Understand the Seven Step Process Before Deciding to Obtain a Patent

In this segment, we’re going to talk about ownership of patents and the right to use patented inventions even if you’re not the owner. The easiest way for a company to acquire ownership of a patent is if it has an actual employee, typically someone who is full time, but an actual employee, who is paid to invent. And we call those people, paid-to-invent employees. In those circumstances, under the laws of many industrialized countries, an employer will automatically own the patented invention. There doesn’t have to be a contract. But in many other countries, there does need to be a contract and in some cases, there actually has to be additional consideration above and beyond salary or wages.

And some companies will have a policy where they automatically pay an employee $100 or $250 or the equivalent to be sure there is some underlying legal consideration for the invention. Then we have what is called a shop right. And this is, essentially, judge made doctrine in the United States, where a company whose employee is not ordinarily paid as an inventor. They may be employed to do welding. They could be employed to do work on the floor of a manufacturing facility. But that employee develops an invention, creates an idea, and actually embodies that idea and solves a problem.

What the law in the US says is the employee is indeed the owner of that invention, but the employer has the right to use the invention because it was created by an employee during work hours in connection with work responsibilities typically, but not always, with company additional resources. And we’ll talk about a very well known case involving employees who invent when they are not paid as inventors. Assignment, literally means a document that transfers ownership from one entity to another. So one way you can acquire ownership, we see this often in the patent world where one company will purchase the patent portfolio of another.

Google acquired, I forget how many thousands, tens of thousands of patents of Motorola a few years ago when Google wanted to go into the mobile space. Constructive trust is an interesting doctrine under English law and US law. And it’s a situation where someone who has a fiduciary responsibility, this is typically an owner, a director, someone who has a high duty, an ethical duty to a company, doesn’t disclose to the company that this person has invented something. Or allows the company to think the company has ownership and actually has the company spend money seeking patent protection.

But then the individual says, I wasn’t a paid-to-invent employee, I was a director or an officer but I wasn’t paid wages and you don’t own that invention, I do. A company can go to court, can demonstrate the existence of that fiduciary duty, the use of the company resources to protect that invention. And the court will actually, with a wave of their magic judicial wand, transfer the ownership of that patent from the individual to a company. And I did that a few years ago with a small start-up company where the CEO, who is a part time CEO, developed a certain technology, disclosed it to the company, he did not develop it necessarily on company time, the company secured patent protection.

And the individual later left the company and began, or attempted to license this invention to others. He wouldn’t stop that attempt to license the invention. He said he was the owner because he had no written employment agreement, and indeed he did not. He had never assigned his rights. So we brought a lawsuit and the court concluded that there can be a constructive trust imposed by the court over that invention, returning the ownership to the company. Patents, like other forms of intellectual property, can be co-owned. So if company A collaborates with company B, their employees can contribute inventorship, and the companies can be co-owners of that invention.

You might recall when we talked about copyright law, we said there can be co-ownership, but there is this duty to share equitably, the revenue stream from commercializing that invention. The opposite is true in patent, there is no equitable duty of accounting, unless you contract with that other party. So this is another reason why it’s very important when you have a collaboration that you document. What can be done with the inventions that arise. Who will pay for the patenting. Who can exploit and whether any revenues need to be shared.

And as we have discussed with the other intellectual property doctrines, you’re going to think about what is the likelihood that my workforce is comprised of people who are not just paid-to-invent employees but part-time employees, interns, consultants, volunteers and advisors. Remember, if those other folks, in particular, interns that you’re not paying, consultants who are not employees, volunteers who are not employees and advisors who are not employees, if they invent, how are you going to move the ownership of that invention from those individuals to you and the general answer is contract. Here’s an example, of an individual, Mr. Roberts, who was a mechanic.

He worked for Sears, Roebuck, in the automotive repair section and he developed that well known product, the quick release socket wrench. He was not a paid-to-invent employee. He owned the invention. This particular case has a rather sordid story of lawyers who essentially lied to Mr. Roberts and said to him this invention is probably not very valuable. Why don’t you transfer your rights to us? And Roberts did so, only to find out that the company exploited it and made millions and millions and millions of dollars. And they, one a lawsuit later, and a very long period of time, Roberts got his share of that revenue.

But the point here is that individuals who are not paid-to-invent often, in this case and particularly with tools, are often in a position where they can solve a company problem because they’re working with the company products and processes. What that means is as a company you’ll want to have contracts with even those employees who are not necessarily paid-to-invent, whereby contract the company will own inventions. In some cases, a company will decide that someone who is employed has come up with an invention that’s not particularly valuable to the company. So, some companies will simply reassign the patents to the individual and let that individual exploit them if they wish.

And sometimes companies will reassign them and request that there is a certain share of the revenue that comes back to the company if the employee later exploits it. Here’s an example of how design patents, the shape of the phone, the placement of certain features, design patents have become a hot litigation topic. I think Apple and Samsung have been suing each other over design patents for about ten years and One or the other is winning every couple of years. But it’s a reminder that in the market for consumer products, a distinctive ornamental look can be a very important marketing advantage.

One of the questions that I have asked creative individuals and my students is, did Samsung have to copy the packaging, too? Meaning, if you’re going to be developing a competitive product, you might want to think not only about the product shape and the user interface design, but also think about packaging. It just tends to make something look like more of a copy than perhaps it needed to be.

Here’s a reminder, that if you publish information about an invention and you wait in the US for more than a year to file your patent application, you no longer have an invention that’s patentable. So here, there was a certain formula, a bodybuilding supplement. Information about it was published in a muscle magazine. And more than a year later the company filed for an application on that supplement. But by then, because the information had been already publicly available, it was found to be invalid. So it’s why companies often ask their scientific and engineering staff to consult with company attorneys before they submit papers for publication, before they submit papers for conferences, or before they give public presentations.

Because outside the US, you are typically not given this one year time period. Outside the US, if you publicize the information relating to the underlying invention, you cannot secure patent protection. So in the US, we give you one year to get it on file. But outside the US, you may not have any protection at all. The patent process typically involves filing an application where you have to provide a great deal of information about why your invention is useful, why it is novel. You have to make oaths, and that is indeed a declaration that you make, under penalty of perjury, that all of the information you provide is accurate and true. This application is formally examined by a patent examiner.

It’s ultimately published, at which point, anybody in the world who can access uspto.gov can read the information in your pending patent application. As a general rule, it’s about 18 months after you file your patent application. Your application is published, one exception in the US, if you decide not to seek international patent protection, in the US you can limit the publication of your pending patent application. The patent examiners will conduct searches regarding the novelty of your invention. There will be, indeed, substantive examinations, often meetings with a patent examiner, detailed memoranda back and forth, and then the application’s either granted or it’s denied. In the US, this process takes on average three and a half years.

If it’s software related it’s more years. If it’s outside the US and it’s software related, let’s see I have a client who has several software based patent applications pending, one has been pending in Australia and Canada for over seven years and the patent has not issued. So companies really need to think about the likelihood of success in some of these fields. It is expensive, it is slow, I’m saying in this note here that for an average fee in the US for securing patents, $12,000 if it’s not a very complicated invention. Although it says here, Biotech and Pharma are upwards of 50,000, I have been to legal conferences where patent councils say, more like 125 to 250,000.

It really depends on the number of claims, the number of claims that are being sought. So unlike copyright protection, which exists automatically so long as you have something that is independently creative and expressive, patent protection is much slower and much more expensive.

Patent litigation, the figure that I have here of the average patent infringement lawsuit costing about 1.5 million, it’s a few years old. If the patent infringement claims go on for several years as they do with some of the larger companies, meaning there’s trials, there’s the hiring of experts. There are appeals, there are appeals from the appeals. There are requests for reconsideration and rehearing. Fees can be upwards of $100 million for some patent infringement lawsuits, so they are expensive. Why do companies pay lawyers that much money? Because you can acquire powerful remedies. You can get an injunction against your competitor, you can get an award of attorney’s fees. In some cases, for willfulness, you can get treble damages.

And there have been awards of damage in patent infringement in upwards of a billion dollars. And as you can see from bullet point number three, a lot of companies will sometimes evaluate the merits of these cases, and decide that they will enter into a license where they pay a certain percentage of their product sales to the company who contends that the product would otherwise infringe their patents.

In the US, we have what are called provisional patent applications and if you’re a startup you should really think about provisional patent applications. And what it is is an opportunity to provide the US Patent and Trademark Office with very basic information about your invention. You get it on file, it’s an inexpensive filing fee. You can use the words Patent Pending, because that’s technically true and that will sometimes scare away people from trying to copy your product. That particular provisional patent application is never actually examined. That patent application does not become the basis for a review of the invention that’s described.

It does give you an earlier filing date, and you have one year to get your full-blown patent application on file. Your full-blown patent application, indeed, needs to relate back to the same subject matter, but it’s never reviewed by the patent examiner. It really holds your place in line. And, what does this allow you to do? It allows you an entire year to decide. Do we think there’s merit in this invention? Are there investors who want to invest in our company? Do we think that this particular invention is going to be important to our business and we want to build other products around it? You’ll note here that you cannot file provisional patent applications for design inventions.

So, finally, you have to pay attention to these details. With patents, in particular, you need to have those who are inventing sign contracts, whether or not they are paid-to-invent employees. Be sure that you look at the information your team is going to publish to decide if you want to get a patent application on file before they disclose that information. And decide whether or not what you’re looking at as an invention is just momentary in time. And the heart of this is really going to change over the next year or two. If it’s really going to change significantly, you may design your way out of the original invention that you have now.

And you’re going to have something later down the road that you want to seek to protect.

As we stated earlier, particular for those companies who seek protection outside the US, you have to be very careful about Disclosing information. And reason I say watch out for non-disclosure agreements, there’s this concept in the US law called public disclosure, and that means if you don’t follow procedures that we typically think of as relating to trade secret, meaning having another party acknowledge that the information you’re receiving is not public, can’t be used for any public discussion, publication. If you don’t have certain information that’s protected by non-disclosure agreements with third parties, you can be found to engage in a public disclosure of your invention, and you will lose patent protection as well.

So, non-disclosures not only protect trade secrets, they avoid the possibility that what is disclosed later is the subject of a patent application which can be invalidated because the information was made public. So, lawyers, of course, we care about patents, because they give our clients such a powerful legal tool and because independent creation is irrelevant. You can stop someone who’s manufacturing a product using that invention, even if they’ve never heard of your client. So it’s powerful, but it’s limited. Worldwide protection is expensive, but often one of the assets that will be considered in the patent portfolio of your client.

It can help protect the client if it’s ever sued for patient infringement because at least the jury will think who could possibly think that you’re infringing a patent or infringing willfully when you yourself have patents that cover that product. And, very important legally, patents come with a presumption that they’re valid, so this sifts the burden of proof to the party challenging it to prove it is not valid. And of course, companies, you can see throughout this the power of the patent to stop competitors in their tracks. They can’t make, use, sell, or import that invention into any geographic territory where you have a patent.

You can use it as a basis to license others, and of course licensing gives you a chance to think about licensing your patent for money, or sometimes what we call cross-licensing. You license your technology, and they license some of their technology back to you. So, sometimes the value of a patent is you have access to the patent portfolio of others, even if they’re not paying you a revenue stream. We discuss the defensive strategy, the likelihood that you’re committing patent infringement is lessened if you have patents that cover your products. When you’re looking to perhaps set up a joint venture, let’s say the joint venture needs a million five to get off the ground.

If you’re contributing a patent portfolio, whether you’re contributing ownership or licensing, that can be a very valuable contribution, and you don’t have to come up with money because you’re contributing technology and innovation. Indeed, it helps create a culture within your company of innovation and a certain amount of cultural pride to be able to say I’m a named inventor on seven patents in this company. And indeed, as we discussed earlier, it can be the basis on which some investors think that you are a pretty solid and innovative company in which they may want to invest money, even though they’re not always able to determine the quality of those inventions.

Are the owner or presumed to be the owner of any invention that relates to the company’s business for a certain period of time after the individual is no longer employed? I’ve seen patent tails as long as six months, and so they typically read something like this. During the time period of your employment and for six months thereafter, the company owns all intellectual property rights and inventions, including copyrights, patents, trade secrets, trademarks, if they relate to the business of the company.

Now, of course, the clauses go on for a couple of additional sentences, but why might a company include in a contract with an employee that the company owns an invention, even after the time that the employee is no longer employed? And if you think about it, it’s because an employee could indeed come up with an idea, an invention, something they need to perhaps test further, but something they don’t want to disclose to the employer. They want to go off and create their own company and they want to invest in further development and testing of this idea they have.

So they leave the company, maybe form a new company, maybe they partner up with some colleagues and they take that idea, let’s say that idea that was developed on October 16th of 2015. And sometime later in December, they have enough data that they believe they can reduce it to an actual invention and get a patent application on file. One of the reasons that some companies will include a patent tail is they’re afraid that an employee, indeed one who is paid to invent, will come up with something valuable, leave the company, and then seek to get patent protection in the name of the new company.

So they put in this clause, that will give the company a basis to claim, we’re going to presume that if you get a patent application on file within three months or six months, we’re going to presume you conceived of this invention while you were employed by us. And indeed, the language of most patent statues talks about an invention that is conceived and then reduced to practice. What you should know is that these kinds of clauses can, on their face, have a real implication for entrepreneurship. It can really affect the ability of an employee to leave and start a new business.

In some circumstances you’re going to want to be sure that you have the patent tail as short as possible, as you think will be reasonable and thus enforceable. And in some cases you’ll have to pay, such as paying them as a consultant during that time period. The point here is that in particular now in the 21st century, patents are incredibly valuable. The work force is very mobile, and employees are very entrepreneurial, so you have to carefully think through the contracts you’ll have with your staff, and you have to also think about whether or not your key employees will sign contracts that limit them after their term of employment.