31 Oct Patent essentials for business owners: from patent to profit
Over the past decade, the economy has been experiencing an accelerated shift in the importance of intangible assets, such as patents. A patent for a novel medical device, an internet-based business method or a “killer app” software tool to facilitate rational drug design in the pharmaceutical industry can form the basis for an entire business platform.
Today there are highly profitable companies whose assets consist almost exclusively of intellectual property, licensed to generate royalties at a marginal cost of production. Some established companies have discovered that licensing their portfolio of intellectual property assets can generate significant profits more easily than producing tangible goods and in some cases have modified their entire business strategy as a result.
These are only a few reasons as to why it is becoming increasingly important for corporate attorneys to have at least a fundamental understanding of patents.
In the United States, a patent is a property right granted by the U.S. Patent and Trademark Office to an inventor. Patents give the owner the right to exclude other parties from making, using, selling, offering to sell, or importing an invention to the United States. Typically, exclusive rights in the invention begin when the patent is granted by the USPTO and expire 20 years after the patent application was originally filed.
Not all inventions qualify for patents, but only those satisfying certain standards set out in law and applied by the courts. Inventions that can be patented include machines, manufactured products and materials, and processes. Every kind of applied technology which is useful can be patented, but scientific principles, laws of nature, inventions that are offensive to public morality and naturally occurring materials are generally not patentable unless isolated from their natural state and modified in some manner.
Types of patents
There are three different types of patents: utility, design and plant. Generally, the most common and best-known type of patent is a utility patent.
A utility patent may initially be filed as a “provisional” application, which is a less formal, quicker, and often less expensive method of securing a U.S. and international priority filing date for the invention. A provisional application gives the inventor the right to mark “Patent Pending” or “Patent Applied For” on products to warn competitors that a patent may soon be granted, but actual enforceable legal rights are not triggered until a patent is granted.
Alternatively, damages can begin to accrue as soon as the application is published on the USPTO database 18 months after the application is filed. Also, many companies find filing a provisional application useful because it gives them 12 months to delay the cost of filing a “non-provisional” or utility application, study the commercial market surrounding the invention, and secure financing.
A utility patent may be granted to anyone who invents or discovers any novel, useful, and nonobvious process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof. In the United States an invention is not new if it has already been invented by someone else, or if it has been made public more than one year before the patent application is filed. This one-year period in U.S. patent law is called the “grace period.”
This means that a company can be actively marketing and earning profits on an invention for an entire year and still file a U.S. patent application. However, most countries do not subscribe to the one-year grace period of U.S. law, which means that a foreign patent cannot be obtained if the invention was made public anywhere in the world even one day before the first patent application is filed.
In the United States, a utility patent has a term of 20 years from the date of filing, but in certain circumstances may be subject to term adjustments or extensions. A patent can prematurely expire if a patent owner fails to pay required maintenance fees.
Design patents cover the ornamental (non-functional) appearance for an article of manufacture. Design patents have a term of 14 years and are not extendible. A plant patent, which has a non-extendible term of 17 years, may be obtained by anyone who invents or discovers and asexually reproduces any distinct and new variety of plant.
Patent rights & searches
A patent does not give the owner the right to make or use anything, but does confer the right to bar others from making using or selling the invention. Once a patent has been granted, the patent gives value to the owner of the patent in a number of ways. For example, and most typically, a patent can also serve as a market defense mechanism to block others from entering or broadening their presence in a specific market.
Also, a patent can be bought, sold, assigned (patent assignments are recorded by the USPTO), licensed (for royalties or as litigation settlement tools), leased, transferred, or inherited. Patents can also often serve as collateral to a lender to secure a loan or line of credit. Though perfecting a security interest in a patent may be accomplished under the UCC, patent case law also advises recording the security interest in a patent with the USPTO. Another benefit of securing patents in a field can be to impress potential investors and facilitate venture capital investments in an emerging technology company.
If the patent is infringed, a patent owner may choose to enforce it in federal court where both damages and injunctive relief may be obtained. Better yet, if the infringing party is judged to have been willful in their infringing activities, the patent owner may be eligible for enhanced monetary damages, such as triple damages and attorneys’ fees.
This is why before entering into a new business, a company should conduct an infringement study to determine if the new venture is likely to infringe the patents of others. Even if a company owns a patent in a particular area, it does not give a company a guarantee or right to operate in that area. Freedom from patent infringement requires a thorough investigation to assess the likelihood of patent infringement and to reduce the risk that present and future business activities of a company will infringe patent rights of third parties.
It is important to use independent outside counsel to render a “competent opinion”, since such an opinion will bar a finding of willful infringement and avoid the risk of triple damages in the event of a patent infringement lawsuit.
For certain acts or activities performed in the United States, even if the use falls exactly within the “claim” of the patent, there are legal exemptions from patent infringement under a safe-harbor provision. Congress intended that activities reasonably related to developing and submitting information useful for obtaining FDA approval would no longer be patent infringement. However, once a drug or medical device is approved by the FDA, such activities could be considered infringing.
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Sara D Vinarov is an associate with Quarles & Brady LLP. She practices in the intellectual property group specializing in patents. She is a 2000 graduate of Marquette University Law School, where she served as lead articles editor of Marquette Intellectual Property Law Review.
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.