Editor’s Note: Leonid (“Lenny”) Kravets is a patent attorney at Panitch, Schwarze, Belisario and Nadel, LLP in Philadelphia, PA. Lenny focuses his practice on patent prosecution and intellectual property transactions in computer-related technology areas. He specializes in developing IP strategy for young technology companies and blogs on this topic at StartupsIP. Follow Lenny on Twitter: @lkravets and @startupsIP.
One of the most frequent questions I get asked goes something like this: “I have a really great idea, but (name of big company or university) has a patent on that. What do I do?” With over 8,000,000 patents issued to date and thousands of new patents issued weekly, chances are good that patents have been issued that are relevant to your business or idea. Knowingly infringing an active patent can lead to disastrous consequences for your business. So what do you do?
Well, those people who have asked a patent attorney have already taken the right first step. Patents are legal documents and can be incredibly difficult to understand for those who are not well versed in the language of “Patentese.” Talking to a patent attorney is invaluable when dealing with a patent issue. So what follows is a discussion of a few things that should be considered to help give a better understanding of the process and to show that it is not necessarily a hopeless situation.
Issued Patents vs. Published Patent Applications
First, it is important to know the difference between an issued patent and a published patent application. A published patent application is not a patent, though it may one day become one. The easiest way to tell whether you are looking at a patent or a published patent application is to look at the serial number of the document. A published patent application number starts with a year for when the application was published and then has a slash and an eight digit number following the year (e.g. 2011/01234567).
An issued patent is typically only 7 digits long, without referring to a specific year. The newest patent issues will start with an 8 million number (e.g. 8,123,456), while earlier patents start with earlier numbers (e.g. 7,456,789). Note that for older published patent applications, it is possible that the application has been issued as a patent under a different number, so it is important to investigate further to confirm whether a patent has issued. The USPTO’s Public PAIR system can be used for this purpose. Even if the application has not proceeded to an issued patent, it may still issue at a later time if the USPTO allows it. As a result, it is prudent to continue to monitor applications that concern you in order to receive notification of a change in status.
Is the patent still active?
Once it is determined that you are looking at a patent, the next step is to make sure that the patent is still active – that is, that the patent has not been abandoned or expired. While over 8 million patents have been issued, many of these patents have either expired due to their age or have become abandoned for a variety of reasons. For example, patent owners are required to pay maintenance fees at predetermined time intervals. Non-payment of a required maintenance fee will result in abandonment of the patent. The Public PAIR system provides a convenient way to check whether the patent has become abandoned.
However, Public PAIR will not tell you whether a patent has expired. Newer patents (those filed on or after June 8, 1995) have a term of 20 years from the earliest effective filing date, while older patents (filed before June 8, 1995) had a life span of 17 years from issue. In addition, for some time before the June 8 date, there was a grace period that provided the patent holder the choice of the longer of 17 years from issue or 20 years from earliest effective filing date. For newer patents, calculating the earliest effective filing date can itself be challenging where there are multiple family members from which the patent claims priority. Therefore, it can be confusing to determine if a patent has expired or when exactly it will expire.
One tool for determining a patent’s expiration date is the Patent Calculator. However, this tool can’t help with determining the patent’s earliest effective filing date. Further, the tool does not take into account Terminal Disclaimers or Patent Term Adjustments. Terminal Disclaimers (usually indicated on the front cover of the patent) tie a patent’s expiration date to that of another patent and can decrease the life span of a patent. Patent Term Adjustments (also indicated on the front cover of the patent) are granted by the USPTO as a result of delays during the prosecution of the patent application and extend the life span of a patent. Finally, the PAIR system will not specify whether a patent has been found invalid as a result of litigation. Thus, it is best to speak with a professional who knows how to perform this check and evaluate the results.
Check the claims
Once it is determined that the patent is active, the next step is to look at the claims of the patent. The claims of the patent are typically at the very back of the document and define the scope of the legal protection given to the owner of the patent. These sections typically begin with “what is claimed is” (See below for a sample.)
Claims are typically the hardest part of the patent to understand because they are written in a very specific way (each claim is a single sentence). Since the breadth or narrowness of the exact claims will determine whether the patent covers your idea, it is important to understand what specifically is covered by the claims. Consulting a patent attorney is critical at this point. If the attorney determines that the claims of the patent do not read on the idea, a clearance opinion can be written to formalize this finding.
Although it may not be strictly necessary, it is nevertheless good business practice to obtain a clearance opinion if the funds for such an opinion are available. A clearance opinion can be relied upon as a defense to 1) willful infringement, or 2) inequitable conduct. Therefore, the clearance opinion can help protect the company from having to pay punitive damages if the company is later found to have infringed the patent.
Assignments and Licenses
Assuming that the patent is active and that the claims of the patent read on your idea, there are still several options to explore. If the patent holder is not actively practicing the idea, it may be possible to explore a license to practice the invention. A license can be either exclusive or non-exclusive. Obtaining a non-exclusive license means that the patent owner can give licenses to other entities, such as your competitors. The grant of an exclusive license typically means that no other party can have a license to the patent. Licenses can also be sub-licensable and transferable, in case the company is sold or merged. Many patent owners are willing to offer licenses in exchange for equity in the company or for a portion of the profits to be paid at a later time when “profits” become available. Thus, it is not always necessary to have funds available to receive a license.
If the patent is especially relevant to the idea, it may be worthwhile exploring purchasing the patent outright. Patents are valuable and many entrepreneurs may not be able to afford a high purchase price. However, if the patent provides a broad scope of coverage, acquiring it can provide a significant advantage to the entrepreneur by providing a barrier to entry for competitors and by making the idea/business more appealing to potential investors. Further, by purchasing an existing patent, the waiting period, uncertainty, and expense of filing your own patent application can be avoided. Again, creative arrangements for assigning the patent rights can be pursued. For example, assignment of the patent in exchange for equity in the company or for a share of the profits may be attractive to both parties.
Talk to an attorney
Consulting a patent attorney who specializes in transactional practice will be instrumental in determining whether a license or acquisition of the patent is beneficial and/or necessary for the business. Further, the attorney will be instrumental in negotiating reasonable terms, whether an acquisition or a license is sought. If a deal is possible, entering into such an agreement (whether a license or a patent acquisition) has the added benefit of giving the entrepreneur a partner who will have an immediate, active interest in helping your idea succeed. Thus, while it may be tempting to just give up at the sight of a patent, becoming better educated about the patent can result in a positive situation both for the entrepreneur and the patent holder.