Patent, Trademark & Copyright : Law Office of Kloss, Stenger & LoTempio

What inventors need to know...

How does an inventor take a good idea and then develop it into a new product? Recently I asked this and other questions relating to invention development to the affable forward thinking Justin Aiello. His company Aiello Designs takes ideas and turns them into reality. Here are a few questions and answers from the interview:

What do you do?

In general, I help independent inventors, start-ups and small companies take new ideas from concept to production. This includes Design, Engineering, Prototypes and Production Sourcing. I do not offer services with regards to funding, sales, marketing or licensing.

What makes an idea good or bad?

"I have seen great ideas fail and bad ideas succeed in the marketplace. What makes a successful product is good marketing, sales, design and manufacturing. What is right in one case is not necessarily right in another. You know you are right if it makes money and wrong if it doesn't."

How much information do you need to create a working prototype of product?

People come to me from all walks of life with different levels of expertise. Good ideas are not limited to the experts. Here are a few examples:

• The inventor comes in with just the idea. The inventor recognizes a problem and does not have an answer. Our company figures out a solution and designs a product to solve the problem.
• The inventor has a detailed drawing of a patented or patent pending product and we make a prototype.
• The inventor has a prototype and we make additional refinements. The process of developing a prototype is an ongoing series of tests and refinements.
• The inventor has a prototype completed without any need for refinements and we work out the mass manufacturing details.

How can the independent inventor with a new idea without "deep pockets" capitalize on a good idea?

I have found an independent inventor's path is somewhat limited:

1. Manufacture and sell it through a buyer to a mass retailer. Here the inventor will likely need investors.
2. Obtain a royalty agreement and license the rights to sell the product. Here, the inventor is in a better bargaining position if they possess a patented or patent pending product and a prototype.

"If you invented a new "Pet Nail Clipper" then go to the aisle in the pet store where they are selling these devices and investigate each one. Learn the names of 10-20 companies that will be able to produce, distribute and manufacture your product. Find out who in the company you need to talk to in order to sell your idea. Get yourself in the door with a patented or patent pending product and a prototype and then maybe you will make a deal."

How would you describe the ideal client/inventor candidate for product development?

• 50+ years old, having the "entrepreneurial spirit."
• Has high disposable income.
• Not risk adverse.
• A person that can enjoy the process. Even if the product doesn't sell, they had fun with it.
• Good business contacts. The inventor needs to understand one person cannot do everything. You need help with manufacturing, distribution and marketing. "An inventor who has an in at QVC or brother-in-law who is a buyer at WalMart has a better chance to succeed."
• Good business sense:  a. Inventor knows where they want to go with a product;
                                               b. There is a business plan to get there (road map); and
                                               c. Knows when to call it quits. "Don't throw good money after bad."

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A fairness hearing regarding the Google Book Settlement was held on Thursday, February 18, before Judge Denny Chin in a federal US district courtroom in New York City. The copyright class action lawsuit  related to the Google Books Library Project is entitled The Authors Guild, Inc., et al. v. Google Inc., Case No. 05 CV 8136 (S.D.N.Y.).

The lawsuit pits the internet giant Google against thousands of authors, publishers and other right holders, National governments and multi-national corporations, claiming that Google has violated their copyrights and those of other Rights holders of Books and Inserts by scanning their Books, creating an electronic database and displaying short excerpts without the permission of the copyright holders. Google denies the claims.

Today, Judge Chin was hearing statements from interested parties before deciding whether changes made to the settlement could withstand constitutional scrutiny.

The New York Times reported

“Supporters of Google’s effort to create the world’s largest digital library on the Internet told a federal judge in Manhattan on Thursday that the library would benefit society, while opponents said it would infringe on copyright protections and violate the privacy of readers.”

Chad Bray of the Wall Street Journal blog reported “Thursday, U.S. District Judge Denny Chin in Manhattan said he wants to write an opinion at a later date outlining his views, noting there have been “voluminous materials” submitted in the case.”

The Judge will have to decide whether the benefits of the Google Books Library Project outweigh the rights of copyright holders. Is the Google Books Library Project a virtual library that the general public can benefit from or a commercial way to exploit authors without adequate compensation?

Even though the parties appear to be far from settlement some believe that an approvable settlement might be achievable, by requiring rights holders to opt in to the settlement. Amazon, Microsoft and Yahoo oppose the Google settlement.

There is an administration website for the Google Book Search Copyright Class Action Settlement. The site has a claim form for copyright holders to claim a Cash Payment for Books or Inserts digitized by Google on or before May 5, 2009 that must be submitted March 31, 2011 (extended from January 5, 2010). Although there is no absolute deadline to file an Amended Settlement Claim Form.

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What inventors need to know...

“Does the product infringe on a patent?” and “Should a patent application be filed?” are questions a product developer would want answered before going forward with manufacturing, marketing and distributing a product. But what makes a product a long term profit generator?

"Imagination is the beginning of creation. You imagine what you desire, you will what you imagine and at last you create what you will." George Bernard Shaw

There are many factors an inventor needs to take into consideration in order to create a profit generating product from from an idea. I asked Richard P. Conway, new product developer/ inventor and founder of Ingenious Products Inc. to help me put together a list of keys which contribute to a products' long term sales success. Here's the list we came up with:

1. The product solves a real and obvious national consumer need; a convenience product  which creates an easier, faster, less expensive way to deal with an old problem.
2. It’s new and buyers understand they can't get it anyplace else.
3. It communicates instantly its use and benefits to the end buyer on the shelf. Obvious perceived value at the point of purchase.
4. It provides a wide market solution for the national customer (broad market, i.e. something everyone uses like a toothbrush. Not a narrow market product like a tuning fork).
5. It is clearly identifiable to the buyer and Branded with a trademark  (set to enter the market with a unique name i.e. balance buddy).
6. Eye catching packaging (looks cool). Attractive packaging can drive shelf sales and enhance or boost buying interest.
7. It can be sold in multi-generations: i.e  offer new improved generations to keep it fresh on the shelf for the retailer and end buyer.
8. It is recyclable or biodegradable to match the "going green" initiatives set by retailers for packaging and product materials.
9. It is priced right for impulse purchases by the end consumer.
10. Product manufacturing costs are low enough to have a sufficient price mark up margin (i.e. 5x cost) to allow the manufacturer, wholesaler and retailer to make money.  Factors in lowering the cost of manufacturing:     

                   a) Low freight cost: not an odd shape; relatively small and light weight
                   b) Packaging: can be packed on pallets for regular store order fulfillment in 4 to 6 units
                   c) Easy to make: i.e. not labor intensive, small number of parts, made from a mold

Probability of success increases with with each additional factor. If your product doesn't meet all these standards hopefully its strong points will carry the day. Can you think of any other relevant keys to success? Comments are welcome.

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Tweet of the week

Thanks to @ipgossip for tweeting this week about Apple being the number one target for NPEs in the US. Joff Wild of IAM Magazine commented that,

"Apple must have spent well over $200 million on dealing with NPEs over the last few years and I imagine a few others can match that as well. No wonder so many companies hate NPEs and call them trolls."

According to a statement(.PDF) given by Teresa Stanek Rea,  then President of the American Intellectual Property Law Association, to The Subcommittee on Courts and Competition Policy Committee on the Judiciary for the United States House Of Representatives

AIPLA conducts a nationwide survey of our members every two years on the cost of patent litigation. In 2007, we reported that the median cost of a patent infringement suit was $1,600,000, if $1 million to $25 million was at risk. The cost rises significantly as the stakes increase. The median average cost of a patent infringement case involving more than $25 million dollars was about $5,500,000.

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What a corporation needs to know about patent law...

I'm sorry if I insult anybody by using the derogatory term "Patent Troll"  for a non-practicing entity (NPE) or patent dealer that claims patent rights to technology and demands a licensing payment for the use of the technology. But if the name fits...

I'm not saying that simply suing to protect your patent rights makes you a Patent Troll. But it's clear that there is an industry where patents are obtained, bought and sold for the sole purpose of initiating lawsuits.

"As of January 1, 2010, PatentFreedom has identified and profiled over 315 distinct NPEs (a number which continues to increase). Since 1985, these NPEs have been involved in litigation with nearly 4,500 different operating companies in over 3,100 distinct actions. And the pace of activity is clearly increasing. Nearly 75% of the suits between these NPEs and operating companies were filed since 2003."

What is a patent troll?  When you hear the word troll you visualize the image of a troll underneath the bridge unjustly charging an unwary passerby a duty to cross the bridge. Or maybe you visualize a fisherman trolling for fish. Let's throw a hook out there (a lawsuit) and see what we can get.

After reading through various articles on the internet on this subject we find both sides of the argument. One side of the argument is that non- practicing entities are Patent Trolls that are eroding the economy, see article by Science Progress:

The patent system was created by the nation’s founding fathers not so much to protect individual ownership rights but to foster investment and technological advancement. Some individuals and companies, however, have opted to use the system for a different purpose: They acquire the rights to certain inventions that are crucial for the proper operation of other, larger inventions, and then essentially hold that intellectual property for ransom to be paid by those who need it. These so-called trolls typically do not make any product and, rather than inspiring innovation, tend to have a chilling effect. For a full discussion of the troll issue ...see Daniel P. McCurdy’s article, “Patent Trolls Erode the Foundation of the U.S. Patent System.”

The other side of the argument is that "patent holders" are just enforcing their constitutional rights. (see "Patent Troll:" A Self-Serving Label that Should be Abandoned)

 "A 'patent troll' is usually defined as someone who enforces a patent yet does not practice the invention protected by that patent. ...Enablers of innovation have consistently been demonized throughout recent literature and characterized as “trolls,” who systematically extort payment from unknowing victims.  Indeed, the cause of many of the lawsuits that 'patent troll' critics abhor is not caused by trolls at all.  To the contrary, the cause of patent infringement lawsuits and other enforcement activity is that others are using patented technology without authorization.  This fact can be and has consistently been addressed in the system as it exists today.  Whether coined “patent trolls” or not, intellectual property companies, small companies, non-manufacturing companies, and other “enforcers” ensure that the system operates as the Constitution directed."

There is public outcry in the patent community that there's a need for patent reform. And there's many suggestions on how to reform the patent system. Some people think that the examiners are are inefficient and allow patent claims that are drawn too broadly. With regard to the"'patent troll" issue it is argued that broad patent claims should be eliminated at the examination stage, and examiners should be better trained at stopping these types of patents from being issued.

Robert C. Pozen of the NY Times, says patent cases end up in court because " The quality of American patents has been deteriorating for years; they are increasingly issued for products and processes that are not truly innovative"  and that patent rules should "...[allow] experts in the field to submit explanatory or critical comments on patent applications." This will help inexperienced examiners make better decisions and improve the quality of allowed patents.

Patent experts argue better patents will stop patent trolls. But others such as Timo Fisher and Joachim Henkel's aren't convinced. See paper, titled "Patent Trolls on Markets for Technology - An Empirical Analysis of Trolls' Patent Acquisition":One Reason Why Improving Patent Quality Won't Solve the "Troll Problem"

"Surprisingly, and contrary to common belief, we find that troll patents are of significantly higher quality than those in the control group. This result implies that elevating minimum patent quality will not put an end to the patent troll business"

I'm not sure if patent quality is the problem. I think lawsuits are started by non-practicing entities regardless whether or not there is a strong case that a product or process infringes on the subject patent. Suits are brought knowing that the party being sued would rather settle even if they know it can be proved at trial that there is no infringement. So there's money to be made in these lawsuits.

In addition, non- practicing entities form corporations around individual patents or groups of patents to limit their liability and farm these cases out to attorneys who specialize in patent infringement cases on a contingency fee basis. The attorneys know that they will be supplied with an endless steam of infringement cases based on multiple patents, so it's worth their while to take a case and put it into suit regardless of the strength of the case. It is not uncommon that these cases are put into suit based on patents that arguably do not cover the product or process that is alleged to be the basis of infringement.

To say that the patent doesn't apply at all may be a stretch, however if it's in the ballpark and there can be an argument made that there is infringement and there is a deep pocket, then a lawsuit is filed. The pressure is on corporate America to either pay up or fight it out in the courts. And everybody knows how expensive a patent litigation is. As a result non-practicing entities get the unwanted moniker "patent troll."

There is Rule 11 of the Federal Rules of Civil Procedure that is supposed to stop frivolous lawsuits. However it appears that once a lawsuit is filed it is very difficult to prove that the lawyer or the entity filed it knowing there was no meritorious case. You don't often see Rule 11 enforced in these cases.

Often the patent troll files a lawsuit based on a patent where there a modicum of an argument that there is an infringement. In these case the biggest concern of the party being sued is not whether they are going to lose the lawsuit, but whether or not it will cost them a fortune to prove they're not infringing. Patent trolls, and particularly those who regularly make infringement allegations know that the enormous cost of patent litigation is a major deterrent against fighting the case through trail and that they will likely receive settlement offers.

So it's not a bad financial strategy for a Patent Troll to sue a patent infringement case whether or not there is a strong likelihood that the product actually infringes. In fact, patent trolls have been known to structure settlement offers around anticipated litigation costs, rather than around the alleged infringer’s sales figures. 

I wouldn't want to defame any non-practicing entities or their attorney's by saying that they know when they initiate a lawsuit that the patent which is the basis of the lawsuit really doesn't cover the product or process of the defendant corporation. Call me "an attorney trying to circle the defense wagons, using the common rallying cry of “patent trolls,” but does anyone really believe that out of thousands of cases filed by Patent Trolls that Rule 11 doesn't apply to any of them?

I guess each law suit has to be evaluated on a case-by-case basis and we shouldn't stereotype any group or demonize their chosen path to make a living. My experience in life is that the truth often lies someplace in the middle. But I also believe that where there is smoke there is fire.

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What a corporation should know about intellectual property law...

It is now in vogue for the new breed of "patent troll" to sue corporations in the US Federal Courts on behalf of the government for falsely marking unpatented products with patent registration numbers.

Corporations need to be able to identify and protect their intellectual property. However, corporate "Intellectual Property Management" and exploitation isn't always that simple. A corporate "IP Committee" should have a good understanding of the law concerning patent marking. Falsely marking a product can expose a corporation to substantial damage claims under 35 U.S.C. § 292 and not marking a patented product at all, may limit the ability of a patent holder to recover damages for infringement under 35 U.S.C. § 287(a).

Section 292 of the Patent Act prohibits:

• Counterfeit marking: marking a product with a patent number without the patent owner’s permission

• False patent marking: marking a product with a patent number on an unpatented article, or the use of “patent applied for” or “patent pending” when no patent application is actually pending for the product

The statute allows any private citizen to bring a qui tam action on the government’s behalf against an entity that falsely marks unpatented products. A court can levy a fine for up to $500 for every product that is falsely marked. The final award is split evenly between the government and the plaintiff that brought suit.

The Court of Appeals Two-step Test (Clontech Laboratories, Inc. v. Invitrogen Corp.)

To determine whether the false patent marking statute has been violated evidence must show:

1. That patent’s claims do not cover the falsely marked product; and
2. The mismarking was done with intent to deceive the public.

Over the last few years, the false marking statute has gained popularity as private patent lawyers have brought false marking claims against corporations who have marked products with expired patent numbers. Patent counsel should advise their clients to examine their patent marking practices because the new patent marking trolls are searching for falsely marked products as a basis to file a lawsuit.

Plaintiffs are seeking literally billions of dollars in penalties. How many cups does the Solo Cup Company manufacture and sell? What about the Crayola Crayon Company? How much would the fine be, if a $500 fine was levied for every cup or box of crayons sold by these companies?

In 2007 a Washington patent attorney brought suit against Solo Cup Co. In Pequignot v. Solo Cup Co., 540 F. Supp. 2d 649 (E.D. Va. 2008) Pequignot alleged that Solo Cup was manufacturing and selling millions of cups, lids, plates, bowls, and utensils with expired patent numbers.

Recently HEATHCOTE HOLDINGS CORP, INC filed a complaint (.PDF) claiming false patent marking against CRAYOLA LLC in the United States District Court in the Northern District of Illinois. Amount Demanded:$9,999,000.00

On December 28, 2009, the Federal Circuit held in the case of Forest Group, Inc. v. Bon Tool Co., No. 2009-1044, that the plain language of the false patent marking statute, requires courts to impose penalties for false patent marking on a “per article” basis.

Prior to this Federal Circuit decision, many district courts had interpreted the false marking statute to impose a single fine or penalty for each “decision” to falsely mark products, irrespective of the number of articles manufactured. As a result, now each falsely marked item may represent a $500 fine.

The court did rule however that "in the case of inexpensive mass-produced articles, a court has the discretion to determine that a fraction of a penny per article is a proper penalty" and that district courts have the discretion to strike a balance between encouraging enforcement of an important public policy and imposing disproportionately large penalties for products produced in large quantities.

Bottom Line: Properly Mark Patented Products

1. Mark patented products with the proper patent registration number so as to give notice and preserve infringement damages.
2. Be aware of when the patent registration expires and stop marking products at the end of the patent term.
3. Don't mark products with patent numbers unless the patent claims cover the product.

Related posts:

"Patent Marking Police" Looking for the Big Jackpot

"Patent Reform Act of 2010" and False Marking Rule Change

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