Legal Applications in Technology - Analyze the legal and professional impact of Transfer of Patent license within a typical commercial setting - By Hansa Edirisinghe

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The preliminary objective of this research is to analyze the legal and professional impact of patent transfer within a typical commercial setting. In the process the researcher provides a basic …

The preliminary objective of this research is to analyze the legal and professional impact of patent transfer within a typical commercial setting. In the process the researcher provides a basic understanding about the patent license, the rights belongs to patent owner and how the patent owner can use his/her rights under the legal setting. - By Hansa Edirisinghe

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  • 1. LEGAL APPLICATIONS IN TECHNOLOGY MSc IT Assignment 2013 Analyze the legal and professional impact of Transfer of Patent license within a typical commercial setting Hansa K. Edirisinghe BSc (Hons) University of Portsmouth, UK MSc IT - Cardiff Metropolitan University, UK 10th February 2013 The preliminary objective of this research is to analyze the legal and professional impact of patent transfer within a typical commercial setting. In the process the researcher provides a basic understanding about the patent license, the rights belongs to patent owner and how the patent owner can use his/her rights under the legal setting. i
  • 2. Abstract The preliminary objective of this research is to analyze the legal and professional impact of patent transfer within a typical commercial setting. In the process the researcher provides a basic understanding about the patent license, the rights belongs to patent owner and how the patent owner can use his/her rights under the legal setting. This is followed by the financial benefits which could gain by the patent owner and transferee. Apart from that, the law of the patent transfer and analysis of how the law protects the invention and inventor was discussed. The report also focuses on to the analysis of the limitation of law and terms and conditions of the transfer agreements. The acquisition of Patent License in Sri Lanka is discussed while providing examples in the local context. The concept of typical commercial setting; Patent ownership; The impact of patients on the country’s typical commercial setting; Patent acquisition among residents and nonresidents of Sri Lanka; The law of patent transfer; The potential of legal and professional impacts; Law behind transfer of Patent ownership; Patent transfer types for commercial purposes; Royalty basis; Lump-sum sales price; Startup Companies; and Work-for-Hire were also covered in the report. The overall report analyzes/evaluates the above key points of legal and professional impact of patent transfer while providing evidence to how it could impact within a typical commercial setting. ii
  • 3. Table of Contents 1.0 Introduction .................................................................................................................... 1 2.0 Literature review ............................................................................................................ 2 2.1 Patent ownership ........................................................................................................ 3 2.2 The concept of typical commercial setting ................................................................ 3 2.2.1 The impact of patients on the country’s typical commercial setting .................. 4 2.3 Formulating the research problem.............................................................................. 4 2.4 Objectives ................................................................................................................... 4 2.5 Research methodology ............................................................................................... 5 2.6 Scope and limitations ................................................................................................. 5 2.7 Significance of the study ............................................................................................ 5 3.0 The potential of legal and professional impacts ............................................................ 6 4.0 Analysis of the legal and professional impact ............................................................... 7 4.1 Law behind transfer Patent ownership transfer .......................................................... 7 4.2 Patent transfer types for commercial purposes .......................................................... 7 4.2.1 Patent Licensing .................................................................................................. 8 4.2.1.1 Royalty basis ................................................................................................... 8 4.2.2 Patent Assignment .............................................................................................. 8 4.2.2.1 Lump-sum sales price...................................................................................... 8 4.2.2.2 Startup Companies .......................................................................................... 9 4.2.2.3 Work-for-Hire ................................................................................................. 9 5.0 Conclusion ................................................................................................................... 11 6.0 Bibliography ................................................................................................................ 12 iii
  • 4. 1.0 Introduction Emerging technology is changing the typical life style of the people. The world is in a hunger of new inventions. Although the invention has its scientific value a Patent License can give it a higher and stable commercial value. This is due to the fact that a patent license can make a product or technology unique to a particular person. It gives a monopoly of making, using, selling or distributing the product or technology to the patent owner. The owner can take legal actions if someone goes against the rules pertaining to intellectual property rights. Patents are the intellectual property rights granted by the state for inventions. An invention means a creation of a new product or a process that has not been known to the public or has not been in existence in nature. (Sandirigama, 2008) The changing of ownership of the patent is known as Patent license transferring. According to the records of United States Patent and Trademark Office there are different types of patent conveyance are recorded for both commercial purposes and trust factor. The types such as “Licensing” and “Assignment” are more important when it comes to commercial purposes. 1
  • 5. 2.0 Literature review According to the Sri Lankan law the duration of the patent is twenty years from the filing date of application. The patent law comes under Intellectual Property Act NO.36 of 2003. According to the statistics of National Intellectual property office (NIPO) of Sri Lanka the number of patents granted within the country reflect an increasing trend. Figure 2.1 Acquisition of Patent License in Sri Lanka 500 400 300 PATENTS 200 100 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: (National Intellectual Property Office of Sri Lanka, 2012) Figure 2.1 shows the total number of patent license granted for both residence and nonresidence. Although there is a parliament act passed in Sri Lanka for intellectual property general public is not very much aware of these rules. Therefore frequent losses have been recorded in the history. As a moderately self sufficient country, Sri Lanka has many natural resources than other countries. But due to the unawareness the importance of patent ownerships certain rare plants unique to Sri Lanka used to produce medicines goes to foreign companies without any benefit to the country. Those foreign companies earn billions of dollars by using the plants unique to Sri Lanka while Sri Lanka is deprived of any commercial advantage. Acceding to a newspaper article in Daily News on 21 May 2010 the patent ownership of a Sri Lankan plant which is known as “Kotala Himbutu” was obtained by a Japanese company “Fuji Films”. This plant is unique to Sri Lanka and the Sri Lankan Ayurvedic doctors have been using this item for their medicines from the ancient times. On the other extreme, Dr. Sena Yaddehige owns the patient worldwide for the automotive sensor business developed by him. It sets an example for any entrepreneur in Sri Lanka the value of the patient ownership. 2
  • 6. 2.1 Patent ownership Patent ownership could be granted as an individual or as a group. If it is a join invention, the ownership goes to all the joining parties and the all the decisions should be taken with the agreement of all group members. Even in join research the ownership could be transfer to any external party or an internal member under certain conditions. When transferring the patent ownership, the person who obtains the patent is called the assignor and the person who receives the assignment is called the assignee. 2.2 The concept of typical commercial setting Commerce is the entire system of an economy that constitutes an environment for business. There are few critical external environmental factors in any commercial setting that influence the existence of the firm. This includes Political, Environmental, Social, Technological, Ecological, and Legal influences. The needs and wants of people have been changed drastically during the recent past primarily due to the impact of rapidly changing technology. Therefore market has become very volatile though everyone is looking for sustainability and a sound financial stability. The country’s commercial background is depending on the sustainability of the firms and financials of people. The term “commercial organization” commonly refers to a group or groups that constitute specific set of skills, priorities, strategies, and resources. The obvious and ultimate objective of a commercial organization is usually to make a profit for the owners and its shareholders. The concept of “Marketing” plays a role in making profits. Marketing may lead consumers to realize a need that might have previously gone unidentified. On the other hand a need or want wouldn’t have realized until that product or service come to existence. When a product is imported from another country, consumers spend money to buy them while a country may earn foreign exchange if a product is being manufactured within the country and exported. The ultimate international trade results the exchange of capital, goods, and services across international borders or territories. Usually, such trade represents a significant share of gross domestic product (GDP) of a country. In a nutshell, commerce is a system or an environment that affects the business prospects of an economy or a nation-state. Therefore, it supplements a complex system of companies that try to maximize their profits by offering products and services to the market at the lowest production cost. A system of international trade has helped to develop the world economy while helping the countries and respective companies to be financially stabilized. In such commercial setting more inventions would lead to more money to the country. 3
  • 7. 2.2.1 The impact of patients on the country’s typical commercial setting According to the NIPO of Sri Lanka below statistics shows the patent acquisition among Residents and Nonresidents of Sri Lanka. Figure 2.2 Patent acquisition among Residents and Nonresidents of Sri Lanka 300 250 Resident Patents 200 150 Non-resident Patents 100 50 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 0 Source: (National Intellectual Property Office of Sri Lanka, 2012) According to graph the Nonresidents have obtained patent in the country more than the residence. Since the majority of Sri Lankan patent obtained for Sri Lankan products, most of these Nonresidents obtain their patents for the inventions done by using local raw materials. Those inventions could be considers as the commercial assets which we couldn’t acquired for the betterment of the country’s financial setting. Therefore Patent License as an intellectual property that could impact on the country’s typical commercial setting. 2.3 Formulating the research problem There is legal and professional impact of transfer of patient license within a typical commercial setting that should be researched and analyzed. 2.4 Objectives The primary objective of the research is to study and analyze the legal and professional impact of transfer of patient license within a typical commercial setting. Hence the overall objectives are shown as below.  Identify the law of patent transfer 4
  • 8.   Research/Fact finding of legal and professional impact of Transfer of Patent license  2.5 Identify the typical commercial setting Identify the legal and professional impact of Transfer of Patent license within a typical commercial setting Research methodology The research is basically conducted as a desk-based research. It is a combination of both qualitative and quantitative analysis based on secondary data. These evidences were found from both online and offline sources such as World Intellectual Property Organization (WIPO), journal articles, search engines, News paper articles and Government publications. The information published by parliament, certain ministries or central bank, and statistics available on WIPO were used. The statistical data from several databases was used in the form of quantitative analysis such as graphs. 2.6 Scope and limitations Under the Intellectual Property (IP) Act NO.36 of 2003, it covers the law of Patent, Copyrights, Trademark and Industrial design. The different applications of those topics and the law of obtaining, using, cancelation, transferring and outcome infringing them are illustrated on the act. However, the research was only limited to a specific area in patenting. It only analyzes the legal and professional impact of Transfer of Patent license with a least focus on the law of application, obtaining or cancelation of patent. 2.7 Significance of the study Patent license has a very high commercial value and its commercial asset which gives a lot of financial benefits. Therefore the patent owner can earn huge amount of money by producing the product since the owner has the monopoly. Not only manufacturing or distributing but also the owner can sell or transfer the ownership of the patent for the financial benefits 5
  • 9. 3.0 The potential of legal and professional impacts Transfer the ownership of patent license is legally acceptable. But every transfer agreement should have its own conditions among both parties. Then it becomes both legal and professional. As discussed in above section there are several types to transfer patent for financial acquisitions. It could be a transfer to anyone without any prerequisites. According to the law it’s not a matter whether the assignee has any background knowledge or any other criteria to prove that he/she is fit to make use of it properly. In some situations the assignee may not know the actual scientific value of the invention. If so the assignee can misuse the product only on the basis of financial benefits. It is the patentee’s duty to provide certain conditions on the transfer agreement. But even if the agreement is unconditional, it is valid according to the law. A patented product is an important asset to a country. Therefore everyone is responsible to protect the value of the product. For the purpose of protecting the value of the invention as well as inventor the conditions that cover all sensitive areas should be enclosed to with the transfer agreement. In case of breach of contract the patentee can take legal actions or can claim damages from the other parties. Due to some involvement and physical and mental harassments people may hesitate to take actions against some parties. But it encourages the people to do more and more illicit acts just to earn money. It could damage the value of the patent as well. With the patent transfer types such as Work-for-Hire there are no conditions in the act to specify the salary of the employee. The salary of the employee decided according to the company policies. Therefore whatever amount the company pay is considered legal. But an individual or a group who does and invention is different from other employees. Therefore the management has a duty to look after the employee and treat the employee properly. 6
  • 10. 4.0 Analysis of the legal and professional impact 4.1 Law behind transfer Patent ownership transfer A patent application or patent may be assigned or transmitted and such assignment or transmission shall be in writing signed by or on behalf of the contracting parties. (Intellectual Property Act, 2003) The patent owner is free to assign the patent ownership to anyone under the agreed conditions. According to the law the transfer agreement should be kept in writing and all the teams and conditions which they agreed should be enclosed in the agreement. Any person becoming entitled by assignment or transmission to a patent application or patent may apply to the Director-General in the prescribed manner to have such assignment or transmission recorded in the register. (Intellectual Property Act, 2003) The legal aspect of patent transfer is the legal acceptability and the strength of law in transferring. It has a direct impact on the county’s commercial setting. Since the patent has no fixed value, the assignee decides the value considering the factors such as scientific and market value, market potential personal and financial background. In some cases people do inventions just for the purpose of transferring the ownership to foreign companies. It may be more profitable than manufacturing. As an example a Sri Lankan inventor could invent a new feature for a vehicle and license the technology to a pioneer car manufacturing company in Japan or Korea. Inventor can earn billions of dollars by transferring without a gain to the country. According to the IP Act No 36 of 2003 transfer of patent is a legal right which acquires by the patent owner. But there is no restriction or minimum qualification which the assignee should have to acquire the responsibility of the patent license. Therefore the quality the product that the assignee is intends to maintain cannot be measured prior to the assignment. The manufacture and sale has an impact on the Commercial and financial setting irrespective of the way that assignee may use the product. The assignor legally has authority to declare the terms and conditions on the assigning or licensing agreement in respect to the act. But it is immeasurable how much does it impact on protecting the value of patent. These conditions may impact on the commercial setting directly or indirectly. 4.2 Patent transfer types for commercial purposes As discussed previously the patent owner can “Licensing” or “Assigning” the patent for commercial purposes. Then the assignee can enjoy the benefits of the invention directly. 7
  • 11. 4.2.1 Patent Licensing According to the act “licensing” provides limited rights to the assignee to perform certain activities subject to certain conditions and payments. The licensing process is similar to the rent or lease property. Therefore it has been described as royalty basis transfer method. 4.2.1.1Royalty basis The party who subjected to be assigned (assignee) will receive the patent ownership for an agreed period or during the validity period of the patent. All the terms and conditions should be recorded in writing and the terms could be changed subject to the patented product or technology. In a patent transfer, usually the royalty is pained yearly. The duration could be differing according to the transfer agreement. The royalty amount will negotiate against the value or the importance of the product. The main advantage of this is while transferring royalty basis the patent owner could be benefited if the value of the product in the market goes higher. This is a type which the patent owner could demand for the patent value. Therefore the patentee can increase the subscription yearly. From the business perspective this could maintain the professional aspect of the business and earn profits as well. The disadvantage of this type is once agreed for royalty basis the patentee has no authority to claim the damages or cancel the ownership in case of failure of payment. 4.2.2 Patent Assignment Patent “Assignment” is bit different from “Licensing”. The basic idea of “Assignment” is sell the patent rights to someone else for the lump-sum consideration. If the invention has been done as a result of the employment, the ownership, assignor, assignee and assign duration differs according to the company policies and employment contracts as well as country to country. The main types of patent transfer under “Assignment” are as follows; 4.2.2.1 Lump-sum sales price According to this type the patentee negotiate for a fixed price to sell the patent ownership to an external party. The price negotiation is same as above type, but the assignee acquiring method is different. The assignee can pay the total prince at once and get the full ownership. If not the assignee can pay the agreed amount in royalty basis subject to agreed conditions. Unlike above type the royalty amount cannot be increase or decrees in this type. Since both parties has agreed for a fixed price the assignee could be benefited incase for increment of market value and vice versa. 8
  • 12. Since this is one time negotiation the patentee can go for the high price and it could be more benefited then other types. 4.2.2.2 Startup Companies When staring an invention the money factor becomes a critical issue. Some inventers stop their inventions due to the difficulty of finding capital. When investors see a potential of a particular invention, they invest money as an external party for the invention. In law, this party is known as Venture capitalist. In Startup companies the inventor is eligible to use recourse under certain negotiable conditions with the Venture capitalist. This is a massive advantage, the inventor will enjoy under this type. The benefit that Venture capitalist get is once the invention got successful the ownership of the patent license goes under the name of Venture capitalist. According to law Venture capitalist can keep the ownership up to 8 years maximum, from the patent date. After the duration of assignment the patent ownership will reassign to inventor. 4.2.2.3Work-for-Hire This is usually obtained by the experiment and inventions done by companies. As employees of the company, individuals and team do certain inventions. In such scenarios the ownership of the patent license goes under the company name under the Sri Lankan law. Therefore the employee or group does not get an ownership for the product. This is one of the disadvantages from the employee perspective, but on the other hand employee can demand for the salary and other benefits. Apart from above there are some more points which cause disadvantages for patent owners.  The full description of the invention should be provided in the application and can be viewed by anyone who applies for a patent from the administration office.  Once finished the exclusive patent period any party can freely use or manufacture the invention.  Since there is no fixed value to the invention, some parties may misguide inventors for their financial benefits. The professional aspect of patent transfer is how the quality maintains and how much the transfer vulnerable breach of contracts. Sometimes the transfers are legally acceptable but professionally not. As an example, in a scenario of patent transfer the assignor can decide whether the teams and conditions are required for the agreement or not. If it is an unconditional agreement the assignee can misuse the invention. Then it is vulnerable to 9
  • 13. damage the scientific value and market potential. But a conditional agreement can protect the value of the invention. This scenario will directly impact on the typical commercial setting. Sometimes the assignee could earn more than the inventor once the paten was transferred due to the market completion and high supply. This is another occasion which the teams and conditions become important. In such situation the dislike could guide people to damage the commercial and scientific value of the invention. These things could be not illegal but not professional and it could impact on the commercial setting as well. The public awareness of patent license and ownership transferring is another important factor when it comes to professional impact. In a country like Sri Lanka, people do not aware about IP rights and punishment for IP rights violations. The less knowledge and less awareness lead people to do more infringements of patent rights. It could damage the professionalism of patent ownership and ownership transfer. 10
  • 14. 5.0 Conclusion As a desk-base research the data were found for the analysis by referring the government sources, World Wide Web and news paper articles. When critically analyze the Patent transfer law, it was understood that the assignee gets a big responsibility on maintaining the professionalism in managing the respective property after the transaction is being made. Deferent transfer types are available to “Assigning” and “Licensing” that are in favor of the protection the commercial and legal aspect of the transfer. When analyzing the statistics published by the government, it can clearly see foreign involvement of obtaining patent license higher than locals for the resources in Sri Lanka. The outcome of that is local inventors are deprived of benefits from certain resources where the country could have gained more financial benefits otherwise. If foreigners obtain the license, they use local manpower to earn money by licensing the technology to local companies which is not advantages to Sri Lanka. The professionalism of a transfer usually maintains due to the conditions which both parties agreed for the sake of protecting the scientific and commercial value of the inventions. Analyzing the above factors it could see that there is a substantial impact of transfer of patent license in a typical commercial setting. In this aspect the public awareness about the concept of patenting play a vital role thus it should properly guide people when obtaining and transferring patent. 11
  • 15. 6.0 Bibliography Intellectual Property Act. (2003). Chapter XVI. 88. (1). National Intellectual Property Office of Sri Lanka. Intellectual Property Act. (2003). No. 36. Chapter XVI. 88. (2). National Intellectual Property Office of Sri Lanka. National Intellectual Property Office of Sri Lanka, 2012. Information and Statistics. [online] National Intellectual Property Office of Sri Lanka. Available at: <http://www.nipo.gov.lk/satistic.htm> [Accessed 8 February 2013] Sandirigama, M. (2008). Intellectual Property : A Quick Guide for Scientists and Technologists. Peradeniya: Science Education Unit - University of Peradeniya. 12