United States: Making Your Intellectual Property Pay Off

Many companies that offer environmental products and services are experiencing a dip in revenue streams because of the economic recession and the maturation of the laws impacting the environment. For those of you who are challenged to find ways to replace these diminishing returns, consider converting your company’s environmental intellectual property—ideas, inventions, innovations, patents, and processes—into commercial technologies.

The demand for innovative and environmentally friendly production processes is ever increasing. With advances in cleanup practices in the past two decades, even the remediation of contaminated industrial properties has undergone revolutionary changes. Many of these innovations are patent-protected by the U.S. government, which gives the inventor a monopoly on his/her invention and excludes others from using it. Not only does the U.S. Patent Office ac-cord special status to patents relating to environmental quality, the U.S. Environmental Protection Agency (EPA) also recognizes the significance of stimulating growth in this area. In February 2002, EPA hosted a workshop in Philadelphia to help small businesses convert environmental ideas, innovations, patents, and processes into commercial environmental technologies.¹

In the past several years, a number of companies have successfully secured intellectual property protection on their environmentally related inventions, including

• Environmental Technology Unlimited Corp. announced on October 6, 2000, that it had successfully completed a demonstration of its patented Methex Solvent Extraction System for the removal of PCB-contaminated soil sediment to the New York State Department of Environmental Conservation and EPA. During the demonstration, the company reduced levels of polychlorinated biphenyl (PCB) contamination in soil the most stringent cleanup levels mandated by New York and EPA. The company patented Methex7, a sys-tem for cleaning soil as well as mixed waste.² 
• Bion Environmental Technologies Inc., a developer of livestock waste management systems, patented a "process." ³ Founded in 1989, the company develops technology for livestock waste management. The patent claims that the process uses biological processes that safely convert animal waste into nutrient-rich soil and fertilizer products that are valued for their high-level organics, slow release nutrients, and odorless characteristics.
• Environmental Research Corporation developed a biodegradable fence, called Biofence, which is used to protect bodies of water from runoff resulting from construction and other erosion problems. Biofence is used by general contractors to protect roads and wetlands and the company claims that the organic fence breaks down and disappears in two years. In 1999–2000, Biofence was laid along a 1200-mile stretch of New Jersey highways in one of the country’s largest erosion control projects. The burlap, aspen, wood stakes, and soy-based paint used for the project have since disintegrated into the soil.⁴ 
• Environmental technology and specialty chemical company, ADA-ES, a subsidiary of Earth Sciences, developed a fluxing additive, ADA-249, that has been successfully used in utility coal-fired boilers. This patented product is designed to help utilities improve combustion of cheaper western coals from the Powder River Basin in cyclone boilers designed to burn eastern bituminous coals.⁵

HOW DO I PROTECT MY INTELLECTUAL PROPERTY?

Generally speaking, there are two options for protecting your invention: (1) you can seek patent protection or (2) you can maintain it as a trade secret. (How easily the invention can be reverse-engineered or duplicated will determine whether maintaining it as a trade secret is a prudent option.) Any formula, pattern, compilation, program, device, method, technique, or process that is used in your business can be a trade secret. However, certain types of information are not given trade secret protection because they lack the required competitive "economic" value. This means that a trade secret must be of sufficient value in your business operation to provide an actual or potential economic advantage over others who do not possess the information. The advantage, however, does not need to be great. It is sufficient if the secret provides an advantage that is just more than trivial. Novelty, in the patent law sense, is not required for a trade secret. However, some degree of novelty will be required because if something does not possess novelty it is usually known; thus, secrecy, in the context of trade secrets, implies "minimal novelty." A trade secret does not have to be patentable to qualify for trade secret protection.

The existence and maintenance of secrecy is probably the single most important factor in determining whether or not to accord trade secret protection to information. Information that is readily available to the public, generally known in the trade, or readily discernible from a product does not qualify for protection. Sometimes employees are given access to trade secret information on a need-to-know basis. In this situation, it is extremely important that you take all necessary steps to protect this information. Having your employees sign confidentiality agreements, or restrictive "noncompetition" covenants, is one way to maintain trade secret protection. You are still entitled to trade secret protection if the employees who are not required to sign confidentiality agreements (i.e., those who do not present a significant risk to the company) reveal your trade information. In this situation, even with the absence of a written agreement, a confidential relationship can be implied under a number of state laws. However, to imply such obligation, it must be shown that there was an expectation of confidentiality. Some companies implement rather extreme precautions to prevent disclosure of their trade secrets. For example, the Coca-Cola secret ingredient is shipped to Coca-Cola bottlers all over the world, but it has yet to be successfully analyzed in spite of modern analysis techniques.

If your invention can be reverse-engineered or duplicated, it would be wise to seek patent protection. The patent laws offer protection for new, nonobvious, and useful inventions, such as machines, devices, chemical compositions, and processes. A patent gives you the right to exclude others from making, using, selling, offering to sell, importing, or, in some circumstances, exporting components of the claimed invention in the United States for 20 years. To obtain a patent, you must file an application with the U.S. Patent and Trademark Office (www.uspto.gov/main/patents.htm). Your application must include what is commonly called a "specification," describing what is to be patented. You must precisely "claim" the invention. Your claim must point out and distinctly claim the subject matter that you regard as your invention. Your claim ultimately defines the scope of the protection of the patent. Whether you are granted a patent or not is, for the most part, determined by your choice of wording.

The Patent Office will assign your application to an examiner with knowledge in relevant technology to conduct a search of the prior art. The examiner will determine whether your invention complies with the legal requirements of patentability: novelty, utility, nonobviousness, an enabling disclosure, and adequate written specification. If the examiner believes your claims, and the rest of the specifications comply with the law, then a patent is granted. The U.S. patent system is unique among patent systems of the world in that it awards patents among competing inventors by the "first to invent," rather than the "first to file a patent application." In other words, the U.S. patent system seeks to reward the actual first inventor, rather than the winner of a race to the Patent Office.

PATENT INVENTORSHIP VERSUS OWNERSHIP

It is important to distinguish the issue of inventorship for patent law purposes from the issue of ownership of patent rights in an invention. Inventorship provides the starting point for determining ownership of patent rights, since an application for a patent must be made by, or on behalf of, the inventor or inventors. Absent an assignment of the patent rights, the individual inventor owns the right to apply for and obtain a patent. Joint inventors jointly own that right. Disputes about ownership may arise even though inventorship may be undisputed. For example, under a contract, an employer may claim ownership of an invention by an employee even though the employer admits that the employee is the sole inventor.

SPECIAL STATUS FOR ENVIRONMENTALLY FRIENDLY INVENTIONS

The U.S. Patent Office accords special status to seven categories of inventions. Special status allows certain applications to be examined out of turn by the Patent Office ahead of applications that may have been filed earlier. The seven categories are inventions pertaining to energy, recombinant DNA, superconductivity, HIV/AIDS and cancer, countering terrorism, inventions relating to biotechnology filed by applicants who are small entities, and inventions relating to environmental quality. Inventions relating to environmental quality are defined as those that seek to materially enhance the quality of the environment by contributing to the restoration or maintenance of the basic life-sustaining natural elements (i.e., air, water, and soil).⁶

Advancing a patent application out of turn may not seem like a big deal, but when one considers that the average time from the filing of a patent application to the granting of a patent is approximately two years, one can see that any acceleration of the process would be beneficial.⁷ The patent examination process, known as patent prosecution, can feel like an eternity when an applicant is watching the market for their product shift against or in favor of their invention. In 2002, 333,688 utility patent applications were filed with the U.S. Patent Office, that is more than three times the 96,847 patent applications filed in 1983, and almost double the 171,623 applications filed in 1992.⁸ More and more patent applications, in all areas of technology, are being filed each year and there does not appear to be any slowdown in the foreseeable future. The Patent Office is attempting to keep up with the surge in filings by hiring additional examiners and by enhancing, through electronic means, the application and examination process; however, it is a challenging task and the backlog of more than 636,500 pending applications will not be quickly dispatched.

PATENT PENDING

After you file your application with the U.S. Patent Office, you are entitled by law to use the terms "patent pending" or "patent applied for" on your invention. These terms are used by manufacturers to inform the public that an application for patent is on file with the Patent Office. The law imposes a fine on those who use these terms falsely to deceive the public. Even though a patent has not yet been granted, the applicant is still ac-corded some limited measure of protection following publication of the application by the Patent Office.

COMMERCIALIZING THE INVENTION

Once you decide to pursue a patent, your next step is to commercialize the invention. You can manufacture or use the invention yourself, assign the rights to someone else, or license one or more individuals or entities to make, use, or sell your invention. If you don’t have enough capital to invest in the commercialization of your invention, assigning or licensing it can be attractive options.

In 2001, U.S. patent licensing revenue reached approximately $130 billion and the average licensing value of a patent was approximately $216,000.⁹ IBM is a recognized leader in extracting the most value from its patents. The company has learned that intellectual property is easily undervalued and that a persistent, professional, and reasonable program can yield surprising results. The sheer magnitude of IBM’s patent royalties reveals that the company has been very diligent in managing and commercializing its innovations.

HOW TO VALUE YOUR INTELLECTUAL PROPERTY

Those sophisticated in the realm of intellectual property recognize that using professionals to assist in the valuation or evaluation of the property can be critical to the success of licensing programs. Valuation of intellectual property attempts to define with precision the financial worth of an asset using various methodologies, including the income approach, cost or replacement method, and the reasonable royalty approach. The in-come approach estimates the incremental cash flow (i.e., revenue less investment, less expenses) attributable to the intellectual property and discounts it to a present value. The cost method measures the value of the resources needed to create the intellectual property. This method contains no information or in-puts from the market or from cash flow. It is most useful when one is evaluating new technologies, where potential buyers have little choice but to purchase the technology at the price offered or spend the time and expense to re-create it themselves. With the reasonable royalty method, a reasonable royalty rate is obtained from comparable intellectual property that has been licensed. The resulting royalty stream, adjusted for tax effects and any associated costs, is then discounted back to present value, as in the income approach.¹⁰ Other more complex valuation methodologies, such as the real option method, may be utilized but are well beyond the scope of this article. Evaluation, which is distinct from valuation, of intellectual property is an expert opinion based on analysis and experience, which identifies particularly valuable property and attempts to explain why the property has value and how that value might be exploited.

BUSINESS METHOD PATENTS

In the 1998 case of State Street Bank & Trust Co. vs. Signature Financial Group,¹¹ the Federal Circuit Court of Appeals decided that business methods could be patented if they produce a useful, concrete, and tangible result. The court’s opinion did not define what a business method patent is; however, one might attempt to define a business method patent as the reduction of a mathematical concept to some practical application rendering it useful. This decision gave life to the so-called business method patent, which has now emerged as a special breed of patent and has gained new momentum as a result of recent court cases. The Patent Office has experienced substantial growth in patent application filings for computer-implemented processes related to electronic commerce. Applications for software-implemented business method patents grew from 170 in 1995 to 7800 in 2000. In 2000, the Patent Office issued 899 business method patents. That number continues to grow with each passing year.¹²

An example of a business method patent with direct application to the environmental arena is U.S. Patent 6,336,096, issued on January 1, 2002. Entitled, this patent describes the invention as a system and method of evaluating liability among multiple potentially responsible parties and their insurers. The patent claims a sys-tem for arranging for settlements at toxic sites between potentially responsible parties and insurers and, in appropriate cases, settlements of one or more underlying environmental claims. The system purportedly eliminates fragmentation in effecting settlements and handles the interdependence among the par-ties. According to the patent, the system works as follows: data are gathered, relationships among the data are calculated, a coverage law adjustment factor is applied to the data, allocation and choice of law principles are applied, groupings among the multiple parties and sites are identified based on the apparent settlement potential as identified through the system’s various relationships, and a qualitative decision pertaining to the likelihood of outcome is proposed to the parties within the identified groupings.

Another example of a business method patent with environmental law implications is U.S. Patent 6,253,191, issued on June 26, 2001. Entitled Brownfields Investing, the patent de-scribes the invention as a system and method for investing in brownfields-related projects and is capable of supporting all aspects of a brownfields remediation/redevelopment project, while shielding investors from environmental liability. The patent claims a method for nonrecourse, participating capital investments for specific brownfields projects, according to fund in-vestment criteria determined by a fund manager. According to the patent, the investor’s risk of incurring environmental liability is substantially reduced by ensuring that the fund is completely passive with respect to the brownfields project (i.e., taking no security or mortgage interest in the brownfields property). 

These are just two of many examples of what many might consider a nontraditional concept of what a patent can protect. Patent law has expanded well beyond protecting just tangible widgets and now protects systems and methods of doing business that, if appropriately claimed within a patent, can provide the inventor with a significant revenue source. The importance of the patent system in today’s business world can-not be overstated. The grant of a single patent can provide the owner with a powerful competitive advantage. Patents can be used to exclude competitors from lucrative markets or to generate substantial income through licensing. An individual or company is in a position to control the use of the patented technology for the duration of the patent term.

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