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Business LibreTexts

23.4: Patents

  • Page ID
    49181
  • A patent is the exclusive right to make, use or sell an invention for a specified period of time (usually seventeen years), granted by the federal government to the inventor. A patent holder owns a patent. Patents may be legally sold to others. Therefore, an inventor may sell a patent to others, which ends his or her property interest in the invention.

    Many inventors and designers work for employers in creative and inventive capacities. If an employee invents something as part of his or her employment, then the employer is the patent holder. This arrangement allows innovative ideas to be adequately funded and to prevent employees working against the best interests of their employers. However, if an employee invents something outside of work on his or her own time, and the invention is not related to his or her employment, then the employee is the patent holder.

    To apply for a patent, an inventor must meet two requirements: the invention must be (1) novel and (2) non-obvious. To be novel, the invention must not have been previously invented and must not come from a trivial improvement to an existing invention. In other words, it must not have been previously known or used. To be non-obvious, the invention must not be obvious to a reasonable person in an appropriate field with ordinary skill. In other words, patents reward creativity that results in something new and is not considered common knowledge by someone in the industry.

    Patent Requirement Description
    Novel New; cannot be something that was already invented or in use
    Non-obvious Not common knowledge to a reasonable person with ordinary skills in the industry

    Not all things can be patented. An idea alone (without a definite description) cannot be patented. Similarly, the laws of nature (such as gravity) and things that occur naturally (such as DNA) cannot be patented. This is because some items found in nature are not the result of the human mind or creativity. If not the product of human invention, then a patent cannot apply. This distinction can be narrow in some industries. For example, DNA cannot be patented but the scientific process of synthetically reproducing DNA can be patented. Likewise, oil cannot be patented but the process for extracting it from the ground can be.

    Types of Patents

    Three types of patents exist. The most common type of patent is the utility patent. Utility patents are granted for a useful innovative machine, process, manufacture, composition of matter (such as a new chemical) or an improvement to an existing item or process. These patents usually are granted for twenty years.

    A design patent may be granted for new, original, and ornamental designs for an article of manufacture. This type of patent protects a product’s appearance or nonfunctional aspects. These patents last for only fourteen years.

    A plant patent covers inventions or discoveries of asexually reproduced plants (e.g., plants produced through methods such as grafting, root cuttings, and budding). In other words, the plant is able to multiply without using seeds. For example, one company patented a unique rose whose color combination did not exist in nature.

    Type of Patent Description
    Utility
    • Protects the way an invention is used and operates
    • Useful innovative machine (e.g. table saw), process (e.g. software program), manufacture (e.g. thumb drive that fits into USB port), composition of matter (e.g. new chemical) or an improvement to an existing item or process
    • Must be useful and functional
    • Inventor does not have to show invention has monetary value
    • Lasts 20 years (unless patent granted before June 8, 1995)
    Design
    • Protects appearance of product (e.g. Jeep’s grill design)
    • Lasts 14 years
    Plant
    • Protects any distinct and new variety of plant
    • Plant cannot have been sold or released in US for more than 1 year
    • Involves many controversial patents involving genetically modified plants used for food
    • Lasts 20 years

    Patent Enforcement

    The USPTO grants property rights to patent holders within the United States. Patent law is complicated, and attorneys who wish to practice patent law must have an engineering or science background and pass a separate patent bar exam. When an application is filed, the USPTO assigns a patent examiner to decide whether the patent application should be approved. While the application is pending, the applicant is permitted to use the term “patent pending” in marketing the product to warn others that a patent claim has been filed. Even after a patent has been issued by the USPTO, however, the patent is only presumed to be valid. If someone challenges a patent in a lawsuit, final validity rests with the US federal courts.

    In the last decade there has been more than a 400 percent increase in the number of patents filed, resulting in a multiyear delay in processing applications. An increase in the number of business method patents contributed to this dramatic increase in patent applications. A business method patent seeks to monopolize a new way of conducting a business process. For example, “Patent Filing for One-Click Web Ordering” describes a method of e-commerce by which a customer can order an item and pay for it immediately with just one click of a button. This one-click patent was granted to Amazon.com. Amazon licensed the patent to Apple so that it could feature one-click on its website. This in turn allowed Amazon to recover some of its development costs from Apple, which also wanted to use the technology.

    IP protection sometimes involves controversial issues. For example, pharmaceutical companies rely on patent law to protect their massive investment in research and development of new drugs. For the few drugs that eventually get governmental approval and commercial success, manufacturers seek to extract the highest possible price during the period of patent monopoly. For example, antiretroviral drugs has greatly extended the lives of HIV/AIDS patients, but the drugs cost between $10,000 and $12,000 per year in the United States. In many developing nations, individuals cannot afford US prices. Therefore, some governments have declared national health emergencies, a procedure under international treaties called compulsory licensing, that forces drug companies to license the formula to generic drugmakers. As a result, Cipla, a generic drug manufacturer in India, manufactures the same antiretrovirals for about $350 a year.

    Outside the United States, a patent granted by the USPTO does not automatically protect the inventor’s interest in that property. Instead, IP is protected by a series of international conventions. Because international law is only binding on nations who agree to be bound by it, IP is not protected internationally in nations that have not signed the conventions.

    Patent Infringement

    If someone uses a patented invention without permission from the patent holder, then the user violates the patent holder’s rights. Patent infringement is the act of making, using, selling, or offering to sell a patented invention without the permission of the patent holder. Patent infringement can be either direct or indirect. Direct infringement occurs when someone copies and uses an invention, or uses an invention with a slight variation or addition. Indirect infringement occurs when someone “designs around” a patent by creating a product that is substantially the same and performs a similar function.

    If patent holders successfully sue for patent infringement, they may be entitled to an injunction forcing their competitors to stop using the invention, treble damages, costs, and attorney’s fees. The most common defense to patent infringement claims is to challenge the validity of the patent. Given the scientific and technical nature of patent cases, litigating these cases is expensive.

    As a result of the cost of litigation, patent trolls exist in certain industries such as technology and pharmaceuticals. Patent trolls are individuals or companies who obtain the rights to one or more patents to profit by means of licensing or litigation, rather than by producing their own goods or services. The main source of revenue for patent trolls comes from suing companies for infringement and hoping the companies settle. For a relatively minor cost of applying for a patent and attorneys’ fees, patent trolls look for a big payout. For example, NTP, a patent troll, sued the maker of BlackBerry, claiming patent infringement for the technology used to deliver the BlackBerry’s push email feature. Faced with a potential shutdown of service, BlackBerry settled the case for more than six hundred million dollars.

    Over the past decade, there have been some legal developments to help protect companies from patent trolls. For example, the US Supreme Court unanimously ruled that patent infringement cases must be filed in the federal court where the defending company is based rather than a court of the plaintiff’s choice. This reduces the exposure and cost to the company of defending against cases filed across the nation, and for the patent trolls to “forum shop” for districts they believe will be more beneficial to their claims.

    More companies are choosing to fight patent trolls in court rather than payout. For example, Apple has been defending itself in court against patent troll VirnetX over patents that VirnetX obtained in FaceTime and iMessage delivery systems. Although Apple has a large enough budget to engage in protracted litigation, not every company does. Therefore, patent trolls often target start-up companies hoping that the economic threat of a lawsuit encourages quick settlements.