Create an In-House Patent (and Other IP) Development Program

The following is an excerpt adapted from Showing the Value of the Legal Department: More Than Just a Cost Center, published in 2022 by the American Bar Association Business Law Section.

There are many types of intellectual property (IP)—for example, trademarks, trade secrets, copyrights, or patents. These are all valuable assets of a company. One way the legal department can help generate money for a company is to find ways to monetize the company’s IP. Being aggressive with enforcing patents is a good strategy, but the strategy goes nowhere if the company does not have any patents to fight with. To get over this hump, the first step is creating or enhancing a patent development program. It is a fairly straightforward process to generate patents. The licensing half, however, is not easy, but can be very lucrative if the patents are valid, have value, and you find the right targets.

A patent is a government-granted monopoly to build, sell, and use your invention (and prevent others from doing so). If you are issued a patent in the United States, it is typically good for twenty years, after which time your patent expires and anyone can copy, build, and sell your invention. In exchange for a short-term monopoly, you must disclose the details of your invention to the public so that someone practiced in the arts could recreate it. To receive a patent, your idea must meet four requirements.

1. The subject matter must be patentable, as defined by Congress and the courts.
2. Your idea must be new.
3. The idea must be useful.
4. Your idea must be non-obvious.

Additionally, there is what lawyers commonly called the Alice decision whereby the U.S. Supreme Court established a two-part test to determine if a software patent was patentable or not as pertaining to ineligible subject matter. To sum it up quickly, under Alice, simply reciting the use of a conventional computer in the claims to implement the known idea does not make the idea for a utility patent patentable subject matter.

There are three types of patents you can file for:

1. Utility patents may be granted to anyone who invents or discovers any new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvement thereof (good for twenty years).
2. Design patents may be granted to anyone who invents a new, original, and ornamental design (good for fourteen years).
3. Plant patents may be granted to anyone who invents or discovers and asexually reproduces any distinct and new variety of plant (good for twenty years).

There is a lot that goes into determining if your technology or idea is patentable and, if so, which type of patent is best. Unless the company has the money to have its own patent attorney on staff, you will need experienced outside counsel to help you with this process and draft the application. Simply put, getting a patent is not easy (unless you buy them from someone looking to sell or in bankruptcy, which is always an option). The overall process takes a lot of work and time. It can also be expensive—roughly $15,000–$25,000 to get a patent issued. Buying already issued patents is likely far more expensive. To start, in the United States, you need to file a patent application that sets out in detail a description of your idea. These applications must be filed by a patent attorney (in-house or outside) skilled in the art of drafting a patent application. You must also review publications and other sources to make sure there is nothing already out there that overlaps with your idea or would allow someone skilled in the arts to build your invention just from reading what is already out there. (This is called prior art.) Then an examiner from the U.S. Patent and Trademark Office (USPTO) reviews your application. They might reject it in total, or they might reject part of it (for any of the reasons noted). You have a chance to appeal (called an office action), and the examination process (with the exception of design patents) generally goes back and forth for several years before either your patent is issued or finally denied. At each stage, you must determine whether it is worth the cost and the effort to continue or, depending on the objections from the examiner, whether the changes you must make to your patent leave you with anything good after it is all said and done.

You also need to decide in which jurisdictions you will seek patent protection. Patents are only valid in the country where they are issued. You cannot enforce a patent issued in the United States against a business operating within the European Union or in China. You would need patents issued in those countries. Additionally, in the United States, you must seek patent protection within one year of when you first sold or disclosed the patented material. If you wait too long (more than twelve months), you cannot get a patent. Finally, one neat trick in the U.S. system is filing for what is called a provisional patent. This is a relatively inexpensive process that allows you to get an application on file quickly (with far less detail and expense than a regular patent application). The provisional patent application is good for one year and buys you time to decide if you truly want to pursue a full patent while preserving your position as first to file.

Given the cost, the business side will ask why they should get a patent. It is a fair question, especially if you are going to be spending time and treasure trying to get inventions patented. Ultimately, the answer to the question depends on the company’s strategy concerning IP generally and patents specifically. You can break the reasons down as follows:

• Protect innovations. The most straightforward reason to get a patent is to protect a valuable invention, in particular, one you believe competitors or others may reverse engineer or invent on their own.
• Offensive use. This means getting patents to use for licensing purposes (i.e., money) or to preclude others (competitors) from practicing your invention, which, if done correctly, could mean they are no longer competitors.
• Defensive use. This contemplates getting patents to use to defend the company in the event a competitor or other patent owner tries to assert their patent against you. If the party asserting the patent operates a real business (versus being a patent troll), then you may own a patent that you could enforce against them. When this happens, the parties often agree to a cross-licensing program that allows each party to use the other’s patents.
• Increase shareholder value. Patents have value. A portfolio of patents can increase the value of your company for its shareholders, particularly in cases of a potential sale of the business. You will always see questions around patents (and other IP) in a due diligence request. Additionally, if your company is publicly traded, a fulsome patent portfolio (or simply obtaining a single new, but important, patent) can mean an increase in share price.
• Taxes. Being able to demonstrate that you apply for and have patents can be used as a justification for research and development costs, which typically qualify as deductions for purposes of corporate income taxes.
• Prestige. Companies with large patent portfolios (or even just a handful of important patents) are viewed as innovators in their field. Employees, especially for technology companies, take pride in the innovations developed by their companies, including patents. This can lead to an improvement of morale generally, especially among the technical teams.

Another important consideration regarding any particular piece of intellectual property is whether you should protect it with a patent or treat it as a trade secret. Not all ideas are worth the cost of trying to obtain a patent. Additionally, once the patent issues, the particulars of the invention are disclosed to the world, and your protection only lasts for twenty years (and it also depends on how willing you are to enforce your patents). Accordingly, there are times when a patent simply does not make sense. For example, the good folks at Coca-Cola could have patented the formula for Coke. But, for obvious reasons, it was a far better decision to treat the formula as a trade secret and keep it out of the public realm. A patent only lasts twenty years. A trade secret can last forever. So, when deciding to patent something, you need to think hard about whether this is, in fact, the right course or if you are better off keeping it as a trade secret.

There are two key documents you must have in place as you look to develop your company’s IP. The first is an invention disclosure form. This is a form you require inventors to fill out so their inventions can be properly evaluated. The form should only be a few pages long to encourage inventors to complete it. The inventor should provide information such as:

• a description of the technology, how it operates, the identity of competitors in the field, and their products/technology;
• how the invention will make a difference in the marketplace for the company and allow the company’s products to surpass others (i.e., why is it worth seeking a patent);
• are there easy ways to design around the technology;
• the date the invention was created; and
• whether the invention has been offered for sale and, if so, when?

The second document is a form whereby all employees who join the company agree to assign ownership of any inventions that employee creates on company time or using company resources to the company. This form is often combined with other agreements such as confidentiality, non-solicitation, and non-compete agreements. You do not want to be in a position where the company is defending challenges to its attempt to obtain a patent from an employee claiming she is the real owner.