United States: 3 Cost-Effective Ways To Protect IP When Working With Suppliers

Last Updated: February 12 2015
Article by Daniel Parrish and Mircea A. Tipescu

To avoid forfeiting a patent, OEMs should take these steps when working with suppliers.

An ounce of prevention is worth a pound of cure, especially when it comes to protecting your intellectual property (IP) while working with third-party suppliers. For the unprepared, prior dealings with suppliers (e.g., a contract manufacturer) can pose a risk to the patentability of their inventions. (Mircea Tipescu will speak on the topic of protecting IP when working with suppliers February 11 at MD&M West.)

Often, such companies are small to medium-sized businesses, and the forfeiture inadvertently occurs prior to receiving legal advice. These companies may not have the risk management procedures, such as regular supply chain audits, common in large organizations or lack systems to track valuable information across platforms and with third parties.

But companies can avoid forfeiture of patent rights when working with their suppliers by taking the following steps:

  1. File patent applications early and often.
  2. Assess all third-party (and public) disclosures for intermediate inventions.
  3. Preemptively define ownership of collaborative R&D.

Avoiding Premature Disclosure

First, a company may lose patent rights if its invention is made public before the company files a patent application. Most countries follow this principle of "absolute novelty," meaning that any public disclosure of the invention before a patent application is filed destroys the novelty of the invention and prevents the invention from being patented. Some countries, including the United States, offer a limited grace period during which an inventor may file after certain public disclosures.

Many companies try to protect themselves from the risk of public disclosures by requiring suppliers to sign a nondisclosure agreement (NDA). But if a supplier breaches the agreement and the company thereafter fails to file a patent application within the grace period, it may lose patent rights, regardless of whether the NDA breach was intentional or accidental. Further, the breach could start the clock on the grace period even if the company never learns about the public disclosure.

Worse yet, the supplier could file its own patent application, claiming the same or a similar invention. Again, if the supplier files before the original inventor, the inventor may lose valuable patent rights or at least be forced to fight a costly legal battle, often in a foreign country.

The time-tested solution to preventing these problems is to file patent applications early and often, especially in countries where research, development, and manufacturing occur. By being the first party to file for a patent, a company can enjoy the presumption of first inventorship, potentially avoiding costly legal battles.

Identifying Intermediate Inventions

A company may also forfeit valuable patent rights by not recognizing its own inventions in a timely manner. Often, a company seeks to solve a technical problem with a new invention and along the way solves an intermediate problem, leading to an intermediate invention. These inventions often involve methods or tools related to the manufacture of the product. The trouble arises when the company does not recognize the value of this intermediate invention and unwittingly discloses the invention prior to filing for patent protection. Common examples of unwitting disclosures include nonconfidential disclosures to a supplier when defining a product specification, to a manufacturer while training how to produce a component, or to the public during a presentation or publication.

Related to the above strategy, a company can avoid disclosing intermediate inventions by conducting an internal review prior to any disclosure to a third party or the public. A company should confer with its R&D group to determine whether any of the work leading up to the final product involved custom development or novel processes. If deemed valuable, the company should file patents on these intermediate inventions prior to any disclosures.

Defining Ownership When Collaborating

Finally, a company may risk losing control of its patent rights during collaborative efforts with a supplier. For example, unanticipated problems may arise requiring a company and a contract manufacturer to work alongside one another to solve a manufacturing problem, leading to joint inventorship of a patent under U.S. patent law. If the parties have not defined who owns the rights to the collaborative invention, both sides may claim joint ownership rights in the entire patent. In the case of joint inventorship, both companies would have full rights to exploit the invention without the consent of and without accounting to the other. This issue could also lead to enforcement problems in the United States if a coowner refuses to join as a plaintiff in a patent infringement suit.

Companies can avoid most of these troubles by defining ownership of collaborative inventions beforehand, preferably at the start of the relationship. The most common mechanism used to define ownership is a contract assigning patent rights to one party, similar to how employees assign their patent rights to employers. More sophisticated parties may seek a derivative ownership stake in the patent, for example, retaining rights to a percentage of licensing revenue. In any case, the key is to define ownership early, and avoid costly legal battles down the road.

Protecting your IP is a never-ending process. Nonetheless, these three simple steps may help your business avoid costly mistakes.

Originally published in the blog, Medical Device and Diagnostic Industry

Mircea Tipescu, is an intellectual property attorney at Brinks Gilson & Lione. Don't miss his session on protecting your intellectual property when working with suppliers at the MD&M West conference February 11, 2015.

Daniel Parrish is an intellectual property attorney at Brinks Gilson & Lione.

This article is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. Brinks Gilson & Lione does not intend to create an attorney-client relationship by offering this information and review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention. For further information, please contact a Brinks Gilson & Lione lawyer.

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