Patent diligence in the context of M&A and other types of commercial transactions typically involves confirmation of a patent’s chain-of-title ownership, from initial inventors through to the current assignee-owner. The America Invents Act1 (the “AIA”), which took effect on September 16, 2012, created a new procedure through which an assignee-owner may file a patent application in its own name as the original applicant, which may obfuscate chain-of-title ownership and create challenges for practitioners who seek to diligence documentary evidence of the full chain-of-title ownership. We discuss some of these challenges in this article and provide best-practices guidance for practitioners regarding patent ownership diligence.
Pre-AIA and Post-AIA Rules Regarding Patent Applicants
Prior to the AIA, the applicants of a patent application were required to be the actual inventors, and such inventors were presumed to be the initial owner.2 In order for an assignee-owner to take action during prosecution of the patent application in lieu of the inventors (e.g., signing a reply to an Office action, or filing a Fee Transmittal for the payment of a patent issue fee), the assignee-owner was required to file documentary evidence of chain-of-title from the inventors to the assignee (such as an executed assignment).3
Following the AIA, an assignee-owner is able to file a patent application as the original applicant by filing an Application Data Sheet that specifies the assignee-owner in the applicant information section.4 Filing the patent application as an assignee-applicant comes with many benefits for the assignee, as the assignee-applicant can take actions directly in prosecution of the patent (such as signing a reply to Office action or filing a Fee Transmittal for the payment of a patent issue fee). The assignee-applicant can also appoint its own registered patent practitioner to prosecute the patent application and may grant the associated power of attorney, as the assignee-applicant is assumed to be the owner.
Contrary to the pre-AIA applicant rules, under the post-AIA assignee-applicant procedure, documentary evidence of ownership is only required to be filed prior to the date that the issue fee is paid in the application. As a result, the assignee-applicant can potentially file and prosecute the patent application in its own name until and immediately prior to the issue fee transmittal deadline, without recording any assignments or other evidence of ownership.
Best Practices for Chain-of-Title Diligence for Patent Applications with Assignee-Applicants
Most assignees choose to promptly record with the USPTO documentation of their chain-of-title ownership, in order to establish their ownership as a matter of public record. Such documentation could come either in the form of (1) a patent assignment agreement executed by the inventors that assigns ownership of the patent application to the assignee; or (2) employment agreements for each inventor that assigns ownership from such inventor to the assignee. Best practice for assignees is to choose the former option, as those types of “short-form” patent assignment agreements are typically tailored for the specific patent application, and do not reveal underlying information about the inventors’ employee agreements with the assignee.
However, as discussed above, under the AIA’s assignee-applicant procedure, assignees are not required to record evidence of ownership until payment of the issue fee, which may create a gap in time where evidence of ownership is not available to the general public. In addition, some assignees may take advantage of this procedure by delaying the execution of inventor patent assignment agreements until closer to the issue fee deadline, which may save costs in the short-term. These practices may result in difficulties or sub-par outcomes in an M&A or other transactional context. For example, additional time and cost may be required in order to track down and obtain signed inventor patent assignment agreements, and some inventors may be unavailable or unable to be found. If signed inventor patent assignment agreements cannot be obtained, then parties may have to record the inventor’s employment agreement as evidence of ownership, which, as discussed above, risks revealing underlying information about the inventors’ employee-employer relationship with the assignee.
If a company or other entity is listed as the assignee/applicant of a patent application in lieu of the inventors, then as standard practice, practitioners should always identify the complete chain-of-title to confirm ownership, even though the USPTO’s public website indicates the assignee as the “Assignee-Applicant” or “Owner” of the application. The listed assignee/applicant on the USPTO database may obscure a faulty chain-of-title in cases where the assignee-company has chosen not to record assignments until later on in the process. For post-AIA applications, it is therefore critical to scrutinize beyond the listed applicant/assignee to check for properly signed inventor assignment agreements. If such inventor assignment agreements are not evident through the USPTO’s public assignment records, then practitioners should request additional documentation through diligence requests, and if such inventor patent assignment agreements have not yet been obtained, then the assignee should, as a matter of best practice, obtain such inventor patent assignment agreements prior to any transaction involving such patents.
Any practitioner conducting this diligence process should (1) confirm with persons performing the diligence (e.g., paralegals) that each patent’s public assignment records have been individually examined to confirm chain-of-title, and/or (2) perform such examinations themselves as part of the standard diligence process. Neglecting to comprehensively check individual patent application records may result in missing cases where companies’ rights to patents are impaired or incomplete due to lack of executed inventor assignments agreements.
