Jump on Your Intellectual Property Rights

By Richard A. Neifeld

Intellectual Property (IP) 101

IP includes patents, trademarks, and copyrights. A patent provides an exclusive right to an invention. A trademark provides an exclusive right to an indication of source of a product. A copyright provides an exclusive right to an original work. A service mark provides an exclusive right to a service or origin of a service.

United States copyrights accrue automatically, but a work must be registered with the United States Copyright Office to perfect the federal copyright. Trademark rights can also accrue without a federal registration, but those rights are weaker, and a federal registration is preferred in almost all situations.

United States patents and trademarks are obtained by filing an application in the United States Patent and Trademark Office (USPTO). An examiner in the USPTO examines the application for compliance with all statutory requirements. The USPTO issues complying applications and rejects non-complying applications. Often, a non-complying application can be amended, thereby placing it in condition for allowance. It is helpful to discuss possible amendments with the examiner in charge of the application prior to filing an amendment. Discussions with the examiner on how best to amend an application increase the chance that the amendment will result in allowance.

Trademarks and service marks identify your business to the purchaser of your product or service. Your mark allows a consumer to come back to you if he or she likes what you provide. If you have a trademark right, using your trademark prevents someone else from using a similar mark that is likely to confuse the public into buying goods from them instead of you.

Patents provide a limited monopoly on your company’s product or process. Monopoly translates into high profit margins due to exclusion of competition. Patents can be obtained on any invention that complies with the statutory requirements, which are that the invention is useful, novel, and non-obvious. The prevailing case law allows patents on just about anything, for example, it allows patents on computer implemented methods of calculating useful results, and on computer implemented methods of doing business.

Obtaining United States patents and trademark rights is expensive, primarily due to the amount of high hourly rate attorney time required to prepare an application and guide it through the USPTO. For patents, part of that cost can be deferred by initially filing a relatively simple provisional patent application. The filing date of a provisional application is prima facie (evidence legally sufficient to establish a fact unless subsequently disproved by additional evidence) proof of the date of invention. A provisional patent application protects for one year the right to pursue patent protection on the novel aspects of a product or process at a very low cost. However, provisional applications do not issue into patents. They simply preserve the filing date for an invention for up to one year. Within one year of the filing date of the provisional application, it must be followed by filing a more formal US application and any foreign applications in foreign countries in which protection is sought. If the formal applications are not filed, the benefit of the early filing date of the provisional application is lost.

Jump on Your Intellectual Property Rights

If you are a startup business looking for financing, you should already have (1) acquired your IP rights (patents, trademarks, and copyrights) and (2) cleared your business of any IP infringement. Investors and competitors respect the value of patent and trademarks and applications for them. Investors should not invest in a startup, unless they are assured that its product or service is not infringing another’s IP rights.

There is a saying in the law, “don’t sleep on your rights.” If you do not affirmatively acquire what could become your patent and trademark rights, you will lose the opportunity to do so. To often today a startup is shut down because it is infringing another’s patent or trademark rights. That shut down could have been avoided with appropriate foresight. The infringed patent or trademark is one that the startup could have obtained for itself by applying for those IP rights, — if it had acted early enough. Alternatively, an early due diligence search could have identified another’s IP rights that covered the proposed product or service, thereby providing time for a design around and negotiations for a license to the problem IP rights.

Patents provide a limited monopoly on your company’s new product or process. Monopoly translates into high profit margins due to a lack of competition. Patents can be obtained on almost any product or process that is useful, novel, and non-obvious. Under prevailing case law, usefulness extends to any method of calculating a number that has real world utility, including business methods, and the novelty and non-obviousness requirements are not as high a standard as many people believe.

Trademarks (and service marks) indicate the source or origin of a product or service. Source or origin means that a consumer can identify your product or service in the marketplace, and thereby avoid using another’s similar product or service.

United States patents and trademarks are obtained by filing an application for them in the United States Patent and Trademark Office (USPTO). The USPTO then examines the application for compliance with all statutory requirements, and eventually issues complying applications and rejects noncomplying applications. Obtaining these IP rights is expensive, primarily due to the amount of high hourly rate attorney time required to prepare an application and guide it through the USPTO. For patents, part of that cost can be deferred by initially filing a relatively simple provisional patent application the filing date of which is prima facie proof of the date of invention. A provisional patent application protects for one year the right to pursue patent protection on the novel aspects of a product or process at a very low cost, and it is accorded respect by inventors and competitors. However, to get a patent, a provisional application must be followed within one year of its filing, by filing a more formal US application and any foreign applications to obtain the benefit of the filing date of the provisional application.

Who Owns Your Invention?

Who owns your invention? Who owns your employee’s invention? Invention ownership disputes occur all too frequently. However, invention ownership disputes are easily avoidable with the proper foresight and knowledge.

Our legal system presumes that the inventor is the owner of the exclusive rights in his or her invention. How then, does someone other than the inventor obtain the rights to the inventor’s invention? The answer to that question is by an assignment. The assignment can be an express assignment, which is typically a written document evidencing a contract between the inventor and the assignee in which the inventor sells the rights to the invention to the assignee. However, that type of assignment is not what leads to ownership disputes. Ownership disputes occur when there is no express assignment and both the inventor and his or her employer think that they own the invention. This is because the presumption that the inventor owns the invention is incorrect in certain situations, even without an express assignment.

An employer of one who is “hired to invent” owns the rights to the inventor’s inventions. The Supreme Court came to that conclusion in the Standard Parts Co. v. Peck case in 1924. However, that is the extreme case, since the vast majority of employees are not employed to invent. What about an employee employed to design or construct, such as an engineer? An employee employed in a field of endeavor in order to design or construct is not equivalent to an employee employed for the purpose of invention. That was the conclusion reached by the Supreme Court in U.S. v. Dubilier Condenser Corp. in 1933. However, that conclusion leaves open the question of who owns the invention made by the engineer. The outcome in each ownership case depends on the relationship between the employee, the employer, and the circumstances of the invention.

Even if it turns out that the employee owns his or her invention, if the employee used the employer’s materials or equipment during working hours to make the invention, the law grants the employer a nonexclusive license to the invention. That has been the law ever since the Supreme Court Lane & Bodley Co. v. Locke case in 1893.

It should be apparent that the best way to avoid an ownership dispute is to reduce to a written contract between the employee and the employer who owns the rights to any inventions made by the employee, and that agreement should be defined as early as possible in the employee employer relationship.

Does Your Company Have the Patent Licenses it Needs?

It is fundamental that one thing every company needs are the rights to use the property it owns and to produce and sell the products and services it provides. Virtually every product is protected by patent rights, which raises the fundamental question: Does your company have the patent licenses it needs? This article provides the “short course” allowing you to address that complicated question!

First, each country has its own patent system. Therefore, the license to make and use equipment in one country does not necessarily provide the same license in another country (more on this issue later).

It is basic patent law that a patentee’s exclusive right under his United States patent is exhausted by his first sale of a product covered by his patent. That is what the United States Supreme Court held in Adams v. Burke, 17 Wall 453 (1883). However, that holding assumes that no license terms were stated. When no license terms are stated and it is the patentee selling the product, a complete license under the patent with respect to the sold product is implied by operation of law.

Subsequent cases note that the patentee has the right to restrict the license granted upon the first sale of a product covered by the patentee“s patent. That is what the United States Supreme Court held in General Talking Pictures Corp. v. Western Electric Co. reh'g, 305 U.S. 124, 127, 39 USPQ 329, 330 (1938). Thus, if there is an explicit license, then the terms of the license govern.

If there is a restrictive license under a United States patent, then the terms of the explicit license define the scope of the license. Violation of valid license conditions entitles the patentee to a remedy for either patent infringement or breach of contract. That is the conclusion of the Court of Appeals for the Federal Circuit (CAFC) in Mallinckrodt, Inc. v. Medipart, Inc. 976 F.2d 700, 24 USPQ2d 1173 (Fed. Cir. 1992). The CAFC is the court in the United States that hears appeals from all of the trial courts and from the United States Patent and Trademark Office on issues of patent law.

Moreover, restrictive license provisions that constitute a misuse of the patent are unenforceable. Misuse of the patent means that the restrictive license has imposed a condition that, in effect, (1) broadens the scope of the patent beyond what its claims cover and (2) is anti-competitive. That is what the CAFC stated in Windsurfing Int'l, Inc. v. AMF, Inc. 782 F.2d 995, 1001-02, 228 USPQ 562, 566 (Fed. Cir. 1986).

Several cases deal with the issue of the scope of a license granted by a patentee to a manufacturer of patented products. In these cases, the manufacturer has sold product covered by the patent to third parties, and the patentee has sued the manufacturer and the third party for patent infringement. That is what happened in Intel Corp. v. ULSI System Technology Inc. ___ F.3d ___, ___, 27 USPQ2d 1136, 1139 (Fed. Cir. 1993). See also Lisle Corp. v. Edwards 777 F.2d 693, 227 USPQ 894 (Fed. Cir. 1985). In these cases, the issue is: Did the license restrict the manufacturer from making and selling to a third party product covered by the patent? While each of these cases depends upon its own facts, my impression is that the courts narrowly construe the license provisions to favor allowing the manufacturer to sell products covered by the patent to a third party. Therefore, great care should be exercised when drafting this type of licensing agreement.

Many companies are interested in the effects of a license on importing product into the United States. In that situation, the scope of a license depends upon the terms of the license. However, note that an explicit license under a foreign patent is not necessarily a license under a corresponding (i.e., claims covering the same invention) United States patent. In fact, rights of a licensee under a foreign patent have no bearing on the rights accorded under United States patent laws. That is what the United States Supreme Court held in Boesch v. Graff 133 U.S. 697 (1889). Moreover, this issue (right to import product based upon a foreign license) was raised in a relatively recent case in the United States International Trade Commission (ITC). The ITC hears certain patent infringement cases involving imported products. In the In re Reclosable Plastic Bags 192 USPQ 674 (US ITC 1977), the ITC stated that:

Since the reclosable plastic bags at issue are protected by a U.S. patent (reissue patent No. 28,969), no foreign license on the same product can interfere with the rights granted the U.S. patentee by U.S. patent laws. [At page 679.] This statement means that the ITC construed an explicit provision to a license under a corresponding foreign patent to imply no license under the United States patent. Therefore, foreign manufacturers that wish to license a United States patent need to carefully draft their agreements and explicitly state certain rights under the license to ensure that they have those rights.

Rick Neifeld is a Ph.D. (in Physics) patent attorney and managing partner and President of Neifeld IP Law, PC, whose URL is www.neifeld.com. Neifeld IP Law is located near the USPTO, and it specializes in U.S. and international patent protect ion, licensing, advise, and counseling, and specialty matters at the USPTO. He is also a patent interference practitioner, former Chair of the Interference Committee of the AIPLA, and co-owner of the patent related services provided at www.patentvaluepredictor.com.

 

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