Royalties and Taxes

Royalties and Taxation

What are Royalties?

In Revenue Ruling 81-178, 1981-2 C.B. regarding royalties, the Internal Revenue Service stated:

“To be a royalty, a payment must relate to the use of a valuable right. Payments for the use of trademarks, trade names, service marks, or copyrights, whether or not payment is based on the use made of such property, are ordinarily classified as royalties for federal tax purposes.”

Patents, Trademarks & Copyrights are Valuable

Patents, trademarks, and copyrights are valuable. Intellectual property portfolios of Patents, Trademarks and Copyrights are assets of your company and can provide a stream of royalty income for your company.

26 Code of Federal Regulations (CFR) 1.61-8 – Rents and Royalties

CFR 1.61-8, in part reads, “(a) In general. …Gross income includes royalties. Royalties may be received from books, stories, plays, copyrights, trademarks, formulas, patents, and from the exploitation of natural resources, such as coal, gas, oil, copper, or timber.

  • License agreements of Patents, Trademark and Copyrights are contracts that include royalty payments to the owner of the intellectual property.
  • License agreements can have long term benefits for both the licensor and the licensee.
  • Royalty agreements can be difficult to negotiate and understand.
  • It is wise for parties to license agreements to be represented by independent counsels.

Business Patent Law, PLLC does not practice taxation law. However, in view of US federal taxation laws, royalties are generally treated as passive ordinary income.

Under certain circumstances, transfers of Patent rights are treated as capital gains

26 Internal Review Code (IRC) 1235, in part, reads:

(a) General A transfer (other than by gift, inheritance, or devise) of property consisting of all substantial rights to a patent, or an undivided interest therein which includes a part of all such rights, by any holder shall be considered the sale or exchange of a capital asset held for more than 1 year, regardless of whether or not payments in consideration of such transfer are—

(1) payable periodically over a period generally coterminous with the transferee’s use of the patent, or

(2) contingent on the productivity, use, or disposition of the property transferred.

If you need legal assistance with your company’s license-royalty agreements or intellectual property matters, please contact Business Patent Law, PLLC.

Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

 

Precise Patent Claims

Patent Claims Must Be Written Precisely

Overcoming the Examiner’s Rejection

The Patent Examiner stated that our claims did not particularly point out and distinctly claim our invention. Can we overcome the Examiner’s rejection?

Whether Applicants can overcome the Examiner’s rejections of the claims, depends on the evidence.

35 U.S.C. 112, in part, reads:

(a)      In General:

The specification shall contain a written description of the invention, and of the manner and process of making and using it, in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same, and shall set forth the best mode contemplated by the inventor or joint inventor of carrying out the invention.

(b)      Conclusion:

The specification shall conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the inventor or a joint inventor regards as the invention.

Be Precise

35 U.S.C. 112 requires Applicants’ claims to precisely claim the subject matter of the invention. When the Examiner argues that the Applicants’ claims failed to particularly point out and distinctly claim the subject matter the inventors regard as the invention, in effect, the Examiner argues that the claim language is unclear or uncertain.

An Unfixable Rejection

Example of an unfixable 35 U.S.C. 112(b) claim rejection: Applicants’ claimed subject matter is not disclosed and enabled in the Specification and Drawings. By way of illustration, Applicants claimed a chair with arms and the Application does not disclose a chair with arms.

A Potentially Fixable Rejection

Example of a potentially fixable 35 U.S.C. 112(b) claim rejection: Applicants used terminology in the claims not utilized in the Specification.

Other examples of fixable 35 U.S.C. 112(b) rejections:

    • Applicants incorrectly numbered the claims
    • Applicants failed to provide an antecedent basis before associating the word “the” or “said” with a claimed structural element
    • Applicants erroneously referenced element 1 of the invention as element number 2 and referenced element number 2 as number 1
    • In a third claim, Applicants referenced a second claim that depended from more than one previous claim
    • Applicants over utilized the conjunctions “and”, “but” or “or”
    • Applicants claimed structural elements are not interconnected

If you need legal assistance procuring your Patents and other intellectual property rights, please contact Business Patent Law, PLLC.

Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

When is a Patent Obvious

What is an Obvious Patent Claim?

What does it mean when a Patent Examiner or Adverse Party argues that the Claim is Obvious?

Since the United States’ legal system is adversarial, winning an obvious-type Patent case can be difficult. In view of shifting burdens of persuasion, American jurisprudence requires admissible evidence, testimony and arguments to prove a case before a court or an administrative agency such as the Patent Office.

Under the US legal system:

  • When a Patent Examiner argues that a Patent Application’s claim is obvious, the Examiner argues that the claim is not patentable.
  • When an adverse party argues that the Patent’s claim is invalid, the adverse party argues that the Patent’s claim is obvious and, therefore, invalid.

35 United States Code 103 – Statutory Obviousness

35 U.S.C. 103 reads:

“A patent for a claimed invention may not be obtained, notwithstanding that the claimed invention is not identically disclosed as set forth in section 102, if the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains. Patentability shall not be negated by the manner in which the invention was made.”

The US Supreme Court’s Standard for Determination of When a Claim is Obvious

“Obviousness is decided as a matter of law based on four basic factual inquiries, as set forth in Graham v. John Deere Co., 383 U.S. 1…(1966), and elaborated in KSR International, Co. v. Teleflex Inc., 550 U.S. 398…”  Those inquiries are:

  1. The scope and content of the prior art
  2. The level of ordinary skill in the field of the invention
  3. The differences between the claimed subject matter and the prior art, and
  4. Any objective indicia of unobviousness, such as commercial success or long-felt need, or failure of others.

In a Pharmaceutical Composition, is the Replacement of a Carbon Functional Group with a Sulfur Functional Group Obvious?

  • In the case of In re Rousuvastatin Calcium Patent Litigation, 703 F. 3d 511, (Fed. Cir. 2012), the defendants argued that replacement of the known simple hydrophobic carbon functional group with a lesser known simple hydrophilic sulfur functional group was obvious.
  • The Patentee argued that at the time the pharmaceutical compound was invented there was no reasonable expectation of success for use of the simple hydrophilic sulfur functional group in reducing cholesterol levels.

On page 518 of the Rousuvastatin Calcium Patent Litigation case, the Court of Appeals for the Federal Circuit (the Patent appellate court) affirmed the District Court’s ruling that the Patentee’s claim was not obvious and that the Patent was valid and enforceable.

If you find the “obviousness” legal standard confusing and need assistance, please contact Business Patent Law, PLLC.

Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

How to get expired patent reinstated

Can Expired Patents Be Reinstated?

The short answer is: It depends. Let’s look into possible scenarios as they relate to unpaid patent maintenance fees.

A Common Scenario for Unpaid Maintenance Fees

“Our US company recently received an offer from a European competitor to purchase a small portfolio of Patents related to a product line that we no longer manufacture. The due diligence team declared that the offer was bona fide. However, due diligence uncovered that accounting failed to pay the maintenance fee for one of the Patents, and the Patent expired nine months earlier. This expired Patent is critical to the sale of the Patent Portfolio. Is there anything we can do to save the sale of the portfolio?”

Failure to Pay Maintenance Fees, Expired Patents and Patent Reinstatement

If the delay in paying the maintenance fee is unintentional, a petition to reinstate the expired Patent may be accepted by the USPTO:

37 Code of Federal Regulations – Reinstatement of Expired Patents

37 C.F.R. 1.378, in part, reads:

(a) The Director may accept the payment of any maintenance fee due on a patent after expiration of the patent if, upon petition, the delay in payment of the maintenance fee is shown to the satisfaction of the Director to have been unintentional. If the Director accepts payment of the maintenance fee upon petition, the patent shall be considered as not having expired, but will be subject to the conditions set forth in 35 U.S.C. 41(c)(2).

(b) Any petition to accept an unintentionally delayed payment of a maintenance fee must include:

(1) The required maintenance fee set forth in § 1.20(e) through (g);

(2) The petition fee as set forth in § 1.17(m); and

(3) A statement that the delay in payment of the maintenance fee was unintentional. The Director may require additional information where there is a question whether the delay was unintentional.

In the “Common Scenario” example at the beginning of this post; provided the European buyer agreed to the sale, the expired Patent could be reinstated:

Expired Patents – Section 2590 of the USPTO Manual of Patent Examining Procedure

 Section 2590 of the USPTO Manual of Patent Examining Procedure, in part, indicates:

      • If the delay in payment of the maintenance fee is unintentional, the USPTO may accept late payment of any maintenance fee filed after the 6-month grace period
      • A Petition that the delay in payment of the maintenance fee was unintentional would not be proper when the Patentee becomes aware of an unintentional failure to timely pay the maintenance fee and then intentionally delays filing a petition for reinstatement of the Patent
      • Petitions to accept unintentionally delayed payment of the maintenance fee in an expired patent, if expired for two years or less, can be processed digitally via the USPTO website
      • After the Patent owner failed to pay the maintenance fee for more than two years, a petition to accept the unintentional delay in payment of the maintenance fee can be filed in the USPTO and may reinstate the Patent

approval for patent reinstatement

FAQ: Situations for Expired Patents and Reinstatement

  • Your company opted to let the Patent expire for failure to pay the maintenance fee, and after 21 months, the company decided to pay the maintenance fee. Will this reinstate the Patent? Most likely – Yes.
  • Your company opted to let the Patent expire for failure to pay the maintenance fee, and after 36 months, the company decided to pay the maintenance fee and reinstate the Patent. Will this work? Depending on the facts – Possibly.
  • Your company did not pay two maintenance fees (NOTE: As a general rule, due times can be variable at 3 years, 7 years and 11 years in the USA and most international fees are due annually)? Can the patent be reinstated? No.
  • Your company intentionally did not pay the maintenance fee for 3 years? Can you get the patent reinstated? Probably not.
  • You are an individual who was made aware that your Patent had expired. Thereafter, you forwarded a money order to pay the required fees to the wrong address for the USPTO. Two years later, you learned that your Patent remained expired. Depending on the evidence presented to the USPTO, your Patent may be reinstated.

If you need legal assistance managing your maintenance fees, please contact Business Patent Law, PLLC. Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

Single Word Trademarks

Can a Simple Word be Trademarked?

Generally, it depends on whether there is a “likelihood of confusion” between your simple word Trademark and another Registration or Application for Registration having superior rights.

Title 15 United States Code – Marks Registerable on the Principal Register

15 U.S.C. § 1052, in part, reads:

“No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it—

(d) Consists of or comprises a mark which so resembles a mark registered in the Patent and Trademark Office, or a mark or trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, to cause confusion, or to cause mistake, or to deceive…

(e) Consists of a mark which (1) when used on or in connection with the goods of the applicant is merely descriptive or deceptively misdescriptive of them, (2) when used on or in connection with the goods of the applicant is primarily geographically descriptive of them, except as indications of regional origin may be registrable under section 1054 of this title, (3) when used on or in connection with the goods of the applicant is primarily geographically deceptively misdescriptive of them, (4) is primarily merely a surname, or (5) comprises any matter that, as a whole, is functional.”

Can the Word “Medical” be Granted a Federal Registration?

In view of the case law interpretations of 15 U.S.C. § 1052, the following illustrations can be indicative of the possibility of the grant of a federal Registration for the simple word – Medical – by the United States Trademark Office.

  • Medical – for a dog collar could be the subject of a US Trademark Registration.
  • Medical – for a cast protecting a broken bone would not likely be granted a US Trademark Registration. However, some Examiners could grant the Registration while other Examiners could argue that – Medical – is merely descriptive of a cast.
  • Medical – for a drill used for deep water petrochemical exploration could be the subject of a US Trademark Registration.
  • Medical – for a special type of drill used in placing dental implants would not likely be granted a US Trademark Registration. However, some Examiners could grant the Registration while other Examiners could argue that – Medical – is merely descriptive of a drill used for placing dental implants.
  • Medical – for physicians services would not likely be granted a US Service Mark Registration.
  • Medical – for surgical scrubs would not likely be granted a US Trademark Registration. However, some Examiners could grant the Registration while other Examiners could argue that – Medical – is merely descriptive of surgical scrubs.
  • Medical – for a professional football team could be the subject of a US Service Mark Registration.
  • Medical – for website services providing a platform for communications related to governments and politics could be the subject of a US Service Mark Registration.
  • Medical – for website services for continuing educations services for physicians and other medically related practitioners would not likely be granted a US Service Mark Registration. However, some Examiners could grant the Registration while other Examiners could argue that – Medical – is merely descriptive of medical education services.
  • Medical – for bottled water. If the bottled water was not used for medical treatments, – Medical – could be the subject of a US Trademark Registration.

Are You Confused Yet?

If you are confused by the above illustrations, you are not alone. As with other aspects of American jurisprudence, evidentiary facts (and the subjective interpretations those facts) influence whether or not a federal Registration can be obtained. When utilizing an experienced attorney, you have a higher probability of success in procuring a federal Registration of your simple word mark.

If you need legal assistance preparing or managing your Trademark/Service Mark or Patent Applications, please contact Business Patent Law, PLLC.

Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

Patent Claim - Learn about patents

Patent Claims 101 – What is a Patent Claim?

What are Patent Claims?

Patent claims are for intellectual property what a property deed is for physical property. A property deed defines the physical boundaries of your real properly (real estate). Similarly, a Patent claim defines the ownership boundaries of your Intellectual Property.

Claims Determine If There Is Infringement

When a person crosses over your physical property line and enters onto your real property without your permission, they are trespassing and you can file a legal trespass action in the appropriate State court.

Likewise, when someone (who does not have your permission) attempts to use your patented Intellectual Property, you can file an infringement suit in the appropriate US District Court.

Are Patent Claims Complicated?

Because a Patent claim is a single sentence, the claim can be complex. Here are some Patent claim facts for you:

The Anatomy of a Patent Claim:

  • Since 1790, the US Patent Office has required that any Patent claim must be a single sentence
  • An independent claim is a Patent claim that does not reference or refer to another claim of the Patent
  • A dependent claim refers to another claim number in the preamble of the dependent claim
  • The words of the claim preceding “comprising” or “consisting” are the preamble
  • The words that follow “comprising” or “consisting” in a claim are the body of the claim

In Addition:

  • The body of the claim is used to determine patentability or infringement
  • A dependent claim can reference (depend on) an independent claim or another dependent claim
  • Dependent claims include all the structures/limitations of the claim (or claims) from which they depend

How Patent Claims Work

Below are examples of an independent Patent claim and three related dependent Patent claims. The parts of the independent claim (preamble and body) are labeled:

Independent Claim (#1)

[the preamble]         A transportation vehicle comprising:

[the body]                  a)  a frame supporting a surface area adapted to transport matter;

b) an axle attached to the frame; and

c) at least two wheels.

NOTE: A Patent Examiner could construe Independent Claim #1 to include: a bicycle, cart, motorcycle, wagon, trailer, automobile, truck, airplane, etc.

Dependent Claim (#2)

The transportation vehicle of  Independent Claim #1 further comprising a motor.

NOTE: A Patent Examiner could construe claim 2 to include: a motorcycle, automobile, truck, airplane, etc.

Dependent Claim (#3)

The transportation vehicle of Dependent Claim #2, wherein the surface area is adapted to carry at least 25 metric tons.

NOTE: A Patent Examiner could construe claim 3 to include a truck or an airplane.

Dependent Claim (#4)

The transportation vehicle of Dependent Claim #3 further comprising wings.

NOTE: A Patent Examiner could construe claim 4 to include an airplane.

Need Help With Your Patent or Patent Application?

If you need legal assistance preparing or managing Patent Applications, please contact Business Patent Law, PLLC.

Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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Patent law, popcorn dispenser and anticipated patents

Anticipated Patent Claims – 35 U.S.C. 102

When Your Patent is “Anticipated by a Prior Reference”

The Patent Examiner argues that one or more claims of my Patent Application are anticipated by a prior reference. What does this mean?

In short, it means that the Examiner argues that someone else invented your invention before you did.

Let’s expand on that:

35 United States Code (U.S.C.) 102, in part reads: “A person shall be entitled to a patent unless – the claimed invention was patented, described in a printed publication…before the effective filing of the claimed invention…” 35 U.S.C. §102 requires that the prior reference must have existed before your Patent Application was filed. When the Patent Application’s claim is rejected under 35 U.S.C. §102, the Examiner argues that the rejected claim is “anticipated.”

When a Patent Examiner argues that one or more of your Patent Application’s claims defining your invention are anticipated, the Examiner is saying that a single prior reference discloses all of the structures of your invention.

The Patent Appellate court[i] has held, “For a prior art reference to anticipate in terms of 35 U.S.C. §102, every element [structure] of the claimed invention must be identically shown in a single reference…These elements [structures] must be arranged as in the claim under review.”

How Can I Counter the Rejection?

One way to counter the Patent Examiner’s anticipation rejection is to amend the claim.

Therefore, you can amend the anticipated claim by deleting structure or adding structure to your invention. Additionally, you should add the changes to the wording of the Patent Application’s claims. For instance, if the alleged anticipated claim required a piece of furniture with four legs, you could exclude one of the legs from the claim to create a table with three legs. Similarly, you could add a back support to the claim to create a chair.

In addition, you can argue that the Examiner’s prior reference fails disclose every structure of your invention as claimed in the Patent Application.

How Similar in Structure and Use Does the Anticipated Claim Have to Be?

For instance, can the Patent Examiner use a prior reference that is unrelated to my invention’s use to successfully argue that my claim is anticipated? Can you give me an example?

Sure! Let’s take the question “Can an Oil Can’s Nozzle Anticipate a Popcorn Dispenser?” which was the basis of an actual case!

Yes. An oil can’s nozzle does anticipate a popcorn dispenser. Here’s how it was argued:

In the case of In Re Schreiber, 128 F. 3d 1473 (Fed. Cir. 1997), the Patent Examiner argued that Swiss Patent No. 172,689-Harz  disclosed a “spout for nozzle-ready canisters” that anticipated Schreiber’s claim for a popcorn dispenser.

On Page 1447 of Schreiber, the Court of Appeals for the Federal Circuit wrote:

    • Schreiber argues…that Harz [Swiss Patent No. 172,689] does not disclose that such a structure can be used to dispense popcorn from an open-ended popcorn container.
    • Although Schreiber is correct that Harz does not address the use of the disclosed structure to dispense popcorn, the absence of a disclosure relating to function does not defeat anticipation.
    • It is well settled that the recitation of a new intended use for an old product does not make a claim to that old product patentable.

In conclusion, according to Schreiber, the function of the invention is irrelevant to the Patent Application’s claims in the United States. So an existing patent on an oil can did, in fact, prevent the patent of a popcorn dispenser with a similar shape, despite the completely different function.

Patent Law Can Be Confusing

If you need legal assistance with responding to a USPTO Office Action, please contact Business Patent Law, PLLCBusiness Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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[i] In Re Bond, 910 F.2 831, 832 (Fed. Cir. 1990).

Legal cease and desist letter on patent infringement

Cease and Desist Letters

I have received a cease and desist letter

The letter claims that my company is infringing a US Patent.  Can you (and your company) ignore the letter? I wouldn’t recommend ignoring a letter. If your company ignores the cease and desist letter, your company could regret not responding to that letter.

How do I know if the cease and desist letter is valid?

An experienced patent attorney can assist you in determining if the claim of infringement has merit. Among other things, your patent counsel will review the United States Patent and Trademark Office (USPTO) record regarding the Patent. Additionally, your attorney will compare your company’s allegedly infringing goods and/or services against the USPTO record.

It is also wise to have your legal counsel prepare an opinion regarding whether or not your company’s goods or services are infringing the potential plaintiff’s Patent.

What are my company’s options?

When responding to an allegation of patent infringement, use experienced counsel. Your patent attorney may recommend any of the following options and/or actions. For example, you (or your company) could:

  • Secure an agreement with the Patent holder stating that your company’s goods and/or services do not infringe the Patent holder’s Patent
  • Enter into a license agreement with the Patent holder
  • Establish a cross-license agreement with the Patent holder
  • Phase-out and cease the use of your company’s allegedly infringing goods and/or services
  • Your company and the Patent holder may agree to mediation or arbitration
  • Join with other third parties receiving a similar cease and desist letter from the Patent holder and collectively litigate against the validity of the Patent holder’s Patent
  • Institute a USPTO Post Grant Procedure against the patentability and/or validity of the Patent holder’s Patent
  • In a federal district court, institute a Declaratory Action Judgment action against the Patent holder
  • After the Patent holder has instituted an infringement action against your company’s goods and/or services in a federal district court, counter-claim that the Patent holder’s Patent is invalid
  • After litigation is commenced in the federal court system, settle the matter

Costs to the company

As a general rule, costs for a USPTO Post Grant procedure are much less than the costs of litigating in the federal court system.  The costs associated with USPTO Post Grant procedures and mediation or arbitration can be similar.

If you have received a cease and desist letter and need legal assistance, please contact Business Patent Law, PLLC. Likewise, if your company believes another company has infringed your Patent and you need to send a cease and desist letter, please contact Business Patent Law, PLLC and we will discuss possibilities for your business.

Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

US Patents Held By Foreign Companies

Foreign Companies and US Patents

Can Companies Outside the United States Obtain US Patents?

Yes. The United States has the largest Gross Domestic Product on earth. Foreign Companies that do not have a physical presence in the United States can sell their goods or services in the United States.

For most foreign companies, sales in the US market improve earnings for the foreign businesses.

Advantages of US Patents for Foreign Businesses

  • The United States has a long history of enforcing domestic or foreign Patentees’ rights
  • Granting a US Patent gives the Patentee the right to file a legal action to stop third parties from making, using or selling their patented invention
  • Under Title 35 of the United States Code, a foreign Patentee can sue an alleged infringer in a United States District court and win damages

Options for Foreign Companies

Foreign Companies filing a US Patent Application in the United States Patent and Trademark Office (USPTO) may:

  • Initially file the US Patent Application in the USPTO
  • File a Patent Application in their company’s jurisdictional Patent Office followed by the subsequent filing of the US Patent Application (prior to the expiration of the treaty deadline)
  • Initially file a Patent Cooperation Treaty (PCT) Application in the USPTO followed by the subsequent filing of the US National Stage Application (prior to the expiration of the PCT Treaty deadline)
  • File a Patent Application in your company’s jurisdictional Patent Office followed by the subsequent filing of a PCT Application claiming priority to the initially filed jurisdictional Patent Application
  • Prior to the PCT Treaty deadline, file a US National Stage Application in the USPTO which claims priority to the PCT Application filed by your company that claimed priority to the initial Patent Application filed by your company in its jurisdictional Patent Office

Basic Requirements for Foreign Company Patent Filings

  • English language translation/transliteration of the jurisdictional Patent Application or PCT Application – if the language of the as-filed jurisdictional Patent Application or PCT Application was not English
  • Pay USPTO Processing Fees
  • Submit Specifications and Drawings
  • Claims – usually presented in an “Americanized” preliminary amendment format to increase clarity and minimize USPTO Processing Fees
  • Provide Inventor(s) Declaration(s)

If all this sounds a bit complex, we can help. Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies.

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

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

Types of Confidentiality Agreements for Business

Confidentiality Agreements

Should Your Business Use Confidentiality Agreements?  

Should your company use confidentiality agreements?  If your business has information it needs (or wants) to keep out of the public domain, then yes. Information of this type may include:

  • Certain types of intellectual properties
  • Company information disclosed to potential investors and investors identities
  • Customer lists
  • Employee salaries
  • Independent contractor identities
  • Research and development assets
  • Suppliers identities
  • Tax returns
  • Trade secrets, etc.

As a general rule, once information enters the public domain, you can’t make it private. You have to be proactive.

Three Types of Confidentiality Agreements 

1)        Confidentiality Agreement

This agreement can be used when the involved Parties agree to hold the information disclosed in “strict confidence.” When the Parties become adverse or one of the Parties is seeking to avoid the terms of the Confidentiality Agreement, the Parties may argue over:

  • What was the information disclosed in “strict confidence?” (It is helpful to specifically identify the information covered in the Confidentiality Agreement itself)
  • What the Party receiving the disclosed information must do with the information
  • Which State’s law controls the provisions of the Agreement
  • Where the venue and personal jurisdiction will be, should litigation become necessary

2)        Confidentiality and Evaluation (CE) Agreement

Potential Patent rights (or Patent rights) can be the subject of a CE Agreement. A CE Agreement specifies that the subject matter disclosed is to be held in “strict confidence” and that the information is provided solely for the purpose of evaluation.  In the event one Party is dissatisfied with the CE Agreement, the same issues as identified in the above (Confidentiality Agreement) section will apply here. Additionally, this type of agreement will need to specify:

  • Is audible disclosure a disclosure to be held in “strict confidence?”
  • Is visual disclosure a disclosure to be held in “strict confidence?”
  • What happens when the Party receiving the disclosure evaluates the audible or verbal disclosure outside the jurisdiction where the Parties are domiciled?

This matters because any public disclosure related to potential Patent rights (prior to the filing of the Patent Application) can bar any future Patent related to the disclosed information

3)        Confidentiality, Evaluation and Noncompetition (CEN) Agreement

As with the two agreement types above, almost anything that one Party wants to be kept in “strict confidence” can be the subject matter of a CEN Agreement. Along with Confidentiality and Evaluation, a CEN Agreement also includes a Noncompetition (anywhere in the world) provision for the Party receiving the information. Whenever possible, Business Patent Law, PLLC recommends its clients use a CEN Agreement.

In the event one Party is dissatisfied with the CE Agreement, the same issues as identified in Sections 1) and 2) above, may also be grounds for argument between the Parties.

An example of when a CEN Agreement might be used: Private/nonpublic companies often have corporate bylaws that require shareholders to execute CEN Agreements before shareholders can be issued stock.

If a Business Fails to Use Confidentiality-Type Agreements 

Unless some type of Agreement between the Parties is executed, the disclosing Party has minimal legal recourse against the receiving Party repeating publically the disclosed information or using the disclosed information for another reason.

Here are a few ways such disclosures could become a problem:

  • Public disclosure of the company’s private information will likely temporarily disrupt the company’s operations
  • What would happen if all the company’s employees were aware of each employee’s salary?
  • What would happen if the company’s competitors were aware of the company’s research and development information?
  • A trade secret disclosed publicly is no longer secret and the secret is lost forever

What You Need To Know About Confidentiality Agreements

  • Confidentiality Agreements between trustworthy Parties can improve profits for both companies
  • The bargaining power of the Parties tends to influence the type of Confidentiality Agreement executed  (A publicly traded company will likely have a Confidentiality-type Agreement that is more favorable to the publicly traded company when contracting with a business having annual sales of $2M)
  • Bad actors tend to exploit the other Party to a contract (Character of the Parties matters)
  • Agreements executed between Parties who were not represented by legal counsel may be unenforceable
  • Confidentiality Agreements that were drafted for a first purpose may not be acceptable for a second (but similar) purpose
  • Without the advice of legal counsel, parties my draft contracts for almost anything they feel is important at the time the contract was allegedly executed (Some of these contracts may be enforceable, some may not)
  • If the alleged contract is only partially in writing, there may be issues when memories fade ten years later  (Get it in writing)
  • Perspective matters (Three different eyewitnesses can witness the same event and three distinct testimonies may be offered into evidence)
  • Written, properly executed agreements can minimize business disruptions

If you have questions about intellectual properties or agreements, please contact Business Patent Law, PLLC. We are here to help you grow your business and protect your intellectual properties.

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