The Federal “Defend Trade Secrets Act” Will Become Law

by Bill Naifeh - April 28th, 2016

Yesterday, the House passed the “Defend Trade Secrets Act” (“DTSA”) by a 410-2 vote.  Previously, the DTSA passed the senate.  So, now the DTSA is headed to President Obama who is expected to sign it.  The law is designed to go into effect on the date of its enactment.

The DTSA amends the Economic Espionage Act to create a private civil cause of action for trade secret misappropriation.  Previously, civil trade secret misappropriation has been purely a matter of state law.

Due to the enactment of the Uniform Trade Secret Act in 47 states, there already is a great deal of uniformity in state law regarding trade secrets.  The DTSA is not designed to eliminate or preempt the various state trade secret laws but rather act as an additional layer of protection.  Some question the need for the law.  In reality, Congress can point to this law as proof that they actually did something this election year.

As Professor Dennis Crouch pointed out in his email update, once a federal cause of action is established, federal courts will also “have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution.” 28 U.S.C. § 1367(a).   Thus, a companies may be able to move breach of contract or employment duty into federal courts by wrapping trade secret misappropriation into the mix so that a court would likely find the supplemental jurisdiction requirements met.

For more information, contact Bill Naifeh at www.naifeh.com.

Understand Your NDA

by admin - January 3rd, 2016

Non-Disclosure Agreements (“NDAs”) or Confidentiality Agreements are probably the most overused and abused of all commercial contracts. Businessmen and engineers often sign NDAs and then freely disclose business plans, trade secrets, and ideas to patent to potential “business partners” because they believe they are fully protected by the NDA. However, NDAs vary widely in the scope of their protection. Some NDAs offer powerful protection, but many NDAs offer very little practical protection. In fact, agreeing to some NDAs may be worse than no agreement at all.

Unless the party disclosing the confidential information clearly understands the scope of the NDA he or she is about to sign, the disclosing party may be revealing confidential information without adequate legal protection. This is especially true when the disclosing party uses a NDA from a previous situation or pulls down an NDA from the Internet.

When reviewing an NDA that you are about to sign, ask yourself the following questions:

Does the NDA obligate the Recipient’s subsidiaries and contractors?

Does the NDA require the Disclosing Party to mark the information as confidential? If so, are you really going to mark every correspondence with them as “Confidential.”

Does the NDA require the Disclosing Party to document conversations as confidential? If so, are you really going to document all of your conversations?

Does the NDA state “non-use” obligations in addition to “non-disclosure” obligations? If not, do you want them to be able to use your information for any purpose or do you want to limit how they use your information?

Are the exceptions to the definition of Confidential Information too broad?

Does the NDA allow for the independent development of competing products?

Should there be a no reverse engineering clause?

Does the NDA require a return or destruction of all materials?

Does the NDA contain an indefinite term for secrecy requirements? If so, the NDA may not be valid in many states.

What state law will be used to govern and interpret the NDA?

Where will any dispute resolutions occur? If out of your city or state, do you really want to fund litigation to enforce this NDA in another state?

Does the NDA have an arbitration clause?

Does the NDA provide for Injunctive Relief?

Does the NDA have any clauses that you do not understand?  If so, contact your lawyer or read the ebook: A Simplified Guide to NDAs.

“A Simplified Guide to Patents” is now available on Amazon (Kindle Edition).

by admin - December 5th, 2015

For those interested in single short book explaining the patent process and what it means to own a patent, “A Simplified Guide to the Patents” is now available in ebook form on Amazon.  The link to the book is here.

This book is intended for entrepreneurs, small business owners, general practice lawyers, investors, and others who need a realistic overview of the patent process.  This book offers a somewhat simplified, but realistic explanation of an extremely complex and changing area of law.  It is not a “How to Draft a Patent Book.”  Instead, it discusses what to expect as one goes through the patent process.

What Are the Costs of Obtaining a US Patent – Part 3

by admin - February 10th, 2015

In my last two posts, I discussed cost considerations for obtaining a United States patent.  However, I did not discuss prices and I know that most readers of this blog would like to see “ball park” estimates.

First, it is essential to understand that with patent applications you will always “get what you pay for” as I explained in my previous posts.  Second, the type of invention and the degree of complexity are probably the next most important cost considerations.

Unfortunately, clients almost universally believe that their inventions are relatively simple and can be easily described and claimed in a few hours.  This is almost always wishful thinking and, thus, totally false.  In fact, if clients reviewed other patent specifications in their area, they would find that that there are a lot of drawings and a large amount of text creating a document that is largely incomprehensible by anyone not familiar with in the intricacies of patent law.  Furthermore, as explained in previous posts, small clients often need greater protection and, thus should expect to incur greater costs.

Statistics indicate that the average U.S. patent costs $36,000 over the 20 year life of the patent.  This number includes application, issue, and maintenance fees paid to the patent office, prosecution costs (preparing responses to patent office rejections), and initial patent application preparation and filing.  Typically, the initial patent application preparation is about half of this cost.  So, if the average patent costs $36,000, the average cost for patent application and filing is about $18,000.  However, this number represents an average cost.  As stated previously, the type of invention and the degree of complexity are probably the most important factors in determining costs.

Below is rough guidance regarding estimating the costs for the preparation and filing of a non-provisional application:

Complexity:

Examples

Attorney Fees

Draftsman Fees

USPTO Fees

Design Applications Shape of an object, such as a cup or bottle $1000 – $2000 $600 – $1000 $400
Extremely Simple A coat hanger or a belt clip $4000 to

$6000

$400 – $600 $730
Relatively Simple A single embodiment of a surgical instrument, a flashlight $5000 – $7000 $500 – $700 $730
Minimally Complex A medical device accessory, a portable oven, a crankshaft, simple gear systems. $7000 – $9000 $700 – $900 $730
Moderately Complex Medical waste compactors, RFID devices, medical devices. $8,000 – $10,000 $700 – $1100 $730
Relatively Complex Business methods, a simple electric motor/generator, medical device systems, medical devices involving limited biologics. $12,000 – $15,000 $800 – $1500 $2000
Highly Complex MRI scanner; complex software systems or networks, pharma, biotech. $15,000+ $1500 + $3000

The above table does not include the costs of patent searching or filing provisional patents.  Often clients can file a provisional patent application for about a third to three quarters of the costs for filing a non-provisional application.

It is also important to note that the above costs are from historical and personal observations and do not represent the costs that my firm charges.  Again, they are only meant to provide the reader with ballpark or order of magnitude estimates.  The reader should talk to a competent patent attorney for estimates involving a specification invention or technology.  For additional questions, contact Bill Naifeh at www.naifeh.com.

What are the costs of obtaining a U.S. Patent – Part 2

by admin - January 16th, 2015

In continuing this series of posts, let me describe two scenarios:  (1) a doctor walks into my office with an idea for a new medical instrument.  During the initial interview, he draws a freehand sketch and instructs me to draft a patent application; and (2) an engineer sends me a complete “invention disclosure” providing a detailed description of his invention, a PowerPoint Presentation describing the invention for investors, accompanying drawings, a Solid Works “edrawing” computer model, known prior art, and procedure detailing how to use the invention.

Assuming the level of complexity between the two inventions is about the same, which application will be less expensive?  Obviously (in my mind at least), the engineer’s invention will be cheaper to draft and file – by thousands of dollars.

While it is true that I have to wade through a lot of information from the engineer, more information is always better.  Furthermore, it is quicker to cut and paste sections of existing text than to draft from a blank computer screen. (By the way, this situation is entirely hypothetical – in my experience, engineers also hate to write.)

In the doctor’s situation, before I begin drafting, I will have to research existing inventions, medical procedures, etc.  I will also instruct either an outside draftsman to produce patent drawings or have a paralegal produce a 3D model in Sketchup.  Researching takes time and time costs money.  Furthermore, because I am not a doctor, I might miss an important nuance about the invention or the method of using the procedure.

Thus, a well-considered, clearly written, comprehensive invention disclosure can reduce patent costs and result in better patent protection.  In principle, no one knows more about an invention than the inventor.  If the patent attorney is to perform a proper patentability search, evaluate the search, and do a good job of preparing and prosecuting the patent application, it is critical that the inventor provide the attorney with specific written guidance in the form of an invention disclosure.  Most patent attorneys will provide invention disclosure forms as well as the appropriate instructions.

As discussed in my previous post in this series, a patent is a trade you make with the government.  The government grants you a monopoly for your invention.  In return, you must increase public knowledge.  For you to increase public knowledge, the patent application must contain enough detail to teach others how to make and use your invention.  Patents which just describe an idea, without teaching others how to make and use the invention, are invalid or can be invalidated.

So, just presenting an idea to your patent attorney will force him to develop the idea into an invention (if he is doing his job).  This will be an expensive endeavor. While most patent attorneys are engineers, we are not efficient engineers and we are expensive.  Thus, it almost always less expensive to either develop the idea into an invention yourself or pay an engineer to develop the idea.

The patent disclosure does not need to be as detailed as a performance specification, but it should contain enough detail so that a person of ordinary skill in the art can make and use the invention after reading the disclosure.

Thus, providing a detailed disclosure will increase the quality of the patent and be less expensive than just presenting an “idea” to your patent attorney.

For more information, contact Bill Naifeh at www.naifeh.com.

What are the costs of obtaining a U.S. Patent? – Part 1

by admin - January 8th, 2015

This is a difficult question to answer for a variety of reasons.  First, patent costs vary based on differences in technology.  Second, patent costs vary due to the intended use of the patent and the client’s requirements.

By way of background, patents are not like copyrights or trademarks in that if you are the first to think of and use a logo, you own rights in it.  Patents are only granted if your invention increases the general knowledge of the public (at least theoretically).  In order to increase the general knowledge, a patent application must do more than simply present an idea.  By law, the patent application must teach others skilled in the art how to make and use the invention.  In exchange for the increase in public knowledge, the inventor is granted a monopoly which is (theoretically) proportional to the increase in public knowledge.

Some areas of technology simply require more drawings and descriptions to enable “one skilled in the art” to make and use an invention than other technology areas.  Drawings and descriptions are expensive and costly – especially if an attorney drafts them.  Obviously, the longer the application, the more costly, it will be.

A simple mechanical invention with a short specification will likely be much less expensive to draft than a complex biotech invention.  On the other hand, in my experience, simple inventions and/or applications with short specifications are typically harder to get allowed.  It seems that U.S. patent examiners have a bias against short applications.  It almost appears that the examiners require the applicant put in a certain amount of “sweat” labor into the application.  So, I often advise clients to “beef up” their shorter descriptions in order to overcome the examiner’s bias against short applications.  A short application can be beefed up by adding more embodiments or by making the invention part of a system or “kit.”  (These are often useful for legal reasons too).  The more description added, the higher the costs.  This means that often simple inventions become expensive.

With rising hourly legal rates, some law firms have extolled the benefits of short applications.  Generally, however, I believe short applications are not as strong and do not provide the depth and flexibility needed if the patent is used in licensing or litigation.  For instance, the majority of patents typically asserted by successful NPEs have lengthy specifications. (Lengthy specifications are usually harder to invalidate and provide support for numerous continuations.)

Another cost factor is that different clients use patents differently.  For instance, the goal of many large companies with thousands of patents is to keep costs down for every patent or patent application.  No one single patent will be that important to them.  Consequently, these clients want what is called “defensive” patents.  (If they are sued by a competitor, they can counter sue by claiming infringement of 20 to 50 patents.  Since no one can defend against so many patents, a settlement involving cross licensing is often reached.)  In this scenario, the quality of each patent, although important, is not as paramount because each patent is likely to be just one of a large group of asserted patents.  Obviously, this scenario only works when the defensive patent owner has a very large number of patents in their portfolio and, thus, is able to claim infringement of many patents.

On the other hand, a small start-up company will only have a few patents in their portfolio.  Consequently, the patent quality must be paramount – especially if they go up against an industry giant.  Obviously, patent quality is often a function of the time involved in its preparation.  The longer a patent application takes to draft, the better the quality is likely to be (as a general rule). In the legal world, time equates to cost.

This often means that a small company (who is likely to use its few patents offensively) should expect to pay more per patent (for better quality) than large companies who can also rely only on the quantity of their patents.

For more information, contact Bill Naifeh at www.naifeh.com.

Patent Case Issues are transferred away from the Eastern District of Texas

by admin - October 13th, 2014

Last Friday, the Federal Circuit granted several petitions for a writ of mandamus vacating motions to stay patent litigation in the Eastern District of Texas in favor of continuing the litigation in California. In other words, the Texas cases could not proceed until issues were resolved by a California Court.

The litigation involved patent infringement suits brought by a “non-practicing entity” or “NPE” (politically correct terms) or “patent troll” (politically incorrect term) against several phone manufacturers. Google was later brought into the litigation because accused features were part of the Android operating system.

The Eastern District of Texas is a favorite venue for NPEs in patent infringement cases because the local rules favor plaintiffs and the judges have a reputation for allowing even frivolous cases to go to jury trials. So, one can see why Google would fight hard to keep these cases out of the Eastern District.

Although Judge Gilstrap of the Eastern District wanted to keep the litigation, the Federal Circuit found that the most logical place for the litigation is California because that is the location of most of the witnesses and documents.

The order may be found at: http://www.cafc.uscourts.gov/opinions-orders/0/all/google

Improvement Patents

by admin - July 26th, 2014

Before 1995, improvements to inventions were often filed as a Continuation-In-Part patent application (or CIP or CIP application).  A CIP is a patent application where the applicant has provided a similar specification to a parent or parent application, but has disclosed additional subject matter (i.e., usually an improvement) that was not included in the parent.

For a continuation-in-part application, claims directed to the subject matter that was also disclosed in the parent are entitled to the parent’s priority date.  However, claims directed to the improvements are only entitled to the filing date of the CIP application.

CIP applications are generally used to protect product enhancements that were developed after the patent application was filed.  They were widely used before the 1995 Patent Reform Act.  The pre-1995 patent law calculated patent term from the issue date – thereby creating “submarine patents” which could “surface” or be issued decades after the parent application was filed.  The 1995 Patent Reform Act was designed to kill submarine patents by limiting patent term to 20 years from the filing date of a priority application.

After the 1995 and 1999 Patent Reform Laws were enacted, many patent lawyers discouraged CIP use because although CIP applications can claim the priority date of the parent application, CIP applications have the same lifespan of the parent application.  So, the backend of the patent term is effectively shortened to the life of the parent.  Thus, any advantage one may obtained by receiving an earlier filing date on some material in the application must be weighed against a shorter patent term.

However, many technologies do not care about “back end” term.  The feeling is that, especially in computers and telecom, technology is moving too fast and most of today’s patents will be antiquated long before the term of the patent is over.  This assumption is not true for all industries – especially pharmaceutical and slower moving technologies.

With the advent of patent publication in the 1999 patent reform act, parent applications could be used against CIP applications if the applicant waited too long to file CIP applications.  This created the little known “30 month improvement deadline” which occurs when the parent applications were published.

The logic behind the 30 month improvement deadline is as follows:  At about 18 months, a parent application would have been published.  Under the pre-AIA statute, once something has been published for more than one year it becomes prior art under section 102(b).  Such publications include parent applications.  As the parent application is now 102(b) prior art, it can be used against a later filed patent application.  So, after 30 months, it would be better to draft any improvement patent application as a “stand alone” application and hope that the improvement is novel and unobvious in light of the parent.

On the other hand, if the improvement application is filed before the 30 month deadline, the improvement would not have to be unobvious in light of the parent if the two applications were commonly owned at the time of the inventions.  Furthermore, if the improvement application is also filed as a CIP application, the application can claim priority back to the parent filing for some of the material.

The American Invents Act or “AIA” was passed in 2011 and became effective for new applications (including CIP applications) on March 16, 2013.  The AIA completely rewrote the criteria for patentability and defining prior art.  Unfortunately, the AIA is born of compromise and, as such, is a very confusing statute.  On the face of the statute, it is not clear if the AIA kept the 30 month improvement deadline.  However, when the AIA is read in light of the U.S. Patent Office’s training materials on the AIA, it is clear that the Patent Office believes the AIA maintains the 30 month improvement deadline.

An Internet literature search has revealed that most patent attorneys are unaware of this deadline.  In fact a few articles indicate that there is no longer a 30 month improvement deadline.  This interpretation is contrary to the Patent Office’s interpretation.  Until a court overrules the Patent Office’s interpretation, it is wise to keep this deadline in mind and docketed.

A follow-up post will explore the new AIA statue in detail with respect to the 30 month Improvement Deadline.  For more information, contact the Law Office of Bill Naifeh at www.naifeh.com.

The Patent Definiteness Requirement Now Has Teeth!

by admin - June 3rd, 2014

The Supreme Court reverses the Federal Circuit’s Indefiniteness Standard in a decision likely to negatively impact patent owners.

As many know who have been involved in patent litigation, it is often impossible to determine claim meaning in some patents.  This uncertainty makes patent claim construction extremely difficult – both for the lawyer advising a client and the district judge.  It also allows certain patent owners (usually trolls) to file outlandish patent infringement lawsuits based on poorly worded and vague claim interpretation.

The uncertainty existed despite the definitiveness requirement in the Patent Act which requires that a patent specification “conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as [the] invention.” 35 U. S. C. §112, ¶2.  The uncertainly existed because the Federal Circuit’s standard to determine indefiniteness under this §112 requirement was whether the claim is “amenable to construction.”  In my view, this is a much lower standard than the statutory language requires.

In Nautilus, Inc., v. Biosig Instruments, Inc., the Supreme Court reversed the Federal Circuit’s standard and held that a patent is invalid for indefiniteness if its claims, read in light of the patent’s specification and prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

Assigned to Biosig Instruments, Inc., the patent in dispute (U.S. Patent 5,337,753, the ’753 patent) involves a heart-rate monitor used with exercise equipment.  Prior heart-rate monitors, the patent asserts, were often inaccurate in measuring the electrical signals accompanying each heartbeat (electrocardiograph or ECG signals) because of the presence of other electrical signals (electromyogram or EMG signals), generated by the user’s skeletal muscles, that can impede ECG signal detection. The invention claims to improve on prior art by detecting and processing ECG signals in a way that filters out the EMG interference.

Claim 1 of the ’753 patent, which contains the limitations critical to the case, refers to a “heart rate monitor for use by a user in association with exercise apparatus and/or exercise procedures.” The claim includes, among other elements, a cylindrical bar fitted with a display device; “electronic circuitry including a difference amplifier”; and, on each half of the cylindrical bar, a “live” electrode and a “common” electrode “mounted . . . in spaced relationship with each other.

Biosig filed a patent infringement suit, alleging that Nautilus, Inc. sold exercise machines containing Biosig’s patented technology. The District Court, after conducting a “Markman” hearing to determine the proper construction of the patent’s claims, granted Nautilus’ motion for summary judgment on the ground that the claim term “in spaced relationship with each other” failed §112, ¶2’s definiteness requirement.

The Federal Circuit reversed and remanded, concluding that a patent claim passes the §112, ¶2 threshold so long as the claim is “amenable to construction,” and the claim, as construed, is not “insolubly ambiguous.” Under that standard, the Federal Circuit determined, the ’753 patent survived indefiniteness review. As noted above, the Supreme Court correctly reversed and finally added “teeth” to the definiteness requirement of the patent act.

This decision may affect thousands of claims.  It also might affect thousands of licenses and previous analyses because patent lawyers, in performing invalidity analysis have previously had no choice but to follow the Federal Circuit’s holdings and have often ignored the definiteness requirement of the Patent Act.

The Nautilus decision will also make invalidity of patents much easier – especially in administrative procedures before the patent office such as covered business method review and inter partes review.

Patent Quality Levels

by admin - April 2nd, 2014

At the risk of over simplification, most companies employ one or more of four quality “levels” for patents. Often companies will have patents from a mixture of the levels below. Sometimes, this mixture occurs as a result of design and prioritization where inventions are actually ranked. Sometimes, it occurs as the result of political influence within the company or other factors. Typically, the quality levels are:

Level 1 – Defensive patents.

· Defensive patents are patents usually obtained by large companies having huge portfolios. The large companies will typically cross license with their competitors and usually will not sue their competitors. This strategy is conceptually similar to an arms race.

· These patents are “defensive” in nature because if a competitor sues them for patent infringement, they will counter claim with a large number of their own patent.

· Because the patent portfolios are so large, a defendant corporation can often find 20 to 50 patents that can be alleged in counterclaims. Very few if anyone can defend against 20 to 50 patents (regardless of the validity of the patents), so the plaintiff companies will settle rather than face the litigation costs of defending 20 to 50 patents.

· When using defensive patents, the object is not to protect the technology or obtaining royalties. The object is to develop a litigation weapon which would make any suit against the company prohibitively expensive.

· Because there are a large number of patents, cost control is important and the quality of the individual patents are often suspect.

· Such patent applications are usually drafted on a “fixed-fee” model. In a law firm, these patents are drafted by patent agents or very young lawyers.

· IBM created this patent portfolio model when they determined it was too expensive to perform clearance searches on their products and/or to design around the patents of others. Many large companies have since followed IBM’s model.

Level 2 – Mainstream Patents:

· Although large companies can afford to develop large portfolios often involving thousands of patents, most small to mid-size companies cannot maintain a large number of portfolios. Thus, most of these companies will opt for mainstream patents.

· Mainstream patents are typically better quality than true “defensive” patents. They are typically longer in length, have more claims, and more carefully drafted to withstand some scrutiny (either in acquisition or litigation).

· They typically may be used to protect a company’s secondary products and are often used by smaller companies to protect a company’s main products.

· Budgets still play an important role in such patents.

· One or two continuations may be sequentially filed to expand claim protection or two keep a “child” of the patent alive (so the owner is free to file additional claims to cover competitor’s products or future products).

· Typically, U.S. companies will not file in other countries because of the costs of such foreign filings. If foreign filing is contemplated, PCT applications are typically filed with U.S. style claims.

Level 3 – “Bet the company” Patents

· These patents protect a company’s key technology.

· They tend to be longer, have more claims, and more expensive.

· Often the inventors and others will meet to “design around” the claims of such patents. The “design” around solutions are then either included in the patent application or in other applications.

· Such patents often start an extensive family tree of related patents where “continuation-in-part” and continuation patents are filed and prosecuted simultaneously.

· Office Action Rejections are typically handled by face to face interviews to reduce prosecution history estoppel arguments in litigation.

· If foreign filing is desired, the U.S. claims and/or specification are redrafted to better conform to the patent laws of different jurisdictions.

· Oil companies, medical device companies, and drug companies often develop patents of Level 3 quality.

Level 4 – “Non-Practicing Entity” or NPE Patents

· NPE are licensing only entities. The advantage of an NPE model is that the NPE cannot be counter-sued for infringing patents in a larger company because the NPE does not produce its own products or services.

· Although some NPE’s can readily license their technology, many NPEs must use the courts to enforce their licenses. Consequently, NPEs assume all of their patents will be litigated.

· Because most of the portfolio may be litigated, NPEs often employ prosecution procedures designed to make defending against the patent very expensive. For instance, rather than modify one claim, NPE’s typically delete and replace 100 claims at a time.

· NPEs typically employ a combination of Level 1 and Level 3 patents because most of their patents will see litigation. Thus, a large percentage of their patents must be “litigation ready.”

· NPEs will file many more continuations and more claims. Often one patent specification will result 10 to 50 patents involving thousands of claims.

· NPEs usually do not file foreign because of the expense and limited recovery in foreign jurisdictions.

In recent years, NPEs have been successful at asserting “junk” patents against many businesses. These businesses have lobbied both the White House and Congress to change the patent law. As is usually the case, Congress will probably hurt legitimate small business owners in the process in the same way medical malpractice laws prevented patients with actual injuries from fully recovering.