Recordation Requirements and a Certificate of Unenforceability

by Dennis Crouch

There are two interesting patent provisions being debated in the Senate as amendments to bipartisan Endless Frontier Act S.1260.  Although it is difficult to tell exactly what will happen, the EFA Bill as a whole is likely to pass through the Senate. Both amendments were proposed in a bipartisan manner by Sens Tillis (R) and Leahy (D) and so also carry some weight.  This is being pushed through the Senate and so there are unlikely to be any hearings on these amendments.

Requirement of Recording: Most patent owners record their ownership interest, but many do not.  The proposal would require expressly require recordation of any foreign ownership:

[N]ot later than 90 days after the date on which a patent, or any interest in a patent of not less than 10 percent (in the aggregate), is assigned to any foreign entity or person, [the USPTO shall] require the recording of that assignment.

In addition, the proposal creates a penalty for failure to follow the recordation rules:

No party may recover, for infringement of a patent in any litigation, any monetary damages for any period in which ownership with respect to the patent is not properly recorded in accordance with the requirements of this subsection.

Since the current rules do not require recordation, it is unclear to me if this penalty would only apply to the new foreign ownership recordation requirement or would it apply to all forms of ownership.  Read my redline version of the proposal here: RedlineOfAssignmentProposal.

Although most patentees record their ownership, many do not. Non-recording is especially common among patent assertion entities.  As such, this proposal could potentially have a big impact (depending upon how it is interpreted) and would ate least generate further litigation regarding its applicability and effective dates.

Certificate of Unenforceability: The second proposed amendment alters the ex parte reexamination statute.  Currently ex party reexaminations can be filed based upon printed prior art.  The proposal would also allow for a reexamination to challenge a patent’s enforceability “on the basis of credible evidence that any claim was obtained through fraud.”  The PTO would then issue a “certificate of unenforceability.”

41 thoughts on “Recordation Requirements and a Certificate of Unenforceability

  1. 11

    Senate Amendment 1740 (which covers this issue) hasn’t come up yet for debate; although the one about collection of demographic info on inventors did pass by a wide margin.

  2. 10

    And for anyone who is interested, the bill in question (S1260) and proposed amendments are being debated on the Senate floor right now.

    1. 10.1

      Looks for the moment like it is stalled for a week or two.

      link to nytimes.com

  3. 9

    I’m not positive, but I suspect it is all about China and Chinese companies. Without expressly saying so, the “foreign entity” Congress is worried about is Chinese ownership or having a partial ownership in US patents and the patented technology.

  4. 8

    Does anyone know what the problem is that the requirement to record is attempting to fix?

  5. 7

    Question: what would this do to companies who have transferred *beneficial* ownership of IP assets to a foreign entity, but where the legal title still resides with the domestic affiliate?

  6. 6

    Could anyone provide any good reason for having [rare] “fraud” determinations for a “Certificate of Unenforceability” done in an ex parte [uncontested] reexamination by examiners, where the only “evidence” would be from the patent owner, rather than by APJ patent attorneys experienced in contested evidentiary proceedings, other than a fond hope that this would prevent patent suit defendants from ever being able to challenge fraudulently obtained patents?

  7. 5

    What about the last paragraph of 35 USC 261?
    “An interest that constitutes an assignment, grant, or conveyance shall be void as against any subsequent purchaser or mortgagee for valuable consideration, without notice, unless it is recorded in the Patent and Trademark Office within three months from its date or prior to the date of such subsequent purchase or mortgage.”

    1. 5.1

      [Is it possible the authors of this draft bill* did not even realize that recording was not ever “a requirement of this subsection” and merely such very limited protection?]

      *typically lobbyists and Congressional staff attorneys.

  8. 4

    Would this draft statute apply to a U.S. company that pledges its patents as collateral for a foreign loan?

    Also, recording of the true current ownership of patents should be required for all patents being sued on. The real party in interest controlling the suit and any settlement is too often concealed by shell corporation named plaintiffs set up by PAEs.

    1. 4.1

      too often concealed by shell corporation named plaintiffs

      That’s NOT a patent law reform issue Paul.

      That’s a juristic person reform issue.

      And I would posit that there are bigger and more pressing juristic person reform issues that should be handled first.

  9. 3

    Ridiculous. Yet another “we’ve got to do something!” patent change (think the IDEA Act).

    How is “foreign” going to be defined? Are multinationals “foreign?” Who’s going to decide?

    How is “fraud” going to be defined (think “abstract”)? Who’s going to decide? Are the Examiners expected to do so? Without legal training? If so, can their decisions be appealed? Where? The Board? The Director? CAFC? District Court? Maybe the president? Nowhere?

    Why aren’t they amending this bill to provide that which America most needs concerning protecting innovations — you know; the return of patent eligibility to all areas of innovation?

    This is lipstick even the pig wouldn’t use.

    1. 3.1

      All good points. It seems like this thing is really quarter baked.

    2. 3.2

      “Why aren’t they amending this bill to provide that which America most needs concerning protecting innovations — you know; the return of patent eligibility to all areas of innovation?”

      Because not enough people agree with you about what America needs most concerning protecting innovations.

      1. 3.2.1

        It’s less the “people agreeing” and more the capture by monied interests.

  10. 2

    Well, the broadening of reexams is quite eye-catching. If that becomes law, it’d be interesting to see who takes advantage of that and the interplay with existing inequitable conduct claims in district court. On the backend, do examiners have much training on evaluating such fraud claims?

    As for the recordation, I have to imagine it’d only apply going forward. Just as an implementation matter, it’d be crazy for patentees and the Office to have to review all historical assignments for any foreign ones. The language seems to be forward-looking too.

    I wonder if that requirement could be easily skirted by using U.S. shell entities that in turn have foreign ownership, instead of having foreign entities own interests directly? Is the requirement then just “virtue signaling” mostly?

    The new language may also introduce a drafting problem because it seems to repeal the Office’s authority to charge fees for recordation. I assume that can be fixed though.

    Is an “ex party” when you celebrate breaking up with a girl/boyfriend?

    1. 2.1

      Examiners have no such training – and a substantial have no actual training in general legal principles.

      1. 2.1.1

        I figured as much. So it seems like a fairly big undertaking for the Office to get examiners trained up to handle these new proceedings. Assuming the bill gets enacted in its current form that is.

        -hr

    2. 2.2

      “do examiners have much training on evaluating such fraud claims?”

      No, but ordinary examiners would never be set to such cases. Ex parte re-exams are already set aside for specially trained examiners. There’s no telling what group at the PTO would handle this process if it was enacted, other than that your typical examiner would absolutely not be involved. This should be obvious to everyone who isn’t looking for an opportunity to hyperventilate.

      1. 2.2.1

        Good to know, thanks. I was just curious. *continues to breathe normally*

    3. 2.3

      You don’t actually practice before the PTO, do you? They ditched the fee for recording assignments several years ago.

  11. 1

    Perhaps I am missing something important here, but would not the foreign registration provisions put us in violation of TRIPS Art. 3(1) (“Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property…”)?

    1. 1.1

      No clue, but it seems like you could certainly make the argument based on the snippet you quoted. Nice find there. I guess the counter would be it just deals with registration and anyone who follows the requirement gets the exact same protection as a domestic owner.

      -hr

      1. 1.1.1

        “just deals with registration”

        At their root, most IP treaties are focused at preventing formalities from voiding IP rights.

        1. 1.1.1.1

          Good point OC.

          It does appear that there be something hiding in this particular “formality.”

    2. 1.2

      The requirement for recordation is not a “treatment… with regard to the protection of intellectual property.”

      Sure, the penalty is a deprivation of property rights to damages, but that is a distinction with a difference.

      ALL are affected by ‘failure to comply’ even those in the US that may retain some rights (but assign others to the foreign interest). Perhaps that is why the percentage interest clause was included.

    3. 1.3

      Likewise for Article 2 of the Paris Convention: “(1) Nationals of any country of the Union shall, as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals; all without prejudice to the rights specially provided for by this Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights, provided that the conditions and formalities imposed upon nationals are complied with. …”

      Or even Article 3: “Nationals of countries outside the Union who are domiciled or who have real and effective industrial or commercial establishments in the territory of one of the countries of the Union shall be treated in the same manner as nationals of the countries of the Union.”

      Equality of treatment of the different nationals of the Union for the protection of industrial property is one of the cornerstones of the international patent system. If Congress is going to require recordation for foreign interests, they would seem to to also need to require recordation of domestic interests in a patent.

      1. 1.3.1

        Good point.

      2. 1.3.2

        recordation OF interests BY parties….

        You have two different identities there. It is the second one that must be ‘equal’ and NOT the first. (the US has been here before – see the Hilmer Doctrine)

        As I noted, ALL are affected by ‘failure to comply’ even those in the US that may retain some rights (but assign others to the foreign interest). Perhaps that is why the percentage interest clause was included.

        1. 1.3.2.1

          Stumbled across this counterintuitive piece from almost a decade ago…

          link to foley.com

          MaxDrei might get a kick out of it.

          1. 1.3.2.1.1

            RE: “You have two different identities there. It is the second one that must be ‘equal’ and NOT the first. (the US has been here before – see the Hilmer Doctrine)”

            That’s certainly one interpretation and perhaps a reasonable case could be made for it.

            Even so, any dispute between member nations regarding an interpretation of the terms of the Paris Convention would not be (solely) resolved by US courts. Rather, the dispute resolution provisions in Article 28 of the treaty (negotiation, settlement, and/or adjudication by the International Court of Justice) would come into play if any other member nation were to object to the statute as being inconsistent with the equal national treatment provisions in Articles 2 and 3 of the Convention.

            But enforcement of any judgment in international law (were the US to lose), if the inconsistent statutory provision were not modified or repealed by the offending nation so as to comply with an adjudicated interpretation, is extremely weak. There aren’t very many carrots or sticks in international law. E.g., I doubt very much that the US would be kicked out of the Union (with resultant loss of the very beneficial 12-month priority in Article 4) over this seemingly trivial matter; that would be way too extreme. And that certainly wasn’t the international reaction to US judicial application of the Hilmer doctrine or any other US-foreign asymmetries that may have arisen in patent law (although I don’t know whether any nation or nations did object in that instance).

            Still, if the US wants to lead in international affairs, it should at least try to be balanced. Why not simply require ALL assignments and other ownership interests be recorded instead of only those meeting a 10% foreign interest threshold? After all, most assignments are already voluntarily recorded anyway. Applying it to every assignment of ownership interest would avoid the issue altogether.

            1. 1.3.2.1.1.1

              The balance you seek is neither required nor desired by this legislation.

              Your “why not?” is simply met with a “why?” (and a reminder that at bottom, patent law is Sovereign-Centric law).

              1. 1.3.2.1.1.1.1

                Sovereign-centric certainly. But it sometimes seems that the US wants all the benefits (equal treatment of its US applicants overseas) that come from the international agreements between the sovereign nations without any the corresponding obligations to which it has agreed so as to obtain those benefits in the first place. It is likely that other nations also behave in a similar manner, but the US has never been shy in availing itself of the dispute resolution provisions in the treaties to which it is a party.

                1. [I]t sometimes seems that the US wants all the benefits… that come from the international agreements between the sovereign nations without any the corresponding obligations to which it has agreed…

                  Ultimately, all treaties rest on trust. No one will make future deals with an entity who is seen not to keep to obligations engendered in past bargains. The U.S. would be foolish to fritter away its credibility on the international stage in order to achieve two-bit, domestic policy “advantages” in the patent law domain. We should value our international credibility more highly than that.

                2. Mark,

                  corresponding obligations to which it has agreed so as to obtain those benefits in the first place

                  While I do not disagree with the thrust of your comment, I would but add that for the US, treaties are generally NOT self-enacting into US law.

                  Other Sovereigns should have long ago recognized that our Separation of Powers structure means that any actual signed treaty is NOT to be so treated as binding law, but instead, merely something that our Congress will consider in making US Sovereign law.

                  (and yes, I have previously noted that even for Sovereign-Centric laws, comity IS an item to which treaties are valuable)

                  .

                  Greg “I Use My Real Name Transnationalist Shill,”

                  We should value our international credibility more highly than that.

                  You should take a step back and recognize the structure of our Sovereign system before you get all high and mighty about what we “ought” to do.

                3. RE: “While I do not disagree with the thrust of your comment, I would but add that for the US, treaties are generally NOT self-enacting into US law. Other Sovereigns should have long ago recognized that our Separation of Powers structure means that any actual signed treaty is NOT to be so treated as binding law, but instead, merely something that our Congress will consider in making US Sovereign law.”

                  Yes, that is how treaties are indeed regarded in the U.S., notwithstanding the language in U.S. Const. Art. VI, Paragraph 2: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”

                  The apparent plain meaning of the treaty portion of the supremacy clause, where treaties would be treated as the supreme law of the land on the same footing with acts of Congress, has been gradually interpreted away through the use of this distinction between self-executing and merely executory provisions that become enforceable only after the enactment of legislation to carry them into effect.

                4. The apparent plain meaning of the treaty portion of the supremacy clause… has been gradually interpreted away through the use of this distinction between self-executing and merely executory provisions…

                  Hm, I cannot really agree with this (for whatever little my agreement might be worth). The supremacy clause is a limit on states, not on the federal government.

                  Even where Congress enacts legislation that only imperfectly puts a treaty into effect, federal courts will still assess the enforceability of state law by recourse to the treaty language itself. I cannot think of a single case where a federal court has said—in effect—“this state law would violate the provisions of a treaty to which the U.S. is party, but we will let that slide because the state law is compatible with the U.S.C. provisions that are supposed to enact the treaty.” The federal courts are not loosy goosey about letting the various states create headaches for the State Department.

                5. Mark,

                  I will see if I can put my fingers on an old reference that fleshes out your contribution of, “ the language in U.S. Const. Art. VI, Paragraph 2: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land;” in the manner that dictates the portion of “under the Authority” requires Congress to finish the start of the Executive. It pretty much has always been that second critical element (which takes the wind out of your sails that “only President” is what it should be).

                  It’s been quite awhile — so I may not be able to find it right away.

            2. 1.3.2.1.1.2

              [T]he US… be[ing] kicked out of the Union (with resultant loss of the very beneficial 12-month priority in Article 4)… certainly wasn’t the international reaction to US judicial application of the Hilmer doctrine or any other US-foreign asymmetries that may have arisen in patent law.

              The Hilmer doctrine was not a violation of the national treatment provisions of the Paris union. The Hilmer doctrine worked exactly the same way when (e.g.) a French citizen applied for a U.S. patent as when a U.S. citizen applied for a U.S. patent. There was no reason why any other nation in the union should have objected to the Hilmer doctrine.

              1. 1.3.2.1.1.2.1

                Very good – now take that next step, Greg.

              2. 1.3.2.1.1.2.2

                Curiously, the Hilmer doctrine arose out an interference between two foreign applicants. The court had to interpret the confluence of 35 USC 102(e), 104 and 119. Here are the relevant filing dates:

                January 24, 1957 Habicht filed in Switzerland.
                July 31, 1957 Hilmer filed in Germany.
                January 23, 1958 Habicht filed in the United States.
                July 25, 1958 Hilmer filed in the United States.

                Although Habicht would seem to have been prior in all respects, Hilmer won its case because the relevant date of Habicht when used as a reference against Hilmer was deemed to be Jan. 23, 1958, which is after Hilmer’s July 31, 1957 priority date. A prior foreign filing date established under 35 U.S.C. § 119 does not establish a United States Patent as prior art against other applicants under (former) 35 U.S.C. § 102(a) or (e) [Hilmer II extended this to 102(g)]. 35 U.S.C. § 119 grants a foreign applicant only a personal right against the patent defeating events of 35 U.S.C. § 102, not its use as a prior art reference.

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