Month: March 2019

The “Patent Death Squad” Rises in Power After Pivotal SCOTUS Holding

By: Sarah-Julie Woumgnoa Tchokouani

Intellectual property law gives creators exclusive rights to exclude others from taking  newly  created  information without permission or from marketing competing embodiments of the new information. Although every area of IP protections are important, I am going to focus on patent law protection. Patent law provides a right to the inventor to exclude others from making, selling, offering to sell, or importing a patented invention. Compared to other areas of intellectual property the duration of patent protection seems to be relatively short, however, 20 years is a lot of time to make an astronomical profit from your invention.

Five important points you should remember about patent protection

  1. Discoveries and unstructured ideas cannot be patented
    • If one discovers something, it is not patentable because he/she did not create it; patent law does not give protection to discoveries. Patent law also does not give protection to unstructured ideas; the inventor must bring that idea to life through a detailed drawing, description, or prototype.
  2. Patent protection is not universal
    • Each country governs how patents are handled in their respective country; no country can issue a patent that will be enforced globally
  3. First to file the patent wins
    • If there are several people filing for the same patent, whoever files first receives the patent; it does not matter who actually created the invention first.
  4. Patents are very expensive
    • In addition to the application fee itself, there are a lot of costs associated with pre-filing responsibilities such as attorney fees.
  5. Patents can take a long time to be granted
    • Patience is a virtue, especially when applying for a patent. On average it takes about three years from the date you file to be granted a patent.

THE BIRTH OF INTER PARTES REVIEW

In 2012, Congress passed the Leahy-Smith America Invents Act (AIA). In addition to several other provisions in the Act, the AIA gave the United States Patent and Trademark Office (USPTO) the authority to determine the validity of patents after it has already been granted through a process called inter partes review (IPR). Through the IPR process, Congress was seeking to minimize the time and costs associated with dealing with patent infringement cases. Prior to the enactment of the AIA, a defendant being sued for patent infringement could request for the USPTO to complete a full re-examination of the validity of the patent at issue or the defendant could challenge the patent through a jury trial within the Circuit Court system. However, because of the IPR process, a defendant can now seek to invalidate a patent based on published prior art by filing a petition with the USPTO. The plaintiff may then file a response. The Patent Trial and Appeal Board (PTAB) reviews the documents and if it determines there is a reasonable challenge, it will hold a trial hearing. Subsequently, the PTAB will either rule that the plaintiff’s patent is valid or invalid.

Since the enactment of the AIA, the IPR process has come under heavy criticism from participants of the patent world, ranging from patent attorneys, to independent inventors, to pharmaceutical firms. Unfortunately for the underdogs in the business world, the IPR process has become another tool for big companies to bully smaller businesses and get their patents canceled. In the year of 2017, about 75% of IPRs resulted in the PTAB canceling inventors’ patent protection. Hence, the PTAB perpetuating its notorious nickname of the “patent death squad”.

THE PTAB GIVETH AND THE PTAB TAKETH AWAY 

In a highly anticipated case, Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, SCOTUS issued its 7-2 decision in which it addressed two separate constitutional challenges to the IPR process.

  1. Whether IPR violates Article III of the Constitution (separation of powers) because it allows an administrative agency, not Article III courts, to cancel a previously granted patent owner’s rights.
  2. Whether IPR violates the Seventh Amendment (right to a jury trial) because it allows administrative judges, not juries, to adjudicate the validity of a patent.

The majority opinion answered “no” to both issues. In regard to the Article III challenge, the majority found that IPRs “fall squarely within the public-rights doctrine.” Accordingly, Congress has the authority to give the USPTO the power to validate or invalidate patents. The majority reasoned that patents are “public franchises” and that the IPR process addresses the same basic matter as the initial grant of the patent. The majority further explained that patent claims are granted subject to the qualification that they may be reexamined and canceled by the USPTO if it determines the patent was erroneously granted.

In regard to the Seventh Amendment challenge, the majority simply stated that it was resolved by the majority’s rejection of Oil States’ Article III challenge because “when Congress properly assigns a matter to adjudication in a non-Article III tribunal, the Seventh Amendment poses no independent bar to the adjudication of that action by a nonjury fact-finder.”

Luckily for inventors, although the line is pretty faint there is a silver lining in the Oil States case. The majority opinion emphasized that its holding was limited only to the two questions of the constitutionality of IPRs that were raised by the plaintiff. SCOTUS also pointed out that the holding should not be misconstrued to suggest that other constitutional challenges could not be made, such as whether the IPR process violates the Due Process Clause.

POSSIBLE EFFECTS OF OIL STATES ON INVENTORS’ PATENT RIGHTS

Although it is too early to see the implications of Oil States, there are a few foreseeable effects that inventors and smaller businesses should be cautious of:

  • An increase of IPR filings by big companies
  • Armies of lobbyists and lawyers that will influence politically accountable bureaucracies such as who sits on the PTAB panel
  • Patent trolls who use patent laws to bring frivolous claims against the validity of your patent. A patent troll can be an individual, company, or even a troll doll!

*This post was authored February 6, 2019 and is posted with Ms. Tchokouani’s permission.  The original post can be found here.

Sarah-Julie is a third year student at Penn State Dickinson Law from Prince George’s County, MD. Having taken several business/corporate law related courses throughout law school in pursuit of a certificate in entrepreneurship law, she hopes to continue to cultivate her knowledge of business/corporate law and gain practical skills to best serve her future clients. She is also a proud alumna of THE Ohio State University.

Sources:

https://www.uspto.gov/patents-application-process/appealing-patent-decisions/trials/inter-partes-review

https://www.fr.com/news/update-implications-of-oil-states-sas-institute-inc/

http://www.ipwatchdog.com/2018/04/24/supreme-court-issues-much-anticipated-oil-states-sas-decisions/id=96302/

https://www.finnegan.com/en/insights/a-practical-guide-to-the-supreme-courts-oil-states-decision.html

https://www.law360.com/articles/1123510/patents-aren-t-property-judge-says-in-axing-100m-aia-suit

https://www.ipwatchdog.com/2018/11/27/constitutional-separation-powers-patents-invention/id=103751/

https://en.wikipedia.org/wiki/Oil_States_Energy_Services,_LLC_v._Greene%27s_Energy_Group,_LLC

https://www.patentdocs.org/2018/04/oil-states-energy-services-llc-v-greenes-energy-group-llc-2018.html

https://www.post-gazette.com/news/politics-nation/2018/04/24/The-patent-death-squad-system-is-upheld-by-the-U-S-Supreme-Court/stories/201804240192

Be Sure Your ‘Cannabusiness’ Avoids this Tax Pitfall

By: Gio Brackbill

Marijuana remains illegal under federal law. Despite this, eleven states fully legalized it, including for recreational use. Fifteen states chose to keep it illegal. The remaining twenty-four fall in between, some which have begun decriminalizing it and others partially legalizing it for medicinal use. As marijuana gains broader legal status each year, cannabis entrepreneurs have jumped at the chance to enter the market and capitalize on the new opportunities that the industry brings. Regardless of its legality, the IRS still expects cannabusinesses to pay federal taxes on all of their revenue. But under Section 280E, cannabis entrepreneurs are not entitled to the same benefits when writing-off business expenses as other companies that are unrestricted by Section 280E.

Section 280E Tax Provisions and Cannabis Entrepreneurs

Congress enacted Section 280E of the tax code in 1982. It applies to expenditures in connection with the illegal sale of drugs. Even if a cannabis company is given legalization by the state, cannabis is still a controlled substance under federal law. Businesses that fall under this category cannot claim deductions, except for the cost of goods sold. This means that cannabis entrepreneurs need to be conscious of the law and take steps to prevent this accounting nightmare before tax season rolls around.

How to Claim Federal Deductions with the Two-Business Strategy

Smart accounting can help cannabis companies to comply with the law while also claiming their deductions. The business structuring strategy that has been upheld in federal court in the case C​HAMP v. Commissioner allows companies to maximize deductions by dividing the business according to 1) activities that are unrestricted under federal tax law and 2) activities, such as producing and distributing a controlled substance, that are not deductible under the law. Essentially, dividing the business accounts creates a loophole and allows the legal side of the business to claim deductions that would not be allowed if the activities were all under one entity.

The Short End of the Stick for Cannabusinesses

Cannabis companies that do not follow the two-business structure may face detrimental consequences as a result of the 1980’s tax code while predates the legalize marijuana reform that is sweeping the nation. Without the ability to deduct business expenses, many companies will operate at a loss and be forced to close their doors before they ever have a fighting chance to get off the ground.

Some states with legalized marijuana are approaching the issue by passing legislation to make it easier for entrepreneurs in this industry to deduct full business expenses. However, this creates complications for companies that want to take advantage of the state laws. While a marijuana company may benefit from the state law, unfortunately they are soon to face the federal barricade head on. The IRS responded to states with a ​memo clarifying that when there is conflict between state and federal law, they must follow the federal law. Hence, cannabusinesses that do not separate their legal and illegal activities are doomed to face the unforgiving federal tax code.

See the case below for an example of a worst case scenario that can befall a cannabis company facing the tax courts for a Section 280E violation.

In C​anna Care v. Commissioner,​ the court held that all of the cannabis company’s arguments for why they should be allowed deductions were irrelevant, moot or meritless. Canna Care failed to use the two business strategy, therefore they were considered to be trafficking a controlled substance for the purposes of Section 280E and effectively not entitled to any business deductions other than the cost of goods sold. Let this case be an example to other cannabis companies on how not to structure their business if they want to deduct normal business expenses.

Consider Yourself Warned, Cannabis Entrepreneurs

Take it from Senior Partner at Cannabis Practice Group, Jonathan Barlow. He regularly advocates the importance of compliance at the state and federal level to entrepreneurs who are interested in entering the industry. While the startup costs are high, compliance is an absolute must because you can not escape the regulatory tax or legal requirements. You must be strict with auditing and keeping up with the rules. “Otherwise, don’t go into this business,” Barlow advises.

The last thing you want for your cannabis startup is to be forced to pay penalties and the back taxes on business deductions that were not allowed under Section 280E.

*This post was authored February 5, 2019 and is posted with Ms. Brackbill’s permission.  The original post can be found here.

Gio is a second year law student at the Dickinson School of Law. She is passionate about fighting for global access to justice and she is actively involved as the treasurer of the Latinx Law Student Association, coordinator for the Bethesda Mission Legal Intake Clinic, and member of the Public Interest Law Fund auction committee. She is co-owner of a wedding photography company based out of Lancaster, PA.

Sources:

  1. https://www.irs.gov/pub/irs-wd/201504011.pdf
  2. https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=10586 
  3. https://disa.com/map-ofmarijuana-legality-by-state
  4. https://marijuanaretailreport.com/irs-code-section-280e-means-cannabusinesses/
  5. https://www.forbes.com/sites/theyec/2018/07/24/what-cannabis-entrepreneurs-should-know-about-tax-section-280e/#4f7727937377
  6. https://www.forbes.com/sites/meimeifox/2018/04/20/two-cannabis-entrepreneurs-share-their-secrets-for-success/#3e40293e4fbd
  7. https://theaccountingpath.org/accounting-careers-marijuana-industry-exploring-cannabusiness/

Art-repreneurs: The Business Side of Selling Art

By: Marisa Halm

(http://clipart-library.com/clipart/di4oMLABT.htm)

One of the most rewarding parts of being a solo artist is selling your first piece to people who love it just as much as you do. However, before you make that first sale you should take the time to consider that your art will be your business. You will have a spectrum of issues to address—profits to account for, taxes to consider, etc.— and may become more involved with entrepreneurship than originally anticipated. Congratulations! You have grown from a solo artist into an art-repreneur.

An art-repreneur is an artist who creates and sells art from within their own business entity. As an art-repreneur, it is important to recognize the benefits of having a separate business entity. The term “business entity” encompasses the many forms a business can take. This post will discuss the two most appropriate entities for budding solo artists: the sole proprietorship and the Limited Liability Company (LLC). It will also explore the benefits and drawbacks that online galleries and rent-to-own websites present to the art-repreneur.

Top 3 Benefits of Having a Sole Proprietorship

  • Sole Proprietorships require no paperwork and are the easiest type of business entity to create. In fact, if you are creating art by yourself and you have already sold some pieces, you are already a sole proprietor!
  • Taxes are complicated, but in most cases a sole proprietorship does not require extra paperwork come April. You will have to claim your profits, but that is to be expected.
  • DaVinci. Warhol. Banksy. There is something to be said for name recognition in art. Since you can maintain a sole proprietorship directly under your name (or under a pseudonym if you prefer), you can associate your name directly with your art. Keeping that personal touch can also make people feel more inclined to do business with you, as some customers buy art because they enjoy that personal connection.

Top 3 Benefits of Having a LLC

  • A LLC requires separate banking accounts. This can be beneficial in many ways; separate accounts can keep you aware of profit margins and expenditures that may get lost in a personal account.
  • When conducting business with people that you don’t meet face-to-face, working as a separate business can have multiple marketing effects. It can inspire trust in transactions and give you negotiating clout, as it detracts from the “desperate, starving artist” stereotype that some may associate with budding artists.
  • It may sound strange, but even artists have risks and liabilities to consider. For instance, is there insurance on your studio? What if you get sued for breach of contract/selling agreement, or someone gets hurt from your piece? With LLCs, your personal responsibility, or personal liability, is held separately from what may happen in the course of your art business. This can protect your personal assets if something goes wrong.

Modern Means

Though the traditional art collector may appreciate the nostalgia of walking around a gallery in person, many modern consumers do not want to spend time in traditional galleries. Nowadays, people look for everything online- clothes, groceries, love – and art is no exception. Art-repreneurs need to be tech-savvy to keep their sales up. Online galleries and rent-to-own websites offer a transformative and accessible way to reach customers. However, the art-repreneur should be aware of the legal issues that may accompany these new means of reaching customers and understand how a sole proprietorship or LLC can be used to address some of these concerns.

Online Galleries /Marketplaces

There are many types of online galleries and marketplaces for today’s artist. These websites provide artists the opportunity to sell their work by uploading high-quality pictures of their artwork for interested buyers to view. It is an effective way for sole proprietors to reach an audience that is particularly interested in your artwork.

That being said, there have been accounts of artists who struggle to maintain the value of their original pieces after putting pictures online. The same people who are willing to online shop for art may also fall prey to a copycat- someone who prints off the high-quality picture you uploaded and is profiting off the resulting copy. This can raise significant problems for the art-repreneur. Having an LLC or business name may intimidate some from committing fraud, but it will not prevent those who are particularly set on cheating the system. If you find this has happened, you should always seek the advice of an attorney. There are serious legal consequences at state and federal levels for intellectual property violations and art fraud.

Rent-to-Own Websites

Rent-to-own websites propose a relatively new concept that is quickly gaining popularity. The website is based on an agreement between the website and the artist in which the artist allows the website to advertise and rent their piece, and the website will take a portion of the following profits. The customer then has an opportunity to view the artwork to determine if the piece is a good fit or not. If the customer likes it, he or she can purchase the piece; if the customer does not like it, the piece can be returned at the end of a month. This can be a huge advantage for the artist because customers often have trouble visualizing where the piece may go when they view it in a gallery, and the option to view it in their space can push the hesitant buyer to make the purchase. Even if the sale is not completed, the artist still receives “rent”.

Yet this may bring the artist to a new level of anxiety. What if the sculpture is damaged in transit? What if the piece falls and injures someone? Can you be personally sued (if you’ve prioritized liability as a business entity consideration and operating as an LLC, the answer should be no!) or will the website be liable for the injuries? The vigilant art-repreneur should closely review the terms of the agreement with the website for details that address such issues, as these questions are best asked while negotiating your contract, not after something has happened. It’s always good to check in with your attorney whenever you have questions.

Being mindful of business considerations may be cumbersome, but it pays off in the long run because your focus can remain where it should be: on your art.

*This post was authored on February 6, 2019 and can be found here.

Marisa Halm, at the time of this post,  is a second year law student at Penn State’s Dickinson Law. She is from a small town near Greensboro, North Carolina and went to Allegheny College before coming to Dickinson.  Marisa has taken several different business law related courses.  Her interests in this area likely stem from having entrepreneurial parents.  You can find out more about Marisa here.

 

 

Sources

GetArtUp, http://www.getartup.com/ (last visited Feb. 1, 2019).

Interview of Lawrence M. Shindell, AiA Newsl. (Authentication in Art, The Hague, Neth.), July 2017, at 2. http://authenticationinart.org/pdf/newsletter/AiA-Newsletter-July.pdf.

Klaus Esterluss, The art of selling art: Young artists navigate the digital world, DW (Apr. 15, 2015), https://www.dw.com/en/the-art-of-selling-art-young-artists-navigate-the-digital-world/a-18382841.

Start Your Art, http://www.startyourart.de/sya_welcome.php?lan=EN (last visited Feb. 1, 2019).

Photo Credit

http://clipart-library.com/clipart/di4oMLABT.htm

  • Remaining photos sourced from personal collection.

Dickinson Law Students on the Road | Penn State Mont Alto Launchbox

By: Samantha Prince

Chambersburg, PA.

On February 28, 2019, three Dickinson Law student members of the Business Law Society and I went on the road to the Penn State Mont Alto Launchbox to lead a workshop.  The workshop included a 40-minute presentation entitled Should I Enter into a Franchise? which was led by Ian Brinkman ’19.  Following the presentation, Ian, Greg Archibald ’20 and Alexis Shovel ’21 chatted with attendees and answered their questions. (For those who have authored blog posts, hyperlinks are provided.)

Chancellor Dr. Francis Achampong of Penn State Mont Alto commented after the workshop: “Thank you so much for making the workshop on franchising possible.  Ian did a fantastic job. We hope to continue collaborating; perhaps offer a workshop per year courtesy of the Business Law Society.”

First year law student, Alexis Shovel had this to say: “This workshop provided an
overview of every step of the process, from completing the initial franchising paperwork to who pays for the daily costs of running the franchise. Not only were the benefits of owning and operating a franchise highlighted, but the drawbacks or potential weaknesses were also
emphasized as well.”

Our entrepreneurship law students and the BLS members are ambitious and well positioned to help entrepreneurs and the community through a variety of methods.  Many of the students write for this blog.  Others participate in workshops and provide lectures in classrooms.  All three of these activities further our service and community missions by providing ways that entrepreneurs can gain valuable insight about different areas of the law.  If your organization or class is interested in hosting a workshop or lecture, please either contact us at: https://dickinsonlaw.psu.edu/entrepreneurship-workshops or me directly at sjp15@psu.edu.

The Mont Alto Launchbox is part of the Invent Penn State initiative.  The vision of the LaunchBox is to be a catalyst for entrepreneurship in Franklin County.  Its mission is to: connect, inspire, motivate, assist, and de-risk the efforts of entrepreneurs.  We, at Dickinson Law, are proud to serve as resource and partner of the Mont Alto LaunchBox and the entrepreneurs it works with!

Kevin Harter | Entrepreneur of the Month | March 2019

By: Arther Hart

I have the great honor to introduce you to Kevin Harter, our March Entrepreneur of the Month. Kevin is an experienced healthcare and technology executive, board member, serial entrepreneur, and long-time volunteer for education-related initiatives.

Kevin has more than 35 years of experience in new life science and technology businesses. He has held more than two dozen board seats in healthcare, technology and financial companies. Kevin has served as chairman, president, and CEO of Saladax Biomedical Inc., a leader in personalized diagnostics. He co-founded the Life Sciences Greenhouse of Central Pennsylvania and Keystone Medical Systems.

In addition to being named as our Entrepreneur of the Month, Kevin has been the recipient of numerous awards for his professional and volunteer achievements. These awards include the Entrepreneur of the Year Award from Ernst & Young/Inc. Magazine, Outstanding Leadership in Technology Award from the Technology Council of Central PA, and the Alumni Fellow and Philip Philip Mitchell Service Award from the Pennsylvania State University.

Kevin has a passion for mentoring and teaching young entrepreneurs. He has taught classes for Penn State Harrisburg and continues to teach business skills through the Penn State Hershey College of Medicine. Entrepreneurs, and law students that are interested in representing entrepreneurs, can learn a great deal from Kevin’s experience.

What does it take to be an entrepreneur?

“It does take some level of courage to jump into the uncertainty and definitely takes a lot of hard work.”

When I asked Kevin what his greatest accomplishment was, I was surprised by his answer. It wasn’t about any of his great business deals or the impressive amount money he raised, it was having the courage to start in spite of the financial risks. Courage, according to Kevin, is an essential part of becoming a successful entrepreneur.

Click here to watch the interview.

The other absolutely essential part of becoming a successful entrepreneur is hard work. It is not enough to have the dream of becoming a successful entrepreneur, it takes a lot of hard work to get there. An entrepreneur should treat startups like they are training for a marathon.

Click here to hear Kevin elaborate.

Many businesses follow what Kevin calls “The Startup Curve.” At some point after the initial enthusiasm has worn off, there will be a period called the “Trough of Sorrow.” Hard work is absolutely necessary to pulling a startup out of the “Trough of Sorrow.”

Thinking like an Entrepreneur

“Don’t think of entrepreneurship as getting a job managing a business.”

Kevin emphasizes that entrepreneurs need to recognize that entrepreneurship is not the same as management. While it is true that entrepreneurs are managers, they are not confined to that role. Kevin explained the difference between the two is that entrepreneurship is identifying, creating, and acting upon an innovative opportunity to create value while management is the administration of an organization.

Entrepreneurs, according to Kevin, should have a 2-stage mental process. One side is very creative and optimistic while the other side is risk averse and pessimistic. An entrepreneur has to be very optimistic about the opportunities and where they are going to take the business while at the same time being careful and looking out for the things that can go wrong.

Watch the interview here.

Risk and Uncertainty

“You’re going to deal, in entrepreneurship, with a great deal of uncertainty. Your ability to manage that uncertainty is going to determine your level of success in entrepreneurship.”

During a lecture to Dickinson Law’s Company Creation class, Kevin made a surprising point about the relationship between entrepreneurs and risk. Contrary to popular belief, entrepreneurs are not, or at least should not be, chronic risk takers. Rather, successful entrepreneurs learn how to mitigate the risk involved by effectively dealing with uncertainty. To effectively manage the uncertainty, successful entrepreneurs learn to make good, informed judgment calls and not dwell on past mistakes.

For these and more entrepreneurial tips click here.

Startup Finance

“The first question I would ask myself is, do I need money?”

Kevin’s first bit of advice when it comes to raising capital is that an entrepreneur must ask whether they need money. There are a few things an entrepreneur needs to do before seeking money: clearly identify who your customer is, what they want, and what the value is that you can provide them. Then, if you are able to calculate how much money you need to create the business, you can look at raising it. According to Kevin, 79% of businesses fail because they haven’t properly identified their customer, and end up building or developing the wrong thing.

Customer discovery is key to avoiding this pitfall. During the early stages of a business, entrepreneurs should be spending as little as they can with the goal of testing a hypothesis. The hypothesis being that the entrepreneur has built a repeatable and profitable business loop. Once an entrepreneur has proven all of their hypotheses, they can begin to look for additional funding to grow their business.

Watch Kevin’s explanation here.

Advice for Law Students

“You are going to need to provide information in a way that entrepreneurs can make judgment calls that are very difficult and frequently wrong.”

The best startup lawyers become good partners with the entrepreneurs they represent. Entrepreneurs deal with a large amount of uncertainty and they often need the help of an attorney to make the best decisions they can. The best thing an attorney can do for entrepreneurs is give good advice, in context. They should learn to ask the question “why” and seek to understand their client’s motives as well as objectives.

Click here to hear Kevin elaborate.

Kevin’s Recommended Reading for Entrepreneurs

Talking to Humans

Business Model Generation

Value Proposition Design

The Startup Owner’s Manual

 

Videos containing Kevin Harter’s great advice and insights can be viewed through links in the above article.

Photo Source: Penn State Hershey College of Medicine

Arther Hart is a second-year law student at Penn State’s Dickinson Law. He is from Northern Utah and an interest in Health and Technology Law. He has a degree in biological engineering from Utah State University.  Currently, Arther is interning at the Center for Medical Innovation.