Monthly Archives: September 2011

A Practical Response to the New Patent Law for Small to Mid-Sized Companies

Companies and inventors will have to develop new systems for tracking their newly developed products and methods and for documenting them to the Patent Office. On September 16, 2011, the “America Invents Act” became our patent law. The system that, since the Patent Act of 1839, had allowed U.S. inventors great flexibility in publishing technical data and selling products before they had to file a patent application was swept away.

Small to mid-sized companies can respond to the change in the patent regime to maintain their intellectual property rights competitive position by using new strategies in preparing and filing provisional patent applications.

Novelty of an invention is a requirement for patentability under both the old and new laws. However, the definition of novelty is now quite different. Under the old law, an invention did not cease to be novel until one year after the invention was offered for sale, published by the inventor, published by someone else independently, or publicly used. This one year term was referred to as the “grace period.”

The grace period has been largely eliminated by the new law. An invention may still be novel if an inventor makes a public disclosure before filing a patent application. Rules relating to the effect on novelty of publications by others or of sales by the inventor prior to filing a patent application are not crystal clear. It will probably take the courts several years to formulate clear, consistent rules. However, if an inventor files a patent application first, the publication or the sale does not affect patentability.

It is prohibitively expensive and impractical to file a non-provisional patent application on each invention before its potential is known. Fortunately, it is not necessary. The patent law permits filing of provisional patent applications. These documents do not have formal requirements. The filing fee is low. It will be about $125.00 for a small company or individual after the Patent Office adds its new surcharge to current fees.

Provisional applications must disclose the subject matter for which the inventor desires to establish a filing date. This can usually achieved by preparing the provisional patent application as a technical paper. The inventor can write this paper in order to minimize costs. However, it is very important to consult technically qualified counsel. Inventors are often so knowledgeable that they will skip steps in the description. They can also make assumptions that need to be spelled out in a description. If details are left out, the entire purpose of the provisional patent application can be defeated.

Many strategies for cost-effective use of provisional patent applications can be developed. For example, more than one invention may be included in one provisional application. A whole system may be described, and it will not be necessary to separate descriptions of interrelated inventions in the system. Updated versions of provisional applications may be filed periodically.

While the ability to file freely may remain a dream for those who are not IBM or Microsoft, wise use of provisional patent applications will keep small to mid-sized companies in the game.


Faster Payment for Small Prime Contractors Under New White House Policy

The White House has announced a new policy to improve the business climate for contractors that are small businesses. Agency heads are directed to begin paying invoices of prime contractors that are small businesses within 15 days. 

An Office of Management and Budget (OMB) Memo of September 14, 2011 informs heads of government agencies that accelerated payment is necessary to provide small businesses with a more predictable stream of resources. This will work to preserve and increase small business participation in Federal contracting, benefitting both the Federal agencies and taxpayers.

Agencies must inform OMB by November 1, 2011 of their implementation schedules. Asking when the respective agency will begin accelerating payment may be a diplomatic way to make sure your contracting officer is aware of the new policy.

Technology Transfer Agreements-Exempt from California Sales Tax. Can You Use One?

A recent California Court of Appeals decision could decrease sales tax on complex, software-operated systems, making them more affordable for customers in California. [1] As would be expected, hardware is subject to sales tax. However, a license for software that is created by the manufacturer for operating the hardware could be a Technology Transfer Agreement (TTA). TTAs are exempt from California sales tax.

There may be an opportunity for makers of these systems to create a software license which is a TTA. One mechanism is to “unbundle,” or segregate, software from the hardware. There are more factors to be considered than can be numerated here. The statute and regulations contain many details. A decision to claim a sales tax exemption should not be made without qualified assistance.

 The example below reviews a scenario in which the sales tax exemption was appropriate. If another scenario has key similarities, it could well be worth the effort to examine whether a sales tax exemption can be claimed.


An agreement may be a TTA if the holder of a copyright assigns or licenses to another person the right to make and sell a product that is subject to a patent or copyright interest. Even a narrow copyright license is still a transfer, as long as the rights thus licensed are exclusive. Copyright protection extends to computer
programs. Inputting a software program from a storage medium into the computer’s memory entails the preparation of a copy.

In the case cited above, Nortel manufactured and sold switches including computer processors to Pacific Bell to processes telephone calls. A licensing agreement gave Pacific Bell the right to use Nortel’s software programs in the switches. Switch-specific programs (SSPs) operated the switch and enabled it to process telephone calls. Each SSP was created for a particular switch. Owing to their uniqueness, SSPs were not offered for general sale. The foundation for Nortel’s SSPs is a basic code library. Nortel takes portions of the basic code and merges it into parameters and instructions designed specifically for a given installation, resulting in an SSP. The newly created SSP operates the switch, enabling it to process telephone calls and operate features. Pacific Bell was allowed to copy the SSPs from media into its processors.

Licensing of this software was a TTA. The Court also found that certain prewritten programs were TTAs. These programs were contained on storage media external to the switch, and were loaded onto the switch computers. They were not embedded in the hardware at the time of manufacture. Here, a sales tax exemption was appropriate.

 We can review the legal, software, engineering, and marketing aspects of a scenario to identify opportunities to use a TTA.

 [1] Nortel Networks Inc. v. Board of Equalization, 191 Cal. App. 4th 1259 (2011); Review denied, 2011 Cal. LEXIS 4767 (Cal., Apr. 27, 2011)