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Colin K. [email protected]
Rethinking Intellectual Property Strategy
Topics:
• Patents ‘today’
• Select concepts from AIA
• Strategic response
• Litigation (if time for this!)
www.ldcsb.on.ca/schools/smhs/cwshashowcase.html
The impact of the America Invents Act
CaveatThe presentation to follow is for discussion purposes
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The information contained and remarks made tonight….
… are the opinion of the author and not of CWRU… does not constitute legal advice If you are in need of legal advice regarding intellectual property, please contact your attorney.
Acknowledgements: Many colleagues have been so very helpful in providing insight, perspectives, and opinions; in particular I would like to thank:
Robert N. Schmidt, Cleveland Medical DevicesMichael Straightiff, University of Virginia Patent Foundation
The websites of • McAffe & Taft (http://www.mcafeetaft.com)• Arnold & Porter (http://www.arnoldporter.com)• Thompson Hine (http://www.thompsonhine.com)
Management of Intellectual Property (IP)Life used to be simple … “promote the greater good”
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The creative product of a person’s mind, which the law treats as a property right:
• Patents• Copyrights• Trademarks • Trade secrets
Legal basis of IPCodification of basic statement in the Constitution
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Constitution of the United States of America - Article 1, Section 8: “The Congress shall have the power to promote the progress of Science
and useful Arts, by Securing for a Limited Time to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
Codification Trade Secrets
Primarily state and common law Federal: Economic Espionage Act (EEA)
Copyrights 17 U.S.C. § § 101 et seq.
Trademarks 15 U.S.C. § § 1051 et seq.
Patents 35 U.S.C. § § 100 et seq.
Recent changes to IP112th Congress 1st Session S.23 “America Invents Act”
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Public Hearing
Subcommittee Bill
Committee Bill
House Bill
Public Hearing
Subcommittee Bill
Committee Bill
Senate Bill
House of Representatives
Senate
AnyDifferences?
President
An Act!
Approve
Override Veto
Yes
Start OverNo
Veto
No
ConferenceCommittee
ConferenceBill
Floor Action
Yes
www.gpo.gov/fdsys/pkg/BILLS-112s23es/pdf/BILLS-112s23es.pdf
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The “Act” is the focus of most IP discussionAmendment to USC Title 35
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The “Act” is a statute enacted by congressThe U.S. Code is a codification of that legislation
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Today: Patent application processFlowchart really quite simplified, but OK for today!
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File a U.S. ProvisionalApplication
Within 12 months file a non-Provisional
Examine for patentable subject matter, utility
Examiner does prior art search and issues first “office action”
Claims allowedRejection or
ObjectionApplicant responds to first office action
Examiner issues second office action Claims
allowedAppeal
Rejection orObjection
Use of IP changes over timeLife used to be simple … “promote the greater good”
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PatentsCopyrights
Protect the ideaProtect the expression of the idea
Gives business an incentive to invest in new and better goods
Trademark Protect consumers from confusion about the source of the products
Gives business an incentive to invest in information about goods
Strategic commercial use of IPAn example of the way things have changed
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Originally, a trademark was to …
Protect the consumer from confusion about the source of the goods
• Origins with the laws of fraud and deceit• Grocer telling the customer the crackers are fresh;
“passing off”• Grocer telling the customer the crackers in the bin
came from Nabisco.
Eventually the courts endowed companies with the right to affix a label for the source of the goods.
Strategic commercial use of IPFocus is on industry competitive position
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But now …
Protect brand equity, regardless of whether the customer is confused.
Protects the producers, too, giving them an incentive to invest in differentiating their products and brands from the competitors
Note the protection of the “brand” … may be more important in the future than patents!
OK, you get the picture!
Many forms of intellectual propertyOften IP is viewed as synonymous with ‘patents’
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Trade SecretA formula, pattern, manufacturing process, method of
doing business, or technical know-how that gives its holder a competitive advantage
Copyright/©A right that protects original works of authorship fixed in a
tangible medium of expression. Copyrights can include published and unpublished works – literary, dramatic, musical, and dance compositions, films, photographs, audiovisual works, paintings, sculpture, and other visual works of art, as well as computer programs – from being copied
Many forms of intellectual propertyOften IP is viewed as synonymous with ‘patents’
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Trademark/™ ®A non-functional word, logo, slogan, symbol,
design – or any combination – that distinguishes a product or service
PatentsA grant issued by the federal government
giving an inventor the right to exclude others from making, having made, using, leasing, offering to sell, selling, or importing an invention in the United States
Trade SecretsOften the starting point for all intellectual property
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Trade SecretA formula, pattern, manufacturing process, method of
doing business, or technical know-how that gives its holder a competitive advantage
• Example: Coca-Cola recipe• Term: Duration of Secrecy
Secrecy StandardNo public disclosure by holder
MisappropriationReverse Engineering
PatentsThis is where changes are centered!
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A patent is …. A grant issued by the federal government giving an
inventor the right to exclude others from making, having made, using, leasing, offering to sell, selling, or importing an invention in the United States
Term: Utility/Plant - 20 years from filing dateDesign – 14 years from patent grantProvisional – 1 year from filing date
Note:• Freedom to Operate VS Right to Exclude• First to File VS First to Invent
PatentsRefine ideas a bit
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Utility Patent – Granted to inventions that involve a new and useful process, device, machine, manufactured item, chemical compound or formula
Design Patent – Granted to a new, original or ornamental design for a manufactured item
Plant Patent – Granted to an invented or discovered new plant variety that can be asexually reproduced.
Provisional Patent – Expires after its one-year lifetime
PatentsTo be patented, invention must fulfill four requirements
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Novelty – Your invention must be new. If it has been publicly known, used or sold, or described in printed material more than one year before the date of your patent application, your invention cannot be patented (35 U.S.C. § 102)
Utility – Being new isn't enough nor is being different. It also must be useful (35 U.S.C. § 101)
Nonobvious – Must give new and nonobvious results compared to known approaches (35 U.S.C. § 103)
Enablement – Patent application must provide sufficient description to enable one of ordinary skill in the art to practice the invention (35 U.S.C. § 112)
Management of IPWhy is IP so attractive? Why do we go to court?
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Economists see IP as “inexhaustible”So the government has the intrinsic responsibility to pay for
things such as defense, public education, researchBut, for those things without consumer preference
Business see them as “scalable”Focused on those things with consumer preferenceAnd, scalability is cumulative by building IP on top of IP
Private property rights tended to take priority over government subsidy in IP
And so this ends up like drawing to “draw a line in water”
Intellectual property portfolioIP is a strategic asset in acquiring capital!
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Idea
Science
TechnologyPrototype APrototype BPrototype C
Internal TestDownselect
$$ Prototype $$
Field TestPrototype
Pre-ProductionRefinements
Pilot Runs
Production
Equity Leverage
Step 1Angel, Seed, SBIR-I
Step 2Early Stage, SBIR-II
Step 3Equity, VC
Solid BusinessPlan
EntrepreneurialDeath Valley
Intellectual property portfolioDo something important and litigation is inevitable
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1. IP is often synonymous with “patent”• But, “trade secrets” can offer protection, too
2. Strategies can be “defensive”• Keeping others out of your space• Continuation claims are key (new claims on old patent)
3. Strategies can be “offensive”• Anticipate and block competitor activity• Frequently the basis for licensing deals
4. Understand your business risk threshold• Lawsuit contingency and estimated liability (reserves)
OK, so what’s new?Many items, actually!
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From first-to-invent to first-to-file
Preissuance submissions by third parties
Adds Post-Grant Review process
Expands inter partes reexamination process
Marking
Damages and willful infringement
Comment on preference for Trade Secrets
From first-to-invent to first-to-file Actual filing date is key
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First inventor to file is entitled to patent Prior art is established as of effective filing date Date of invention is no longer relevant to prior art
From first-to-invent to first-to-file Expands field of prior art
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Public use/sale of the invention in outside US is now prior art Current statute limits prior art to public use/sale in the U.S.
Several benefits with first-to-file
Process is considerably simplifies – first-to-file is “it” Reduced or eliminated relevance of “conception,”
“diligence,” and “reduction to practice” and Eliminates protracted “contest of priority” (interference
proceedings) US is now harmonized with (most of) the ‘rest-of-the-world’ Promotes the idea that the inventor should publish ASAP!
But that might effect patentability outside US
From first-to-invent to first-to-fileDisclosure games
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Concept
File ApplicationInventor
X
Concept
File ApplicationInventor
YY gets Patent
X gets Patent
Before AIA
After AIA
From first-to-invent to first-to-fileMore disclosure issues
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InventorDisclosesInventionInventor
X
File InventorX
Disclosure is NOT prior art
File
File InventorX
1 Year
Third PartyPublishes
Third PartyPublication
InventorDiscloses
Publication IS prior art
Publication IS NOT prior art
Intellectual propertyFour ‘take-aways’ right now
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1.
2.
3.
4.
Sense of urgency in filing … resource issue?
Prior art drama
Simplified claim of invention
Have to affirmatively disclose to be entitled to
grace period
Pre-issuance submissions by third partiesYour competitors have a chance to help the examiner
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Any third party step into the (previous 1-on-1) negotiation of claims and attempt to keep the patent from being issued.
Proof of burden fall on the inventor to demonstrate relevance.
To pay legal fees …need to get funding before the patent is issued!
BILLS-112s23es.pdf; page 71
Post-grant reviewYour competitors have a chance to delay market entry
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So, what does it mean to “have a patent” if anyone can protest within 9 months?
Can be challenged ‘on any ground’!
Is it likely that at least 1 claim is possibly unpatentable?
BUT, does provide a pathway to challenge an ‘improperly issued’ patents
BILLS-112s23es.pdf; page 49
Inter partes reexaminationYour competitors have yet another chance to help
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BILLS-112s23es.pdf; page 34-35
New procedure, after the Post-grant review .. another 9 months?
Is it likely that prior patents and printed publications would invalidate the claims?
BUT, does propose that if issued, the patent holder would be less subject to ‘successive attacks’
MarkingMore flexibility in ‘marking’ of patents
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BILLS-112s23es.pdf; page 33
Expands interpretation of ‘marking of patents’
False marking claim cannot be based on product marking that may have expired.
Preference for Trade Secrets Today, you decide “Patent or Trade Secret?”
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If you chose ‘trade secret’oEssentially you ‘abandon the right’ to a patentoCannot receive a patent if you ‘abandon the right’ 35 U.S.C.
§ 102(c)oNow, 35 U.S.C. § 102(c) is eliminatedoKeep something a trade secret until seems ‘time’ to patent.
Possibility that trade secret owner is ‘prior user’oPatent owner holding a patent can sue a trade secret useroReceive compensation or injunctionoNow, trade secret owner can asset prior use defense
Intellectual property portfolioUse as a strategic advantage
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b
c
a
d
e
5. Bargaining power of complementors 6. Bargaining Power of
suppliers
2. Threat of entry by new competitors
3. Threat of Substitute Products
4. Bargaining Power of customers
1. Firm Rivalry
To maintain an approved monopoly in the market
Patent portfolioKnow what to maintain, or license, or abandon
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> 4 x GDP
2-4 x GDP
< 2 x GDP
CurrentPlans
FuturePlans
Not inPlans
BusinessUnitGrowth
Corporate Use
CorePatents
50%
Non-Core25%
License
Abandon
Non-Core25%
ValuationWhat is it worth to protect IP value?
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Valuation Process• Ten common techniques out there• Everyone has a favorite• Seller vs buyer perspective differ widely• Eventually have to get a third-party
Typically down-select to three for the pro forma• Explain why specific techniques were picked
What are you willing to spend to protect a downside of $4.5M in revenue?
If the portfolio is valuable, people careProfit from a patent and competitors will come
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Customer Supplier
Productor Service
$$$$$$$$
IndustryMarket
Typical litigationProcess … before you sue …
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A situation reasonably suggests infringement occurring
Complaint: Plaintiff sends a letter:
• Request royalty
• Possibly “cease and desist” (stop and refrain from) letter by lawyer
If no satisfaction …
• Formally file a complaintFederal Rules require a patent holder to have a reasonable belief that the patent is infringed before suit is brought
• About 20 days to respond
Off to the races!
Typical caseSeveral defense mechanisms
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Claim there is no infringement
The patent is invalid• Obvious to one skilled in the arts• Anticipation: used by others prior to patent date (prior art)• Statutory: Was “on sale” a year before the patent was filed• Enablement: Patent does not describe the invention well enough• Best mode: The invetor had a “best way” to implement but did carry out or advise the PTO during prosecution•Indefinite: Terms for the claims are not definite
The patent is unenforceable• Patent office was materially misled during the patent prosecution• “Laches” delay in bringing lawsuit; other legal terms
AntitrustUnfair competitionRexamination
Patent LitigationThe basic process
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Pre-litigationInvestigation
Complaint
Answer
Claim Construction(Markman) Hearing
Discoverydepositions … expert witness
TrialPre-TrialMotions
Appeal
Appeals CourtJudgment
Trial CourtJudgment
Markman rulingA court ruling from Markman et al vs Westview, 1996
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Established precedent• The judge will delineate scope and definition of patent
claims.• Used to be the jury• Plaintiff and defendant “teach the class” to the
satisfaction of the judge and a decision is reached.
Promoted settlements prior to jury trial• More efficient• Judge rules on “matters of law” (patent language)• Jury rule on “matter of fact” (observed actions)• Many cases are settled at the Markman hearing.
Markman rulingFun with words … this is why we get a lawyer
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Shooting a stuffed deer out of season:
Facts make the it impossible to violate the law …thought the defendant is unaware of those facts
Legally, defendant has broken the law, … but his acts fail to fulfill all the required elements of law
Where to litigate?Is a “federal question”, therefore involves federal court
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U.S. District Court Map
Patents are not a state issueBut, there are cases where contract law enters!
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U.S Supreme Court
U.S Court of Appeals
U.S District Court
State Supreme Court
State Court of Appeals
State Trial Court
• Federal question• Diversity jurisdiction• US is a party• No minimum monetary requirement
Jury TrialJudge panel• Affirm• Reverse• Vacate• Remand
Trade secretsDon’t usually go to Federal court
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Is often a “contract law” question (if it is a legal question)
And, may not exactly be covered by law• Recognized under common laws in each state
• Employees might sign employment agreements• Right to sue if the agreement is breached
• Dominated by “norms”• Enjoy reciprocal behavior
• Reverse engineering is OK
“Trade Secrets” versus “Trade Secret Law”• Still, somewhat circumstantial• Still, somewhat slow
Typical caseWhat are the goals?
Page 45BioDesign Week 7
Objective Goals
• Market exclusivity through an injunction• Income …
Compensation for losses(Lost Profits, Reasonable Royalty)
Punitive Damages(Increased Damages and/or Attorneys’ Fees)
Subjective Goals
• Promote and Protect Licensing Programs• Establish a Reputation for Protecting Your IP
… it’s expensive …
Accounting for litigation uncertaintyIs like any other long-term business liability
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1. Long-Term Debt• A loan through a bank
2. Bonds• Issued by the firm and sold in the market
3. Deferred Tax Liabilities• Arise from differences in Tax and Financial Stmts
4. Deferred Pension and Benefits• Can be significant and subject to regulations
5. Lawsuit contingency• Estimated liability (reserve)
Accounting for litigation uncertaintyBe sure to get the right accountant on the team, too
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SummaryStrategic issues confronting large & small businesses
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Changes in patent filing strategies Early filing may be preferred File more provisional applications Be more prompt acting on invention disclosures
Expanded review processes might be a challenge for small companies
Certainly when large competitors are plentiful Legal cost issues
Strategic discussion of patent portfolio must take place earlier
