Transfer of “All Substantial Rights” in a Patent Licensing Agreement

Transfer of “all substantial rights” in a patent from a patentee/licensor to a licensee is essential for the licensee’s standing to sue an infringer (i.e., right to enforce the patent) in courts.  Despite parties’ intent to transfer “all substantial rights” in a patent license agreement, the actual terms in a licensing agreement are more dispositive on whether the licensee has the “substantial rights” and therefore the standing to enforce/sue.

An analysis of case laws suggests that a court tends to inquire into two fundamental questions in determining whether a licensing agreement has transferred all substantial rights in a patent from a patentee/licensor to a licensee.  Therefore, to ensure the transfer of all substantial rights transferred by a licensing agreement, a licensor should check the effect of each term in the agreement against the two fundamental questions to understand whether any term prevents the transfer of all substantial rights.

Fundamental property rights inquiry

Similar to rights in a personal property, ownership (i.e., substantial rights) to a property (such as a patent) includes the rights to use, exclude others from using, and dispose such property freely.  Therefore, any substantive encumbrance to these rights prevents a transfer of all substantial rights.

Based on this inquiry, in order to transfer all substantial rights, a license agreement must assure that the licensee:

-          -- has the right to make, use, sell, and offer for sale the patented invention.

-         --  has the right to license to others and/or grant sublicenses to others

o   without being subject to the patentee/licensor’s veto rights to the proposed assignments of the exclusive license, especially a veto right in the patentee/licensor’s sole discretion.

-        --  has the exclusive right to assert the patent

o   without joining the patentee/licensor

o   without being subject to or junior to any other party’s right to assert

o   without having to seek consent from the patentee/licensor; veto rights by the patentee/licensor will defeat a transfer of all substantial rights.

o   it is ok that the patentee/licensor share in an insubstantial part of the exclusive licensee’s monetary recovery received from patent infringers.

o   It is ok that the licensee has the duty to keep the patentee/licensor informed and consult with the patentee as to any litigation and settlements.

Public policy inquiry

The policy reason behind the requirement that an exclusive licensee/assignee must have “all substantial rights” in order to have the standing to sue is to avoiding the multiplicity of lawsuits against the same infringer arising from the same act. 

Based on this inquiry, in order to transfer all substantial rights, a license agreement must assure that:

-         --  the patentee/licensor does not divide up the exclusive license by the patent’s claims or the fields of use and that the licensee has the exclusive right to concurrently assert the patent in all domains, whether commercial or non-commercial or otherwise; any division of enforcement rights by fields of use will defeat a transfer of all substantial rights.

-         --  there is preferably no prior licenses to the patent.

-       --  the agreement does not grant the patentee/licensor a reversionary interest in the patent except for bankruptcy or objectively egregious breaches of the agreement; at will termination of the license agreement by the patentee/licensor will prevents a transfer of all substantial rights.

-         -- the license to the underlying patent lasts the remaining term of the patent; an exclusive license with a termination date before the expiration of the patent will prevent a transfer of all substantial rights in the patent.

-         -- it is ok that the patentee/licensor grants to an exclusive licensee all substantial rights in a specific geographic area of the United States; a division by geographic areas is ok.

Thanks for reading.

Connie

cwan@patentonomy.com

Double Check the IP Ownership Clause in Your Employee or Consultant Contract

Here is a Déjà vu moment for you:  You had a research team working on a high valued research project.  Intellectual property was generated while hundreds thousands of dollars were poured into the research—all paid by you.  The intellectual property was turned into several patent applications by a patent attorney whose service you paid for.  Then there was a big fall out among the team members with your star researcher storming out, cursing and threatening.  It was time to file the patent applications. Your patent attorney sent the researchers the assignment documents transferring the patent rights from the researchers/employees to you (the company).  The star researcher, who was freelancing somewhere else, refused to sign.  You pulled out the employment contract and threaten to sue, only realizing that the contract did not contain IP ownership clause. 

Well, the good news is that, if you go to court on a dispute like this, you have a good chance of winning. The bad news is that you will need to shell out significant financial resource and emotional strain before that win.

Employers often assume that, because they paid a salary to an employee and paid for the expense of the R&D work, any IP generated by the employee would automatically belong to the employers. Wrong assumption!  As a result, I’ve seen the messy aftermath playing out painfully for all parties.  From the experiences, I can tell you that cleaning up those messes could be costly, time consuming and emotionally draining. 

It is commonly believed that the US constitution grants the inventors as the original owner of an invention.  This common understanding is based on the Copyright Clause (Article I, Section 8, Clause 8 of the United States Constitution), which grants Congress the authority "to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."  The common understanding was further strengthened by a string of case laws starting in 1790.  Here are two cases on the subject if you want to learn more: Gayler v. Wilder, 10 How. 477 (1851) and United States v. Dubilier Condenser Corp., 289 U. S. 178 (1933).

For an employer to own an invention generated by an inventor employee in his employment capacity, the inventor employee must expressly grant those rights to his employer.   As with any other property right, an inventor’s property right in an invention can be transferred through a contract.  The court in United States v. Dubilier Condenser Corp. states that, in most case, a patent may be issued only to an applying inventor; because an inventor’s interest in his invention is assignable in law by an instrument in writing, a patent can be issued to an inventor’s assignee. However, the case law is clear that absent an agreement to the contrary, an employer does not have rights in an invention “which is the original conception of the employee alone.”

Therefore, to save you from the headache later, you should always include an IP ownership clause in your employment or consultant contract.  Most contracts I’ve seen state that “the employee thereby agrees to assign the IP ownership to the employer.”  This is the exact language that cause the Stanford’s loss to Roche in Stanford v. Roche 131 S. Ct. 2188 (2011).  I will talk more about this case in future posts.  For now, you might want to take the lesson learned by Stanford and stick with “hereby assign” language.  The best part of the “hereby assign” language is that, if your star researcher refuses to sign the assignment documents, you can simply file the employment contract with the USPTO.  Just please make sure that the employment contract has researcher’s signature on it.

Thanks for reading.

Connie

cwan@patentonomy.com

Summary of the America Invents Act

Repost from AIPLA: http://www.aipla.org/advocacy/congress/aia/Pages/summary.aspx

Page Content

Filing Reforms

• First Inventor to File - Section 3
• Under this section, the U.S. transitions from a First to Invent patent system to a system  the First Inventor to File system.
• A derivation proceeding is established to replace the interference proceeding currently employed by the USPTO. The purpose is to determine whether a claimed invention in an earlier filed application was derived from the later filed application.
• Effective Date: March 16, 2013

• Assignee Filing - Section 4 
• Under the AIA, the processes of filing and prosecuting a patent application for an assignee of, or a person to whom the inventor is obligated to assign an invention is simpler and more flexible, allowing a substitute statement to be submitted where the inventor is unable or unwilling to sign an inventor’s oath.
• Effective date: September 16, 2012.

• Penalty for Paper Filing - Section 10
• Effective 60 days after enactment, there is a $400 ($200 for small entities) fee for filings made by non-electronic means to incentivize electronic filing.
  

• Best Mode Requirement diluted - Section 15
• Upon enactment of the AIA, a patent may not be cancelled or invalidated based on an applicant’s failure to disclose “the best mode” of carrying out an invention.

• Human Organism Patents - Section 33
• The AIA prohibits granting patents for human organisms. This provision does not apply to previously issued patents.

Examination Reforms

• Definition of Prior Art - Section 3
• The AIA presents a new definition of "prior art” under Section 102.
• New Section 102(a)(1) keeps Section 102(b) standards (on sale, used in public, published and patented) and adds “or otherwise available to public.”
• New Section 102(a)(2) includes an earlier filed application naming another inventor, excluding inventor-derived information or public disclosure, commonly owned patents and applications, and joint research agreements 

• Inventor Grace Period -  Section 3
• Under new Section 102(b), publication of a claimed invention by the inventor less than 1 year before the filing of a patent application may not act as prior art

Third Party Reforms

• Expanded Prior User Rights - Section 5
• The AIA extends the prior user rights defense to include any process, machine, manufacture or composition of matter. It applies where the use was at least 1 year prior to the patentee's filing date or the date the invention was disclosed to the public for the prior art exception under new Section 102(b).
• Use by "a nonprofit research laboratory or other nonprofit entity, such as a university or hospital, for which the public is the intended beneficiary," constitutes commercial use for the purpose of this defense.
  

• Expanded Inter Partes Review - Section 6
• Effective Date: September 16, 2012
  
• Reform Inter Partes Reexam
• Any person other than the patent owner may petition the USPTO for inter partes review of a patent requesting  to cancel at least 1 claim as unpatentable under Section 102 or 103 based on patent(s) or printed publication(s). A petition for inter partes review may be filed the later of 9 months after grant or after a post-grant review proceeding has terminated.
• The USPTO may grant inter partes review of a patent where there is a reasonable liklihood that petitioner would prevail as to at least 1 challenged claim.
• Inter partes review may not be instituted if the petitioner has filed a civil action challenging the patent’s validity, or if the petition is filed more than 1 year after the petitioner is served with a complaint alleging infringement.

• New Post-Grant Opposition System - Section 6
• Effective Date: September 16, 2012
  
• Section 6(d) of the AIA establishes a new “all-issues” post-grant review proceeding in which parties may seek cancellation of patents on any validity ground that could be raised under paragraph (2) or (3) of section 282(b). A post-grant review petition must be filed within 9 months after the patent is issued.
• The USPTO may grant post-grant review of a patent where it is more likely than not that at least 1 claim is unpatentable, or the petition raises a novel or unsettled legal question that is important to other patents or patent applications.
• Effective date: September 16, 2012, applicable to any patent granted on, before, or after this date.
  

• Business Method Patent Opposition - Section 18
• Effective September 16, 2012, there will be a transitional post-grant review proceeding for reviewing the validity of covered business method patents.
• Only a person or the person’s real party in interest that has been sued for infringement of the patent may file for the review.
  

• Third Party Submissions - Section 8
• The AIA allows third parties to submit any patent, published application, or publication relevant to examination of a pending patent application with a concise explanation for inclusion in the record.

Additional Key Reforms

• USPTO Fee Setting - Section 10
• Granted authority to the Director of the USPTO to set the fees for patent services.
• Micro entities are now entitled to a reduction in fees by 75%.

• Priority Examination Fee - Section 11(h)
• This section set a fee of $4800 for Prioritized examination.

• 15% Surcharge - Section 13
• The AIA established a 15% surcharge on certain patent fees effective 10 days after enactment.
  

• Supplemental Examination - Section 12
• A patent owner may request supplemental examination of an issued patent asking the USPTO to “consider, reconsider, or correct information believed to be relevant to the patent, in accordance with such requirements as the Director may establish.”
• A request for supplemental examination may be granted where one or more items of information raises a substantial new question of patentability.  The USPTO has three months from the time of the request to determine whether to grant reexamination of the patent.
• Effective date: September 16, 2012, applicable to any patent granted on, before, or after this date.

• USPTO Revenue Diversion - Section 22
• Any fees collected by the USPTO in excess of the USPTO’s annual appropriations will now be deposited into a Reserve Fund. Such funds may only be used for Office operations.
• All fees collected related to patent services must be used by the Office for patent related expenses. Fees collected related to trademark services must be used by the Office for trademark related expenses. Fees in excess of annual appropriations are to be deposited in the Fund and accessed only with Congressional approval.
  

Other Provisions

• Patents on Tax Strategies - Section 14
• After the date of enactment of the AIA, “any strategy for reducing, avoiding, or deferring tax liability” is considered insufficient to distinguish a claimed invention from the prior art for purposes of evaluating an invention for novelty and nonobviousness.

• Virtual Marking and False Marking Limits - Section 16
• Allows patent owners to identify their products with the web address containing the patent information.
• Limits false marking lawsuits to those filed by the U.S. government or by a competitor who can prove competitive injury.
• It is no longer a violation to mark a product with a patent that covered the product, but has since expired.

• Establishment of Satellite Offices - Sections 23-24
• The AIA requires the USPTO to establish three or more satellite offices within three years of the date of enactment. 
• The USPTO opened the first satellite office in Detroit, Michigan as the ‘‘Elijah J. McCoy United States Patent and Trademark Office” on July 13, 2012. 
• Dallas, TX, Denver, CO, and Silicon Valley, CA have been selected as the locations for the remaining regional satellite offices.

• Prioritized Examination - Sections 11(h), 25
• The AIA gives patent applicants the option to request prioritized examination for inventions that are “important to the national economy or national competitiveness.” Congress established 10,000 as the maximum number requests that may be granted per fiscal year, which may be changed by the Director of the USPTO.

• Creation of Ombudsman - Section 28
• The AIA requires the USPTO to establish a Patent Ombudsman Program to provide support and services relating to patent filings to small business concerns and independent inventors.

• Pro Bono Program - Section 32
• To assist under-resourced inventors and small businesses, the AIA requires the USPTO to assist intellectual property law associations across the country in establishing pro bono programs for patent related services.
  
• Studies
• Congress has mandated several studies on the patent system including:
  
• Effects of First-Inventor-To-File on Small Business - Section 3
• Prior User Rights - Section 3
  
• Implementation of the AIA - Section 26
  
• International Protection for Small Business - Section 31
• Genetic Diagnostic Testing - Section 27
• Patent Litigation - Section 34

Thanks for reading.
Connie
cwan@patentonomy.com

 

On-sale bar to patentability could be triggered by an order to your own OME manufacturer

On-sale bar is a patentability bar derived from 35 U.S.C. 102 of the U.S. Patent Law.  Under 35 U.S.C. 102(a), a person shall be entitled to a patent unless- (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.  The on-sale bar is triggered if (1) the invention is the subject of a commercial offer for sale; (2) the offer for sale is not for experimental purposes; and (3) the invention is ready for patenting.

An offer for sale of an invention is usually thought of as a sale event of the invention to public by the patent owner or designees.  A recent case decided by the Federal Circuit, Hamilton Products v. Sunbeam Products offers an interesting twist.

Here is the fact of the case: Hamilton Beach and Sunbeam both sell slow cookers.  Hamilton Beach owns a patent for a slow cooker, sold under the brand the "Stay or Go" cooker. Hamilton Beach's first patent application for the Stay or Go was filed on March 1, 2006. “Stay or Go” cooker turned out to be a big success for Hamilton Beach.  In response, Sunbeam developed a competing slow cooker, branded as "Cook & Carry.”  "Cook & Carry” product has sealing clips mounted on the lid of the slow cooker. 

On June 4, 2010, Hamilton Beach filed another patent application claiming priority to its first application having a filing date of March 1, 2006.  The second patent application claims a slow cooker with sealing clips mounted on the lid, which covers Sunbeam’s “Cook & Carry” product. The USPTO granted a patent on Hamilton Beach's second application. Hamilton Beach sued Sunbeam alleging that Cook & Carry products infringed upon the second application.

Remember that Hamilton Beach’s second application has an effective filing date of March 1, 2006 (by claiming the priority to the first application), so any patentability barring event will need to happen before March 1, 2005 (critical date).  Sunbeam found out that Hamilton Beach issued a purchase order for nearly 2,000 Stay or Go slow cookers to its foreign supplier (an OEM manufacturer) on February 8, 2005.

Because the filing date of Hamilton Beach's first patent application for the Stay or Go slow cooker was March 1, 2006, the critical date in this dispute was one year earlier, or March 1, 2005. Sunbeam argued that Hamilton Beach's foreign supplier offered to sell the Stay or Go before that critical date. Specifically, Hamilton Beach listed its Tennessee facility as the shipping address for the merchandise and its Virginia office as the billing address. The supplier confirmed receipt of the purchase order on February 25, 2005, and responded that it would begin manufacturing the slow cookers once it received Hamilton Beach's release.  This response from the supplier was significant, according to the Federal Circuit, because it was an offer to sell from the foreign supplier (the OEM manufacturer) of Stay or Go slow cookers to Hamilton Beach.  According to the Federal circuit, this offer to sell from a supplier to a brand-name owner is sufficient to satisfy “a commercial offer for sale” under the on-sale bar, and there is no "supplier exception" rule under the on-sale bar.

The court subsequently decided that the invention is ready for patenting and the sale does not qualify for an experimental use exception.  Combining all three factors, the court concluded that on-sale bar invalidates the claims against Sunbeam from the second patent of Hamilton Beach. 

Here is the lesson learned: This case reiterates the importance of filing patent applications covering commercial embodiments of an invention as early as possible. This case also shows the need for potential patentees to be cautious when dealing with suppliers, including overseas suppliers and OEM manufacturers, as those dealings may trigger the on-sale bar.

Thanks for reading.

Connie

cwan@patentonomy.com

Understanding the procedural timeline in a patent application process

Filing and prosecution a patent application with USPTO takes two abilities: the legal ability to understand the patent law and make use of the knowledge to your advantage and the operational ability to follow the strict procedural time lines with interacting with USPTO. 

Many blogs and textbooks aim to help you to understand the legal issues of patent law practice.  For understanding the procedural timeline in USPTO, I found that the USPTO Patent Application Initiatives Timeline is very help.  The USPTO Patent Application Initiative displays various programs and initiatives that are available to applicants during each phase of the application process.   Here is the weblink: http://www.uspto.gov/patents/init_events/patapp-initiatives-timeline.jsp

Here is the timeline summary:

Thanks for reading.
Connie
cwan@patentonomy.com

USPTO changes its mind: will reduce some post AIA fee increase

As you might be aware, with the enactment of the American Invents Act, the USPTO (U.S. Patent and Trademark Office) has increased many patent application related fees.  The purpose of the increase to provide USPTO with funds to covers the operational cost, reduce examination backlog, and improve patent quality. 

The dramatic increase of some fees has caused widespread outcry in inventor community.  Now, USPTO has s small change of heart.  Beginning January 1, 2014, USPTO will reduce certain early stage fees for obtaining a patent.  According to the agency, the reduction of early stage fees is meant to help the inventor community to offset patenting costs for patent applicants who have not yet benefitted from the commercialization of their inventions.  The higher fees for the later stages of a patent life remain in place including patent maintenance fees. 

The following reduced fee (in the format of large entity/small entity/micro entity) will take effect on January 1, 2014:

Utility Patent Issue Fees will change from $1,780/$890/$445 to $960/$480/$240
Design Patent Issue Fees will change from $1,020/$510/$255 to $560/$280/$140
Publication Fee will change from $300 to $0.
Electronic Assignment Recordation Fee will change from $40 to $0.
New Small and Micro Entity Fees for PCT International Stage Applications will also change accordingly

A complete fee schedule can be found at this website: http://www.uspto.gov/web/offices/ac/qs/ope/fee031913.htm

Fee due for payment are calculated at the time of payment.  Therefore, if you have a patent related fee in the to be reduced categories that is due on or after January 1, 2014, you might want to delay payment to take advantage of the reduced fees.

Thanks for reading.
cwan@patentonomy.com