The U.S. Patent and Trademark Office (“PTO”) is considering new rules requiring the disclosure of the “attributable owner” of patents and patent applications. (Changes to Require Identification of Attributable Owner, 79 Fed. Reg. 4,105 (proposed Jan. 24, 2014) (to be codified at 37 C.F.R. pt. 1) [hereinafter “Proposed Rules”].) These proposed rules are intended to provide the PTO and the public with more complete information regarding patent ownership. While the PTO sought comments on this topic as early as November 2011 (Request for Comments on Eliciting More Complete Patent Assignment Information, 76 Fed. Reg. 72,372 (Nov. 23, 2011)), it did not receive a strong endorsement of its efforts until June 2013, when the White House issued a set of Executive Actions directing the PTO to “begin a rulemaking process to require patent applicants and owners to regularly update ownership information when they are involved in proceedings before the PTO, specifically designating the ‘ultimate parent entity’ in control of the patent or application.” (Fact Sheet, White House, White House Task Force on High-Tech Patent Issues (June 4, 2013) [hereinafter White House Fact Sheet], available at http://www.whitehouse.gov/the-press-office/2013/06/04/fact-sheet-white-house-task-force-high-tech- patent-issues.) This article summarizes the proposed disclosure requirements, describes the deadlines for such disclosure, and explains the consequences of failing to abide by the proposed rules (should the PTO implement the rules as is).
Definition of “Attributable Owner”
The proposed rules require the disclosure of the “attributable owner” of a patent application or patent. (Proposed Rules, at 4,119.) There are four types of entities that qualify as an “attributable owner” under the proposed rules: (1) titleholders; (2) enforcement entities; (3) ultimate parents; and (4) hidden beneficial owners.
Under the proposed rules, “titleholders” include any entity that has been assigned title to a patent or patent application, either exclusively or jointly. (Proposed Rules, at 4,119.) This category of “attributable owner” generally describes traditional patent assignees. “Titleholder” information is substantially the same information that patent owners and applicants currently may voluntarily provide in connection with assignment recordation at the PTO. (Id. at 4,110.) The PTO suggested that traditional ownership structures in which a single assignee holds all rights in the patent or patent application will not require additional reporting beyond that which is already relatively routine. (Id. at 4,109.)
“Enforcement entities” under the proposed rules include any “entity necessary to be joined in a lawsuit in order to have standing to enforce the patent or any patent resulting from the application.” (Id. at 4,119.) These entities generally include exclusive licensees that have the right to enforce a patent or an application that issues into a patent. (Id. at 4,110.) The PTO has suggested that exclusive licensees in possession of enough rights to be de facto assignees may report as “titleholders,” though they are more routinely going to be reported as an “enforcement entity.” (Id.)
“Ultimate parents” of “titleholders” or “enforcement entities” would also have to be reported to the PTO under the proposed rules. (Id. at 4,119.) In its proposed rules, the PTO has proposed incorporating by reference the definition of “ultimate parent” found at 16 C.F.R. § 801.1(a)(3). (Id.) Under that section, “[t]he term ultimate parent entity means an entity which is not controlled by any other entity.” (16 C.F.R. § 801.1(a)(3).) It also includes three examples of “ultimate parent entities:”
- 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.
- If corporation A is controlled by natural person D, natural person D is the ultimate parent entity.
- 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.”
(Id.) Tracking this category of “attributable owner” may be particularly inconvenient for organizations that hold patents and patent applications within a variety of subsidiaries. Indeed, the PTO recognized that “corporations sometimes transfers [sic] patents and patent applications within the corporation for legitimate reasons, such as tax savings purposes,” and invited comments on the impact of the proposed rules on such practices. (Proposed Rules, at 4,110.)
Because all corporate and partnership entities have shareholders or partners, another troubling issue is whether individual shareholders or partners may have to be reported. The proposed rules require that a shareholder or partner in a corporate form, partnership, or other association must be separately identified as an “attributable owner” if he or she meets one of the definitions of an “attributable owner,” even if the corporation, partnership, or other association is also identified as an “attributable owner.” (Id. at 4,112; id. at 4,120.) The sole exception to this requirement is that the shareholders of a publicly traded company identified as an “attributable owner” need not be disclosed. (Id. at 4,112; id. at 4,120.)
Hidden Beneficial Owners
Finally, the proposed rules require disclosure of “[a]ny entity that, directly or indirectly, creates or uses a trust, proxy, power of attorney, pooling arrangement, or any other contract, arrangement, or device with the purpose or effect of temporarily divesting such entity of attributable ownership of a patent or application, or preventing the vesting of such attributable ownership of a patent or application.” (Id. at 4,119.) The proposed rules have informally termed such entities “hidden beneficial owners.” (Id. at 4,110.) The PTO proposed mandatory disclosure of “hidden beneficial owners” of patents and patent applications “to have a complete picture of the attributable owners” and “to discourage intentional shielding of such ownership interests.” (Id.) This category of “attributable owners” appears to be predominantly directed at entities the PTO has referred to as “Patent Assertion Entities.” (Id. at 4,109.)
Deadlines to Disclose “Attributable Owners”
The PTO’s proposed rules include five different deadlines, termed “requirements,” to disclose “attributable owners:” (1) the “Application Filing Requirement;” (2) the “Update Requirement;” (3) the “Issue Fee Payment Requirement;” (4) the “Maintenance Requirement;” and (5) the “Post-Issuance Proceeding Requirement.” (Id. at 4,110.) The first three of these requirements apply during patent prosecution, while the final two apply after patent issuance.
The following chart describes each requirement.
Click here to view table.
The PTO has proposed that these requirements apply to pending applications, patents for which maintenance fees are still due, and patents that undergo supplemental examination, ex parte reexamination, or a trial proceeding before the Patent Trial and Appeals Board on or after the effective date of the final rule. (See id. at 4,112–13.) Thus, the rules will retroactively apply so that patent owners and applicants would be required to disclose attributable owner information at the next-occurring requirement, even if the application was filed, or the patent issued, before the effective date of the final rules.
Consequences for Failure to Disclose “Attributable Owner” Information
Under the proposed rules, failure to timely disclose attributable owner information during the prosecution checkpoints would result in abandonment of the patent application. (Id. at 4,112–13 and 4,120.) Interestingly, the proposed rules do not describe the consequences of a patent owner’s failure to report attributable owner information to satisfy the Maintenance Requirement. Additionally, other than refusing to accord a filing date for patent owner-initiated supplemental examination or ex parte reexamination (id. at 4,113 and 4,120), the proposed rules do not describe the consequences of a patent owner’s failure to report attributable owner information to satisfy the Post-Issuance Proceeding Requirement.
The proposed rules provide that, if a patent applicant or patentee fails to correctly notify the PTO of attributable owner information at the required time, despite a good faith effort, the applicant or patentee may petition for its error to be excused. (Id. at 4,112–14 and 4,120–21.) The petitioner must demonstrate the reason for the delay, error, or incompleteness and must pay a petition fee. (Id. at 4,112–14 and 4,120–21.)
The Executive Actions issued last June asserted that “Patent trolls often set up shell companies to hide their activities and enable their abusive litigation and extraction of settlements.” (White House Fact Sheet.) The PTO’s proposed rules appear to be designed to address the President’s concerns. While reasonable minds might differ with respect to the need for the Executive Actions, it seems that the PTO’s proposed rules will likely have far reaching effects on the patent system if adopted as is.
As an initial matter, corporations and large entities may need to reevaluate their corporate structure and system for allocating patents among business units. Under the proposed rules, an inter-corporate transfer of patents and applications for tax purposes could result in significant reporting requirements. Even a routine corporate structure change affecting parent entities but not patent-owning subsidiaries could inadvertently trigger a reporting requirement. A company could risk abandoning its patent applications or impairing its ability to assert patents if it fails to properly report attributable owner information. And that risk—abandonment of patent rights—seems somewhat draconian in that it could negatively affect an entire portfolio of related patents and applications. One might wonder whether that punishment fits the crime, particularly for those businesses that do not even fall under the “Patent Assertion Entity” umbrella.
Moreover, the attributable owner information reported to the PTO will be made public. (Id. at 4,106–07 and 4,110.) While assignment information is made public on a voluntary basis now, mandatory public disclosure of patent ownership to the extent proposed could have significant and unforeseeable effects on a company’s business, investors, patenting, and patent litigation strategies.
Of course, the PTO’s proposed rules are just that, proposed. They may change in form and substance before being made final. In fact, the extended comment period closed late last month, and the PTO may modify the proposed rules based on public feedback. Nonetheless, patent applicants and owners should be aware of the proposed rules because, at the very least, they are indicative of the type of solutions the PTO is considering to address the issues described in the White House’s June 2013 Executive Actions. And, if made final as is, the proposed rules will have a substantial and immediate impact on patent applicants and owners, among others.