Intellectual Property Overview Section B

B. PROCEDURAL MATTERS IN ESTABLISHING
INTELLECTUAL PROPERTY RIGHTS

The procedures for establishing and maintaining the various intellectual property rights vary widely. Patents require formal applications which receive considerably different degrees of review prior to grant. No formal submissions are applicable to establishing trade secrets, but a number of steps and precautions within the company are necessary to maintain these rights. Source identifiers such as trademarks are established through use of the marks with the relevant goods (or services for service marks), and state and/or federal registration is also possible.

In each instance, there are important steps which must be taken to establish the particular right. Failing to take action in a timely fashion can either destroy an otherwise valuable right, or make it impossible to obtain enforceable protection.

1. PATENTS

a. Maintaining Proper Invention Records

It is important to maintain proper records in order to protect the fruits of any development effort. If an invention is independently conceived by two persons at about the same time, then only the first inventor is entitled to a patent. The manner in which prior inventorship can be established is fairly well defined in the law. Important to this proof is the maintenance of proper written records.

For any invention it is appropriate that a written record be made as soon as the discovery is appreciated. This record should include a written description of the concept, as well as sketches or other materials appropriate to give a meaningful description. This document should be witnessed and dated, and kept in a safe location. In having such a record witnessed, it is important that the witnesses understand the invention, and a desired legend for the witnessing would be: "Witnessed and understood by," followed by a signature and date. Such witnesses may be needed to substantiate the date of invention, and their understanding of the description will be important to avoid a suggestion that some of the information was entered onto the document after the initial review.

Persons working in research as a routine matter should maintain periodic, bound notebooks in which all work is recorded. The information should be dated and signed by the entering person, and should frequently be witnessed in writing by one or two other persons who can indicate that they understand the information they have reviewed.

A common misconception is that mailing a disclosure to oneself, by certified mail, is a satisfactory record of an invention. The mailing may provide apparent proof of the invention date, but this procedure is inadequate. Such a letter could be easily opened and resealed, and is therefore unreliable as evidence of the date of its contents.

b. Preventing the Loss of Patent Rights

There are several time constraints for patentability and therefore for filing patent applications. These constraints are contained in 35 U.S.C. _102 and are frequently referred to as "statutory bars" to patentability. Specifically, 35 U.S. C. _102(b) provides that a patent may not be obtained if:

the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States ...

It is therefore important that this one-year time limit be understood and heeded in respect to any invention for which patent protection may be sought.

Regarding the "on sale" limitation, it is recognized that something less than an actual sale will qualify. An offer to sell, or a solicitation for an offer to purchase can satisfy this limitation. Generally speaking, the subject of the sale or potential sale must be in existence, but that is not a universal requirement, particularly if the invention is fairly simple and readily constructed. Delivery of a sample for testing may not be a sale, but delivery on a trial basis may be. Also, there is a distinction between a sale of the patent rights, which does not meet the test, and a sale of the invention itself, which does. Because it is difficult to judge whether a particular situation will later be found to meet the "on sale" restriction, caution must be exercised.

The "public use" of an invention may also result in the loss of patent rights. Public use includes not only the conventional meaning, but also the secret use of a process if the product resulting therefrom is then sold to the public. This "commercialization" of the process is considered to be a public use for purposes of the patent bar. An exception to this statutory bar exists if the use is experimental.

However, the use will be considered experimental only for a reasonable length of time during which actual testing or evaluation is being conducted. The general attitude that the product might be changed or may not work as desired will not support an experimental use exception absent significant efforts to evaluate and modify the invention.

There are a number of other specific constraints on obtaining a patent. However, for the most part these other limitations are not within the control of the inventor. The main concern from an administrative standpoint will usually be that the patent application be filed before a year passes from the first date of public disclosure, public or commercial use, or placing of the item on sale. The client must therefore control company activities, such as sales and research efforts and publication of journal articles, to avoid falling prey to the statutory bars to patent.

One other consideration as to the timing of a patent application and use of the invention is the degree of interest in obtaining patent protection in foreign countries. A U.S. patent will only provide rights to prohibit the making, using, importing or selling of the invention in the United States.

In essentially all foreign countries of interest there is an "absolute novelty" requirement. This means that no patent can issue in that country unless an application (which could be the U.S. application) is on file before details of the invention are "publicly accessible." In other words, there is no one-year grace period in those countries as there is in the United States. Consequently, the United States patent application should be filed before an invention is publicly disclosed, used or placed on sale in order to preserve the option of foreign protection. Once the United States application is on file, the inventor will generally have one (1) year from the filing date to have the corresponding foreign applications on file.

c. Determination of Patentability

An invention to be patentable must be new, useful and unobvious. The first step for the patent attorney is usually to conduct a "patentability" search, primarily aimed at determining if the invention is indeed new and unobvious. The search is typically conducted at the Patent Office in Washington, D.C., which maintains a library of all United States patents, and many foreign patents and some U.S. and foreign publications. These materials are categorized by subject matter, and appropriate technical subject areas are reviewed during the patentability search to locate the most pertinent "prior art." The patent attorney will examine the selected prior art to render an opinion as to patentability.

The procedure for evaluating patentability begins with receiving a disclosure of the invention. The disclosure should contain a description of the product or process, and an indication of the differences believed to exist between the invention and the prior art. It is also useful to include a discussion of the products or processes which have existed in the past, and the problems or disadvantages sought to be addressed by the invention. Knowing the motivation for making the improvement or change, as well as the manner in which the invention was conceived, can also aid the analysis. All of this information is used to understand the invention and the likely aspects which may contribute to patentability.

Patentability searches are conducted for three primary reasons. First, and most obviously, the search is used to make a decision on whether it appears that a patent may be obtained, and the likely scope of such a patent. Second, the search is quicker and less expensive than simply proceeding with the patent application, so a cost saving is realized if it is decided that an application is not warranted. Third, the patents and/or literature found in the search make it possible to better draft the application, particularly the "claims," which define the invention.

Other incidental benefits come from conducting the patentability search. One benefit is that the selected patents may have special interest to the client. Patents not strictly related to the patentability question can show, for example, other approaches to the same problem. Another benefit is that the selected patents are reviewed from the standpoint of potential infringement. Although this type of search is not the equivalent of an "infringement search," it will turn up patents which are closely related to the device or process, and which therefore represent at least a sampling of those which might be infringed.

d. The Patent Application Process

The patent application must contain a sufficient disclosure of the invention, and the manner of making and using it, as to enable a person of ordinary skill in the art to practice the invention. There is no requirement that an invention actually have been constructed or demonstrated in order to obtain a patent. However, the application must contain details as to how the invention is or would be made.

In addition, the applicant must disclose information as to the "best mode" of the invention, even though this may require the disclosure of valuable trade secret information.71 A company may be therefore faced with the choice between obtaining patent protection and disclosing trade secrets, or foregoing the patent to rely on trade secret protection. The decision between these two options may be deferred by the following procedure. A company may file and prosecute the application until it is determined what kind of patent protection can be obtained, and then decide if the patent should be allowed to issue. Patent applications are, in most instances, maintained in confidence until the patent issues. Therefore, if the patent is not permitted to issue, then the confidential information will not be revealed to the public.

A patent application is examined in the Patent Office for technical and substantive matters. The examiner conducts a search, much like the patentability search, and renders an opinion in the form of an "office action," indicating if the application is considered allowable. If the application is not allowed, one response to the office action may be to argue that the examiner has misconstrued a prior art reference or has failed to properly read the claim language. Alternatively, a response may include amendments to the patent claims, the submission of affidavits, or even a personal interview with the examiner. The entire process may take a couple of years before the patent issues.

2. TRADE SECRETS

The establishment and maintenance of trade secrets within a business require that appropriate steps be taken to preserve the secrecy of important information. These steps may involve both procedures and mechanical systems which prevent disclosure, and policies which convey to employees the importance of maintaining secrecy.

a. Employment Agreements and Practices

A primary method for maintaining confidentiality of information is to require that employees execute an agreement including prohibitions against improper use or disclosure of the employer's trade secrets. The covenant should apply both to the term of employment and for the time following employment. However, trade secrets can not encompass the ordinary skill and knowledge acquired by an employee during his employment. A covenant, therefore, could not prevent an employee from using such ordinary skill and knowledge in a subsequent position.

Personnel procedures are also an important element in preserving trade secrets. Upon hiring, the employee should be advised of the existence of confidential information, the importance of the information to the business, and the procedures and mechanisms designed to maintain its secrecy. The new employee should also be counseled not to disclose secret information of any prior employer. During the term of employment, reminders regarding trade secrets may be given in the form of notices on a bulletin board; signs, legends or placards on appropriate equipment; documents or drawings; and discussions at meetings. When an employee leaves the company, an exit interview should be conducted to remind the employee of the obligation to maintain secrecy of the employer's information. Form documents and standardized written procedures will be of great assistance to the employer's administration of the trade secret program.

Another approach to preserving trade secrets is to include a covenant not to compete in the employment agreement. Such covenants are enforceable if properly limited in subject matter, territory and duration. Such a covenant can be the most effective way to prevent dissemination of trade secrets by a former employee, at least for a period of time. It can be difficult to determine if a former employee has disclosed secret information, and the best protection can therefore be to prevent the employee from taking a position with a competitor in the first place.

Restrictive covenants of this type must be carefully drafted. Certain contracts and combinations in restraint of trade or to prevent competition are prohibited in Indiana and other states as against public policy. Clearly not all covenants not to compete are violative of state law provisions. For example, a covenant made in conjunction with the sale of business has been held not to violate Indiana law. However, restrictive covenants are not favored and will be strictly construed against the covenantee. Enforcement will probably require that the restraint be: (1) reasonably necessary to protect the employer; (2) not unreasonably restrictive of the employee; and, (3) not against public policy. The reasonability of the restriction will depend largely on the duration and geographical area, and the interest sought to be protected.

b. Distribution of Confidential Information

Another primary method for preserving trade secrets is to limit the distribution of the information. To the extent possible, all documents, equipment and drawings which contain trade secret information should be marked accordingly. Access to these materials or equipment should be on a "need to know" basis only. Copies of key documents should be strictly controlled, as by requiring return of the copies after use or at the end of the day.

Limitations may take various forms, including having secured areas for admission by only designated persons, locking away key information, or covering operative features to prevent access. It is desirable to prevent all but a few persons from having all pertinent information regarding, for example, a computer program or a chemical formula. In these cases, each person working with the program or formula may only be informed of the limited portions with which he deals directly.

Of greatest importance is the control of disclosures to third parties. A presumption exists that the employment relationship is a confidential one, but there is usually no comparable presumption in dealing with third parties. Only if the circumstances are such as to reasonably imply a relationship of trust is a dealing with a third party likely to establish such a relationship as to require the preservation of trade secrets. Disclosures should be made to a third party only under a written agreement that requires that the receiving party not use or disclose the trade secret information without the prior written approval of the owner. When a visitor comes to the company, it is appropriate to require that the visitor sign in and receive a badge, execute a non-disclosure agreement, and/or be escorted while in the building to prevent unintended disclosure of secret information.

3. CHOOSING BETWEEN PATENTS AND TRADE SECRETS

In some instances it will be necessary to choose between protecting information under a patent or as a trade secret. To a large extent these two forms of protection are alternative, rather than cumulative. The patent laws require that a patent provide an "enabling disclosure" sufficient to teach a person skilled in the art of how to make and use the invention. The "best mode" of the invention contemplated by the inventor must also be disclosed. Either requirement may necessitate the disclosure of what would otherwise constitute valuable trade secrets of the company. The business must therefore decide if the protection afforded by a patent outweighs the value associated with maintaining the trade secrets which would be disclosed in the patent.

The durations of these two different proprietary rights are different. The patent provides exclusivity for the claimed subject matter, but only for a period of up to twenty (20) years. The patent is limited by the subject matter defined by the claims, and alternative designs which avoid the claims can not be prevented. On the other hand, trade secret protection is unlimited in time, except that independent development of the secret information will diminish the value of the right, and public disclosure of the information will defeat the protection altogether. Also, certain trade secrets can be "reverse engineered" and will therefore have a limited duration.

In many instances, the choice of protection will hinge upon the nature of the subject matter at issue. Certain trade secret information is not protectable by patent, particularly business information such as client lists. Also, trade secret information may not rise to the level of novelty or unobviousness necessary to obtain a patent. However, if the trade secret is readily discerned from a marketed product, then patent protection is the only solution for obtaining long-term protection.

On the other hand, a patent may not provide sufficient protection due to limitations on its scope or enforceability. If there is "close" prior art, the patented subject matter may be very narrow in scope and readily avoided by competitors. Also, the nature of the invention may make patent protection of little assistance. If the invention has a limited useful life, due for example to rapid progress in the art, then the patent will have little value. Also, it may be impractical to enforce a patent on certain types of subject matter. This may arise, for example, if the patented invention is one which would be practiced by a multitude of people at diverse locations, and litigation against each individual, for minimal damages, would not be economically feasible. It also may be nearly impossible to enforce a patent when the invention is practiced in secret, such as for chemical processes.

The proper choice for protection may not be apparent at the beginning. For example, trade secret protection may seem appropriate until it is learned that the secret information has been independently conceived by a competitor. When there is any doubt, it is advisable to proceed with a patent application while still maintaining the trade secret as fully as possible. Since a pending patent application is, in most cases, maintained in secret, the application may be prosecuted without risk of losing the trade secret. Only when the patent is about to issue need the final decision be made. If at that time it is believed that the trade secret avenue is more desirable, then the applicant may simply choose not to allow the patent to issue. If the patent provides broad protection, or if there is doubt that the secret can be maintained for a sufficient time, then the patent can be issued and relied upon for protection. Since a patent application need not be filed for a year after use of a trade secret, and since it will typically be pending for two years before issuance, this approach gives a considerable length of time for the proprietor to determine the best form of protection, while not affecting the opportunity to choose either alternative.

4. COPYRIGHTS

Copyright protection exists upon creating a work in a fixed (tangible) medium, but rights are enhanced in the U.S. by registration with the Copyright Office. The work must be "fixed," i.e., reduced to a tangible medium or form. Once the work is fixed, then federal preemption applies and reliance on the federal law is required. However, accession by the U.S. to the Berne Convention has substantially eliminated the requirements for formally establishing copyright protection, except as to older works.

Advantages remain for registering the copyright in the U.S., and both published and unpublished works may be registered. Publication occurs by the distribution to the public of copies or phonorecords of the work, but does not include a public display or performance. A notice consisting of a form of the term "copyright" (including abbreviations or ©), followed by the year of publication and the owner's name may be placed on the work to alert others and preclude innocent infringement. For phonorecords, the same form is used except for use of a circled letter "P."

Registration of the copyright is accomplished by filing an application with the Copyright Office, and submitting the requisite fee and copies of the work. The form of application is relatively short, and prosecution is typically straightforward. Examination of the application is usually minimal and typically takes less than a year for completion. The most likely difficulty in prosecuting the application is identifying the copyrightable material, particularly if the work includes "pre-existing" material for which the copyright claim is not being made.

Copyright registration provides several benefits. Registration is a prerequisite to filing suit for copyright infringement. The Certificate of Registration is prima facie evidence of the validity of the copyright. In the case of infringement prior to registration, the copyright owner will be limited to recovery of actual damages and an injunction. If infringement occurs after registration, then the claimant may recover statutory damages and attorney fees.

The copyright owner may convey the copyright, or any portion of it, in any manner appropriate for personal property. It is notable, however, that the sale of an object embodying a copyrighted work, such as a manuscript or painting, does not convey the copyright unless that is expressly provided. All transfers of the copyrights must be in writing and signed by the copyright owner.

The 1976 Copyright Act also permits the author, or successors, to terminate a prior transfer. This protects persons whose work attains an unexpected value over time. Termination may be accomplished thirty-five (35) to forty-five (45) years after the transfer (depending on the facts), and with two (2) to ten (10) years prior notice. Such termination is available even if the parties earlier agreed to the contrary, but termination does not apply in the case of works for hire.

5. TRADEMARKS, ETC.

Registration of a trademark can be accomplished under state and federal statutes. Both laws have parallel provisions regarding certain rights and presumptions obtained as a result of registration, although more substantive rights are obtained under the federal law. State registrations serve a primary role for marks not used in interstate commerce and, therefore, not qualified for federal registration.

Procedures for applying for either federal or state registration are similar. An application must be filed which includes identifications of the mark, the applicant, the goods or services with which the mark is used, and the dates of first use, and a statement that the applicant owns the mark and the exclusive right to use the mark. A state application may not be filed until the mark has been used in commerce in connection with the sale of the identified goods or services. However, a federal application can be based on actual use or an "intent to use" the mark in interstate commerce. The registration will issue for exclusive use of the mark only with respect to the goods or services listed in the application.

Certain types of names or marks are not registrable. A trademark must primarily identify the source of goods or services, not the goods or services themselves. Immoral, deceptive, or scandalous matter, merely descriptive or deceptively misdescriptive marks, and surnames are not registerable. Also, a mark is not registerable if it so resembles another mark already in use as to be likely to cause confusion. In Indiana, the comparison as to possible confusion is only made with marks registered in this state, whereas federal registration can be denied based upon marks or trade names in use anywhere, and even if not registered.

The application is examined in a fashion similar to that for patent applications. The examiner reviews the application for technical compliance, and conducts a search to determine if the proposed mark is in conflict with existing marks. The results of the examination are stated in an Office Action. If the application is rejected, a response may then be filed arguing that the stated grounds for rejecting the registration are without merit, or making suitable modifications to the application to overcome the Action. The process is considerably faster and less expensive than for patents, but can take a year or two for completion.

Selection and adoption of a tradename involves many of the same considerations as for trademarks. Although the two are distinguishable, a tradename may conflict with a trademark or service mark if used in a "trademark sense." In addition, corporate names are separately regulated in Indiana. A corporate name may not imply or indicate any purpose or power not possessed by the corporation, and must be distinguishable from existing and reserved corporate names. At the time of application, a search is conducted to determine if the selected name will satisfy the "distinguishing" standard.

Advance registration of a corporate name prior to incorporation is advisable, but not necessary. A corporate name may be reserved for one hundred twenty (120) days, and renewal is permitted. At the time of reservation, a search is conducted for conflicting corporate names.

A business in Indiana may operate under its own name or an "assumed name." Special provisions apply with respect to assumed names, including requirements for filing certificates in each county in which there is a place of business or an office. In addition, limitations are also imposed as to the content of either a corporate name or an assumed name, such as restricting use of terms such as "Incorporated" or "Corporation" or terms misrepresenting affiliation with the federal government.