What US-China joint ventures should know about the new US Patent Law
Business is global. Research and development (R&D) has become global as well. Each year, more businesses form cross-border research ventures to jointly develop new products and to gain access to new markets.
This trend has resulted in a steady increase in cross-border innovation. China is perhaps the best example of this trend. Nearly 40 percent of patents that were filed in the United States and that name a Chinese inventor also include at least one non-Chinese co-inventor. For these patents, the United States was the most likely country of residence of the co-inventor. This finding underscores the extent to which R&D takes place across borders, particularly between China and the United States.
For example, the share of US multinational companies’ total R&D that was performed in Asia (outside Japan) nearly tripled in the years between 1997 and 2008. China contributed the most to this increase. In particular, the share of US-owned affiliates’ R&D performed in China rose from a half percentage point in 1997 to 4 percent in 2008 (beating out South Korea at 3 percent, and Singapore and India each at less than 2 percent). In addition, China’s overall R&D grew at a remarkable pace—20 percent annually—from 1999 to 2009. These trends indicate that cross-border innovation between China and the United States will only continue to increase in the next decade, with inventors working together on projects on opposite sides of the globe.
Partly in response to the increasingly global and collaborative nature of business, the United States recently passed the Leahy-Smith America Invents Act of 2011, which fundamentally rewrites the US patent laws. The most important provisions, which took effect on March 16, will transform the US patent system from a “first to invent” system, in which a patent is granted to the first person to conceive an invention, to a “first to file” system, similar to that of most other countries, where the patent is granted to the first person to file a patent application for the invention.
The new law gives beneficial treatment to joint inventors and joint owners of patents. Universities, research organizations, and corporations can take advantage of the law’s joint-inventorship and joint-ownership provisions by carefully structuring their cross-border joint ventures and collaborative research agreements to maximize the benefits of the law. Doing so may make the difference between obtaining a patent—or having it denied.
New definitions of inventor and joint inventor
In the past, the terms “inventor,” “joint inventor” and “co-inventor” were not defined, and courts could make up the definitions, resulting in potentially inconsistent application of the law. The new law defines these terms for the first time, clarifying who is and is not eligible to be listed as an inventor on a patent. The term “inventor” is defined as “the individual or, if a joint invention, the individuals collectively who invented or discovered the subject matter of the invention.” The terms “joint inventor” and “co-inventor” are defined as any of the individuals who invented or discovered the subject matter of a joint invention.
According to the new law, joint inventors may apply for a US patent together even if they did not physically work together or at the same time, did not make the same type or amount of contribution, or did not make a contribution to the subject matter of every claim of the patent. While each joint inventor must make a contribution to the subject matter of the invention, there is no requirement that they make equal or comparable contributions, or even that they work together in the same country.
A patent can only be granted on an invention that is “new” to the world. No invention can be patented if it was previously known in “prior art.” Prior art can be an earlier patent, a scientific journal article, or other disclosure that would qualify as public knowledge of an invention.
Under the new law, naming a joint inventor on a patent application can allow an inventor to overcome prior art that would otherwise make obtaining a US patent impossible.
For example, just before Inventor A is prepared to file a US patent application for an invention, a review reveals that Inventor B independently invented and publicly disclosed the same invention at an engineering conference in China less than one year ago. Under the new law, Inventor B’s disclosure would kill Inventor A’s patent application, because the geographic scope of prior art extends worldwide. However, as a benefit of the new law, Inventor B’s disclosure may be overcome if Inventors A and B agree to become joint inventors by combining their invention into one patent application. They must also file their application within one year of Inventor B’s disclosure.
Therefore a disclosure by one of the inventors that would have made obtaining a patent impossible can now be avoided by naming this individual as a joint inventor on the patent.
It should be noted, however, that in the absence of any agreement between themselves, the joint inventors become joint owners of the patent. This means that each owner would enjoy the right to make, use, offer to sell, sell the patented invention within the United States, or import the patented invention into the United States without the consent of and without accounting to the other owners. Therefore, joint inventors should specify in writing between themselves who will own the patent and who among them is free to practice or to license the invention to third parties.
Joint ownership is another way to overcome a disclosure that would otherwise prevent an inventor from obtaining a US patent. Under the new law, an earlier-filed patent application is not prior art to a second, later-filed patent application if, at the time the second application is filed, both of the applications “were owned by the same person or subject to an obligation of assignment to the same person.” In this case, an inventor is not limited to individuals but also includes entities, such as corporations, companies, associations, firms, partnerships, societies, and joint stock companies.
To see how joint ownership works under the new law, consider the following example. During licensing discussions between Company A and Company B, it is discovered that Company A recently filed a US patent application on a technology that is similar but not identical to what Company B is developing. Company B’s technology shows more promise, but Company A’s earlier patent application is similar enough that it will likely prevent Company B from obtaining a US patent. In particular, Company A’s patent application will be considered prior art to any later-filed application by Company B because the two applications name different inventors and are owned by different entities. However, companies A and B can agree to form a partnership and to assign ownership of the intellectual property to the partnership. Because the intellectual property is now owned by the partnership, Company A’s application will not be considered prior art and will not prevent Company B from obtaining a patent.
Joint research agreements
Under the new US law, parties may enjoy all the benefits of joint ownership described above without needing to assign their rights to another entity. But three conditions must be met:
- The subject matter disclosed was developed and the claimed invention was made by, or on behalf of, one or more parties to a joint-research agreement that was in effect on or before the effective filing date of the claimed invention;
- The claimed invention was made as a result of activities undertaken within the scope of the joint research agreement; and
- The patent application for the claimed invention discloses or is amended to disclose the names of the parties to the joint research agreement.
A joint-research agreement is a written contract, grant, or cooperative agreement entered into by two or more people or entities for the performance of experimental, developmental, or research work in the field of the claimed invention.
A joint-research agreement under the new law allows the parties to avoid each other’s prior-art patent disclosures as if they were commonly owned, without assigning their patent rights to the same entity. This option is particularly attractive if the two companies want to keep separate ownership of any intellectual property that arises out of the research.
With more R&D taking place in cross-border joint ventures, it is inevitable that joint inventorship and joint ownership issues will arise under the new US patent law. The law’s first-to-file provisions, which took effect on March 16, will create opportunities and pitfalls. Indeed, the fact that the patent is granted to the first person to file rather than the first to invent can make patenting more difficult. However, the law’s joint-inventor and joint-owner exceptions create incentives to work more collaboratively, file applications jointly, set up patent-holding companies together, and enter into joint research agreements. Carefully structuring cross-border joint ventures and a thoughtful patent filing strategy may determine whether the resulting invention is patentable under the new law or whether the patent will be denied.
[author] Andrew S. Baluch ([email protected]) is IP special counsel with Foley & Lardner LLP in Shanghai, China, where he advises multinational companies on US law and the impact of the Chinese legal environment. Previously, Mr. Baluch served as director of international enforcement in the White House Office of the Intellectual Property Enforcement Coordinator. Helen H. Zhang ([email protected]) is an associate with Foley & Lardner LLP in Washington, DC, where she is a member of the firm’s electronics practice. [/author]