By Ann Meyer
A business’s value often lies with its intellectual property, as Google’s planned buy-out of Motorola Mobility suggests.
Google wanted Motorola Mobility’s 17,000 patents and was willing to pay $12.5 billion in the deal that was approved Friday by shareholders of the Libertyville-based mobile technology company, experts said. In general, 80 percent of a company’s market capital is in intangible assets, “and intellectual property is the largest single piece,” said James Malackowski, chief executive of Ocean Tomo, a Chicago firm that serves as an auction house for intellectual property.
With patents hotter than ever, the America Invents Act passed last month aims to put U.S. patent regulations on the same page as international rules, by using a first-to-file criterion for assigning patents instead of the first-to-invent standard used historically in the United States.
With the new law, which takes effect in March 2013, the pressure will be greater than ever to be the first to file a patent, said Robert Gerstein, partner at Marshall, Gerstein & Borun in Chicago. “With first-to-file, there’s a premium placed on getting your application in,” Gerstein said.
Traditionally, the U.S. Patent & Trademark Office’s first-to-invent criterion considered who came up with the idea first instead of who filed for the patent first. But the old system led to complicated, expensive legal proceedings when more than one company claimed to be the original inventor. Often, a small business couldn’t afford the legal fees to defend itself. By going to first-to-file, the government hopes to eliminate some of the contests that have been clogging the system, Gerstein said.
Reduced fees for small businesses
What’s more, a provision in the law reduces the filing fees by 75 percent for small businesses. Entrepreneurs also might be able to save on legal fees by using reduced-fee services through universities, small business centers or online companies, such as Rocket Lawyer, which offers access to on-call attorneys who discount their services by 40 percent.
But it’s important to seek legal advice early, says Chicago entrepreneur Richard O’Brien, chief executive of Payment Pathways Inc., who has filed for four patents. “If you have a good idea, you need to stop talking about it and go file your patents,” he says.
O’Brien understands the advantage the new rules provide to entrepreneurs who act quickly. “First-to-file does give me a lot more defensive capability,” he said. But even under the new law, large corporations will still have the power to file a dispute, he said.
O’Brien filed his first patent in 2004, shortly after the company was founded and years before it went to market with its Greenlist directory, designed to make electronic payments safe. He received that patent in 2010 and another one, which Payment Pathways had filed for in November 2006, was awarded this past May, he said.
Keeping attorneys in business
In what O’Brien calls “a very frothy market in intellectual property,” he expects to see far more patents filed. “It’s a lawyer-get-rich law,” he says, because ultimately it will generate more work for attorneys.
Most agree more patents are likely to be filed because of the new rules. In fact, 80 percent of attorneys survey by Rocket Lawyer said they think there will be more provisional patent applications in the future.
Many of the patented ideas might not support a new business, but they could draw royalties for inventors willing to license the technology, said Charley Moore, the founder and chairman of Rocket Lawyer.
In the meantime, consumers and business owners acknowledged being confused by the rule change.
Two-thirds of respondents to a Rocket Lawyer survey of non-attorneys said they were not aware of the new law. In addition, just one-third said they understood the difference between first-to-file and first-to-invent.
Guarding trade secrets
Besides acting quickly, Malackowski of Ocean Tomo said the new rules mean companies need to guard their trade secrets more closely than ever. “You want to be more careful than ever, especially when dealing with joint ventures and partners….Each one will have reason to run to be the first to file,” he said.
Small business owners and individual investors have opposed the rule change because of the cost of filing a patent, Gerstein said. “The argument goes, `We’re small and we don’t have a lot of money to file. We’re more cautious about what we file and when we file,'” says Gerstein, who estimates the cost of filing fees and legal fees can run $10,000 or more per patent.
But Moore of Rocket Lawyer said entrepreneurs can file the simpler provisional patent forms for several hundred dollars by using his online company. A provisional patent protects the invention for 12 months, allowing the business owner more time to put together a full filing.
Regardless of whether companies support or oppose the new rules, many are glad the debate is over. After five years of discussion about what Congress was likely to do, “The uncertainty is over. We know it’s not likely to come back in front of Congress for a very long time,” Malackowski said.