Introduction
Most startup pharmaceutical, biotechnology, and medical device companies (collectively “Startups”) are often formed with the intent to eventually be bought out by larger, well-established companies such as Abbott, Sigma Aldrich, Bayer, the list goes on. However, the option of being bought out only comes to fruition once a Startup has itself established some scientific proof that can lead to a medical or pharmaceutical advancement. In the course of novel scientific innovation, Startups and inventors are often quick to get a patent. But, when being bought out, you might find yourself confused with the status of the application or ownership of the patent. This blog post aims to explain the ownership and assignment of a patent when it is first filed, and subsequently how assignment rights can transfer when you company is bought out.
Types of Applications and Assignments in General: Utility Applications
Types of Applications
Utility applications and patents are the most common filings, and are often what people think of when hearing the word “patent.” Any scientific development will most certainly always be a utility application leading to a utility patent. However, these filings come in many flavors such as provisional, nonprovisional, divisional, substitute, continuation, and continuation-in-part applications. While the precise differences between these applications and their functions is not relevant for this post, it is important to note that a nonprovisional application is always a parent application, and the remaining types, save for provisional applications, branch off the originally filed parent nonprovisional (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 the inventor themselves must agree to the assignment in writing (in any language). 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 or applications can be done at any point during the course of employment. With this, it is strongly advised to draft employment agreements to include contractual provisions for the automatic assignment of patents to the Startup. This minimizes any chances of employee refusal, or in cases of joint inventorship: one joint inventor agrees to assign rights and the other does not. The joint inventor scenario can become extremely confusing and complicated in terms of managing the patent and its prosecution before the USPTO, and thus it is best practice to always 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 to automatically be assigned to the entity or individual holding ownership of the parent nonprovisional application. In other words, assignment runs from parent to child applications. No additional filings or recordation need 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. Recordation provides public notice of assignment and prevents your company from losing rights by way of a later transfer to a third party unaware of the original assignment. While that may sound complicated, all this means is recordation prevents any later transfers to third party, where the first party to record and publicly claim ownership in good faith is given priority in ownership.
PTO Form 1595 for recording transfers and assignments of patents. Source: https://www.uspto.gov/sites/default/files/documents/pto1595.pdf
Assignment in a Buy-Out Transaction
If Your Company Has a Complete Ownership Interest
Subsequent assignments where a Startup holds a complete ownership interest in an application or patent is relatively straightforward. Since in this case, the Startup is the rightful and complete owner, it has complete and total control of the application or patent, and can thus go on to further assign it by following the above considerations. The process to transfer rights and ownership from one entity to another is identical to the process to transfer rights and ownership between inventors and employers.
If Your Company Has Part Ownership Interest
If the Startup only holds a partial ownership in an application or patent, the transfer of 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 the percent of rights to the application or patent held by the Startup, but not complete ownership. This situation is often seen in joint ventures between two companies or where multiple inventors exist and do not all agree to assign the application or patent. To illustrate this, if four inventors each own a 25% interest in the application or patent, and two refuse to assign to the Startup, the Startup can only obtain 50% ownership, and may only further assign that 50% right to another. The main issue in this scenario arises by the fact that all owners must act together and in agreement before the USPTO as the application undergoes prosecution. This can create difficult scenarios where application owners may have differing opinions on how to proceed with prosecution, thus slowing down the entire process which can ultimately lead to several other issues.
Concluding Thoughts
Overall, the process of assigning a patent is fairly simple, however, it is key to always 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 can only cover so much and only provides a very high-level overview of the many intricacies within patent law. With that, I would always advise retaining counsel who is well versed and registered to practice before the USPTO for a full understanding of the assignment process.
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).
Picture Sources:
- https://corpbiz.io/learning/patent-assignment-difference-between-assignment-of-patent-and-license/
- https://www.uspto.gov/sites/default/files/documents/P2AP_Part_VIII.pdf
- https://www.uspto.gov/sites/default/files/documents/pto1595.pdf
- https://ocpatentlawyer.com/tell-others-about-idea-without-losing-invention-rights/
This post has some very valuable insight into a frequently overlooked and nuanced area of intellectual property. You clearly demonstrate a strong understanding of patent law and explain things clearly and concisely for the layperson, which is wonderful. The conclusion’s encouragement to seek counsel is wise and worded well. I think the post has a few areas that would benefit from a little sentence structure editing, but this is great overall.
Thanks for teaching me about patent assignments!
I thought you did a great job first explaining some of the foundational information that entrepreneurs should know regarding patent assignments and assignment recording. I thought this was a great 30,000 foot overview of patent assignment issues and considerations and was well written! It was very insightful and you come across very knowledgable about the topic. My only suggestion would be to fix the typos in the post. Great job!!
Great job! I thought that you did a phenomenal job giving the reader an in-depth overview of patent assignments and recordings. You are direct and to the point, which is suitable for the on-the-go reader and entrepreneur. I now know enough to be dangerous in patent assignments. Great job again!