LLC friendly states

Organizing Your LLC Intellectual Property Startup

Limited Liability Company – IP Startup

One or more Limited Liability Companies, can be be beneficial for Intellectual Property startups. As indicated in a prior blog, it is prudent for companies owning Intellectual Property rights to hold the Intellectual Property in a holding company and to have the goods/services associated with the Intellectual Property owned by a separate manufacturing/distribution company.

LLC Organization and Tax Law

Should organizers of a Limited Liability Company seek the advice of a tax professional prior to organization the LLC?  Yes.

Business Patent Law, PLLC does not provide tax counsel. However, with the ever-changing tax codes, organizers should consult with a tax professional. If an inappropriate jurisdiction is initially selected for the organization of the LLC, it may not be cost-efficient to redo the LLC’s organization in another jurisdiction.

Limited Liability Companies are Legal Entities

Limited Liability Companies are legal entities of the state (or District of Columbia) in which the LLC is organized.

For a Limited Liability Company with all members domiciled in the same jurisdiction, some states offer more owner friendly in-state taxation and fees to the citizen-members than other states.

You should review a state’s securities laws (and jurisdictional fees associated with the capitalization of the LLC) to determine if a state other than your home state may be better for the organization of the LLC.

As a general rule, a Limited Liability Company is treated as a pass through entity for federal income taxation purposes.

Where Should I Organize my LLC?

Where Should the Organizers Organize a Limited Liability Company? It depends

  • The nature of the LLC’s business can affect which jurisdiction is more favorable, e.g., some jurisdictions provide favorable state and local tax preferences for certain businesses
  • Some jurisdictions are more organizational, fee and tax-friendly than other jurisdictions
  • Management of an LLC can find it advantageous to organize in a first jurisdiction and locate the LLC’s principal office in a second jurisdiction
  • Some jurisdictions require out-of-state members to pay jurisdictional taxes in the jurisdiction where the LLC is organized or conducts business while other jurisdictions do not tax out-of-state members

Business Patent Law, PLLC has a history of working with tax professionals to optimize the organizational structures of LLCs. Because of our experience with different jurisdictions, Business Patent Law, PLLC (in conjunction with a trusted tax professional) can create a workable organizational structure for LLCs.

If you have questions about the organization of a Limited Liability Company or  Intellectual Property matters, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Patent Maintenance Fees & Annuities

Patent Maintenance Fees and Annuities

In most jurisdictions, utility-type Patents require that periodic patent maintenance fees or annual annuities be paid to maintain the Patent. These payments are usually made to the appropriate governmental body. Most jurisdictions, other than the United States, also require the payment of annual annuities.

United States Patent Maintenance Fees

Title 15 of the United States Code requires the owner of a utility US Patent to pay maintenance fees at three and one-half, seven and one-half and eleven and one-half years subsequent to the issue date of the US Patent.

What Happens if the US Patent’s Maintenance Fee Is Not Paid?

The Patent will expire if the fee is not paid prior to the expiration of the fourth, eighth or twelfth year subsequent to the issue date of the Patent.

An Example Case: Unpaid Patent Maintenance Fees

Due to a Programmer’s Error, Company A did not Generate the Payment for the Seven and One-Half Year Maintenance Fee for Company A’s US Patent for “Gizmo.”

At this point, Company B approaches Company A regarding a license of the “Gizmo” Patent. Is it possible for Company A to enter into a Valid License Agreement with Company B?

Scenario 1

Seven years and nine months subsequent to the issue date of the Gizmo Patent, Company A discovers the maintenance fee was not paid:

  • Pursuant to 37 CFR 1.362(e), by paying the maintenance fee and the surcharge during the “grace period,” Company A and Company B can enter into a license for the Gizmo.

Scenario 2

Nine years subsequent to the issue date of the Gizmo Patent, Company A discovers the maintenance fee was not paid:

  • Pursuant to 37 CFR 1.378, by filing a petition with the Director of Patents stating that the failure to pay the maintenance fee was unintentional, paying the USPTO fee for the petition and the required maintenance fee, the Director may reinstate the expired Gizmo Patent. As a general rule, the Director usually reinstates an expired Patent as long as these above mentioned conditions are met before two years subsequent to the expiration of the Patent.  Subject to any intervening rights, Company A and Company B can enter into a license for the Gizmo.

Scenario 3

Ten and one-half years subsequent to the issue date of the Gizmo Patent, Company A discovers the maintenance fee was not paid:

  • Pursuant to 37 CFR 1.378, by filing a petition with the Director of Patents stating that the failure to pay the maintenance fee was unintentional, paying the USPTO fee for the petition and the required maintenance fee, the Director may reinstate the expired Gizmo Patent. As a general rule, after two years subsequent the expiration of a Patent, the Director exercises more discretion in reinstating any expired Patent. Subject to favorable decision by the Director to reinstate the Patent and any intervening rights, Company A and Company B can enter into a license for the Gizmo.

If you have questions about your company’s Patent maintenance fees or annuities, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Multijurisdictional Patent Infringement World Patents

Multijurisdictional Patent Infringement

Patent Cooperation Treaty Patent Applications have the potential to mature into Patents in most nations, but currently, there is no enforceable World Patent. Unaddressed Patent infringement can reduce your company’s profits.

Patent Rights in Multiple Jurisdictions

Many companies own patent rights in at least some of the jurisdictions in which they conduct business.

What If We Don’t Own Patent Rights in Jurisdictions Where We Do Business?

A frequent multijurisdictional situation is:

My Company owns ten US Patents, three European Patents, five Chinese Patents and three Japanese Patents. The Patents cover the company’s fifth most profitable product.

At a tradeshow in Singapore, our regional vice president discovers that a Vietnamese company has duplicated our invention and is exporting the duplicated invention to Australia, Canada and Japan. Further, the Vietnamese company intends to export the invention to Germany and the United States.

What Can You Do About “Knock offs” of Your Product Overseas?

As a general rule, Patent rights are only enforceable in the jurisdiction that granted the Patent.

  • In Australia and Canada, your company owns no Patent Rights and cannot stop the importation and use of the knock off in those jurisdictions
  • If Germany is one of the European nations covered by the European Patents, then your company can utilize European counsel to assert its Patent rights in Germany
  • In Japan, your company can use Japanese counsel to enforce its Japanese Patent rights
  • In the United States, your company can utilize US counsel to enforce its Patent rights that can include a court order to stop the knock offs at the port of entry

In the global economy, when another determines that your Company’s product is profitable, it is almost inevitable that someone will attempt to “bend the rules” and trade on your Company’s market share and goodwill for their own financial gain. Without Patent rights, you have little to no recourse in most jurisdictions.

What Should My Company Do To Prevent Patent Problems?

It is astute to procure Patent rights in all jurisdictions where your business plan, business model, actual and projected market forces justify the procurement of intellectual property.

A small front-end investment in intellectual property can reap increased future multijurisdictional sales.

If you have questions about your company’s multijurisdictional intellectual properties, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Federal Registration of Trademarks

Federal Registration – Trademarks/Service Marks

Is Federal Registration of My Company’s Trademark/Service Mark required?

No.  However, if the company’s Trademark/brand is not registered, it becomes more difficult to enforce the company’s rights associated with its brand. If a federal Registration is not procured, then the owner of the Trademark/Service Mark must rely on State or common law precepts to prove infringement.

Federal Registration Advantages Include:

  • The symbol “®” can be placed in proximity to the Trademark/Service Mark giving notice the Trademark is registered in the United Patent and Trademark Office
  • Substantive and procedural rights attributable to federal jurisdiction (rather than using a state’s law to control adversarial proceedings)
  • Prevention of the registration of another Trademark/Service Mark in the United States Patent and Trademark Office that is confusingly similar
  • Creates a basis for international Madrid Protocol Trademarks/Service Marks
  • Constructive notice of ownership and date of first use in interstate or international commerce

Wise Business Owners Procure Federal Registration Because:

  • Over time, the Trademarks/Service Marks can mature into the company’s most valuable asset
  • Trademarks/Service Marks are foundational components of most franchise agreements
  • Trademark/Service Mark licenses can provide a royalty stream for the registrant
  • If your company does not procure a United States Trademark, another company can procure a federal Registration of your company’s Trademark and limit your company’s usage of its brand to the geographic areas in which your company’s use was prior to the registering  company’s use of your brand name
  • After five years of continuous use, your company’s federal Registration becomes incontestable, unless one or more of nine statutory defenses can be proved by the party contesting your company’s United States Trademark/Service Mark

If you have questions about your company’s Trademarks/Service Marks, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

How To Expedite Foreign Patents

How to Expedite Foreign Patents

Will a US Patent Application Expedite Foreign Patents?

Yes, one way to expedite foreign patents is to apply for a US Patent. This approach can expedite procurement of foreign Patents in many foreign jurisdictions.

Under European Patent Office practice, the grant of a US Patent may or may not correlate with the expedited grant of its parallel European Patent.

Three General Rules for Domestic and Foreign Patents

  • The sooner the Nonprovisional Patent Application is filed, the sooner the Patent can issue
  • In most jurisdictions, the sooner the Patent issues, the less expense incurred by the Patentee
  • The sooner the Patent issues, the sooner the Patentee has enforceable patent rights, and the sooner the Patent can become a wealth-generating asset

Business Strategy to Expedite Foreign Patents (Example)

  • Regardless of the nationality of the Patent Applicant, file a Patent Application in the USPTO
  • It best for your company to originally file a Provisional, Nonprovisional or PCT Application in the USPTO — however, if the Provisional, Nonprovisional or PCT Application was first filed in another jurisdiction, a US Nonprovisional Application can be filed in the USPTO until the US statutory deadline has passed
  • If a PCT Application is not the first Application filed, a PCT Application claiming priority to a Provisional or Nonprovisional Application is filed in a PCT Receiving Office (preferably, the USPTO Receiving Office)
  • File a US Nonprovisional Patent Application shortly after the PCT Application was filed, rather than waiting until near the deadline allowed by the PCT
  • By using this procedure, it is possible for your company to receive the grant of the US Patent before parallel Applications filed in other jurisdictions are examined
  • As previously indicated, the grant of a US Patent can expedite the grant of parallel Patents in many foreign jurisdictions

If you have questions about cost-efficient business strategies for filing your company’s Patent Applications, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Foreign Jurisdictions for Patents

Patent Applications – Foreign Jurisdictions

How To Select the Best Path for Patent Applications in Foreign Jurisdictions

My company is contemplating filing Patent Applications in foreign jurisdictions. Is the use of the Patent Cooperation Treaty or the Paris Convention Treaty the better route?

Patent Cooperation Treaty vs. Paris Convention Treaty

Your business model and judgement determine the best course for the filing of Patent Applications in foreign jurisdictions. Both the Paris Convention Treaty and the Patent Cooperation Treaty routes have advantages and disadvantages.

Under each Treaty, the Applicant makes a claim to the priority application (document) that was filed in a jurisdiction other than the jurisdiction (country/region/union) which you desire to file the new Patent Application. The priority document can be a non-provisional, a provisional or an international Patent Application.

The Paris Convention Treaty

  • The non-provisional Patent Application must be filed before the expiration of one year following the filing of the priority document
  • For US businesses, the priority document is usually a US provisional or non-provisional Patent Application
  • If you are only filing in a few foreign jurisdictions, the Paris Convention will likely be the least expensive route to file the foreign Patent Application
  • Most foreign jurisdictions require annual maintenance fees to perpetuate pendency of the Patent Application/Patent

The Patent Cooperation Treaty (PCT)

  • The non-provisional Patent Application must be filed before the expiration of thirty months (some jurisdictions allow thirty-one months) following the filing of the priority document
  • For US businesses, the priority document is usually a US provisional or non-provisional Patent Application
  • The PCT Application can be filed as the original and priority document
  • An International Search Report is generated by the International Searching Authority of the World Intellectual Property Organization
  • When needed, the International Search Report can provide a basis for amending the claims of the PCT Application prior to entry into the national stage of a foreign jurisdiction’s Patent Office or the United States Patent Office.
  • Amendment of the claims of a PCT Application prior to entry into the national stage can result in a speedier and more cost-effective issuance of a Patent in the United States or a foreign jurisdiction
  • Most foreign jurisdictions require annual maintenance fees to perpetuate pendency of the Patent Application/Patent

If you have questions about filing Patent Applications under the Paris Convention Treaty or the Patent Cooperation Treaty, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Blue Sky Laws Securities and Smooth Sailing

Securities Laws: State Blue Sky Laws and Smooth Sailing

What Are Blue Sky Laws?

Blue Sky laws are another name for State Securities Laws. The first use of the term is unknown, but the first well-known use of the term was in 1917 by Supreme Court Justice Joseph McKenna. Justice McKenna wrote the Court’s opinion in Hall vs. Geiger-Jones Co., 242 U.S. 539 (1917), which upheld the rights of states to regulate securities. He wrote:

“The name that is given to the law indicates the evil at which it is aimed, that is, to use the language of a cited case, “speculative schemes which have no more basis than so many feet of ‘blue sky'”; or, as stated by counsel in another case, “to stop the sale of stock in fly-by-night concerns, visionary oil wells, distant gold mines and other like fraudulent exploitations.”

State Securities Laws

Unless preempted by federal law, each State regulates the securities of a company that are held by a citizen of the State. By way of example, unless preempted by federal law, the shares of an Ohio small business that are held by a citizen of Kentucky can be the subject of both the Ohio and the Kentucky Blue Sky Laws.

For a small business that has shareholders in several States it is wise to utilize a federal preemption to the registration requirements of the States’ Blue Sky Laws when possible.

Is My Small Business Exempt?

If your business has an exemption from the federal securities laws, you may be unclear on whether or not it is automatically exempted from a State’s securities laws.  Security laws are complex. Whether your securities are exempt depends on which federal exemption you use.

A Federal Preemption Strategy for Securities

When circumstances permit, Business Patent Law, PLLC prefers to utilize Rule 506(b) of Regulation D to obtain and exemption from the “Blue Sky” laws.  Use of Rule 506(b):

  • Provides an exemption from the registration requirements of the federal securities laws
  • Provides an exemption from the registration requirements of one or more States’ “Blue Sky” laws
  • Does not limit the amount of capital that can be raised from the private offering
  • Allows your company to offer a single class of stock to an unlimited number of “accredited” investors
  • Reduces governmental and attorneys’ costs associated with your company’s private stock offering

Rule 506 (b) is not the only federal preemption to the Blue Sky Laws, but it is probably a more cost-effective strategy for your small business.

If you have questions about the securities laws, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Securities for small businesses

Federal Securities Laws and Your Small Business

Small business is not automatically exempt from the federal securities laws. Depending on the circumstances of the transaction, these laws can apply to any company, partnership or organization.

What is a Security?

The Supreme Court test for determining if something is an investment contract, i.e., security:

If something is an investment contract, it is a security. In the case of Securities and Exchange Commission v. W. J. Howey Co. 328 U.S. 293 (1946), the US Supreme Court defined an investment contract as follows:

  • It is an investment of money
  • There is an expectation of profits from the investment
  • The investment of money is in a common enterprise
  • Any profit comes from the efforts of a promoter or third party

Examples of Securities Utilized by Small Businesses

Securities can include such investment contracts as bonds, derivatives, leaseholds, intellectual property investment syndicates, options, leaseholds, publication syndicates, ownership interests in limited liability companies, corporations and partnerships and stocks.

Is Your Security Exempt?

If a security is associated with your business, it will fall under the registration and reporting requirements of the 1933 and 1934 Securities Acts – unless your business has obtained an exemption from registration.

  • Obtaining an exemption from the 1933 and 1934 Securities Acts is important – most small businesses cannot afford the costs of registering the security
  • Violations of the 1933 and 1934 Securities Acts can bankrupt most small businesses
  • Be cautious in accepting any risk capital investment from a potential investor who is not an “accredited investor” as defined in SEC Rule 501 of Regulation D
  • Be cautious in accepting any risk capital investment from a potential investor where your business has not first provided the potential investor with a private placement memorandum
  • Exempted securities can be an excellent source of capital for your company, partnership or organization

Before your company accepts the at risk investment capital, contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Patent Portfolios Increase Profits

Patent Portfolios Increase Profits

Patent Portfolios – A Way to Reduce Inventories And Increase Profits?

By using a Patent Portfolios business model, entrepreneurs, start-ups and established companies can:

  • enhance profitability
  • reduce inventory
  • decrease product liability risks

A Nontraditional Business Model utilizing Patent Portfolios

After spending years in your market space, you invented an improved Widget. Actually, it was the genesis of a long line of better Widgets. Instead of plodding along with the traditional business model of raising capital, building a sales staff and increasing inventory, you opted for the “brain rather than brawn” marketing strategy. To be sure this business model is not for everyone, but for a select few, here is what can happen…

Implementation of a Nontraditional Business Model can include the following:

  • Develop and test several prototypes to determine the best prototypes.
  • File as many Patent Applications as is economically feasible.
  • Patent, Patent, Patent as many improved Widgets as possible!
  • After the Patent Applications are filed, advertise as best fits the company’s budget.
  • Take the line of Widgets to trade shows to demonstrate the improved Widget line for potential manufactures.
  • When one or more manufacturers appear interested in the Widget line, offer reasonable royalty rates and license agreements to keep the manufacturers coming back – don’t be greedy, when the manufacturers profit, you will too.
  • Purchase intellectual property insurance to protect and preserve your Widget Patents, if the need arises.
  • Sell your company’s services to assist the manufacturer with the advertising, making and selling of the Widget Line.

Licensor of Patent Portfolios instead of Manufacturer

As a licensor rather than a manufacturer, you can eliminate all or at least most of the following expenses: inventory, transportation, property taxes, regulatory and labor. You also have the potential to perpetuate your company’s Patent monopoly for decades.

Business Risk

With each new endeavor, there is the risk of failure. However, if your licensor business model should fail, your monetary losses would likely only be a small percentage of the losses associated with the traditional model of scaling up your Widgets for sale.

This nontraditional business model is not for every company, but if your company is interested, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

when do patent rights expire

When Do Patent Rights Expire?

Patent rights do not last forever, eventually patent rights expire. A recent Supreme Court decision reviewed the conditions under which patent rights expire and one justice explained why they should. Here’s the information you need to know:

On May 30, 2017, in the case of Impressions Products, Inc. v. Lexmark International, Inc., 581 US ______(2017) 15-1189, the Supreme Court of the United States answered the decade’s old uncertainty regarding the “exhaustion of patent rights” doctrine.(https://www.supremecourt.gov/opinions/16pdf/15-1189_ebfj.pdf)

Impression Products, Inc., Petitioner v.  Lexmark International, Inc., 581 US _____(2017) 15-1189 

In the Lexmark International opinion, the Supreme Court of the United States held that a Patentee could not use patent rights to control the use or sale of the patented article once the Patentee or a licensee of the Patentee had sold the patent article to another.

35 United States Code Section 154(a) – Patent Rights

In the Lexmark International opinion, the Supreme Court wrote, “A United States patent entitles the patent holder (the “patentee”), for a period of 20 years, to “exclude others from making, using, offering for sale, or selling [its] invention throughout the United States or importing the invention into the United States.” 35 U.S.C. § 154(a). Whoever engages in one of these acts “without authority” from the patentee may face liability for patent infringement. §271(a).”

The Supreme Court’s Illustration Supporting the Opinion

Chief Justice Roberts wrote, “But an illustration never hurts. Take a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, restrict resale rights and sue the shop owner for patent infringement. And even if they refrained from imposing such restrictions, the very threat of patent liability would force the shop to invest in efforts to protect itself from hidden lawsuits. Either way, extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain. And advances in technology, along with increasingly complex supply chains, magnify the problem. See Brief for Costco Wholesale Corp. et al. as Amici Curiae 7-9; Brief for Intel Corp. et al. as Amici Curiae 17, n. 5 (“A generic smartphone assembled from various high-tech components could practice an estimated 250, 000 patents”).”

Doctrine of Patent Exhaustion and the Patentee’s Rights

In the Lexmark International opinion, the Supreme Court stated, “For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude. See Bloomer v. McQuewan, 14 How. 539 (1853). The limit functions automatically: When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with ownership. Id., at 549-550. A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U.S. 241, 250 (1942) (emphasis added). The sale “terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625(2008).”

Conclusion – Patent Rights Expire Stateside and Abroad

In the Lexmark International opinion, a majority of the Supreme Court Justices concluded that the patent exhaustion doctrine applies to both domestic and foreign sales of the patented article, unless the patented article was not purchased from a Patentee or the Patentee’s licensee.

If you have questions regarding Impressions Products, Inc. v. Lexmark International, Inc., 581 US ______(2017) 15-1189 opinion, or when patent rights expire, please contact Business Patent Law, PLLC and we will discuss how the Lexmark International opinion may or may not affect your business and your intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.