Please see my guest post — “The Smart Phone Patent Wars:  What are FRANDS For?” – on IPWatchdog.com. 

 

 

Written by Raymond Millien 

Puzzled?

As we approach the April 17, 2012, tax filing deadline, it is only appropriate that I talk patents and taxes.  I was recently asked by a client if it is possible to deduct patent-related costs for tax purposes? Hmm…well believe it or not, this is the first time I have been asked this question in over 15 years of practicing intellectual property (IP) law!  So, with as much as 80% of the value of a U.S. publicly-traded company coming from intangible assets, whether an enterprise may write off expenses associated with creating or acquiring these intangible assets (especially patents) seems to me to be an important question to address.

Before addressing this important question, one caveat: I would never recommend getting IP advice from a tax lawyer.  Thus, I surely am not suggesting that you take tax advice from an IP lawyer.  With this in mind, here are some knowledge tidbits that you can use to burden your tax advisor.

First, you need to determine what category of patent you are dealing with when you are determining whether expenses in acquiring the patent are deductible (i.e., whether these costs may be “written off”).  The categories include newly-created patents and acquired patents:

• Newly-Created Patents:  The costs of obtaining patents (i.e., perfecting a patent application into an issued patent) may typically be deducted as research or experimental expenditures under IRC 174.  These costs include attorneys’ fees (yeah!).  Such newly-created patent costs are typically deducted as current business expenses.

• Acquired Patents:  The costs of obtaining (i.e., purchasing) patents may typically be written off only by amortizing these costs over a 15-year period. (This period is fixed, and therefore the life of the patent has no effect on the amortization time line.)

See IRS Publication 535, and when that’s totally confused you, seek professional tax advice!

Written by Raymond Millien

Please see my guest post — “The Smart Phone Patent Wars:  What the FRAND is Going On?” – on IPWatchdog.com.

Written by Raymond Millien

On March 20, 2012, in an opinion written by Justice Breyer, the United States Supreme Court issued a unanimous decision in Mayo v. Prometheus holding the claimed medical diagnostic methods were ineligible for patent protection under Section 101 of the Patent Act.

First, some quick legal background. U.S. Patent Law recognizes four broad categories of inventions eligible for patent protection: processes; machines; article of manufacture; and compositions of matter.  The U.S. Supreme Court, however, has long recognized that there are three exceptions to these four broad patent-eligibility categories: laws of nature; physical phenomena; and abstract ideas.

The popular press (and a lot of the legal press) reporting this latest Supreme Court case has used sensational headlines announcing the death of medical diagnostic and personalized medicine patents.  This reminds me of the press frenzy following the Supreme Court’s June 2010 decision in Bilski, where the press prematurely announced the demise of software and business method patents.  To all this, I say “stay calm folks!”

Novelty and obviousness aside for a minute, consider the following hypothetical:

A method for treating the hair of a human subject, comprising the steps of:

(a) applying water to the subject hair until it is completely saturated;

(b) applying a shampoo solution to the subject hair in a vigorous manner until said shampoo solution completely covers the subject hair;

(c) rinsing the subject hair with water until said shampoo solution is no longer visibly present in the subject hair; and

(d) repeating steps (a)-(c) until the subject hair is clean.

Does this claim recite patentable subject matter?  Well, the answer is an obvious “no!”  (Pun intended.)  As the Europeans would say, this claim has no “technical effect!”  Similarly, the patent involved in the Mayo v. Prometheus  case – U.S. Patent No. 6,355,623, entitled “Method of Treating IBD/Crohn’s Disease and Related Conditions Wherein Drug Metabolite Levels in Host Blood Cells Determine Subsequent Dosage,” issued in March of 2002 – had no technical effect.  Representative Claim 1 of that patent is as (un)remarkable as my hypothetical claim above:

A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:

(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and

(b)determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,

wherein the level of 6-thioguanine less than about 230 pmol per 8108 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and

wherein the level of 6-thioguanine greater than about 400 pmol per 8108 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

I don’t think I would have been so bold as to submit such a claim to the USPTO in an application – these steps, to me, are pure mental steps capable of being performed by a doctor, with not even any software, computer or other system components recited!

The Supreme Court’s defined its task in the Mayo case as follows: “[T]he question before us is whether the claims do significantly more than simply describe these natural relations. To put the matter more precisely, do the patent claims add enough to their statements of correlations to allow the processes they describe to qualify as patent eligible processes that apply natural laws?”  In answering this question negatively, Justice Breyer stated:  “If a law of nature is not patentable, then neither is a process reciting a law of nature, unless that process has additional features that provide practical assurance that the process is more than a [patent attorney’s claims] drafting effort designed to monopolize the law of nature itself.”

IMHO, I don’t see much new law here … just some common sense application of well-established patent law.  Stay calm.

Written by Raymond Millien

Many of my small- and medium-sized enterprise (SME) clients who have filed U.S. trademark applications have been contacting me lately about “invoices” they have received in the mail.  All of these official-looking “invoices,” however, have turned about to be scams.

Trademark-related solicitation (“trademark spam,” if you will) has become an increasing concern of the US Patent and Trademark Office (USPTO).  In fact, the USPTO added a warning notice last month to its trademarks homepage.  Why is this happening?  Well, the USPTO’s databases are public.  Thus, solicitors have been using trademark registration and application data to send letters and emails to applicants offering phony legal and registration services.  In order to fool even the most spam-conscious applicants, such solicitors adopt corporate names that include “United States” or “U.S.” in an attempt to fool their targets.  Unlike the spam we are all accustomed to, however, trademark spammers format their misleading messages to resemble official government notices.  With an emphasis on application data and filing dates instead of a smiling monkey and congratulatory balloons, many trademark applicants are paying the requested fees before realizing they are being scammed.

What do you do?  Read all your mail and emails carefully.  Be especially wary of those that ask for money.  All official USPTO mail will be sent from Alexandria, Virginia, and emails will be sent from the “uspto.gov” domain.  If you do mistakenly fall victim to trademark spam, file a report with the Federal Trade Commission at www.FTC.gov.  The USPTO would also like to hear about such trickery.  Thus, also send an email to TMfeedback@uspto.gov detailing the spammer and whether the requested fees were paid for the phony, offered legal and registration services.

A global museum of such scam notices (both patent and trademark) can be found here.  Stay vigilant!

Written By Raymond Millien

During the course of my practice, I am continually amazed at the contents of IP and technology-related agreements I receive from opposing counsel who happen to be “good” lawyers at “good” firms. While not getting into all the “strange,” “sloppy,” or downright “wrong” legal verbiage I see, I do have one thing that has been bothering me lately. What’s that, you ask? Well, it’s the use of numbers and those silly parentheticals.

I am sure all of you have seen language in agreements such as:

• “In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay to Licensee a one time, up-front, non-refundable license fee of one million United States dollars (US$2,000,000.00).”

• “In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay a flat royalty based on two and one-half percent (2.0%) of Gross Revenues received from the sale of Licensed Products.”

• “Licensee shall pay any deficiency, plus interest thereon from the date each payment was due, within thirty (20) days of the date of any notice of such discrepancy.”

Now, for those of you paying attention, you will notice that the spelled out numbers do not match the digits appearing in parentheticals. Why do attorneys do this? What class in law school do they teach this? I’m told this is a practice that dates back to the days of carbon copies and “old school” telefax machines, where parties needed two chances to be able to discern the figures in legal documents. But, in today’s world of TrueType fonts and portable document formats, why continue this practice? Which number governs if after reviewing a twenty (20) page license agreement, both sets of lawyers and clients did not catch the discrepancy!? (Wasn’t that “twenty (20)” annoying!?) Well, different jurisdictions have different rules of contract construction! Why leave it to chance? Do people realize that over the course of an already complex IP agreement, such practice may add one or more pages to the document’s length!?

So, for everyone’s sake, I propose the following simple rule: If the number is from zero to nine, write it out in words, else write it in Arabic digits! If it works for college essays, it should work for IP agreements (and all other contracts) too!

Written by Raymond Millien

As I have often pointed out on this Blog, small- and medium-sized enterprises (SMEs) that overlook their intellectual property assets (i.e.,“IP” or patents, copyrights, trademarks and trade secrets) do so at their own peril. As IP accounts for a vast majority of SMEs’ value, the key to their exit strategy – be it an IPO or sale – is the IP that they control or potentially control.

Last month, the World Intellectual Property Organization (WIPO) released its annual report of IP statistics from around the world. While there is most certainly a dizzying amount of data, I’ve taken the liberty to provide a snapshot of such data to help SMEs (and those who counsel them) understand what is happening in the world around them. This should help in making long-term, non-myopic IP management decisions.

With over 3 million worldwide applications in 2009, trademark protection is the most sought after form of IP protection in the world. That is, trademark applications represent the highest percentage of overall IP protection applications, apart from a few exceptions such as the IP offices of Japan, the Republic of Korea, and U.S. where patent applications make up the largest share.

Globally, residents file the majority of their IP applications at their respective IP offices. This reflects a preference for seeking protection within respective domestic markets. For example, 42.7% of global patent applications were filed abroad. This shows that patent applicants have a greater appetite for seeking international protection for this form of IP than for any other form of IP rights. By contrast, only 25% of total trademark applications are filed by applicants outside their country.

With respect to patent filings abroad in 2009, applicants choose the Patent Cooperation Treaty National Phase Entry route 53.4% of the time, versus directly filing in a foreign jurisdiction.

The world’s top 10 IP offices accounted for approximately 87% of total patent applications filed globally, with the top 3 – the U.S., Japan and China – filing about 60% of the total. Together, the top 20 offices filed 94% of all patent applications.

Between 2008 and 2009, of the top 3 offices, there was a 10.8% decrease in the number of patent applications filed in Japan, while the U.S. remained practically unchanged and China saw an 8.5% increase in the number of applications.

In 2009, one quarter of all trademark applications were filed at the Chinese Trademark Office. When combined with the shares held by India, Korea and Japan, these four Asian offices accounted for 37% of world’s total number of trademark applications.

Written by Raymond Millien

As start-ups and small- and medium-sized enterprises (SMEs) begin to realize that IP accounts for a vast majority of their value and key to their exit strategy, large companies begin to use IP as a driver for strategic business decision making, and investors begin to realize that IP is an asset class capable of producing significant returns, more patent sale transactions are bound to occur. Yet, I have often commented that there is a crucial lack of widely-accepted valuation models and techniques which hampers the patent marketplace. That is, unlike real estate where brokers and agents can “run comps” using the MLS, the opaque patent marketplace makes it difficult for buyer and seller to quickly arrive at a selling price. This further adds to the illiquidity of the patent marketplace. Further complicating matters is the fact that a potential buyer (or licensee) can easily spend US$20,000 or more performing due diligence on a single patent (or patent family). Thus, when a large patent portfolio becomes available, how do you practically determine a price!? (Remember, as Warren Buffet famously stated: “Price is what you pay. Value is what you get.”) Well, I recently came across an observation that may reveal a useful metric for such large transactions:

• When Novell sold a portfolio of 882 patents for $450M to CPTN Holdings (a consortium of Microsoft, Apple, EMC and Oracle) in December of 2010, the price per patent = US$510,204.08.
• When Google acquired Motorola Mobility Holdings, Inc. – and its 17,000 patents – for US$12.5B on August 15, 2011. After netting out other assets and liabilities, the price per patent = US$510,204.08!

Coincidence!!?? Hmm… Does that mean when ADC Telecommunications sold 133 patents to HTC for $75M in April of 2011, where the price per patent = US$563,909.77, they overpaid? Are we in a “half a million and change per telecom patent” bubble period!? We’ll see.

Written by Raymond Millien

Recently, it has struck me that many business folks who “negotiate tons of IP, Software and Technology agreements” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements. Not surprising. What is surprising is that many of their lawyers fail to appreciate the difference as well! So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”

Covenant = a promise of the parties by which one pledges that something is either done or shall be done.

Representation = a statement of fact induces a party to enter into the contract. The statement, made before or at the time of making the contract, regards a past fact or existing circumstance related to the contract which influences such party to enter the contract.

Warranty = an undertaking or stipulation that a certain fact in relation to the subject of the contract is or shall be as it is stated or promised to be.

Upon a false representation the defrauded party may elect to void the entire contract, and recover any sums paid, whereas upon a breach of warranty or breach of a covenant, the contract remains binding and damages only are recoverable for the breach. With respect to breach of covenants, whether that breach is “material” (i.e., a breach that destroys the value of the contract for the non-breaching party) and excuses the non-breaching party’s performance can be subjective and expensive to prove. Thus, the more specificity drafted into a contract (i.e., listing the specific, most-likely events that trigger a termination event), the better that contract protects the parties.

Happy contract drafting and reviewing!

Written by Raymond Millien

Today, President Obama fulfilled his promise to sign the Leahy-Smith America Invents Act, passed by the U.S. Senate on September 8, 2011, and the House of Representatives on June 23, 2011. Thus, effective on September 26, 2011, the first effect of the law will be felt: a 15-percent surcharge will be added to all USPTO patent filing and maintenance fees!

As I mentioned before, the full effects of the new law (and the soon-to-come implementing regulations) won’t be known for some time. Will it reduce the USPTO’s backlog, decrease pendency and improve the quality of issued patents!? Stay tuned for these answers, as well as more analysis.

Written by Raymond Millien