Wealth of Ideas Newsletter

The Patent Reform Act of 2005

Wealth of Ideas Newsletter, October 2005

Beneath the usual intellectual property headlines of big lawsuits and settlements, a major change in the patent law is quietly making its way through the U.S. House of Representatives. H.R. 2795, or "the Patent Reform Act of 2005", as it has become known, seeks to make major changes to some fundamental aspects of U.S. patent law.

One of the proposed changes - and one which will have a negative effect on small businesses and individual inventors - is the change from a first-to-invent to first-to-file patent regime. Unlike foreign patent offices, the USPTO has allowed inventors to make or sell an invention and still file a patent application on it within a year of their first public disclosure of the invention (and for more on that topic, see our December 2004 feature article on Patent Basics: Statutory Bars). So long as the inventor proceeds with developing the invention and preparing a patent application, and did not abandon or conceal the invention, filing within one year of the date of first sale or disclosure will secure a patent to the first-to-invent rather than first-to-file applicant.

The first-to-file system will put pressure on inventors to turn inventions into patent applications quickly and set off a race to the Patent Office. Needless to say, large corporations with their in-house legal departments and law firms on retainer will have a significant advantage over an independent inventor or small R&D firm who first have to find a patent attorney and scramble for funds to pay for their patent application.

Other provisions of the bill, such as the limitation on damages, if passed, will significantly affect the economic value of patent rights for small inventors.

The USPTO would also have more avenues available for settling patent disputes without litigation, including a post-grant administrative process for answering questions of validity. Proponents of this change hope that it will help to both improve the quality of patents by subjecting them to more examinations and also help to reduce the number of costly patent lawsuits.

Many of these changes are designed to cut back on patent litigation, especially on cases brought by the so-called "patent trolls" - those who buy a patent solely for the purpose of enforcing it, rather than practicing the patented invention. (See "On Patent Trolls and Other Patent Myths", by Alex Poltorak, for more information.) However, with the current version of the patent reform bill sporting wide changes to the patent system, inventors and innovation will suffer if this bill becomes law.

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The Licenses You Never Sign

Wealth of Ideas Newsletter, September 2005

Most of the time, the way you agree to a legal document is by signing it - but not always. Sometimes you agree to it by tearing it apart.

That's the way a "shrink-wrap" license works - you know, the document with all the fine-print legalese that comes packaged with your new software CD. The fine print states everything that you agree to as the buyer (basically, limiting your use of the software to a certain number of computers and/or users), and that your breaking of the shrink-wrapped seal shall be deemed an acceptance of the license.

When software became available for download via the internet, the license became known as a "click-wrap" license - meaning the terms of the license agreement are displayed and you have to click a button that says "I Agree" in order to download the software.

And now we have the "box-wrap" license, thanks to a recent ruling from the 9th Circuit Court of Appeals in the case of Lexmark International against the Arizona Cartridge Remanufacturers Association (ACRA). ACRA had brought suit to challenge the legality and fairness of Lexmark's imposition of conditions on the sale of its "Prebate" ink cartridges, namely, the condition that the buyer send the cartridge back to Lexmark when empty instead of sending it to a third-party remanufacturer for refilling.

The court, however, found "that as a matter of law Lexmark's Prebate is not a deceptive practice" and that "because of its patents, Lexmark has the right to impose conditions on the sale of its patented product." Furthermore, the court quoted California law as saying that "a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Such conduct, in this case as well as in the case of shrink-wrapped software, includes stopping to read the fine print as you tear open the packaging of your next printer cartridge.

The ruling caused a stir among those bloggers and other critics of patent law who don't think much of patent law anyway, but is Lexmark's Prebate license really so unfair? Atlantic Exchange, a reseller of Lexmark products, notes on its website that "if you choose Prebate, in exchange for the up-front discount, we ask that you use the cartridge one time and return the empty cartridge to Lexmark for remanufacturing and recycling. You don't have to choose Prebate products if you want other recycling options." They also mention that there are higher-priced, non-Prebate cartridges available from Lexmark that may be remanufactured by a third party.

So Lexmark isn't overstepping its patent rights this time… but the war will go on, as long as patent-holders and critics of the patent system continue to meet in courtrooms and chatrooms.

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Patents Get a Bad Rap

Wealth of Ideas Newsletter, August 2005

Recently, the news came out that Microsoft wanted to patent “smilies”. Also known as emoticons, these are the little textual representations of facial expressions (such as :- ) ) that many of us use in emails, web forums, and text messaging to add a little personality to our correspondence. The anti-Microsoft contingent ran with this latest example of Bill Gates seemingly trying to take over the minutiae of our daily lives.

But was their criticism warranted? And for that matter, why do patents get so much more bad press than their IP cousins, copyrights and trademarks?

As it turns out, the Microsoft “smiley” patent application is not an attempt to control your personal use of emoticons. Rather, what Microsoft is actually trying to patent is a way to add more complex emoticons to a lean text message in such a way that they don’t increase the message’s data size – thus making communication via chatrooms or instant messaging (where smilies are extensively used) faster. A good thing, right?

It’s not just Microsoft. Ask a layperson what pops into their mind when they think of patents and they are likely to mention drug monopolies; huge corporations stifling the work of individual inventors (or innovation in general); “wacky” patents whose very existence calls into question the sanity and intelligence of patent examiners; and out-of-control lawsuits.

People generally don’t get into such high dudgeon over copyrights or trademarks. If you copyrighted a literary work or take steps to protect your company’s trademark, no one will argue that you’re wrong to do so. Trade secrets may seem a bit mysterious but aren’t seen as being controversial, and mask works are virtually unknown outside of IP circles. But patents are erroneously seen as having a chilling effect on innovation because they grant a limited monopoly to the inventor on his invention.

In the real world, however, not many inventors or companies are lining up to develop inventions and then give them away for free. So patents are here to stay. :- )

For more information on patents, see our previous feature articles "Common Patent Misconceptions" (April 2005), "Is My Patent Being Infringed?" (September 2004), and "Submitting Product Ideas to Corporations: What the Inventor Needs to Know" (March 2005). See also "Are Patents Bad for the Economy?" [PDF file] by Alexander Poltorak.

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The Most Wonderful Thing about Tigger...

Wealth of Ideas Newsletter, July 2005

On June 24, 2005, 82-year-old Paul Winchell died at his home in Moorpark, California. Older readers will remember Winchell as the TV ventriloquist whose dummies included Jerry Mahoney and Knucklehead Smiff; younger readers will remember him as the voice of Gargamel the Wizard in the “Smurfs” cartoon; and just about everybody will remember him as the voice of Tigger in the Winnie the Pooh cartoons.

But until now, very few knew that Winchell was also the first person to receive a patent for an artificial heart. He built the prototype with the advice and input of Henry J. Heimlich, the doctor who invented the most famous method of saving choking victims, and received his patent in 1963.

Winchell donated the patent to the University of Utah, where a researcher named Robert K. Jarvik took the design further and developed the artificial heart that was successfully implanted in a human in 1982. Winchell’s artificial heart was powered by batteries and Jarvik’s by compressed air, but according to Heimlich, “I saw the heart, I saw the patent and I saw the letters. The basic principle used in Winchell's heart and Jarvik's heart is exactly the same.”

In all, Winchell received 30 patents for inventions as disparate (and as dated) as a disposable razor, a retractable fountain pen, an invisible garter belt, and a flameless cigarette lighter. Winchell also owned a shirt factory, ran a fish farm, and tried – with the help of celebrities such as Ed Asner and Richard Dreyfuss, but ultimately unsuccessfully – to get funding for what he called “The Tilapia Project,” which would have provided tilapia fish to starving African people.

In his later years, Winchell wrote an autobiography about his widely varied career, and at the time of his death was working on a streaming video project that would showcase full 30-minute children’s shows from the 50's and 60's – not only his own shows, but those of others.

Despite his success in so many other areas of life, Winchell regretted his own lack of success with his patent (even though it served as the basis for a successful artificial heart). And that’s a moral in and of itself: Many inventors patent their inventions but fail to commercialize them, and when the patents are exploited by others the inventor often fails to enforce them. Patents, after all, are valuable market monopolies and need to be commercialized, licensed or enforced instead of just hung on the wall...even if their inventor is a Tigger.

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Trademark and Service Mark Basics

Wealth of Ideas Newsletter, May 2005

The process of obtaining a trademark or service mark is not as simple as one might think – and it’s something the entrepreneur should consider when choosing a name for a new business. For some very basic information and surprising facts about trademark law, read on.

A trademark is a word, symbol, or combination of words and symbols that serves to identify the source of goods (i.e. Coca-Cola). A service mark performs the same role with regard to services (i.e. FedEx). Trademarks cannot be merely descriptive of the goods themselves.

The measure of a good trademark is its distinctiveness in sight, sound and connotation. Trademark distinctiveness can be described by the following four categories, from most distinctive to least distinctive:

1. Coined or Arbitrary marks – these are either made-up words (Verizon, Xerox) or existing words with no apparent connection to the product (i.e. Apple computers and Camel cigarettes). These are the most distinctive marks and thus have the strongest legal protection.
2. Suggestive marks – These marks suggest some feature or attribute of the goods without being descriptive, as in the use of “Coppertone” for suntan lotion.
3. Descriptive marks – Much less distinctive than the first two categories, descriptive marks are generally only allowed to be registered if they have a secondary meaning. However, some descriptive marks that have been in use for many years or decades are strong marks because of their longevity, such as “Holiday Inn” – which is just what the name suggests.
4. Generic terms – These least distinctive of marks are technically not marks at all. If your company produces yarn, you can’t trademark yarn.

Besides the distinctiveness requirement, marks also cannot be registered if they are offensive or inherently barred. Inherently barred marks would include, for example, those that made use of the name and/or likeness of a living president; the name/likeness of any living person without their permission; or the Olympic symbol.

An interesting fact about trademarks is that they are examined phonetically – so misspelling “phone” as “fone” won’t make it sufficiently distinctive in itself to be a trademark for a phone manufacturer; it would need to be paired with another, more distinctive, word (or words). Also, the mark will be examined in consideration of foreign words that have a descriptive meaning – so if you want to use “Aqua” as a trademark for bottled water, you’d better reconsider.

Finally, a note on the proper use of trademarks: Trademarks are adjectives. The mark should be followed by a descriptive term, such as “Kleenex tissues” – referring to the tissue itself as a “Kleenex” (or the southern-US habit of referring to all sodas as “Cokes”) is a use that threatens to make the mark generic and thus unprotectable (like the former trademarks thermos, aspirin and escalator). And your trademark will not cover every use your company might possibly make of it, only those for which it was registered.

Trademark law is much more complicated than most laypeople think. As there are a lot of intricate issues involved in trademark law (as in all IP law), it is most prudent to consult an attorney who can help you with the process of trademark search and registration.

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Common Patent Misconceptions

Wealth of Ideas Newsletter, April 2005

Prospective inventors often have ideas about patents that aren’t quite true – such as the belief that a patent, once obtained, will be easy to license to a large company, thereby making the inventor fabulously rich. Unfortunately, it isn’t necessarily so. It is difficult for an individual inventor to license his patent, and few inventors succeed.

Read on for a few of the other major misconceptions concerning patents.

Misconception #1: A patent gives you the right to practice your invention. First, a patent does not provide positive or affirmative rights at all. A patent is strictly a negative or exclusionary right – the right to exclude others from using, making, selling or offering for sale the patented invention.

Furthermore, no patent is an island. That’s because all patents have prior art, meaning patents, publications or products that precede the patent in question. So just because you have a patent doesn’t mean that you have the right to practice the patented invention without having to license someone else’s patent. What a patent does give you the right to do is to sue someone who is practicing your patented invention without your permission.

Which brings us to the next misconception:

Misconception #2: If an alleged infringer is doing something similar enough to your patented invention, it must be infringement. This is the misconception of those that think that a patent tangentially related to computer software simply must be infringed by Microsoft, and infringement can be found if you just look hard enough and squint your eyes in a certain way as you read the patent claims. But the fact is that the scope of a patent is limited to its claims, and each limitation of the claim must be met by the allegedly-infringing product or process in order for infringement to exist (this is known as the “all elements” rule of patent infringement).

For more on what constitutes patent infringement, see our September 2004 feature article, "Is My Patent Infringed?"

Misconception #3: Rights accrue from the patent’s filing date. The right to collect damages for patent infringement really only begins when the patent actually issues – not when you file the application. (After the patent issues, certain limited rights commencing on the date of publication of the patent application may retroactively accrue.) The filing date is important in other ways – for instance, if you have publicized your invention and need to file within the one-year "grace period" (see "Patent Basics: Statutory Bars", December 2004).

There are many more patent misconceptions besides these, and even if you are a patent-holder, you may not understand patent law as well as you think you do. That’s why we always recommend that you consult a patent attorney if you believe that your patent is infringed (or if someone accuses you of infringement).

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Submitting Product Ideas to Corporations: What the Inventor Needs to Know

Wealth of Ideas Newsletter, March 2005

All too often, inventors submit their invention ideas to corporations in the hopes of selling their invention for a nice pile of cash. By and large, however, the outcome is that the inventor is either ignored or receives a nice rejection (form) letter.

This scenario is played out frequently and raises a number of questions. Is the company liable for stealing the idea? How different must the product be from the How different must the product be from the inventor’s description in order to constitute a different product? And if the product wasn’t already patented (or in the process of becoming patented), does the inventor’s action of submitting the idea constitute “public disclosure,” which starts the clock running on the one-year grace period the inventor has in which to file the patent application? (See our article “Patent Basics: Statutory Bars,” December 2004 issue, for more on the USPTO’s one-year filing requirement).

When approaching a corporation with a non-patented invention, the inventor should be aware that a non-confidential disclosure may result in a public disclosure – after all, the recipient is under no obligation to keep the information private. The inventor’s best defense against this problem, obviously, is to approach the corporation with a patent in hand or a filed patent application (at least provisional). However, patents are expensive, and inventors may wish to sell their inventions without the time, cost, and bother of obtaining a patent. Or the inventor may wish to file a patent application at a later date after determining if there is interest in the invention. In either case, the inventor must take extra precautions when dealing with corporations.

If at all possible, the inventor should have the corporation accept the disclosure of the invention in confidence by having the corporation sign a non-disclosure agreement (NDA). This, however, is not easily accomplished: corporations generally won’t agree to this because the invention may be identical to one they are already working on, or they may wish to reserve the right to do something similar in the future. Or they may simply wish to avoid the possibility of future litigation.

And if the corporation does sign an NDA, the inventor is not out of the woods yet. The corporation may accept the submission with certain exceptions (which will almost certainly be to the inventor’s detriment and the company’s advantage). Or the corporation may make minor changes to the idea and develop a similar product but refuse compensation to the inventor on the grounds that the product they eventually market differs materially from the idea disclosed by the inventor (details, details!).

If even those ideas that are submitted in a confidential disclosure can be circumvented and “stolen,” what is the inventor’s recourse? Unfortunately, there is not much the inventor can do. Many hundreds more ideas are submitted to large corporations than are actually accepted (with their inventors duly compensated).

In the world of licensing, there are no shortcuts. Before approaching a large corporation with your submission, secure a patent or, at least, file a patent application to protect your rights. When negotiating an agreement with a large corporation, read the fine print before you sign – and as we always recommend, consult competent legal counsel to be on the safe side.

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Trademarks and Counterfeit Goods

Wealth of Ideas Newsletter, February 2005

Say the term “counterfeit goods” and most people will think immediately of street vendors hawking $20 Rolex watches, fake designer handbags, or $5 CDs and DVDs.

Counterfeiting is big business: in December 2004 alone, the New York Police Department shut down a 49-room “bootleggers’ mall” and seized $12 million worth of clothing and shoes bearing brand names such as North Face, Sean John, Reebok and Nike. Raids in New York City since December 2003, when Mayor Michael Bloomberg vowed to crack down on counterfeiters, have netted $40-50 million in such fake merchandise.

Despite the huge profits these bootleggers make, the average person still considers the counterfeiting of trademarked merchandise a “victimless crime” – the designers, after all, are not suffering in poverty; nor are the music and movie industries. Public apathy towards the problem is only one reason that traffic in counterfeit merchandise continues: the public’s desire for brand names at cheap prices, plus the proliferation of bootleggers and ease of producing the counterfeit products combine to make it difficult for law enforcement officials to stem the tide of counterfeit goods.

One might argue that most people who pay $30 for a $300 jacket are well aware that it’s not the trademarked or officially-licensed “real thing”, and that it’s likely of lower quality. But it looks like the trademarked item, which is enough for some people. And again, there are those who are willing to pay $300 for the genuine article, so where’s the harm?

Counterfeiting is such big business because trademarks serve as an indicator of the source or quality of the goods on which they appear. And counterfeiting of trademarked items is not just for brand name clothing, music and movies anymore; it now extends to such non-glamorous items as medicines, food and auto parts. Would you want to feed your baby counterfeit Similac infant formula or drive a car with brake linings made of compressed cardboard? How about spritzing on some counterfeit perfume that’s laced with urine? This is where counterfeiting gets personal (and disgusting, and possibly dangerous).

The problem of counterfeit merchandise is difficult to solve, and will likely continue. As a trademark owner, you are probably safe from counterfeiting unless your mark is well-known. As a consumer, you can protect yourself by knowing what not to buy at the flea market: shop the booths there for antiques and crafts, but not cheap Tylenol. And when shopping for collectibles online, be careful what you bid on when browsing eBay – the world’s biggest flea market. Although eBay promptly removes items that are known counterfeits, with millions of items posted daily, they can’t catch everything.

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Copyright Basics: Fair Use

Wealth of Ideas Newsletter, January 2005

It is common knowledge that copyright law gives certain rights to the copyright holder for a certain amount of time. However, U.S. copyright law was actually designed to protect the public’s access to a work just as much as the author’s monopoly on it.

A copyright can be defined as the grant of a limited monopoly in a specific presentation of recorded knowledge; the monopoly is limited in both duration and in scope. The laws governing the public’s use of copyrighted material are commonly known as “fair use” laws, and protect the use of such material for the purposes of education, research or the free exchange of ideas.

Fair use is determined on a case-by-case basis, and is governed by four factors:

1. Purpose – Is the use of the work for educational/informative purposes, or merely commercial?
2. The nature of the work that makes use of the copyrighted material – is it creative, derivative, or a compilation?
3. The amount of the copyrighted work used in relation to the work as a whole – This is a major factor in determining whether the use is a permissable "fair use."
4. The effect on the market or potential market – Will the reproduction of the copyrighted work affect the copyright holder’s ability to sell it? For instance, in the majority of instances it is a violation of fair use to copy an entire book (see factor #3, above). However, in the case of a book that is out of print and unavailable, but still under copyright, photocopying the book in its entirety for personal reference or educational use would be a fair use because it would not affect the author’s ability to sell the book.

Fair use questions arise commonly in academic settings, where students and professors alike wish to copy or reference passages of copyrighted works for educational purposes. And since the copyright law is designed to promote the dissemination of information, the vast majority of educational uses of copyrighted information are considered fair use. However, there are restrictions – for example, a professor wishing to post copyrighted information on a website for his or her students’ use should restrict access to that information by requiring a password.

Fair use issues may also arise, for example, when a reviewer wishes to critique a book, movie, or music CD and uses an excerpt from that work in the review. A book review that is printed in a for-profit newspaper might be seen as a commercial use, and if the review is negative, one might think that this would affect the marketability of the book – thereby violating the fair use laws in factors 1 and 4. Such use is overwhelmingly allowed, however, because the amount of the work reproduced in the review is usually negligible in relation to the whole work, and bad reviews don’t necessarily translate into a financial loss.

In light of the complexity of determining fair use, anyone with a potential fair use issue should either clear that use with the copyright holder or consult an attorney who specializes in copyright law.

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Patent Basics: Statutory Bars

Wealth of Ideas Newsletter, December 2004

Aspiring inventors know that if they want an issued patent, their invention must be novel, non-obvious and useful. However, even if all of these conditions are met, the patent application could be barred if it is not filed within a year of the first public disclosure of the invention.

This is known as a “statutory bar,” and the United States is virtually unique in granting this one-year “grace period.” Foreign patent laws most often require “strict novelty” – a patent application must be filed before the invention is disclosed publicly.

A wide range of activities can constitute “public disclosure” and start the clock running on the inventor’s one-year grace period. Any of the following activities, if performed within the United States, can be considered public disclosure: publicly using the invention, offering it for sale, or describing it in a printed publication. The definition of “printed publication” is also more far-reaching than one might expect; it can even extend to a posting on an Internet newsgroup, a slide show, or a trade show display.

One can also lose US patent rights by having a foreign patent issue for the same invention prior to filing the US patent application. This bar applies even if the foreign patent is later held to be invalid.

So before offering your product for sale, approaching a corporation or manufacturer with your invention, writing an article for a trade magazine about your discovery, or even sharing your news with your favorite email group, make sure that your actions will not publicly disclose your invention before you’re ready to begin your one-year grace period. And if there is any possibility that you may want to file patent applications in other countries, file the U.S. patent application first. Generally, it is best to speak with your patent attorney before making any disclosures about your invention.

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