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Bulletin Focus |
Intellectual Property
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Three Common Patent Pitfalls for
Start-Up Companies
By Joseph G. Contrera
While novel technology and innovation are what drive new companies and attract
potential investment capital, sound intellectual property is probably the most
important issues for go/no-go decisions among investor's when looking at start-up
companies. Clear legal advice, early in the development of the company and
its technology, can help a start-up obtain needed patent rights and avoid potentially-fatal
patent problems in the future. This article focuses on three often overlooked
problems that arise during patenting of inventions.
Inventorship
One of the most important issues that surface in early-stage life science
and technology companies is the determination of inventorship of the company's
patents and patent applications. Inventorship determination is also the cause
for much confusion, and it has the potential to invalidate a company's patent
portfolio if not done correctly. This is because if a court determines that
a patent has incorrect inventors, it can be declared invalid as a matter of
law. While often confused with authorship, as on a scientific paper, inventorship
is a legal determination based on whether an individual was involved in the
conception and/or reduction to practice of the claimed invention. Note also
that inventorship is linked to a "claimed" invention. This means that an individual
could be an inventor on a patent application, along with others, and then later
certain claims are cancelled in which that person was the inventor and not
on others. In that situation, that person would no longer be an inventor on
the patent. Generally, an inventorship determination is best left to patent
counsel who can interview all the potential inventors and make a legal determination
at a later time.
Ownership
As important as inventorship is the issue of the ownership of a company's
patents and IP. In the United States, an inventor is automatically deemed an
owner of the patent or patent application until his or her rights are assigned
to a third party. It is important for a start-up company to make sure that
their employees are obligated to assign their rights in a patentable invention
to the company as soon as possible. One of the best ways to insure this occurs
is through an employment agreement that contains an obligation to assign all
rights in any intellectual property developed during employment to the company.
By having an executed obligation to assign in place, even if the employee leaves
before a patent application is filed, and later cannot be located, or refuses
to make an assignment; the agreement will operate as an assignment of rights
to the company.
Another problem is the determination of ownership of IP developed as part
of a joint-venture with another entity, or as part of a sponsored research
agreement. Under U.S. patent law, inventors who assign, or are under an obligation
to assign their rights to different legal entities, create a situation where
the resulting patent can be owned by more than one company. This can create
later problems if the start-up wishes to exclusively license or sell their
rights to the patent to another party. A separate license would be required
from the joint owner to create an exclusive license, which could cause additional
negotiations and costs. To avoid this situation, companies should insert language
into their research agreements which designate ahead of time which company
will be responsible for patent procurement, which company will have control
of the licensing of the resultant IP, and also include an agreed-upon royalty
distribution percentage for each company.
Correct Legal Entity Status in the Patent Office
Determination of a company's legal entity status (Small or Large) for the
purpose of paying reduced fees is usually done during the initial filing of
a patent and then easily overlooked during prosecution and maintenance of the
patent. Companies that qualify as small entities receive a 50 percent reduction
in patent office fees, which can add up to significant savings over time. It
is therefore important to remember that a small entity start-up company can
lose its small entity status in two ways. First, the company can grow so that
the number of employees or annual income exceeds the standards set for small
entities. Second, the company can enter into either an exclusive or nonexclusive
licensing agreement for the patent with a large entity. Such a license would
disqualify the start-up from claiming small entity status. Additionally, a
small entity entering into an option agreement in which there is an obligation
to transfer any rights to a non-small entity would also disqualify the start-up
from claiming small entity status. The options affecting small entity status
are not limited to only those appearing in option agreements, but also include
those that are written into material transfer agreements, industry sponsored
research agreements and other agreements that may be connected with the research
that generated an invention. Although the error in paying fees associated with
the wrong entity status in the USPTO are correctable, applicants who fail to
pay correct fees during the prosecution or maintenance of optioned or licensed
patents run the very real risk of having the patents invalidated during litigation.
Joseph G. Contrera, M.S., J.D., is a Senior Attorney at the law firm of
Jacobson Holman, PLLC in Washington, D.C. He concentrates his practice in
the areas of patents, litigation and licensing.
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