Intellectual Property Considerations and Guidance for Start-Ups

Womble Bond Dickinson

Womble Bond Dickinson

This guide originally was published as a four-article series by IP Watchdog.

Intellectual property probably isn’t high on the to-do list for most new nonprofits and business start-ups. There’s plenty enough to do with setting up an organization, paying bills, and serving customers and clients.

However, intellectual property is important and shouldn’t be overlooked. Companies and organizations that don’t protect their IP can risk losing hard-earned work and concepts. Also, companies can risk liability if they violate the IP rights of others, even unknowingly or by accident.

The following is the first in a series of short articles on IP law considerations for nonprofits and for-profit business start-ups. It isn’t meant to be an exhaustive list, but it should make you aware of the basic risks and remedies. This series will include chapters on Patents, Trademarks, Copyrights, and Trade Secrets.

Chapter 1—Patents

Patents provide inventors the right to exclude others from using the technologies covered by the patent for a limited time. In exchange for exclusivity, inventors must disclose how to make and use the invention. An inventor can apply for a patent with the United States Patent and Trademark Office (PTO), as well as other intellectual property offices around the world. The PTO and applicant then negotiate to determine the scope of protection that the invention will receive in a patent. Although many applications eventually receive a patent, applicants should be aware that the process can take several years and in some cases, the PTO may refuse to issue a patent. The following considerations can be helpful when determining subject matter to file in a patent application.

1. Types of Patents

Patents can be obtained in the United States for multiple types of inventions. Many countries have similar patent designations, but they can vary by jurisdiction and each should be considered separately. In the United States, patents are granted in three areas: (a) utility, (b) design, and (c) plant. (a) Utility applications are those directed toward the classic understanding of an invention. These are for new apparatuses or processes that improve on previous technologies. (b) Design applications protect new ornamental (appearance) designs. Design applications can overlap with trademarks and copyrights, but also provide additional protections for a limited time frame. (c) Plant patents are directed to new varieties of plants. If you are considering developing a company based around a new plant or related product, please discuss patent protection with a practitioner with related experience.

2. Invention Records

U.S. companies have traditionally been incentivized to keep accurate invention records because the patent system rewarded a patent to the first inventor even if the inventor wasn’t the first to file a patent application. Although the United States now has a “first to file” patent system, it is still important to document conception and ongoing efforts to implement inventions. These records can be used to prove the source of inventions. For example, invention records can show a technology was developed by the company during derivation proceedings at the PTO or trade secret misappropriation claims. As such, in addition to preserving inventor notebooks and other evidence of invention conception, the use of a formal invention disclosure procedure is recommended.

3. Patentability Searches and Duty of Disclosure

In general, an idea is patentable in the U.S. if it is new and not obvious in view of the technology that predates it (referred to as the “prior art”). Most other countries have similar requirements. Note, however, that there is no requirement that you perform a search of the prior art (referred to as a patentability search) to determine if an idea is patentable. As such, the decision whether to perform such a search is normally based on a cost/benefit balancing.

It is important to note, however, that while there is no duty to perform a patentability search, there is a duty to disclose to the United States Patent and Trademark Office (PTO) all information known (by anyone involved with preparation of the patent application) that is material to the patentability of any invention claimed in the patent application. Such information may include, for example, prior patents, published patent applications, published articles, web sites, products (including a company’s own products), etc. If a prior art search has already been performed (or you are otherwise aware of any such information), please bring such information to the attention of your patent counsel. Note that this duty continues until the patent application either issues into a patent or is abandoned.

4. Timing

Patent applications can be filed in almost every country in the world. A patent is only enforceable in the country in which it was filed. A complex set of laws and treaties govern one’s ability to file a patent application in the U.S. and in other countries. Regardless of the country in which patent protection is desired, timing is critical when it comes to the filing of patent applications as the United States, like most foreign countries, are on a first to file system. In a first to file system, the first applicant to file a patent application is given priority over other later filed applications that cover the same subject matter. For example, if two inventors independently develop the same new product, the first to file a patent application is given priority over the other, even if he developed the product later.

While this area of the law is complex and each invention must be addressed individually with respect to the law of each relevant country, a good primary rule of thumb for a U.S. company is to file a U.S. patent application BEFORE any of the following: 1) commercial exploitation of the invention (e.g., actual sale of a product or service containing the invention); 2) public use (e.g., display at a conference of a product or service that contains the invention); or 3) public disclosure (e.g., disclosure of an invention at a conference and/or publication of a paper describing the invention). In addition to the preservation of rights in the U.S., this will typically preserve the right to file that U.S. patent application within a year of that U.S. filing in those foreign countries with which the U.S. has a treaty (which includes most countries of the world).

If the above primary rule of thumb will/has not been met, a secondary rule of thumb for a U.S. company is to file a U.S. patent application on an invention WITHIN ONE YEAR of the earliest of the following: 1) commercial exploitation (e.g., the first OFFER for sale or actual sale of the invention, whichever is earlier; etc.); 2) public use (e.g., display at a conference of a product or service that contains the invention); and 3) public disclosure (e.g., disclosure of an invention at a conference and/or publication of a paper describing the invention). Where the above primary rule of thumb has not been met but the secondary rule of thumb has been met, the right to seek protection in most foreign countries is typically lost, but the right to file in the U.S. remains.

In some circumstances, it may be beneficial to file a provisional patent application. A provisional application will not be examined by the PTO, but does allow an applicant to claim “patent pending” for covered products. The provisional application also allows later filing of a non-provisional application claiming priority to the provisional application. That means, if within one year of filing the provisional application, the non-provisional application is granted the filing date of the provisional application. While a provisional application does not require certain formalities of a non-provisional application, the invention must be described in a manner that enables a person of ordinary skill in the art to practice the invention. Accordingly, the provisional application should include a complete description of the invention. Filing a provisional application costs less in fees than a non-provisional application, however, all the filing fees of a non-provisional application must be paid when it is filed. If a non-provisional application is not filed within one year, the provisional application expires and no applications can then claim priority to it.

5. Publication

By default, U.S. patent applications will be published 18 months after the earliest priority date relied upon (e.g., the filing date of the application or its parent). In order to avoid publication and keep the content of a patent application secret until a patent is issued, a request for nonpublication must be filed concurrently with the filing of the patent application, and such a request can only be made if one does not intend to foreign file the patent application. It should be noted that when a request for non-publication is filed, a certification is made to the U.S. Patent Office that the applicant does not have an intent to file the application in a foreign jurisdiction at the time of the request. A nonpublication request is not appropriate if the applicant has not yet made a decision whether to file a counterpart application in a foreign country. Also, the certification made with a nonpublication request cannot be made based on a lack of knowledge of the applicant’s plans concerning the foreign filing of any counterpart application. In addition, the fact that a particular applicant has a tendency to file counterpart applications for fewer than 50 percent of its U.S. applications is not alone an adequate basis for filing all or any of the U.S. applications with a nonpublication request. The applicant must have an affirmative intent not to file a counterpart application, and not just the absence of any intent or plan concerning the foreign filing of any counterpart application. The filing of a false certification can result in the invalidation of any patent that is ultimately granted on the patent application.

One benefit of allowing a patent application to be published is that one can potentially obtain provisional rights from the time the patent application is published. Under the patent statute, if a claim of an issued patent is infringed and is substantially identical to one previously published, then the patent owner is entitled to a reasonable royalty from the infringer relating back to the date on which the patent application was published (but no earlier than the date the infringer had actual notice of the published patent application). Since it may take as long as three years or more for a patent to issue, publication of the patent application may provide an extra two years of “back damages.” Another potential advantage of publication is that it makes the patent application available as prior art (e.g., against competitors) earlier.

One downside to publication is that, in addition to the patent application being published, the prosecution history (“file wrapper”) of the patent application becomes open to the public while the application is still pending. As a result, a competitor may monitor correspondence with the PTO relating to a published patent application.

Turning now to nonpublication, the primary advantage is maintaining the secrecy of the patent application until it issues as a U.S. patent. However, if the patent application is not published, then damages can only begin to accrue after the patent issues and the infringer has been put on notice.

6. Filing Patents in Foreign Countries

Various countries have different requirements for timing when filing patent applications. Many of these can be stricter than those of the U.S. For example, while patent applications in the U.S. offer a year from a public disclosure to file a patent application, some foreign jurisdictions require filing before any public disclosure. If you qualify for foreign filing, then any foreign patent applications that you wish to file must be filed WITHIN ONE YEAR of the date that your U.S. patent application is filed. If you previously filed a provisional patent application and wish to claim priority to that provisional patent application, then any foreign patent applications must be filed within one year of the date that the provisional patent application was filed. Failure to claim priority to the provisional patent application may result in loss of foreign filing rights.

7. Marking Requirements

In order to maximize the potential value of a patent, it can be advantageous to mark all products covered by that patent. When a patent is first filed, this can include a notice of “Patent Pending” or similar language. After a patent has issued, covered products should be marked with the patent number. If a product is not marked, the patent owner can still potentially get an injunction to exclude a competitor, but damages may be limited. Generally, damages for patent infringement are only available for infringement after an infringer has been on notice of the patent. Marking covered products with the patent number can be used to prove that competitors are on notice of the patent.

Some products do not lend themselves to easy marking. For such products, packaging, sales materials, brochures and other materials should be marked with the patent number. Other products and services, such as software may also be difficult to mark. These products can also be marked virtually by including a notice in the software that patents covering the software can be viewed at a website maintained by the company.

8. Standards Organizations

Most standards organizations require that their members disclose to the organization any patents or patent applications that relate to the subject matter under discussion. Furthermore, some standards organizations require that any patents obtained by their members on such subject matter be licensed, for example, at a reasonable royalty on a non-discriminatory basis. If a company is a member of a standards organization, or if any of the company’s employees have been active in a standards organization, please consult with IP counsel.

9. Third Party Claims

Threats of legal action and offers to license by other parties with respect to patents or other intellectual property require attention, and you should discuss such matters with IP counsel. Please consider discussing any unasserted, potential claims of which you are aware.

10. Entity Status and Payment of Patent Office Fees

When filing and prosecuting application at the PTO, there are various fees associated with different activities. For example, filing fees, examination fees, appeal fees, extension fees, issues fees and many others may occur during different stages. It’s important to discuss these fees to have a clear understanding of the total costs for acquiring and maintaining a patent.

One advantage of being a start-up company is that you may qualify for reduced fees at the PTO. Most fees have a default large entity cost. However, these can be reduced if you qualify as a small entity or micro entity. Fees are generally reduced by half for small entities and three quarters by micro entities. To qualify as a small entity, a business concern must be one whose number of employees, including affiliates, does not exceed 500 persons. Ownership, management, previous relationships, and contractual relationships can all play factors into determining whether an affiliation exists. Thus, if your company received funding or investment from a company that may be considered an affiliate, care must be taken to ensure that the 500 employee limit is not surpassed when claiming small entity status. Furthermore, assigning, licensing, or otherwise granting rights in an invention to a concern that would not qualify as a non-profit organization or small business concern may change the appropriate status.

Certain small entities may also qualify as micro entities. Micro entities must provide a certification that the inventors have not been named as an inventor on more than 4 patent application, that they have a gross income less than a maximum set by the PTO, and that no rights in the invention have been granted to any entity with income greater than the maximum set by the PTO.

In many cases determining whether to file as a large entity, a small entity, or a micro entity is straightforward. However, due to many potential pitfalls, if there is any question as to the correct size, please consult with your intellectual property attorney. If there is any doubt remaining, the safest decision is to file as a large entity to avoid unexpected penalties, up to and including loss of patent rights, at a later date.

11. Patent Prosecution

After a patent application is filed at the PTO, it will begin the process of patent prosecution. The filed application enters a queue at the patent office and is eventually reviewed by a patent Examiner. In many cases the Examiner will issue a rejection indicating that the application is not allowable. At this point, the applicant can respond with arguments or amendments to the application. In some cases, this process may repeat several times before the Examiner indicates allowable subject matter and agrees to issue a patent.

The initial queue for a patent application to be picked up by an Examiner can take over 18 months in many cases. Back and forth communications with the Examiner can add additional pendency time before receiving a patent. The PTO has some programs that can help expedite this process. For example, filing an application with an extra fee for expedited prosecution can often result in an Examiner first picking up a patent after only a few months and an issued patent in as little as a year. Not all patent applications and companies may be seeking a patent for reasons that need a quickly issued patent. However, consider discussing practices for expediting patent prosecution with an intellectual property attorney if a quickly issued patent may be important.

12. Patent Enforcement

Patents enable a patent owner to prevent others from making, using, offering to sell, selling, importing or otherwise using methods or products that infringe on the claims of the patent. To enforce a patent, the patent owner brings a claim against another individual or entity that is infringing the patent in a federal court. The court then holds a trial to determine whether the patent owner’s claim of infringement is correct. If the trial ends in favor of the patent owner, it can award the patent owner with monetary damages as well as potentially an order preventing the infringer from continuing to make or sell infringing products.

This is a vast oversimplification of the enforcement process, which can take years to reach a final decision and cost millions of dollars in legal fees. By bringing an action against an infringing competitor, the patent owner also opens up the patent to potential challenges to the validity of the patent. This can result in the issued patent becoming invalid or unenforceable. Due to the complexities of enforcing a patent, any potential enforcement action should be discussed carefully with an attorney to determine the best course of action.

In the next installment, the authors will take a look at trademarks and what entrepreneurs need to know about securing and protecting them.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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