By Dennis Crouch
In one of her first acts as de facto USPTO Director, Michelle Lee has proposed a new set of rules associated with patent assignment recordation. The proposal is quite complicated (occupying 18,000 words in the Federal Register) but the general idea is (1) that information regarding who owns which patents should be available to the public; (2) some rights-holders have been taking steps to hide their identity; and therefore (3) the USPTO proposes to require greater transparency. Although the proposal is signed by Deputy Director Lee, it was a White House initiative well before she took office.
The Office is proposing … to require that the attributable owner, including the ultimate parent entity, be identified … on filing of an application (or shortly thereafter), when there is a change in the attributable owner during the pendency of an application, at the time of issue fee and maintenance fee payments, and when a patent is involved in supplemental examination, ex parte reexamination, or a trial proceeding before the Patent Trial and Appeal Board (PTAB). The Office is also seeking comments on whether the Office should enable patent applicants and owners to voluntarily report licensing offers and related information to the Office, which the Office will then make available to the public in an accessible online format.
The recordation requirement would be retroactive and apply to all live patents and patent applications. However, the USPTO suggests that “most additional reporting will need to be done by companies that have complicated corporate structures and licenses, which often include the complex structures used by certain patent assertion entities (“PAEs”) to hide their true identities from the public.” The proposed penalty for failure to comply would have some teeth: abandonment.
Comments on the proposed rules are due by March 25, 2014 and can be emailed directly to: AC90.email@example.com. The review is being spearheaded by James Engel and Erin Harriman who are attorney advisors in the Office of Patent Legal Administration (OPLA).
Why: Before getting into the details of the proposal, we might pause to consider why the USPTO is proposing this new requirement. The USPTO identifies several potential benefits of a more complete ownership record. According to the USPTO, enhanced assignment information will:
- “[A]llow [competitors] to better understand the competitive environment in which they operate.”
- “[E]nhance technology transfer and reduce the costs of transactions for patent rights since patent ownership information will be more readily and easily accessible.”
- “[R]educe risk of abusive patent litigation by helping the public defend itself against such abusive assertions by providing more information about all the parties that have an interest in patents or patent applications.”
In addition to these public benefits, the USPTO argues that the assignment information will help the office in several ways, such as avoiding conflicts of interest and better identifying double-patenting problems.
The key issues regarding the rules are (1) which rights-holders must be named? (2) Under what circumstances must a parent-entity be named? (3) What is the timeline for providing information to the USPTO? And (4) what would be the consequences for failure to fully comply with the regulations.
Who is an Attributable Owner?: In my 1L property law class, we discuss all sorts of way that property rights can be divided amongst present and future interest holders; lienholders; easement holders; those with equitable rather than legal title; etc. The proposed requirement here identifies three particular class of rights-holders who will be required to record their interest: (1) titleholders (someone who has been assigned title); (2) those with rights-of-enforcement (such as exclusive licensees or others that would be a necessary party to an enforcement action); and (3) entities created in order to temporarily divest (or prevent vesting) of title or enforcement rights (such as a trust, proxy, etc.). One difficulty here is that patent ownership interests are defined by a mixture of local law (state and/or foreign) and federal law. It is quite difficult to create a simple rule that fits to each of the hundreds of potential local jurisdictional mechanisms of operation.
Parent Entities: In addition to the attributable owner, the law would also require the recordation of any “ultimate parent entity” of any of the attributable owners. As a term of art, ultimate parent entity is already defined by 16 CFR 801.1(a)(3) and the USPTO is intending to follow that approach. Chapter 16 of the CFR generally relates to commercial practices and is promulgated by the Federal Trade Commission (FTC). The definition is as follows: “The term ultimate parent entity means an entity which is not controlled by any other entity.” The CFR provides the following three examples:
1. If corporation A holds 100 percent of the stock of subsidiary B, and B holds 75 percent of the stock of its subsidiary C, corporation A is the ultimate parent entity, since it controls subsidiary B directly and subsidiary C indirectly, and since it is the entity within the person which is not controlled by any other entity.
2. If corporation A is controlled by natural person D, natural person D is the ultimate parent entity.
3. P and Q are the ultimate parent entities within persons “P” and “Q.” If P and Q each own 50 percent of the voting securities of R, then P and Q are both ultimate parents of R, and R is part of both persons “P” and “Q.”
Although not clear from the definition, there is an idea that a parent entity must exhibit some amount of control over the subsidiary. One purpose here is to identify “hidden beneficial owners.”
Penalty for Failure to Comply: Abandonment.
Read the Rules and Comment: 79 FR 4105 (2014).