During the course of my practice, I am continually amazed at the contents of IP and technology-related agreements I receive from opposing counsel who happen to be “good” lawyers at “good” firms.  While not getting into all the “strange,” “sloppy,” or downright “wrong” legal verbiage I see, I do have one thing that has been bothering me lately.  What’s that, you ask?  Well, it’s the use of numbers and those silly parentheticals.

I am sure all of you have seen language in agreements such as:

• “In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay to Licensee a one time, up-front, non-refundable license fee of one million United States dollars (US$2,000,000.00).”

• “In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay a flat royalty based on two and one-half percent (2.0%) of Gross Revenues received from the sale of Licensed Products.”

• “Licensee shall pay any deficiency, plus interest thereon from the date each payment was due, within thirty (20) days of the date of any notice of such discrepancy.”

Now, for those of you paying attention, you will notice that the spelled out numbers do not match the digits appearing in parentheticals.  Why do attorneys do this?  What class in law school do they teach this? I’m told this is a practice that dates back to the days of carbon copies and “old school” telefax machines, where parties needed two chances to be able to discern the figures in legal documents.  But, in today’s world of TrueType fonts and portable document formats, why continue this practice?  Which number governs if after reviewing a twenty (20) page license agreement, both sets of lawyers and clients did not catch the discrepancy!?  (Wasn’t that “twenty (20)” annoying!?)  Well, different jurisdictions have different rules of contract construction!  Why leave it to chance?  Do people realize that over the course of an already complex IP agreement, such practice may add one or more pages to the document’s length!?

 So, for everyone’s sake, I propose the following simple rule:  If the number is from zero to nine, write it out in words, else write it in Arabic digits!  If it works for college essays, it should work for IP agreements (and all other contracts) too!

As I have often pointed out on this Blog, small- and medium-sized enterprises (SMEs) that overlook their intellectual property assets (i.e.,“IP” or patents, copyrights, trademarks and trade secrets) do so at their own peril.  As IP accounts for a vast majority of SMEs’ value, the key to their exit strategy – be it an IPO or sale – is the IP that they control or potentially control.

Last month, the World Intellectual Property Organization (WIPO) released its annual report of IP statistics from around the world.  While there is most certainly a dizzying amount of data, I’ve taken the liberty to provide a snapshot of such data to help SMEs (and those who counsel them) understand what is happening in the world around them.  This should help in making long-term, non-myopic IP management decisions.

With over 3 million worldwide applications in 2009, trademark protection is the most sought after form of IP protection in the world.  That is, trademark applications represent the highest percentage of overall IP protection applications, apart from a few exceptions such as the IP offices of Japan, the Republic of Korea, and U.S.  where patent applications make up the largest share.

Globally, residents file the majority of their IP applications at their respective IP offices.  This reflects a preference for seeking protection within respective domestic markets.  For example, 42.7% of global patent applications were filed abroad.  This shows that patent applicants have a greater appetite for seeking international protection for this form of IP than for any other form of IP rights.  By contrast, only 25% of total trademark applications are filed by applicants outside their country.

With respect to patent filings abroad in 2009, applicants choose the Patent Cooperation Treaty National Phase Entry route 53.4% of the time, versus directly filing in a foreign jurisdiction.

The world’s top 10 IP offices accounted for approximately 87% of total patent applications filed globally, with the top 3 – the U.S., Japan and China – filing about 60% of the total. Together, the top 20 offices filed 94% of all patent applications.

Between 2008 and 2009, of the top 3 offices, there was a 10.8% decrease in the number of patent applications filed in Japan, while the U.S. remained practically unchanged and China saw an 8.5% increase in the number of applications.

In 2009, one quarter of all trademark applications were filed at the Chinese Trademark Office. When combined with the shares held by India, Korea and Japan, these four Asian offices accounted for 37% of world’s total number of trademark applications.

As start-ups and small- and medium-sized enterprises (SMEs) begin to realize that IP accounts for a vast majority of their value and key to their exit strategy, large companies begin to use IP as a driver for strategic business decision making, and investors begin to realize that IP is an asset class capable of producing significant returns, more patent sale transactions are bound to occur. Yet, I have often commented that there is a crucial lack of widely-accepted valuation models and techniques which hampers the patent marketplace. That is, unlike real estate where brokers and agents can “run comps” using the MLS, the opaque patent marketplace makes it difficult for buyer and seller to quickly arrive at a selling price. This further adds to the illiquidity of the patent marketplace. Further complicating matters is the fact that a potential buyer (or licensee) can easily spend US$20,000 or more performing due diligence on a single patent (or patent family). Thus, when a large patent portfolio becomes available, how do you practically determine a price!? (Remember, as Warren Buffet famously stated: “Price is what you pay. Value is what you get.”) Well, I recently came across an observation that may reveal a useful metric for such large transactions:

• When Novell sold a portfolio of 882 patents for $450M to CPTN Holdings (a consortium of Microsoft, Apple, EMC and Oracle) in December of 2010, the price per patent = US$510,204.08.
• When Google acquired Motorola Mobility Holdings, Inc. – and its 17,000 patents – for US$12.5B on August 15, 2011. After netting out other assets and liabilities, the price per patent = US$510,204.08!

Coincidence!!??  Hmm…  Does that mean when ADC Telecommunications sold 133 patents to HTC for $75M in April of 2011, where the price per patent = US$563,909.77, they overpaid?  Are we in a “half a million and change per telecom patent” bubble period!?  We’ll see.

I recently came across the following blog post, and while it is a bit simplistic and ignores the basic fact that a strong patent system fuels innovation, it does show how some in the tech world feel about patents.  So, enjoy!

Recently, it has struck me that many business folks who “negotiate tons of IP, Software and Technology agreements” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements.  Not surprising.  What is surprising is that many of their lawyers fail to appreciate the difference as well!  So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”

Covenant = a promise of the parties by which one pledges that something is either done or shall be done.

Representation = a statement of fact induces a party to enter into the contract.  The statement, made before or at the time of making the contract, regards a past fact or existing circumstance related to the contract which influences such party to enter the contract. 

Warranty = an undertaking or stipulation that a certain fact in relation to the subject of the contract is or shall be as it is stated or promised to be.

Upon a false representation the defrauded party may elect to void the entire contract, and recover any sums paid, whereas upon a breach of warranty or breach of a covenant, the contract remains binding and damages only are recoverable for the breach.  With respect to breach of covenants, whether that breach is “material” (i.e., a breach that destroys the value of the contract for the non-breaching party) and excuses the non-breaching party’s performance can be subjective and expensive to prove.  Thus, the more specificity drafted into a contract (i.e., listing the specific, most-likely events that trigger a termination event), the better that contract protects the parties.  

Happy contract drafting and reviewing!

Courtesy Associated Press

Today, President Obama fulfilled his promise to sign the Leahy-Smith America Invents Act, passed by the U.S. Senate on September 8, 2011, and the House of Representatives on June 23, 2011.  Thus, effective on September 26, 2011, the first effect of the law will be felt:  a 15-percent surcharge will be added to all USPTO patent filing and maintenance fees!

As I mentioned before,  the full effects of the new law (and the soon-to-come implementing regulations) won’t be known for some time.  Will it reduce the USPTO’s backlog, decrease pendency and improve the quality of issued patents!?  Stay tuned for these answers, as well as more analysis.

“This is not a patent reform bill.  This is a big corporation patent giveaway that tramples on the rights of small inventors.”

– Senator Maria Cantwell (D-WA)

On September 8, 2011, The U.S. Senate voted to adopt the June 23, 2011, House of Representative’s version of the Leahy-Smith America Invents Act, advancing it to President Obama’s desk, who has indicated he will sign it into law.  Passage of this “patent reform” bill, which received bi-partisan support by passing the House 304-117, and the Senate 89-9, has been recognized as the first major overhaul to the patent system in almost 60 years!  So what does this mean for small- and medium-sized enterprises (SMEs)?

Although the legislation is some 58-pages long, highlights of interest to SME’s include:

• Effective 10 days after President Obama’s signing of the bill, a 15-percent surcharge will be added to all USPTO patent filing and maintenance fees.

• The USPTO currently gives a 50% discount to small entities.  Now, the USPTO is authorized to offer a 75% discount on its filing fees to newly-defined “micro entities” – those that have not been named as an inventor on more than four previously-filed patent applications and did not in preceding calendar year have a gross income exceeding three times the U.S. median household income.

• Patents will no longer be granted for “any strategy for reducing, avoiding, or deferring tax liability”, and any claim “directed to or encompassing a human organism.”

• The United States switches from a “first to invent” jurisdiction to a “first to file” jurisdiction.  This ends the current “interference practice” where an inventor may challenge an earlier-filed patent application by arguing that their date of invention is before such earlier-filed patent application.  This change makes U.S. patent law consistent with just about every other industrialized country in the world.

• A patent-owner plaintiff will no longer be able to sue multiple defendants in one law suit unless the right to such plaintiff’s relief arises “out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process,” and “questions of fact common to all defendants or counterclaim defendants will arise in the action.”

• The law establishes a new post-grant review system that provides a nine-month window for challenging an issued patent on any grounds. The new system takes effect in one year for certain business method patents (“a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service”), but applies to all other patents with priority filing dates that fall 18 months after President Obama’s signature.  Review may be granted upon a showing that “it is more likely than not that at least 1 of the claims challenged is unpatentable,” or “the petition raises a novel or unsettled legal question that is important to other patents or patent applications.”
• The new law eliminates the “best mode” ground for invalidating an issued patent.   That is, a patent can no longer be canceled, invalidated or held unenforceable based on an alleged failure by an inventor to disclose “specific instrumentalities and techniques [that] have been developed by the inventor and known to him at the time of filing as the best way of carrying out the invention.” Glaxo, Inc. v. Novopharm Ltd., 52 F.3d 1043, 1050 (Fed. Cir. 1995).

• Currently, prior users of a business method – who kept that method as a trade secret and never filed for a patent – have a defense to patent infringement in the event that someone else obtained a patent for that method.  The new law extends this “prior use defense” to all patents regardless of technology classification.

• The USPTO, aside from its Alexandria, VA headquarters, will be required to open three or more satellite offices within three years, with the first being in Detroit, Michigan.

• The new law also directs the USPTO to: complete, within one year, a Small Business Study on the effects of switching to a first-to-file system and eliminating the interference practice; assist and support pro bono programs for independent inventors and small businesses; and complete, within four years, a study on the new law’s implementation that must address access by small businesses to investment capital.

Obviously, the full effects of the new law (and the soon-to-come implementing regulations) won’t be known for some time.  Will it reduce the USPTO’s backlog, decrease pendency and improve the quality of issued patents!?  Stay tuned for these answers, as well as more analysis.

It has now been three years since an article entitled “Meet the Middlemen” was authored by Ron Laurie and me, and published in the February/March 2008 issue of Intellectual Asset Management (IAM) Magazine.  In that often-cited article, Ron and I presented a new taxonomy comprised of seventeen IP business models in the United States IP marketplace.  Although, admittedly, the taxonomy we presented was not perfect, we did feel that it adequately described what we observed as the rise of intermediary business models in the marketplace.  The taxonomy included “IP middlemen” such as: Licensing Agents, IP Brokers, IP-Based M&A Advisors, IP Auction Houses, On-Line IP/Technology Exchanges, and University Technology Transfer Intermediaries. 

Individual inventors and corporate IP owners are used to dealing with Accountants, Lawyers and Investment Advisors – all professionals who are governed by federal and/or state professional regulations, as well as national association guidelines.  Well, the question I now pose is: What professional and ethical regulations govern the conduct of these IP middlemen?  The short answer is “none!”  After all, there is no IP brokerage governing body.  The USPTO has bigger problems.  That is, individual inventors and corporate IP owners should not feel at ease because the invention promotion industry has been the focus of an anti-scam, public awareness campaign by the USPTO.  This campaign is not aimed at the IP middlemen covered by Ron and I’s taxonomy.

Further, we should all realize that IP rights are not “securities” subject to state and federal regulations.  Lastly, we all know that all states’ bar associations regulate attorney conduct regardless of whether the attorney is actually “practicing law.”  An informal survey I conducted, however, suggests the amount of IP middlemen who are attorneys is less than 20% – the remaining personnel have business, financial and engineering backgrounds. 

Interestingly, earlier this year, the British Standards Institution (BSI) – the UK’s National Standards Body – released standard BS 8538:2011, entitled “Specification For The Provision Of Services Relating to the Commercialization of Intellectual Property Rights.”  The standard aims to “set[] out for the first time good practice and principles of ethical behaviour for organizations providing services to inventors.”  The British Standard specifies middlemen ethical behavior principles relating to: integrity and competence; transparency regarding fees, costs and finances; confidentiality and the disclosure of information; the declaration of conflicts of interest; and complaint handling.  It also specifies a process for service provision, covering: (1) initial engagement; (2) NDAs; and (3) evaluation of the IP; and (4) commercial agreements for the provision of advice and/or services.[1]

Also intersting is that the IP Office of Singapore (IPOS), in July of this year, launched an IP Competency Framework (IPCF) initiative that will promulgate standards for IP professionals. More specifically, it will “define the competencies required for key IP professionals and practitioners in the industry and accredit the attainment of these competencies into Continuing Professional Development qualifications that are recognised by the industry.”  IPOS claims that the IPCF is “the first of its kind in the world on a nationwide scale.”  Under the Framework, four key IP occupational levels have been identified, with fifty-seven competency units initially created.  These will be developed and validated into standards with key industry experts from the IP services sector, academia, and the legal profession over the next three years. IPOS will also accredit training providers who would certify successful program participants.

So, will a U.S. body follow the lead of the UK and Singapore?  Maybe the USA chapter of the Licensing Executives Society (LES)?  We’ll see who steps up to the plate!

I have previously advised on this blog site that over-filing for foreign patent rights is one of the top five IP-related mistakes made by small and medium-sized businesses (SMEs).  This is because patents are jurisdictional in nature. You cannot enforce an issued U.S. patent in, for example, the UK. Conversely, you cannot enforce an issued UK patent in the United States. That is, you must generally apply for, and be granted, a patent on a jurisdiction–by–jurisdiction basis because there is still no such thing as an “international patent.”  Are we headed, however, down that path?  It would seem so!

About five years ago, patent offices around the world started a set of initiatives known as the “Patent Prosecution Highway” (PPH) for providing accelerated patent prosecution procedures by sharing information between offices.  As described by the U.S. Patent and Trademark Office (USPTO):

Under the [PPH], an applicant receiving a ruling from the Office of First Filing (OFF) that at least one claim in an application filed in the OFF is patentable may request that the Office of Second Filing (OSF) fast track the examination of corresponding claims in corresponding applications filed in the OSF. PPH will leverage fast-track examination procedures already available in the OSF to allow applicants in the OSF to obtain corresponding patents faster and more efficiently.

To date, the USPTO has a PPH arrangement with the following jurisdictions:  Australia (IPAU), Austrian Patent Office (APO), Canada (CIPO), Denmark (DKPTO), European Patent Office (EPO), Finland (NBPR), Germany (DPMA), Hungary (HPO), Japan (JPO), Korea (KIPO), Russia (ROSPATENT), Singapore (IPOS), Spain (SPTO), and the United Kingdom (UKIPO).  More USPTO PPH agreement announcements are expected.

In addition to the growing number of PPH announcements, I have noticed an expansion of this global patent cooperation trend over the past few months.   For example:

• The EU, as I previously reported, took steps toward an EU-wide patent when, on March 10, 2011, the European Council of Competitiveness Ministers authorized the launch of “Enhanced Co-operation” among EU Member States for the creation of a unitary patent.  Thus, the 25 supporting Member States decided to move forward with the objective of agreeing unanimously among them on a unitary patent that would be valid across all 25 participating Member States.  Italy and Spain are staying outside the process because they object to the unitary patent system operating solely in English, French and German.

• On June 20, 2011, the Nordic Patent Institute – a cooperative effort of the governments of Denmark, Iceland, and Norway – announced that it will start a one-year pilot project for the Patent Prosecution Highway based on Patent Cooperation Treaty work products.  The pilot projects means that an applicant, who has chosen Nordic Patent Institute to act as their searching authority and has received a favorable Written Opinion or International Preliminary Report on Patentability, may request that a corresponding national phase entry or a national application filed at the USPTO receive fast-track examination.

• On July 5, 2011, the Governments of Australia and New Zealand announced that they have agreed to a plan to deliver a single application process for both countries by early 2013, and a single patent examination by June 2014.  The single patent process is part of a suite of intellectual property initiatives proposed under the trans-Tasman Single Economic Market.

• On July 14, 2011, a group of nine South American countries – Argentina, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Suriname and Uruguay – announced a pilot project to assist in their efforts to improve services to local and international users of their respective IP systems.  The project is referred to as “PROSUR” (regional cooperation system on IP), and will initially focus on sharing patent examination results and other IP resources.  This is reportedly a first step towards the integration of IP offices in the region.

 Thus, I think we are moving towards a global system of true patent cooperation.  Stay tuned for SME patent foreign filing cost-savings!

The leaders from eight of the world’s richest industrialized countries (commonly known as the “Group of Eight” or “G8”) – Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States – met in Deauville, France from May 27-28, 2011.  This forum, which traditionally discusses issues of mutual or global concern, was the 37^th formal G8 meeting since its founding in 1975.  Interestingly, at the conclusion of the meeting, the G8 leaders issued a joint final statement entitled: G8 Declaration Renewed Commitment for Freedom and Democracy. Among many other things, the G8 leaders’ 23-page, final statement called for better protection of intellectual property around the world.  More specifically, the following six paragraphs relating to IP were the most interesting:

• “In Deauville in 2011, for the first time at Leaders’ level, we agreed, in the presence of some leaders of the Internet economy, on a number of key principles, including freedom, respect for privacy and intellectual property, … that underpin a strong and flourishing Internet.”

• “The Internet has become a major driver for the global economy, its growth and innovation. The openness, transparency and freedom of the Internet have been key to its development and success. These principles, together with those of non-discrimination and fair competition, must continue to be an essential force behind its development. Their implementation must be included in a broader framework: that of respect for the rule of law, human rights and fundamental freedoms, the protection of intellectual property rights, which inspire life in every democratic society for the benefit of all citizens.”

• “The global digital economy has served as a powerful economic driver and engine of growth and innovation. … As we adopt more innovative Internet-based services, we face challenges in promoting interoperability and convergence among our public policies on issues such as the protection of personal data, net neutrality, transborder data flow, ICT security, and intellectual property.”

• “With regard to the protection of intellectual property, in particular copyright, trademarks, trade secrets and patents, we recognize the need to have national laws and frameworks for improved enforcement. We are thus renewing our commitment to ensuring effective action against violations of intellectual property rights in the digital arena, including action that addresses present and future infringements. We recognize that the effective implementation of intellectual property rules requires suitable international cooperation of relevant stakeholders, including with the private sector. We are committed to identifying ways of facilitating greater access and openness to knowledge, education and culture, including by encouraging continued innovation in legal on line trade in goods and content, that are respectful of intellectual property rights.”

• “We agree on the necessity of a level playing field in the innovation area, including a strong and robust intellectual property system as an incentive to innovation and a catalyst for growth. We acknowledge the important role of the World Intellectual Property Organization (WIPO) in developing a broad approach to intellectual property in support of business friendly, robust and efficient national intellectual property systems. Renewing our support to the principles of the patent system, we attach great importance to its promotion and development. We encourage increased international action to strengthen patent quality, and call for improved diffusion of patent information, particularly critical for SMEs and research centres. We support transparency in technology markets and call for the improvement of market places for trading rights. We invite WIPO, in close cooperation with Member States and other relevant entities, to intensify its work in these three areas. In addition we note the importance of enforcement in order to incentivise innovation and protect innovation once developed.”

• “We welcome the Patent Pool Initiative launched by UNITAID in order to facilitate the production of affordable generic medicines well-adapted for use in resource-poor settings, and we encourage the voluntary participation of patent owners, private and public, in the project.”