IP in the US: Bigger than Texas
Do your homework if you're eyeing the US for business growth.
Friday, October 07 2011 || Intellectual Property 101 || BY Simon Rowell
The US is the only country I am aware of that grants a patent to the first person to invent, rather than the first person to file a patent application. While this sounds fair and reasonable, the practical difficulties of proving when an invention was first reduced to practice are, shall we say, bigger than Texas. The US has a system called interference proceeding to resolve ‘first to invent’ disputes. These proceedings burn cash like nothing else.
If the US is a key market for your innovation, take some specialist advice on how to keep laboratory notebooks to document your research. If kept properly, they will be your saving grace in interference proceedings.
The US Senate has recently passed the America Invents Act, which will now be considered by its House of Representatives. The bill includes a number of patent law reforms, including replacing the ‘first to invent’ system with ‘first inventor to file’. Under the proposed new system, interference proceedings will be abolished because a patent will be awarded to the first person to file the patent, provided they are an inventor. But it will remain important to keep lab books for the US market because they will be crucial in derivation proceedings that will be introduced to determine if the patent applicant stole the invention from the true inventor.
The US has other quirks in its patent system. If I disclose my invention before I file a patent application, I cannot get a valid New Zealand patent. If I file my patent application in the US within 12 months of my disclosure, I can still get a valid US patent. The US is among a handful of countries to offer such a grace period. Australia and Japan are others. While a New Zealand entrepreneur may not have been able to get a patent in New Zealand, Europe or other countries because they published or sold their invention too early, they may still have the ability to get patent protection in the US using this grace period.
It is important to understand that the US is more liberal than New Zealand about what it will permit as patentable subject matter. For example, while the New Zealand government has denied patent protection for computer software in the soon-to-be-passed Patents Act, software remains patentable in the US. US courts recently reconfirmed they will permit patenting of business methods, which are not patentable in New Zealand, Europe and a number of other countries.
While a New Zealand business may not be able to obtain patent protection in New Zealand for a particular innovation, it may still be able to obtain protection in the US, which can be used as leverage to get investment or commercialisation partners.
I have heard more than one US businessperson say, “if you haven’t been sued, you haven’t made it”. Patent litigation in the US is a frightening prospect. You will spend about US$1 million per year for perhaps two or more years. Part of the reason it costs so much is that patent litigation is decided in a jury trial in the US. Twelve people — most likely without any legal or scientific background — have to be taught what a patent is and why it exists. They must be schooled up to understand the state of the general scientific field at the time the patent was filed, as well as the science underpinning the invention. Then they are asked to determine whether the infringing article is covered by the patent. The outcome is a lottery and the ticket price is enormous. Juries also get to fix the quantum of damages, which is why you see some outlandish damages awards in the US. There, a successful plaintiff can be awarded treble damages if it is found that the infringement was wilful and blatant.
The US has a copyright system, but unlike the New Zealand copyright laws, there is no copyright protection for three-dimensional industrial articles — this is the domain of design patents, which is the US equivalent of a registered design. This can trip up New Zealanders exporting to the US, if they’re used to our automatic and free 16 years of protection given to drawings of industrially applied designs.
The key lesson is conduct a thorough search of the US patent register, and state and federal trademark registers, and explore all IP protection opportunities before you export products or services to the US. You can also obtain IP insurance to help you prosecute or defend patent infringement proceedings in the US. However, check the policy because some insurers actually exclude the US. Spending some money on establishing whether you have freedom to operate in the US is a great investment.
Simon Rowell is a partner at James & Wells Intellectual Property, where he advises clients on commercialising their intellectual property
