WIPO / UNITARWorkshop on International IP

WIPO Coordination OfficeNew York

March 25, 2008

BASIC PRINCIPLES OF PATENTS

Karl F. JordaDavid Rines Professor of Intellectual Property Law

& Industrial InnovationDirector, Germeshausen Center for theLaw of Innovation & Entrepreneurship

Franklin Pierce Law CenterTwo White White Street, Concord, NH

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Basic Principles of Patents

I. Utility Patents

II. Design Patents – Industrial Designs

III. Plant Patents – Plant Variety Protection Certificates

IV. Petty Patents – Utility Models

V. Integration of Patents and Other IPRs

VI. Trade Secrets

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PrefaceLive in “Golden Age” for IPRs•Patent filings and issuances are skyrocketing•Talk of patent “revolution,” “explosion,” “frenzy”•Anything under the sun that is made by man” is patentable•Courts, Congress, Justice Department — pro IPRs•Corporations built on patented technologies•Motto: Innovate or perish•Value of IPRs for securing exclusivity — simply invaluable•Royalties for licensing IPRs in 2002: $150 billion•Over $1 billion for some companies•Universities jumped on bandwagon•Getting patents, concluding licenses, collecting royalties

Ronald Myrick, formerly of General Electric, put it this way: “The attraction of IP is simple; it’s at the forefront of the technology that’s driving the world and IP is one of the unique entities in the law where you’re actually creating assets.”

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Introduction

A patent is a grant from the government giving its owner the right to exclude others from making, using, selling, offering for sale or importing the claimed invention.

There are three types of patents in the United States:

• A utility patent, with a life of 20 years from filing, for any new and useful process, machine, article of manufacture or composition of matter.

• A design patent, with a term of 14 years from issuance, for any new, original, and ornamental design for a manufactured article, such as the design of a table lamp.

• A plant patent, having a life of 20 years from filing, for any new, distinct variety of an asexually reproduced plant.

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I. Utility Patents• An invention to be patentable must not only be useful and novel but

also unobvious.

• Novelty: the invented technology must not be anticipated by being identical to technology disclosed in a single piece of prior art.

Absolute novelty is not required as inventors are given a one-year grace period after divulgation or public use of the invention.

• Test for unobviousness: whether “the differences between the subject matter sought to be patented and the prior art are such that the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains.”

• This is a subjective standard so courts consider objective indicia of nonobviousness such as long-felt unsolved need, failure of others, commercial success, acquiescence by others, copying of the invention by an infringer.

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Utility Patents (continued)

• To enforce rights conferred by patents, patent owners can file patent infringement lawsuits against infringers in appropriate federal district courts.

• A patent is presumed to be valid.

• A patent can be literally infringed or via the doctrine of equivalents, if a product or process, which does not literally infringe, performs substantially the same function in substantially the same way to obtain substantially the same result as the patented product or process (function/way/result test).

• The remedies for patent infringement are

– preliminary and permanent injunctions;

– compensatory damages based on lost profits or reasonable royalty; and

– increased damages (up to treble) for willful infringement.

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Utility Patents (continued)• The American Patent System was revitalized by the creation in 1982

of the Court of Appeals for the Federal Circuit (CAFC), considerable pro-patent legislation in recent years as well as less antitrust enforcement, so much so that we speak of a Golden Age for patents. Patents are indeed more valuable and courts “read the riot act” to infringers.

• The U.S. Patent Law is expansive: “Everything under the sun made by man is patentable” (Supreme Court, 1980).

Computer programs and business methods are also patentable (CAFC, 1998).

• Patents are not “monopolies” per se but property rights, per U.S. patent code and Supreme Court decisions.

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II. Design PatentsIndustrial Designs

• Appropriate only for ornamental designs.

• An industrial design in other countries “is the ornamental or aesthetic aspect of a useful article…. The ornamental aspect may consist of the shape and/or pattern and/or color of the article. The article must be reproducible by industrial means; this is why the design is called industrial.

• There is a WIPO Model Law for Developing Countries on Industrial Designs, which protects designs insofar as they “can serve as a pattern for a product of industry or handicraft.”

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III. Plant PatentsPlant Variety Protection Certificates

• In the U.S., IP protection of plants can be achieved pursuant to the

– Plant Patent Act of 1930;

– Plant Variety Protection Act of 1970 (PVPA); and

– Utility Patent law as of 1985.

• The requirements for Plant Patent protection are: novelty, recognition of novelty, asexual reproduction, nonobviousness, distinctiveness and unique-name designation.

• Among the rights conferred are: exclusion of others from asexual reproduction, selling or using the so reproduced plant. Sexual reproduction (seed) and independent creation are not protected.

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Plant Patents (continued)• The PVPA protects sexually (seed) reproduced plants, other than fungi, bacteria

and tuber-reproduced crops.

• Requirements: novelty (not sold or distributed in U.S more than one year or outside U.S. more than four years — six years for a tree or vine), distinctiveness, uniformity and stability.

• PVPA Certificates are issued, after examination, by the U.S. Department of Agriculture.

• Rights conferred for 20 years are: exclusion of others from selling, reproducing or importing, from using the variety to produce a hybrid or different variety and from selling seed of varieties which are “essentially derived” from the protected variety.

• Farmers may reproduce for their own use only and a research exemption permits plant breeding to develop new varieties.

• After amendments in 1994, the PVPA complies with the International Convention for the Protection of New Plant Varieties (UPOV Convention), which guarantees to plant breeders in member nations national treatment and the right of priority.

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IV. Utility ModelsPetty Patents

• Many countries have a separate type of protection for inventions known as a utility model or petty patent, to permit certain inventions such as mechanical devices, which do not rise to the level of the normal standards of patentable invention, to be given some degree of exclusivity and protection for a shorter period of time.

• While some novelty is required, the degree of inventive advance can be more modest than that required for a utility patent.

• There is no examination for prior art.

• The duration of protection for utility model is usually much shorter than for a patent, averaging from 6 to 10 years.

• The U.S. has never had utility model protection.

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Utility Models (continued)

Such second-tier protection is needed, given the strict patentability requirements, the long pendency and the high cost of utility patents. Utility models would provide coverage for a large area of innovations which:

• fall between design and utility patents;

• cannot be protected by trade secrets; and

• for which present utility patents are out of reach because of high patentability standards and/or excessive costs.

If sui generis protection was fashioned for microchips or mask works in a very short period of time (which some now believe was done improvidently), why not establish protection in the “twilight zone of subpatentable inventions” for the benefit of private inventors, entrepreneurs and small entities?

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V. Integration of Patents with Other IPRs

• In our knowledge-based high-tech era it is important to exploit the overlap between IP categories for dual or multiple protection.

• This is true especially between patents and trade secrets.

• Patents and trade secrets are not incompatible but dovetail: the latter can protect volumes of collateral know-how.

• This results in synergistic integration and secures invulnerable exclusivity.

• Most technology licenses are hybrid licenses covering patents and trade secrets.

• Licenses under patents without access to collateral know-how are insufficient for commercial use of patented technology.

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Integration of IPRsFrom former fragmentation by specialties, IPRs are now a “seamless web,” due to progress in technology and commerce, per Professor Jay Dratler.

Professor Dratler was the first one to “tie all the fields of IP together.” “Integrative treatment.” (Intellectual Property Law: Commercial, Creative, and Industrial – 1991)

In 1997 the authors of “Intellectual Property in the New Technological Age” (Professors Merges, Merrell, Lemly & Jorde) also• avoid the fragmented coverage• approach IP as a unified whole; and• concentrate on the interaction between different types of IPRs.

Thus we now have a unified theory in the IP world, a single field of law with subsets and significant overlap between IP fields. Several IPRs are available for the same IP or different aspects of the same IP for dual or multiple protection. Not taking advantage of the overlap misses opportunities or, worse, amounts to malpractice.

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Integration of IPRs (continued)One IPR category is center of gravity and more important—most often patents — especially in fields of technology.

Other IPR categories are then supplementary but very valuable to• cover additional subject matter• strengthen exclusivity• invoke additional remedies• standup if primary IPR becomes invalidand thus provide synergy and optimize legal protection.

Multiple forms of protection are especially important in the fields of biotechnology and computer.

The most important strategy is exploiting the overlap between patents and trade secrets.

Illustrative examples are:• GE’s industrial diamond process technology• Wyeth’s Premarin process• Pizza Hut decision

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Multiple Protection in Biotech

Protection for a diagnostic kit involving monoclonal antibodies:

• Product patent on the test kit• Process patent on the preparation of the

antibodies• Copyright for test kit’s instructions• Trademark• Trade secrecy for production know-how• Trade secrecy for collateral know-how

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Multiple Protection for Computers

A data processing system can involve:

• patented hardware and software

• patented computer architecture on circuit designs

• patented business methods

• trade secret production processes

• trade secrecy for collateral know-how

• copyrighted microcode

• copyrighted operating system

• copyrighted instruction manual

• semiconductor chips protected as mask works

• consoles or keyboards protected by design patents

• or as trade dress under trademark principles

• trademark registration

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IP Integration ConceptsEXPLOIT THE OVERLAP

DEVELOP A FALL BACK POSITION

CREATE A WEB OF RIGHTS

BUILD AN IP ESTATE

BUILD A WALL

BUILD A RINGFENCE (India)

OVERPROTECT

LAY A MINEFIELD

for

SYNERGISTIC EFFECT

via

DUAL OR MULTIPLE PROTECTION

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VI. Trade SecretsThe Importance of Trade Secrets

Trade secrets are the “crown jewels” of corporations — not the “cesspool of the patent system.”

Mark Halligan: “Trade secrets are the IP of the new millennium and can no longer be treated as a stepchild.”

James Pooley: “Forget patents, trademarks and copyrights…trade secrets could be your company’s most important and valuable assets.”

88% of responses in an IPO Survey indicate trade secrets to be the really important intellectual assets because patents have limits: patentability requirements, publication and invent-around feasibility.

Trade secret misappropriation recently cost Walt Disney $240 million, Cargill $300 million, and Toshiba over $400 million.

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The Importance of Trade Secrets (continued)

Trade secret protection operates without delay and undue cost against the world — unlike patents which are territorial and so expensive to obtain and maintain that only very selective foreign filing is done.

Patents are tips of icebergs in an ocean of trade secrets• Trade secrets cover over 90% of new technology• Over 80% of technology licenses cover trade secrets or are hybrid licenses

Trade Secrets are the “workhorse of tech transfer.” (Bob Sherwood).

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Patent/Trade Secret Interface

As a practical matter, licenses under patents without access to associated, collateral know-how are often not enough, because patents rarely disclose the ultimate scaled-up commercial embodiments of products and processes.

“In many cases, particularly in chemical technology, the know-how is the most important part of a technology transfer agreement.” (Homer Blair).

“It is common practice in industry to seek and obtain patents on that part of a technology that is amenable to patent protection, while maintaining related technological data and other information in confidence. Some regard a patent as little more than an advertisement for the sale of accompanying know-how.” (Peter Rosenberg).

In technology licensing “(r)elated patent rights generally are mentioned late in the discussion and are perceived to have ‘insignificant’ value relative to the know-how.” (Michael Ward, Honeywell VP Licensing).

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Patent/Trade Secret Interface (continued)“Trade secrets are a component of almost every technology license…(and) can increase the value of a license up to 3 to 10 times the value of the deal if no trade secrets are involved.” (Melvin Jager).

“One potential shortcoming of focusing on patents as a measure of innovation, besides the fact that it ignores the other types of intellectual property, is that patents are often valueless absent the ‘know-how’ that translates protected intellectual property into viable products.” (Gavin Clarkson, Harvard).

“A company with one or more patents for its technology will usually have substantial valuable technical and business information related to, but outside the direct coverage or disclosure obligations of, its patents. The company can maintain vigorous efforts in both areas of legal protection. (Jerry Cohen, Perkins, Smith & Cohen).

“It is frequently stated that know-how is the most valuable element of technology transfer. This is consistent with the writer’s own experience.” (Robert Goldscheider).

Failed Brazilian tactic — translation of foreign patentsCIBA-GEIGY examples: Eastman Kodak & DuPont patent licenses were useless.

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Patent/Trade Secret Complementariness

• Supreme Court (Kewanee Oil, 1974): perfectly viable alternatives.

• Not mutually exclusive but mutually reinforcing — dovetail, in harmony

• “Coexistence is well-established.” (Don Chisum).

• Inextricably intertwined: Most R&D data and collateral know-how cannot and need not be included in patent applications — grist for trade secrets.

• All patents are born as trade secrets. Trade secrets precede, accompany and follow patents.

• Tom Arnold: it’s “flat wrong” to assume that “because the patent law requires a best mode requirement, patents necessarily disclose or preempt all the trade secrets that are useful in the practice of the invention.”

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The Best Mode RequirementConventional wisdom: coexistence is impossible because of the “best mode”

requirement. The “best mode” requirement applies • only to the knowledge of the inventor, • only at the time of filing and • only to the claimed inventionHence “best mode” requirement is no impediment, because —

1. Patent applications are filed early in the R&D stage to get the earliest possible filing or priority date.

2. The specification normally describes in but a few pages only rudimentary lab experiments or prototypes.

3. The best mode for commercial manufacture and use remains to be developed later.

4. Patent claims tend to be narrow for distance from the prior art.

5. As shown by case law, manufacturing process details are, even if available, not a part of the statutorily-required “best mode” disclosure of a patent.

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Exemplary Trade Secret Cases

1. GE’s exclusive industrial diamond process technology

• Holds patents (some expired) and trade secrets

• Refused to grant licenses

• Fast-track GE scientists stole trade secrets for Far Eastern interests for million dollar payments

• In the end got caught, tried, jailed

2. Wyeth’s exclusive Premarin manufacturing process

• Has market exclusivity since 1942

• Patents expired decades ago

• Closely guards its trade secrets

• Natural Biologics stole these trade secrets

• Wyeth sued, got sweeping injunction

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Exemplary Trade Secret Cases (continued)

3. Pizza Hut case

• Pizza Hut supplier, C&F Packing, invented and patented a manufacturing process for pizza sausage toppings and kept improvements secret

• Pizza Hut misappropriated trade secrets and got sued

• Court decision:

1. patents are invalid on on-sale bar grounds (on Summary Judgment)

2. trade secrets are enforceable and Pizza Hut had to pay $10.9 million (after trial)

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Conclusion

• Trade secrets are indeed a viable mode of protection.• They can be used in lieu of patents but, more

importantly, they can and should be relied upon at the same time and side by side with patents to protect any given invention as well as the volumes of collateral know-how.

• Hence, it is patents and (not “or”) trade secrets. A happy marriage!

3.18.08