Patent Protection (A Simplified Explanation)

There are three simple tests for obtaining patent protection. Your invention must be 1) new, 2) useful and 3) not obvious. It is this “obviousness” test that is the battle ground of patent law. The accompanying video is intended to provide a simplified explanation to assist persons considering patent protection.

Here is a transcript of the video

There are three tests for obtaining a patent.  They are best explained by way of example. So let’s assume for the moment you’ve got a garbage can, and that garbage can telescope upwardly and swivels back and forth.  The first test you have to have is – Is that garbage can new?  And that’s pretty easy to determine.  What one does is conduct a search to see if you can find a garbage can that telescopes up and swivels, and if you can’t, you pass the first test.  You’re new.  The second test is that it has to be something’s that useful so you have to explain to the Patent Office why having a garbage can that telescopes up and swivels is useful.  If you can do that, you’ve passed the second test.  You’ve got something that’s useful.  The third test is that your invention must not be obvious.  The danger there is that an Examiner can conduct a search and find a garbage can that telescopes up, and another garbage can by somebody else that swivels back and forth, and suggests that it is obvious to combine the two garbage cans into one. If, in fact, those two garbage cans existed and could be combined into one, you’ve got a problem.  The Examiner is going to clearly find that your invention is “obvious”.  Your patent lawyer will do searches to try and make sure that doesn’t happen.    The big danger in patent law is that sometimes the Examiner goes and searches for other things that swivel back and forth, and other things that telescope.  They’re not garbage cans at all, and he then comes back and suggests that your invention is obvious because of these other devices.  That’s the difficult part of patent law and it is something that even the patent lawyers sometimes have difficulty searching because the Examiner can find these swiveling and telescoping examples from something that’s completely different.  It is very difficult to anticipate.  That’s patent law simplified.

A New Perspective on Craft Sales

Large chain stores generally do not want to create a listing for a single product. That means that an inventor seeking to sell a product through the chain store, must do so through a distributor who already is doing business with the chain. In exchange, the distributor charges 30%. The chain store will have a standard mark up, typically 50%. The chain store has high fixed expenses and need a constant turnover of inventory in order to make money. If inventory of a particular product does not turn over within a reasonable time period, the chain store will cease carrying the product. In order to ensure turnover, products must be priced to sell. This results in the chain store dictating to suppliers what the retail price must be. For example, if the chain store determines the retail price is to be $10.00, the wholesale price must be $5.00 in order to do business with the chain store. Once the distributor’s 30% is deducted from the $5.00, this leaves the inventor with $3.50 Out of the $3.50, the inventor must pay for materials and labour; the remainder (if any) the inventor retains as profit.
When products are mass produced, there are “economies of scale” that results in the per unit price being reduced. However, in the early stages of a product’s development, the product runs are typically small. There are a number of reasons for this. The first reason is that the product is still in development and changes are being made. The second reason is that most inventors have limited resources, they cannot afford to produce in mass quantities. The third reason is that it has not, as yet, been confirmed that there is a market for the product. The inventor does not want to end up with 10 boxes full of products gathering dust in the garage.
In order to survive in the early stages, the inventor must look for ways to test the market for the new product that will see the inventor receiving a higher return which will offset the higher cost of producing products in small runs. Selling the product on a website dedicated to the product is the modern answer to that dilemma. However, while the internet allows the inventor to potentially reach a global audience, products can become lost on the internet. The most effective way to interact with the buying public while retaining most of the sales proceeds is still at small venues; what are commonly referred to as farmers markets, flea markets, and craft sales. The public vote with their dollars. If they do not have an interest in your product, that will be painfully apparent and you will barely recoup the cost of your market stall. If there is a lot of activity, the public will tell you if the price is too high or it will become apparent by poor sales numbers. I hope that the foregoing will give you a new perspective. The Xmas craft sales season is upon us. If you see a new and innovative product as you wander around the craft sales, I hope you will remember this article and treat the vendor with respect. He or she may be a budding entrepreneur who is merely passing through a test market stage on the way to greater success.

What It Takes To Be Successful

I have worked for a number of persons who established new businesses and, eventually, became multi-millionaires. This gives me some insight as to what it takes to become successful. Any advice I may give in this article must be taken with a grain of salt for, although I am modestly successful, I am not in the same league as the successful clients of whom I speak. Contrary to popular opinion, hard work is not enough. My successful clients studied trends in the industries they served. They then surmised that there would be an ever increasing demand for a particular group of products or services, should that trend continue. When they guessed correctly, they rode the “wave” of that trend to success. The greater the impact of the trend on the industry, the greater the degree of success. As my client/friend, Bill, puts it “We planned carefully and I knew we were going to be successful, but I had no idea that we would be this successful”.

For Bill, the trend hit stronger than he had imagined and carried his business to heights beyond his wildest dreams. What if the trend does not materialize to the extent you imagined? Another client, Steve, built his business on a need for products and methodologies for the non-destructive testing of integrated circuits. Unfortunately, there was a downturn in the sector and his potential market dried up. Steve had to either shut down the business or refocus. He took stock of the sensor technologies he had developed for the purpose of non-destructive testing and has now refocused selling sensor technologies for the purpose of wireless equipment condition monitoring.

If you are considering establishing a new business, you will want to give yourself every opportunity to be successful. If you are interested in starting a high-tech business, or any business based on an innovative idea, I recommend that you take advantage of any available programs aimed at assisting high-tech start-ups. For example, the Accelerate Tectoria program offered by VIATeC (based in Victoria) and the SquareOne program offered by Innovation Island (based in Nanaimo). These organizations work with the B.C. Innovation Council to increase the number of successful companies that start and grow in the region. Their 6-month programs are designed to help new businesses overcome any obstacles and accelerate their go-to-market strategy. They provide access to business mentors in the community and professionals (accountants, lawyers, marketers). They have Entrepreneurs-in-Residence who have start-up experience in management positions. They provide access to a work station & workshops put on by experts on topics of interest to managers/owners of new ventures. To check out ViaTec go to viatec.ca. For more information about Accelerate Tectoria go to acceleratetectoria.com or contact Patrick Woodward (pwoodward@viatec.ca). To check out Innovation Island go to Innovationisland.ca. For more information about SquareOne go to thinkbigatsquareone.com or contact Josh Brocklebank (joshua.brocklebank@gmail.com).

When to Fight and When to Settle

I received a settlement cheque today on a patent infringement action. Although the cheque is for several thousand dollars, I estimate that the other side would have paid as much in legal fees had they chosen to fight. You can say what you like about the manner in which the other side found themselves in that position; I am of the opinion that the opposing lawyer acted with integrity in extracting his client from a difficult situation. The opposing lawyer’s client also gets full marks for accepting his lawyer’s advice and making the decision to write the cheque to end the dispute. I have another file on my desk in which the response to the infringement claim has been much different. The opposing lawyer is being as difficult as possible, hoping that my client will get discouraged and will go away. This strategy undoubtedly works in some situations where the infringement has ended anyway and further legal action to recover damages for past infringement may seem to be just not “worth it”. However, in this case, the infringement continues. Far from being discouraged, my client is irritated and becoming more determined; I have received instructions to move the litigation forward. I will first seek to have their defence struck and to obtain a summary finding of infringement. I will then seek an order for recovery of all of their profits. The other lawyer and his client appear to believe they are in a safe position, because on paper the client has been losing money. However, in calculating profits, the court takes revenues received and deducts only materials and labour. The court will not consider the fact the owner of the business has monthly payments on a bank loan, overhead costs, and draws a management salary in order to survive. I am just as often on the other end of these type of disputes. I am currently acting on behalf of Lighthouse Brewing regarding a controversy with one of their brand names. I have great respect for Michael Bierman of Lighthouse Brewing who made the tough decision early and is currently in the process of changing the brand to avoid the controversy. Making these kind of decisions early in a dispute serves to prevent a small problem from becoming a huge problem. Win or lose, it always costs money to fight.

Ownership Rights vs. Public Domain and User Rights

This article is intended to be a brief outline of aspects of Canadian law relating to intellectual property and the public domain.  When intellectual-property ownership rights exist in a product, a purchaser of the product will generally only obtain limited “user rights”.  In contrast, when something is in the “public domain” there are no ownership rights and it is available for any member of the public to use without permission and without limitation.  As an intellectual-property lawyer, a general failure by members of the public to understand this distinction and how ownership rights are created or lost, keeps me busy.
When an inventor creates a patentable invention, the invention enters the public domain 12 months after public disclosure, unless an application is filed with the Patent Office within that period.  A patent gives the inventor ownership rights, subject to payment of an annual fee, for a period of 20 years from the filing date of the application; after which the invention will enter the “public domain”.   For example, Alexander Graham Bell’s patents relating to the telephone are all public domain.
When a person creates an attractive design for a functional object, such as a chair; the design enters the public domain 12 months after public disclosure unless an application is filed with the Industrial Design Office within that period.  An industrial design registration gives the designer ownership rights in the design, subject to a 5 year renewal fee, for a period of 10 years; after which the design will enter the “public domain”.   For example, when one sees the same chair made by numerous companies, it is a strong indication that the design is in the public domain.
When a user purchases an article that is protected by a patent or industrial design registration, the user acquires a “user right” to use that article without paying further payments to the inventor.  The user also acquires a “user right” to conduct normal maintenance to keep the article in good condition.  However, the “user right” does not include the right to reconstruct major components of the article.
Regrettably, inventors and designers attending our office to seek protection are often shocked to discover that they have missed their time period and that their creations are now public domain.
Another form of intellectual property, copyright, relates to written works, recordings, software, music etc. Unlike patents and industrial designs, copyright arises automatically upon the  creation of a suitable work; registration is merely an optional public notification that need not take place within a specified time period.  The usual term of copyright is the life of the author plus 50 years; once copyright in a work has expired, the work enters the public domain.  For example, the works of  Shakespeare, Jane Austen and Charles Dickens are all in the public domain.  The rules concerning photographs are slightly different; the photographer acquires rights for a period of 50 years from the date the photograph was taken.  “User rights” in the copyright area are primarily limited to personal use, the user may not distribute or make a commercial use of the literary work, although the law has carved out special exceptions, such as: news reporting, persons with disabilities (e.g., audio books for the blind), libraries, and education.  The most common legal issues in this area relate to users using text or photographs for commercial purposes, such as on a commercial website.
In your personal and business dealings you will encounter some items or materials that are clearly public domain, some that clearly have limited user rights and some that you are uncertain into which category they fall.  If in doubt, I urge you to seek legal advice and avoid potential legal problems.

Border Enforcement of IP Rights by Customs Officers

Businesses can obtain assistance from the United States government to prevent the importation of counterfeit goods into the United States (19 CFR 133).  On March 1, 2013 first reading was given to a proposed Canadian law (Bill C-56) which would give Canadian businesses a similar right to obtain assistance from the Canadian government to prevent importation of counterfeit goods into Canada.  The proposed law sets forth a procedure for Canadian businesses to follow and protects government officials from liability for steps that they may take in intercepting shipments and holding them for a period of time.  This law is long overdue and I hope for speedy passage.

New Canadian Patent Guidelines on Computer Implemented Inventions

All patent offices are wrestling with setting rules as to when a “method” should be patentable.  A method that has a series of computer implemented steps has been considered to be good subject matter for invention.  On March 8, 2013, the Canadian Intellectual Property Office (CIPO) issued guidelines as to when a computer implemented invention is patentable.  The guidelines require the Examiner to differentiate between inventions relating to “computers” as opposed to solutions to problems that use computers but are not “computer problems”.  If the invention is intended to solve a problem that is not relating to the operation of a computer, the Examiner is to determine whether the use of the computer is essential or simply a convenience.  The computer is not essential if the same result could be obtained (albeit more slowly) with pen and paper calculations.

New Canadian Patent Guidelines on Purposive Construction

In the Amazon.com case, the Court was highly critical of the Canadian Intellectual Property Office (CIPO) for not using “purposive construction” of patents.  On March 8, 2013, CIPO issued new guidelines for Patent Examiners regarding “purposive construction”.  Guideline 1 requires the Examiner to use a “fair, balanced and informed approach” to understand the background knowledge that existed at the time of the invention.  Guideline 2 requires a problem and solution approach in which an invention is considered to be a solution to a practical problem.  There being a “promise of invention” regarding invention providing a solution to the problem identified. Guideline 3 requires context for the meaning of the claims to be drawn from an understanding of the patent application as a whole.  Guideline 4 requires essential elements to be identified in order to determine whether any essential elements are missing from the claim.  Guideline 5 requires each patent to be a solution to only one problem.  Where solutions are proposed to more than one problem, it is suggestive of more than one invention. These guidelines are a huge step forward.  There is one troubling aspect.  Where a problem and solution are not identified by the patent applicant (and there is no obligation to do so in section 80 of the Patent Rules), these guidelines require an Examiner to determine a “problem”, a “solution” and the “promise of the invention” regarding the invention providing a solution to a problem. There will undoubtedly be disputes in future over the Examiner’s interpretation.

A Discussion Of Patent Strategy

The end objective for an established business is to develop and launch a product or service that captures substantial market share and returns a profit to the business.  When considering patent protection, I strongly recommend that the established business invest in the best patent search available.  The reason for this recommendation is that the business may reconsider its position if patent protection cannot be obtained and the business will certainly reconsider its position if the product infringes a patent owned by a competitor.  Assuming that there are no negative indications in the search results, the business will file a well written patent application.  It takes the patent office approximately 3 years to get around to reviewing the patent application.  By this time the business knows whether the product has been successful.  If the product has been successful, the patent agent is usually instructed to obtain the best possible patent protection without budget constraints being imposed.

An inventor who is trying to sell his idea to an established business has different considerations.  The end of objective of the inventor is to enter into a successful negotiation with the established business.  A patent without a buyer is of no interest to the inventor, regardless of how strong the patent may be.  Unless the business shows an interest in the invention, money is tight and comes out of savings.  For this type of inventor, I recommend the following strategy:

Step 1  – Do some searching.  There are free databases online at the government patent offices.  If some funds are available, purchase an hour of a professional patent agent’s time.  A competent patent agent can determine within that hour if there are already a dozen or more patents similar to your invention.  You do not need an exhaustive review at this stage, but would like to know if you are clearly wasting your time and your money before you move forward.

Step 2 – Figure out what you can safely say to a business to attract their interest without saying too much and giving them your idea for free.  By way of example, a client of mine was able to indicate that he had developed a method and apparatus by which an unconscious disabled lineman suspended by his harness from a power pole could be lowered by a co-worker to the ground.   As you can see, the description indicates what is achieved but not how it is achieved.

Step 3 – Approach a number of businesses until you find one that is sufficiently interested that they ask you to send more information and provide you with a name and email address that can be used as a channel of communication.  Larger businesses will have established a review procedure, complete with “idea submission” forms that must be signed.

Step 4 – Have your patent agent file a “provisional” U.S. patent application or an “informal” Canadian patent application.  With a provisional or informal patent application the rules are less stringent and it should cost you less money to get to the “patent pending” stage.  Bear in mind that you still must ensure that the patent application fully describes the component parts that make up your invention, how they are assembled and how the invention may be used.

Step 5 – once protection is in place, provide the information to the business and indicate you will follow up after 30 days if you have not heard from them within that period.  The business will indicate whether or not they are interested.  It they are interested you are into a negotiation.  If they are not interested, ask for the reason why they have decided not to move forward.  A client of mine had an idea rejected because the business thought the bingo market was too small.  The client then provided statistics on the actual size of the bingo market; the business reconsidered and decided to proceed.  Another client had an idea rejected because the invention only suited one style of plastic wrap machine.  The client then confirmed that the business would still be interested if the invention was modified to work with all styles of plastic wrap machine.    While you await word from the business, bear in mind that the due diligence evaluation by the business usually takes three stages and leads to the preparation of a mini-business plan:
Stage 1 Marketplace evaluation – Is there a need for this product or service in the market?  Is the market for this product or service large enough to present an opportunity?  Who are the competitors?  How does this product or service stack up against the competitors?  Are there barriers to entry?

Step 2  Financial evaluation – Can the business make money?  What are people prepared to pay?  What are the costs associated with getting this product or service into the marketplace?

Step 3 – Legal evaluation – Here the business will be doing the best patent search available.  They will also receive recommendations on how to structure a transaction with you, the inventor.

Eurocopter v. Bell Helicopter Textron Canada

Eurocopter v. Bell Helicopter Textron Canada

I want to make you aware of the case of Eurocopter v. Bell Helicopter TextronCanadadecided earlier this year by Mr. Justice Martineau of the Federal Court relating to a patent on a skid type landing gear for helicopters.  This case may alter the approach taken when drafting mechanical patents and when trying to “design around” mechanical patents.

In patents relating to pharmaceuticals, it is common to describe one or more specific compounds and their medicinal effect, but to claim a broader class of compounds expected to have a similar medicinal effect. To deal with this common disparity in pharmaceutical patents between what is described and what is claimed, Canadian courts apply what is referred to as the “sound prediction” doctrine, which essentially requires that there be a proper factual foundation and line of reasoning to support a prediction of a promised utility or effect. If there is not a proper factual foundation and line of reasoning in the patent application, the patent is invalid; even if the inventor turns out to be correct.

In the Eurocopter Case, the Judge has applied the doctrine of “sound prediction” to mechanical patents.  This new development raises a warning flag for all patent agents involved in the protection of mechanical inventions.  A good patent agent wants to protect not just the client’s invention, but also possible “variations”.  In the Bell Helicopter case, the landing gear had a forwardly angled support member to reduce ground resonance.  However, the patent also illustrated and described a “variation” of landing gear with a rearwardly angled support member.   Under cross-examination representatives of Bell Helicoptor admitted that a landing gear with a rearwardly angled support member had never been built, nor had mathematical calculations been made to confirm that a rearwardly angled support member would work the same as a forwardly angled support member.   There was nothing in the patent nor in the evidence before the Judge that provided a “sound prediction” for confirming that a rearwardly angled support member would work.  For this reason, the Judge invalidated any claim to a rearwardly angled support member, whether or not it ultimately turns out to work.

Bell Helicopter was aware of the Eurocopter patent and set out to “design around” the patent.  This “design around” was unsuccessful, as the Judge found that Bellhad used a forwardly angled support member and, therefore, infringed.  Eurocopter asked for punitive damages to punish Bell Helicopter, in addition to any other damages to which they may be entitled.   Punitive damages is an extraordinary form of remedy, not usually awarded in these types of cases.  Mr. Justice Martineau broke new ground in granting the request and awarding punishment damages stating ”Punitive damages are required in this case not only to punish Bell but to deter others from acting in a similar manner. The fact that only twenty-one Legacy gears were used by or made for Bell is besides the point and does not take into account the reality of the length of time, the gravity and planification of the infringement. Bell’s overall conduct is highly reprehensible and constitutes a callous disregard for the rights of Eurocopter who was forced to institute the present action”. The amount of the punitive damages, as well as the amount of damages for the twenty-one landing gears Bell Helicopter manufactured, is to be determined in a damages hearing.

As it is common for patent agents to be hired to assist in “designing around” existing patents, this aspect of the Eurocopter case raises another red flag.  It would appear that if one undertakes a “design around”, one had better ensure that it is done properly.  This case is currently under appeal, but stands as Canadian law unless overturned.