PENNSYLVANIA BAR INSTITUTE 14th Annual BUSINESS LAWYERS’ INSTITUTE November 12, 13, 2008

TOP 10 EXCUSES FOR FAILING TO FILE FOR PATENTS (AND WHY

THEY SHOULD BE QUESTIONED)

By: Clark A. Jablon, Esquire Partner Panitch Schwarze Belisario & Nadel LLP

Contact information: [email protected] Tel. 215-965-1293

The opinions expressed herein are those of the author and not necessarily those of Panitch Schwarze Belisario & Nadel LLP.

© Copyright 2008 Panitch Schwarze Belisario & Nadel LLP

1 TABLE OF CONTENTS

USPTO Patent Statistics……………………………………………………………………….. 3 Patent Licensing Statistics…………………………………………………………………….. 4 Patent Litigation Statistics…………………………………………………………………….. 4 Patent Procurement Costs……………………………………………………………………… 5 Intellectual Property – Company Market Valuation…………………………………………… 6 Intellectual Property Landscape: Patents vs. Trade Secret…………………………………….. 6 EXCUSE #1: We’re not doing anything that is potentially patentable………………………... 8 EXCUSE #2: Our energies are better spent on marketing and rollout of products and service.. 10 EXCUSE #3: Getting patents costs too much…………………………………………………. 12 EXCUSE #4: It takes too long to get a patent…………………………………………………. 14 EXCUSE #5: Patents are not worth much anymore, even if you can get them……………….. 16 EXCUSE #6: Our company does not have the internal resources to work on getting patents… 17 EXCUSE #7: The Patent Office rejects most patent applications nowadays………………….. 18 EXCUSE #8: Our law firm told us that there was nothing to patent…………………………… 18 EXCUSE #9: Our technology is too old to patent……………………………………………… 19 EXCUSE #10: It’s not our technology, and thus we can’t patent it……………………………. 20

2 USPTO PATENT STATISTICS First, let’s look at the overall patent landscape today. Here are the statistics for the past fifteen years.

Year of Total filed Total Application Non-Provisional Patents Or Grant Patent Applications Granted

2007 484,955 182,901 2006 452,633 196,404 2005 417,508 157,717 2004 382,139 181,302 2003 366,043 187,015 2002 356,493 184,376 2001 345,732 183,972 2000 315,015 175,979 1999 288,811 169,086 1998 260,889 163,144 1997 232,424 124,069 1996 211,013 121,696 1995 228,238 113,834 1994 206,090 113,587 1993 188,739 109,746 1992 186,507 107,394

Source: http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm

Between 1992 and 2007, the number of issued patents increased by 70% and the number of filed applications increased by 160%. In this same time frame, the percentage of patent applications filed by entities of foreign origin has remained fairly steady in the mid-to-high 40’s. Thus, there has been a tremendous increase in domestic patent activity in the past 15 years that shows no sign of tailing off. The most notable trend today is that while the number of applications continues to increase, the number of issued patents is rising at a much slower rate than the increase in applications. This trend has two explanations. First, the backlog of unexamined applications is increasing. More importantly, though, the percentage of applications that result in an issued patent, often referred to as the “allowance rate,” has decreased significantly in the past few years, from a historical range in the 70’s percentage-wise, to a current range of the mid-40’s percentage-wise. The plummeting allowance rate is attributable to

3 many factors, including more rigorous examinations, less willingness by Applicants to narrow the scope of claims to obtain an allowance, and more Office Actions issued per case by inexperienced Examiners. All of these factors increase the ultimate cost of obtaining patents. Since most Applicants have fixed budgets in which to prosecute applications, more applications must go abandoned to stay within budget limits.

PATENT LICENSING STATISTICS

Year Worldwide revenue (in billions) 1990 $15 2000 $110 2015 (estimated) $500

Most of these license deals include one or more U.S. patent properties. Also, the vast majority of these license deals do not involve any litigation activity. Fewer than 3% of patents generate royalty income. This number has remained fairly steady over the years. However, since the number of patents issuing is increasing at a far slower rate than the increase in worldwide license revenues, the average annual licensing value per licensed patent is skyrocketing. The statistics above also do not factor in cross-licensing arrangements where no license revenue changes hands. Such arrangements are fairly common, especially among very large technology companies.

PATENT LITIGATION STATISTICS 1. Lawsuits filed

Year Patent lawsuits Issued patents Lawsuits as a percentage of patents granted

1993 1,553 109,746 1.4 1996 1,840 121,696 1.5

4 1999 2,318 169,086 1.4 2006 2,830 196,404 1.4 2007 2,772 182,901 1.5

In the past 15 years, patent lawsuits as a percentage of patents granted has remained constant at about 1.5%. (Source: Federal Judicial Statistics as quoted in the report: The Patent Reform Act of 2007: Responding to Legitimate Needs or Special Interests? Oct 30, 2007 - The 'Patent Fairness' Issue - An Analysis by Pat Choate.) From these statistics, Choate concludes that with an expanding economy and more innovation, the absolute number of patent applications filed and patents issued has increased, but there has been no abnormal surge of patent litigation. From the statistics above, the simple fact is that the vast majority of patent owners in the U.S. do not litigate their patents.

2. Cost of patent litigation

Year Average Cost for all parties (millions)

2001 3.0

2003 4.0

2005 4.5

2007 5.0

Source: American Intellectual Property Law Association (AIPLA) bi-annual economic survey

PATENT PROCUREMENT COSTS The lifetime external costs of preparing, prosecuting and maintaining a typical U.S. patent in the electrical/computer arts is about $22-$34,000 today, breaking down approximately as follows: $12-14K to prepare the application, $5-10K for prosecution costs and issue fee payment, $5-10K maintenance fees over the life of the patent, depending upon whether the company is a large or small entity. Internal costs must be added to that number as well. If foreign protection is desired in a small handful of industrialized countries, that number may go up by a factor of 10.

5 INTELLECTUAL PROPERTY – COMPANY MARKET VALUATION According to some experts, over 85% of the market valuation of the S&P 500 is represented by intangible assets, including intellectual property. This percentage is probably even higher for newer S&P companies such as GOOGLE and Akamai Technologies Inc.

INTELLECTUAL PROPERTY LANDSCAPE There are only a limited number of ways to protect intellectual property, assuming that it is even protectable. These include patents, trademarks/trade names/trade dress, copyrights and trade secret. A. Trade secrets: Two fundamental concepts of trade secrets are as follows: 1. Trade secret must be something that is used in business and which gives the owner a competitive advantage and is capable of remaining a secret. 2. The owner of a trade secret must take reasonable measures to maintain its secrecy, such as limiting access to the information deemed to be a trade secret, or providing such information to others on a “need-to-know” basis only, and having contractual clauses which prevent the employees from divulging the information. Trade secrets are most often used to protect proprietary portions of technology, such as formulas, manufacturing processes, business strategies, business management information, customer lists, and design concepts. There is the Uniform Trade Secret Act, but trade secret laws vary by state.

B. Trade secret vs. patent Trade secret Patent

Potentially indefinite Limited lifetime Not registered or disclosed. Rights are not Granted by the USPTO. Rights are available available for public inspection for public inspection. Can be separately discovered and all rights end Provides protection in exchange for disclosure and provides the rights to exclude others. Provides protection from separate discovery Remedies only if the secret is illegally Remedies for infringement whether appropriated deliberately or inadvertently appropriated Generally less expensive Generally more expensive Generally not available for cross-licensing Potentially useful for cross-licensing

6

Source: (partial) http://www.uspto.gov/web/offices/dcom/olia/ip_mrkt_place/03patents_nashville.ppt.

When deciding whether to pursue patent protection for an invention that is likely to be patentable but could also be held as a trade secret, the most important consideration is whether a competitor can reverse engineer the invention. It is generally not illegal to try to reverse engineer a company’s product for the purpose of understanding how it is made and how it works. Industrial processes (e.g., chemical manufacturing, recipes) are often good candidates for trade secret protection because of their difficulty in reverse engineering. While there is plenty of empirical data on the outcome of patent litigation, there is very little empirical data regarding how companies fare when forced to litigate trade secret theft. One recent study by Lerner devoted a good part of his paper just to the difficulties of performing the study and gives the following overview of the outcome of the studied cases (underlining added for emphasis):

In a little less than two-fifths of the cases, the trade secret was found to have been violated. Only 9% of the cases, however, record the damages awarded in the case. This limited coverage reflects the fact that in some cases, the court’s decision focused on whether the verdict was correctly determined, referring the question of appropriate damages to another (typically lower) court to determine. (Of course, in some cases, the trade secret could have been found to have been stolen but no damages awarded the aggrieved party.) In those cases where the damages were determined, they averaged $1.5 million in 2004 dollars. This is less than one-third the mean level of damages in the patent cases examined by Moore [2000].

Source: Lerner, Josh, Using Litigation to Understand Trade Secrets: A Preliminary Exploration(August 2006). Available at SSRN: http://ssrn.com/abstract=922520. In sum, trade secret protection is a less expensive approach to take for protection of intellectual property that could be patented, but becomes less attractive if litigation must be pursued. Fortunately, it is not always necessary to choose one or the other. Some inventions may be able to be split into a part that can be patented and a part that can be kept a trade secret. One example of this approach can be seen with the famous Priceline (“Name Your Own Price®”)

7 invention. Priceline® patented the computer-implemented business process for making purchases, and has successfully litigated and licensed its patent portfolio (U.S. Patent No. 5,794,207 is their fundamental patent). However, the patent itself does not disclose certain key details regarding the business model, such as at exactly what levels should customer bids be accepted or rejected to maximize profits on an inventory of commodities for sale (e.g., airline seats, hotel rooms). Priceline was not “claiming” this aspect of their business model so they did not have to disclose it to meet the “written description” requirement of a patent application which mandates the patent applicant to disclose how to build the claimed invention. Also, if a company is willing to divulge potential trade secrets if patent protection can be obtained, and must reveal such trade secrets to meet the “written description” requirement of a patent application, the patent applicant can file the patent application in secrecy. Upon allowance of the patent application, a decision can then be made whether the patent protection available is strong enough to allow the patent to issue, thereby revealing the trade secrets. This option is discussed below with respect to Excuse #7.

EXCUSE #1: We’re not doing anything that is potentially patentable A patent is only available for a new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof (35 U.S.C. § 101). Software and computer-implemented business processes (e.g., Priceline’s reverse auction, Amazon’s one- click shopping cart checkout process), as well as products or services that use such software or processes, will usually fall within these four statutory classes. Also, one condition for obtaining a valid and enforceable U.S. patent is that the invention must not have been described in a printed publication anywhere in the world, or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States. A “secret” commercial use constitutes a public use. Stated simply, a U.S. patent application must be filed within one year of the earliest of such activities, otherwise potential patent rights are forfeited. There are no exceptions to this rule, including an accidental or malicious public disclosure. This “one year” period is known as a “grace period” or “novelty grace period.” All NAFTA countries have a similar one year novelty grace period. Many foreign countries, including all of Europe, have no novelty grace period, and other foreign countries such as Japan and Korea have six month novelty grace periods. Thus, if foreign patent protection is desired,

8 the decision on filing a patent application, and the actual filing of the patent application, must occur before there is any public disclosure or public attempts to commercialize the invention. Certain activities with third parties that take place under non-disclosure agreements do not trigger the statutory bar clock or create novelty bar issues. If your company or your client’s company is not involved in any technology-related area, then there is likely nothing to patent. Also, if the company is involved in a technology-related area, but has not introduced any new or improved products or services in the past year and is not working on any new or improved (unreleased) products or services, then there is also likely nothing to patent. However, if the company is involved in a technology-related area, and has introduced one or more new or improved products or services in the past year, or is working on one or more new or improved (unreleased) products or services, then potential patent protection should be investigated. The technology sector in the Philadelphia metropolitan area is heavily weighted towards life sciences (e.g., health care, pharmaceuticals), information services, and the chemical industry. Patents are the lifeblood of most life sciences companies and are also extremely important to chemical companies. Accordingly, these industries tend to be patent-savvy and thus more likely to know that they should investigate the patentability of potential inventions. The information services industry suffers the most from patent myopia, even when the companies service patent savvy industries as is often the case in the Philadelphia area. There are many reasons for such myopia, including a historical lack of patent activity in this industry, an anti- patent bias of many software programmers, and an ignorance of the “obviousness” standard for patenting (that is, a belief that the invention must be revolutionary, and not just evolutionary to be patentable). My personal experience with patent due diligence investigations for companies that contact us and have no patenting history is that about half of the time there really is nothing to patent, and about half of the time there is an invention to investigate. However, when there is nothing to patent, it is often due to a statutory bar deadline problem (typically, more than one year has passed since the invention was in use), and not because there was never anything to patent. The due diligence process still ends up being valuable because it educates key personnel on what to look for next time. In the other half of the time that there is an invention to investigate, it turns out not to be a good candidate for patenting, and about half of the time there

9 is an invention worth pursuing. Again, the process of educating key personnel on what is and is not a good candidate for patenting proves valuable for future inventions that arise. It typically only takes a short conversation with a patent attorney to identify whether there is a viable invention to pursue. Most patent attorneys, including myself, are willing to conduct that conversation for little or no charge. Assuming that there are one or more inventions worthy of investigating and assuming that the company does not have an in-house patent practitioner, one person or a small core of people should be designated to review invention submissions and timely forward appropriate submissions to a patent practitioner for consideration. This task is typically handled by in-house general counsel (if one exists), a Chief Technology Officer, R&D manager, or the like. The key challenge of a patent program is to get appropriate submissions in a timely manner. Preferably, the company should request that employees submit invention ideas in an Invention Disclosure Form. A sample form can be found on pages 128-132 of an Intellectual Property Primer prepared by the Association of Corporate Counsel, located at: http://www.dicksteinshapiro.com/files/upload/IP_Primer.pdf. This form addresses many of the issues that will assist the company and the patent practitioner in deciding whether to move forward with a patent application. To summarize, the personnel within a company who conclude that there is nothing to patent are often the wrong folks to make that call and they often make it based on misinformation about the patent process.

EXCUSE #2: Our energies are better spent on marketing and rollout of products and services Most companies will quickly find themselves out of business without earning revenue from their products and services. Thus, it is understandable that a company might put patent due diligence investigations on the back burner, or ignore them altogether. However, this can be short-sighted for many reasons. First, the ability for competitors to gain access to, and legally appropriate, intellectual property of a company is greater than ever today, thanks to the global technology market. Products can be easily copied in China and the functionality of even sophisticated software programs can be quickly duplicated by overseas software development teams. Absent patent

10 protection, as long as there is no copyright, trademark or trade dress or trade secret violation, a competitor is free to market a competing product or service that mimics the functionality of a company’s product or service. Second, small companies that wish to increase their valuation for subsequent acquisition should consider building a portfolio of patents around their products and services, wherever possible, because the patent portfolio is likely to enhance the valuation by multiples of the procurement cost of the patents. Stated simply, products and services protected by patents are almost always far more valuable than the same products and services not protected by patents. Third, if the product or service (or the entire company) fails in the marketplace, the patent properties may have significant residual value. Companies fail for many reasons today, even when their products and services are good. A significant percentage of contingent fee patent litigation today is brought by plaintiffs who own, or acquired patent rights from, such failed companies. These plaintiffs are often referred to by the disparaging phrase, “patent trolls.” One well-known example of this scenario was recently played out by a patent owned by Eolas Technologies. Eolas was awarded a patent on how a web browser downloads multimedia content embedded within an HTML page, such as JavaScript. Eolas claims it broadly covers a web browser that supported plugins. Eolas worked on a development project with Microsoft, but then Microsoft proceeded without a license from Eolas in adding this capability to its Internet Explorer browser. At trial, Eolas won a $500 million jury verdict for patent infringement and subsequently settled with Microsoft for an undisclosed amount of money that is believed to be a significant percentage of that amount. See Eolas Techs., Inc. v. Microsoft Corp., 457 F.3d 1279 (Fed. Cir. 2006)), and http://en.wikipedia.org/wiki/Eolas. Fourth, technology startups are often expected to pursue patent protection for technology that they are developing even if there is no specific mandate from company backers to do so. If the company needs a second round of financing or otherwise wishes to sell itself, the lack of a patent portfolio could prove fatal to such efforts. In most instances, the potential funder or acquirer is mainly interested in seeing that patent applications are at least pending, even if none have issued. Fifth, there is a burgeoning marketplace for selling patents, as discussed below with respect to excuse #4.

11 In sum, the patent process should be viewed as a way to protect a company’s investment in the development of its new products and services. If there is something to patent and the product or service succeeds in the marketplace, then the patent portfolio will likely be worth multiples of it procurement cost. If the product or service fails in the marketplace, the patent portfolio may still have some residual value in the marketplace.

EXCUSE #3: Getting patents costs too much Among the various forms of intellectual property that one can wrap around a new product or service, patent procurement is typically the most expensive form. As discussed above, the lifetime external costs of preparing, prosecuting and maintaining a typical U.S. patent in the electrical/computer arts is about $22-$34,000 today. Furthermore, with allowance rates in the mid-40’s percentage-wise, a company could wind up spending tens of thousands of dollars and still not even receive a patent. My practice focuses on technology areas that have some of the lowest allowance rates in the USPTO, including business process patents that have allowance rates in the range of 10%. While my personal allowance rate is in the 90’s percentage-wise, some of my clients are now being forced to spend well-above the $22-$34,000 range to obtain a patent because they are receiving 4-8 Office Actions per application, instead of one or two Office Actions. Also, personal interviews with Examiners and filing of pre-appeal briefs, and regular briefs are becoming a necessity, and not just a luxury, to convince an Examiner to withdraw rejections. While patents cost more than ever to obtain on an inflation-adjusted basis, the cost of not procuring or obtaining patents may be even greater. As noted above, a technology startup that has no patent portfolio may face a difficult time if it wishes to seek a second round of financing or sell itself. A company with a successful new product or service may find that competitors can easily knock it off without violating any other forms of intellectual property. There are many ways to control initial costs of the patent process, thereby lessening the force of this excuse. Some of these processes are discussed below. 1. File a provisional patent application as the initial application to delay the cost of preparing a full (non-provisional) application by about one year. A provisional application requires a written description of the invention, with drawings as applicable, but does not require preparation of claims or an Information Disclosure Statement. Preparing claims and conducting

12 even a limited review of the prior art may constitute as much as half of the cost of a non- provisional patent application. An invention can be referred to as “patent pending” once a provisional application is filed which may have significant marketing advantages. The USPTO provides a discussion of provisional applications at: http://www.uspto.gov/web/offices/pac/provapp.htm 2. Take advantage of the USPTO’s current backlog of 2-5 years for receiving a first action in the examination process. No significant costs are typically incurred after the filing of a non-provisional application and before the USPTO issues a first Office Action. Prosecution costs, issuance costs and maintenance fee costs are thus all deferred until the examination process commences. The USPTO has various procedures for accelerating examinations, but the default option and least expensive option is to go through the normal process and wait until the applications comes up in turn. 3. Try to work with a very experienced patent practitioner who still practices patent prosecution for the bulk of his or her practice and who practices in the same general area of technology as the invention (e.g., electrical, mechanical, chemical, software, biotech). Such a practitioner is much more likely to either efficiently write the application himself or herself or supervise a junior practitioner who will write the application. Finding such a practitioner can be more easily said than done. The explosion of patent litigation has significantly thinned the ranks of such practitioners in the past ten years because the litigation work tends to be more lucrative and more highly rewarded by law firms. On the flip side, working on patent litigation is invaluable for patent prosecutors in learning how to write better patents, so litigation experience should not be discounted. 4. Try to get the patent practitioner and the inventors to write the claims together in an in- person claim drafting brainstorming session. This process should improve the efficiency of the preparation process and should result in higher quality application that more accurately captures the novel and unobvious features. Such an application is less likely to require expensive amending during prosecution. 5. Consider having a patentability search conducted prior to preparing the patent application. If very close prior art is discovered, the company might decide not to file at all, thereby saving a large sum of money on that particular invention. If there still appears to be

13 potentially patentable subject matter, the claims can be more precisely tailored upfront, thereby making it less likely to require expensive amending during prosecution. In sum, there are many ways to control and reduce costs, and these avenues should be investigated before a decision is made not to file at all due to cost concerns.

EXCUSE #4: It takes too long to get a patent There is a lot of truth to this excuse. Backlogs at the USPTO and the relatively recent phenomenon of protracted prosecution (i.e., multiple Office Actions per application) has significantly lengthened the pendency of patent applications in many areas of technology. However, the realities of how patents are monetized often negates this excuse. First, most inventions take years to successfully commercialize. Infringers are most likely to appear only if a profitable marketplace has developed for an invention. A typical scenario is that a patent issues four years after the application date, and the invention becomes commercially valuable a few years later with infringers appearing well after the application filing date. Due to the high expense of patent litigation and the difficulty in attracting contingent fee litigators when potential damages are low, the typical scenario is that a long pendency period does not unduly prejudice or devalue a patent. Second, if an early-stage or start-up company is looking to increase its valuation through patent activity, investors are most interested in seeing that IP rights of the company are potentially protected via patent applications. While having issued patents is preferred, there is rarely a stigma associated with a patent-pending status, vs. having issued patents. Third, the USPTO revamped their procedures two years ago for accelerating examination of patent applications to provide a target goal of one year from the application filing date to final disposal (determination) of a patent application. If the application is allowed, the patent would likely issue within 18 months of filing. In contrast to a non-accelerated route, very few patent applications are even given their initial examination within 18 months of filing. Any application can be accelerated upon submission and granting of a petition to accelerate. Details of the process are available at: http://www.uspto.gov/web/patents/accelerated/ A special set of admittedly onerous paperwork must be included with the petition, including the results of a pre-examination patentability search and an accelerated examination support document that explains exactly which claimed features are described in the references

14 located in the search, and which claimed features are not described the references. Also, some onerous conditions are imposed, such as limiting the claims to three independent claims and 20 claims total. The purpose of this paperwork and conditions is to ease the burden on the Examiner in performing the examination. Almost all patent practitioners today are advising their clients not to use this procedure due to potential prosecution history estoppel effects associated with the petition paperwork and burdens of the other conditions. Also, the USPTO has been rejecting over half of the petitions for failing to meet the petition requirements. Sometimes, the patent practitioner has made a clear error in not filing the myriad of rules associated with the petition. In other instance, the USPTO has been interpreting the rules in ways that require additional unforeseen requirements to be met. In some instance, the petition denials can be overcome with subsequent paperwork, but in other instances the denial is final. Applications with denied petitions are subsequently treated as non- accelerated applications and are put in the longer, normal queue for examination. As a result of the issues discussed above, the USPTO is receiving very few of such accelerated examination requests today. Notwithstanding the above, for an invention that has a clearly patentable feature, a skilled patent practitioner can shepherd a patent application through the petition process with no more prosecution history estoppel (and usually less) than would result by going through the normal (non-accelerated) examination process. The solution here is to locate a skilled patent practitioner that has successfully prosecuted at least a few of these types of applications, which is no easy task given the dearth of such petitions and patent practitioners willing to use the process. One major advantage of the acceleration process is that the allowance rate is far greater than the USPTO’s current mid-40’s rate percentage-wise and may even be higher than the historical rate in the 70’s percentage-wise. This fact is not yet common knowledge among patent practitioners because the USPTO has not yet published statistics on the outcome of accelerated applications with accepted petitions. In sum, a patent that has clearly patentable features can be issued very quickly, and even if the normal non-accelerated path is taken, the delay usually does not prejudice the value of the patent property.

15 EXCUSE #5: Patents are not worth much anymore, even if you can get them This excuse is most clearly refuted by the mere fact discussed above that worldwide patent license revenue is skyrocketing, far outpacing the growth in the actual number of patents and the worldwide inflation rate. Only a small percentage of the license revenue represents the results of settled litigation. The bulk of the licensing revenue is paid for access to technology that the recipient/licensee wishes to receive in lieu of conducting its own development. These licensing statistics also do not factor in cross-licensing arrangements where minimal or no license revenue changes hands. The value of such cross-licensing arrangements is difficult to quantify. However, IBM conducted an internal audit of the value a few years back and concluded that it was far greater than their annual patent license revenue. Furthermore, the marketplace for selling patents has exploded in the past few years from a small cottage industry of specialized professionals meeting primarily niche-based needs of companies and individual inventors to a sophisticated international industry with public auctions, dedicated websites for posting patents for sale, and mid-sized brokering companies. Stated simply, the avenues for monetizing patents are growing daily. Large companies are selling unused and underutilized patents at a record rate today, rather than just letting them expire when maintenance fee payments become due. Furthermore, the patent buyers today are not all patent- holding entities such as Acacia Research Corporation whose ultimate goal is a license/litigation strategy against alleged infringers via contingent fee litigation. Patent buyers today include many mid-to-large size companies who are looking to quickly build strategic patent portfolios in areas that they are active in or plan to move into. For such companies, patent acquisitions are often perceived as cheaper and less risky than launching or expanding R&D efforts. Some examples of such new marketplace opportunities are as follows: The leading company in the patent marketplace business is Ocean Tomo LLC (http://www.oceantomo.com). Ocean Tomo conducts live patent auctions three times per year. They also host a website-based public marketplace, Ocean Tomo Patent/Bid-Ask (PBA) platform, that allows buyers and sellers to place and receive offers for their intellectual property in a completely transparent fashion. The average value of such deals today almost always exceeds total procurement costs. License-back arrangements are usually available if the company still needs freedom to conduct

16 activity covered by the patent. In sum, the chances of being “stuck” with patent properties that cannot be unloaded for at least their procurement costs is at an all-time low today.

EXCUSE #6: Our company does not have the internal resources to work on getting patents

This excuse is often based on an incorrect assumption of how much money and employee time will need to be spent to prepare, file and prosecute patent applications. Most often, small companies and start-up companies present this excuse. If a company wants to file for a patent application in the very early stages of product development, perhaps to lock in rights ahead of competitors or to preserve foreign rights if public disclosures are to be made well before product development is completed, then the patent application process may be costly and require significant employee involvement. This is because there is often little or no existing documentation of the invention and there are still many potential avenues that the development can take, all of which may need to be discussed in the patent application. Turning to the opposite end of the spectrum, if the invention is coming up on its one year statutory bar deadline, it is very likely that considerable documentation exists regarding the invention which can be easily revised/edited for use in the patent application. It is also likely that the best embodiments of the invention are now known. Less internal and external company resources will be required to file patent applications on such inventions. As discussed above, the provisional application process may be used for the first filing, thereby eliminating the costly claim drafting process. A patent search may give further guidance on whether to proceed at all. This strategy works best if no foreign patent rights are desired because the first application does not have to be filed so early into the commercialization process to avoid “novelty bar” problems. In most cases, companies that are currently shying away from any patent activity are not likely to have a great interest in foreign patents, most of which are low value propositions anyway. If financial resources are the main sticking point in pursuing patents, as discussed above, try to work with a very experienced patent practitioner who still practices patent prosecution for the bulk of their practice and who practices in the same general area of technology as the invention (e.g., electrical, mechanical, chemical, software, biotech). Such a practitioner is much

17 more likely to either efficiently write the application himself or herself or supervise a junior practitioner who will do.

EXCUSE #7: The Patent Office rejects most patent applications nowadays With the USPTO currently experiencing allowance rates in the mid-40’s percentage-wise, the USPTO is actually rejecting more patent applications than it is issuing. In certain technology areas, such as business method arts, the allowance rates are actually in the teens. However, the full story behind these statistics is not well-publicized. The main reason for the drop in allowance rates is that patent applicants are picking their battles more strategically due to limited legal budgets. Skyrocketing litigation costs and strains on patent prosecution budgets resulting from having to respond to repeated Office Actions for each patent application has forced companies to abandon more applications even if the invention is likely to be patentable. However, the quality of the average Office Action is no better now than years ago when allowance rates hovered in the 70’s percentage-wise. Thus, it is generally no more difficult to overcome rejections today than it was years ago. Getting an application allowed today simply requires more money and more perseverance than it did in the past. Thus, if you have an invention that is likely to be valuable to the company, your odds of ultimately getting a patent is not as bad as the statistics show if the company does not abandon the efforts after a few unsuccessful rounds with the Examiner. If a Company is reluctant to file for a patent application because the patent application reveals potential trade secrets, and the Company fears that the patent application might ultimately not issue, the patent application can be maintained in secrecy by the USPTO by filing a “Request for Non-Publication” with the patent application filing paperwork. If the patent application is ultimately rejected or if the patent application is allowed but the patent applicant is not satisfied with the scope of protection, the application can be abandoned and will never become published or otherwise available for public inspection. The only caveat to this option is that this option cannot be selected if any counterpart foreign patent applications are filed.

EXCUSE #8: Our law firm told us that there was nothing to patent If a company works has been working closely with an experienced Registered Patent Attorney or Registered Patent Agent for many years, there is likely to be no reason to second-

18 guess such a conclusion. When should you consider second-guessing your law firm on this issue by either pressing them for more details or hiring another law firm to conduct a due diligence patentability review? Here are some of the potential scenarios: 1. The law firm’s patent practitioner is not a Registered Patent Attorney or Registered Patent Agent. This designation can be easily checked on the USPTO’s web site at: https://oedci.uspto.gov/OEDCI/ 2. The law firm’s patent practitioner has very little experience in preparing and prosecuting patent applications, even if they are a Registered Patent Attorney or Registered Patent Agent. 3. The law firm’s patent practitioner does not have a technical background that closely matches the technology area of the company’s products or services (e.g., electrical engineering for a computer hardware or software company). In the past, most law firm patent practitioners worked in IP boutique firms or concentrated IP departments of selected mid-to-large general practice firms. These firms were set up to handle almost all of the different technology disciplines and typically were able to assign the right person to a company in need of counseling. This is not the case anymore, so companies need to be diligent in questioning the qualifications of the patent practitioner rendering advice. While most patent practitioners are reputable enough to self- regulate themselves if they are brought into a situation outside of their technical comfort zone, some unfortunately are not. The only exception to this caveat is that most Registered Patent Attorneys and Registered Patent Agents can provide competent advice on simple mechanical inventions, regardless of their technical background.

EXCUSE #9: Our technology is too old to patent As discussed above, statutory bar deadline rules prohibit obtaining a valid and enforceable U.S. patent if the invention was dscribed in a printed publication anywhere in the world, or in public use or on sale in the U.S., more than one year prior to the date of the application for patent in the United States. Nonetheless, novel and unobvious improvements to the technology may be patented. In fact, the vast majority of patents are directed to very minor improvements to existing technology. While first generation improvements to a company’s technology often involves unpatentable tweaks, bells and whistles, second and subsequent generation improvements should be investigated to determine if they meet the threshold for potential patentability.

19 EXCUSE #10: It’s not our technology, and thus we can’t patent it As discussed above, a patent is available for a new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof (35 U.S.C. § 101). Thus, improvements made to technology developed by another company are potentially patentable. Such a patent would even block the company that developed the original technology from practicing the improvement. Of course, if the original company holds a patent on the core technology, a patent license would still be required to practice the improvement developed by the other company. If there is no patent protection surrounding the original technology, then no such license would be needed. Thus, improvements to technology from other companies should be reviewed for potential patenting in the same manner as inventions made by the company. In the U.S., only the true inventor can apply for a patent. In fact, a patent application must include a Declaration signed by the inventor(s) stating that they are the true inventors in order to be accepted by the USPTO. Falsely signing such a Declaration is punishable by fine or imprisonment, or both. However, in the U.S., inventorship and ownership of patents are separate concepts. Absent an actual assignment or obligation to assign, a patent application is considered to be owned by the inventor (or owned in a “joint and several” capacity) if there are multiple inventors. Patent applications may be assigned by the inventors to any entity that the inventors wish to assign them to, provided that they are not under any legal obligations to an employer or the like. Likewise, patent applications may be reassigned, just like any other property right. If no statutory bar deadline has passed on a particular invention developed by either inventor A or company A that owns rights to inventor A’s inventions, and your company (entity B) wishes to patent it, then all that needs to happen is for entity B to negotiate a deal with inventor A or company A for the invention rights. Entity B may then file for the patent application. (The deal would require that the inventor A sign the Declaration and also sign an Assignment of the invention rights to either company A, who in turn, would assign the rights to entity B, or directly to entity B if the inventor A has no obligations to a company.) If the statutory bar deadline has passed on the invention, then patent protection will be limited to novel and unobvious improvements only, as discussed above. As shown above, there are numerous scenarios that allow a company to pursue patent protection for inventions that may have originated elsewhere. ---END---

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