Patent Prosecution Strategy 2014

byj DLA Piper

Transcript

1. WEST\20866958.6 PATENT PROSECUTION STRATEGY 2014 This memorandum summarizes the significant legal considerations in formulating a national and global patent prosecution strategy for investors in technology startups. A patent strategy has become an essential part of the business strategy for most technology startups: patents add value to startups for potential purchasers as well as a potential defense for third party claims of patent infringement. The ability of a startup to offer to cross license its patent portfolio to a third party which has claimed that the startup is infringing its patent can dramatically reduce any payments or even eliminate them. IBM regularly earns over $1.5 billion annually through the licensing of its patent portfolio. Frequently, the sole asset for a bankrupt startup is its patent portfolio: Sun purchased VPL Labs’ patents for $4,000,000 in its bankruptcy. In 2010, Novell sold its patent portfolio of 882 patents for $450,000,000 to a consortium of companies led by Microsoft and in 2011, Nortel sold its patents for $4.5 billion dollars to a consortium. The purchaser of Friendster, the social media startup, sold its eighteen patents to Facebook for $40,000,000. Twitter recently purchased 900 patents from IBM for a reported price of $36 million to settle a dispute. In considering a patent strategy, startups need to consider the value of patents to protect their products as well as the potential for patents of third parties to block their ability to develop and sell their products. Although patents are important in all industries, they are critical to drug companies and many other life science companies because of the long period of development and long period of sales. In fact, investors in life science companies generally require a patent study prior to investing to ensure that the startup is not blocked by existing patents. Some sophisticated IT investors are also having limited patent searches done prior to investing to ensure that a startup in which they are interested in investing is not blocked by patents owned by their competitors. If the startup already has patents, many investors will have them reviewed to determine their scope and enforceability. Although this memorandum cannot be exhaustive, it provides the basic principles based on our experience that are essential for a startup’s management and corporate investors to consider in developing and implementing a patent strategy. This memorandum provides general advice and may not cover a particular situation (see further information in the disclaimer at the end of the memorandum). We have discussed how to develop and implement a more comprehensive intellectual property strategy, including patents, in a companion memorandum. Patent Fundamentals The protection afforded by a patent is different from that provided by a copyright or a trademark. Copyrights protect “works of authorship” such as movies, software and books. The scope of protection is limited to the manner in which an idea is expressed, not the idea itself. Consequently, different companies can implement an “idea” such as a multi-threaded operating system in a variety of ways without infringing the copyrights of other companies. Trademarks protect marks or symbols that indicate the source or origin of goods or services. They protect against “confusingly similar” trademarks used on similar goods or services: for example, Apple Computer was able to require Apple Soup (a peer to peer networking company) to change its name. Patents in the United States protect “anything under the sun that is made by man and that provides a useful, concrete and tangible result.” Patents cover new and useful processes, machines, manufactures or compositions of matter. Conversely, patents cannot protect certain
2. - 2 - WEST\20866958.6 types of innovations: laws of nature; mental processes; or mathematical algorithms. Patent law requires that an invention be “useful”, “novel“ and “non-obvious”. The usefulness requirement is generally easy to meet: the invention must have some utility; achieve some objective; and is not against public policy. An invention is “novel” when it is new, i.e. different from the “prior art.” Finally an invention must be non-obvious; i.e. the subject matter as a whole would not have been obvious at the time to a person of ordinary skill in the art. The criteria of novelty and non- obviousness are more difficult to fulfill. The patent grant is a negative right – a right to exclude. A patent does not provide a right to practice the patented invention – it is not a right to make a product or provide a service. This distinction is important because a single product may be covered by more than one patent owned by different parties. For example, a semiconductor may be covered by thousands of patents owned by different parties. A patent is only enforceable once issued; patent applications do not provide any legal rights, but there are provisional rights conferred based upon the publication of an application with claims that ultimately issue. A United States patent affords its owner five (5) “negative” rights – the right to exclude others from making, using, selling, offering for sale, or importing the patented invention in the United States – for a limited period of twenty (20) years from the patent’s earliest filing date. Under certain limited conditions, this term can be extended. United States and Foreign Patent Systems – Generally Patent rights must be acquired on a country by country basis. These rights vary from country to country, and do not extend beyond a country’s territorial boundaries. In the United States, the United States Patent and Trademark Office (“PTO”) in Washington D.C. examines United States patent applications and issues United States patents. Unlike copyrights and certain trademark rights, the process of obtaining a patent in the United States is an adversarial proceeding in which the applicant must persuade the PTO that his application meets the criteria of the law (the patent law in the United States changed very substantially on March 1, 2013 and this memorandum does not deal with the differences for patents filed prior to that date; if you have questions about such issues, please contact us). A startup may file individual applications in each country. However, most companies take advantage of a treaty that permits a global patent application filing process, the Patent Cooperation Treaty (PCT) application, which works in most major countries. The World Intellectual Property Organization (WIPO) administers the PCT filing process, but each PCT application must eventually be prosecuted in an individual country to obtain issuance of a patent. Therefore, a PCT application is not an international patent application and in fact there is no such thing as an international patent application. In addition, several regions have their own patent conventions that permit issuance of patents with regional effect. The most important of these regional patent conventions for technology startups is the European Patent Convention administered by the European Patent Office (EPO) and through which a European Patent is issued which is effective in all of the countries to which the startup chooses to extend it (the European Patent is described in more detail below). The states of the EPO are: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hellenic Republic, Hungary, Ireland, Italy, Liechtenstein, Luxembourg, Monaco, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, and the United Kingdom. The United States patent system has two major differences from the patent system in virtually all other countries: (1) the United States permits the filing of a patent application within
3. - 3 - WEST\20866958.6 one year after an invention’s public disclosure only if the public disclosure was made by an inventor or another who obtained the disclosure material directly or indirectly from an inventor and (2) a patent application in the United States is kept secret during its prosecution and will only be published prior to issuance of the patent if the application is filed in foreign jurisdictions or the patentee elects to allow the patent application to be published . Most countries require that a patent application be filed prior to the first public disclosure of the invention: this rule is often referred to as “absolute novelty” requirement. In contrast, United States law provides a one (1) year grace period for the first public disclosure of the invention if that public disclosure was made by an inventor or another who obtained the disclosure material directly or indirectly from an inventor. Thus, the deadline for filing of a patent application for a startup will depend on whether the startup wishes to obtain patent protection outside of the United States. If the patent application is filed after the invention is publicly disclosed, the startup may only be able to obtain patent protection in the United States. Consequently, a startup must carefully consider this issue when it publicly discloses its product, either by sale or attendance at a trade show or by articles in trade publications or professional journals. A second major difference is that United States patent applications that are not filed in foreign jurisdictions may be kept secret within the PTO until a patent issues if the patent owner files a request for non-publication when the patent application is filed. If the patent owner does not file the request for non-publication when the patent application is filed, the patent application will be published. On the other hand, if the patent owner is going to foreign file the idea that is subject to the US patent application, the original patent application will be published for the public to view, typically within about eighteen (18) months of its earliest filing date. However, as a practical matter, the patent application at the time of such disclosure of the original patent application is likely to be quite different from the patent that may eventually issue due to amendments demanded by the PTO during the prosecution process. Most foreign countries do not make this distinction and publish all applications, both foreign and domestic, about 18 months after the earliest filing date. Patent Application Process The patent application process is long, complex, and expensive. The two principal stages of the process are (1) the preparation/filing of the application and (2) the examination of the application by the responsible patent office. The application preparation stage entails identifying novel and unobvious features of an invention, and then preparing a patent application (this paragraph will describe the process in the United States). The patent application will include a written description describing those features, a set of drawings illustrating those features, and a set of claims defining the boundaries of the protection that is sought. The written description must provide enough detail to enable a person “skilled in the art” to practice the claimed invention, in the best mode known at the time, without having to perform undue experimentation to do so. These requirements are all legal “terms of art” that are the subject of many judicial decisions. During the second stage, examination, a patent examiner at the PTO will review the patent application for compliance with the written description, enablement, and best mode requirements. The patent examiner also determines whether the claims cover subject matter that can be patented, and whether the claims define an invention that is novel, and non-obvious over prior art found by the patent examiner, and/or cited by the applicant. The patent examination stage is an adversarial process that often involves substantial give and take between the startup and the patent examiner. During this period, claims may be amended or the prior art may be characterized and
4. - 4 - WEST\20866958.6 differentiated to delineate a claimed invention which is novel and non-obvious over the prior art. A notorious example of an issued patent running afoul of the requirements of novelty and non-obviousness is Amazon.com v. Barnesandnoble.com, 239 F.3d 1343 (Fed.Cir. 2001). Amazon.com succeeded in obtaining a preliminary injunction in US District Court against barnesandnoble.com on its “single-click” patent, U.S. Pat. No. 5,960,411, only to be rebuffed by the Court of Appeals for the Federal Circuit, which unlike the District Court considered the lack of novelty and obviousness challenge mounted by Barnesandnoble.com to represent “a serious challenge to the validity of Amazon’s patent.” The appeals court vacated the injunction and sent the case to the district court for a full examination of the validity of the patent claims and the parties settled the case. Depending on the field and the invention, this examination process will vary in its length, complexity and cost. For example, patents in the bicycle field are very difficult to obtain because of the numerous prior patents. The prosecution of foreign patent applications generally entails a similar process, and also requires a translation into the official language of the relevant patent office. This combination of prosecution and translation in multiple countries can be very expensive and a startup needs to select the countries in which it is seeking protection carefully. We describe below how to defer some of these decisions to manage the expenses more effectively. Patent Application Timing Considerations The two most critical decisions in the timing of a patent filing strategy are (1) when to file a complete (as opposed to a provisional) application and (2) when and where to file in foreign countries. These decisions are based on when the startup will need protection in a jurisdiction because a patent is only enforceable after it is issued. For most companies, however, these decisions will be driven by the strategy of deferring costs until the value of the patent to the startup can be confirmed. The “absolute novelty” requirement for patent applications outside of the United States means that such foreign-filed applications must be able to claim an “effective filing date” which occurs before the invention being patented was publicly disclosed anywhere in the world. One technique for securing such a filing date is to file applications in each country before a public disclosure occurs. However this approach requires that foreign applications must be filed prior to disclosure and represents very significant up-front costs in the many tens of thousands of dollars. The more common strategy for startups seeking foreign patent protection is to file one of three types of application in the “home” country (we are assuming that the startup is located in the United States) before a public disclosure occurs: (1) a provisional United States patent application (the filing of a United States provisional patent application should be viewed as a “reservation” holding a particular “filing date” but that filing date will be lost unless a more formal “regular” application is filed within one year), (2) a non-provisional (“regular”) United States patent application, or (3) a Patent Cooperation Treaty (PCT) application (naming the United States) (“PCT Based US Application”). After the decision is made on how to file in the United States, the next decision is where and when to file in foreign countries. The startup has three choices: (1) file in individual countries such as Germany and France (2) file a regional application for protection in the countries in that region such as under the European Patent Convention (see below) or (3) file a PCT application which permits an “extension” to multiple countries with the ability to either file immediately in such countries or to defer the decision to file in such countries (we refer to such foreign applications using the PCT as a PCT Foreign
5. - 5 - WEST\20866958.6 Application). These strategies can be combined, such as filing an individual application in France and Germany, but delaying the decisions about filing in other countries by filing a PCT application. Currently, if only United States patent protection is desired, a patent application must be filed in the United States within one year of a disclosure that meets the requirement described above. If the startup wishes to secure patent protection in the United States and foreign countries, the choices are as follows: (1) If the startup first files a US provisional application in the United States, US patent law requires that a regular patent application be filed in the United States and foreign applications filed within one year in order to claim the benefit of the filing date of the provisional application. For foreign applications, the startup can (1) file applications in individual countries (2) file a regional application or (3) file a PCT application and defer for most major countries the decision in which countries to file for an additional 18 months. The advantage of this approach is that (1) it defers the cost of filing regular US patent application for up to a year for the startup to determine if the invention covered in the patent will be useful to its business and (2) the startup can ensure that the application does not get published prior to issuance if it elects non-publication and does not file in foreign jurisdictions. The disadvantages are that (1) it delays the examination of the patent so it will issue later than filing a regular US patent application for the same invention and (2) the patent that issues may be less strong because the inventors have not fully explored the scope of the invention in filing the more summary US provisional patent application and a third party can challenge the priority claim between the provisional patent application and utility patent application.
6. - 6 - WEST\20866958.6 (2) On the other hand, the startup may file a regular US patent application. The Paris Convention permits the startup to delay up to a year in determining its international filing strategy. Within that one year period, the startup can (1) file applications in individual countries (2) file a regional application or (3) file a PCT application and defer the decision in which countries to file for up to an additional 18 months. The advantage of this approach is that (1) it defers the cost of filing foreign applications up to 30 months under the PCT (2) the U.S. application will be examined immediately so it will issue sooner than a US regular patent application based on a US provisional patent application; and (3) the startup can ensure that the application does not get published prior to issuance if it elects non-publication and does not file in foreign jurisdictions. The disadvantages are that the cost of filing the regular US patent application is incurred immediately.
7. - 7 - WEST\20866958.6 (3) A PCT Based US Application is similar to a regular US patent application because it is a complete application. Unlike a regular US patent application, the startup must determine at the time of filing which foreign countries it wishes to “reserve” for extensions under the PCT. All filings will be through the PCT, rather than individual filings in countries or regional applications. A few countries, such as Taiwan, are not members of the PCT and startups seeking protection in Taiwan and such countries must employ a separate strategy. The disadvantages of this approach are that (1) the cost of filing the PCT application is incurred immediately ; (2) the application will be published eighteen months after filing unless it is abandoned; and (3) the high costs of the individual country filings will have to be paid more quickly. This approach is used frequently in the life sciences.
8. - 8 - WEST\20866958.6 Another strategy for reducing and delaying costs in obtaining patent rights in Europe is available through the European Patent Convention. The European Patent Office administers a regional patent agreement for obtaining patents through a single “European patent application” that can be extended (“nationalized”) and enforced in European states that are members of the European Patent Convention. Most major countries in Europe are members of the European convention. A single examination of an application is conducted by the European Patent Office in a selected language (which can be English). Once a patentable invention is defined by the claims, a European Patent is granted and is subjected to a public opposition period. If claims survive this opposition period, the European Patent is granted and can be “nationalized” to provide patent rights in each member country designated earlier in the application. The European patent application has several advantages: (1) spreading of examination costs over a larger number of countries (compared to pursuing applications in several countries simultaneously), (2) an examination conducted in English involving a single foreign patent law firm, and (3) a rigorous examination which theoretically produces a stronger patent. Summary of Patent Prosecution Strategy In summary, the management of a startup should: (1) Have a process for identifying potentially patentable inventions. The decision should take into account the tradeoff between patent and trade secret protection. The startup should focus on “chokepoint” inventions which can control versions of the product made by another company. The strategy could include patenting both the product and the method of manufacture. The startup should have experienced counsel review the patent portfolios of its competitors to determine which of the startup’s inventions are most valuable to protect. The
9. - 9 - WEST\20866958.6 strategy should take into account the patents filed by competitors in order to be able to respond to potential challenges by such competitors. (2) Provide a method for deciding the countries in which the invention will be protected based on its importance, cost and the availability of protection under local law. (3) Ensure that the decisions regarding protection of inventions are made prior to public disclosure. (4) Include the option of a decision to disclose some inventions so a third party cannot patent it. Many large companies such as IBM have a substantial publication strategy but startups can also benefit from this approach. (5) Address how to participate in standard bodies if the product or services will be based on standards. (6) Implement a regular review of patent applications and patents to ensure that the patent strategy remains consistent with the startup’s business strategy. The strategy must take into account that the two of the most expensive parts of the process are the preparation of a “regular” United States patent application and the filing and prosecution of patents in multiple foreign countries. If the startup desires to secure patent rights only in the United States, a United States patent application must be filed with one year of the first offer for sale, sale, public use, publication or other public disclosure of the invention. If a startup desires to secure patent rights in the United States and foreign countries, the startup should consider how to delay the most expensive parts of the application by filing a United States provisional or regular patent application or PCT Based US Application before the invention is publicly disclosed. A PCT Foreign Application can be used to obtain a further delay of the costs of filing foreign applications. If protection is desired in Europe, the startup should consider using the single filing option of the European Patent Application. Disclaimer: This memorandum provides general information about this topic and may not cover your particular situation. We recommend that you consult with counsel for analysis of a particular situation. The law changes over time and this memorandum reflects the law as of January 1, 2014. If you are interested in more information on this topic, please contact Mark Radcliffe of DLA Piper LLP (US) at 650-833-2266 or mark.radcliffe@dlapiper.com.