Wen Xie, Partner at Global IP Counselors, LLP in Washington, D.C.
So you have a good relationship with your supplier? Most likely, so do your main competitors. It’s not uncommon for manufacturers to collaborate with suppliers in the configuring and designing of new products. Suppliers can often offer valuable input on design choices because of their specialized knowledge in terms of standards, fittings and manufacturing capabilities. Many suppliers of machine components and accessories play a role in the design of their components’ features, appearance, attachment mechanisms and overall design, ranging from radiator parts to shock absorbers to light installations.
Sometimes efficient relationships with suppliers encounter a snag when it comes time to discuss intellectual property ownership, particularly with regard to patents. Technically, in the United States, a person who conceives the subject matter of at least one claim of the patent is entitled to patent ownership. Practically, however, who has time to talk about each claim your patent attorney drafts up? If the suppliers feel that they contributed to the overall conception of the inventor, it can be rather difficult to refuse their request to be named on the patent and risk damaging the relationship.
Based on my experience as a patent attorney, here are three things you should keep in mind when collaborating with your supplier.
1. Your supplier can license or sell your patent without your knowledge.
Going in on a patent application with your supplier means you will be joint inventors and, therefore, joint owners. But joint ownership of a patent is not like joint ownership of physical property, where you need to notify and get the approval of the co-owner if you want to sell or lease out the property. Unless there’s an agreement stating otherwise, each co-owner owns 100% of the patent in its entirety, meaning each co-owner can assert, assign and license out the patent without ever having to seek approval from the co-owner. In fact, co-owners do not even need to notify each other of their intentions to do any of the above.
Unfortunately, if you have a good relationship with your supplier, there’s a good chance your competitors do, too. And those competitors are now potential assignees or licensees of your patent by means of your supplier. This is the law by default, which is why you should set forth agreements with clear clauses around your co-owner’s rights to amend, license, assign or mortgage the patent prior to filing the application.
2. A patent co-owner can assert the patent against third parties without your knowledge.
This means your supplier can sue—or send out cease and desist letters—to a third party without letting you know. They may score a big win without your knowledge, but it’s much more likely that your patent can end up being challenged for invalidity at the United States Patent and Trademark Office, a popular mechanism taken by defendants. Again, these matters should be discussed prior to filing.
Other matters that should be settled prior to filing include enforcement responsibilities, procedures for monitoring and determining infringement of the patent, as well as jurisdictions or forums for which disputes will be settled.
3. You can list your supplier as a co-assignee or co-applicant on the patent application.
If you decide to proceed with filing a patent application with your supplier, you can list your supplier as a co-applicant on the patent application, or you can list them as an assignee or co-assignee on the patent application. Either way, your supplier is a co-owner of the resulting patent. Typically, in my experience, listing your partner as an assignee is more convenient and cheaper because it involves less paperwork. For example, you have to get your supplier to sign a power of attorney to your counsel if they are a co-applicant but not if they are an assignee. Another applicant also technically has more intervention rights during the application’s prosecution, which can be inconvenient. Also, if your company is a subsidiary of a larger company, there are other complications that involve a co-applicant that you can avoid by just listing your supplier as an assignee.
One of the primary reasons for listing your supplier or partner as a co-applicant is that applicants are listed on the resulting published patent. But remember, so are assignees. Therefore, if you are trying to make a showing of goodwill to your suppliers by listing them on the patent application, I believe it is better for you, in the long run, to list them as a co-assignee versus a co-applicant. One reason is that you have to get your supplier to sign a power of attorney to your counsel if they are a co-applicant, but that is not required if they are an assignee. If a co-applicant signs a power of attorney, your supplier can interfere during the patent’s prosecution and direct your patent counsel as they work to try to obtain your patent. Things can get pretty messy in the event you and your supplier have a dispute or a falling out, which ends up creating a conflict for your patent counsel.
Collaborations are oftentimes a good thing, but in order to preserve a good and longstanding working relationship with your supplier or other partners, it is important to discuss the above-mentioned matters at the outset of collaboration and not later.
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
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