In the new book, Patents For Business: The Manager's Guide to Scope, Strategy, and Due Diligence, author M. Henry Heines, a patent attorney, explains how a well-managed patent portfolio can protect a company's most valuable asset -- its intellectual capital.
IndustryWeek posed a few questions based on the principles discussed in the book.
Q: You contend that every company at some point will undergo intellectual property (IP) due diligence and that managers should carry at least some of the responsibility for seeing that the company measures up favorably in the review. Why shouldn't managers simply leave patent matters to the company's patent attorneys?
A: It's true that the legalities of patents and the means to obtain and enforce them, as well as the most effective ways to respond when others accuse the company of patent infringement, are in the area of expertise of patent attorneys. On the other hand, product development, manufacturing and marketing are the province of R&D directors, product managers and officers and directors, since these are the individuals who are involved on a day-to-day basis with the products that the company is offering to its customers. They are also the ones who seek out and negotiate partnerships, alliances and fund-raising activities that focus on these products and that will only be consummated after a due diligence review has been performed.
The company most likely to show itself favorably in IP due diligence is one that maintains a well-traveled bridge between its legal professionals and its business professionals, and this means that the managers at various levels need to understand the attorneys' concerns and to know how to communicate with them effectively.
Discovering that the company's patent coverage is inadequate or vulnerable to challenge, or that products that are about to enter the market carry a risk of patent infringement liability, can be too late if the discovery occurs during due diligence. Even if the risk is ultimately resolved in the company's favor, the added expense of confronting or settling with an opposing patent owner, and the delay in completing the transaction and clearing the product for marketing, will affect the value of the transaction and the company's bargaining position and stain the company's corporate image. The product's patent posture, both offensive and defensive, and the development of the product itself, can be coordinated to reduce the likelihood of a derailment initiated by due diligence.
Q: A patent will only be issued after the Patent and Trademark Office does a search for other patents in the same area and determines that the invention is distinct enough to warrant its own patent. Why isn't this sufficient to ensure that the company will be free of infringing other patents once its patent is granted?
A: Patent examiners will only allot a certain amount of time to any given patent application, and this limits the depth of the examiner's search for "prior art." In addition, the Patent and Trademark Office's prior art classification system is not fool-proof, so relevant patents can be missed. Even if all relevant patents have been exposed and reviewed as prior art, a patent can be granted on an invention and be legally enforceable even if it falls within the scope of another patent.
Freedom to operate is not coextensive with patentability, and the concept of dominating patents or patents with overlapping scope is one that is not easily grasped by those who are not patent professionals. One patent's effect as a legal instrument to assert over infringers can differ considerably from its effect as prior art over a later patent. The earlier patent may claim an early, fundamental stage in a particular area of technology, for example, and the later patent may claim a refinement uses the invention in the earlier patent but is not itself disclosed or suggested in the earlier patent. It can also arise when the two patents address different components in the same system or steps in a process and the most economical means of implementing the system or practicing the process involve utilization of both patents.
The lack or failure of a freedom to operate search can plague even the most patent-conscious companies. A recent example is Abbott Laboratories, which had its new hepatitis C assay already on the market before it learned of a dominating patent owned by Innogenetics, N.V., that had issued five years earlier. Unfortunately for Abbott, the lawsuit that followed resulted not only in a verdict for Innogenetics but also in treble damages due to the jury's finding that Abbott had failed to establish a plausible legal position for proceeding without a license.
Q: What can a corporation do to minimize its exposure, if not eliminate it entirely?
A: A freedom-to-operate investigation at an early stage is essential, as are competent legal analyses where questions of potential infringement arise. A legal analysis will reveal the strengths and weaknesses of the company's position, and the company can factor these into its licensing decisions and its bargaining position.
In some cases the company's own patent coverage can be leveraged into the transaction, and the company may even be able to reformulate its product to lessen or eliminate the infringement risk. A management that has a good working knowledge of IP fundamentals, and product development can facilitate the steps that the company takes in each of these approaches and marketing can be kept on track.
M. Henry Heines is a chemical engineer, patent attorney and partner in the law firm of Townsend and Townsend and Crew LLP. For information about the book click here