February 1, 2008

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Article

Patented to Shine

Dipping into the IP World Should be Done at the Right Place and Right Time

Larry Warren

February 1, 2008

Former BYU business student Devon Muir remembers when he saw his first chocolate fountain at a wedding reception. “It was more popular than the bride and groom!” he laughs. Intrigued at the thought of owning and renting chocolate fountains as a side business, he bought three of them. “They were junk,” he says, and started down the path as an inventor. Eventually, Devon and his father, Richard, redesigned the fountains’ system, made it much easier to use, and filed a patent on their new design. The resulting company, Sephra, is a leader in the $50 million annual international chocolate fountain business. Mark Burton’s business, International Armoring Corp-oration, couldn’t be farther away from the dessert table. Burton’s technicians install armor shielding on vehicles to protect passengers from international terrorists. Inter-national Armoring also found its niche by taking an existing product and figuring out a way to fabricate it differently. The company obtained patents on their Armormax lightweight synthetic laminate and other processes to add protection without making the vehicle so heavy it can’t function. After all, Burton says, “The number one enemy is not a terrorist – it’s the weight added to vehicles. They’re driven on a daily basis and if it’s too much weight, there’s wear and tear and fatigue and it’s in the shop all the time.” Both Sephra Chocolate Fountains of San Diego and Inter-national Armoring of Ogden went to U.S. and foreign patent offices and obtained patents. Both have seen others copy their inventions and have gone to court to defend them. And while both have won their cases, they have completely different views of patenting inventions based on their experience. In the patent world, entrepreneurs soon discover there are many shades of gray. “Patent is not a zero sum game where someone wins and someone loses,” says patent lawyer Rand Bateman. “Theoretically, patent benefits society.” But a patent should also benefit its holder. “Patent is a right to exclude others,” adds patent attorney Edgar Cataxinos. “It doesn’t give you a right to do anything.” Bateman, founder of Salt Lake firm Bateman IP Law Group, and Cataxinos, managing partner of Trask Britt, a 23-lawyer firm specializing in patents and trademarks, are some of the leading Utah practitioners in the narrow but growing field of intellectual property law. As today’s economy globalizes, intellectual property can be easily appropriated and exploited, and keeping rights protected is becoming a lucrative practice requiring particular skills. Patent lawyers have to pass their own bar exam and often have earned undergraduate degrees or substantial undergrad education in science and technology. Bateman’s degree reflects a triple major of chemistry, zoology, and anthropology. Cataxinos is a pharmacist by training. Among their staffs are non-lawyer consultants with degrees in electrical engineering, molecular biology, computer science and pathology. Navigating the Maze Obtaining a patent doesn’t require a lawyer but having one can help guide clients through the process. Burton’s company did all its paperwork in house and then hired a patent attorney to review it. Muir estimated his chocolate fountain patent cost between $2,000 and $3,000. But Muir found out later his biggest cost came in defending the patent. “If you have a company that does a lot of innovation, its good to have a lawyer to discuss strategy before you get too far along the process,” Cataxinos advises. The process begins with a patent search to determine if the invention is indeed “an absolute novelty,” a product or process never before known, or a substantial and unique improvement to an existing one. The search can be done through databases or physical examination of the patents at the U.S. Patent Office in Virginia. If nothing appears similar enough, the process goes forward, requiring a full disclosure in the filing of the designs and processes that are a part of what makes the invention unique. This complete revelation, Cataxinos warns, “can be a scary thing. You have a duty of full disclosure. [The Patent Office is] going to give you a legal monopoly, but in exchange for that, you have to give full disclosure on how to do something in an effort to advance the sciences.” That monopoly, from the date of issuance of the patent, runs 20 years. Don’t expect quick results, experts say. Muir’s new chocolate fountain patent took three years. “Ours was delayed because competitors tried to invalidate the process and threw roadblocks in the way.” Typically, a product patent can take from nine months in a best case scenario to as much as three years like Sephra’s. Different types of patents have widely varying timetables and costs. For example, business method patents are a new field which has the patent office swamped. Patents protecting particular narrow methods of executing a business plan through software or some other unique technology can take as long as five years. Attorneys can’t put dollar figures on the patent process because each is unique, but as a ballpark, Utah lawyers estimate a simple mechanical invention can cost $5,000 to $15,000 through an intellectual property law firm, while a more technical biotech invention would start at $10,000. Patent Traps An inventor has to consider if he wants patent rights in the U.S. alone, or if he wants protection overseas as well. In the U.S., you have one year from the time you disclose your product publicly, or offer your invention for sale to file its patent application. But the rules change outside of the U.S., where there is no period for filing. “That’s a trap for people,” Bateman warns. By offering a product for sale before applying for a patent, it is already too late to start the foreign patent process, even though U.S. rights remain protected for one year. Clients, Cataxinos adds, “don’t realize they’ve given up their European rights. In the rest of the world you have to file before you disclose anything.” Another problem arises over who gets credit for the invention. A company with a research department has to protect the intellectual property generated by its researchers or they could potentially take what they’ve developed out the door. “It’s best to have a clear employment agreement,” Bateman warns. “If you’re an employer you need to make sure it’s your subject matter and not your employee’s.” Worldwide Rights The patent system explodes in complexity once an inventor seeks protection around the world. Inventors first have to file for and win patent rights, and then go to court to defend them. For Burton’s International Armoring, it has become so frustrating and expensive that he’s given up. “I’ve stopped doing patents,” he says. “The only thing a patent did was give us a right to sue someone else.” Burton recounts wasted money and time flying to foreign countries to win judgments, which were uncollectible through biased foreign court systems. “We spent time, money, resources and human capital chasing these things,” Burton recalls. “I got tired of sitting in depositions in foreign languages and chasing rainbows.” And, he adds, by filing patents he assisted his competition by having disclosures of trade secrets published in the patent applications. But, Burton says, his decision is not for everyone. That is especially true in fields like pharmaceuticals and medical technology. “Pharmaceutical companies will typically file in every legitimate country in the world for sales and manufacturing,” Cataxinos says. It comes down to a country-by-country cost benefit calculation. If the most your product will sell in Country Y is $50,000, is it worth spending $20,000 for a patent, which may or may not be defensible in that country’s court system? Utah’s Zevex Corporation, a maker of medical devices, holds 30 patents and has 30 more pending. General manager Dave McNally’s team evaluates important markets. “We look regionally at markets with the greatest potential to sell into.” Zevex typically invests in patenting in Europe, Japan and China. It has paid off twice when Zevex sued multinational companies, which were infringing on patented products. “We did our research up front and evaluated and built our case, brought in a litigation specialist and achieved settlements quickly.” In one case, the company paid a lump settlement and in the other, the company agreed to a licensing arrangement to continue its sales. “If you have a medical device, not a lot of it will be sold in Africa,” Bateman says pragmatically. “But it will be sold in Europe and Japan. Get a big swath out of your competitor’s field by going where the population is, and go to where your competitor will manufacture the product.” The bane of all manufacturers is the customer who buys one of your products, takes it apart, reverse engineers it and starts making knockoffs of it in the third world. That’s why Burton gave up. He tells of sharing warehouse space in the Philippines where his armoring business was separated from the next manufacturer by a chain link fence. His neighbor was soon building look-alike Jeeps. “They looked identical,” Burton recalls. “If Chrysler can’t control this, how can I do it on my limited budget?” In some key parts of the world the field is leveling a little more. In China, the knock-off capital of the world, leaders are looking to be seen as a center of innovation rather than of patent abuse. “It’s gradually getting better,” Bateman says. “But if you’re going to be in China [and have a patent infringement case] have a Chinese licensee sue.” Then, he points out, the Chinese court system will look at the case as one of protecting a local business instead of an American business. Value Protection There are intangibles in obtaining patents that go beyond invention protection. Zevex is a leader in providing the medical community with nutritional pumps, sensors and surgical hand pieces. Its portfolio of patented products demonstrates its leadership and innovation to customers. “We look at patents as building the value of the company,” McNally points out. “It’s a strategic positioning tool. It demonstrates we have a leadership position.” And, he adds, “Our patent portfolio was important in the value placed on Zevex,” which was acquired in early 2007 by Moog International for $83.8 million dollars. International Armoring has succeeded without bothering with patents by being leaders in a niche field. “Our protection is our name and reputation,” Burton says. “We’ve been out there 15 years with 5,000 vehicles.” But more businesses will find patenting essential to staying ahead of the competi-tion. “Without patents, someone else can come in and undercut you,” chocolate fountain provider Muir observes.
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