PATENTS
PatentBasicsforAccountants
byJoseL.Sanchez,JD,CPA
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lfheexodusofmanufacturingassetsoutoftheU.S.hasusher~dinareplacementbyintellectualpropertyassets.In1978,tangibleassetsrepresented80%ofcorporateassetsandintangibles20%.By1997,aninversionoccurredandintangiblesrepresented73%ofcorporateassets.'Lookingatitinaslightlydifferentway,thevalueofintangiblesasapercentageofmarketvalueofS&P500companieshasgrownfrom16.8%in1975to79.7%in2005.2Accordingly,today'saccountantsneedtoincreasetheirintellectualpropertyliteracyinordertoaccountforandhelpmanagethisdrivingforceofmarketvalue.Additionally,ifpendinglegislationbanningtaxpatentsisnotenacted,taxaccountantswillbewisetojoinengineersintakingpatentlawelectivecoursesincollege.Thisarticleseekstointroduceaccountantstothenature,acquisition,andprotectionofonecommonintellectualpropertyasset:patents.Intellectualproperty(IP)referstothebundleofrights,protectedbylaw,thatsurroundcreativeworksmanifestedinatangibleform.Itisanintangibleinterestdifferentandseparatefromthematerialobjectinwhichthecreativeworkisembodied.TheUnitedStatesConstitutiongivesCongressthepoweroverthissubjectareaandidentifiesthepower'spurposeandthemeansforachievingit.3Congresshasexercisedthispowersince1790,whenthefirstpatentstatutewasenacted.CommontypesofIPincludepatents,trademarks,copyrights,tradesecrets,andcontractualrightstousetheforegoing(licenses).OthertypesofIPincludefalseadvertising,misappropriation,publicityrights,andideasubmission.
IKennethE.Krosin,
ManagementofIPAssets,
AIPLABULLETIN76(2000Mid-WinterMeetingIssue).2JamesE.Malackowski,
lntelleclllalPropertyasNationalPolicy,
IPLAW360,(Sep4,20007).3TheUnitedStateConstitutiongrantsCongressthepowerinarticleI,section8,clause8"TopromotetheProgressofScienceandusefulArts,bysecuringforlimitedTimestoAuthorsandInventorstheexclusiveRighttotheirrespectiveWritingsandDiscoveries."
18
WashingtonCPA
January/February2008
Patentlaw4
Patentlawprotectsnew,unobvious,andusefulinventions5bygivingtheinventoralimitedtimewithinwhichtoexcludeothersfrommaking,using,offeringtosell,orselling,withintheUnitedStatesorimportingintotheUnitedStates6thepatentedinventioninexchangeforcompletedisclosureoftheinvention(hencethename"patent").Patentlawisatthelegalintersectionofournationalpoliciestobenefitthepublicbypromotingcompetitionandpromotingtheprogressoftheusefularts.ItiscontainedinTitle35oftheUnitedStatesCode.Thepatentstatutesrecognizethreetypesofpatents:utility,design,andplantpatents.Utilitypatentsarethemostcommonandencompassusefulinventionssuchaspharmaceuticals,appliances,andprocessesformakingpaint.Designpatentsprotecttheornamentaldesignofusefularticleslikefurnitureandclothing,Plantpatentsprotectnewanddistinctplantvarietiessuchasfruittrees.Thebalanceofthisarticlewillfocusonutilitypatents.Theacquisition,enforcement,anddefenseofdesignandplantpatentrightsaresomewhatsimilartowhatisdiscussedbelow.
4Thehistoryofpatentstatutescanbetracedtoa1474statuteissuedbytheRepublicofVeniceofferingprotectionagainstinfringersforatenyearperiodtonewinventionsthatwerecommunicatedtotheRepublicafterbeingputintouse.Theconceptembodiedinpatentlaw,however,precedestheenactmentofthisstatute.SeeHistoryofpatentlaw,http://en.wikipedia.orglw/index.php?title=History_oCpatenUaw&0Idid=163487853(lastvisitedNov.26,2007).5Tomeshavebeenwrittenonthemeaningof"new,unobvious,anduseful."Forourpurposes,sufficeittosaythatinorderfortheinventiontobenew(novel),theinventionmustnothavebeenknownorusedbyothersinthiscountry,orpatentedordescribedinaprintedpublicationinanycountry,beforetheinventionbytheapplicant.Inaddition,theinventionmustnothavebeenonsaleinthiscountrymorethanoneyearpriortofilingthepatentapplication.Further,theinventionmustnothavebeenthesubjectofapatentapplicationfiledinaforeigncountrymorethantwelvemonthsbeforefilingoftheU.S.application.35U.S.C.§102.Section103dealswith
nonobviousness.
6Patentlawisterritorial.AU.S.patentisonlyvalidintheU.S.IftheinfringingactivityistakingplaceinAustralia,youwillneedanAustralianpatenttoenforceyourrightsthere.ThePatentCooperationTreatyfacilitatesforeignfilingsandhelpsinestablishingthesameeffectivefilingdateinmultiplecountries.
AcquisitionofRights
Patentsareawardedto"[w]hoeverinventsordiscoversanynewandusefulprocess,machine,manufacture,orcompositionofmatter,oranynewandusefulimprovementthereof..."7Ingeneral,apatentisawardedtothefirstindividualtodiligentlyreducetheinventiontopractice.8Toobtainapatent,aninventor9mustfileanapplicationcontainingacompletedisclosureoftheinventionwiththeU.S.PatentandTrademarkOffice(PTO).ThePTOexaminestheapplicationandgrantsapatentifallconditionsaremet.Thepatentapplicationcontainsadetaileddescriptionoftheinventionincludingdrawingsandatleastoneclaim.Thedescriptionshouldbesufficienttoenableoneofordinaryskillinthepertinentarttomakeandusetheinvention.Claimspreciselydefinetheboundariesoftheinventionmuchlikealegaldescriptionofrealestatedefinesaparcelofland.Atleastintheory,itispossibletoreadaclaimanddeterminewhetherone'sactionsinfringethepatent.Justlikeoneshouldbeabletoreadalegaldescriptionofaparceloflandanddeterminewhetheroneisstandinginsideoroutsideoftheparcel.Theproblemisthatadversepartieswillseldomagreetothemeaningoftermsusedintheclaimsandcourts,atgreatcost,areengagedtoascertainthemeaningoftheclaimlanguage.1OTheexaminationprocessisreferredtoasprosecutionandcanlastbetweenoneandthreeyearsorlonger.PatentprosecutionisabackandforthprocessbetweenthePTO
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735U.S.C.§IOI.8Actualreductiontopracticeoccurswhentheinventorbuildsanembodimentoftheinventionthatfunctionsasintended.Constructivereductiontopracticeoccurswhentheinventorfilesapatentapplicationthatfullydisclosestheinvention.Inthecaseofconstructivereductiontopractice,theinventorneednotbuildortesttheinventionbeforefilingtheapplication.Contrarytopopularbelief,amodeloftheinventiondoesnotneedtobesubmittedwiththeapplication,althoughonemayberequestedbythePTO.9Aninventormayassignhisorherrightsbywritteninstrumentbutmustbelistedastheinventorandmustsignadeclarationacknowledging,amongotherthings,thatheorsheistheoriginalandfirstinventor.10Itisnotunusualforpatentlitigationtobumuphundredsofthousandsifnotmillionsofdollars.
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