01/24/01

Introduction

1. Patents 
2. The Application Process
3. Protecting Your Patent

UNDERSTANDING THE COSTS AND BENEFITS OF PATENT PROTECTION

By Andrew J. Sherman, McDermott Will & Emery

Growing technology companies and netpreneurs in today’s services-driven economy are focusing on the protection and leveraging of their intangible assets in order to continue their development and succeed against their competition.  This means that they are devoting greater amounts of time and attention to building and protecting brands, customer relationships, goodwill, proprietary formulae, strategic alliances, cross-licensing and co-branding alliances, and other intangible assets.  Your ability to develop, recognize, protect and exploit these intangible assets is critical and business model or other types of patents may be an effective strategy. To do so, however, you first need to understand the costs and benefits of patent protection.

The term “intellectual property” is typically used to refer to the following kinds of intangible assets:

• Patents

• Trademarks and Brands

• Copyrights and Creative Works

• Customer Data Bases and Proprietary Information

• Trade Secrets and Confidential Information

• Trade Dress

• Know-How and Show-How

• Web Site Addresses and Designs (encompassing Trademark, Copyright and Trade Dress) 

PATENTS

           A patent grants the inventor the right to exclude others from making, using, selling or offering to sell the invention throughout the United States, or from importing the invention into the United States for a limited period of time. To obtain a patent, the inventor submits an application with the United States Patent and Trademark Office (known as the “USPTO”). The application must be submitted within one year of public use or publication of the invention. There are three categories of patents available:

1.         Utility patents, which are the most common, are issued to protect new, useful, non-obvious and adequately specified articles of manufacture, machine processes, compositions of matter, or any improvements thereto, for a period of 20 years from the filing date of the application.

2.         Design patents are issued to protect new, original, ornamental and non-obvious designs for articles of manufacture for a period of 14 years from the date the patent is granted.

3.         Plant patents, the least used, are issue to protect certain new varieties of plants that have been asexually reproduced for a term of 20 years from the filing date of the application.

Novel methods of business were deemed patentable in late 1997 by the United States Circuit Court for the Ninth Circuit. Ruling in the landmark case of State Street Bank v. Signature Financial Group, Inc., the court found that Signature’s patent for its “hub and spoke” mutual fund management process was valid. With the increased popularity of the Internet, many ways of doing business in cyberspace are being viewed as novel and patentable.  Perhaps the best known Internet-related business model patents recently issued are for Priceline.com’s reverse auction method and Amazon.com’s “one-click” purchase feature.  Both of these patent owners are aggressively trying to enforce their patents -- Priceline.com by challenging a similar service offered by Microsoft; and Amazon.com by challenging Barnesandnoble.com’s Express Lane online purchasing feature.  With the onslaught of these business model patents, if your business model is dependent on e-commerce, you must consider the viability of a business model patent.  These issues include not only the patentability of your business model, but the possibility that it may infringe on someone else’s patent.

The patent application and registration process can last from two to five years and can be very costly.  Because of this, before attempting to obtain a patent, you should conduct a cost-benefit analysis to determine if the benefits of being able to exclude others from making, using or selling the invention outweigh the significant costs of prosecuting and protecting the patent.  As part of this analysis, you should consider:

1.          the projected commercial value of the invention;

2.         out-of-pocket expenses to obtain the patent, including legal fees, advertising, marketing and re-tooling costs;

3.         the invention’s proximity to existing patented and non-patented technology (from an infringement and a commercial development perspective);

4.         the ability to exploit the invention during the timeframe of exclusivity granted by a patent;

5.         the market value of the invention two to five years down the road, after completion of the patent application process; and

6.         the availability of adequate alternatives for protecting the invention, such as state trade secret laws.

If you decide to pursue a patent, before retaining a patent attorney, make sure that you compile and maintain careful records relating to the research and testing of the invention. The records should contain key dates, including the date the invention was conceived and the date it was reduced to practice (meaning, the date the invention is well beyond the conceptual stage, and has either actually been developed and tested, or is so clearly described in the application that a third party skilled in the particular art could understand and actually develop the technology). The records should also demonstrate your diligence in developing and testing the invention. Make sure the records contain the corroboration of independent witnesses who are capable of understanding the nature and scope of the invention and who will verify the dates mentioned above.

Once filed, a patent examiner at the USPTO will review the application to determine the patentability of the invention.  As part of this review, the examiner will determine whether or not you have met the following statutory requirements:

• The invention consists of patentable subject matter (i.e., a process, machine, composition of matter or article of manufacture, or a new and useful improvements to one of these);
  

• You are the original inventor or discoverer of the subject matter described in the patent application;
  

• The subject matter is new or novel (i.e., it is not already known to or used by others, has not been previously described in a printed publication and is not merely a new use of an existing product);
  

• The subject matter is useful and not merely of scientific or philosophical interest; and
  

• The subject matter is non-obvious to others in that particular trade or industry, as determined in the broad discretion of the USPTO examiner (i.e., the differences between the subject matter of the application and the current body of knowledge of those skilled in that area are more than marginal).

Protecting Your Patent

In order to preserve your rights, and continue to protect your interests, it is imperative that you institute an aggressive patent protection program once you obtain your patent.  While the costs of such a program may be high, especially if you undertake any patent litigation, the  rewards will be worthwhile. Should you successfully pursue an infringer, you may be entitled to an award of damages (which may be tripled by the court in extraordinary cases), as well as equitable relief, such as an injunction or accounting for profits.

Your patent protection program should include:

1. The use of proper notices of the existence of the patent on all
   labeling and marketing of the invention;
   

2. Ongoing monitoring of new industry developments;
   

3. Policing (and limiting) the activities of employees, licensees and others who come into contact with the subject matter of the patent;
   

4.   Exploiting and saturating the market created by the patented product; and
   

5. Pursuing known or suspected infringers of the patent.