Challenging a patent is a strategic decision made by a individual or business and can be done for a number of reasons and at various stages of the patent process — such as during the patent “pending” phase or after the patent has been granted and issued. However, challenging a patent before or after granting is expensive and could have some pitfalls, such as potentially making the challenged patent more resilient to validity assertions if a challenge fails.
Smart Business spoke with James Scarbrough, a partner with Fay Sharpe, LLP, as well as law clerks Matt Burkett and Erik Keister, about strategies for challenging patents and when it’s appropriate to do so.
Why would someone challenge a patent?
There are several reasons to challenge a patent. For example, someone can challenge a patent if they think that the person(s) that obtained the patent stole or copied the invention from them. Another reason to challenge a patent is if there is a concern that a product or process may infringe one or more claims of the patent. Also, if a person has been accused of infringing a patent, and the person wishes to prevent or end a lawsuit or encourage a patent license agreement, the person may then challenge the patent. A patent or pending patent application can be challenged through the U.S. Patent and Trademark Office (PTO) as an alternative to court litigation.
How does a patent challenge work?
One type of challenge can be made after a patent application is filed but before a patent is granted or issued. This particular challenge is called a pre-issuance submission. Documents that can be considered prior art, such as another patent, a published patent application, or any other printed publication of potential relevance can be submitted to the Patent Office. The person submitting the prior art must also provide a concise description of relevance of each document. The submission must occur before a notice of allowance is mailed or the later of two events: (a) six months after the application is published, and (b) a mailing of a first Patent Office Action in which one or more claims are rejected.
The entity whose patent application is being challenged can submit a response to the challenge, but is not required to unless requested by the Patent Office.
Another type of challenge proceeding is called a derivation proceeding. In a derivation proceeding a person may challenge a patent or pending patent application if they think that an inventor in an earlier filed patent application derived the claimed invention from an inventor of their patent application. Any such petition may be filed only within the one-year period beginning on the date of the first publication of a claim to an invention that is the same or substantially the same as the earlier application's claim to the invention.
A third type of challenge is called a Patent Post-Grant Review. A Post-Grant Review is performed once a patent is issued and must be done within the first nine months of the grant date of the patent. A patent owner is given three months to respond after the review request before the Patent Office decides to proceed forward with the review. The patent owner has one opportunity to file a response or amend claims. The challenge can be based on several factors within patent law, such as patentability, anticipation, obviousness, or indefiniteness.
What happens if you win a challenge? And, if you lose?
Winning a challenge could result in the patent being invalidated and any products or processes thought to infringe the patent claims can then be freely produced without threat of a lawsuit or legal action with regard to the challenged patent. A successful outcome might also result in the patent claim scope being limited such that a competitive product can be manufactured or sold without concern of infringement. Winning the challenge could also stop a lawsuit from being filed or a pending lawsuit that has been filed against the challenger. If a challenge is lost, i.e., the patent or patent application survives the challenge, the challenger could potentially be found liable for infringement in a pending or subsequently filed lawsuit. Additionally, a patent that survives a challenge may become stronger in that it has survived a review against additional prior art.
What’s the difference between challenging a patent before or after it has been granted?
When challenging a patent application before a patent is issued via pre-issuance submission, the challenger submits prior art and then is not involved in the process after that point. A pre-issuance submission can be made by anyone before a patent is granted.
When challenging a patent after grant, it depends on the timing whether it is before or after nine months since the patent had been granted. A Post-Grant Review can be performed if it is less than nine months after grant of a patent. A Post-Grant Review is advantageous in that the patent can be invalidated on more grounds and there is a lower burden of proof. Which challenge is appropriate depends on the timing of the challenge, the basis for the challenge and the person or entities making the challenge.
What costs might a company incur by challenging a patent?
Fees for the different types of challenges vary, and can range from $180 for every 10 documents submitted in a pre-issue prior art submission, to $60,000, which is the estimated cost of preparing a petition for derivation. And those figures may not take into all costs incurred, such as attorney fees. Ultimately, a company has to do a cost/benefit analysis to determine whether it’s worth spending the money to file a challenge, weighing the risks of not filing and possibly being exposed to liability.
James E. Scarbrough is a partner with Fay Sharpe, LLP. Reach him at (216) 363-9141 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Fay Sharpe, LLP.
U.S. patent law is going through some changes with the implementation of the America Invents Act (AIA), and these changes could affect businesses.
“The biggest change is that in the past, a patent would be awarded to the first to invent and under the AIA, it is now the first to file,” says Tim Nauman, a partner with Fay Sharpe LLP.
The transition represents a big change in U.S. patent culture because the first to invent system in the U.S. was viewed by many as beneficial to entrepreneurs. If you were the first to invent, you could fight for the patent regardless of how quickly someone else filed for it. However, under first to file, some say it is now the one with the most resources who gets to the patent office first who wins.
Smart Business spoke with Fay Sharpe partners Joe Dreher, Eric Highman and Nauman about how changes to U.S. patent law will impact businesses when they take effect in March 2013.
What benefits come with the change in the patent law?
The U.S. was historically the only country that issued patents under first to invent, so this harmonizes U.S. laws with those in other countries. People want consistency; they don’t want to deal with different laws in each country.
Also, the determination of who invented first was sometimes a complicated process, called interference, which the Patent Office or federal District Court would undertake in the event of a dispute over who came up with an idea. The new system eliminates that administrative or court proceeding with regard to this issue, which created some uncertainty for businesses
What can companies do to stay competitive, given the changes to the law?
Ideally, if you think of an idea today, file it today. But while there is no quicker process to getting an invention application on file and established, reality would tell you that this probably isn’t going to happen.
Companies are accustomed to having their employees/inventors fill out an invention disclosure form that they then submit to an internal review process. But that takes time. So under the AIA, the best thing to do is file a provisional patent application as quick as possible and flesh out the internal review details later so as not to get beat to the Patent Office.
While that takes care of the early part, filing multiple provisional applications is just as important because as the idea transforms into a marketable concept, it can change. As the development process goes forward, there could be other features that need to be filed in much the same way as the first. If you haven’t described all of those features in the original filing, you can potentially be second to someone who has.
What’s the difference between a provisional and a nonprovisional application and which is preferred?
In the U.S., provisional patent applications can serve as a basis for garnering an early filing date. It establishes a reliable priority date for “first to file” purposes, but a patent won’t be issued from it. Rather, a nonprovisional patent application must be filed within one year from the earliest provisional application. It is the nonprovisional application that is searched and substantively examined by the U.S. patent examiner. The official fees for nonprovisional applications are more than twice as expensive, so it makes sense to file multiple provisional applications quickly and at a lower rate.
However, there are competing concerns of getting the provisional application filed quickly and getting it filed with sufficient detail. It’s important to get as much detail as possible in the provisional application(s) because only that which is disclosed in a provisional application is entitled to the priority date. If there isn’t enough detail in the application to make the invention work, it may not qualify for patent protection.
Does public disclosure by the inventor impact rights to a patent?
The best approach is to file a detailed provisional application before the product is made public or file as soon as possible after the disclosure. If the application is not filed before public disclosure, the inventor still has one year from such disclosure to file a patent application in the U.S. However, under the AIA, this one-year grace period is subject to someone else filing modifications or variations ahead of the inventor’s patent application on what has been disclosed. There is a risk that businesses might suffer from a false sense of security thinking that they don’t have to file their patent application immediately because of public disclosure. Therefore, if the disclosure has occurred, file the detailed provisional application as soon after as possible.
Foreign filing considerations may also come into play. If you file for a patent application in the U.S., you have one year in which to file in a foreign country with the benefit of your first filing date. However, if you publicly disclose your invention before you file your patent application, you destroy your patent rights abroad. So, public disclosure before filing is not advisable if you are going to file for a patent in another country. Filing a provisional application prior to public disclosure preserves the potential of getting foreign patent rights.
What should companies do ahead of enactment of the new laws?
Under the current law, you can go back and prove an earlier invention date. For applications filed under the new law — beginning March 16, 2013 — it’s first to file, which means you can’t go back before your initial filing date to prove earlier invention.
Before AIA takes hold, finish all of your provisional applications and, in some instances, convert existing provisional applications with added features/subsequent development work to nonprovisional applications by March 15, 2013 so you still have the benefit of the first to invent law.
Tim Nauman, Eric Highman and Joe Dreher are partners at Fay Sharpe. Reach them at (216) 363-9000.
Insights Legal Affairs is brought to you by Fay Sharpe.
If your company has created an innovative product or service, you may have considered licensing it. Licensing your technology can provide new opportunities for a company — if you find the right partner.
“If you’re not in the business of making the product, if you are what is called a non-practicing entity, you have to license in order to exploit the technology,” says Philip J. Moy, a partner with Fay Sharpe LLP. “But if you are practicing your technology, if you are making products that are covered by your patent, or utilizing the knowhow to make products in the marketplace, there is always a tension between getting profits on your own goods versus giving somebody else the opportunity to make money you would otherwise make.”
Smart Business spoke with Moy about how to determine if licensing is right for you and how to get the most out of your intellectual property.
How can licensing its intellectual property benefit a company?
The main benefit of licensing your technology is you can derive income from a market segment where you do not operate as efficiently as the licensee. For example, a licensing partner may have a geographical presence in a particular country, and the cost for the you to ship your goods to that country does not compare favorably with having a licensee make them there.
If someone else can do it more efficiently, there is a benefit to letting them do what they do better, and receiving a license royalty because you have the exclusive right to make that technology. Sometimes a licensing partner’s success in a different market can lead to additional success in your original market because the product becomes popular, or you might learn something from your licensee.
What issues should companies consider when negotiating a license agreement?
It’s important to fashion a license so that it is not going to be subject to litigation or disputes. To accomplish this, you have to work hard on defining the licensed product. What does the licensee sell that will require them to pay you royalties?
If you don’t take care to define the licensed product or technology, there can be disputes down the road. When that happens, the only people who make out are the lawyers.
Unnecessary disputes interfere with companies’ mutually beneficial business relationships.
Companies should also consider exclusivity issues. Typically when you grant an exclusive license, the licensor may continue to practice the technology, but often you give up the right to sell products using that technology. The agreement gives the licensee the exclusive opportunity to do that. Then, you are at the mercy of their efficiency and diligence in exploiting your technology. In these cases, you should draft requirements into the license, like requirements for selling a minimum amount of product or incentives for selling more. Whatever the requirements are, they should be appropriate so the licensee can meet them and provide an incentive for them to vigorously practice the technology. You want to make sure the terms allow the licensee to have success and that you can derive income from their success.
How can a company protect itself from license disputes?
With a patent, the easier way to avoid disputes is to define everything that is covered by the claims of the patent. If you license both a patent as well as the technology and techniques that enable the licensee to make the product, you are able to expand the scope of the licensed product beyond the claims of the patent because you are providing additional knowhow and power to create something that the licensee wouldn’t otherwise be able to make.
The more concrete that definition is, the less likely disputes are to arise. Think long and hard about it, because the definition of your licensed product will determine whether you will get any money from the licensee’s activities.
What are the keys to negotiating a successful license agreement?
Unless you are dealing from different levels of bargaining power, and you can impose terms that are distinctly to your advantage, you want to strive for terms that are to the mutual benefit of both parties. That requires stepping into the shoes of the other guy to make sure he’s got a deal that works for him.
You also have to think about what can go wrong and account for it. For instance, making provisions for currency conversion for foreign licensees.
Another key to a successful business arrangement between the two parties is to have a good dispute resolution provision, particularly if the parties are contemplating an ongoing relationship. You don’t want to have to bring a valued business partner to court, so there is a lot to be said for having a step-by-step procedure for dispute resolution.
Typically, start with discussion. If that doesn’t work, go to mediation, where a third-party tries to bring both sides to their senses. Having an arbitration provision to ultimately resolve disputes that don’t cure themselves is appropriate for parties with ongoing relationships, especially as an alternative to litigation, which can be expensive for both parties.
Another issue with patent or technology licenses is the improvements and innovations that often take place due to the license relationship between the two parties. The license should determine who owns those changes.
Philip J. Moy, Jr. is a partner with Fay Sharpe LLP. Reach him at (216) 363-9109 or email@example.com.
Determining who can lay claim to an invention under patent law can be difficult. In the U.S., the key factor is contribution to the conception of an invention.
“Reduction to practice is typically irrelevant for purposes of determining inventorship,” says John M. Ling, a partner with Fay Sharpe LLP. “Rather it is conception that is the threshold criterion for determining inventorship.”
Smart Business spoke with Ling about inventorship and idea conception.
How is conception defined and determined?
Simply, it is who had the idea. When one or more parties were tasked with solving a problem, and they arrive at the solution to the problem, then the invention is born.
A person who contributed to the conception is an inventor whereas a person who did not is not. Merely being in the room when the idea is born is not enough.
There is also an oath and declaration that is signed when the patent application is filed. The patent office will presume that anyone whose signature is on that document is an inventor.
It’s a good strategy to memorialize conception. If a couple of engineers in the R&D department conceive of an invention at a meeting, it’s a good idea to get them to draft a paragraph or two describing the invention in broad strokes, sign and date it, and have a department manager sign and date the document as a witness.
What has to be done to prove creative contribution?
It seems counterintuitive that conception could be a joint endeavor. But the doctrine of joint inventorship permits multiple parties to claim inventorship on a patent application, so long as they contributed to the conception of the claimed invention.
Inventor A bounces an idea off inventor B, who has an idea to help improve the first idea. If that’s what ends up being claimed in the patent application, they are co-inventors.
The claims are a series of short paragraphs at the end of the application that describes succinctly and specifically what the inventor believes he has created. For example, there might be 20 claims in a patent application, and if inventor A conceived and contributed to claims one through 19 and inventor B only contributed to claim 20, inventor B is still a co-inventor.
It should be noted that if claim 20 is deleted or otherwise amended to remove the subject matter that inventor B contributed, then inventor B should be removed as an inventor. Conversely, if someone should have been named as an inventor but was not, that person should be added. If the correct inventors are not listed on a granted patent once it has been issued by the patent office, a door is opened for third parties to attack the validity of the patent. But as long as that error occurred without deceptive intent, the patent holder has a right and opportunity to correct the inventorship listed on the patent.
What steps should an inventor take before collaborating with another party?
In cases where an inventor has conceived an invention but wants to collaborate with a second party, such as an engineering firm to help reduce it to practice, it is recommended that the inventor work with patent counsel to file a provisional patent application for the invention before any collaboration takes place. That provisional application can be seen as a placeholder. It gives you a filing date for your invention, and then you have 12 months to file a non-provisional conversion application.
If collaboration alters the invention slightly, and as a result the collaborator wants to be listed as an inventor, the inventor has the provisional application to fall back on. It provides a measure of protection for them. That approach will mitigate inventorship ambiguity down the road and help determine the fruit of the collaborative efforts, as opposed to the original inventor’s contribution.
Also, as a result of the recently passed America Invents Act, the U.S. will become a ‘first inventor to file’ country on March 16, 2013, meaning that the first inventor to file a patent application for a given invention is entitled to the patent once it issues. Presently, an inventor filing in the U.S. has a one-year grace period from an earliest date of disclosure of the invention to file an application therefor. Unlike other first to file countries, that grace period will be retained when the U.S. becomes a first inventor to file country on March 16, 2013, in order to protect inventors from having their own inventions used against them as prior art. However, filing provisional applications (or even a full non-provisional application) early and often remains the best strategy for obtaining an early filing date and protecting your invention.
What are shop rights?
Shop rights are an implied license that permits an employer to use but not sell a patented invention of an employee when the invention was made within the scope of that person’s employment but with the financing and/or resources of the employer.
We recommend employers have their employees sign an employment contract that includes an assignment clause whereby the employee is required to assign to the employer his or her interest in the invention produced as a result of the employee’s employment.
That means if an employee is hired to improve fuel efficiency and he files for a patent on improving fuel efficiency, the assignment clause ensures that the patent rights belong to the employer. However, if the employee files a patent application for a spoon handle with a unique bend in it, that is likely not within the scope of his employment.
Absent such a contract and the assignment of the invention to the employer, the courts will typically analyze the circumstances of how the invention was made to determine whether the employer has a right to use the invention, and they will look at whether the invention falls into the scope of the employee’s employment, and whether the employer provided funding, tools, or resources, without which the inventor would have been unlikely to make the invention.
In those cases, the employer may have shop rights, despite the lack of contractual obligation on the part of the inventor to assign the rights to the employer, but it should be noted that those rights are generally nontransferrable. The shop just gets to use the invention — it can’t sell or license it or obtain any of the other good features that come with patent protection.
John M. Ling is a partner with Fay Sharpe LLP. Reach him at (216) 363-9000 or firstname.lastname@example.org.
Your intellectual property may be safe at home, but do those patents and trademarks sink or swim once they reach international waters? Businesses may want to pursue a patent or trademark outside the United States to preclude a competitor from using their trademark or from making, using or selling whatever is protected by their patent.
“You have to take proactive steps to protect your patents and trademarks outside the United States, because coverage is generally on a country-by-country basis.” says Scott McCollister, a partner with Fay Sharpe LLP.
“For example, if you have a patent in the U.S., it doesn’t have any extra territorial effect. Trademarks are generally similar. Some countries may have common-law rights which develop based on your use in that jurisdiction, but many countries are registration-based, so you have to procure a registration through that country’s national trademark office before you have any chance to preclude a third party from using your trademark.”
Smart Business spoke with McCollister about how companies can take their intellectual property international.
In what situations would it makes sense for a business to pursue international protection for its IP?
If a business is selling or anticipates selling in a particular territory, it may want to pursue patent or trademark protection in that jurisdiction .
Similarly, companies should consider procuring protection in areas where you and/or your competitor manufacture. Even if it’s not a large sales region, or if the products are shipped elsewhere for distribution, having patent protection in a jurisdiction where the relevant goods are manufactured can be extremely beneficial. If you or your competitor don’t manufacture or sell in a particular country, pursuing patent or trademark protection there is most likely an unnecessary expenditure of funds.
What are the main considerations for a business preparing to take its IP international?
Even in countries where you are commercially active, before you consider pursuing patent or trademark protection, you should do a cost-benefit analysis. Patents, in particular, are expensive to obtain and maintain. There are foreign agent fees, translation fees, government fees, prosecution fees and annuities.
Protecting a small volume of product sales in a country by filing a patent application probably doesn’t make a lot of sense if the cost of obtaining the patent is even a measurable fraction of the sales volume.
Furthermore, consider the lifespan of your product. If your product has a five-year lifespan, it doesn’t make a lot of sense to file an application in a country that takes years to grant a patent.
How can using a regional or international office reduce cost?
For each country you file in, you generally need a local agent who submits the patent or trademark application to that country’s patent/trademark office. Accordingly, for every national filing there are associated governmental expenditures and service fees paid to a local agent. However, using Europe as an example, we have the option of filing through a regional office, the European Patent Office (EPO), that has the ability to grant one patent that can be extended to any selected country within the European Community. In this manner, we can submit all patentability arguments before one examiner and employ only one European agent to perform the bulk of the work in the European region. Similarly, a significant cost savings can be achieved using the European Community Trademark Office to obtain a ‘European Community’ trademark registration rather than pursuing and maintaining multiple national registrations.
I also recommend using the Patent Cooperation Treaty (PCT) for international patent filings. One year after you file your U.S. application, you can file a PCT application. It is effectively an 18-month placeholder. I refer to it as a placeholder because the application cannot directly mature into a national patent. Rather, at the end of the 18-month period, you will need to file in any country (or region, if available) in which you are interested in obtaining coverage. Advantageously, during the 18-month period you receive a preliminary report on whether the idea is patentable or not.
This provides two primary advantages. First, if the review finds the idea is not patentable, you’ve spent a relatively small amount of money on a PCT application instead of a large amount of money filing the application in multiple countries.
Second, it buys you another year and a half to evaluate if the product is commercially relevant. Does it deserve protection or did it fizzle? It may have been a good idea at the time, but the marketplace didn’t accept it. Buying that extra year-and-a-half lets you evaluate how interested you really are in protecting the invention.
The same is true on the trademark side. Based on your company’s U.S. trademark filing, the Madrid protocol allows you to file on a worldwide basis through a single international agency, and have the trademark extended into countries you designate. A significant savings is achieved by avoiding hiring of a lawyer in every country.
What other steps do you recommend for businesses going international?
Assuming you satisfy these criteria and want to proceed, you can still be wise in how you spend your money. For example, procuring a patent in the eight countries with the largest economies in Europe and keeping that patent alive for 20 years is an expenditure in excess of $100,000.
However, if we pursue the patent in Germany, England, France and maybe a country where your competitor is headquartered (preferably through an EPO filing), we can achieve similar results for roughly half the cost. Moreover, your competitor may be unlikely to introduce product X in Europe if they are precluded by your patent from selling in a large percentage of the market. I believe with a little analysis we can often achieve the same result in Asia or South America, for example.
Lastly, I strongly encourage any company considering pursuit of IP coverage outside the U.S. to have an open dialogue regarding costs, risks, advantages, objectives and expectations with a patent and/or trademark attorney. Moreover, this is a complex topic and many of the observations outlined above are not applicable to all situations and can have certain limitations.
Scott McCollister is a partner with Fay Sharpe LLP. Reach him at (216) 363-9115 or email@example.com.
Your trademarks are what customers use to recognize your company, your product, and/or your services. Wouldn’t you want to take the necessary steps to protect your hard-earned brand identity? Many businesses, especially startups, do not think about this subject until their products are ready to launch. Some do not consider trademark protection until even later, when they run into a conflict.
If you have reached that point, you are late, says Colleen Flynn Goss, Counsel at Fay Sharpe LLP. “It needs to happen early in the process,” Goss says. “Certainly not when the business is still a ‘shower idea,’ but definitely before your product is well on its way to market.”
Smart Business spoke with Goss about why registering your marks — whether trademarks or service marks — is important for emerging companies, and how to ensure it’s done right.
Why should these companies consider seeking federal registration?
Your trademark is your company and product identity. You may not realize it but as soon as you use your trademark, it’s yours. In the United States, trademark rights are based on use — not registration. This means that the first person to use a mark on a product or a service is considered the owner of the mark for those goods and services. These are ‘common law’ rights, and they are geographically limited to where you are actually selling or offering products and services under the mark.
Let’s say that you lead a startup company based in Northeast Ohio that produces and sells rain gauges in the Great Lakes region. With record-breaking rainfall, your company grows quickly and two years down the road you decide that expanding to the Pacific Northwest might be a good idea. But unbeknownst to you, an Oregon company has been using the same mark as yours in the region for the last year. If you had filed for a federal trademark registration two years previously, you would have been able to stop the Oregon company from using the mark. Instead, you are now entering into costly negotiations to work out a deal surrounding using the mark and selling your product in this new geographic region, or, even worse, re-branding.
So, even though trademark rights spring from use, by spending a relatively small amount of money and federally registering your mark with the U.S. Patent and Trademark Office you can obtain the nationwide right to the mark to the exclusion of later users of the same or similar mark for the same or similar products and services, even if you are not using the mark in every state. Federal registration also grants you other rights including the right to use the registered symbol, ®, next to your mark, which tends to deter others from copying your mark.
How can a company protect the mark it intends to use before actually using it?
As the leader of a startup you might wonder how thinking about federal registration affects you when you haven’t even brought a product to market. You’ve come up with this wonderful idea, kicked it around and it’s beginning to get some traction. But you haven’t used your mark yet. How can you protect yourself going forward against the company in Oregon (or someone right down the street) using your mark before you get a chance to use it?
That is where the ‘intent-to-use’ application comes into play. United States trademark law allows you to file an application to register a mark before you’ve used it. That way, you effectively reserve the mark for those products and services for which you intend to use the mark.
You must still put the mark into use on those products or services before the registration will issue, but the beauty of the intent-to-use application is that the date you file the application will be deemed to be the date you first used the mark. Upon issuance of your registration, the Oregon company that started using the mark one year after you filed your application will be precluded from using the same or a similar mark on rain gauges.
What are the risks of not filing for a federal trademark registration?
Some companies will still say, ‘I have common law rights to use this trademark. I’m not going to bother.’ And they do, but as I mentioned earlier those rights are geographically limited. The ‘great water gauge idea’ has been funded by your family, friends, or personal savings. When the idea blossoms with this infusion of capital and the product is commercialized, the pace at which business moves becomes quite quick. Now imagine that after investing all that time and money, you discover that someone other than the Oregon company has a federal trademark registration for what you thought was your mark and has been using the mark for ten years. That is a financial and timing nightmare that you don’t want to have to deal with. There you are, just about to launch, and all of a sudden you have no name for your product.
What steps can companies take to ensure a trademark is safe to use?
When you’ve had the ‘shower idea,’ and your plan to take that idea and create a company surrounding it is in its infancy, but it looks like it’s going to happen — that’s when you should start thinking about branding.
Think about the brand name — the mark — for your products or services, and the reasonable breadth of products and services on which you plan to use that brand name. You may start off with rain gauges, but plan to move from rain gauges for Northeast Ohio and the Pacific Northwest to smoke detectors in Texas under the same brand name. You should cover all those potential ventures in your intent-to-use application.
Before you file the application though, you still need to be certain that someone else has not already used and/or registered the same or similar mark for similar products. A trademark availability search will determine if there are prior state or federal trademark registrations or common law uses which would impede the use and/or registration of your proposed mark. Once you have determined that the mark is available, if you decide to seek federal registration, you can start the application process and move toward having your federally registered trademark soon after your product goes to market. The application process is fairly straightforward. From application through registration (excluding the availability search) it generally will take from nine to 18 months.
Colleen Flynn Goss is Counsel at Fay Sharpe LLP, can be reached at (216) 363-9132 or firstname.lastname@example.org.
Companies everywhere are going over their budgets with a fine-toothed comb. So where does intellectual property fit in?
Your IP assets are one of the most valuable parts of your business and you should treat them as such, says Steven M. Haas, a partner with Fay Sharpe LLP.
“The overriding factor to keep in mind is that your intellectual property budget should not be considered overhead,” Haas says. “It should be considered part of your overall strategic plan, generating assets for the company.”
Smart Business spoke with Haas about how companies should evaluate the budget for their intellectual property.
What should companies keep in mind when developing an IP budget?
Your IP assets can slow down your competitors and increase their cost and uncertainty, and hopefully provide you with a proprietary market position. Another thing to consider is that banks and financial institutions love to see IP assets for financing, and for mergers and acquisitions. Patents, trademarks and copyrights are all critical assets. Also, by being proactive with your IP you can prevent problems down the road.
Your IP assets can be not only a sword but a shield for you, relative to your competitors.
How should companies determine how much should be allotted to their IP budget?
As your company develops new products and as you work with an outside counsel, it’s important to develop a plan to protect those innovations within whatever budget you can afford. Your outside counsel can certainly help you prioritize. There is no rule of thumb for how much you should be spending on your IP, like a certain percentage of total sales or something similar.
Businesses should keep in mind that these costs are often cyclical. For small and medium-size companies, it’s common for IP costs to ramp up when new products come out. But over time, things even out. There will be a cycle with fewer fees. The costs follow your product innovation cycle.
There are trends in industries where technological advances and customer-driven improvements contribute to a cycle with more fees. The budget for patents in particular is very cyclical for small and medium-size businesses.
What are some tips for controlling your IP budget?
There are several strategies companies can use. First, it's important to have a patent committee or person at your company responsible for interfacing with outside counsel to make sure that you are protecting what you need to protect and not wasting money on things that are no longer important. Depending on the size of the company, most companies have a person or committee that will interface between inventors, engineers and the business units on one hand and outside counsel on the other. That way you have a single point of contact with the firm, preventing mistakes, duplication of effort, and funds being spent where they shouldn't be.
With high turnover at today's companies, it's not uncommon for the patent lawyer/outside counsel to have been there longer than many others at the company, as a constant presence over many years and stages of the company. Rely on that experience.
Another tip: maintaining old patents is very costly. Once you receive a patent you have to pay maintenance fees four, eight, and 12 years after the patent is granted. The fees increase each time, so if a patent is no longer relevant to your product mix, you should cull your portfolio and make sure you are not spending your budget on these items.
Small companies — defined as companies with fewer than 500 employees — can receive a small entity discount from the U.S. Patent and Trademark Office.
What should companies do about international patents?
Foreign patent costs are very expensive. You have to be rigorous in terms of deciding to pursue patents and other intellectual property in other countries. The decision has to be justified by your sales or distribution in that country. You also must have a realistic ability to enforce the patent in that country, because the maintenance costs are so huge.
Most foreign patents require yearly fees, known as annuities, to keep them in effect. Many companies spend too much on foreign protection and ignore new projects, a decision that rarely makes the most business sense.
What are some other tips for patent budgeting?
Try to eliminate layers. Work with the lawyer at your outside counsel who is directly responsible for your matters. If you eliminate layers, you eliminate cost.
For some companies, using the provisional patent application can reduce costs. It is a less formal patent application, with a lower expense, but it can preserve patent rights — temporarily at least.
It's important to be proactive and avoid litigation, which can be extremely expensive from a direct cost aspect and because of the time involved. Work with patent counsel to avoid IP conflicts with your competitors. It can save you tons of money and headaches down the road. The earlier we see these issues, the more we can do to help you design around someone else's patent, invalidate the patent or come up with an alternative way forward.
All companies are very focused on budget right now. Outside firms are very willing to work within a set budget and to provide and build target billing estimates or fixed fees. We are very flexible about working with company's budgets, because that is what companies demand now. So don't be afraid to discuss budget issues with your outside counsel. There is always a plan that works for both the client and the lawyers.
Steven M. Haas is a partner with Fay Sharpe LLP. Reach him at (216) 363-9149 or email@example.com.
Small startup businesses and individual inventors often don’t take the necessary steps to protect their intellectual property. That can hurt them in the long run, even rendering them unable to profit from their own ideas.
“Many startups look at what it costs to achieve patent protection and they say, ‘I can’t afford that,’ but that is underestimating the value of IP and properly protecting it,” says Sue Ellen Phillips, a partner with Fay Sharpe LLP. “The U.S. Patent and Trademark Office has done startups, individual inventors and small shops a big favor by initiating the provisional patent filing option. It gives smaller entities a cost-effective route to protecting their innovations with time to explore their options for getting to market.”
Smart Business spoke with Phillips about some common mistakes startups make with their IP and how they can protect their innovations.
Why should startups be concerned about IP?
They should be concerned primarily because it can be a very valuable asset to them moving forward, whether it is in the form of a patent, copyright or trademark. If they develop a cohesive IP portfolio, it gives them an offensive position within their relevant market, and they can also use it defensively to keep others from encroaching on their market.
On the flip side of that concern, startups should be aware that there are third-parties out there with IP that may be the same or similar to what the start-up is developing, and that there are serious consequences to encroaching on the IP rights of those third-parties. Businesses can be fooled into thinking the way is clear by not seeing their innovation in the market – but that doesn’t mean someone else does not have patent rights relating to that innovation. Not practicing your patented technology does not mean you can’t enforce it against an infringer.
Also, a strong IP portfolio can become an asset you can license or sell. Maybe you have several streams of innovative ideas that come from your initial ‘a-ha’ moment. You decide to concentrate on line A, but you also have lines B and C. As you’ve grown and your business has become more focused, you have realized you don’t really want those other ideas, but somebody else might. If your IP has been properly protected, i.e. if you have patent coverage, it can be a good revenue source, whether you sell your IP rights outright or license them and collect royalties.
What options are available for startups to protect their ideas?
A lot of startups have financial concerns. They usually aren’t working with a big checkbook, so they should take advantage of provisional patent filing, assuming they meet the patent office criteria, and file for protection of their ideas right from the start, particularly for patentable technology.
Under the provisional filing procedures, you file a patent application defining your innovation. It’s very inexpensive and the patent office doesn’t do anything with it for one year after your filing date.
Nobody looks at it, and it is kept confidential, but you have preserved your filing date. You can also now mark your product as ‘Patent Pending.’ A year from the filing date, you must convert the provisional filing to a full utility application filing and the normal examination process begins.
This provisional patent application is especially appealing for startups, because it gives them a year to determine whether or not they can find backing, whether or not it is a viable idea they can take to market, whether they can find a licensee or buyer who wants their technology or wants to partner with them. Essentially, you have a year to get your ducks in a row.
When a startup has an innovative idea, what should the next step be?
The first step is to record every idea. This used to happen in lab notebooks. People would make sure everything was properly dated, witnessed and signed off on by someone who could verify it was their work. Today, that happens on a computer, but you still want to do it. Keep good records. Document your progress.
Then, there are three basic things the start-up needs to do.
1. Initiate the process to protect their IP, whether by preparing and filing a provisional patent application or a full utility filing.
2. Be sure your innovation does not infringe the IP rights of a third party. This step dovetails somewhat with the first. By conducting a state-of-the-art search or a freedom-to-operate search to be sure the way is clear for you to move forward, also known as doing your due diligence, you will be able to define your innovation in your patent application to achieve patentability over the art you find that may be close. This step also keeps you from finding out down the road, subsequent to any expenditure of time, effort and money to get your business up and running, that your use of your innovation is blocked by the IP rights of another.
3. Make sure you have appropriate documents and agreements in place to protect your ownership interest in your innovation. It’s very important for startups to ensure they have the appropriate ownership and confidentiality agreements in place with any third-party to which they disclose their innovation. An appropriate agreement provides for maintaining the confidentiality of any and all disclosures you may make to a third party, including an acknowledgement that they will not themselves use the information to compete with you or to help someone else compete with you. Depending on the service the third party is providing, it may be appropriate to provide for ownership of innovations that may be developed by them through collaboration with you and based on your IP. Also, be sure that your own associates and employees have signed employment agreements with these same provisions. You want to block off your technology as yours – effectively building your IP portfolio. Often, a startup or individual inventor will develop something that fits well with an existing business of a third party. Your first idea might be to take the idea to that company, hoping they will buy it or help you market it because it complements what they do. Especially in this instance, you want to make sure you have an agreement in place before you disclose anything, to prevent them from declining to do business with you and then walking away with your idea. Be careful to whom you disclose your ideas.
What all can be considered intellectual property?
Your intellectual property is not just your innovation. It’s not just the device or process, but also all the know-how you used in the developing the innovation. That can include design, manufacturing and processing, and many other aspects, even marketing.
If you are taking your idea to a manufacturer to get it produced, you will probably disclose a lot more information during a meeting than you put on paper. You need to realize that is all part of your total IP portfolio. Be sure that when you get those agreements in place they cover everything you might tell someone, give them in a physical format, or transfer to them electronically. Everything you disclose needs to be covered, not just the plans for your device.
What are some common IP mistakes startups make?
Startups often underestimate the value of doing their research and due diligence, and making sure what they are doing doesn’t encroach on the IP rights of a third-party. If they haven’t taken a look at that and they aren’t protecting their own IP, what often happens is they put a lot of time, effort and money into turning their innovation into a going concern, only to get a knock on the door from a third-party who says, ‘You’re infringing on my patent rights’ and proceeds to sue them for infringement. The legal system does not take kindly to those who do not do their due diligence and do not respect the IP rights of others.
You can lose everything you have by not respecting the IP rights of others. Of course, if you protect your IP, you can be the party knocking on someone else’s door.
Sue Ellen Phillips is a partner with Fay Sharpe LLP. Reach her at (216) 363-9000 or at firstname.lastname@example.org.
The America Invents Act, passed Sept. 16, 2011, contains reforms that will affect businesses in many ways, including how they must pursue patents. One of the goals of this legislation is to standardize U.S. law with the way the rest of the world handles patents. The change that is receiving the most attention is the switch from first-to-invent rights to first-to-file. The new system goes into effect in March of 2013.
“The U.S. has its own version of first-to-file,” says Timothy E. Nauman, partner with Fay Sharpe LLP. “But generally, it will be similar to what the rest of the world has been doing. The patent will be issued not to who first thought of the new idea, but to who filed first.”
Smart Business spoke with Nauman about what you need to know about the changes, and how they may affect your business.
Have any of the act’s reforms gone into effect already?
Yes, a few. Accused patent infringers used to be able to claim the plaintiff’s patent was invalid because it didn’t describe the ‘best mode’ of practicing the invention. ‘Best mode’ as a defense is no longer supported by the patent act.
Second, there was a provision that allowed any third party to bring a lawsuit indicating that a patent owner was mis-marking its patents. For example, a manufacturer may make a product for which the patent expired years ago. However, the mold was never changed, so the expired patent number still shows up on recently manufactured products.
Someone figured out that you didn’t have to suffer competitive injury to file a false marking lawsuit. Companies grew tired of dealing with constant lawsuits, and there was a backlash. Now, you have to actually be competitively damaged to sue.
How will the act affect patentability or patent validity claims?
There are new procedures for challenging the patentability of an invention or to challenge the granting and validity of a patent. These changes aren’t going to be enacted until September, 2012.
One of the new procedures is the post-grant review process, a nine-month period in which a patent can be challenged. This is similar to what is called an ‘opposition’ overseas. For example, this provides a way to challenge the patent at the administrative level instead of going to court. This is useful, because going to court can be an expensive proposition and time-consuming.
For businesses, this opposition process could be looked at as a hassle, but it could also be considered helpful in removing the garbage from the family of valid patents. If your patent survives the challenges provided by these new processes, it’s probably a good patent. If your invention is worthy of a patent, it would likely pass these challenges anyway.
How will the act change the way rightful patent owners are determined?
The U.S. has always used a first-to-invent system. In that system, if you came up with an idea, and I came up with the exact same idea completely independent of you, and we each file a patent application, generally, the patent is awarded to the person who is determined to have been the first-to-invent.
You and I could end up in an interference proceeding, in which the Patent Office or the Court would evaluate the evidence of first-to-invent. We have to show when we first conceived the invention, when we reduced it to practice, and how diligent we were.
Inventors keep notebooks with this information, which are signed and dated by a lab partner or someone else who works closely with them. You can also prove you came up with the invention on a particular day by showing an e-mail that describes the invention. The e-mail recipient will be able to corroborate that evidence. Without evidence, you could lose to a party that conceived or reduced the invention to practice after you.
The switch to a first-to-file system is designed to simplify the process, and will make U.S. patent laws similar to procedures in most other countries in the world.
How will the change from first-to-invent to first-to-file change the way U.S. businesses operate?
Some will tell you the change to first-to-file doesn’t mean a thing for big businesses, because multi-national companies file applications around the world anyway. They have already been dealing with a first-to-file system in other countries. The fact that first-to-file is being enacted in the U.S. won’t change how these companies pursue patents.
Others will tell you there is a bit more urgency, an added pressure to reduce the time from when an invention is conceived to the time the patent application is filed to minimize the chance of a competitor filing first on a similar invention.
Newspapers have reported that this was a friendly patent act for the little inventor. The fees may have gone down some for them, but one potential problem is that the small inventor may have to invest in filing an application a little quicker than they would have wanted. This is no small issue, especially when you consider the thousands of dollars it costs to file and pursue an application. In the past, a patent attorney may have encouraged the inventor or company to test the market for six to nine months to see if there is a demand for the product, get a business plan ready, then decide whether or not to file. Today, a patent attorney may tell them to push their timeframe up a bit to complete a patent filing.
Timothy E. Nauman is a partner with Fay Sharpe LLP. Reach him at (216) 363-9136 or email@example.com.
Last year, companies were hit by a flood of lawsuits claiming they falsely marked patent numbers on their products. This flurry of litigation has spurred intense interest in “false marking,” in part due to the threat of excessive penalties being imposed on offending companies.
Now, the way the law is enforced is changing.
“The scare is over,” says Philip Moy, a partner with Fay Sharpe LLP. “It’s going to go away, either through court decisions or legislation. However, the suggestions as to how to avoid the problem are good practice.”
Smart Business spoke with Moy about what businesses need to know about false marking and what the future holds for this statute.
What is false marking?
Section 287 limits the damages recoverable by a patent owner who manufactures and/or sells products covered by the patent in suit. It provides a strong incentive for a patent owner to mark its patented products with the numbers of all patents covering the product, because it then can recover infringement damages from the time marking began irrespective of when the infringer might have received notice of the patent in suit.
Section 292, the false patent marking statute, imposes penalties on a company that marks a patent number on either a product or advertising for a product when that patent does not cover the product and when such marking is done ‘for the purpose of deceiving the public.’ A patent marking is considered ‘false’ when either (a) no claim of the patent covers the product or (b) when the marking continues on a product actually covered by a patent after the patent has expired.
Why is proper marking important?
Proper patent marking has always been important (at least since 1952, when the current patent statute was enacted) to provide the constructive notice benefit of Section 287. Without proper patent marking, a plaintiff in a patent infringement action might not be able to recover damages for infringements that occurred before the infringing defendant had actual notice of the infringement allegations.
Improper patent marking, primarily in the form of continuing to mark products after the applicable patent expired, became important after Dec. 28, 2009, when the U.S. Court of Appeals for the Federal Circuit decided The Forest Group, Inc. v. Bon Tool Company. Section 292 is a qui tam statute that allows anyone to sue another party for false patent marking on behalf of the United States. The statute provides that anyone who engages in false patent marking ‘[s]hall be fined not more than $500 for every such offense’ and that any person bringing suit may retain one-half of the fine, the other half going to the United States.
Prior to Forest Group, courts had interpreted ‘every such offense’ to mean the decision to mark articles with the patent number. Therefore, marking one million widgets with the number of an expired patent was a single offense subject to a fine of no more than $500. In Forest Group, however, the Federal Circuit held that each article falsely marked and sold was a separate offense. This decision opened the flood gates for false patent marking litigation beginning in 2010, frequently brought by patent law firms or by business entities newly formed by patent attorneys.
What are some examples of false marking?
The two primary examples of false patent marking are marking a product with the number of (a) a patent whose claims do not cover the product and (b) a patent that has expired. In either situation, the product is ‘unpatented’ insofar as the marked patent number is concerned.
How can a company defend itself against false marking lawsuits?
First, have a policy of applying patent numbers only to those products that are covered by an issued patent. This requires consultation with in-house or outside patent counsel to make sure that the product and marked patents match up. This must be an ongoing assessment if a product undergoes changes, both to add new patents that might come into play and to remove patents that no longer cover a revised product.
Second, have a policy of removing from such products the numbers of patents that expire within an economically reasonable time. This does not mean that large sums of money need to be spent to change production tooling as soon as a patent expires. It does mean, however, that some thought should be given to re-ordering packaging or labeling that contains a patent number. As the time approaches for the expiration of a patent marked on packaging, a company should not be ordering several years’ worth of the marked packaging.
The Federal Circuit decision in Pequignot v. Solo Cup Company provides useful insight into one company’s policies for removing patent numbers from tooling. Because the product tooling containing the patent numbers would have been expensive to modify during its useful life, the court found it reasonable for the manufacturer to wait until a particular tool wore out before the numbers of expired patents were removed. Of course, if the tooling at issue is readily modifiable to change markings made on the product, then expired patent numbers should be removed more quickly.
What is the future for false patent marking lawsuits?
Recent case law and pending litigation have taken some of the steam out of the false patent marking movement.
The courts have acknowledged that Section 292 is a criminal statute and recently began applying more rigorous requirements to the parties bringing such actions. The complaint must satisfy pleading requirements that normally attach to allegations of fraud, so that allegations that the defendant acted ‘for the purpose of deceiving the public’ must set out with particularity the circumstances that demonstrate deceptive intent.
The ‘who, what, when, where and how’ of the alleged fraud must be set forth in the complaint. It is insufficient to allege merely that the defendant is a sophisticated company that should have known that a product was marked with the number of an expired or inapplicable patent. This presents a problem for parties bringing an action under Section 292, as they probably have no idea how to answer the ‘who, what, when, where and how’ inquiries.
Moreover, two district courts (one in Ohio and one in Pennsylvania) have found Section 292 to be unconstitutional on the basis that the government does not exercise sufficient control over the party suing on behalf of the U. S. to ensure that the president meets his constitutional obligation to ‘take care that the laws be faithfully executed.’ At least one of these cases has been appealed to the Federal Circuit.
Finally, pending legislation in Congress primarily directed to reforming substantive patent law revises Section 292 in a dramatic fashion that essentially kills the statute as it has recently been used. Under the revisions, (a) only the United States would be able to bring an action for a civil penalty; (b) individuals and companies would have no right to bring an action for false patent marking unless they have suffered a competitive injury as a result of false marking, and their remedies would be limited to damages adequate to compensate for the injury; (c) a safe harbor would be created for expired patents so that no liability would attach to marking a product with the number of an expired patent during the first three years following its expiration or to marking a product with the number of an expired patent where ‘expired’ is placed before the patent number; and (d) the revision would have retroactive effect to all actions pending on the date of enactment.
Philip J. Moy, Jr. is a partner with Fay Sharpe LLP. Reach him at (216) 363-9109 or firstname.lastname@example.org.