Acquiring & Defending Patents
By Ronald J. Riley

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Acquiring a patent should be approached the same as an engineering project. Documenting your idea is the first step in the patent process. It is necessary to thoroughly plan to minimize both costs and the time required to get the patent.

You must file your U.S. patent application within one year of the first disclosure or commercial application of the idea. Either disclosure or sale ( including an offer to sell - such as a quote ) will start the one year clock. Most foreign countries require that you file before ANY public disclosure or commercial application.

You may safely disclose information and not start the one year clock by having each and every person and company that you give information to sign a non-disclosure agreement. The following is a partial list of things you might do that could start the clock or at least create a gray area that an infringer would try to exploit to avoid paying damages. This is an area that is evolving in the law and you should seek counsel before any disclosure.

1) Tell a customer or others about the invention.
2) Distribute a data sheet.
3) Distribute price sheets or quotations that don't clearly state that the product is not yet available and that it is experimental.
4) Give a paper or publish information about the invention.
5) Sell the product at a profit, you may be able to supply free samples or samples at cost
without starting the clock.

Please note that while an NDA protects you from starting the clock it does not protect you from those who may misuse the information you have given them. For example, well healed large companies with a large market presence may intentionally get another party to disclose your invention in an obscure publication. Doing this makes your patent invalid if it is published more than a year before your filing date in the US, and in most of the rest of the world it makes any patent filed after the date of publication invalid. 

Since this is easy to do, and when done covertly its creates an easy way to invalidate your patent when the large company decides to enter your market, it behooves you to thoroughly research the ethics of a company before disclosing information to them.

A person seeking a patent should be knowledgeable about technical, business practices, and marketing issues of the market where the patent will be used. Many people end up with patents which are useless because they had a unique idea that wasn't cost effective or truly useful. They didn't realize that their idea wasn't worthwhile because they didn't understand the market. A person who doesn't thoroughly understand the area and market their patent is for could get a patent on something that is already in use. The idea would be considered prior art, and their patent would not be valid. A patent search will not always show prior art.

Expect to pay for services that you require. I have come across many would be inventors who  expect to get services for nothing. There is no faster way to sour a service provider on all independent inventors than to leave him with a bad receivable! There are no free lunches!!

There are many organizations which aid inventors, but a few stand out as the best. 

United Inventors Association of the USA (UIA), P.O. Box 23447 Rochester, NY 14692; Phone: (716) 359-9310; FAX (716) 359-1132; UIA is an excellent broad spectrum resource.

If you don't have the necessary market background you should consider hiring someone who is knowledgeable in the appropriate market. Make sure you have them sign a contract which  protects your idea from theft and forbids them from disclosing the information to any other parties. Check the Caution page before sending your money to any marketing company.

It is possible to execute your own patent without the aid of an attorney. There are several books that you might find useful. Innovation and Entrepreneurship by Peter Drucker (Harper and Row), Marketing Your Invention by Thomas Mosley available from Upstart Publishing 155 N. Wacker Drive, Chicago. IL 60606  (800) 235-8866, (312) 836-4400, fax (312) 836-1021.

Another good book is From Patent To Profit: Secrets & Strategies For Success by Bob DeMatteis.

Nolo Press produces a number of useful books for small business and inventors. One book that also is available as software that I feel is a must for all inventors is Patent it Yourself. Both are by (patent attorney) David Pressman. The book is available for $36.95, the software is $229.95. They are available from either David Pressman himself or Nolo Press at 950 Parker Street, Berkeley, CA 94710-9867, general information (510) 549-1976, order line (800) 992-6656, fax (800) 645-0895, . Nolo Press carries many other worthwhile books for inventor-entrepreneurs.

All of the listed books are useful for persons who are going to file a patent either with or without an attorneys help. Remember that better organization of your patent will result in lower attorney costs. Patent law is complicated and claim wording is very important. It is recommended that ALL do it yourself applications be reviewed by a patent attorney before filing.

A clear write up of the idea, and neat detailed sketches will help convey the proper information to do a patent search.  I also recommend that you not have the same attorney do the search and the patent. While most patent attorneys are honest, having the search and prosecution done by different parties helps keep them that way.

The search is the second step to determining if your idea has merit. The search, if performed by an attorney will take one to three months and cost less than $1000.00. You may go to a service provider that does searches and get one for between $150.00 and $450.00 depending on their rates and the amount of work involved. You do not have the benefit of an attorneys advice when using this approach.

It is difficult to come up with ideas which are broad in scope in areas with well established technologies. The most valuable patents cover a process's basic idea, many patents which are improvements are not as valuable, unless they are critical to the commercial success of the product. A patent on a specific circuit will not have much value if it is easy to design around that circuit and there is not much cost or performance penalty associated with the alternative circuit.

If you are involved in an area that is ripe for development consider all the other methods which could be used to solve the problem. It is important to build a fence around your main idea, locking up as many of the possible solutions as possible. This is necessary because a competitor could use a solution that you consider inferior. If his marketing is better than yours you could still lose the market. A good example of this is the VHS video tape standard winning the market over BETA.

A fence built with multiple patents also acts as a deterrent to infringers because it will usually cost them at least $500,000 per patent they attempt to invalidate. The uncertainties of prevailing when they are facing multiple patents makes it more likely they will negotiate a settlement.

Carefully study the results of the patent search to determine if your idea is unique before proceeding to the third stage, which is filing for the actual patent. Your attorney will work with you to draft the actual patent application. Expect this to take three to six months and to cost between $5000.00 and $10,000.00.

Once the patent application is filed you can expect to wait one to three years to receive the patent. If anyone infringes on your idea during this time you can notify them that you have filed for the patent but you can not sue until the patent is granted. The infringer is liable for damages starting from the latter of the time you filed and the time when they were notified. This is the most frustrating part of the patent process.

It is important that you closely study all correspondence between the patent office examiner and your attorney or agent. Attorneys don't always fully understand the patent and it is possible they will make a mistake in the way they argue your patent. A misunderstanding of what the patent should cover can lead to the attorney not arguing for the correct claim language which can significantly limit the scope and value of the patent. Remember that you have a partnership with your attorney and you must be active in the whole process to help insure the best results. If you don't invest the effort to follow the patent process and your patent is not executed in the most favorable manner you are as much to blame as the attorney. The inventor will be the one who suffers as a result of any problems with the way the patent has been executed.

After filing for your patent (s) you need to organize your business. This is important to prepare for the inevitable conflicts you will have over patent infringement. Large businesses strengths are their marketing organizations and their deep pockets. Both give them an advantage over you if they decide to infringe your ideas. You need to neutralize that advantage. I recommend that you form one or more corporations to shield your assets from any attack a well healed infringer might launch. Being well shielded from attack is a big deterrent that often will keep your adversary from launching one in the first place.

I believe it is best to hold patents in your own name rather then assigning them to your company. You should form a corporation whose purpose is to market the inventions. Have a contract that licenses the right to market the patents and any products created on a non-exclusive basis to your marketing corporation. This contract needs to specifically state that it is not transferable to new ownership of the corporation and that it is renewable at six month or one year intervals at the licensor's sole discretion. The purpose of the contract is to create a situation where a judgment against your marketing corporation is worthless because the right to market the invention is not transferable. This approach reserves the right for you to license the patent to others if your first corporation comes under attack by an infringer or for any other situation such as product liability.

The purpose of the corporation is to shield you and your patents from a company that has deep pockets and tries to break you with harassing litigation. Your marketing corporation should have minimal assets. You must operate the corporation precisely as prescribed by federal and state laws. This means that all the necessary meetings and paper work must be done in the manner dictated by laws where your corporation is formed for it to limit your liability.

If you have other substantial assets you should consider putting them in their own corporations. In my case I have a laboratory in which I develop product and a farm where each is separately incorporated. Also consider having ownership held jointly if you are in a secure marriage. Your spouse should not be active in the corporate operation to prevent your opponent from suing them. In many cases judgments may not be executed against jointly held property until it is liquidated.

I would strongly recommend that you establish a relationship with a good CPA, a general business background attorney, and one or more patent attorneys early on in your quest to become a professional inventor. Patent attorneys come in two basic flavors, one type excels at filing patents and the other at dealing with infringers. I strongly recommend that you locate a litigator that works on a contingency basis and show him your patents before you start marketing. Having a contingency litigator available will deter infringers. You should also establish a business activity that will supply cash flow and sustain you during your effort to license your patents. Expect to work at licensing at least one to three years before you sign up your first licensee.

You can manufacture and market your idea yourself while the patent is pending. Some company's will not license a patent until it is granted. If you chose not to manufacture and market the idea yourself then you will probably have to wait until the patent office grants the patent.

There are four basic marketing strategies.
1) Manufacture and market the product exclusively yourself.
2) Grant an exclusive license to one party.
3) Sell the patent outright.
4) Grant non-exclusive licenses to any party.

If your patent gives you a lock on a large market number 1 or 2 will encourage other companies to infringe and or attempt to invalidate your patent. It may be necessary to grant an exclusive license if a significant startup investment is required to bring the idea to market. Outright sale removes most the burden of defending the patent but could result in dramatically less income for you if the patent is very successful. You can still be charged with inequitable conduct and dragged into litigation even after you have sold the patent.

Non-exclusive licenses remove much of the market pressure to get around the patent and ensures that you are compensated proportionate to the success of the patent's idea. In most cases a non-exclusive license is most profitable for the inventor and therefore the best method of marketing your idea. One other consideration is that income from an exclusive license that is properly drafted may qualify as long term capital gain resulting in lower taxes.

Producing product yourself is often more profitable then licensing. It may be necessary to produce a product to prime the market if it is a new technology. Promoting a product yourself will help to generate interest by potential licensee's. One drawback to producing product yourself is that the demands of running a business may leave you little time to create new inventions. I often joke about the fact that I don't own the business, it owns me.

Many people who get a patent expect money to start flowing without any additional effort. It doesn't work that way. Getting a patent is only 10% to 25% of the job; now you must market your idea. Marketing takes more effort than getting the patent. You must identify companies that would have an interest in your idea, and you must identify the proper person to approach within each organization. Sending a blind letter is usually wasted effort.

The next step is finding a market for your patent. This is where you will discover which companies are reputable and which are not. At least half will fit into the disreputable category. Make sure you create a clear paper trail of all your contact with each person of every company that you attempt to license or sell product. Try to get them to sign a nondisclosure agreement before you divulge much information. If they are honest this won't bother them. If their honesty is marginal it will show them you are serious and may deter them from trying to steal your ideas. If they do steal, the documentation will make a much better case and it is much more likely they will settle out of court. If they don't settle it makes your chances of winning much higher. A clear paper trail will make an attorney much more likely to handle your case on a contingency basis.

My personal experience is that it is best to market a patent by contacting upper level management persons responsible for sales at the target companies. Persons in engineering are usually not interested in new ideas that were not theirs. Persons in sales are usually paid on an incentive plan that creates a strong incentive ($$$$) for them to promote improvements in a product or expansion of the companies product offerings.

There are many ways to deal with infringers. An infringement suit should be the last step. The first step is to notify the infringer by certified mail. Your notice should be polite, friendly, and firm. Seek a meeting with upper management and try to iron out the problem in direct negotiations. Allow one month from the time they receive the notice for them to respond.

It is important that you understand how declaratory judgments can be used against you. If your letter to an infringer states as an absolute that they are infringing they may sue you for declaratory judgment in the jurisdiction where the letter is received. If your letter to them states that they may be infringing they probably will not be able to bring suit in their jurisdiction. It is a common tactic of large corporations to sue for declaratory judgment hoping that the inventor will fold.

If an infringer invites you to visit them to discuss the possibility of a license exercise extreme caution. I have heard of a number of cases where such an offer was made to sucker the inventor into going outside his jurisdiction. The inventor was sued shortly afterward in the infringers jurisdiction, costing them many thousands of dollars to defend themselves far from home. In such a situation I suggest you request that they come and meet in your jurisdiction.

If they haven't acknowledged your initial contact call the president or CEO of the company and request a meeting. It is best to remain calm and allow your opponent to slowly come to terms with the fact that you are not going to tolerate theft of your intellectual property.

Companies have a personality the same as individuals. Some are basically honest; while others are as slippery as many used car salesman. There is a tendency for management of each company to attract other people with the same values or lack of values. No one likes to admit they are wrong; the same applies to businesses. The honest companies will try to settle, but it may take several meetings and some time to convince them, typically one to two years. Dishonest companies must be shown that there is a price to be paid for their actions.

Companies that intentionally infringe patents usually have other problems with the way they apply technology. Infringers often cut corners in their engineering. A poor implementation of your patent can severely damage your ability to market to others if potential customers perceive the invention as being flawed as a result of the infringers marketing of a poor design. You may be entitled to additional compensation as a result of such damage. Identify deficiencies in their implementation of the patents concepts. It is possible to exploit a situation where they have product liability exposure due to poor engineering. My experience is that at least half of the parties that infringe my patents produce designs that are hazardous.

You are an expert in the technology; your patent (s) are evidence of that expertise. You can sell your expertise to other parties who have been damaged or who may be damaged by an infringers misapplication of the technology. This will help differentiate your design from the poor implementation offered by the infringer and generate cash flow while leaving the infringer with a serious customer relations problem.

Referring your client to other clients that have the same problems is also an effective tactic. My experience is that companies that have defective product are influenced by the fact that many other purchasers of the product have the same problems. There is a good chance that one or more of the companies that have been victimized will demand that the infringer fix their problems at no cost. They might even sue the infringer for damages. The infringer is going to get very tired of dealing with irate customers. This will pressure them to settle your claim.

Do not disparage the infringer in any communication you have with end users. Confine your statements to issues about the problems with implementation of the product that they purchased. If you feel the product is poorly engineered be careful about how you impart that to the customer. Do not tell the customer the engineering is bad, tell them that there are considerable differences between different suppliers and that xyz companies implementation is much better. The purpose of this approach is to help the customer come to their own conclusions concerning the quality of the infringers product without opening the door for the infringer to sue you.

Knowledge of the market place is a valuable tool. If you know for whom the infringer is bidding jobs, you can contact those people and inform them that you may seek an injunction to stop the infringement. Most manufactures want to know about infringing products, both to limit their own liability for selling or using a product that infringes, and to avoid any consequential damages they might suffer as a result. In many cases companies will not purchase product from a company they believe is infringing to avoid being involved in the problem. Seek legal advice before you start notifications because the wording of the notification is important to avoid the infringer suing you in the jurisdiction where the notice was given.

A patent infringement suit will take several years to impact the company's bottom line. Notification of the infringing companies customers or potential customers of infringement can cause their customers to withhold or cancel orders; this has an immediate effect on the bottom line. Since many organizations are motivated by short term profit, they may pay more attention to the loss of current or expected jobs than they do an infringement suit.

Many management people are not aware of changes in patent law that allow triple damages. A company is legally responsible for knowing about current patents, either granted or pending. Ignorance is not an acceptable excuse. They can be forced to pay up to triple damages and your attorney fees under certain conditions. Punitive damages are usually awarded for willful infringement.

Juries tend to take a dim view of companies stealing from individual inventors. They are especially sympathetic when the company is large or foreign owned. If polite persuasion didn't work it does not hurt to play hardball. It is very important that you understand both your and your adversaries strengths and weaknesses before you get into an all out war.

Gather as much information on an infringing company as possible before notifying them because they will take measures to block your acquisition of information as soon as they realize you are a serious threat. Contact past employees. Companies that steal intellectual property usually shaft employees and an ex-employee that has not been treated well can be a gold mine of information that will make your infringement case easier to pursue.

Current employees often will help you if you ensure that their employer doesn't know of their involvement. This is especially true of employees who have been mistreated that don't feel they can leave, either because the job market is poor or because their age makes it difficult for them to find another employer. It is very important that you protect them as a source; failure to protect them is morally and ethically wrong and will result in a valuable source of information drying up.

Most companies that have dishonest management have some honest people still on their staff. You should be on the lookout for these persons. They are often stuck in a job that they don't like. You should alert companies with which you have a good relationship that have openings about these persons. A fringe benefit of helping place persons at reputable companies is that they can afford to help you gather evidence about a past employer. Do not request that they supply you with confidential information while they are still employed by the infringer, doing so is not legal.

While investigating a patent infringement case be vigilant for evidence of other wrong doing by the infringing organization. Organizations that have questionable ethics often break the law in other areas besides intellectual property, and exposure of that wrong doing can lead to the disreputable organization deciding to settle your claim.

If the battle escalates, expect your opponent to accuse you of inequitable conduct, a fancy term that means you committed fraud to get your patent. Infringers like inequitable conduct charges for several reasons, not the least of which is that they can go after all your personal assets if they prevail. Both declaratory judgment and inequitable conduct are tools often used by large entities against an inventor. Both allow them to take depositions from you, which they will compare and distort to their advantage.

A patent requires a long term commitment. Be ready to invest years, thousands of man hours, and thousands of dollars to successfully bring your idea to market. Don't get discouraged; all worthwhile things in life require perseverance.

I urge all inventors to contact the Alliance for American Innovation, Inc., located in Washington, DC. The Alliance provides the only full time Washing presence for the independent inventor. It is time for us to band together to defend our rights. Multinational companies and foreign governments are attempting to weaken our patent system with a number of bills that in combination will make patents virtually unenforceable for independent inventors and small businesses.

Revision 15
acq&def.sam
9th draft was published in PCIM - Dec 94

Copyright 1994 - 2003 by Ronald J. Riley, copies made be made for individual use. This document may be posted on Web sites. Check with the author for the most current revision.

Be sure to read other articles I have written starting at www.InventorEd.org/novice/.

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