Guide of Patent Protection

The Changes to the United States Prior Art Law Implemented by PL 108-453 Enacted December 10, 2004

by Richard Neifeld

I. Summary

I. Summary

On November 20, 2004, the Congress passed S. 1292. President Bush signed S. 1292 into law as Public Law No: 108-453 (PL 108-453). This is a law reducing the scope of prior art in the United States. The goal of the law is to remove certain restrictions on patenting inventions resulting from collaborative work between different people employed by more than one legal entity. Specifically, PL 108-453 amends 35 USC 103(c) as indicated below.

II. Changes To 35 USC 103

The prior version of 35 USC 103(c) read as follows:

(c) Subject matter developed by another person, which qualifies as prior art only under one or more of subsections (e), (f), and (g) of section 102 of this title, shall not preclude patentability under this section where the subject matter and the claimed invention were, at the time the invention was made, owned by the same person or subject to an obligation of assignment to the same person. (Amended Nov. 8, 1984, Public Law 98-622, sec. 103, 98 Stat. 3384; Nov. 1, 1995, Public Law 104-41, sec.1, 109 Stat. 3511.)

The new version of 35 USC 103(c) pursuant to PL 108-453 reads as follows:

(c)(1) Subject matter developed by another person, which qualifies as prior art only under one or more of subsections (e), (f), and (g) of section 102 of this title, shall not preclude patentability under this section where the subject matter and the claimed invention were, at the time the claimed invention was made, owned by the same person or subject to an obligation of assignment to the same person.

(2) For purposes of this subsection, subject matter developed by another person and a claimed invention shall be deemed to have been owned by the same person or subject to an obligation of assignment to the same person if–

(A) the claimed invention was made by or on behalf of parties to a joint research agreement that was in effect on or before the date the claimed invention was made;

(B) the claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and

(C) the application for patent for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.

(3) For purposes of paragraph (2), the term “joint research agreement” means a written contract, grant, or cooperative agreement entered into by two or more persons or entities for the performance of experimental, developmental, or research work in the field of the claimed invention.

The effective date provision for PL 108-453 read as follows:

SEC. 3. EFFECTIVE DATE.

(a) IN GENERAL- The amendments made by this Act shall apply to any patent granted on or after the date of the enactment of this Act [sic; on or after December 10, 2004].

(b) SPECIAL RULE- The amendments made by this Act shall not affect any final decision of a court or the United States Patent and Trademark Office rendered before the date of the enactment of this Act [sic; December 10, 2004], and shall not affect the right of any party in any action pending before the United States Patent and Trademark Office or a court on the date of the enactment of this Act [sic; December 10, 2004] to have that party’s rights determined on the basis of the provisions of title 35, United States Code, in effect on the day before the date of the enactment of this Act [sic; December 10, 2004].

III. Analysis

Secret prior art refers to subject matter that is prior art under U.S. law, but that is not publicly disclosed. It includes subject matter meeting the criteria of subsections (e), (f), and (g) of section 102. Those criteria are the filing of a patent application, for 102(e), deriving the patentable invention from another person, for 102(f), and prior secret invention by a third party, for 102(g).

The version of 35 USC 103 in effect prior to December 10, 2004 excluded from the definition of prior art non-anticipating secret prior art, so long as the non-anticipating secret prior art was based upon activity by people subject by contract to assign their inventions to the same legal entity as the named inventor. The revised statute expands the exclusion of subject matter from secret prior art to include any non-anticipating subject matter meeting the following conditions.

1. A Pre-existing Agreement

The assignee of a claimed invention has in place prior to the date the claimed invention was made an agreement “for the performance of experimental, developmental, or research work in the field of the claimed invention” (that is, a joint research agreement).

Thus, a qualifying agreement that may impart immunity may have existed prior to the implementation of the legislation.

2. A Result of Activities Within the Scope of the Agreement

The “claimed invention was made as a result of activities undertaken within the scope of the joint research agreement.”

Thus, the agreement should broadly define the activities that are within “the scope of the joint research agreement.” There will in certain instances be competitive interests requiring the parties to the agreement to draft the agreements with narrow scope. In those types of situations, we can eventually expect litigation over whether the 103(c)(2) exclusion applies, and the decision in such litigation will construe the meaning of terms in the agreements against various fact patterns. In any case, terms of such agreements should be thought out carefully and fully defined in the agreement to minimize the chance of unexpected adverse consequences.

3. The Application Discloses the Parties to the Agreement

The “application … discloses or is amended to disclose the names of the parties to the joint research agreement.”

Since this passage requires amendment of the application, it is debatable whether it would apply to a certificate of correction to an issued patent. The legislative history suggests that a post issuance certificate of correction might be acceptable. However, that contradicts the actual language of the statute. Thus, a party desiring this exclusion in an issued patent, particularly if litigation is contemplated, might have to resort to filing an application to reissue the patent, and then amend the reissue application, to be certain the exclusion applies.

Moreover, it may be possible to file reissue applications for currently issued patents for purpose of adding a 103(c)(2)(C) amendment and also to satisfy the requirement that the [reissue] patent be issued after the December 10, 2004 effective date of PL 108-453.

Generally, any party having such an agreement should promptly file 103(c)(2)(C) amendments in the affected patent applications. Keep in mind that such an amendment could remove prior art that might otherwise arise in discovery in litigation or due diligence against an issued patent. Accordingly, it pays to file a 103(c)(2)(C) amendment whenever the claimed invention arguably meets the other requirements for the exclusion.

IV. Impact On “action pending … on the date of the enactment of this Act”

PL 108-453 is effective for patents granted on or after December 10, 2004. However, there is a special provision respecting ongoing proceedings, which states that the change in 35 USC 103 “shall not affect the right of any party in any action pending before the United States Patent and Trademark Office or a court on the date of the enactment of this Act to have that party’s rights determined on the basis of the provisions of title 35, United States Code, in effect on the day before the date of the enactment of this Act.”

There is a problem with that special provision. The change in 103(c) can only help patentees, so patentees would not want to have the older version of 35 USC 103 apply. Thus, the special effective date provision is not likely to be invoked by patentees. The term “rights” generally refers to property rights, like a patentee’s exclusive rights. Accordingly, it is unclear to whom this provision should relate.

Moreover, the statement “any party … that party’s rights” suggests that this special provision can apply to both or all parties in an action. How will that provision be construed for example when a patentee litigant wants the new 103 applied vis-a-vis a defendant’s defense of invalidity or defense of lack of infringement under the doctrine of equivalents, and the defendant wants the old 103 applied vis-a-vis its defense of invalidity and its defense of lack of infringement under the doctrine of equivalents? The patentee meets the “any party in any action” criteria, as does the defendant. The patentee meets the “rights” provision based upon its patent rights. Does the defendant’s commercial activity infringing the patent amount to a covered “right”. In such actions, which version of 103 applies, and which parties “rights” are superior? If Congress wanted to ensure that the new law would be effective against patents in an ongoing patent litigation, it could have clearly so stated. The special provision on the effective date is not such a clear statement.

This law was clearly partially in response to the judicial construction of 35 USC 102(g) expanding the scope of prior art in Oddzon Products, Inc. v. Just Toys, Inc., 122 F.3d 1396 (Fed. Cir. 1997)(Lourie, J.). However, merely because S. 1292, now PL 108-453, was in response to that situation does not mean that existing defendants in litigation should benefit from the prior version of 35 USC 103 and its interpretation in Oddzon Products, Inc.

The special provision generally would only harm patent applicants, so patent applicants should ignore it and promptly file 103(c)(2)(C) amendments. There may however be an exceedingly rare case where a patent applicant would not want to file a 103(c)(2)(C) amendment because doing so would moot an interference issue that the patent applicant wanted to resolve via an interference proceeding, as discussed below.

V. Impact On Right to an Interference Proceeding

Keep in mind that the USPTO’s position on interference proceedings is that their primary purpose is “to assist the examiner in the examination of a patent application.” JD v. SH, paper No.55, Interference 104,044, (Trial Section of the BPAI, November 11, 1999). Therefore, interference proceedings are only necessary when the existence of a patent precludes the issuance of a pending application. In this regard, note that a party whose application is rejected by a patent which it could remove from prior art by filing a 103(c)(2)(C) amendment, could remove the rejection by filing the103(c)(2)(C) amendment. That action will also likely preclude an interfere proceeding with the patent, at least according to the reasoning in JD v. SH. However, there are situations where the applicant desires to take down the blocking patent instead of removing it from prior art, in which situations the applicant should not file a the103(c)(2)(C) amendment.

With respect for the potential for an interference in situations were both parties to a joint research agreement have filed in their applications and patents 103(c)(2)(C) amendments, an interference is still possible. That is, the interference statutory section, 35 USC 135(a), grants the USPTO discretion when to declare interferences. Moreover, 35 USC 135(a) provides an independent basis for judgement against one party, specifically, lack of priority for a patentable invention, upon which to cancel that party’s claims. Cf. “Viability of the Hilmer Doctrine” Neifeld, 81 JPTOS 544, section III.B (July 1999) (posted at http://www.neifeld.com/hilmer.html#N_11_ ); and In re McKellin, 529 F.2d 1324, 1327, 188 USPQ 428, 432 (CCPA 1976)(”An applicant who has lost an interference is not entitled to claims which correspond to the subject matter of the counts of the interference. A determination of priority of invention adverse to an applicant constitutes the final refusal by the Patent and Trademark Office of the claims involved. 35 USC 135.” Emphasis in the original.) Thus, it is possible that the USPTO would declare an interference in a situation where neither party’s inventive activities are prior art against the other party.

Moreover, the 103(c) exclusion from prior art applies only for non-anticipating prior art. That is, the exclusion does not apply to a patent claim of a first party to the joint research agreement if the inventive activity of the second party to the joint research agreement anticipates the subject matter defined by the claim. Thus, it is still possible for a 103(c)(2)(C) amendment to fail to remove the question of blocking prior art based upon inventive activities of parties to a joint research agreement. In such situations, the facts as to who first invented claimed subject matter may need to be determined via an interference, or if the parties agree to cooperate, to a private investigation and submission of relevant prior art admissions to the USPTO.

In fact, how the USPTO will resolve the question of interference between patents and applications subject to 103(c)(2)(C) rights is an open legal question. Since this is an open legal question, and since 103(c) may still block allowance of desirable claims despite a joint research agreement, parties to such agreements might consider addressing both the issue of interference and blocking 103(c) prior art in their joint research agreements. When might this situation arise? Consider for example a University attempting to derive revenue by licensing a valuable technology when the corporate partner to its related joint research agreement also patented that technology only to block its commercial implementation in favor of an alternative technology. Consider for another example a first party to a joint research agreement that so broadly claim the results of the joint research that one claim is anticipated by the inventive work solely of inventors employed by the other party, and the other party has for whatever reason failed to claim that subject matter. It is certainly far easier to address these types of situations in advance when entering into a joint research agreement than after they occur.

VI. Broadening Claims in Pending Applications

Keep in mind that the change in the law covers pending applications if the foregoing conditions of the joint research agreement existed when the inventions disclosed in the application were made. If pending claims have scope limited to avoid subject matter that at the time the application was filed was 103(c) prior art and which can now be removed from 103(c) prior art by the filing of a 103(c)(2)(C) amendment, consider filing a 103(c)(2)(C) amendment and presenting suitably broader claims.

VII. Proactive Action and Agreements Relating to Applications Claiming Similar Subject Matter

Another set of issues are raised by the change in the law’s impact on applications claiming similar subject matter filed by different parties to a joint research agreement. The PTO specifies

that the duties of disclosure and candor extend to notifying the examiner when the applicant knows that similar claims are presented in different applications, so that the examiner can decide whether to impose a double patenting rejection. The issues relate to both the duty of disclosure and double patenting.

The duty of disclosure obviously extends to similar claims in applications owned by different parties, to the extent that each party knows about the other parties applications. Accordingly, if there is patent application information shared amongst parties to the agreement, the prosecuting patent attorney must be provided with that information to fulfill the 37 CFR 1.56 duties of disclosure and candor to the USPTO.

Another issue is how entities should act to minimize the potential for double patenting rejection damage to their patent portfolios.

For example, if each one of two entities to a joint research agreement files a patent application, and one or both of the applications are subject to double patenting rejections over one another, how should the two entities handle that situation? Note that there now exists no regulation allowing either entity to remove the rejection by filing a terminal disclaimer because the applications are not co-owned! 37 CFR 1.321(c)(3) requires common ownership of both patents or applications for a terminal disclaimer to be effective to remove a double patenting rejection. Accordingly, the parties should contemplate now, actions to take, to avoid this problem.

Such actions might include an agreement to assign all patents rights to one of the two entities, or to assign only those patents in which proper double patenting rejections exist, to one entity, at a suitable time, with a suitable license back to the assigning party. A more sensible action would be to determine ahead of time whom to assign patent applications (with suitable license back) and what each party will claim in the applications to avoid or minimize the possibility of a double patenting rejection. Keep in mind that, even if the patent applicant can defeat a double patenting rejection by filing a suitable terminal disclaimer, the disclaimer may eliminate all potential patent term adjustment. That patent term truncation effect will, generally speaking, be more detrimental the more basic the underlying research, since the more basic the underlying research, the further out in time commercialization occurs.

VIII. Conclusion

PL 108-453 reduces the scope of prior art against qualifying claimed inventions. Legal entities can take advantage of the benefits of PL 108-453 with appropriate actions, and such entities may want to promptly review the research related agreements and take suitable action now.

If you have any other questions or need further information please feel free to contact us via email at www.neifeld.com.

Richard Neifeld,

President, Neifeld IP Law, PC

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Can You Use a Patent Application Filing in Order to Obtain a Foreign Filing License for “technical data” ? - YES! - By Richard Neifeld, Ph.D., Patent Attorney, Neifeld IP Law, PC www.Neifeld.com

United States laws provide restrictions on exporting “technical data” outside the U.S. Obtaining a license to export that data through conventional channels may be time consuming and relatively expensive. A patent application can rapidly and inexpensively effect a license to export certain “technical data”. U.S. patent laws and regulations provide for such a procedure, as follows. Unites States patent code section 35 USC 184 states as follows:
35 USC 184 - Filing of application in foreign country

Except when authorized by a license obtained from the Commissioner of Patents a person shall not file or cause or authorize to be filed in any foreign country prior to six months after filing in the United States an application for patent or for the registration of a utility model, industrial design, or model in respect of an invention made in this country. A license shall not be granted with respect to an invention subject to an order issued by the Commissioner of Patents pursuant to section 181 of this title without the concurrence of the head of the departments and the chief officers of the agencies who caused the order to be issued. The license may be granted retroactively where an application has been filed abroad through error and without deceptive intent and the application does not disclose an invention within the scope of section 181 of this title. The term “application” when used in this chapter includes applications and any modifications, amendments, or supplements thereto, or divisions thereof. The scope of a license shall permit subsequent modifications, amendments, and supplements containing additional subject matter if the application upon which the request for the license is based is not, or was not, required to be made available for inspection under section 181 of this title and if such modifications, amendments, and supplements do not change the general nature of the invention in a manner which would require such application to be made available for inspection under such section 181. In any case in which a license is not, or was not, required in order to file an application in any foreign country, such subsequent modifications, amendments, and supplements may be made, without a license, to the application filed in the foreign country if the United States application was not required to be made available for inspection under section 181 and if such modifications, amendments, and supplements do not, or did not, change the general nature of the invention in a manner which would require the United States application to have been made available for inspection under such section 181.

United States patent regulation 37 CFR 5.11 states as follows:
37 CFR 5.11 - License for filing in a foreign country an application on an invention made in the United States or for transmitting international application

(a) A license from the Commissioner of Patents and Trademarks under 35 U.S.C. 184 is required before filing any application for patent including any modifications, amendments, or supplements thereto or divisions thereof or for the registration of a utility model, industrial design, or model, in a foreign patent office or any foreign patent agency or any international agency other than the United States Receiving Office, if the invention was made in the United States and:

1) An application on the invention has been filed in the United States less than six months prior to the date on which the application is to be filed, or

2) No application on the invention has been filed in the United States.

(b) The license from the Commissioner of Patents and Trademarks referred to in paragraph (a) would also authorize the export of technical data abroad for purposes relating to the preparation, filing or possible filing and prosecution of a foreign patent application without separately complying with the regulations contained in 22 CFR parts 121 through 130 (International Traffic in Arms Regulations of the Department of State), 15 CFR part 779 (Regulations of the Office of Export Administration, International Trade Administration, Department of Commerce) and 10 CFR part 810 (Foreign Atomic Energy Programs of the Department of Energy). [49 FR 13461, Apr. 4, 1984; paras. (a) and (e), 56 FR 1924, Jan. 18, 1991, effective Feb. 19, 1991; paras. (b), (c), and (e)(3) revised, 62 FR 53131, Oct. 10, 1997, effective Dec. 1, 1997]

Thus, you can rapidly obtain a license for “technical data” by filing a U.S. patent application. That can be far more cost effective than by the alternative of complying with 22 CFR and 15 CFR. Moreover, it can be a lot faster.

The United States Patent and Trademark Office (USPTO) will in most applications provide a foreign filing license, and will do so within a few weeks of the filing of the patent application. However, the USPTO also makes even more expedited service is available. While getting patent applications issued into patents may take years, getting a foreign filing license does not!

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What Any Decision Maker Needs to Know about Patent Protection

Richard Neifeld, Ph.D., Patent Attorney and Robert Crockett, P.E., Patent Attorney

I. Introduction

This paper explains the basic information a decision maker needs to know regarding patents. There are certain concepts the understanding of which is a prerequisite for this topic. Those concepts are provided in section II. Section III relates patents to countries. Sections IV and V explain the legal requirements for getting patents and how long patents last. Section VI discusses patent treaties. Section VII provides ballpark cost estimates for acquiring patents.

II. Prerequisite Definitions

The term “property right,” also called “ownership of property,” means the right to exclude others from using the property. Property was historically classified as either land or personal, personal property encompassing all property other than land.

The term “intangibles” means rights that are not land or tangible personal property. Intangibles include contractual rights, good will, and intellectual property.

The term “intellectual property” means property rights in certain intangibles, such as patents, trademarks, and copyrights.

Assignment means transfer of ownership of property. (For basic information on invention ownership issues, see http://www.neifeld.com/introart3.html.)

A patent is a property right that has the attributes of personal property. Those attributes include the ability to be bought sold (assigned), and licensed. Like all property, its exclusive right can be enforced. Enforcement of any property right includes the right to sue in a court for (1) damages and (2) an injunction to stop unauthorized use of the property.

There are different kinds of patents, including utility patents, design patents, plant patents, utility models, architectural design rights, and circuit architecture rights. This paper will describe only the most commercially important, which are utility patents.

Utility patents provide a property right to things having an industrial utility, including products, and processes of making and using products. Under current U.S. law, products include computers programmed to perform a useful function, including, for example, a business accounting function, and methods of using include computers running such programs. European law currently does not allow patents on accounting functions, also referred to as business method patents. On the issue of business method patents, Japan’s law is currently somewhere in between that of the U.S. and Europe.

The exclusive right is defined by the claims and the disclosure of a patent. What the claims cover is called subject matter. That is, claims define or delimit “subject matter” to which the patentee has an exclusive right.

Unauthorized use of an intellectual property right is called infringement. Remedies for infringement typically include damages (money equivalent to the harm caused to the owner of the patent by the past infringement) and injunctions (a court order forcing the infringer to stop his infringing activity).

A specification is a written description, often including figures, of subject matter sought to be patented, such as an invention. I try to limit the use of the word “invention” in this paper because it is in many senses mis-descriptive of what a patent can protect.

A filing date is the date that a national or international patent office recognizes its receipt of an application filed in that office.

Prior art means knowledge generally known by other than the patent applicants prior to when the applicants made their discovery or invention. This is a generally applicable definition in the sense that there are several exceptions and fine points that vary from country to country. One major exception is that almost all countries other than the U.S. define the date of discovery or invention claimed in the patent application as the filing date of the application, not an earlier date when work leading to the discovery or invention was done.

III. Who Grants a Patent and Where is Each Patent Enforceable

Generally speaking, patent rights are granted by nations. Each patent is only enforceable in the nation in which it is granted. There are some international treaties that extend the one patent per nation concept. Europe, for example, has one agency, the European Patent Office, that grants European patents. There are a few other such regional patenting authorities, one for the states of the former Soviet Union, and one for certain states in Africa.

Currently, there is no international patent. That is, there is no single patent granted by any patenting authority that is legally enforceable everywhere. However, a world patent has been discussed for decades, and international organizations are making incremental progress towards such an international patenting system. Don’t hold your breath, though. Most people in the patent business expect no international patent in the near future. Also, see below regarding international treaties that ease the burden of obtaining a patent on one invention in many countries.

IV. How Long Are Patents Enforceable

Generally speaking, patent are enforceable for twenty years from when the application for the patent is filed. There are of course exceptions and variations from country to country and application to application.

V. What are the Core Conditions for Obtaining a Patent on Anything

A. The Substantive Requirements for Obtaining a Patent

The core requirements worldwide for obtaining a utility patent are (1) that the thing is useful and (2) that the thing is novel. There is a third requirement, which is referred to as either the “inventive step” or the “non-obviousness” requirement, which generally means that the thing being patented would not have been readily apparent or immediately obvious to someone working in that technology field. The U.S. applies the non-obviousness standard. Europe applies the “inventive step” standard. (The U.S. has imposed an additional requirement, called the “best mode” requirement, but that is a technicality not relevant to the purpose of this paper.)

B. The Procedural Requirements for Obtaining a Patent

The process of obtaining a patent includes the steps of preparing and filing an application for the thing to be patented, prosecuting the patent to issuance, and paying applicable government fees. While this sounds simple, it definitely is not. The preparation of a quality disclosure for a patent application is essential to the government eventually granting the patent and the resulting patent being legally enforceable and therefore accorded respect by potential business competitors.

Generally speaking, the specification must include a sufficient description to enable one of ordinary skill in the art to which it pertains to make and use the claimed subject matter in order for the application to result in a patent. This is generally true in all countries that issue utility patents. In addition, in the U.S., the specification must also disclose the best mode that the inventor had in mind for making and using the invention at the time of filing of the application.

Failing any of the substantive or procedural requirements can fatally flaw the attempt to obtain a patent.

VI. Treaties that Facilitate Obtaining Patents in More than One Country on the Same Thing

There are currently two mechanisms to facilitate extending patent protection on something to more than one country. They are the Paris Convention and the Patent Cooperation treaty.

A. The Paris Convention

The Paris Convention’s core feature is that it allows the filing of a patent application in a second country that is a member of the Convention to be accorded the filing date of an earlier filed application filed in a first country. That allows a patent applicant to file the application in one country, and then to have copies of the filed application sent to agents in other countries for filing there. The Paris Convention has a time limit of one year (for utility patents). That is, the subsequently filed applications in the other countries must be filed within 1 year of the first filed application in the first country, to be accorded the earlier filing date. This right is incredibly important because, in most countries, public disclosure of the subject matter of a patent application prior to filing the application is an absolute bar to obtaining a patent for that subject matter. The Paris Convention allows the applicant to file a single patent application in one country, and then publicly disclose and sell products and processes disclosed in the application without automatically losing the right to a similar patent in the other countries that are members of the Paris Convention. Almost all countries of industrial/commercial significance are members of the Paris Convention. The Paris Convention has been in existence since about 1900 CE.

B. The Patent Cooperation Treaty

The Patent Cooperation Treaty goes one step beyond the Paris Convention. The Patent Cooperation Treaty allows a patent applicant to legally effect filing in every country that is member to the PCT by filing a single application, a PCT application, in any country that is a member of the PCT. The PCT application, however, will not issue into an international patent. Instead, if the applicant decides to obtain a patent in a country from the PCT application, the applicant must still file and pay for the “national stage proceeding” of the PCT application in that country. The benefits of filing a PCT application instead of national stage applications are (1) the PCT application allows for a minimum of 30 months to file “national stage” application during which time the applicant has no substantial patent related costs, (2) the PCT application reduces the formalities and costs required in filing applications in multiple countries, and (3) the PCT application process can provide an initial indication (prior to the 30 month period just noted) regarding the likelihood that the subject matter of the application is patentable so that the applicant can make an informed financial decision regarding cost/benefit of paying for the national stage proceedings in any country. Almost all industrially significant countries are members of the PCT. There are still some exceptions, like Thailand. The PCT has been in existence since the 1970’s and it has been tremendously effective, with tens of thousands of PCT applications now filed annually.

The PCT incorporates the Paris Convention. What this means is that a PCT application can claim Paris Convention priority to an earlier patent application. Therefore, a patent applicant can, for example, first file an application for a U.S. patent. Then, the applicant can file a PCT application which legally has the U.S. patent application’s priority date because of the Paris Convention. Then, the applicant can enter the PCT national stage in selected countries, for example, selecting the United States, China, Japan, Europe, and Korea for PCT national stage proceedings, and not selecting (and thereby abandoning patent protection in) all other countries.

C. Other Treaties Facilitating Obtaining National Patents

Europe has the European Patent Convention. The former Soviet Union has the Eurasian Patent Convention. Some African national have the OAPI treaty.

The EPC allows a single application to issue into a single European patent. However, generally speaking, that European patent is currently not enforceable in any European country unless the granted patent has been translated and filed in the country’s national patent office within 3 months of the date of grant of the European patent. Hence, the substantial translation and national agent costs, and annuities costs, also exist for European countries. The other two treaties are currently of negligible importance.

VII. Costs and Cost/Benefit

No one can file a patent for an invention in all countries of the world. Anyone that thinks they can is fooling themself. Consider the following rough outline of costs. These costs estimates are ball park, and generally independent of country.

Initially, there is the cost of any determination whether to file a patent application (internal corporate patent committee review, patent prior art search and evaluation). Next, there is the cost of drafting a patent specification, claims, and figures. That currently ranges for typically patent applications from three to twenty thousand dollars, depending upon the importance of the invention, technological complication, budget, etc. Most of that cost is the cost of drafting the specification and claims, typical a few tens of hours of attorney time. There is the government cost of filing the application, which typically ranges between one and three thousand dollars. That is the cost to file a first application.

Consider now the cost to file Paris Convention or PCT national stage equivalents. This cost includes the foreign agent’s docketing and filing charges, typically one to two thousand dollars, and the foreign government’s filing fees, typically one to two thousand dollars. That is per country. If, however, the target country does not accept filings in the language in which the specification was originally drafted, then include the cost of a professional translator skilled in patent translations. That ranges from 0.20 to 0.40 cents per word. For a 50 page specification having 300 words per page at one and one half line spacing (15,000 words total), that will cost three to six thousand dollars. If you have a 100 page specification, double that value. If you have a 200 page specification, triple that value.

You have now considered the cost to get the application on file. Add to that the cost of complying with each government patent office’s formalities requirements, and responding to each government patent office’s examiner’s review and rejections or requirements, including both the foreign agent’s fees and the national agent’s fees.

Now add in each government’s charges for granting the application, the foreign agent’s charges for paying for the grant, typically about two thousand dollars, the costs for your national agent to handle those transactions, and then the foreign government annuities, the costs for the foreign agent to track and pay those fees, and the cost for your national agent to track report to you, and pass along your instructions. The foreign government annuities vary from country to country, the determination of the date on which they are due varies from country to country, and the fees typically increase from about one hundred dollars the first year to over a thousand dollars near the end of the 20 year patent term. The foreign agent’s fees depend upon the magnitude of the government fees but are never less than about one hundred dollars.

All of the foregoing assumes that no one challenges your patent application via an opposition proceeding or the like. Any proceeding involving more than just the patent application and the government will increase by tenfold the costs for that country, and impact the costs in the other countries as well.

Thus, to file for, obtain, and maintain a patent for something in all countries of the world would cost millions of dollars. Given those constraints, any patent applicant must make cost/benefit analyses to determine in whether and in which countries to seek patents. Moreover, the cost benefit analysis and timing of incurring costs in the patenting process are substantially influenced by the procedures (national, Paris, PCT, and EPC filings) used to obtain patent protection.

VIII. Further Information

This article has discussed some of the basics of patent law that every decision maker needs to know. Additional articles and resources on patent law and intellectual property can be found at www.neifeld.com.

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It’s amazing how much information is available on the process of patenting. Use any internet search engine available and you will get millions of hits for the word patent. The content of those hits is very diverse and sometimes misleading. Depending upon what you are looking for and the information given to you, it’s easy to wrongly bias your opinion of what it all means. Let me sight a specific instance I just read today.

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Patent Valuation from a Practical View Point, and Some Interesting Patent Value Statistics from the PatentValuePredictor Model - Rick Neifeld, Ph.D., Patent Attorney, and President of Neifeld IP Law, PC and StockPricePredictor.com, LLC (1)

I. Introduction

My colleague Grover Rutter (see his article in this edition) has presented an excellent review of how to treat patents from a financial and tax reporting standpoint. However, how do you determine the real value of a patent? That begs the question: What factors are relevant to the real value of a patent? You have to know what factors into a valuation before you can address the valuation issue. Let’s start with some definitions, and then address this issue. After that, lets look at the PatentValuePredictor model and some actual valuation data and trends provided by the model.

II. General Valuation Theories

Valuation is an accounting term which means a lump sum of money payable to receive the future benefits of an asset at a particular time. There are three generally accepted accounting theories for valuing assets: market, cost, and income. Market theory values an asset as the present value ascribed to similar assets in an active public market. Cost theory values an asset by the cost of replacing the asset. Income theory values an asset by the present worth of the net anticipated economic benefit of the asset. Can we apply any of these theories to value patents?

III. Valuation Theories as Applied to Patents

Market theory valuation of patents has little or no utility because no two patents are similar enough for the sales price of one to define the value of another. Of course, you can say that patent licensing and sale applies market theory to reach a market price. The problem is that most patents are not bought or sold in an arms length negotiation, and therefore do not have an objective sale price. Even when they are licensed or sold, the transaction is usually clouded by other factors including tech transfer or line of business transfer.

Cost theory is generally inapplicable since a patent cannot be replaced. That is, once the invention is generally known, it is no longer patentable.

Income theorym is applicable in certain circumstances. Patents have known finite terms. If you can determine the income resulting from ownership of a patent over that term, you can assign a value to the patent just like you can assign a value to a long term bond.

Conventional methods using income theory to value a patent analyze micro economic data to determine the anticipated economic benefit of owning the patent. This micro economic data includes market data indicating the gross sales and net income derived from the sale of products attributable to the patent, and any revenue derived from licensing the patent. Applying income theory to micro economic data to value a patent is labor intensive, costly, and complex. This method should include an analysis to determine the meaning of the claims of the patent, a comparison of products to the claims of the patent to determine what products are actually covered by the patent, a determination of the size of the market covered by the patent, and a determination of the cost advantage of the patented technology compared to alternative technologies for that market. A micro economic analysis can be used to prove damages in patent infringement litigation. However, a micro economic analysis of a patent is often cost prohibitive for purposes of business valuation, capital allocation, taxes, and licensing. Moreover, the data necessary for members of the public to perform micro economic analysis of patents is simply not available. This is because that data includes relationships between patents, product lines, product line specific costs and earnings information, and licensing royalty rates and terms. Companies rarely release that type of information to the public. Thus, micro economic analysis of patents is often not feasible.

IV. Problems With Generally Applying Income Theory

I hasten to point out that even income theory valuation based upon micro economic analysis has limited utility in most commercial settings, as opposed to its application in patent infringement litigation. Why? Because patents and products do not have a one to one relationship. They have a many-to-many relationship. As a result, you cannot simply evaluate the value of a patent once you know the financials relating to certain products that the patent covers. To illustrate this point, consider the following two hypothetical situations.

FIRST HYPOTHETICAL SITUATION - UNUSED PATENTS:

A company owns ten patents. The first patent covers a first product, and the company manufactures that product for a hefty profit. The second through tenth patents do not cover the first product, but each one covers some alternative potential product that, if produced, could effectively compete with the first product. No one produces anything covered by the second through tenth patent. Do you allocate all value to the first patent? Surely the other nine patents have actual value to the company! How do you allocate income attributable to sales of the first product to the ten patents in order to assign value to each one of the ten patents?

SECOND HYPOTHETICAL SITUATION - THE MANY-TO-MANY CONUNDRUM:

There are three competing products in a particular niche market and five relevant patents. Patents 1, 2 and 3 each cover the first product. Patents 1, 2, and 4 cover a second product. Patents 2 and 5 cover the third product. You also know of the existence of prior art that indicates a likelihood that some claims in patents 1 and 5 are invalid. As an additional complication, what if it was unclear whether certain of the products were in fact covered by certain ones of the five patents. That is, what if the issue of infringement was not cut and dried? Confusing? You bet! Even if you knew the sales and profit margins for the various products in the hypothetical situations just noted, there would be no simple or logical way to assign values to the various patents. This is all too often the reality when comparing patents and products: there exist many-to-many patent-to-product relationships of uncertain bounds.

What have I told you so far? I have told you that classical approaches to valuation are inadequate. It is time for a new approach.

V. The PatentValuePredictor Theory for Valuing Patents

Now let me tell you about the PatentValuePredictor model for valuing patents. First, you should know that this model is implemented as a web service, and it provides valuations for all U.S. patents and (a provisional valuation of) published U.S. patent applications in real time.

How does the PatentValuePredictor model work? The PatentValuePredictor model simplifies the valuation determination problem by reformulating the problem. It does not attempt to address the many-to-many relationship noted above, and it does not attempt to find and use micro economic data relevant to any particular technology niche. Instead, it substitutes for the foregoing many-to-many quandary and the (generally unavailable) microeconomic data an estimate of an annual sales covered by the patent. The model generates a nominal annual sales covered by the patent based solely upon measurable properties of the patent document and the value of the Gross Domestic Product (GDP). I won’t bore you with the details of the model in this article. You can those details of the model in my earlier article entitled “A Macro-Economic Model Providing Patent Based Company Financial Indicators and Automated Patent Valuations ” posted in the publications sections of both www.PatentValuePredictor.com and www.Neifeld.com. Suffice it to say here that there is a heuristic relationship between measurable properties of patent documents and patent value. For example, generally speaking, the broader the claim protection, the more valuable the patent.

I will tell you that there are good points and bad points about the PatentValuePredictor patent valuations. First, the valuations are clearly statistical in nature and therefore imperfect. However, there is no such thing as perfection in valuation. Moreover, there is as far as I know, no other completely objective and generally applicable method of valuing patents. Furthermore, the Web implementation of the PatentValuePredictor model provides immediate results, and it is far less expensive (currently $100 per patent valuation) than any other method of which I am aware. Finally, as the size of an evaluated patent portfolio grows, the PatentValuePredictor model’s portfolio valuation becomes statistically more accurate. See for example the corporate patent portfolio value charts in my earlier article “A Macro-Economic Model Providing Patent Valuation and Patent Based Company Financial Indicators” posted in the publications sections of both www.PatentValuePredictor.com and www.Neifeld.com.

Finally, there are some other interesting statistics I would like to share with you that relate to valuation of patents. These statistics are derived from the PatentValuePredictor model.

First, there are currently 1,726,307 enforceable patents. To determine actual dollar values, the PatentValuePredictor model currently assumes that the entire GDP is covered by patents. The current GDP is $11.252 trillion. Therefore, the PatentValuePredictor model indicates that each enforceable U.S. patent covers, on average, annual sales of about $6.5 million (that is, the GDP divided by the number of currently enforceable patents). However, profit is, generally speaking, only a small fraction of gross sales, and old patents near the end of their term have reduced value. That explains why the PatentValuePredictor model determines an average value of enforceable patents is only about $2.8 million. To get this result, we calculated the current valuation of each one of the 1,726,307 enforceable patents, and then calculated the average value.

The PatentValuePredictor model indicates that the bulk of the most valuable patents are and have for many years been in the Pharmaceutical or Biotechnology (Pharma/Bio) technology areas. The chart below shows the currently ten most valuable patents and their technology area.

TEN CURRENTLY MOST VALUABLE PATENTS (AS OF 3/11/2004)

Patent

Issued

Current Value ($)

Assignee

Technology

6,517,866 2/11/2003 1,797,722,689 Pfizer Inc. Pharma/Bio

6,500,987 12/31/2002 1,570,968,527 Teva Pharmaceutical Industries Ltd. Pharma/Bio

6,566,344 5/20/2003 1,481,848,538 Idenix Pharmaceuticals, Inc. Pharma/Bio

6,465,496 10/15/2002 1,408,931,126 Teva Pharmaceutical Industries, Ltd. Pharma/Bio

6,452,054 9/17/2002 1,220,308,695 Teva Pharmaceutical Industries, Ltd. Pharma/Bio

6,221,640 4/24/2001 1,194,927,644 Cubist Pharmaceuticals, Inc. Pharma/Bio

6,071,970 6/6/2000 1,107,999,343 NPS Pharmaceuticals, Inc. Pharma/Bio

6,319,919 11/20/2001 1,081,784,355 Davis; Bonnie (Syosset, NY) Pharma/Bio

5,610,034 3/11/1997 1,071,288,767 Alko Group Ltd. Pharma/Bio

6,022,716 2/8/2000 1,069,310,287 Genset SA Pharma/Bio

While the Pharma/Bio tech area has held the lead for most valuable patents, the relative value of the most valuable patents has been increasing for decades. The charts below show the ten most valuable patents issued respectively in 1983, 1993, and 2003, and a relative measure of their value. Note in the sequence of three charts below the trend of the relative value to increase over the decades.

TEN MOST VALUABLE PATENTS ISSUED IN 1983

Patent Issued Relative Value When Issued Assignee Technology

4,399,282 8/16/1983 1,343 Kabushiki Kaisha Yakult Honsha Pharma/Bio

4,375,514 3/1/1983 1,256 Schering, Aktiengesellschaft Pharma/Bio

4,372,948 2/8/1983 974 Kureha Kagaku Kogyo Kabushiki Kaisha Pharma/Bio

4,374,829 2/22/1983 661 Merck & Co., Inc. Pharma/Bio

4,396,617 8/2/1983 660 Duphar International B.V. Pharma/Bio

4,399,276 8/16/1983 605 Kabushiki Kaisha Yakult Honsha Pharma/Bio

4,369,189 1/18/1983 551 Union Carbide Corporation Pharma/Bio

4,410,537 10/18/1983 507 Burroughts Wellcome Co. Pharma/Bio

4,399,148 8/16/1983 499 Union Carbide Corporation Pharma/Bio

4,372,953 2/8/1983 490 Otsuka Pharmaceutical Company, Limited Pharma/Bio

TEN MOST VALUABLE PATENTS ISSUED IN 1993

Patent Issued Relative Value When Issued Assignee Technology

5,252,474 10/12/1993 1,696 Merck & Co., Inc. Pharma/Bio

5,256,558 10/26/1993 969 The Trustees of Rockefeller University Pharma/Bio

5,258,502 11/2/1993 868 Massachusetts Institute of Technology Pharma/Bio

5,268,273 12/7/1993 824 Phillips Petroleum Company Pharma/Bio

5,182,263 1/26/1993 823 Hoffmann-La Roche Inc. Pharma/Bio

5,187,241 2/16/1993 763 International Business Machines Corporation Pharma/Bio

5,262,568 11/16/1993 756 State of Oregon Pharma/Bio

5,198,563 3/30/1993 695 Phillips Petroleum Company Chem/Polymer

5,227,405 7/13/1993 690 Duke University Pharma/Bio

5,196,524 3/23/1993 679 Eli Lilly and Company Pharma/Bio

MOST VALUABLE PATENTS ISSUED IN 2003

Patent Issued Relative Value When Issued Assignee Technology

6,517,866 2/11/2003 3,374 Pfizer Inc. Pharma/Bio

6,566,344 5/20/2003 2,646 Idenix Pharmaceuticals, Inc. Pharma/Bio

6,602,861 8/5/2003 1,252 Research Corporation Technologies, Inc. Pharma/Bio

6,531,282 3/11/2003 1,225 Oligotrail, LLC Pharma/Bio

6,605,606 8/12/2003 1,109 Miravant Pharmaceuticals, Inc. Pharma/Bio

6,665,641 12/16/2003 884 ScanSoft, Inc. Software

6,602,503 8/5/2003 861 Biogen, Inc. Pharma/Bio

6,596,332 7/22/2003 841 Nestec S.A. Foods products

6,602,499 8/5/2003 824 The General Hospital Corporation Pharma/Bio

RE038073 4/8/2003 804 Research Corporations Technologies, Inc. Pharma/Bio

VI. Conclusion

Conventional valuation models are not generally applicable to patents. In addition, where they are applicable, they are labor intensive, and often require a series of assumptions. The PatentValuePredictor model is unconventional in the sense that it applies a modified version of income theory in which a nominal cash flow is determined based upon a macro economic model that applies heuristic rules. It has the benefits of being completely objective, applicable to all patents, inexpensive, and quick. Application of that model to the universe of U.S. patents indicates that the most valuable patents have generally been in the pharmaceutical and biotechnology technology area for the last three decades.

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The United States Patent and Trademark Office (USPTO) has systems in place to help the novice inventor. Anyone with a computer can search, compose, and file patent applications from the comfort of their home. Filing a patent has become an endeavor that anyone can attempt.

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A Supplemental Note on the Medical Practitioner’s Act

Bijel Dholakia sent in these questions via the PIUG Web Site Comments and Questions form:

1. What are some good patent search tips / techniques when searching for surgical processes or methods?

2. Are there any good training seminars / courses on how to search medical patents that you recommend? Who runs them?

Edward T. Mickelson, Ph.D., Patent Agent, replied stating in part “bearing in mind that such processes and methods are not patentable in Europe and are essentially meaningless in the US, as physicians are immune from infringement suits regarding surgical/medical processes and methods.”

Ed was referring to the Medical Practitioner’s Act codified at 35 USC 287(c)(4) (See the AIPA enacted in 1999). However, there are a LOT of twists to that statute. Medical practitioners licensed by a State or Territory of the U.S. are immune from liability of a patented method, as is their “related health care entity” such as the hospital in which they practice the patented method if they have a professional affiliation with the hospital.

However, amongst other things, that immunity from liability from patent infringement DOES NOT apply (1) to PATENTS issued from an application having an “effective filing date” prior to September 30, 1996 and (2) to ENTITIES engaged in “commercial development, manufacture, sale, importation,…” etc. where such ACTIVITIES are “directly related to commercial development, manufacture, sale, importation…” etc that are “regulated [by a variety of U.S. government agencies like the FDA].

What does this mean? Generally speaking, it means that old U.S. medical method patents are enforceable against physicians, and that all U.S. medical method patents are enforceable against manufacturers or regulated products. Generally, because there may be exceptions to the exceptions. Read 35 USC 287 in detail, and perhaps Gerry Mossinghoff’s article in the JPTOS on the subject. My understanding is that Gerry was central to the drafting of this provision.

For those interested, I discussed the AIPA, and the meaning of “effective filing date” prior to September 30, 1996 in my article on the AIPA, now posted at http://www.neifeld.com/advart4.html

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