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Don’t Jeopardize Your Patent Rights: Best Patent Practices for Startups

February 24, 2015
Startup Blog Post

For young, startup companies, the landscape of patents can be difficult to navigate. Patents are expensive and complex and require substantial time and money that are often at a premium for startup companies. At the same time, patents provide a tangible asset that can help young companies exclude their competition and hopefully attract investors. For these companies, it is highly important to follow best patent practices and avoid any slip ups that could jeopardize their patent rights and the long term value of the company.

Timing of Filings and Disclosures Is Critical

In business, timing is always important. Sooner is always better, and the faster things get done the quicker we can move onto the next task. In patents, the timing of disclosures and filings can mean the difference between owning patent rights on your technology and owning nothing at all.

Startup companies are often eager to get their technology, and the hype that comes with it, out into the marketplace. Whether showing devices at a trade show or offering and making a first sale, many young companies want to get the ball rolling and create a revenue stream. However, these early disclosures and offers for sale can derail patentability if proper procedures are not followed first.

As a general rule, any public or third party disclosure of your company's inventions or technology prior to filing a patent application can jeopardize your patent rights. In the United States, patent applicants are given a one-year grace period after the first public disclosure of their invention to file a patent application. The one-year clock starts when the disclosure is made, and any filing after one-year grace period is considered barred. Outside of the United States the rules are even stricter and most countries do not provide any grace period. Therefore, public disclosures of your inventions, whether in the United States or abroad, prior to filing an application may immediately foreclose any international patent rights.

It is important to know that a public disclosure may include any type of disclosure, including a sale and even an offer for sale. While the one year grace period provides some timing flexibility, companies must be mindful of all disclosure dates to prevent forfeiting their patent rights.

Recent changes in the patent laws have only made the timing of filing even more critical. Under the America Invents Act, the United States changed its patent system from a "first to invent" system to a "first to file" system. This means that when two parties file a patent for the same technology, the patent is awarded to the applicant that filed first with the patent office, not the first to invent or reduce the invention to practice, as before. This new change in the law makes it even more important for companies to be timely and diligent in their preparation and filing of patent applications.

To avoid any issues with harmful disclosures or late filing, the best practice is to consult a patent attorney during the development process to discuss when you should file and what disclosures to avoid.

Preparation Can Prevent Unnecessary Ownership Disputes

All too often, companies invest substantial time and money into preparing, filing, and prosecuting their patents but fail to complete simple tasks that can ultimately cost them their patent rights. Patent applications are commonly filed in the name of the inventors. Without an assignment in place, the named inventor or inventors own the rights in the patent. Further, in the case of multiple inventors, each inventor owns a full share of the patent and may license rights in the entire patent to any third party. Without an executed assignment from the inventor assigning rights in the patent to the company, a single disgruntled inventor can hold a company's patents hostage and can cause unnecessary and expensive legal issues.

The solution here is to address the problem before it ever happens. First, before even entering into the development stage, make sure that all employees and contract workers, specifically anyone who may be named as an inventor on a patent, have employment agreements in place. All employment agreements should include language that both obligates the signor to assign the company's intellectual property back to the company, and effectively makes that assignment.

Second, once a patent is filed, make sure that proper assignments are executed and recorded for each and every inventor named on the patent application. This belt and suspenders approach will prevent any future disputes between employees and the company from jeopardizing your patent rights.

Owning a Patent Does Not Preclude Infringement

Companies that have taken the appropriate steps to file patents and protect their technology are often eager to move on to the next step and begin to exploit their technology. It is important, however, to recognize the distinction between the rights that patents provide and the ability to practice technology without a risk of infringing third party patents. Protecting a company from infringement liability is just as important as protecting the technology from infringement.

Patents give their owners the right to exclude others from making, using, or selling the claimed technology. Patents, however, do not grant owners a right to use and sell their product free from any risk of infringement. The primary reason is because patents are directed to a specific set of features that may be included on a product or in a process. Products and processes often include numerous sets of features and therefore may be covered by more than one patent.

In order to determine a company's infringement risk, it is necessary to conduct a patent clearance search. A clearance search may take into account numerous features of a company's technology, not only the novel or patentable aspects. The search aims to find live patents and patent applications that may cover these features. The closest patents can then be analyzed to determine their scope and if any infringement risk exists.

Clearance searches provide vital information, especially for startup companies. First, investors often want to see some type of clearance search and freedom to operate legal opinion before investing into your company. Patent infringement actions are costly to defend, and investors want to assess this risk before investing. Having a "clean bill of health" from an infringement standpoint will make your company much more attractive to potential investors.

Second, it is very helpful to know where your competitors are developing and patenting. As a young company, you will hopefully begin to cut into your competitor's market share at some point. When this happens, they may look to enforce their patents against you to disrupt your momentum. Knowing your competitor's patents during your development stage will allow you to design around their technology and avoid future infringement issues. 

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