Tag: Patents

My Business is Getting Bought Out… How Can We Transfer Our Patents?

by Mohammed Saleem

Most start-up pharmaceutical, biotechnology, and medical device companies are formed with the intent to eventually be bought out by larger, well-established companies such as Abbott, Sigma Aldrich, or Bayer. However, the option of being bought out only comes to fruition once a start-up has established scientific proof that leads to medical or pharmaceutical advancement. In the course of novel scientific innovation, start-ups and inventors are often quick to get a patent. But, when being bought out, one might find themselves confused about the status of their application or the ownership of the patent. This blog post aims to explain (1) the ownership and assignment of a patent when it is first filed, and (2) how assignment rights can be transferred when a company is bought out.

Utility Applications

Types of Applications

Utility applications and patents are the most common type of filings and are what people often think of when hearing “patent.” Scientific developments will always be utility applications that end in utility patents. However, these filings come in many types including provisional, nonprovisional, divisional, substitute, continuation, and continuation-in-part applications. While the precise differences between these applications and their functions are irrelevant to this post, it is important to note that a nonprovisional application is always a parent application. The remaining types of applications, except provisional applications, stem from the originally filed parent application and are therefore known as child applications. Provisional applications themselves are not a type of application that leads to a patent, but rather, they act to “hold your place in line” at the United States Patent and Trademark Office (“USPTO”).

Assigning a Patent

As far as the USPTO is concerned, patents are personal property for purposes of assignment and ownership. This means that the inventor must agree to the assignment in writing. Once the written assignment is complete, the person or entity receiving ownership (the assignee) is the new owner of the application or patent. Assignments of patents and applications can be done at any point during the course of employment. Employment agreements should include contractual provisions for the automatic assignment of patents to the start-up. This minimizes any chances of employee refusal or in the case of joint inventorship, one joint inventor agreeing to assign rights while the other does not. Managing the patent and its prosecution before the USPTO can become confusing and complicated in a joint inventor scenario, so it is best practice to include patent assignment provisions in employment agreements.

With this in mind, any type of patent application may be assigned. Note, the assignment of a parent nonprovisional application leads to any subsequent child applications automatically being assigned to the entity or individual holding ownership of the parent application. In other words, assignment runs from parent to child applications. No additional filings or recordings need to be submitted to confirm the assignment of a child application.

Recording an Assignment

While not required, it is always best to record an assignment at the USPTO. Recording the assignment provides public notice of the assignment and prevents your company from losing rights if a later transfer occurs to a third party as they will be aware of the original assignment. While that may sound complicated, it simply means that recording the assignment prevents any later transfers to a third party because the first party to record and publicly claim ownership in good faith is given priority in ownership.

Assignment in a Buy-Out Transaction

If Your Company Has a Complete Ownership Interest

Subsequent assignments where a start-up holds a complete ownership interest in an application or patent are relatively straightforward. In this case, the start-up is the rightful and complete owner of the application or patent. Therefore, the start-up has complete and total control of the application or patent and may further assign it by following the previously discussed considerations. The process of transferring rights and ownership from one entity to another is identical to the process of transferring rights and ownership between inventors and employers.

If Your Company Has a Part Ownership Interest

If the start-up only holds partial ownership in an application or patent, the transfer does not provide the assignee with complete ownership but is rather defined as an “assignment of patent rights.” In other words, you can only assign the percentage of rights held by your start-up. This situation is often seen in joint ventures between two companies or where multiple inventors exist and fail to unanimously agree to assign the application or patent. To illustrate this, if four inventors each own a 25% interest in the application or patent, with two refusing to assign to the start-up, the start-up can only obtain 50% ownership, and may only further assign that 50% right to another. The main issue in this scenario is that all owners must act together if the application undergoes prosecution before the USPTO. This can create difficult scenarios where application owners have differing opinions on how to proceed with prosecution, thus slowing down the entire process and ultimately leading to more issues.

Concluding Thoughts

Overall, the process of assigning a patent is fairly simple. However, it is key to record an assignment before the USPTO and provide an assignment provision in employment agreements to avoid any headaches that may arise otherwise. This blog post provides a very high-level overview of the many intricacies of patent law. With that, it is advised that you retain counsel who is well-versed and registered to practice before the USPTO for a full understanding of the assignment process.

This post has been reproduced and updated with the author’s permission. It was originally authored on February 2, 2023 and can be found here.

Mohammed Saleem, at the time of this post, is a recent graduate of Penn State Dickinson Law. He has a Bachelor of Science in Physiology from the University of Arizona, a Masters in Pharmaceutical Chemistry from the University of Florida’s Distance Education program, and has recently passed the patent bar.

 

Sources:

https://www.uspto.gov/web/offices/pac/mpep/mpep-0300.pdf (**Note: This is the Manual of Patent Examining Procedure chapter that deals with assignment and ownership of patents and applications).

https://www.uspto.gov/sites/default/files/documents/pto1595.pdf.

35 U.S.C. 261.

https://patentgc.com/protecting-university-patent-rights/. (Featured Image).

When Inventee Becomes the Inventor: Can AI be a Patent Inventor?

by Pranita Dhungana

“Why did ChatGPT go to the therapist? Because it had too many layers and couldn’t figure out which one was the true self!” I prompted ChatGPT to tell me a joke about itself, and it responded with the “joke” above. A bit too eerily self-aware for my liking!

Artificial Intelligence (“AI”) has taken the world by storm. The arrival of AI chatbots like ChatGPT has made AI accessible to small businesses that might not otherwise have the resources to develop an AI system in-house. As of 2020, 29% of small and medium businesses had adopted AI. That number must be higher today since AI commonly exists across multiple facets of business, like customer service, marketing, sales, data analysis, inventory management, accounting, and even research & development.

But what happens when your AI system creates an invention? Can it be listed as the inventor on a patent application?

The Answer Depends on the Country You Are In

The United States

The Federal Circuit recently answered this question in Thaler v. Vidal. According to this case, AI cannot be an inventor.

Dr. Thaler developed an AI system called Device for the Autonomous Bootstrapping of Unified Science (“DABUS”). DABUS, without any human involvement, invented a flame device used in search-and-rescue missions and a food/beverage container. Dr. Thaler sought to patent both of these inventions. Interestingly, Dr. Thaler filed both patent applications with DABUS listed as the inventor. The United States Patent and Trademark Office (“PTO”) rejected the applications, reasoning that AI could not be the inventor on a patent. Dr. Thaler unsuccessfully challenged the PTO’s rejection in the U.S. District Court for the Eastern District of Virginia and appealed its decision to the Federal Circuit.

Relying solely on statutory interpretation, the Federal Circuit determined that AI cannot be a patent inventor. The Patent Act (“Act”) defines an inventor as the “individual” who invented the subject matter. The Federal Circuit found the Act’s multiple references to “individual” compelling. Although the Act does not define “individual,” the United States Supreme Court has defined it as a human being or a person. In addition to considering how we use the word individual in everyday use and how dictionaries define it, the court also found support in the Dictionary Act. The Dictionary Act confirms that an individual is a human being and is different from artificial entities like corporations. The Act also uses the personal pronouns “himself” and “herself” to refer to the inventor, as opposed to “itself,” further showing that Congress intended for only humans to have patent inventorship. Finally, the Act requires inventors to submit an oath that they believe themselves to be the original inventor. Since the record was void of any indication that AI can form a belief, and because Dr. Thaler had submitted the oath himself on DABUS’s behalf, the court found no ambiguity in the Patent Act that an inventor must be a natural person.

Regardless of the negative outcome in the U.S., Dr. Thaler has continued his global campaign for the recognition of AI as an inventor.

Europe

Courts across Europe have aligned with the United States in rejecting DABUS’s applications, finding that their patent laws fail to recognize AI as an inventor. The European Union’s European Patent Office specified that under the European Patent Convention, an inventor on a patent application must have “legal capacity,” which is the ability to be the subject of rights and duties. Current laws do not recognize the rights and duties of AI.

Australia

Although a Federal Court of Australia initially ruled that the Australian Patent Act did not limit inventorship to humans, a higher court reversed the ruling based on the finding that the Australian Patent Act confers a patent for human endeavor. Therefore, Australia has also aligned with other jurisdictions globally.

However, an outlier has emerged in South Africa.

South Africa

South Africa remains the only country to have granted a patent to one of DABUS’s inventions. However, commentators have questioned the significance of this grant since South Africa does not have as substantive of a patent examination process as other countries. Specifically, South African patent laws do not define “inventor,” and its patent approval procedure seems to be nothing more than a simple assessment of whether the paperwork was filed correctly.

Regardless, patent rights are territorial, so a patent granted in South Africa is enforceable only in South Africa.

So what should business owners do?

Trade Secret as an Alternative to Patent Protection

Entrepreneurs who implement AI systems in their businesses should understand that their AI-invented inventions are not eligible for patent protection, and there is no way around that bar in most global jurisdictions. In Thaler, the Federal Circuit distinguished DABUS’s inventions from those not entirely made by AI. However, the court provided no guidance on inventions made with the assistance of AI since that was not the issue before the court.

Given this uncertainty, entrepreneurs should utilize trade secrets to protect their AI-invented or AI-assisted inventions. Trade secret protection applies to almost anything that has value because it is not known and is sufficiently secret. In addition to not having a formal registration requirement like patents, trade secret protection also covers those inventions that are not eligible for patent protection, including those that are AI-invented or AI-assisted.

Due to the trade secret secrecy requirement, inventions that are customer-facing or prone to reverse engineering may not qualify. However, for inventions used internally trade secret protection is a viable alternative to patents. To enjoy trade secret protection, business owners should implement measures to maintain secrecy. These measures may include having employees sign confidentiality agreements or NDAs and limiting the distribution of information both inside and outside the business.

This post has been reproduced and updated with the author’s permission. It was originally authored on March 24, 2023 and can be found here.

Pranita Dhungana, at the time of this post, is a recent graduate of Penn State Dickinson Law who is now pursuing Intellectual Property law. She also has a B.S. in Chemistry.

 

 

 

Sources:

ChatGPT, OpenAI (March 21, 2023).

Forbes, AI Stats News: Only 14.6% of Firms Have Deployed AI Capabilities in Production (January 13, 2020) https://www.forbes.com/sites/gilpress/2020/01/13/ai-stats-news-only-146-of-firms-have-deployed-ai-capabilities-in-production/?sh=1e30a55c2650.

Thaler v. Vidal, 43 F.4th 1207 (Fed. Cir. 2022).

Kingsley Egbuonu, The Latest News on the DABUS Patent Case, IPStars (March 17, 2023) https://www.ipstars.com/NewsAndAnalysis/The-latest-news-on-the-DABUS-patent-case/Index/7366.

Andrew J. Gray IV et al., Copyright, Patent, or Trade Secret Protection for AI Content: Challenges and Considerations (February 10, 2023) https://www.morganlewis.com/pubs/2023/02/copyright-patent-or-trade-secret-protection-for-ai-content-challenges-and-considerations#:~:text=Along%20with%20a%20low%20cost,inventions%20made%20by%20AI%20technologies.

Patents vs. Trade Secrets: Choosing the Best Method to Protect your Intellectual Property

by Coryn Hubbert

A company’s intellectual property is its number one asset, so choosing the method to protect it can be one of the most important business decisions an entrepreneur will make in the start-up phase. Two options for protection are patents and trade secrets. This post explores the pros and cons of each option.

Utility patents

Patents are contracts between the patent owner and the government. In exchange for the patent owner’s full disclosure of the invention, the government grants the patent owner monopoly rights for 20 years from the date of filing. Once these rights expire, the invention falls into the public domain, where anyone is free to utilize it.

Requirements

There are four legal requirements for patentability: the invention must be (1) useful, (2) patentable subject matter, (3) novel, and (4) nonobvious. Patentable subject matter includes machines, processes, methods of manufacture, or compositions of matter. This definition excludes laws of nature, natural phenomena, abstract ideas, and business strategies.

Once these four requirements are met, the invention must be fully disclosed to the United States Patent and Trademark Office (“USPTO”) to receive protection. Proper written disclosure to the USPTO requires the inventor to provide a written description of the invention that enables an expert in the field to make the invention without undue experimentation.

This is only a brief explanation of the requirements for an invention to be patented. If you wish to choose a patent to protect your IP, you will need to consult with an attorney to begin the filing process.

Pros

Safeguards: Safeguards for the protection of patents are considerably stronger than the safeguards offered by trade secrets. Patents grant holders the exclusive rights to make, use, sell, offer to sell, and import a product or process for 20 years. If independent invention occurs (through reverse engineering or otherwise), the original product, formula, or process still enjoys the protection of the patent.

Worth the Investment: Patents provide strong protection against the loss of a company’s investment in technology, particularly when the company intends to continue developing and building upon the patented technology. Additionally, because patents are property rights, they can be bought, sold, or licensed, thus enhancing their value as revenue sources for the company.

Cons

Cost: Patent applications are complex legal documents that require an attorney’s assistance through each step of the process. Further, once the patent is granted, the owner must pay three separate maintenance fees.

Public Disclosure: Patents require companies to disclose their inventions publicly, and in return, they provide protection for twenty years. However, once the twenty years expire, your invention is public knowledge and can be used by any of your competitors.

Trade Secrets

A trade secret is any information, including a formula, pattern, compilation, program, device, method, technique, or process, that derives independent economic value by remaining unknown and not being readily ascertainable by proper means.

Requirements

To retain protection, the trade secret must be subject to reasonable efforts, under the circumstances, to maintain its secrecy. This could mean securing relevant documents, using encryption, having employees sign nondisclosure agreements (“NDAs”), or only allowing employees to know the information on a need-to-know basis.

Pros

Duration: Trade secrets can be protected indefinitely. One example of this is Coca-Cola’s secret recipe, which they chose not to disclose through a patent so it remains a trade secret.

Cost: Trade secrets do not need to be filed or approved, meaning they do not require filing fees or legal fees. The secret must simply meet the requirements of the statute, and then it immediately becomes a trade secret.

Advertising: People inherently want to know that which is not meant to be known. People naturally gravitate toward the hidden and mysterious, providing intrinsic value in products with a secret component.

Subject Matter: Trade secrets may protect things that are not patentable subject matter. This allows things such as customer lists and pricing information to be protected as a trade secret in some instances.

 

Cons

Less Protection: Trade secret protection is inherently riskier. While the duration of a patent is much shorter, its protection is much stronger than that of a trade secret. Trade secrets only protect against unlawful breaches. They do not prevent parties from legitimate duplication efforts, such as reverse engineering, to learn of the secret independently. In addition, competitors may develop their own version of the trade secret and file a patent to claim an exclusive right to it, effectively shutting out the inventor.

Risk of Unintentional Disclosure: Using your trade secret in business can lead to unintentional disclosure that results in a loss of protection. Trade secret protection can be lost through independent discovery, reverse engineering, discovery under a license from the owner, observation of an item in public, literature, or a failure to have company employees sign NDAs to ensure the secret is maintained.

Choosing the Right Approach

The decision between using a patent or a trade secret involves an analysis of many considerations and factors.

While patents may be expensive and time-consuming to secure, they provide extremely effective protection for a limited period. A company with exclusive use of a product or process will command that market for 20 years.

While a well-kept trade secret could be secret indefinitely, any person who lawfully learns of the secret may use it as their own. A patent may only last 20 years, but the protection is stronger than a trade secret since independent invention is not a defense in a patent suit. However, a trade secret may protect anything not considered to be patentable subject matter.

If the requirements for both options are met, a company should investigate two factors in making their decision:

      1. Is 20 years a sufficient period of protection?
      2. Is a competitor likely to reverse engineer or independently reproduce the product during that period?

It is important to think long-term when making the decision between a trade secret and a patent. These pros and cons will assist with that determination.

This post has been reproduced and updated with the author’s permission. It was originally authored on January 31, 2023 and can be found here.

Coryn Hubbert, at the time of this post, is a recent graduate of Penn State Dickinson Law. She has a B.A. in Political Science with a Pre-Law minor from Arcadia University. Since attending law school, Coryn has interned with the Honorable Judge Royce Morris at the Dauphin County Court of Common Pleas and with Pennsylvania’s Office of General Counsel, Department of Conservation and Natural Resources. Coryn currently works at Marshall Dennehey Warner Coleman & Goggin in Camp Hill.

 

Sources:

https://www.morningtrans.com/trade-secrets-vs-patents-which-is-right-for-you/

https://ocpatentlawyer.com/can-get-patent-invention/

Lydia Pallas Loren & Joseph Scott Miller, Intellectual Property Law: Cases and Materials (7th 2021).

https://www.ift.org/news-and-publications/food-technology-magazine/issues/2002/april/features/protecting-innovation-patents-vs-trade-secrets