecting a Genre

Full disclaimer here, I’m no IP expert, nor am I a legal expert by any means. The only thing I have under my belt that I can claim in this field is working in a medtech startup working with IP, and taking a course on corporate law back in college. This means all legal opinions expressed here are simply that — opinions.

With that being said, I have a couple of issues when I look at this case. First, what are the boundaries of this case? What is PUBG claiming as copied, and therefore infringed upon? Second, how do we categorize these infringements?

Let’s tackle the first issue. Based on what I’ve read, it’s most likely that the claims are being made against Fortnite’s use of PUBG’s game mechanics — the ever shrinking battle arena, the winner takes all system — the whole battle royale game genre. No real assets seem to be part of this claim, which should be obvious to anyone who has played the game to any extent — the two games look nothing alike.

The trouble arises, however, when you talk about the mechanics. How similarly do they play? That’s the question the courts will have to answer, and, honestly, it could go either way. Proponents of Fortnite will claim that the added features of the game make it play completely differently from PUBG, and therefore makes it a different game. PUBG supporters, on the other hand, can just as easily claim that the underlying rules and mechanics that power both games are essentially the same.

But the argument hinders on this being an argument about copyright or trademark infringement, which I don’t think it is.

I think this falls under patent legislation.

To be fair, this point is just as debatable as any other points raised in this article, but video game mechanics are more akin to feats of engineering and operations than they are to works of literature and film. The creation of the battle royale genre of gaming is more an invention than it is an artistic work. It is an idea, and PUBG and Fortnite are the works of art that use said ideas.

If this argument is the basis of our debate (that the battle royale “idea” is the patentable asset), then it raises two issues:

  1. PUBG Corporation did not, at the time of writing, patent this new idea
  2. Even if the PUBG Corporation did patent the idea, there’s an argument to be made that the idea is too broad

Either of these two would work against PUBG. It means that PUBG’s idea is fair play for anyone to use, including Fortnite.

Which is why this case probably won’t go this way. It’ll be fought as a copyrights, perhaps a trademark, battle, one that hinges on the expression of the idea — and one that I think PUBG will lose as a result.

But there’s one more question I want to explore before I end this piece off.

Protection? Innovation?

If you’ve worked in financial fields of any sort — be it corporate finance, venture capital, private equity, or even brokerage — you’ll know that a major asset for any company is its patent/copyright/trademark portfolio. The more of these it has, the more it can protect its revenue streams from competitive forces.

It’s a major reason behind Theranos’ liquidation valuation. It’s the reason Google sought after Motorola, and why Microsoft bought Nokia.

But then, China came along, with its lax approach to IP protection legislation, especially for its companies. It became a huge reason behind Chinese growth in recent years, and a major force behind many US companies scaling back operations in China.

It was then that companies began asking — how can they maintain their competitive advantage in this era of rampant copycats?

The story of PUBG and Fortnite originally caught my eye because of this very dilemma. PUBG was the traditional startup, looking to capitalize on its first mover advantage, while maintaining its lead using its IP protection. Fortnite is the late comer looking to take full advantage of its late arrival to its full advantage by rectifying the issues its predecessor ran into.

When I first did my research into this story, I read through a lot of the comments, many of which are from the Western audience, who largely prefer Fortnite over PUBG. They, rather unanimously, stated that Fortnite’s innovations over the base game format was what made it more competitive.

Funny thing is, this is the very argument used by Chinese startups — you have to innovate, rather than fight to protect your IP.

 

And, either way you look at it, there’s an argument to be made. IP protection can be seen as a measure to incentivize inventive minds to generate new ideas, and maintain their livelihood while doing so. On the otherhand, it can be seen as a hinderance to the whole innovation train as it incentivizes milking every last drop from a given idea in the name of profits. And, both these arguments aren’t without merit. There are success cases for both.

For example, Thomas Edison, despite the controversy that surrounds his legacy, continually searched for new innovations in his field, despite the plethora of patents in his portfolio. Then, there are people like Tesla, Edison’s antithesis, who is famous for keeping a limited patent portfolio, instead seeking to open up his inventions for collaboration. That’s not to say any of these paths are objective correct or wrong. They’re different approaches to the same thing — innovation.

But the scope of these protections does need to be better defined. The rather blurry definition of these protective instruments have caused more trouble than their worth in recent years, including numerous litigation cases between the world’s largest companies, individuals, even governments. Most, if not all, of these litigations have been detrimental to the economy, providing no real benefit to the progress of science in general. In fact, this is where the argument against patents come from — instead of spending time protecting your IP, that time is better spent on R&D.

But what if your R&D depends on your ability to protect your IP? Take ARM for example. The London based semiconductor architecture firm doesn’t execute on its IP, rather, it licenses it out to be executed. Its sole purpose is to develop IPs and rent them out, while protecting its portfolio wherever it can.

This debate won’t end with PUBG and Fortnite (as most of you know). In fact, this debate will probably never be completely settled in any way shape or form. But, this will help set a precedent, at least in the space of video games, which is in dire need for precedents like this.

The industry has been in a constant debate as to whether it was a copyrightable art, or a patentable idea. So far, the consensus has been that it was an artistic medium akin to motion pictures. If the case between PUBG and Fortnite goes to PUBG, this only solidifies the industry’s claim to copyright protection. If it goes to Fortnite, well, then, we may see patents for video game execution in the near future.

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