Editors Note: Kevin E. Flynn is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.It is very common for scientists, engineers, researchers, and other inventive types to collaborate with others on their work. Researchers from two universities might collaborate on a project, or scientists from two biotech companies might provide each other with information pursuant to an agreement between their companies, for example. Such collaboration generally leads to better science and better inventions, after all.

Unfortunately, however, unless such collaboration is done carefully, it may lead to any patentable inventions arising from the collaborative research not being granted patents, or, if a patent is granted, to such patents being held invalid in later litigation.

To understand why collaborative research — if not done correctly — can lead to a loss of patent rights, one has to understand something about when an invention is patentable. In order for an invention to be “patentable” it has to be (i) useful, (ii) novel, and (ii) non-obvious to “one of ordinary skill” in the art (i.e., the area in which the new invention lies) when compared to everything else in the “prior art.” Most types of prior art are actually or constructively in the public view; for example, web pages, published articles, issued patents, patent applications, prototypes on public display, etc.

Since 1984, however, the definition of “prior art” has specifically excluded non-public material shared between colleagues having obligations to assign inventions to the same entity (entity being the more general term for company, university, government agency, or other organization). In the most common case, two employees of the same employer can share non-public material without concern about creating additional prior art. In other words, the U.S. Patent Office cannot use such shared material as part of an argument to declare an invention “obvious” (and thus non-patentable).

In 1997 a Federal appeals court interpreted the 1984 changes to the patent laws to exclude confidential, non-public material shared between researchers from two companies because the two researchers did not have an obligation to assign the invention to the same entity. This decision was significant because many joint ventures bring together researchers from different (separately-owned) companies or from one or more companies and universities in order to perform collaborative research. Joint-venture participants are thus forced to consider whether the usefulness of sharing information outweighs the threat to the patentability of any discoveries or inventions related to the shared information, if sharing the information converts secret information (i.e., information that did not constitute prior art) into available prior art that could be combined with other pieces of prior art to create an argument that an invention was obvious and, thus, not patentable.

The one way to avoid this result was for the parties to a research joint venture to have a written joint venture agreement (entered into before the confidential information is shared) that specifically provides that the results from the joint venture will be owned by a single entity, and that the employees involved in the joint venture have the obligation to assign any patent rights they hold to that single entity. The single entity could be either one of the parties to the joint venture, or a legal entity created to run the joint venture. This solution doesn’t always work, however, either because it doesn’t meet the business goals of the parties or, in some cases, because one of the parties (such as certain universities) is not permitted to enter into such an arrangement.

The CREATE Act seeks to address this problem

On March 10, 2004 the Cooperative Research and Technology Act of 2004 (the CREATE Act) received approval from the full House of Representatives after earlier approval by the House Committee on the Judiciary. At the Senate level, the CREATE Act has now been sponsored by Senator Orin Hatch and referred to the Senate Committee on the Judiciary. Representative Coble, of North Carolina’s Sixth District, was one of several original sponsors of the CREATE Act, which aims to put collaborative research performed by a combination of two or more organizations on the same footing as collaborative research conducted within a large corporation or otherwise for the benefit of a single entity. The CREATE Act, if passed by the Senate and signed into law by the President, will benefit the researchers in Research Triangle Park and in all other research and development communities throughout the United States.

The CREATE Act proposes to modify the patent laws to provide that if collaborative research is performed pursuant to a joint research agreement meeting certain statutory requirements, then information exchanged among the collaborators pursuant to such agreement cannot be used as “prior art” for purposes of alleging that an invention is not patentable because it is “obvious.” Under the CREATE Act, if confidential information is exchanged (i) pursuant to a written joint research agreement that was entered into before the information was exchanged, (ii) the invention arises out of research conducted pursuant to the joint research agreement, and (iii) the parties to the joint research agreement are disclosed in the patent application, then such information cannot be used in an obviousness challenge.

Action steps prior to the passage of the CREATE Act

The CREATE Act is not yet law. Accordingly, parties engaged in collaborative research should consult with an experienced attorney to consider creating a written joint venture agreement that specifies that the results from the joint venture will be owned by a single entity (whether one of the parties to the agreement or a separate entity formed by the parties) and that the employees involved with the joint venture have an obligation to assign any patent rights to the single entity.

Collaborative research efforts between two or more entities that do not have such a joint research agreement in place should limit the internal exchange of useful but non-essential confidential documents from one joint venture entity to another to minimize the costs and risks from such exchanges. Exchanges of confidential documents across entity boundaries should be recorded in a manner that allows for easy and reliable assessment of what confidential documents may need to be disclosed during patent prosecution.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Kevin Flynn combines the knowledge and experience that he has obtained as an engineer, lawyer, and patent lawyer to provide guidance to clients on a range of patent and other legal issues. He has recently been named to North Carolina’s Legal Elite for Patents/Intellectual Property. Questions or Comments can be sent to kflynn@d2vlaw.com