capital gains on patents

Capital Gains – Intellectual Properties  

Capital Gains May Be Available For The Transfer Of Intellectual Property Rights

A capital gains tax rate for the transfer of Intellectual Property is available if the transfer of Intellectual Property rights is carefully planned.

Patent Rights are not Accorded Capital Gains Status – Unless…

26 I.R.C. 1221 – Capital Asset, in part, reads:

(a)    In General

For purposes of this subtitle, the term “capital asset” means property held by the taxpayer (whether or not connected with his trade or business), but does not include –

(3) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, a musical/artistic composition, a letter or memorandum, or similar property, held by—

                    (A)    a taxpayer whose personal efforts created such property,

                    (B)    in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or

                    (C)    a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B)

Situation 1 – Patent Capital Asset

Joe was the founder of his company JoeCo. Over the years, Joe was the inventor of several Patents for the products sold by JoeCo. After 40 years in business, Joe was seeking buyers for JoeCo. AcquireCo purchased JoeCo and all assets and liabilities.

Joe can treat this transfer of Patent rights as a capital asset because the U.S. Internal Revenue code also includes 26 I.R.C. 1235. When specific facts exist, the inventor’s Patents are capital assets taxed as capital gains.

26 I.R.C. 1235 – Sale or Exchange of Patent, 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.

(b)    “Holder” defined For purposes of this section, the term “holder” means—

                    (1)     any individual whose efforts created such property, or

                    (2)    any other individual who has acquired his interest in such property in exchange for consideration in money or money’s worth paid to such creator prior to actual reduction to practice of the invention covered by the patent, if such individual is neither—

                    (A)    the employer of such creator, nor

                    (B)    related to such creator (within the meaning of subsection (c)).

Situation 2 – Intellectual Property Gains

Jill was a seamstress with talent for making and selling clothing designs that generated a comfortable living for her family. Jill was a sole proprietor and over the years received two Trademark Registrations for Jill’sThings®. After 40 years, Jill sold her business to AcquiringJack, LLC with a knack for scaling small businesses. 26 I.R.C. 1221 does not prevent Jill’sThings® from being classified as capital assets. Therefore, the sale of Jill’sThings® would be treated as capital gains.

Situation 3 – Patent Capital Asset

AcquiringJack, LLC purchased all rights associated with two JoeCo Patents previously sold to a third party. AcquiringJack LLC held the JoeCo Patents for 18 months and sold the JoeCo Patents to LastMinuteCharlie, Inc. AcquiringJack, LLC’s sale of the JoeCo Patents will be treated as capital gains.

Situation 4 – No Capital Gains

Second Fiddle was an individual who was a skilled guitarist and sufficiently talented to write original music. Over the years, Second Fiddle had received Copyright Registrations for some of his musical compositions. While on a regional tour with his band, the Fiddlers, a vice president of Big Break Inc. made Second Fiddle an offer he could not turn down for his Copyright Registrations.  Second Fiddle sold his Copyright Registrations to Big Break Inc. According to 26 I.R.C. 1221, a Copyright or musical score held by the creator is not a capital asset. Second Fiddle’s sale was taxed as ordinary income.

Situation 5 – Intellectual Property Capital Gains

Philharmonic Violin was an individual who played third violin with the orchestra. Although not as musically skilled as some other violinists in the orchestra, Philharmonic Violin wrote a few concertos and was granted some Copyrights for her efforts. Philharmonic Violin assigned her Copyrights to her company, Concertos LLC. On her lucky day, Philharmonic Violin arrived early for practice and was playing some of the supporting violin portions of her concertos. Big Director, the CEO of his production company, heard the portions of Philharmonic Violin’s concertos and told Philharmonic Violin that they were perfect for the score of one of his films. On that day, Big Director wrote a check payable to Concertos LLC. Because Concertos LLC rather than Philharmonic Violin received the payment, the payment will be taxed as a capital asset.

Business Patent Law, PLLC does not provide tax counsel. The above situations are only illustrative. Changes in the facts of a taxable situation can generate different applications of Title 26 Internal Revenue Code. Advance planning for taxable situations can reduce the amount of taxes paid. For tax advice, please contact your tax advisor.

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

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 Law

Notice of Allowance – Patents

The Question

Our Company received a Notice of Allowance on our Nonprovisional Patent Application. What are our next steps?

Consider: If the invention claimed by the Nonprovisional Patent Application is a “core” technology or a money maker for your company, it is wise to keep an Application pending.

More information you need: 35 United States Code 151 gives the Applicant a maximum of three months from the date of mailing of the Notice of Allowance for the Applicant to pay the Issue Fee. (Note: If the Issue Fee is not paid, the Patent Application will be abandoned.)

Tech Sufficiently Different

If the newer technology is sufficiently different from the structures of the pending Nonprovisional Patent Application, a Provisional Patent Application can be filed. (Inventions can consist of biological, chemical, electrical or mechanical structures or combinations thereof.)

Tech Sufficiently Similar

If your newer technology is sufficiently similar (or incorporates many of the structures of the pending Nonprovisional Patent Application) and certain conditions are met, a Continuation-Type Application (claiming priority to your pending Nonprovisional Patent Application) can be filed with the United States Patent and Trademark Office.

The Law

35 U.S.C. 151, in part, reads:

(a)     In General.—

If it appears that an applicant is entitled to a patent under the law, a written notice of allowance of the application shall be given or mailed to the applicant. The notice shall specify a sum, constituting the issue fee and any required publication fee, which shall be paid within 3 months thereafter.

There are Two Continuation-Type Applications (in USA)

  • A Continuation Application – this claims priority to the pending Nonprovisional Application, utilizes the Specification of the Nonprovisional Patent Application, and includes new claims.
  • A Continuation-in-Part Application – claims priority to the pending Nonprovisional Application, adds “new matter” (structures) to the Specification of the Nonprovisional Patent Application, and includes new claims.

Child Patents Used to Broaden a Parent Patent

Seasoned Applicants frequently file a Child Patent Application claiming priority to the Parent Application. If you opt to use this procedure, make sure you file the Child Patent Application before the Patent flowing from the Parent Application is granted. If the Patent is granted before the Child Patent Application is filed, Patent Examiners may be able to use the Parent Patent to prevent the Child Patent Application from succeeding.

The Law

35 U.S.C. 102, in part, reads:

“(a)Novelty; Prior Art.—A person shall be entitled to a patent unless—

(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention…”

Terminal Disclaimers and Your Patent Application

Use of Continuation-Type Patent Applications may require that any future Patent granted be limited by a Terminal Disclaimer. As a general rule, a Terminal Disclaimer causes the term of the Children Patents to expire on the same day as the Parent Patent.

The Law

35 U.S.C. 120 reads:

“An application for patent for an invention disclosed in the manner provided by section 112(a) (other than the requirement to disclose the best mode) in an application previously filed in the United States, or as provided by section 363 or 385, which names an inventor or joint inventor in the previously filed application shall have the same effect, as to such invention, as though filed on the date of the prior application, if filed before the patenting or abandonment of or termination of proceedings on the first application or on an application similarly entitled to the benefit of the filing date of the first application and if it contains or is amended to contain a specific reference to the earlier filed application. No application shall be entitled to the benefit of an earlier filed application under this section unless an amendment containing the specific reference to the earlier filed application is submitted at such time during the pendency of the application as required by the Director. The Director may consider the failure to submit such an amendment within that time period as a waiver of any benefit under this section. The Director may establish procedures, including the requirement for payment of the fee specified in section 41(a)(7), to accept an unintentionally delayed submission of an amendment under this section.”

Don’t Delay Your Response to a Notice of Allowance!

You should not delay initiating your company’s strategy, since a Notice of Allowance requires your action, as an applicant.

  • Issue Fee must be paid within three month of the Notice of Allowance – There are no time extensions
  • Grant of Patent can be delayed as much as 4 months from date of Notice of Allowance
  • It can be quite time-consuming for your Attorney to prepare the Continuation-Type Application or the Provisional Patent Application, so don’t delay
  • Assembling the required inventor’s declarations and assignments can also be time-consuming (even more so when when inventors in different time zones and multiple jurisdictions are involved
  • Preparing the required USPTO documents that accompany the Continuation-Type Application can be tedious
  • A Continuation-Type strategy can often be used for several years before it is no longer cost-effective for the Company

Questions? We Can Help!

If your company is developing a post Notice of Allowance strategy, we can help. Business Patent Law, PLLC provides intellectual property and business counsel for businesses and companies. If you need assistance, please contact us.

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.

The Law and Contracts in Lexington Kentucky

Questions About Contracts

Contracts Can Seem Contradictory

It’s pretty easy to understand why contracts are often confusing. After all, contracts can include clauses that allow opposing sides to make contrary assertions about the meaning of one or more of the clauses in the contract.

When a contract comes under fire, and the amount in controversy increases, so do opposing counsels’ arguments about such things as the meanings of “a,” “the” and the placement of colons, commas, semicolons and other punctuation.

Politicians and lawmakers (most of whom are lawyers) have argued over the meaning of the word “is.” In a civil trial, both sides have plausible arguments, and the jury decides who is more believable.

With this real-world reality in mind, most companies strive to provide their sales force with the best “boiler plate” contracts. However, those can pose their own challenges.

Boiler Plate Contracts

Although, our company’s “Boiler Plate” contracts have served us well – we now have a new situation…

The New Situation

Our Company’s Region 1 representative executed a contract with a new Lexington, Kentucky company for 1 MM Gizmos. We ordered 1 MM Gizmos from our supplier F.O.B. origin. The new company is refusing to pay an upfront deposit as required by our “boiler plate” contract. In addition, this new company indicated it considered all “boiler plate” contracts “null and void.”

We have an agreement signed by the new company and our Region 1 representative. We gave the Region 1 representative the authority to execute the “boiler plate” contracts for our company. Our attorneys inform us the agreement is “solid.” Our Region 1 representative tells us that he and the other signatory were in the signatory’s office on the premises of the new customer when they both signed the contract.

Is the Contract Enforceable?

For there to be a valid contract, each signatory must have the authority to bind their respective companies to the agreement. Whether the agent of a company has the authority to bind the company is factually dependent.

Corporations

  • As a general rule, the President, CEO or COO has the designated explicit authority to bind the corporation to a contract. If the customer’s signatory was a President, CEO or COO, then the contract is likely valid.
  • Agents such as the CFO and Vice Presidents can be granted actual authority to bind the corporation to a contract. If the customer’s signatory was one of these agents, the contract is likely valid.
  • Agents such as the chief of marketing or chief of engineering may have either actual authority or implicit authority to bind the corporation to a contract. If the customer’s signatory did not have actual authority, but a pattern of behaviors can prove that the customer’s agent had a history of executing contracts for the customer, the contract would likely be held valid at trial.
  • A midlevel marking manager would not likely have explicit or implicit authority to bind the corporation to a contract and the contract with the customer would be invalid.

Limited Liability Companies, Professional Limited Liability Companies, Limited Liability Partnerships

  • As a general rule, the designated Manager or Managing Member has the explicit authority to bind the limited liability company to a contract. If the customer’s signatory was the Manager or Managing Member, then the contract is likely valid.
  • Agents can be granted actual authority to bind the limited liability company to a contract. If the customer’s signatory was one of these designated agents, the contract is likely valid.
  • It is possible to prove an agent’s implicit pattern of behaviors that the customer’s signatory had a history of executing contracts for the customer. With such proof, the contract would likely be held valid at trial.

General Partnerships

  • General partners are jointly and severally liable. Each general partner can bind the partnership to a contract.
  • Agents can be granted actual authority to bind the general partnership to a contract. If the customer’s signatory was one of these designated agents, the contract is likely valid.

Do you have questions about contracts? We can help. 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.

Lexington Kentucky Trademark Bananas

Lexington Trademarks/Service Marks

Will the United States Patent and Trademark Office (USPTO) grant a federal Trademark/Service Mark Registration for the term “Lexington?” It depends on the goods or services with which the Trademark or Service Mark are associated.

The Statutory Law

15 United States Code (U.S.C.) Section 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—

(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.

When certain facts are in evidence, under 15 U.S.C. Section 1052(e), the Trademark Examiner can reject the Applicant’s Application as “primarily geographically descriptive.”

The USPTO Examiner’s Geographically Descriptive Marks – Test

The Examiner is to consider:

  • (1) the primary significance of the mark is a generally known geographic location
  • (2) the goods or services originate in the place identified in the mark; and
  • (3) purchasers would be likely to believe that the goods or services originate in the geographic place identified in the mark. Note: If the mark is remote or obscure, the public is unlikely to make a goods/place or services/place association.

Illustration 1 – Refusal

The Owner of a Lexington, Kentucky restaurant filed an Application for Registration in the USPTO for “The Lexington” for restaurant services

Pursuant to the USPTO test, the Examiner would argue that “The Lexington” for restaurant services is “primarily geographically descriptive” and refuse registration of the Service Mark.

Illustration 2 – Approval

The Owner of a Lexington, Kentucky banana store filed an Application for Registration in the USPTO for “Lexington” for bananas

Pursuant to the USPTO test and the case law, the name of a geographic location that has no significant relation to commercial activities or the production of the relevant goods or services, such as Lexington for bananas, is treated as an arbitrary mark because it is unlikely that consumers would believe that the mark identifies the place from which the goods originate.  The Examiner would likely conclude that the Trademark “Lexington” for bananas sold by the Lexington banana store should be granted.

Illustration 3 – Refusal

The Owner of a Lexington, Kentucky saddlery shop filed an Application for Registration in the USPTO for “Lexington” for saddles, bridles, and other equipment for horses

Pursuant to the USPTO test, the Examiner would argue that “Lexington” for saddles, bridles, and other equipment for horses is “primarily geographically descriptive” and refuse registration of the Trademark because Lexington, Kentucky is world renown for thoroughbred horses.

Conclusion

For Applicants, the federal registration process can be somewhat confusing.  By way of illustration, when a potentially “geographically descriptive” mark overcomes the 15 U.S.C. Section 1052(e) bar to registration, the applicant must still overcome the 15 U.S.C. § 1052 Sec. 2 (d) “likelihood of confusion” bar and other 15 U.S.C. § 1052 bars to registration.

Business Patent Law, PLLC assists companies and individuals with the procurement and management of their Intellectual Property portfolios.

If your enterprise needs legal assistance procuring/managing/enforcing your Patent Applications, Patents, Copyrights or Trademarks/Service Marks, 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.

Beach Buggy Invention Tires Litigation Intellectual Property

Expert Witnesses and Legal Proceedings

The Situation

Our company is a family owned business and we supply valve stems to motor vehicle rim manufactures.  We are a named party in a class action law suit against the motor vehicle manufactures, the international tire manufacturer and the rim manufacturers that utilized our valve stems.

Allegedly, the defective tires were attached to certain models of passenger cars.  The Plaintiffs aver that the tires “blew out” at maintained speeds of 70 MPH for more than fifteen minutes when the ambient temperature exceeded 85 degrees Fahrenheit.

Expert Witnesses and Adversarial Proceedings

Can our company use expert witnesses to defend against legal claims made against us?  Yes.

Can we use engineers, lay people and others as expert testimony to prove that the class action suit against our company is without merit?  It depends, in the federal system, an expert witness’ testimony is controlled by the federal rules of evidence.

Some Relevant Federal Rules of Evidence:

Rule 701. Opinion Testimony by Lay Witnesses

If a witness is not testifying as an expert, testimony in the form of an opinion is limited to one that is:

    • rationally based on the witness’s perception;
    • helpful to clearly understanding the witness’s testimony or to determining a fact in issue; and
    • not based on scientific, technical, or other specialized knowledge within the scope of Rule 702.

Rule 702. Testimony by Expert Witnesses

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:

    • the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
    • the testimony is based on sufficient facts or data;
    • the testimony is the product of reliable principles and methods; and
    • the expert has reliably applied the principles and methods to the facts of the case.

Rule 703. Bases of an Expert

An expert may base an opinion on facts or data in the case that the expert has been made aware of or personally observed.

Can our Legal Team use the following as Expert Witnesses?

  1. The Director of our engineering department who has twenty years experience of overseeing quality control in the manufacture of our valve stems to prove that our valve stems were not defective. Yes – would qualify as an expert.
  2. The Director of our engineering department who has twenty years of experience of overseeing quality control in the manufacture of our valve stems to prove that the tires were not defective. No – would not qualify as an expert.
  3. Our vice president of sales to prove that 75% of the rims associated with the alleged defective tires did not utilize our valve stems.  Yes – would qualify as an expert, and if challenged should be allowed to give a lay opinion on the issue.
  4. The lead investigator of an insurance company’s automobile accident reconstruction team to prove that the tires were not defective. Yes – would qualify as an expert.
  5. An independent one-man shop seller of new tires with thirty years of experience of removing worn passenger car tires and installing new replacement tires to prove that the tires were not defective. Via news reports, the tire seller observed that seals for the alleged “blow out” tires did not contact their rims in accordance with industry protocol – outward and inward sides of tires were reversed when installed on their rims. Yes – would qualify as an expert.
  6. The above one-man shop seller observes that many “beach buggy” owners asked him how to reverse the tires on their cars. The witness testifies that social media was instructing “beach buggy” owners to reverse the inward and outward sides of the tires for a better “beach experience.” The witness opines that the reversed tires caused the tires to “blow out.” No – would not qualify as an expert to give opinion on the cause of the blow outs. However, the witness could testify as a layman regarding his interaction with “beach buggy” owners and social media.

If your enterprise needs legal assistance procuring/managing/enforcing your intellectual properties, 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.

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.

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.

Physician Sunshine Laws and Your Business

Physician Sunshine Laws And Your Business

Physician Sunshine Laws and Small Businesses

Does 42 U.S.C. 1320a-7h, known commonly as the “Physician Sunshine Laws-Open Payments” apply to a small business?  Maybe. If Physician Sunshine Laws (Open Payments Laws) are applicable to your business, you may also be surprised how these laws can be applied to your company.

Some States have their own version of physician sunshine laws. In some cases, the State version may apply when the federal version does not.

Many Business Patent Law, PLLC’s clients are involved with the provision of medical devices, supplies, etc. For most Business Patent Law clients, the Physician Sunshine Laws apply to an “applicable manufacturer” that “provides payment or other transfer of value” to a “covered recipient.”

Who Administers Physician Sunshine Laws?

CMS.gov (Centers for Medicare & Medicaid Services) is the Federal Agency that Administers Physician Sunshine Laws (Open Payments). 42 U.S.C. 1320a-7h (b) sets forth penalties for failing to file a required report to CMS.gov.

Who Needs to Report to Under Physician Sunshine Laws?

Subchapter S Company Examples

Does a Subchapter S Company that Manufactures Surgical Sponges for Use in Operating Rooms and Gives Samples of the Surgical Sponges to Medical, Surgical and Dental Practices Need to Report to CMS.gov?

Yes, according to 42 U.S.C. 1320a-7h (e) which reads:

(2) Applicable manufacturer

The term “applicable manufacturer” means a manufacturer of a covered drug, device, biological, or medical supply which is operating in the United States, or in a territory, possession, or commonwealth of the United States.

(4) Covered device

The term “covered device” means any device for which payment is available under subchapter XVIII [Medicare] or a State plan under subchapter XIX or XXI [federal or state plans for medical assistance] (or a waiver of such a plan).

(6) Covered recipient

(A) In general…“covered recipient” means the following: (i) A physician [is a doctor of medicine or osteopathy, a dentist, a doctor of podiatric medicine, a doctor of optometry or a chiropractor – as defined by 42 U.S.C. 1395x (r).] or

(ii) A teaching hospital.

LLC Examples

Does a Limited Liability Company (LLC) Manufacturing and Selling Scalpels Need to Report to CMS.gov?

  1. If the LLC makes quid pro quo sales to dentists, physicians and hospitals? No. (There is no transfer of value or gift.)
  2. If the LLC supplies lunches for the surgical office and the employees? Yes. (The lunches were a transfer of value.)

Does an LLC (having one or more covered recipients holding a minority equity ownership interest) that manufactures radio frequency devices for treatment of the human body need to report equity ownership Interests to CMS.gov? 

It depends.

  1. If a dentist owns 5% equity in the LLC? Yes.
  2. When the wife of a surgeon owns 10% equity in the LLC? Yes. ***
  3. If a pharmacist owns 5% equity in the LLC? No.
  4. When a physician’s assistant owns 5% equity in the LLC? No.

***42 U.S.C. 1320a-7h (a) reads:

(2) Physician ownership

In addition to the requirement under paragraph (1)(A), on March 31, 2013, and on the 90th day of each calendar year beginning thereafter, any applicable manufacturer or applicable group purchasing organization shall submit to the Secretary, in such electronic form as the Secretary shall require, the following information regarding any ownership or investment interest (other than an ownership or investment interest in a publicly traded security and mutual fund, as described in section 1395nn (c) of this title) held by a physician (or an immediate family member of such physician ([immediate family member] as defined for purposes of section 1395nn (a) of this title)) in the applicable manufacturer or applicable group purchasing organization during the preceding year:…

Determining what you need to do in these situations, and what you are legally required to do, can be difficult. If you have questions about your whether your company needs to file reports with CMS.gov, 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 Ownership Determination

Who Owns Patents – It Depends

Ownership – Patents

Article 1, Section 8, Clause 8 of the United States Constitution reads: [The Congress shall have power] “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” The Constitution does not, however, address who owns the Patent or Copyright.

When an inventor invents a novel and non-obvious composition, device or method, who owns the Patent?

That depends.

Patent Rights Are Federal, But Patent Ownership Rights…

Under the United States Constitution and Title 35 of the United States Code, the granting and enforcement of Patents are exclusively matters of federal jurisdiction. However, unless owned by a federal entity, the ownership of Patents is a matter of State Law. Intellectual property ownership rights flow from Patents and who owns property rights is usually a matter determined by State Law,

Who Owns The Patent?

The following examples show how different situations impact or can impact the determination of Patent ownership:

Illustration 1

The Inventor is self-employed, invents the invention and is domiciled in State A.

The Inventor owns the entire interest in the Patent’s Intellectual Property Rights.

Illustration 2

The Inventor is an employee of Company B. The Inventor invents the invention while at work on the premises of Company B. Both Company B and Inventor are domiciled in State A.

In most jurisdictions, Company B owns the entire interest in the Patent’s Intellectual Property Rights.

Illustration 3

The Inventor is an employee of Company B and Company B is domiciled in State A. In the Inventor’s garage located in State Z, the Inventor invents the item related to the products sold by Company B.

Some courts would hold that Company B owns the Patent’s Intellectual Property Rights while other courts would hold that the Inventor owns the Patent’s Intellectual Property Rights.

Illustration 4

The Inventor is an employee of Company B that is located in State A. In the Inventor’s garage located in State Z. The Inventor invents an item not related to the anything manufactured or distributed by Company B.

Most courts would hold that the Inventor owns the Patent’s Intellectual Property Rights.

Illustration 5

The Inventor is an Independent Contractor who has worked onsite, on and off, at Company B’s plant located in State P for more than a year. Company B’s headquarters are located in State A. The Independent Contractor invented an improvement to Company B’s patented product in State J.

Some courts would hold that Company B owns the Patent’s Intellectual Property Rights. Other courts would hold that the Independent Contractor owns the Patent’s Intellectual Property Rights. Some States would not have any case law corresponding to this scenario.

Illustration 6

Company B is domiciled in State A and displays its patented product line at a trade show in State N. The chief engineer of Competitor X takes photographs/videos of Company B’s patented product line at the tradeshow. The chief engineer returns to Competitor X’s headquarters with the photos/videos. At the headquarters, located in State Q, Competitor X’s engineering staff invents several improvements to Company’s B patented product line which ultimately results in Improvement-Type Patents for Competitor X.

Courts would hold that Competitor X owns the Improvement-Type Patents – However, a federal court could also determine that Competitor X’s Improvement-Type Patents infringed Company B’s patented product line.

How to Control Ownership of Patents

What can a business do to limit its Intellectual Property from flying out in many different directions?  Next month’s blog will address some of these issues.

If you have questions about your company’s ownership of its 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.

Rental Property and Intellectual Rights

Real Estate Rental, Tangible Property and Intellectual Property Rights

Relationship Between Commercial Rental Property and Inventories

Landlords own the real property rented by tenants (rental property). Tenants have an interest in the use of that real property. A commercial landlord rents square footage to the tenant and grants the tenant permission to operate a business from the rented space. Under most commercial leases, inventory remains the personal property of the tenant. Landowners may also operate their own businesses from commercial real properties.

Real Property Cases: Traditionally Matters for State Courts, However…

For centuries, disputes involving real property and rental property contracts have fallen under the law of the jurisdiction where the real estate is located. Each State has its own version of its real property laws. However, in today’s world, federal laws can influence a State’s real property laws.

Intangible Patented Inventions as Tangible Personal Property

A Patentee can sell tangible widgets that include intangible patent rights for the circuitry, processor, and memory that cause the tangible widgets to operate differently from unpatented widgets. Patent infringement of the patented widget can result when someone who did not purchase the patented widget from the Patentee makes, uses, sells or offers to sell the patented widget without the permission of the Patentee.

Under United States law, Patent infringement cases have exclusive jurisdiction and venue in federal district courts.

When Patented Widgets are Offered for Sale on Consignment

Possible interactions between the real estate owner or the commercial tenant (hereinafter Commercial) and the Patented Widgets Owner (hereinafter PWO):

  • As long as Commercial and PWO meet the terms of the consignment agreement, both parties are probably happy.
  • When Commercial refuses to pay PWO according to the consignment agreement, the PWO could sue the Commercial for breach of contract in a State court.
  • When Commercial refuses to honor the consignment agreement and subsequently gives the patented widgets to a third party who thereafter uses the patented widgets in the third party’s plant. Under the Supreme Court’s Impression Products, Inc. v. Lexmark International, Inc., 581 US 1523 (2017) case, because there was no sale of the patented widgets by the Patentee, PWO can sue both the thirty party and Commercial in a federal district court for patent infringement. Any case by PWO for breach of contract by Commercial would likely be joined with the patent infringement case in federal court.

The commercial tenant (hereinafter Tenant) and the PWO:

  • When Tenant sublets a space for a booth to PWO and PWO fails to pay rent to Tenant, the Tenant can sue PWO in State court for collection of unpaid rent.
  • In a State that provides for commercial landlord lockouts and seizures of personal property, Tenant fails to pay rent and the landlord locks out and seizes all inventory including PWO’s patented widgets. Under the lease, Tenant did not have a right to sublet space to PWO and the landlord is unaware that PWO’s patented widgets are not part of Tenant’s inventory. After seizing PWO’s patented widgets, the landlord sells PWO’s patented widgets to a third party who resales the patented widgets to a fourth party who destroys the patented widgets and sells the junked parts to a recycler. Under Impression Products, Inc. v. Lexmark International, Inc., 581 US 1523 (2017), because there was no sale of the patented widgets by the Patentee, PWO could sue the commercial landlord, the third party and the fourth party for patent infringement in federal court. For the landlord, the third party and the fourth party, reliance solely on real estate law is insufficient to prevent a patent infringement lawsuit in federal court.

Have More Questions About Intellectual Property?

Contact Business Patent Law, PLLC  to get your questions answered and to 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.