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Patent Primer for Startups and Businesses

uspto officesIf your business venture or startup involves an innovative process or design that is capable of being patented, you will want to make sure you fully understand the patent process and take steps to patent your invention pretty quickly.  Patent laws in the U.S. bar an inventor from seeking a patent more than 1 year after the invention has been publicly disclosed, so startups must act quickly or else face losing what may be their most valuable asset.  It can be difficult for founders to get the funding necessary to file a provisional patent application given how much time it can take to secure investor funding. However, if the business/startup waits too long, the 1-year bar may become effective and make it impossible to prevent another competitor from manufacturing and selling an identical product.

What is a Patent?
A patent is a limited monopoly that gives an inventor the exclusive right to prevent others from using the inventor’s invention. Patents do NOT give the inventor the right to make, use, offer, sell, export, or import the invention. There are two types of patents, utility patents and design patents.  Patents are obtained by filing applications through the U.S. Patent and Trademark Office.  Patents are considered intellectual property assets, meaning, they can be bought, sold, transferred, etc.

What is Patentable?
To be patentable, an invention must be new, useful, and non-obvious.  U.S. patent laws allow inventors to patent processes, machines, products, and compositions of products. It is impossible to patent some things, like laws of nature, natural phenomena, and abstract ideas. The invention must be completely new, meaning, it cannot have been in the public domain or in the market prior to the filing of the patent application, whether domestically or internationally.

What is the Difference Between Utility and Design Patents and Which One Do I Need?
A utility patent protects the way an invention functions. It can consist of a process (such as computer software, programming code, etc.), a machine, such as a camera, videorecorder, or similar item, a product of manufacture (like a light bulb, tool, etc.), the composition of a matter (like the formula to a soap or hand-cleaner), or an improvement of an invention mentioned above. Many inventions fall into two or more categories. Design patents on the other hand, protect the way an invention looks.

The 1 Year Bar
An inventor has 1 year from the date the product is invented to file an application in the U.S. to protect the invention. To protect the patent internationally, a priority application must be filed BEFORE any public disclosure or use or sale or offer for sale because there is generally no grace period for foreign patent applications. What triggers the bar date? Journal articles about the product, product release brochures, conference presentations, abstracts, website postings, selling and offering the product for sale, even under non-disclosure agreements.

“There’s No Product Like Ours In the Market”  
Searching for existing patents should be one of the first things a startup should do. Startup founders and entrepreneurs can often be very excited to bring an invention to market… only to realize after a substantial investment of time, money, and resources, that there is already an existing patent covering the new invention. Just because a product is not in the marketplace does not necessarily mean that there is no patent for it. Individuals and companies have the right to hold patents without bringing the product into the marketplace, so there is a risk that a founder’s new invention infringes on an existing patent for an invention that is simply not currently on the market.

The Patent Process
The patent application begins with the filing of the application with the U.S. Patent and Trademark Office. From there, the patent will be assigned to an examiner. The examiner will then examine the application and respond to the inventor, either rejecting the claim, or requesting more information.  These are called “office actions.” Many, many patent applications are initially refused, for various grounds. The inventor then provides a response, and the process repeats itself until the application is either rejected for good or approved. The patent examiner will require drawings, models, and specimens to be presented, and depending on the type of product the inventor is seeking to patent, an embodiment of the invention.  After the patent is allowed, the applicant will pay the issue fees, and the patent will issue.

Provisional Patents
Most startup founders and entrepreneurs begin with the filing of a provisional patent application.  Provisional applications are never actually examined by the U.S. Patent and Trademark office. They are merely “placeholders” that establish the priority date for the patent. The provisional patent expires within 12 months, and must be re-filed to maintain the priority date.

The Patent Application
Startup founders are quite often surprised to see how technical patent applications are. They are often written using extremely technical language, and will include drawings, specifications, as well as an explanation of the design or process being claimed as part of the patent. The usefulness of a patent and the right to prevent others from marketing/selling the patented product depends heavily on the quality of the patent application, and how much specificity is provided. Some startup founders make the mistake of using DIY or “Zoom” type document preparation services to prepare their patent applications, only to have it rejected by the U.S. PTO or basically useless because of poor quality. The patent application is like getting a tour guide – for the tour to be useful, the tour guide must know the location well and be able to give clear directions and know the ins and outs of the vacation spot, otherwise, the vacationers will end up with a terrible experience and feeling as though they wasted money. Imagine having a tour guide who is a complete stranger to the location that they are providing tour guide services for – how on earth would they know what to recommend to the vacationers?

Time Frames and Filing Fees
There is no denying it – patents are expensive. The average legal fees to file a patent application in the U.S. usually start at $7,500 and up, often $12,000 – $15,000. It is often necessary to file applications in several countries internationally as well, as well as the substantial fees to maintain the patent over the course of the invention’s life.

Founders’ Dilemma
Founders of startups inventing a new invention are often faced with a dilemma – to make money from the invention, investors must be solicited, and investments must be secured, so that the startup can grow, build a prototype, and obtain a patent. But the act of pitching the invention to potential licensees rusk the risk of disclosing so much information that the invention is no longer stolen or protected. What are the alternatives? Filing a provisional patent, if the invention is patentable, or using a non-disclosure agreement, if the invention is not patentable.  Non-disclosure agreements are intended to keep the invention secret, as to the public, while permitting the founders to share details about the invention to potential investors through the due diligence process.

Founders should also keep in mind that it is very easy to overshare too many details about the invention. For example, any founder with a Facebook, Instagram, Twitter, or other social media account that shares photos, videos, or information about their invention automatically licenses it, world-wide, on a royalty-free basis, to the social media provider, under the terms of the social media provider’s terms and conditions.

Protecting the Company’s Right to the Invention
During the product-development phase, founders tend to rely on contractors skilled in the technical area of expertise required (often from other countries, and often using freelance services). It is critical that founders/startups ensure that the work provided by contractors is subject to a work-hire provision and IP assignment agreement so that the ownership of the work provided by the contractor lies in the startup, and not the contractors (which would be the default position).

Dealing with Competitors’ Counterfeit Products from China and Elsewhere
One of the biggest problems that successful U.S. product manufacturers face is relentless competition by way of counterfeit products produced in China and elsewhere, that are replicated almost immediately after the U.S. product manufacturer invents its products. These counterfeit competitors are usually based overseas with a single distributor or sales representative here in the U.S.  Unfortunately, because the patent process requires inventors to obtain a patent in every country where protection is desired, it can be difficult and expensive to enforce patents worldwide. To learn more about enforcing patents abroad, check out our handy guide here.

Selling the Patent
There are professional inventors out there that do not bring inventions to market – merely invent them and license the patent to larger companies in exchange for a payment, royalties, or both.

Patent Infringement
If an invention infringes on an existing patent, the patentholder can sue the infringer in federal court, alleging patent infringement. The usual defense is that the patent was wrongfully issued and should never have been issued. If you think that someone else is infringing on your patent, it is best to get a lawyer involved. The starting point is generally for your legal team to issue a cease and desist demand to the infringer demanding that their infringing content halt immediately.  Patent infringement lawsuits are litigated in federal court, which is a stricter and less desirable forum than in state court, and unless you sue the infringer in their home jurisdiction, the infringer responds initially by asking the Court to dismiss the case on the basis that they are not subject to the jurisdiction of your jurisdiction. Again, an intellectual property litigation attorney can help with these and other strategic considerations.

AXIS Legal Counsel offers representation to individual and business clients in numerous infringement, trademark, copyright  and other similar types of intellectual property matters. For information on retaining AXIS Legal Counsel to represent you in connection with an intellectual property matter, contact [email protected] or call (213) 403-0130 for a confidential consultation. AXIS Legal Counsel serves clients throughout Los Angeles and California.   Our Intellectual Property Rights Practice helps clients protect their ideas, inventions, and works of authorship, to copyright, trademark, patent, and secure other intellectual property rights in products, goods, services, inventions, and works of authorship.   Axis’ managing attorney Rabeh M. A. Soofi is ranked as one of the “Top Women Lawyers of Southern California” by SuperLawyers Rising Stars, and counsels clients in need of a Los Angeles Intellectual Property Attorney for trademarks, copyrights, and patent matters.

For information on retaining AXIS Legal Counsel to represent you in connection with any intellectual property matter, contact us at (213) 403-0130 for a confidential consultation. AXIS Legal Counsel serves clients throughout Los Angeles and California.

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