The Patent Light

Generally, there are two ways of transferring intellectual property to others: (1) an assignment, and (2) a license agreement.

Assignments:

An assignment is a legal document which transfers all the rights in an intellectual property to another.  Patent and trademark assignments, for instance, are typically registered with the U.S. patent office and are a matter of public record.

Licenses:

A license is a legal contract where the owner (or Licensor) keeps the legal right in the intellectual property, but allows the licensing party (or Licensee) use of some subset of the rights (such as the right to make, use, or sell products incorporating the intellectual property).

Licenses can be structured for any form of intellectual property.  However, this post will focus on a Patent License. Patent licenses can be structured with a high degree of flexibility and complexity to accomplish the specific business objectives of a licensee or licensor.   The provisions of a very basic patent license agreement (and the issues addressed) usually include:

1.         Grant or Scope of the License.

a.          Exclusive or non-exclusive.

b.         Which patents (e.g., entire portfolio, particular patents, or even particular claims of a patent).

c.         Rights Granted. (e.g., the rights to “make,” “use,”and “sell”).

d.         Field of use (e.g., types of products or market segments).

e.         Territory.

f.          Right to sublicense the rights granted.

2.         Payments.

a.         Lump sum or royalty bearing (percentage or unit based).

b.         Initial fees or payments.

c.         Minimum payments.

3.         Warranty and Indemnification.

a.         Warranty of title.

b.         Warranty of validity.

c.         Indemnification for infringement of third party rights.

4.         Future Improvements.

a.         Ownership of the future improvements developed by the licensee.

5.         Litigation.

a.         Notice of claims by third parties.

b.         Notice of third party infringement.

c.         Determination of rights and obligation to enforce.

d.         Allocation of infringement awards.

6.         Patent Marking Obligations.

7.         Assignability of the License Agreement

8.         Term of the License Agreement.

9.         Termination of the License Agreement.

A detailed discussion of license provisions is beyond the scope of this post.  Generally, however, if the intellectual property owner wants to sell rights in the intellectual property for a single lump sum, the owner will generally want to use an assignment.  On the other hand, if the owner wants a stream of income or multiple payments, the owner will generally want to use a license agreement.

Business owners and even non-IP attorneys are often confused by intellectual property rights.  Because copyrights, patents, trademarks, and trade secrets fall into the rubric of intellectual property, they often believe that each right is treated in the same way as the other rights.  For instance, a common belief is that because a business owns the copyrights generated as a result of the works of its employees, the business also owns the patent rights.  Actually, nothing could be farther from the truth.

In the U.S., copyrights, patents, trademarks, trade secrets have different legal origins.  Consequently, there are differences not only in the term of legal protection, but in how each right is created and the default ownership of each right.

For instance, copyrights created by employees in the course of their employment are automatically owned by the company.  However, copyrights created by consultants or contractors in the course of their engagement are NOT owned by the company unless there is a written contract with “magic words” stating that any work produced is a “work for hire.”  This means that if you hire a consultant to design a logo for you without a written agreement, you do not own the copyright in the logo.  You may have an implied license to use the logo, but you do not own the copyright and may not have standing to enforce the copying of the logo under copyright law.

In contrast to copyrights, patent rights created by employees in the course of their employment are NOT owned by the company unless there is a written contract to the contrary.  The same is true for consultants and contractors.  Many small businessmen are confused by this principle.  They know enough to realize that their company owns the copyrights for work created by their employees, so they think the company also owns the patent rights.  That is one reason why it is important to have an assignment of patent rights in every employment and consulting agreement.

Trademarks generally cannot be owned by the employees because they are created as a result of use.  It is the company that uses the trademarks, not the employees.  However, even with trademarks, businessmen need to be careful.  Many small businessmen will initially file for intent-to-use trademarks in their own name.  Yet, they are shocked later when they find that they cannot transfer the trademark to their business.

Written contracts can change the default ownership so that the company paying for the work owns all of the rights. So, as painful as it may be, it is important for small businessmen to invest in well drafted contracts to ensure they actually “own” what they think they are buying.

In the U.S., the legal definition of a trade secret varies by state law.  Generally, there are three components required before most courts would treat a given piece of information as a trade secret:

1. The information is not generally known to the public;
2. The information confers some sort of economic benefit to its owner (where this benefit is because of the confidential nature of the trade secret);
3. The information is treated as a “secret” by its owner.

A trade secret can be: a method of doing business; secret formulas; customer lists; or even contract terms.  Perhaps the most important point to remember about trade secrets is that the owner must actually take reasonable steps to ensure that the information will remain a secret.  If everyone in the company knew of the information and no special steps were taken to guard the information, most courts would not confer trade secret status on the information.

Since June 8, 1995, the United States Patent Office has offered inventors the option of filing a provisional application (or a “provisional”).  According to the patent office, a provisional patent application was designed to provide a lower cost for a first patent filing in the United States and to give U.S. applicants parity with foreign applicants.

Provisional applications are NOT examined on their merits. A provisional application will become abandoned by the operation of law 12 months from its filing date.  So, the applicant must file a non-provisional application on the disclosed invention within the 12 months to derive the benefit of the filing date of the provisional application.

Claims and oath or declaration are not required for a provisional application. However, provisional applications must meet all of the other requirements of a patent application.  In other words there must be a sufficient written description, an enabling disclosure teaching one skilled in the art how to make and use the invention, and the invention must described the “best mode” known to the inventor as of the date of the provisional filing.

Filing a provisional allows an applicant to use the term “Patent Pending” with the invention.

A design patent protects an ornamental design for an article of manufacture.  In other words, the design patent protects only the appearance of an article, but not its structural or functional features.

The procedures relating to granting of design patents are the similar to those of utility patents.  A design patent has a term of 14 years from grant, and no fees are necessary to maintain a design patent in force.  A design patent can be combined with utility patents to protect additional aspects of an invention.

The foundation of United States patent law is based on a quid pro quo between the applicant and the government.  The government grants a monopoly for the invention in exchange for a technology disclosure which should increase the public’s collective knowledge.  Once the patent expires, anyone is then free to practice the invention.  Furthermore, because the patent is “laid open” to the public, anyone is free to use the information contained in the patent to invent other inventions which further increases the collective knowledge.

In the U.S., there are several requirements designed to ensure a fair “bargained for exchange” (i.e., a monopoly for an increase in the collective knowledge).  Some requirements focus on the invention.  Other requirements focus on the application itself.  All requirements must be met or the patent is likely to be invalidated in court at a later date.  This post will discuss some of the basic requirements for a U.S. patent.

Invention Requirements:

The Invention Must be New – In other words, the invention cannot have been invented, patented, or practiced before by others or previously disclosed to anyone in a non-confidential manner.  Obviously, if the invention has been disclosed previously, there is no increase in the public collective knowledge, and thus no basis for the quid pro quo discussed above.  The definition, details, and exceptions to this requirement are governed by the United States Statute 35 U.S.C. 102.  When a patent office examiner believes that the claimed invention is not new or has been disclosed before, he will issue a “102 rejection” which means that he is rejecting the application under 35 U.S.C. 102.  In the U.S., this is an objective standard.

The Invention Must be Non-Obvious – If the invention is simply a combination of known elements put together in an obvious manner, there is no real increase in the collective knowledge.  Thus, there is no basis for the quid pro quo.  The Europeans call this requirement “inventive step.” In other words, the invention must have enough “inventiveness” to increase the collective knowledge even if the invention is entirely new.  In the U.S., this is actually more of a subjective standard.

The definition, details, and exceptions to this requirement are governed by the United States Statute 35 U.S.C. 103.  When a patent office examiner believes that the claimed invention is just a combination of old elements put together in an obvious manner, he will issue a “103 rejection” (which means that he is rejecting the application under 35 U.S.C. 103).

Application Requirements:

Enablement Requirement – The patent application must disclose enough details about the invention to “enable” others to make and use the invention without undue experimentation.  In chemical and pharmaceutical areas, this requirement results in applications which often contain detailed proportions and test data for the formulation of the invention.  In mechanical areas, often only dimensionless drawings are required because someone skilled in the art can look at the drawings and understand how to make and use the invention.  In reality, this requirement is determined by U.S. case law and varies widely between technological fields.  Because it is determined by U.S. case law, the requirement may change over time.  For instance, it appears that the enablement requirements for software patents are changing.

Written Description Requirement – Many cases hold that there is a written description requirement in addition to the enablement requirement.  Currently, however, the judges of Federal Circuit (which is the patent appeals courts for the United States) are split as to whether there is a separate “written description” requirement or whether this is part of the enablement requirement.  If there is a separate written description requirement, it means that the application must contain enough written details describing the invention to show that the inventor had actual “possession” of the invention at the time the application was filed.

Best Mode Requirement – The application must set forth the “best mode” contemplated by the inventor for carrying out the invention at the time of filing.  The best mode requirement is a safeguard against the desire on the part of some people to obtain patent protection without making a full disclosure as required by the statute.  The requirement does not permit inventors to disclose only what they know to be their second-best embodiment, while retaining the best for themselves.  However, this provision was gutted by the the Leahy-Smith Patent Reform Act signed into law on September 16, 2011.  Under the law, the USPTO is supposed to evaluate whether the patent application meets the Best Mode requirement.  However, failure to meet the best mode requirement cannot invalidate a patent.

In reality, the USPTO is not capable of determining whether an application meets the the Best Mode Requirement,  therefore it appears that this requirement has been gutted and is no longer a “real” requirement.   It will be interesting to see how the amended statute is interpreted by the courts.

Under the previous law, the following applied:

In practical terms, the best mode requirement may mean that more detail should be disclosed when the application is filed later in the product development process.  Early in a product development cycle there is usually less known about the product or the preferred embodiments.  For instance, early in the product cycle, there may only be requirements documents.  Assuming these requirement documents are enabling, the detail in these requirement documents may be all that is necessary for the patent application.  However, if the patent application is filed later in the product development cycle, there will be more detail developed and arguably the additional detailed may have to be included in the application to meet the “best mode” requirements.

As an example, if an application is filed early covering a software product, the early application is likely to just contain flow charts and the primary databases structures and relationships discussed in requirement documents.  However, if the application is filed later, the application may have to include any developed detail, such as screenshots or other features which may or may not be germane to the invention.  Failure to include such detail may provide a future infringer with a chance to argue that the best mode requirements were not met.  Thus, to meet the best mode requirement, it is important to make sure the application fully describes the product as of the date of filing.

I am not sure what standard really applies now.  However, I doubt if we have to worry as much about the best mode requirement.

Duty of Candor – Currently, there is no duty to perform a patent search before you file a patent application.  However, if you do perform a patent search and find relevant information, you must disclose the relevant information to the patent office.  Additionally, from the time of filing to the time of granting, anyone connected with the application must disclose to the patent office any relevant information they find, locate or are made aware of.  This duty has been interpreted and expanded by judges who often have an unrealistic view of the realities of running a business or maintaining a patent portfolio.  It is currently an onerous and constantly changing requirement.

The above descriptions are relatively superficial and are not meant to be a detailed discussion of all U.S. patent requirements.  Furthermore, it is important to understand that this post is focused on U.S. requirements.  Other countries have similar, but often different requirements.  If you are concerned about other countries, you should consult a patent attorney who has a good working knowledge of the laws of other countries.

A patent is a government grant or intellectual property right that allows its owner to exclude others from making, using, selling, or importing the claimed invention.

Patents are probably the strongest of all intellectual property protection because:

A patent protects the underlying concept of an invention.   In a computer program, for instance, this usually involves the way the program functions or operates.  A patent can provide protection against all competing programs performing the same functions even if the competing programs have a “look and feel” that is nothing like the patented program.

As opposed to copyrights, a patent can also protect against the independent development or reverse engineering of an invention.

Because patent protection is so strong, the patent review process is long, tedious, and expensive.

Patents are essentially a quid pro quo with the government.  The inventor discloses the invention (which increases the general public knowledge) in exchange for a multi-year monopoly for the invention.  However, in order for this trade to be fair, there must be a true increase in the public knowledge.  There are many requirements designed to determine if the exchange has resulted in a true increase in public knowledge (the requirements are described in other posts).

Generally, when most people think of patents, they think of utility patents.  Utility patents protect the function or structure of an invention – as opposed to the appearance or “look” of the invention (which are the subject of design patents, copyright and trademarks).

A patent is NOT a right to actually use the invention.  It is only a right to EXCLUDE others from using, making or selling the invention.  This concept is often confusing to many businessmen and inventors.

Let me explain by example:

Suppose Jack owns a patent on an invention.  The claimed invention consists of “a platform having a top side and a bottom side, wherein the top side is adapted to support a posterior portion of a human, and one or more generally vertical supports coupled to the bottom side of the platform, for carrying load to a floor.”  In other words, Jack has a patent on a stool.  Now suppose Janet notices that people using stools have poor posture.  So, she invents and files for a patent for a chair (i.e. a stool with a back support).

When the patent office receives Janet’s patent application, it will check its database for anything resembling a chair.  If Janet’s application meets the patent office’s requirements, the patent office will issue a patent to Janet.

But what about Jack’s patent?  Can Janet make her chair without violating Jack’s patent?  No, because her chair infringes upon Jack’s patent.  So, why did the patent office issue a patent to Janet?  Because the patent office is only concerned about “patentability requirements.”  The patent office will not check to see if Janet’s patent infringes upon any other patent.  (Checking to see if an invention violates the patents of others is called a “Freedom to Operate” or “FTO” analysis.)

So, what good is Janet’s patent if she cannot use its invention without violating Jack’s patent?  First, it may have value to Jack or to one of Jack’s competitors.  It is clearly an improvement on Jack’s product and he might increase his sales if he could offer the improvement.  As long as Janet has her patent, Jack cannot offer the improvement.  So, Jack might be willing to buy Janet’s patent.  Alternatively, Jack could enter into a cross-license agreement with Janet which would allow both Jack and Janet to make and use chairs, while excluding all other competitors.  After all, one half of a larger pie might be better than an entire smaller pie.

The term copyright generally refers to the right to make copies.  The roots of copyright law can be traced back to the Statute of Anne of 1710 (which was the first English copyright act).  This law gave authors the exclusive right to make copies of their books.

Today’s copyright law goes much farther in protecting works than just copying in the strict sense of the word.  Much of what is protected under copyright law is really more analogous to the rights to use a work.  The “rights” under U.S. copyright law include:

1. the right of reproduction (i.e., copying),
2. the right to create derivative works,
3. the right to distribution,
4. the right to performance,
5. the right to display, and
6. the digital transmission performance right.

U.S. copyright law protects rights 1 and 2 in both private and public situations, whereas a copyright owner can only restrict the last four rights in public situations.

In order to have a valid U.S. copyright,  the work must be original and fixed in a tangible form.  To be original, the work must be:

1. An independent creation by the author, and
2. A modest amount of creativity.

Current copyright law covers works of authorship, which include artistic, literary, musical, computer software, databases, and architectural works.  However, copyrights do not cover ideas, procedures, processes, systems, methods of operation, concept, principle, or discovery.  In other words, copyrights protect the physical expression of an idea, but not the underlying concept or functional feature.

A trademark is a legal mechanism which gives the owner the right to use a word, name, or symbol to identify and distinguish goods of the owner from goods manufactured or sold by others.  Trademarks are also used to indicate the source of the goods. In short, a trademark is a brand name.  A service mark is similar to a trademark, except that it identifies and distinguishes the source of a service rather than a product.

In the United States, trademark rights are actually established by state common law.  Under common law, in order to establish an owner’s right in a trademark, the trademark must be used in commerce within a particular geographic area.

Trademarks can also be registered on state and federal registrars.  Federal registration has a number of advantages, including:

• Filing a trademark before the actual use (although many states also allow filing before use);
• Greater Geographic Area;
• Use of the Federal Court system to enforce the rights;
• Federal registration can be the basis for filing internationally; and
• Enforcement from the U.S. Customs Service.

In the United States, intellectual assets can be protected in a variety of ways.  This post will briefly discuss the more popular forms of intellectual property protection under United States law.  Other countries may have other forms of protection in addition the protections discussed in this post.

Perhaps the most widely used form of intellectual protection is simply the use of contracts.  Contractual protection can take almost any form and is usually only limited to the creativity of the lawyers.  Typical examples are non-disclosure agreements, non-compete agreements, and non-use agreements.  The provisions in these agreements are also typically found in employee agreements and in contractor or vendor agreements.  Additionally, contract protection can be “unilateral.”  For instance, many jurisdictions enforce shrink wrap license agreements that typically accompany software and other intellectual assets.

What if you do not have a contract or cannot impose a contract on someone through a shrink-wrap license?  U.S. law also protects intellectual assets from non-contracting parties (i.e., everyone else) through a variety of legal mechanisms.  However, the intellectual asset owner usually has to do something in order to acquire protection against non-contracting parties using these mechanisms.

The legal mechanisms can generally be classified by whether the asset has a functional use.  Generally speaking, patents and trade secrets protect the functional features or use of an intellectual asset.  Trademarks, copyrights, and design patents protect the expression (or the “look”) of the asset or the “ornamental use.”

When all things are equal, many believe that protection covering the functional use is more valuable than protection covering the expression of the idea.  This is because changing the look of an item is often much less expensive than trying to design around functional features of the item.