I [...]]]> If you’re running your own small business, and you don’t have a holding company for your intellectual property, you should make an appointment to have your head examined.  Creating a separate entity, solely for the purpose of owning your IP, is the quickest, easiest, and cheapest way to insure the goodwill associated with your business.

I realize that the subject matter of this post is a bit drier than what you may have grown to expect from Tactical IP, but I’m hoping that at least a few of our readers are here for free tips on how to make their intellectual property work for them.  With that in mind, I’ll try to keep this light and painless.

Liability protection is the name of the game when it comes to creating business entities.  Think of it like an insurance policy.  If you do it right, assets can be protected from creditors, including judgment creditors who may have prevailed in a lawsuit.  As far as the law is concerned, a properly created and maintained business entity is a separate “person” from its owners and employees.  The benefit of that treatment is that, if the property created and maintained business entity incurs debts or gets sued, its assets are the only things that may be taken — not the assets of its owners.  Let’s look at an example to really hammer this point home.

In our example, you own and run your own courier service.  You have a couple of employees and a corresponding number of pickup/delivery vans.  You’ve been extremely successful, turning a good profit, and you’ve been able to afford all of the toys and accoutrement that success should provide.  In our first variation, let’s say that you are operating as a sole proprietor, using a DBA (“doing business as”) name — “Black Hat Couriers.”  You own everything in your own name, or using your DBA name — the vans, all of your office equipment, etc.  Now suppose one day, while making a delivery run, one of your employees is driving a little carelessly and, as a result, is involved in a collision where several people are injured.  You are insured, so you’re not too worried — that is until you get sued and the jury comes back with an award that goes well beyond your policy limits.  Guess what happens now.  All of those toys and accoutrement, your summer house with the pool, your boat, your Porsche — kiss ‘em goodbye.

Now let’s look at an alternative scenario.  You listened to your buddy, who happens to be an attorney, and you formed your business as a Limited Liability Company (LLC).  This time, you’re calling the business “Black Hat Couriers, LLC.”  Now, you are a Managing Member of the LLC, and the business has its own assets that do not belong to you.  The vans are titled in the name of the business.  You used the LLC’s credit card to purchase that office equipment, and you pay the bill out of the LLC’s checking account.  You do everything possible to treat the LLC as if it was a separate entity from you.  The boat, the summer house, the Porsche — all of these things you purchased with your own money, which was paid out to you as income from the LLC.  Now, when the LLC’s insurance policy is insufficient to cover the jury award in that vehicular negligence suit, you get to keep your stuff.  The LLC is the only party responsible for paying the judgment.  Now that we understand a little bit about how a business entity provides a liability shield for assets, let’s take it a step further.

Say you’ve developed a really strong brand in running your courier service.  You have a website, which is reachable through a domain name that incorporates your business name.  You’ve registered for a state trademark, and you’ve started doing pickups and deliveries across the closest state line, so you have registered the federal trademark too.  You’ve learned your lesson about listening to your attorney friend, so you have even registered copyrights in the colorful fliers and advertisements that you have developed.  Life is good.  All of that branding, however, comprises intellectual property assets that may be in danger when that driver starts texting his girlfriend about after-work dinner plans doing 60mph on the highway.  How do we protect them?  Here’s a hint — check the title of this post.

If you create a new business entity — lets call it “Black Hat Intellectual Holdings, LLC” — and let the new entity own all of those intellectual property assets, when that plaintiff’s attorney starts selling off the assets of “Black Hat Couriers, LLC” to collect his contingency fee, you can rest assured that you won’t lose the benefit of your branding efforts.  Since “Black Hat Couriers, LLC” was only licensing the IP from “Black Hat Intellectual Holdings, LLC,” you can always create a new LLC and license the same IP to the new company, if “Black Hat Couriers, LLC” becomes bankrupt after paying the judgment.

Wanna franchise?  No problem.  “Black Hat Intellectual Holdings, LLC” can license the trademarks and copyrights to your brother-in-law who wants to open up shop two states away.

Decided to sell the business?  No problem.  You may even decide that you want to keep “Black Hat Intellectual Holdings, LLC” for ongoing licensing revenue paid by the guy who bought “Black Hat Couriers, LLC.”  Otherwise, if you decide to transfer the IP as well, there’s no break in the continuity of ownership for your domain registry.  Your trademarks all maintain a consistent priority, and the new owner enjoys all the benefits of your prior use.

Given the relatively low cost and effort in creating a business entity, it’s hard to understand why more small business owners don’t take advantage of the powerful asset protections that can be had therefrom.  I guess most people look at it as an expense they can skip, but it’s pretty clear that those are the corners you really can’t afford to cut — penny wise and pound foolish, as they say.

This article was originally published on The Tactical IP Blog

Director Kappos, of the United States Patent & Trademark Office (USPTO), writes on his blog this week about how the Office intends to fast-track the examination of patent applications that deal with so-called “green” technologies.  Great headline for a month ago, when [...]]]>

“Awe!  Come ON!  I made a movie about it.  That proves it’s true.”

Director Kappos, of the United States Patent & Trademark Office (USPTO), writes on his blog this week about how the Office intends to fast-track the examination of patent applications that deal with so-called “green” technologies.  Great headline for a month ago, when the popularized position was that anthropogenic climate change (formerly known as “global warming”) was a *proven* phenomenon.  However, recent developments have put those findings in serious doubt.

In case you haven’t been keeping up, as Director Kappos clearly hasn’t, emails were leaked last month from the University of East Anglia’s Climatic Research Unit – a world-renowned climate change research center – which reveal a “trick” being employed by researchers to massage temperature statistics (source).  Seems that a decline in temperature didn’t fit into the doomsday scenario that’s being thrown about to justify new grant money, new cap-and-trade legislation, and new taxes.  The emails openly discuss the deletion of historic source data and ways to discredit scientific journals that have published skeptic papers, as a couple of examples (source).

Moving back to the IP tie-in, the USPTO is continuing to drink the climate change kool aid by proposing that so-called “green” patent applications should be given priority treatment in examination.  Kappos’s announcement of the policy was timed to coincide with the start of the United Nations Climate Change Conference in Copenhagen, Denmark.  In that announcement, the Director explains the impetus for such an initiative:

As I have often said, the USPTO is committed to dramatically reducing the backlog and average patent pendency time across the board.  As we work toward this goal, we are going to pilot a program that will give priority to applications that combat climate change and foster job creation in the green tech sector.  The Green Tech patent pilot program will decrease the time it takes to obtain patent protection for green tech innovations by an average of 12 months.  (source)

One has to wonder what other types of applications will be “de-prioritized,” in order to let climate-change-fighting inventors skip the line.  It seems clear that this initiative would do absolutely nothing to improve the average pendency time across all patent applications.  It is truly odd that, at the Patent Office, where a science degree is required to prosecute or examine applications, they’re not letting a silly thing like the absence of a scientific foundation stop them from disparaging the majority of the inventing community.  It certainly isn’t stopping the charlatan proponents of climate change theory from generating a city-sized carbon belch to gather and talk about how to reduce carbon emissions.

Once again, the Director concludes his blog post, claiming that he welcomes comments and feedback, but somehow my comments thereto on this subject failed to clear moderation.

Primer (2004) [...]]]> Happy Friday, IP enthusiasts!  I thought it might be interesting to celebrate the end of this hard-fought work week with a movie recommendation.  So stop by your local movie rental establishment, or add this one to the top of your Netflix queue, nuke a bowl of popcorn, sit back, relax, and enjoy this flick.

Primer (2004) is a rough cut little gem that is still quite pretty, maybe because of its faults.  It follows the cautionary tale of a couple of engineers who spend their off-work hours tinkering in a garage, looking for that next great technology.  When they stumble across an invention that they don’t fully understand, the drama and suspense begin to heat up.  As they come to realize the magnitude of what they’ve discovered, things boil over with tragic consequences.

Writer/director/producer/editor/star Shane Carruth was literally a one-man show in making this film.  He even composed, recorded, and synchronized the soundtrack.  Being his first effort at film making, one can’t help but be impressed.  It really is no surprise that he took home the Grand Jury Prize at Sundance.

Personally, I put this one in my top-ten-favorites-of-all-time list.  The first time I saw it, the ending floored me so well that I literally started it over, almost immediately, and watched the whole thing again.  With a running time of only 77 minutes, it wasn’t difficult in the slightest — still shorter than one pass through one of those lame-ass “Pirates of the Caribbean” movies.  Knowing the end result added a welcome dimension of understanding to the second viewing.  It’s rare indeed to find a movie that keeps getting better each time you watch it, and this is one of those.  My hat is off to Mr. Carruth, who manages to leverage his experience as a former engineer, with a degree in mathematics, to keep the dialog authentic, without drowning the viewer in technobabble.

Let me know what you think of the film.  Whether you’re seeing it for the first time, or you’ve already had the pleasure, sound off in the comments with your own reviews.

This article was originally published on The Tactical IP Blog.

Not that I want to club anyone to death with stories about first-to-file patent reform, but given that Director Kappos has begun beating the patent reform drum, it’s becoming more important that all the facts are known.  Up to now, there really hasn’t been any consensus on whether [...]]]>

Professor Dennis Crouch
University of Missouri
School of Law

Not that I want to club anyone to death with stories about first-to-file patent reform, but given that Director Kappos has begun beating the patent reform drum, it’s becoming more important that all the facts are known.  Up to now, there really hasn’t been any consensus on whether moving to a first-to-file priority system would be a drastic change.  Dennis Crouch, over at Patently-O, insists that the Director may be using flawed statistics to demonstrate that change will not be so bad.  Interestingly enough, after Professor Crouch and a few others posted comments about it on Director Kappos’s blog, the comments were closed off, ending the discussion on that forum.  I guess Mr. Kappos is not really interested in hearing from the patent community — despite portraying that he will listen to feedback.

In an effort to come up with some real numbers, Professor Crouch has created a survey that is designed to record the position of patent professionals on this issue.  If you have an opinion, one way or the other, you should take a minute, click over, and take the survey.  You can’t complain later about how things end up, if you didn’t participate in the discussion.

UPDATE:  It looks like Kappos’s blog has let through a few more comments, but they are clearly censoring responses.

This story was originally posted on The Tactical IP Blog.

The U.S. Government Agency that is responsible for validating which technologies are new and useful has discovered a not so new, yet highly useful tool: web logs.

In an effort to open a line of communication between the USPTO and the [...]]]>

Kappos: “Hey Ted, can you show me how these here tubes work?”

The U.S. Government Agency that is responsible for validating which technologies are new and useful has discovered a not so new, yet highly useful tool: web logs.

In an effort to open a line of communication between the USPTO and the practitioners who deal with the office on a daily basis, newly sworn in Director David Kappos published the inaugural post on his new blog.  In it, he takes up the long-raging debate over whether moving to a first-to-file system of prosecution would have a drastic impact on the U.S. patent system.

The United States is unique in its position that the first to invent, not the first to file an application, should be the person to receive a patent for her invention.  The rest of the civilized world holds the opposite view, giving patent protection to the first party to have her paperwork in.  The first-to-file system eliminates the possibility of complicated and expensive arguments over who can prove the date of her invention.  The downside is that someone could miss out on a patent for her invention, simply because she took an extra day to draft an application.

Congress has slipped this change into several proposed patent reform bills over the last several years, but it has failed, as of yet, to reach bicameral approval.

This post was originally published on The Tactical IP Blog.

I call this one "the McBaby." Should I try to patent it before McDonald's does?

McDonald’s Corp. is getting some recent attention in the blogosphere for a patent application, originally filed in late 2004, which describes its “Method and Apparatus for Making a Sandwich.” What’s interesting to [...]]]> Short Answer: No. Probably not.

I call this one "the McBaby." Should I try to patent it before McDonald's does?

McDonald’s Corp. is getting some recent attention in the blogosphere for a patent application, originally filed in late 2004, which describes its “Method and Apparatus for Making a Sandwich.” What’s interesting to me about this news item is the array of different reactions that various people have to this kind of story. Personally, it makes me laugh that McDonald’s paid a patent attorney an ASS-ton of money to write and prosecute a fifty-four page app, comprising twenty-three pages of drawings and flow charts and describing, in painful detail, how one might go about simultaneously preparing sandwich garnishes while “heating a pre-assembled meat and/or cheese filling”. Clearly, my reaction is the same as the folks’ over at PatentlySilly.com.

The other response that I quite frequently see is one of outrage or consternation. “How can they claim a patent for that?” “Will they be able to sue me for how I make my sandwich?” “This is what’s wrong with the U.S. patent system.” “Yadda, yadda, yadda.” “I love lamp.” You get the idea. This was Marc’s reaction when we had a conversation on the subject a few days ago. Now I don’t mean to criticize or belittle anyone who has this initial reaction (obviously, Marc is no IP n00b), but it exposes the reactor as someone who doesn’t have a firm grasp on the intricacies of patent law. This is nothing to be ashamed of, because the majority of the world doesn’t either. Without digging into the details of each individual case, it’s easy to go off half cocked.

So, rather than writing a blistering piece about how arrogant corporations abuse intellectual property (the story that Randazza might have written), I was inspired to use this particular example as a teaching vehicle to hopefully clear up some commonly held misconceptions about patents. It is also a useful exercise for me to try explaining this material to a general audience that does not have a background in hard-core intellectual property law.

By way of disclaimer, I am not a practicing patent attorney (yet). However, I do have the benefit of sitting through several courses on U.S. and international patent law, as well as a five-week summer associate gig working with the electrical engineering patent group of a large law firm (special thanks to the Atlanta office of Ballard Spahr Andrews & Ingersoll, LLP – formerly known as Needle & Rosenberg, PC). If anyone reading this post happens to be an expert in patent law, I encourage you to sound off in the comments if I get anything wrong or you don’t agree with my analysis.

The Sandwich App – U.S. Filing

click to enlarge

McDonald’s filed their initial application for patent with the United States Patent and Trademark Office (USPTO) on December 21, 2004. As stated above, the app described an “Method and Apparatus for Making a Sandwich.” Clearly, much care and effort were put into preparing the voluminous document, which more than reasonably describes an important business practice of any fast food restaurant – making burgers (or sandwiches, or burritos, or gyros) as quickly and efficiently as possible – and a “tool” for making that happen. Both the tool and the method are proper subject matter for patent protection in the U.S., provided that they work as expected and are novel and non-obvious. If they really had something, McDonald’s is far from crazy for seeking the competitive advantage that patent protection would provide by allowing them to prevent other fast food chains from making their sandwiches the same way. No one should doubt their credentials as experts in the field of sandwich making, given their commercial success and significant global presence. If anyone was gonna innovate in this area, McDonald’s is on the top of the short list, much like Intel would be for microprocessors.

The United States government, way back when they were trying to figure out how everything should work here (circa late 1700s), decided that the best way to facilitate advances in knowledge and technology was to provide a mechanism that encourages smart people to share their ideas with the world in exchange for the right to control, for a limited time (currently, twenty years), who could practice the devices and methods embodying those ideas. This “exchange” is symbolized by a patent. Think of it like a contract between the inventor and the government.

The inventor agrees to write a document (the application) that teaches his colleges all about his or her invention, and in consideration, the government recognizes the inventor’s right to profit from his or her invention. This quid pro quo ensures that brilliant ideas are not kept secret for competitive advantage and that the collective knowledge about useful things continues to grow. This way, another smart person may read about an idea and say, “I can do it better/cheaper/faster.” Thus the progress of science and the useful arts marches forward.

Turning back to our “Sandwich” application, in order to qualify for patent protection, the app must disclose something that is useful, new, and non-obvious. To make that determination, the USPTO assigns the application to an examiner, who presumably has some expertise in this field of endeavor (in this case, Art Unit 1794, Class 426 – “Food or Edible Material: Processes, Compositions, and Products“). The examiner’s job is to research the technology and find out if McDonald’s has truly added something new to the art of sandwich making.

click to enlarge

In this particular case, the examiner’s first response was to tell McDonald’s that their application disclosed multiple “inventions.” Multiple inventions mean multiple patents, so McDonald’s was forced to pick which one they wanted to pursue first (commonly called a “restriction requirement”). They opted (or “elected” – in patent-ese) to go after the method claims first, leaving the sandwich-making tool for a later “divisional” application, and the examination process continued.

Now that the examiner knew which invention to work on, he got down to it, researching the relevant field to find out if McDonald’s had really discovered a new way to make sandwiches. After doing so, he concluded that they had not and sent a letter to their attorney (typically called an “Office Action”) that described his reasons for coming to that conclusion, providing citations to materials that support it. In order to proceed, McDonald’s will have to respond to the Office Action, arguing why the examiner was wrong or changing their “claimed” invention to something that actually is new and non-obvious. They never did so, and the application went abandoned earlier this year.

Quick, honey, call our attorney. I've invented the McPizza!

McDonald’s may have decided for any number of strategic reasons not to continue prosecuting the application. My guess is that they realized they were facing an uphill battle and preferred to cut their losses (which were probably significant at that point – between filing fees and attorneys’ fees).

The Sandwich App – International Filing

By nature, patent protection is a territorial animal. The foregoing discussion described the events that took place when McDonald’s attempted to obtain patent protection for the United States only. If an inventor wants protection in other countries, he or she has to go through a similar process for each country where the inventor wants to enforce his or her rights. This can be an extremely tedious and expensive process, which is made marginally less so through something called the Patent Cooperation Treaty (PCT).

The PCT represents a collection of over one-hundred countries around the world that have somewhat similar requirements for patentability. By filing a special application in an appropriate member country, an inventor can obtain an initial clearance for his invention in the form of a preliminary search for materials that would make the invention unpatentable. There is no guarantee that a clearance from the PCT search authority means you will be able obtain patent protection in each and every designated country, because each country has its own unique requirements. The local PCT office just acts as a single point for filing your initial application and as an initial search provider for things that will present clear barriers to patentability.

click to enlarge

On the PCT application, the inventor chooses which countries he will pursue patent protection in, once the initial clearance is done. After it is completed, the preliminary search report is transmitted to each of those designated countries, and the applicant must continue the prosecution of the application with each of the local patent offices – commonly called “entering the national phase” for a particular country.

Although the PCT filing fees are capped after the inventor has chosen more than a few countries, the local prosecution fees for entering the national phase of each designated country can pile up pretty quickly. As a result, it is rare that anyone would chose to pursue protection in more than a few member countries. In the case of the Sandwich App, McDonald’s chose the U.S., Canada, Australia, and the European Union.

I know what you’re thinking. You’re thinking that the European Union is more than one country. That’s true, but they have their own special procedure that is available for applicants who want to secure protection in multiple European countries. It is similar to the PCT process, except that, where the PCT search authority is only able to do a preliminary search for materials that could potentially prevent the issue of a patent, the European Patent Office (EPO) is able to prosecute the application all the way through to “allowance.” However, there is no such thing as a “European Patent.” So once the EPO gives its go ahead, the applicant must take his or her clearance from the EPO to each of the European countries in which the inventor wants to assert his or her rights, file a translation of the application (if required), and pay the local issue fee. Here again, the more countries you pick, the more expensive the process gets.

The McWTF Sandwich (available for a limited time, only at paticipating locations, patent pending)

Finally, returning one last time to our Sandwich App, a preliminary search was done by the USPTO (as the local PCT search authority) and sent out to the various national patent offices on April 9, 2009. Not surprisingly, the report listed the same documents found by the original U.S. examiner, which indicated that the invention was not new or non-obvious.

The Canadian application had fees due in December, 2008, which were not paid by McDonald’s. Presumably, this means that, like the U.S. patent application, they have decided to abandon the Canadian one. With the U.S. and Canada off the table, I’m guessing that McDonald’s has foregone patent protection for their method of sandwich making in the largest portion of their market. While they still may pursue protection of their sandwich-making tool in the U.S., one might question the business decision-making ability of the McDonald’s exec who finds it prudent to throw good money after bad.

click to enlarge

The Australian application is awaiting a final determination, but it seems unlikely that the Australian Patent Office will come to a different conclusion than the USPTO.

Interestingly enough, McDonald’s paid a fee to the EPO in January, 2009, keeping the European application alive for the moment. Again, however, I have a hard time believing that the EPO will come to any different conclusion than the USPTO.

Conclusion

So, long story short (too late, I know), McDonald’s isn’t likely to sue anyone for infringement of this “invention.” Because they haven’t really demonstrated that their “discovery” adds anything to the field of endeavor, they haven’t held up their end of the “contract” that would entitle them to patent protection. The system worked as expected, and patent protection was not extended to what amounts to no “invention” at all.

This story was originally published on The Legal Satyricon.

Kerry Gorgone reports on the touching story of a pint-sized “inventor” who “came up” with the idea for attaching an IV bag pole to a kiddie car, so that hospitalized children can play while getting their meds. It seems the kid filed a patent application for the device and is charging a licensing fee [...]]]>

Kerry Gorgone reports on the touching story of a pint-sized “inventor” who “came up” with the idea for attaching an IV bag pole to a kiddie car, so that hospitalized children can play while getting their meds. It seems the kid filed a patent application for the device and is charging a licensing fee for toy manufacturers to build the thing.

As heartwarming as this particular story may be, it provides a textbook example of an obvious device, which means that it should not be entitled to patent protection. When an “inventor” merely “‘arranges old elements with each performing the same function it had been known to perform’ and yields no more than one would expect from such an arrangement, the combination is obvious.” K.S.R Int’l Co. v. Teleflex Inc., 127 S. Ct. 1727, 1740 (2007) (quoting Sakraida v. Ag Pro, Inc., 96 S. Ct. 1532 (1976)). Providing patent protection for obvious devices does not further the constitutional mandate of our patent system — to promote the progress of science and the useful arts. K.S.R. Int’l Co., 127 S. Ct. at 1746. In fact, it weakens that system and provides plenty of ammunition for those who would criticize it and demand reform.

The fact that this device is used by sick children should not provide a “free pass” to patentability. I was shocked to read the examiner, Kevin Hurley’s office actions, finding not even a mention, let alone some analysis, of 35 U.S.C. § 103 as it applies to this device. See Image File Wrapper for U.S. Patent No. 7,374,228.

@Lawminatrix: Good luck with your office chair/beer keg thingy, but you might have a better chance, apparently, if you can describe your device as useful for baby kittens, butterflies, and/or bunny rabbits.

This story was originally published on The Legal Satyricon.