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Issue 135 | November 18, 2003
Top-10 Most Common IP Rights Mistakes
During Venture Capital Due Diligence
 For the full article, visit http://www.aplf.org/news/top-10.shtml.

1. TOO LATE TO START FILING U.S. AND INTERNATIONAL PATENT APPLICATIONS.
The current U.S. rule generally provides applicants with a 1-year grace period during which a patent application must be filed after certain public or private disclosure of the invention. In comparison, the foreign rule, which applies to many industrialized jurisdictions, such as Japan and various European countries, do not give applicants the benefit of any grace period after a public disclosure has occurred.

2. TOO NARROW LEGAL SCOPE OF CLAIMING PATENTABLE INVENTIONS.
Many issued patents are not commercially valuable because the scope of their submitted claims are particularly narrow, and can be relatively easily avoided by determined competitors.

3. INTERNALLY MISMANAGED PATENT INFRINGEMENT "WILFULNESS" EXPOSURE.
Under U.S. patent law, one's awareness or wilful state-of-mind about the existence and infringement of a competitor's issued patent may significantly affect subsequent legal liability. Economic damages may be awarded to the patent owner up to three times normal recovery amount. Company management should be careful to avoid creating evidence of internal communications such as emails that may be construed later to indicate such wilfulness state-of-mind, as well as possibly discouraging the review of issued patents owned by other entities.

4. RELYING SOLELY ON COPYRIGHTS FOR SOFTWARE PROTECTION.
Copyright protection in the U.S. and many other countries arises instantly and at virtually no cost to protect software technologies. Copyright protection, however, is legally vulnerable to reverse-engineering efforts by competitors, during which no copyright infringement may arise when the reverse engineering results does not result in literal copying of the original code, but merely an understanding of the underlying ideas and functions.

5. INADVERTANTLY TAINTING I.P.RIGHTS WITH 3RD-PARTY CO-OWNERSHIP RIGHTS.
During the course of typical of joint-development engineering projects, the collaborative scenario sets the stage for creating intellectual property rights that may be co-owned by multiple parties. The rights of such joint owners must be specified up-front, otherwise a problematic possibility that certain parties later may assert not just their partial ownership interest, but actually endeavor to offer licensing rights to other 3rd parties, or even competitors.

6. IGNORING THE IMPACT OF NEW "FESTO" U.S. SUPREME COURT RULING RE PATENT AMENDMENTS.
This judicial change cannot be ignored without possibly impairing commercial value of many issued U.S. patents, especially where applicants introduce explicit argument that distinguish various prior-art cited by the Patent Examiner.

7. UNDERESTIMATING THE IMPORTANCE OF TRADE SECRETS AND CONFIDENTIALITY.
Since patent protection may not arise for many years until after filing patent applications, and copyright protection may not be applicable to protect functional aspects of various technologies, trade secret protection may serve realistically as a solid backstop against competitive piracy or other misappropriation of company know-how. Thus the importance of diligent use of Non-Disclosure Agreements (NDA) and in-house policies and systems to secure confidential and priorietary information rises to a more significant level of management priority.

8. OVERLOOKING LEGITIMATE OPPORTUNITY TO SET-UP OFFSHORE LICENSING TAX SHELTERS.
Often neglected by early-stage startup companies and entrepreneurs are offshore strategies for mitigating federal tax exposure. Such international tax strategies are especially relevant when foreign licensees of intellectual property rights are contemplated possibly in the company business plan.

9. RESPONDING SLOWLY TO U.S.P.T.O. OFFICE ACTIONS.
Because the U.S. patent rules now provide 20 years of enforcement patent protection, after the U.S. filing date, it is important to expedite the claim amendment and application prosecution process; otherwise applicant's enforcement period is effectively eroded by unnecessary delays in the process.

10. OVER/UNDER-SPENDING ON LEGAL FEES TO PROSECUTE PATENT APPLICATIONS.
Patent applicants should be careful to ensure that most qualified legal counsel in terms of technical and business experience are selected and engaged to work on critical company inventions, perhaps with bottom-line pricing being just one of a number of significant factors to consider.

For more information on this subject, please contact the author of this APLF Update, Dennis Fernandez, Managing Partner (dennis@iploft.com), Fernandez & Associates LLP, Menlo Park, CA USA.

The information contained in this email is provided for informational purposes only and does not represent legal advice. Neither the APLF nor the author intends to create an attorney client relationship by providing this information to you through this message.

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