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Fixing the proposed attributable ownership rules April 4, 2014

Posted 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.”

My response:

“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.



1. Bryan - April 4, 2014

I’m honored! It does seem like explicit incorporation of a definition of “control” would be helpful. After your final comments, I went looking into jurisprudence regarding judicial deference to agency interpretations of federal rules. While that’s not my area of expertise, it seems like a murky and uncertain area. My initial thought was that the USPTO would likely follow the “50% or more” rule, and that such an interpretation might be persuasive to a court. I’m not sure it’s so cut and dry, however. Side note: does anyone know why the rule is “50% or more” and not “greater than 50%”? Why is it preferable to identify all parties in a two-way partnership (neither of which has absolute authority to impose their will), but no parties in a three-way partnership?

Regarding your comment of exclusive licensees – have you considered that an exclusive licensee has contracted not only for a license, but for the right to exclude others from licensing? This seems core to the impetus of the rule – an exclusive licensee has an incentive to enforce a patent. You mention that an exclusive licensee has incentive not to provide attributable owner information. I’m not so sure. If they refuse to cooperate and invalidate the patent, they can practice unfettered; but so can everyone else.

2. Brian Schar - April 4, 2014

I don’t disagree with anything you say about exclusive licenses. However, licensor/licensee relationships go south sometimes. I can imagine a situation in which the licensor is required to make ongoing minimum royalty payments, but the revenue the licensor expected never panned out. This is a way out. I can also imagine a situation in which the licensor becomes a dominant player in that space, gets arrogant, and decides it doesn’t want to share the wealth with the licensee any more – and this is a way out.

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