Fixing the proposed attributable ownership rules April 4, 2014Posted by Brian Schar in General, USPTO.
I still believe the best thing to do with the proposed attributable ownership rules is to let them die a quiet death. I could not agree more with Courtenay Brinckerhoff in this regard, and her recent blog post is critical reading on this topic.
Commenter Bryan and I have had a fruitful and collegial discussion in the comments section of a previous post. I wanted to pull that out of the comments, and also use that discussion to propose a change to the rules – to the extent that the USPTO insists on maintaining them.
To avoid mischaracterizing Bryan’s argument, this is a cut-and-paste of his comment:
“I think the key point here is that the proposed rules (at 1.271(b)) incorporate the definition of 16 CFR 801.1(a)(3), but don’t explicitly incorporate the definition of 16 CFR 801.1(b). I could see asking the PTO to explicitly incorporate 16 CFR 801.1(b) into 1.271(b). Solely from the rules, my take was that this was the intention all along. (See, e.g., the proposed rules at p. 4111, col. 2, ¶ 2, which specifically cites the definition of “control” as requiring 50% or more holding of shares, etc.) Since some definition of “control” is necessary to interpret the rules, I would make a guess that the definition discussed in the rulemaking publication would be persuasive.”
“By leaving out the ‘control’ aspect of an ultimate parent entity, as set out in 16 CFR 801.1(3)(b), but incorporating other antitrust definitions expressly, the Office has shown a clear intent that the “ultimate parent entity” is not to be limited to an entity that has “control.” That is what worries me. Courts don’t always pay much, if any, attention to the nonbinding verbiage in the rulemaking publication, so I don’t count on that as limiting the “ultimate parent entity” provisions at all.”
This dilemma actually lends itself to a simple solution: just state expressly in the rules that only entities with a controlling share can be “ultimate parent entities.” Or, expressly add the limitation of 1.271(a)(2) to 1.271(b) or (c). That gets private companies out from under the impossible task of providing a shareholder list and then chasing down details about each and every shareholder.
Even with the change I proposed, it would still be impossible for some companies to comply, for the reasons I set forth in previous posts. For example, an exclusive licensee in a particular field – where that licensee is a privately held entity – has every incentive not to cooperate, and indeed to actively refuse to cooperate. Prospectively, one can solve these problems contractually, for example, by requiring in a license that the exclusive licensee must fully cooperate in the ultimate parent entity rules. One can also solve these problems contractually with regard to stock ownership, by adopting some kind of terms of sale of the stock that require such cooperation as well. (The SEC-compliance types will have to figure out the details of that on their own.)
Therefore, another necessary change would be that these rules would not apply to any application filed before the adoption of the rules, and indeed some amount of grace period would be necessary.