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