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Testifying at the SF hearing for the proposed USPTO attributable ownership rules March 26, 2014

Posted by Brian Schar in General.

I spoke this morning at the USPTO’s San Francisco hearing in regard to its new “attributable ownership” rules. Held at UC Hastings near SF City Hall and the California Supreme Court, this hearing provided an opportunity for several people to speak. I would like to thank Janet Gongola of the US Patent Office for setting up the hearing. The rules themselves can be found at this link.

I wanted to provide a short summary of what I testified about, my impressions of a couple of the other speakers’ points, and some thoughts I had upon reflection after the hearing.

I made three separate points.

The first was one of administrative law.  There is no statutory requirement to record an assignment of any transfer of ownership interest of a patent.  Consequently, there is not and cannot be a statutory requirement to simply inform the office of the existence of or a transfer of ownership interest of a patent.  As a result, without statutory authority, the office lacks the authority to implement rules to require informing the office of the existence of or a transfer of ownership interest.  It’s the same situation as the Tafas case of several years ago, where the office lost badly with regard to its much-maligned continuation rules package.

The second was that compliance with the proposed rules is impossible for small privately-held pre-IPO startups.   The USPTO panelists appeared quite interested in this.  Public companies are exempt from having to disclose their shareholder list – but not pre-IPO startups.  I advise wearing a helmet when you go see your CFO and tell him you (i) need the shareholder list and (ii) need to make it public in order to keep your company IP from going abandoned.  About 20% of a pre-IPO company’s shareholders will be family trusts, LLCs, investment companies, and the like.  You will need to hunt up their shareholder lists, investor lists, org charts, and so on – and if any of those are not natural persons, you will need to continue up the chain.  All it takes is for one of those entities to tell you to take a hike, and it’s then impossible to comply with the rules, and your patents go abandoned.  Another common situation is that a company licensed its IP outside its typical field, in order to raise money.  The licensor has no incentive to cooperate with you, and indeed has every incentive to not tell you its ownership structure; if the patent is invalid, then there are no more license fees to pay.

The end result is that private pre-IPO companies will be unable to get patents, or protect their innovations.

My impression (which I didn’t share out loud with them) was that the rules were simply not thought out thoroughly, rather than being intentionally impossible to comply with.   However, if the rules are intentionally punitive for small companies, we are all in serious trouble.

The third was that the definition of attributable ownership is unclear.  What about a lease?  Virtually every startup has a lease that grants a security interest in its IP to the landlord, because the IP is the only asset the company has.  Does the landlord thereby have an “attributable ownership” in the IP?  As I read the rules, it does; but who can be sure?  Because the penalty for failure to comply is so draconian, applicants and practitioners will err on the side of over-releasing information.  And does it really help the system to know that somebody’s landlord might someday own a patent if its patent-holding lessee goes bankrupt?

My final comments were two.  First, the rules would be much more palatable if they simply required the applicant to list any entity that would have the final ability to approve filing suit with that patent/patent application.  Second, the rules are a response to problems in certain fast-paced industries (cough, cough, software) that culturally do not perform freedom-t0-operate analyses.  Ownership of the patent is irrelevant to freedom-to-operate.  A cultural shift in that industry, and respect for the patent system, would go further than any rules the USPTO could put out in terms of reducing the number of demand letters sent.

The next speaker was a gentleman from the EFF who was an able spokesman for his pro-rules cause.  I was taken aback that even he appeared to repudiate the rules package by stating the real problem is patents in the last three years of life, and given that the final maintenance fee is payable well before then, the rules don’t address that problem.

The next speaker was a woman from Engine Advocacy, which appears to be some kind of software/internet company interest group.  It was her presentation that finally got me to understand the way the software/internet business perceives patents.  Her point was that knowing ownership of a patent was the single most important thing, so that a software company could know how seriously to take a demand letter from a patentee, or whether it could be ignored.  At no point in her presentation did she indicate there was any concern as to whether there was actual infringement of a patent for which a demand letter was received.  Further, at no point in her presentation did she acknowledge that her group’s members would ever participate in the patent system or obtain IP.  She at one point even stated that “patents are ill-gotten gains,” then quickly attempting to quality that statement; nevertheless, she showed her hand.  That’s when I realized that, for many if not most software/internet companies, they don’t have any interest in obtaining patents of their own, and don’t care if what they’re doing infringes someone else’s patent.  They are willing to kill the entire system for everyone so that they don’t have to deal with it.

That speaker addressed my earlier jab about freedom-to-operate analyses by saying, well, with 250,000 new patents a year, it’s impossible to keep track.  Cry me a river.  Companies perform freedom-to-operate analyses in the fields of medical device, data storage, semiconductor, automotive, oil & gas, and electronic design automation, to name just a few.  But we are to believe that the software/internet industries are composed of such special snowflakes that they cannot even come close to doing such an analysis?  Please.  They don’t do it because it’s not in their culture.  Their culture is to put their heads down and code, code, code.

Indeed, after thinking more about the Engine Advocacy presentation, it occurred to me that reason the so-called “troll” phenomenon hits software/internet companies more than others is that companies in that space cannot even conceive of the fact they could be infringing because they never bothered to check the prior art.  Infringement “just happens” to them; they are victims of evil “trolls,” rather than suffering the consequences of failing to perform even a rudimentary prior art search.

This has been somewhat rambling but I wanted to get it down before I forgot it all.  In the next few days I will explore some of the practical absurdities that follow from the proposed rules.


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