Failure To Establish Clear IP Ownership-What Every Startup Needs To Know Part 4

By Debby Winters

Failure to establish IP ownership rights can be a deal breaker in many business transactions. Due diligence analysis generally seeks to verify not only the startup’s ownership rights to each piece of IP but also to determine if there are any restrictions on its use. Typically IP ownership issues can be averted if addressed early, sometimes even before the incorporation of the startup.

Here are a few of the places where ownership should be established:

  1. Current Employment for the Founders
  2. Employees of the Startup
  3. Independent Contractors
  4. Startup Founders

In this blog, we will discuss the first topic and take up the other topics in subsequent blog posts.

Founders of many startups continue to work for their current employer while they establish the new company. The employer may have required that the Founder/employee sign a confidentiality or invention assignment agreement in which the employee agreed to assign all new ideas and inventions related to the employer’s business to the employer. This is particularly problematic if the startup product or service is closely related to the employer’s business as the employer may try to claim rights to the startup’s IP.

Thus, it is important that founders carefully review their current employment agreements and fully understand employment obligations, including IP assignment clauses and non-compete language. Employees should also consider discussing personal projects/inventions with their employer upfront to avoid ownership issues later down the road. Generally, employer resources or company time should not be used to develop projects for the startup company without the pre-approval of an employer and without the employer’s agreement not to claim ownership rights.

In the next blog, we will look at establishing ownership of IP with employees of the startup.

Commemorating Five Years of the America Invents Act

On Wednesday, September 21, members of Congress and key congressional staff, USPTO leadership, and stakeholders from industry and the inventor community came together again to commemorate the 5th anniversary of the AIA on Capitol Hill.  What follows is a guest blog by Dana Robert Colarulli, Director of the Office of Governmental Affairs that appeared on the Director’s Forum Blog on the USPTO website. Enjoy!

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“We’ve come a long way in five years. The Leahy-Smith America Invents Act (AIA), signed in 2011 by President Obama, modernized the U.S. patent system and, as a result, helped strengthen America’s competitiveness in the global economy. Together with our stakeholders, the USPTO sought to implement the act consistent with the intent of Congress to increase certainty in our nation’s intellectual property (IP) landscape and enable the brightest ideas and most ambitious endeavors in the world to come to light.

I was there in 2011 and the years leading up to the President signing the AIA and have watched the agency embrace and implement the numerous provisions in the act. On Wednesday, September 21, members of Congress and key congressional staff, USPTO leadership, and stakeholders from industry and the inventor community came together again to commemorate the 5th anniversary of the AIA on Capitol Hill.

The event featured remarks from USPTO’s Director Lee, Representative Lamar Smith and Senator Patrick Leahy on the history of the AIA, the need for change, and the AIA’s impact on the IP system – even as we continue to evaluate these sweeping changes and look for ways to further improve our system. A panel discussion at the event focused on the impact the act has had on businesses and inventors of all sizes and what may be next in the way of improvements to the patent system.

The AIA implemented a number of significant changes to update and improve the U.S. patent system.  Upon signing the bill in 2011, the President described what the bill hoped to accomplish this way:

“It’s a bill that will put a dent in the huge stack of patent applications waiting for review. It will help startups and small business owners turn their ideas into products three times faster than they can today.  And it will improve patent quality and help give entrepreneurs the protection and the confidence they need to attract investment, to grow their businesses, and to hire more workers.”

The USPTO has delivered on that promise by reducing the patent application backlog by nearly 30 percent from its high in early 2009, speeding up examination including introducing a fast track option with discounts for small entities, and leveraging the increased financial stability and fee setting authority provided by the act to reinvest user fees into increasing quality under Director Lee’s Enhanced Patent Quality Initiative.

And just this week, the USPTO and the Economics & Statistics Administration at the Department of Commerce released an updated report on the impact of IP on the U.S. economy, reiterating in quantifiable terms the importance of a well-functioning IP system.

The increased attention and focus on our IP system in recent years is critical, and our job to look for ways to further improve did not end with the AIA. Again, the President stated in 2001:

“And we have always succeeded because we have been the most dynamic, innovative economy in the world. That has to be encouraged. That has to be continued.”

Inventors and innovators in the U.S. and around the world deserve a system that evolves and improves right along with the pace of technology – an important reminder as we celebrate the 5th anniversary of the AIA.”

Learn more about the impact AIA has had over the last five years in:

The Keurig…Part II

By Debby Winters

It isn’t often that the day after I post a blog that I see two very relevant articles to update my blog from the day before, but that happened today.

I opened my local newspaper and saw an article entitled “Keurig coffee-pod disputes percolate.” My immediate reaction was to the title. I wished I had thought of something that clever for my blog yesterday. I went on-line to find the original Associated Press article entitled “In Battle for Coffee Pod Market, It’s Keurig v. Recyclables” by Ellen Knickmeyer. This article references the same youtube.com video and gives the same statistics that I listed in my blog. Ms. Knickmeyer says Keurig’s response to this environmental controversy is “Keurig says the fight boils down to how to make the best cup of coffee, and the company has pledged to come up with a fully recyclable pod of its own by 2020. The throw-away containers, both by Keurig and its competitors, allow coffee drinkers to get a quick cup without messy grounds.” At least Keurig is trying to make things better. And at least their main concern is making the best cup of coffee.

Well, this is the main concern for inventor Alan Adler as well! At the age of 75 he invented the AeroPress or the Aerobie. His invention is the “$30 single-serving plastic device that looks like a hand pump and, in the opinion of some of the world’s leading coffee snobs, outperforms thousand-dollar espresso machines.” Before his quest for the perfect cup of coffee, he invented and patented “a portable lamp, which had a circuit which converted three-volt battery power into high voltage to power a fluorescent bulb. But it never got into production.” He is also credited for designing and improving toys that he licensed to Wham-O, including a toy much like the slinky. That’s not the only toy he invented that I’m sure you’ve seen. He invented the Skyros that Parker Brothers sold by the millions. It is an “improved” frisbee with an open center.  If you are as much into inventor’s stories as I am, you’ll delight at reading this interview of 76 year old Alan Adler- ” The Invention of the Perfect Cup of Coffee.” There’s a picture of Adler as an extra bonus. I guess the moral of his story is- It is never too late to invent!

 

Vote for Quirkies Inventor/Invention

By: Debby Winters

Quirky.com presents and sells inventions you may not have heard about. These are often from independent inventors.  Since Wednesday February 11 is National Inventors’ Day, Quirky is giving out some awards, called The Quirkies, to honor the wacky, underrated, and truly game-changing inventors. You can vote for your favorite in several categories.  Place your votes now.

 

Intellectual Property for Start-Ups

By Debby Winters

I work with start-up companies at both early and late stage. One of the questions that I frequently get when I mentor these entrepreneurs is whether they should file for intellectual property (IP) protection for their innovation. Even though it may be a drawn-out process, in most cases it is critical in their business plan to protect their IP.

On average, it takes about two to three years to complete a patent application process and obtain a patent in the United States. Engineering patents are likely to take longer, with average wait times clocking in at almost 4 years. But that time could make the difference in getting investors or not, since the most valuable asset a start-up company has may be its intellectual property, rather than its physical assets.

In addition to filing for patent protection, a start-up company should consider obtaining trademark protection for the name of the business and/or names of products or other parts of its services. Many times entrepreneurs will file both word marks and logos, especially if they have invested time in designing a unique logo. The time for trademark registration can vary from one year to several years but most trademarks that get through the process do so in about a year and a half.

Other intellectual property protection can come in the form of copyright protection for designs, software, or other artistic renditions. Design patents are sometimes an alternative to copyrighting. Another alternative to patent protection can come in the form of trade secret protection. Trade Secrets are not filed with the United States Patent and Trademark Office or with the Copyright Office; rather they are kept a “secret.” That offers many advantages and disadvantages, in keeping it a “secret” and keeping the protection. Trade secrets are not filed at all with any agency. The owner of the trade secret takes extra precautions to make sure no one finds out the “how-to” of the innovation under protection. The biggest advantage to trade secret protection is the cost-savings. Since no time is spent preparing a patent and no filing fees are incurred (same with trademark costs), protection of the trade secret is much less costly. However, since there is no governmental agency to file with, once your trade secret is infringed you have less enforcement power behind it. Once a secret is out, it is out. This can be a huge disadvantage. One of the best known trade secrets is the recipe for Coca-Cola. It has been a closely held trade secret for years with only a few who know the formula.

If you think you have an innovation that could use IP protection, seek advice from an attorney that specializes in Intellectual Property.

Premature Disclosures of Inventions on Social Media Websites

By Debby Winters

As social media becomes increasingly more popular, it is essential that companies and inventors avoid inadvertent disclosures of their inventions on social media networks and the company’s website. I have a client who realized this a bit too late. The company posted a Youtube video on the invention to spark interest and promptly filed a provisional patent application. However, we were not ready to file the utility application within the years’ time and had to file a new provisional patent application. This means more than one year lapsed between posting the video and the subsequent provisional patent application filing. We are now working to find a solution to this problem.

Because social media websites such as Facebook, LinkedIn and Twitter, have changed the manner that businesses communicate and market their products and innovations, we must adapt in our thinking about public disclosures.  Although these tools may be beneficial by creating market “buzz” for new products through rapid information sharing, they may also be detrimental to a company’s patenting practices for the same reason.  If disclosures of up and coming products are made on social media websites without the company first filing for patent protection, and the disclosures are then copied by a second party who then files an application based on the company’s social media disclosures, before the company does, then the first-to-file law could bar the company from patenting the invention, whereas the second party could then obtain patent rights to the invention disclosed on the social media site.

While there are no cases deciding whether Youtube videos constituting a public disclosure, US Patent and Trademark Office Examiner training videos suggest that the provision covering this includes “YouTube videos, Website, and other on-line material”.  Accordingly, if an inventor discusses a new invention on a social media website or even on the company’s website, and that invention is copied by a second person (the deriver), who then files a patent application based on that invention disclosed on the web, the original inventor may lose the rights to any subsequent patent that is issued based on the deriver’s filed application.

However, all may not be lost for the original inventor.  The rights of the original inventor may be protected thanks to an exception.  The exception is what we term the one year rule. This rule gives the inventor one year from the disclosure to file a US application. A glaring issue with the “exception” is what exactly constitutes a “disclosure.”  For example, if the company simply makes a broad announcement of the invention, without any detailed discussions or descriptions, would that “disclosure” be sufficient to allow one of ordinary skill in the art to develop that invention?  In the current environment where much innovation and improvement is centered on facilitating a user’s interface with an electronic device, it is possible that disclosure of minor contemplated ‘tweaks’ to an interface would be sufficient disclosure to enable one skilled in the art to craft and file a complete patent application on the improvement.  Some of the lack of clarity lies in the fact that the granting clause refers to “descriptions” of the invention, whereas the exceptions conferring a grace period refer to “disclosures.”    Until these questions are answered by inevitable litigation proceedings, companies would be wise to revisit their social media and website policies and ensure their IP rights remain protected from the outset.

Perhaps for information that is for an “up and coming” product, companies or individuals can request additional information before such information will be made available on the web.  Some safeguards should be in place to take advantage of the marketing benefits of web disclosure while preventing a deemed public disclosure. Without any precautions, if an inventor or unauthorized employee of a company inadvertently discloses an invention on social media networks, and does not file an application based on that disclosure within a year, a second inventor, or deriver, who obtains that disclosure may file an application based on that disclosure, or may modify the disclosure and file an application based on the modified disclosure.  The filed application would then be considered prior art against a subsequent application filed by the original inventor. Or if the original inventor does not file within one year of the inadvertent disclosure, the original inventor may lose all of its rights.

Inventors and companies ideally should file patent applications prior to making any disclosures on social media websites or on the company’s website.  This protects both U.S. patent rights and patent rights in foreign jurisdictions.  At a minimum, a detailed and enabling provisional application should be filed outlining the basic aspects of the invention, and should be followed up by filing a non-provisional application within a year of the filing of the provisional application.  This is particularly important in instances where the company intends to obtain patent protection in foreign jurisdictions.

It is imperative that companies regularly and carefully examine their technology portfolios and ascertain the importance of each invention.  Detailed provisional applications should be filed quickly for inventions that are of great importance to the company, and applications for which foreign patent protection would be sought.  The company has to ensure that a non-provisional application is filed at the U.S.P.T.O. within one-year of the provisional application.

For less important inventions, and for inventions that will not be pursued in foreign jurisdictions, disclosures may be made as a defensive maneuver.  In other words, a company may decide to disclose particular inventions to preempt protection of a similar invention by a competing company.

Companies should also ensure that employees and investors are aware of the detrimental effects that may result from the inadvertent disclosures of company innovations on social media networks.  In addition to having their employees and investors sign confidentially agreements, extra vigilance should be taken for casual disclosures via social media, the privacy of which cannot be guaranteed.

 

Ensuring Clear Title To Your Intellectual Property When Crowdfunding

By Debby Winters

Let’s start with the basics. What is “crowdfunding” and why is everyone talking about it? Crowdfunding is a way of raising capital from a large number of small donors. The number of crowdfunding portals available is expected to grow rapidly now that equity-based crowdfunding investments have become legal. This allows companies to sell up to $1 million of securities annually. Crowdfunding presents an exciting opportunity to raise money or to pre-sell a product while building product buzz and an engaged customer base.

But here’s the problem when it comes to your intellectual property. To engage the crowd, a large amount of information about the project is shared with the public. If this information sharing includes previously confidential technological details, it could be considered a public disclosure under U.S. patent laws, which could trigger patent filing deadlines.

Those using crowdfunding (either donation-based or equity-based) must be mindful of these filing deadlines to ensure they do not jeopardize their intellectual property rights. This is particularly true for crowdfund issuers who have used government funding or resources while developing their ideas, as they may be subject to the Bayh-Dole Act (BDA). The BDA allows government contractors to elect to retain title to an invention that was created with the aid of government funding, but only if they follow specific steps, in a timely fashion. Crowdfund issuers who have used government funding must ensure that their crowdfund offerings comply with the requirements of the BDA, particularly in light of the recent amendments to the BDA and patent laws affected by the America Invents Act (AIA) patent reforms.

A public crowdfunding disclosure may have an impact on the timing of two BDA requirements: 202(c)(2), the written election to retain title, and 202(c)(3), the agreement to file patent applications covering the subject invention before statutory bars. The deadline for electing to retain title to an invention under the BDA is two years after disclosing the invention to the government. However, this deadline may be moved up significantly by a public disclosure of the invention, including, in many cases, the disclosures associated with a crowdfund offering.

The BDA provides that if the AIA’s one-year grace period for filing a patent application would end before the BDA’s two-year grace period for electing to retain invention rights, the time for written election to maintain invention rights may be shortened by up to 60 days before the end of the AIA’s one-year grace period. Failure to act within the allotted time period could lead to forfeiture of rights to retain title to the invention.

Crowdfund issuers also should be wary of the AIA’s one-year grace period for filing patent applications. Because of this switch to first to file, inventors will no longer be able to “swear behind” art developed between an inventor’s date of invention and the patent application filing date. Thus, to avoid this potentially invalidating art, crowdfund issuers should file applications and elect rights to an invention as soon as possible and not rely on the one-year grace period for filing a patent application.

Additionally, crowdfund issuers must take care to disclose all required information to potential investors. For those subject to the BDA, this will include notifying investors about all rights that the government has or may have to the invention. This is particularly true if the company has not yet filed a patent application or has not yet made a written election to retain invention rights.

An investor may elect to purchase crowdfunded securities based on the perceived value of the technology described in the crowdfunding disclosure. However, if the company fails to follow the requirements of the BDA and does not properly elect to retain rights, the government, not the company, may obtain the patent rights to the disclosed technology. This may adversely affect the value of the securities and could trigger allegations of a material misstatement or omission.

Given the complexities of intellectual property ownership under the BDA, companies should take special precautions to ensure clean title their IP rights before they make a crowdfund offering. Here are some things to consider putting into practice:

• Once a federal agency is informed of an invention, the inventing entity should quickly follow the BDA procedures and make a written election to retain title to the invention. It should file a patent application as soon as possible, and under no circumstances should it file the application later than one year after any public disclosure.

• If the company will offer securities, it should elect to retain title to any IP that contributes to the basis for the valuation of a crowdfunding offering before the offering. This will help to ensure that the valuation properly reflects the company’s ownership of the invention.

• If the company cannot afford to file a patent application before raising funds, it should consider filing a provisional patent application as a filing date placeholder. Provisional applications can be less formal than regular patent applications and often can be filed using materials that already have been prepared for the crowdfunding disclosures. Provisional patent applications are an inexpensive way to preserve patent rights under the first-to-file system of the AIA.

• The crowdfunded security offering should clearly inform potential investors of the government’s rights or potential rights to the invention. Even if patent rights are elected in a timely fashion, the government still maintains certain rights under the BDA (e.g., “march-in” rights). Although these rights may be rarely used, they may still affect the company’s valuation and should be disclosed.

• Finally, the BDA only covers inventions made using government funding. To limit the BDA’s applicability, businesses should segregate out as much IP as possible by differentiating it from the subject matter covered by any government funding agreements.

Crowdfunding is a new and potentially powerful tool. Following these steps will help to ensure that a business has a clear title to its IP rights and that it has disclosed all necessary information to potential investors.