In the last few years, inventors and patent lawyers have complained about how the current state of the patent system has tilted the playing field against innovators. The severity of this issue is a matter of debate. There is even some evidence of positive changes on the horizons, particularly with regard to making patent litigation less costly.
What is certain is that there’s been no lack of Congressional interest in the issue (even if action is somewhat lacking). A number of bills—including the STRONGER Patents Act and the Restoring America’s Leadership in Innovation Act—have been submitted to Congress as potential ‘fixes’ to the current patent system.
One of the most recent is H.R. 6557, the Inventor Protection Act to Protect Inventor-Owned Patents, which was introduced into the House of Representatives by Dana Rohrabacher (R-CA) in July of 2018. The bill was designed as a direct response to recent Supreme Court decisions, such as TC Heartland v. Kraft Foods, which resulted in patent owners losing the ability to file patent infringement lawsuits in their home jurisdictions. The bill has also been described as giving an advantage to inventor-owned bills, in particular by exempting them from challenges via the Patent Trial and Appeal Board.
However, I am concerned that the bill may have serious negative ramifications when it comes to patents that are filed and owned by multiple inventors, which is known as ‘joint inventorship.’
Joint inventorship presents many of the same problems that arise with business partnerships and shared properties.
Typically, when an inventor files a patent, they own the patent. When there is more than one inventor named in a patent, they are known as ‘joint inventors,’ and own the patent jointly, much like a tenancy-in-common in real estate.
This presents a practical problem. Patents last a long time—about 20 years from the filing date, as long as the patent is properly renewed. So, it’s quite possible, and even likely, that one of the inventors will die before a jointly owned patent expires. In this situation, a deceased inventor’s estate now co-owns the patent, along with the remaining living joint inventors. This is every bit as much of a mess as it would be to live with a significant other, have the SO pass away, and the SO’s parents or other family members move in with you.
This is actually something that occurs in jointly owned businesses, when a deceased owner’s share in a business passes to their beneficiaries, who likely have no idea as to how to run a business. And this is exactly what comes into play when joint inventors use a patent in a business for profit, as they become general partners, absent an agreement to the contrary. When a partner dies, the estate gets a right to that partner’s share in the profits but does not have to do any work for that share.
The common solution to this is to create a business entity to contain the patent—but this sort of entity is imperiled by the Inventor Protection Act.
Years of experience have led just about every practicing patent attorney to advise joint inventors to form a business entity (such as an LLC) that owns the patent. Essentially a patent holding company. The holding company takes in licensing revenue and pays out expenses and distributions.
In the absence of an LLC, any liability is paid by partnership assets and then by the individual partners personally. There are significant benefits to having an LLC, as the debts of the business cannot become the personal debts of the owners. For instance, if an LLC owns a patent, litigates a patent infringement lawsuit and loses, only the LLC is on the hook for the defendant’s legal expenses. However, a general partnership in the LLC’s shoes would have the owners on the hook—their personal assets, such as homes and bank accounts, would be up for grabs.
This is the meaning behind the acronym LLC—limited liability corporation. Under an LLC, liability is limited to the assets places within the LLC.
But under the Rohrabacher bill, this gets more complicated. It appears that in drafting the Inventor Protection Act, the authors have failed to recognize the complexities of joint inventorship in their attempt to offer a streamlined legal process for sole inventors. The most obvious difficulty is having an inventor die and be replaced by the inventor’s estate (or heirs). Under the terms of the bill, this would no longer an “inventor owed” patent.
Similarly, an LLC whose members are comprised of the patent’s inventors also appears to result in the patent not being considered an inventor owned patent. Are joint inventors who use their patent for profit now a general partnership, which is a statutory entity separate from the partners themselves in states that have adopted the Revised Uniform Partnership Act? The answer, under that statute, is yes, but does Rohrabacher’s bill intend to preempt RUPA in certain situations? It appears that almost all instances of joint inventorship result in a patent not being inventor owned.
But what’s the payoff for sole inventors under Rohrabacher’s patent bill?
Let’s say that you are a sole inventor without all this mess to deal with. Under the proposed legislation, you would no longer risk inter partes review. This is not that large of a risk, frankly. Additionally, federal court litigation discovery is limited. This tends to help plaintiffs in non-practicing entities who have little to provide in discovery. Most cases do not make it too far into discovery anyway.
This is about the sum benefit of these changes for sole inventors. These benefits do not outweigh the risks to joint inventors. These risks cannot be understated. Rather than limiting liability in a patent action, inventors will have to expose themselves to all of the liability inherent to bringing a patent action. Otherwise, they will have to take pains to evade the streamlined and less costly process. This results in a very difficult decision, especially for inventors with limited funds.
While it remains to be seen whether the Inventor Protection Act will ever see a vote, the bill highlights the need for inventors to remain constantly aware of the lay of the legal land when developing a patent strategy. It’s always wise to have the insight of an experienced patent attorney to help you interpret developments in patent law and understand how best to react to protect your interests. If you need the assistance of a patent attorney in order to protect your patent rights, the Law Office of Michael O’Brien can help. For more information, call (916) 760-8265, or send us a message using our contact form.