Issue #29-2 | October 24, 2013

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What we have learned about provisional patent applications since the introduction of AIA

Provisional applications for patents serve to lock in a filing date and obligate the applicant to file a regular patent application within a year. There are two distinct benefits. The first is perhaps cosmetic, not adding to patent value, but it may serve important notice to competitors: Provisional filers can label their product “patent pending.”

The second, however, directly affects valuation: The filing of a provisional application grants the filer up to 12 months’ additional time on the patent, as the provisional filing date is used as the date filed, but the nonprovisional filing (the patent application) determines the start date for purposes of patent expiration. Valuators who use the patent expiration date as the useful life need to take into account whether a client first filed a provisional application and the exact dates of both filings.

Learning from what has happened since enactment of the America Invents Act (AIA), Jim Singer, writing in IP Spotlight, issued some cautionary guidelines regarding provisional patent applications, stressing they can offer a false sense of security for applicants who do not create a proper filing.

Historically, a research paper and brochure might suffice for a provisional patent application. Not so anymore. Today, a provisional patent application must fully describe and enable the invention. In university and research settings, inventors are used to filing a research proposal as a provisional application. In effect, the research paper will describe what the inventors plan to do and how they plan to do it, “but it often fails to describe the actual invention.” As such, it becomes little more than competitive intelligence.

Singer cites Novozymes A/S v. DuPont Nutrition Biosciences APS, where the Federal Circuit invalidated a patent because its application (including the corresponding provisional patent application) “failed to show that the applicants actually understood the invention at the time of filing.”

The provisional patent application should specifically describe what the inventors believe will result from the research, what practical applications may result, adding where possible potential alternative results.

The law does not require claims in the provisional patent application. However, the law does require that anything claimed in the formal application be disclosed in the provisional. “If the claims include new matter, the claims will not get the benefit of the provisional application’s filing date.” Singer suggests applicants prepare some claims before filing the provisional application, even if they don’t appear in a traditional claims format.

Inventors should review the provisional application regularly—such as monthly or quarterly—not wait the full year. The one-year grace period in the law applies to disclosures by the inventor only, so others may be locating prior art.

Finally, inventors who have partially developed an invention should consider filing a provisional patent application early, then, as developments occur over the succeeding 12 months, consider filing additional provisional applications “to fix filing dates for new subject matter as it is invented.”

Three factors that make a patent valuable

Bruce Rubinger, of Global Prior Art Inc., writing in IAM Magazine, beseeched patent managers to understand what makes patents valuable before setting out on a monetization quest. The concepts are equally useful to valuators.

According to Rubinger, most patent owners operate in a crowded IP space, wherein patent strength depends upon novelty, broad claim coverage, and commercial viability.

Novelty is less obvious than one would think. A patent should not be obtainable if the innovation isn’t novel. However, as Rubinger points out, there is a significant difference between the patentability search that authorities conduct and an “invalidity search” that competitors or potential licensees will conduct. With technology companies, for example, a party solicited to license a patent may well conduct its own, exhaustive “invalidity search” for prior art showing that the concept was known before the effective date. The suggestion is to ensure novelty the patent owner should conduct its own invalidity search.

A valid patent may have little commercial value if the claims are narrow. Any potential licensee will research to determine whether the patent “reads against its product or process.” The broader the claims, the more likely they will impact the target client.

The best innovation in a commercially unviable space has little value. For valuation analysts, the importance of assessing the market factors cannot be overstated.

Rubinger recommends that IP owners conduct an annual audit of their holdings to confirm that IP departments are creating, maintaining, and exploiting “strong patents covering critical technologies.”

Study reviews patent policies for leading standards-setting organizations

A new study, Patent Challenges for Standard-Setting in the Global Economy: Lessons From Information and Communication Technology, examines how 12 leading national and multinational standard-setting organizations (SSOs) address patent disclosures, licensing terms, transfers of patent ownership, and other tensions between patent owners and users that arise in connection with developing technical standards for consumer and other microelectronic products, associated software and components, and communications networks including the Internet.

A summary states, “Because these organizations have diverse stakeholders and constituents with divergent interests, few articulate clear objectives for their intellectual property rights (IPR) policies or clear criteria for FRAND (fair, reasonable and non-discriminatory) licensing commitments. Moreover, often the policies lack guidance for litigation over the infringement of SEPs (standard essential patents) and changes in SEP ownership.”

William New, writing in Intellectual Property Watch, summarized the report’s call to action. He said that it called on SSOs to develop more explicit policies to avoid “patent holdup” and limit injunctions for infringements of patents with FRAND (RAND in Europe) licensing commitments. New said that the study further recommends that government institute measures that will improve patent ownership transparency and reduce international conflicts between and among IP laws.

Organizations studied included: International Organization for Standardization (ISO), International Electrotechnical Commission (IEC), International Telecommunication Union (ITU), Institute of Electrical and Electronics Engineers (IEEE), European Telecommunications Standards Institute (ETSI), American National Standards Institute (ANSI), Internet Engineering Task Force (IETF), Organization for the Advancement of Structured Information Standards (OASIS), VMEBus International Trade Association (VITA), World Wide Web Consortium (W3C), High Definition Multimedia Interface Forum (HDMI), and the Nearfield Communications Forum (NCF).

The report resulted from a symposium conducted October 3-4 in Washington, D.C., chaired by Keith Maskus of the University of Colorado.

Rules differ between U.S. and Europe on prepatent filing disclosure

Florian Mueller writing in FOSS Patents issues a warning for valuators attempting to take into account the global value of a technology patent as he describes what happened to Apple in its dispute over iPhone patent EP2059868 in Germany.

In January 2007 Steve Jobs put on one of his famous dog and pony shows revealing all the “cool” features in the smartphone. It was a video seen by millions. In Mueller’s own words:

Apple forgot about an important difference between U.S. patent law at the time and the patent laws of the rest of the world, especially Europe. In the United States in the pre-America Invents Act days, innovators had a twelve-month grace period to file for inventions after making an invention, and during those twelve months nothing that anyone would show publicly or publish would be eligible as prior art. In Europe, however, there never was such a grace period for patent applications, and even an inventor’s own public demos could always be held against his own patents if they took place before the filing of an application. Even now, with the AIA in force, U.S. patent law has an exception in place for pre-filing disclosure by the inventor (35 U.S.C. 102(b)(1)(A)). Europe has always been stricter.

As a result of this difference, late last month the federal patent court of Germany sided with Samsung and Motorola Mobility in declaring the patent (part of the “rubber band” features) invalid.

Replacement coffee cartridge makers win IP battles on two continents

Investors and valuators alike put a high value on continuity revenues: insurance, subscriptions, even razor blades. Keurig Inc. went to court to protect its recurring revenues from single-serve coffee cartridges from being eaten into by rival cartridge maker JBR, claiming infringement of one design and two utility patents.

The design patent claim was lost because the judge could easily differentiate between the two cartridge designs. A claim that JBR indirectly infringed because its customers were using JBR cartridges was dismissed because of the first sale doctrine: The patent holder cannot control how a device buyer uses the device. The sale of the product (or licensing of the product) exhausted the patent. JBR prevailed on all three claims.

At the same time this was happening to Keurig, a similar ruling went against Nestle in Europe. Key point for valuators: The “first sale” doctrine will limit patent holders’ enforcement opportunities against manufacturers that make replacement cartridges that work in original, patented machines.

Judge proposes change of jurisdiction for patent cases

In a recent speech at the IIT Chicago-Kent College of Law, the chief judge of the 7th Circuit Court of Appeals, Diane Wood, raised more than a few eyebrows when she questioned the wisdom of granting the Federal Circuit exclusive jurisdiction in patent cases, suggesting the regional circuits could handle some of the cases.

In her opinion, the rationale for the type of specialty court the Federal Circuit represents may no longer hold up. Patent cases are no more complex than many of the other cases federal judges in all the circuits handle regularly—think environmental or bankruptcy cases. Wood pointed out that regional appellate judges have the benefit of a free exchange of ideas within the circuit and with other circuits, making for a dynamic debate on the issues, something the Federal Circuit isn’t set up to do. In addition, the Supreme Court has taken on a relatively large percentage of cases coming from the Federal Circuit, which signals that the stakes are high and a second opinion is desirable.

Zyla advises analysts to pay particular attention to IP R&D in their valuations

One speaker at the recent 14th annual conference of the newly reorganized Southeast Chapter of Business Appraisers held in Atlanta was Mark Zyla (Acuitas Inc.), who alerted valuation analysts to the importance of assessing an oft-overlooked intangible, in-process R&D.

The next generation of intellectual property can be critical to the value of a business, according to Zyla. The stage of IP R&D heavily impacts the value of technology companies, in particular. In general, companies with IP R&D have higher value than those without. Zyla says that in some cases the value of the IP could exceed the value of the company when IP is underutilized.

How much value would be lost if the Washington Redskins changed their name?

Legislators are going after the Washington Redskins’ name through the use of trademark law. The “Non-Disparagement of Native American Persons or Peoples in Trademark Registration Act of 2013” would amend the Trademark Act of 1946 by refusing registration to any name using “Redskin” or a derivation thereof.

Presumably, the Atlanta Braves, Chicago Blackhawks, and Cleveland Indians could be caught up in this controversy, depending upon level of offense or closeness of derivation.

In addition, over 60 high schools in the country have “Redskins” as part of their mascot names. Though none of these high schools have tried to trademark their mascot name, the pressure on these high schools to change their name intensifies.

Team representatives point to surveys stating nine out of 10 Native Americans do not find the logo insensitive or offensive, but one real problem for Washington Redskins owner Dan Snyder comes down to the value of the intangibles tied to the Redskins logo. We haven’t seen a valuation, but licensing deals are significant, and the recognition factor is currently very high—the Washington Redskins have been around for 80 years. How would a change impact that value? Would the new federal legislation be enough to force that change? Would current licensing deals become null and void or irrelevant without the backing of trademark protection?

The Licensing Letter tracks licensed entertainment/ character properties with retail sales of $100 million plus

Thirty-four entertainment/character properties had retail sales of licensed merchandise of $100 million or more in the U.S. and Canada in 2012, according to The Licensing Letter (TLL). Disney Princess, Star Wars, and Hello Kitty top the list, at $1.52 billion, $1.47 billion, and $1.08 billion, respectively. Paid subscribers to The Licensing Letter received the complete list in Monday’s issue (an advance copy was sent over the weekend via email), including U.S./Canada and global sales estimates and a breakdown of sales by property owner.

“With its acquisitions in recent years of Marvel and Lucasfilm, while Disney accounts for one-third of the titles on the list, it represents 51% of The Licensing Letter’s estimated retail sales for the $100 million-plus properties,” says TLL publisher Ira Mayer. Average sales per title on the list were $429 million in 2012, up less than 2% compared to 2011.


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