Ask the IP Attorney
Welcome to the MA Insider Ask the IP Attorney column, provided by the attorneys at Patterson Thuente IP. We hope this format creates conversation and eventually a repository of useful information for Manufacturers Alliance members! We encourage you to leave comments and to ask your burning questions related to patents, trademarks, trade secrets, licensing, contracts and all things IP.
On to December’s Q&A…
Q: I am still using a trademark that I previously applied to register but then abandoned. Someone else has now applied to register the mark for the same goods. What happens?
A: In the United States trademark rights are based on two legal bases: common law and federal law. Common law trademark rights vest immediately when a business uses a name or logo in commerce. Federal trademark rights vest upon registration of trademark with the United States Patent and Trademark Office (USPTO). Therefore, you still retain common law trademark rights in those geographic parts of the U.S. in which you’ve been using the trademark.
However, that does not necessarily preclude the new applicant from registering the mark and obtaining federal rights to use the trademark throughout the United States. If that occurs, the other company would not be able to enforce its federal rights against you in those geographic parts of the country in which you sold goods under the trademark before their registration was filed. However, the new registrant could preclude you from selling into any new geographic areas.
There are a few actions you can take as the senior trademark user. First, while you cannot revive your abandoned application to register your trademark, you could file a new application and claim priority to the earlier application. That would allow you to defeat the application from the new user and obtain federal trademark rights. Doing so gives you several benefits over common law trademark rights.
Another action you can take is to oppose the new trademark user’s application. If the other company’s application is allowed by the USPTO, it is published in the Trademark Official Gazette for 30 days to allow other parties to file a Notice of Opposition. An opposition is a proceeding in front of the USPTO in which a party seeks to prevent registration of another party’s trademark because it believes it will be harmed by the registration.
A third action that you can take if the registration of the trademark to the new user actually occurs is to file a petition to cancel the registration. If such a petition is filed within five years of registration, you can claim any grounds for cancellation that would be used as the basis for an opposition. If a petition is filed after five years of registration, a likelihood of confusion with your use of the trademark cannot be grounds for cancellation. Therefore, it is important to take action as soon as you know about the other application for registration.
There are significant differences in costs and evidentiary burden between the above-described actions. So it’s always the best practice to consult with a trademark attorney before deciding how to best protect your rights to continue using your trademark.
Q: If I choose to keep an invention as a trade secret instead of patenting it, what level of secrecy is required?
A: The standard in most state and federal courts is whether your company took “reasonable precautions” to prevent dissemination of the invention outside of individuals subject to confidentiality restrictions (e.g., nondisclosure agreement). Of course, that raises the question, what is “reasonable”?
The reasonableness of the protection of your trade secret depends on several factors. Courts look to the size of your business, both in terms of number of employees and revenue. Larger companies usually require more precautions than a small mom-and-pop business. Likewise, a company that has annual sales in the billions of dollars will also be expected to be more diligent than a local coffee shop. The reasonableness of protection also depends on what the trade secret is. If the trade secret is merely a customer list, that is not typically seen as valuable as ground-breaking software code.
At a minimum, reasonable precautions include:
- Restricting access to the trade secret (i.e., locked in safe, password protected).
- Limiting employees that know trade secret only to those that need to know.
- Having employees with access to trade secret sign confidentiality agreement.
- Clearly mark any written documents related to the trade secret as CONFIDENTIAL or PROPRIETARY.
- Providing access to discrete parts of the trade secret based on employee function.
- Restricting or prohibiting duplication of copies.
- Prohibiting documents or technology from leaving premises.
- Third-party confidentiality agreements for any outside vendors or service providers exposed to the trade secret.
More formal precautions can include ID badges, entrance/exit interviews of employees, password protections, restricted physical access, and limitations on use of technology (computers, cell phones, etc.).
While what constitutes reasonable precautions varies based on the specific circumstances of the trade secret, there is no requirement for absolute secrecy because that could unjustifiably hinder the operation of your business. Your intellectual property attorney should be consulted to identify the measures necessary for your specific business and trade secret.
Q: Who should be listed as an inventor on our patent application?
Patent laws vary by national jurisdiction. In the United States, inventors are those individuals that conceived of the claimed invention. There may be only one inventor for a claimed invention or there may be several. Multiple individuals can be joint inventors even though they did not physically work together or at the same time, did not make the same type or amount of contribution, or did not make a contribution to the subject matter of every claim of the application. Because patent claims may be amended during prosecution, the actual inventors may change while a patent application is pending. However, individuals that merely contribute their ordinary skill to reduce an invention to practice, without actually conceiving of the invention itself, are not typically considered inventors.
Caution should be taken when naming inventors. Failure to correctly name inventors (leaving off an inventor or listing someone that is not a true inventor) can have serious implications regarding the ownership and enforceability of a patent. While honest mistakes in listing inventors can be corrected, even after a patent has issued, purposely misidentifying inventors is considered fraud on the U.S. Patent and Trademark Office.
Provisional patent applications need to be treated differently when naming inventors. Provisional patents are not required to have claims. Therefore, provisional applications should list any individual who could reasonably be identified as contributing to any aspect of the invention. The identification of inventors may be amended later when perfecting a provisional application into a nonprovisional (utility) patent.
Inventorship is very fact-based. Failure to properly identify inventors may lead to ownership uncertainty and greatly diminish the value of a patent. Your patent attorney has experience with inventorship issues and should be consulted to correctly identify the inventors to be named in your patent application.
Q: We started selling our invention before we filed a patent application. Does that matter?
If you want to obtain a patent for an invention just about anywhere outside of the United States, you must have a patent application filed before public disclosure of the invention or you forever forfeit the right to obtain a patent. That means that you must file the application before the covered invention is sold or even offered for sale or used publicly. Fortunately, the United States has a 12-month grace period within which you may file a provisional or nonprovisional patent application after public disclosure and still be entitled to obtain a patent. Unfortunately, such a U.S. patent application cannot then be the basis to file a patent application in other countries.
Even if you are aware of this fact and you do not sell, offer for sale, or publicly disclose your invention before you file a patent application there can still be pitfalls that can destroy or weaken your patent rights. For instance, if you file a patent application that fails to adequately disclose your invention and then you start selling the invention, you may find out later that the application you filed did nothing to establish priority in the U.S. or anywhere else. That means you need to file a new application that properly describes the invention. The trouble now is that you have been selling the invention thinking you were safe, but then learn that the application you initially filed was so defective that you’ve lost international patent rights. And, if you don’t realize that your patent application was insufficient more than a year after public disclosure, you will have lost rights to obtain a patent in the U.S., as well.
Typically, the best practice is to not sell, offer to sell, or publicly use an invention before filing a patent application that adequately describes your invention and consult with your intellectual property counsel to determine how to best protect your inventions and when to file patent applications.
Q: We have a bunch of trademarks that we don’t use anymore. Can we sell them to someone else?
This is a common question for businesses that have registered trademarks and are looking to recoup some of the costs of registration or replace lost revenue from slow sales, etc. First, trademarks rights are based on use of the trademarks as a source identifier. So, the fact that you have not been using your trademarks may have already terminated your rights in those trademarks.
Second, trademark rights apply to use with specific goods and services. Therefore, your trademark rights can only transfer for the same goods and services. For example, you could not sell trademarks related to automotive parts to someone that intends on using the trademarks for a line of clothing. That is why trademarks are typically sold along with assets related to production or marketing of the goods to which they are associated.
Another often-overlooked aspect of trademark rights is goodwill. Goodwill is the recognition in the marketplace of the trademark associated with the quality and value of the related goods. Transfer of trademark rights requires assignment of the goodwill associated with a trademark. The naked assignment of trademarks without the goodwill invalidates rights to the trademark.
An alternative option to selling trademarks is to license them to others for use. You can collect a royalty for others’ use of the trademark as long as you ensure that the goods and services carrying the trade mark meet the quality and value standards of the original goods and services associated with the trademark. Failure to monitor and maintain the quality of goods and services of licensed trademarks can result in the trademark rights being abandoned.
While most valid trademarks have some financial value, that value can only be extracted by making sure that the goodwill associated with the trademarks is also transferred or, if licensing, properly monitoring the quality of the goods and services related to the trademark. The best practice is to consult with your trademark counsel to determine if you still have trademark rights and how best to monetize those rights.
Q: Can we get a patent on our company’s invention, but keep the important parts of the invention secret?
In almost all situations the answer is no. The U.S. patent system is a quid pro quo system sanctioned by the Constitution “To promote the Progress of Science and useful Arts.” In exchange for teaching others how to practice your invention, the government grants you a limited-time (20 years) right to exclude others from practicing your invention in the United States. If you fail to disclose the true substance of the invention, you may not be granted a patent or, if you are, the patent may be invalidated when you attempt to enforce it.
Therefore, if you manufacture a product or use a process that would be difficult or impossible to reverse engineer, you may want to protect your method of manufacturing or special process by keeping it a trade secret, rather than obtaining a patent, because you can maintain the exclusive rights in perpetuity. A significant benefit of trade secret protection is there is no cost for obtaining the rights to the trade secret. Where patents have to be obtained for each country and require periodic fees to maintain the patents, trade secrets only require maintaining the secret to keep exclusive rights to the invention.
The disadvantage of trade secret protection is that once your trade secret is no longer a secret others can freely use your invention. You also run the risk that someone else may later get a patent on your secret process, and will file suit to stop you from practicing the method. However, the Leahy-Smith America Invents Act of 2011 makes it a defense against claims of patent infringement if you are using the invention more than one year before the patent application is filed. Further, patents offer stronger protection because they are enforceable regardless of whether someone else independently comes up with your invention.
Congress just passed the Defend Trade Secrets Act of 2016 (DTSA) and President Obama has indicated that he will sign the DTSA into law. This law will provide uniformity to U.S. trade secrets enforcement, which was previously based solely on state laws. The new law will also allow for civil seizure where injunctive relief is insufficient and allows for exemplary damages and attorneys’ fees. Unlike many federal laws, the DTSA does not preempt state trade secret laws. This new law will provide an additional mechanism to protect your company’s trade secrets.
The decision of whether to rely on patent or trade secret protection can be complicated and there are strategic trade-offs in making the choice. Many companies are using a hybrid approach of protecting their broader inventions via patents and using trade secrets to protect their production details. The best practice is to consult with your intellectual property counsel to determine whether patents or trade secrets will best protect your inventions.
Q: A competitor is copying our product and the patent covering it has expired. Is there anything we can do to protect our product?
Potentially. Trade dress is an often overlooked intellectual property right that can prevent others from cashing in on your company’s innovation by claiming the goodwill developed over the life of the product.
In general, in the absence of a patent or copyright, one manufacturer can copy the designs of another. However, if a product design is either inherently distinctive or has acquired secondary meaning in the marketplace, that design may have enforceable trade dress rights. In addition, colors, sounds, scents, and flavors may also be protectable trade dress if consumers identify a product source by one of those characteristics (think pink for Owens Corning fiberglass).
A product’s design can never be inherently distinctive and must acquire secondary meaning. In order to establish secondary meaning (distinctiveness) a manufacturer must show that consumers associate its trade dress as the producer of the product rather than the product itself. Having exclusivity to a design via a previous design patent is good evidence of distinctiveness. And trade dress is registerable as a trademark, which provides additional rights and remedies not available under common law trademark rights.
To be enforceable, the trade dress must be non-functional. So aspects of a product that are claimed in an expired utility patent are likely not protectable as trade dress due to functionality. Design patents, however, claim the ornamental features of a product. Therefore, they are strong evidence of non-functionality and allow for continued exclusion of competitors.
To enforce trade dress rights, the owner must show that the similarity of the competitor’s trade dress creates a likelihood of confusion on the part of consumers. The likelihood of confusion is determined not by how many points of similarity exist between the two products but rather whether the two trade dresses create the same general overall impression.
Trade dress enforcement is generally ignored as means of protecting products from copying by competitors after a patent has expired. But under the right conditions, a product’s trade dress can be a valuable weapon against copying.
Q: Who owns the intellectual property generated by my company?
The short answer is…it depends. First, it depends on what intellectual property you’re talking about—patents, trademarks, copyright, etc. Then it depends on the relationship between the originator of the IP (inventor, author, user of a trademark) and your company.
In the U.S., patent rights initially rest with the inventor. However, those rights can automatically pass to the company based on contract or because the inventor is an employee. If you have contracted with another company or an individual to design or fabricate on your company’s behalf, and your contract states that all inventions automatically vest in your company, then the individual inventors are contractually obligated to assign their patent rights to your company. Similarly, if an invention is made by your employees in the course of their normal duties as an employee, that invention belongs to your company. Your company may even possess rights to an invention if an employee invents outside of his/her normal duties, but utilizes your company’s equipment or materials. Patent rights can be licensed or transferred by a written instrument.
U.S. registered trademarks are owned by the person or company that registered the trademark. Unregistered trademarks are owned by the person or company that commercially uses the trademark first in connection with a good or service. Trademark use by a related company or licensee can benefit your company as the licensor, but that benefit requires an express license that evidences adequate control by your company as licensor. Failure to adequately police your trademarks can result in abandonment of rights. Transferring rights to a trademark requires transfer of the goodwill associated with the trademark.
U.S. copyrights initially vest in the author of the work (e.g., artist that draws your logo). As with patents, copyrights may immediately pass to your company if the work was created by an employee in the course of their employment or when the work is commissioned from another company or individual. The right of a copyright owner to exploit a work commercially can be licensed or transferred.
In any of these cases, it is prudent to have the originator of intellectual property (inventor/author/trademark user) assign the rights to your company in writing to substantiate your claim. Unless you know enough to ask, “Who owns our IP?” you may end up owning less than you expect.
Q: What should I do if I receive a cease and desist letter from a patent owner?
First …Call Your Lawyer
Like most things in life, putting off your troubles leads to poor results. A response to an infringement claim is no different. Whether the letter comes from a legitimate competitor looking to strike a license or from a non-practicing entity, a.k.a. patent troll, seeking to extract a cost-of-defense royalty or worse, your first communication should be with your trusted legal advisor, not the patent owner. It is especially important to forward a copy of the letter to your lawyer as soon as you receive it.
Of course your counsel will appreciate the luxury of adequate time to respond, rather than by the close of business that day. But beyond that, strong business considerations dictate prompt action by you. Involving counsel early may protect you from inadvertently failing to take steps needed to protect your interests or admitting something that later hurts your position. For instance, if the patent owner has targeted your entire industry rather than just you, your counsel will be instrumental in facilitating creation of a joint defense among co-defendants.
Second…Do Your Homework
You will need to gather “business” facts to help your lawyer determine how best to respond. These facts include such things as details about your product’s operation, where it is manufactured and sold, sales revenues, and the importance of the product to your business, and even past dealings with the patent owner. Your counsel may have awareness of some of this information, but the detail you provide is crucial.
Equally important, however, are the “legal” facts that your lawyer will ascertain and discuss with you. Chief among these is a thorough review of the patent and file history. This review will allow counsel to determine the true scope of the claimed invention and determine whether, for example, the patentee made representations to obtain the patent that limit the invention to something less than what it first appears. In addition, counsel can quickly determine whether the patent has been asserted before, and if so, in what jurisdictions, and with what results. Finally, counsel will work closely with you to understand when you first became aware of the patent and what steps you may have taken, if any, to avoid infringement.
Finally … Respond on Your Terms
Once the “business” and “legal” facts are known, a sober discussion about the merits of the claim must take place. The claim may be nothing more than a thinly-veiled attempt to extract money from you. Or, it may be that product revenues are such that discontinuing the product or accepting a license makes sense. If a legitimate claim is made, an early and thorough review of the situation will allow counsel to confidently advise you whether the asserted claim can be avoided with a simple re-design of the product, successfully defended, or whether a negotiated settlement is the best option. Regardless, by involving your patent counsel at the outset, you allow yourself the ability to respond from a position of strength.
Q: What is the benefit of a provisional patent application if it doesn’t get examined?
The United States Patent and Trademark Office (USPTO) allows inventors and assignees to file provisional patent applications before filing a utility patent application covering the same subject matter. Provisional patent applications do not get published or examined and expire after one year. Even without a substantive examination, provisional patent applications are a powerful tool for protecting intellectual property.
A provisional patent application can provide earlier protection for your invention. Since the move to a first-inventor-to-file (FITF) system in 2013 it has become more important than ever to have an application on file with the USPTO as soon as possible after developing a new innovation. A provisional patent application acts as a placeholder, providing the applicant with an early filing date for any features disclosed in the application. If a non-provisional utility application is filed within one year of the filing date of the provisional application, that utility application will be able to claim priority back to the filing date of the provisional. It’s especially important to get an application on file before disclosing the invention to others, whether by selling products, presenting at a trade show, or even working with suppliers.
A provisional patent application can also be less expensive to prepare and file. Currently, the fees for filing a provisional application are a fraction of the fees for filing a non-provisional utility application (which include search and examination fees). In addition, because the provisional application won’t be examined, it can be less formal, as long as all of the details that you want to protect are disclosed. One strategy that is commonly used is to file a provisional quickly after developing an idea, and then use the one year pendency period to test the market, scale up production, or even find investors. At the end of the year, if the product seems viable, a utility application can be filed with claims based on the actual products. Another strategy is to file a comprehensive provisional application in order to reduce the costs involved in preparing a utility application for examination.
In all, there’s much more power in a good provisional application than the all-important “Patent Pending” labeling. Smart provisional application strategies can result in better and more enforceable intellectual property rights at an efficient cost.
Q: What factors go into the decision to register a trademark for a new product?
First, it should be noted that common law trademark rights arise from actual use of a trademark (or “mark”). So, it is not necessary to federally register your mark to enforce your rights in the geographic area in which you’ve used the mark. However, there are significant benefits to federally registering your mark as compared to relying upon common law trademark rights. These include:
- Nationwide rights, instead of just the geographic area of use.
- Right to use the ® symbol with your mark.
- Constructive notice nationwide of the trademark owner’s claim.
- Additional evidence of the ownership and validity of the trademark.
- Jurisdiction of federal courts may be invoked.
- Potential recovery of infringer profits, statutory damages, attorneys fees, and treble (triple) damages for willful infringement.
- Registration can be used as a basis for obtaining registration in other countries.
- Registration may be filed with the U.S. Customs Service to prevent importation of trademark infringing foreign goods.
When weighing these benefits against the cost of registration (about $2,000 for one class of goods), you should consider the following factors:
- Is the new product going to be a flagship of your company? If the product will be a significant contributor to your company’s revenue, then federal registration will lock down the source of the product (your company) and protect the product from knock-offs.
- Is the new product patentable? Names of patentably new products can quickly turn into generic terms. Federal registration will prevent others from using the same term for their competitive products and causing the mark to become generic (e.g., Aspirin was once a trademark).
- Does the mark easily distinguish your new product from competitors? The better the mark is at distinguishing your product, the more valuable it is as a source identifier, which supports federally registering the mark.
- Do you expect a competitor to attempt to register a similar mark? If so, federal registration will help prevent competitor registration because the USPTO must consider your registered mark before allowing the competitor’s registration.
- Is the new product a consumer good? A Columbia University study concluded that for consumer products and services, well-managed brands typically represent 50-80 percent of the total value of their companies. Marks for consumer goods benefit most from federal registration.
- Do you expect to license the product? If your new product will be licensed for sale or incorporation into another business’ product, federal registration will help protect your mark from marketplace confusion because you can include marking requirements in the license.
- Is there a question of whether or not your mark may infringe a competitor’s mark or may not qualify as a true trademark? If you’re unsure about the ability to enforce your mark, federal registration provides the presumption of validity as a mark and a presumption that the mark is not confusingly similar to another registered mark.
Other factors can also go into deciding to register a trademark for a new product. Many are specific to the industry and product. So it’s always the best practice to consult with a trademark attorney before deciding whether to register a trademark.
Q: Are patent trolls still a concern, or has recent legislation slowed them down?
A: Non-practicing entities (NPEs) and patent assertion entities (PAEs), collectively better known as “patent trolls,” have been around since Henry Ford started his automobile company. Patent trolls typically obtain patents inexpensively from failed or bankrupt inventors or companies and don’t produce products or operate under the patents. Instead, they threaten companies to either agree to license fees or be sued. Because the license fees are a fraction of defending a patent lawsuit, many companies choose to settle even if they don’t believe they infringe.
The United States Patent and Trademark office (USPTO) is limited in steps it can take to address patent trolls because it doesn’t have legal power to interpret patent law or have courts abide by its regulations. The USPTO has taken steps to improve the quality of future patents and fix or eliminate bad issued patents, which will get rid of many of the patents that trolls are using. However, because there are so many questionable issued patents, USPTO action alone cannot address the problem.
Legislative attempts to address patent trolls are stuck in a quagmire of differences on how to best deal with them. Some legislation is directed to the demand letters sent by patent trolls—specifying the minimum content of the letters and requiring such letters be sent to a national database that can be searched by manufacturers. Others are directed at the pleading requirements for patent lawsuits. However, there are some in Congress that believe patent owners have been unfairly targeted for enforcing their intellectual property and are introducing legislation to make patents easier to enforce and protect them from post-issuance review.
The most promising bill, the Innovation Act, reintroduced in the U.S. House in February 2015, addresses every area of reform that is being considered. The Innovation Act heightens the pleading requirement for litigation, includes fee-shifting provisions, and adds protections for end-users. The Innovation Act also makes it more difficult for patent trolls to file their cases wherever they want. A similar bill has been introduced in U.S. Senate – the Protecting American Talent and Entrepreneurship Act (PATENT Act). There are differences between the two bills that will require a conference committee to hammer out before a bill can be forwarded to the White House.
Until Congress acts, there are few disincentives preventing patent trolls from squeezing manufacturers. In the meantime, manufacturers can best protect their interests by using competent intellectual property counsel and actively supporting legislative reform.
What has been your experience with patent trolls? Has this discussion come up within your company? Do you have policies for dealing with them? Leave a comment below. And please click the sidebar button to send us a question for the November issue of MA Insider.