Editor’s note: Kevin E. Flynn is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.
_______________________________________________________________________________________If your memory is particularly good, you may remember that I wrote an article last spring about a pending bill called the CREATE Act.

(See: www.localtechwire.com/printstory.cfm?u=7551 )

The CREATE Act was then just a bill, co-sponsored by Representative Coble of North Carolina. CREATE is an acronym for the Cooperative REsearch And TEchnogy Act. The purpose of the Act is to promote cooperative research efforts that involve one or more legal entities (i.e. two companies, or a company and a university) that do not rise to the formal standards of a full-blown joint venture.

More specifically, the CREATE Act is designed to promote such cooperative research by treating the parties to the cooperative research agreement as if they were all working within a single company. To understand how the CREATE Act helps promote cooperative research, it is necessary to first understand the concept of “prior art” in the context of determining whether an invention is patentable.

What Was CREATE Trying To Fix?

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 what is called the “prior art.”

Most types of prior art are publicly available; for example, web pages, published articles, issued patents, published 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 (i.e., the same 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 and Trademark Office (“PTO”) cannot use such shared material as part of an argument to declare an invention “obvious” based on the prior art. An invention that is “obvious” based on the prior art is non-patentable, and thus less valuable to its inventor.

If the PTO cannot use the non-public joint venture material, then it is not relevant to the patent application as prior art. This means both that such material will not jeopardize the patentability of the new invention, and that the inventors do not need to put time and effort into gathering it up and presenting it to the PTO. Thus, the benefits to the inventors of such material being excluded from the definition of “prior art” is significant.

Under the old rules, a company (example – company ABC) engaged in joint research with a university risked having any non-public documents exchanged as part of the joint research project (even if exchanged under a confidentiality agreement) become prior art that would need to be turned over to the PTO, and the PTO would use the material against any patent application arising from the joint research by finding that the joint research made the invention “obvious.”

The material could be used by the PTO in this manner because the employees of ABC and the employees of the university did not share a requirement to assign their patents to the same entity (the employees of ABC had a duty to assign to the company and the employees of the university had a duty to assign to the university) and the requirement of having a duty to assign to the same entity was necessary in order to qualify for the exclusion of the material as prior art. In other words, since the employees did not share an obligation to assign inventions to a single entity, in a sense their sharing of the materials was a disclosure analogous to being “publicly” available and thus prior art.

How Has CREATE Act Changed the Law?

The CREATE Act is now law, and joint research does not have the risk of creating prior art as long as the joint research is done in accordance with the rules set forth in the Act.

Confidential information can be excluded from becoming prior art if the following requirements regarding the exchange of the confidential information are met. First, there must be a written joint research agreement entered into before the information is exchanged between the parties. Second, the invention must arise out of research conducted pursuant to the written joint research agreement. Finally, all of the parties to the joint research agreement must be disclosed in the patent application.

One particularly interesting type of information that can be treated as confidential information under a joint research agreement is an unpublished patent application. This means that a patent application filed by the ABC company that is party to a joint research agreement is not prior art to a second patent application filed by the university if both the first and the second patent applications arise out of the same joint research agreement. Thus, both patents can potentially be issued since the first patent will not create an “obviousness” problem with the second patent.

This is all well and good for ABC company and the university. How could it affect others however? If both patents ultimately issue then a third party (think your company) might need to obtain a license from both the ABC company for the first patent and from the university for a second patent, on very close to the same thing. Having to negotiate two different licenses from two different entities creates obvious issues with regard to the expense and difficulty of getting the licenses. If left with nothing further, this would be a problematic outcome from the perspective of fostering the use of innovative technology.

How Does CREATE Prevent Need for Double Licenses?

The changes to the patent law were made with Congress’s understanding that the patent arising from the second patent application would need to be limited so that the public would not be forced to obtain licenses from two different organizations for essentially the same invention.

The mechanism for addressing this is a requirement in the Act that the owner of the patent arising from the second patent application waive its ability to enforce the patent separately from the patent arising from the first patent application. Further, the owner of the patent arising from the second patent application must link the termination date of that patent to the termination date of the patent arising from the first patent application.

While these two requirements seem like major concessions, they are no different than the rules that are applied to a single company. If a company has a second patent application with claims that would not be allowed if an earlier patent application from that company were usable as prior art, then the company is required to keep the two patents under common ownership so that a licensee would only need to obtain one license for the two patents.

This protects the public from having to obtain licenses for essentially the same invention from two different entities.

Secondly, the single company is required to tie the termination date of the patent arising from the second application to the termination date of the patent arising from the first patent application so that the second patent does not extend the total time of the patent monopoly.

Overall, the CREATE Act is a step in the right direction. It makes joint research between different entities more attractive and does not create any new issues. As the CREATE Act applies retroactively to patent applications filed before the Act became law, parties who have engaged in joint research should consult with an attorney to consider whether the benefits of the CREATE Act might be relevant to pending applications, and whether those applications should be modified to meet the Act’s requirements.

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 again to North Carolina’s Legal Elite for Patents/Intellectual Property. Questions or Comments can be sent to kflynn@d2vlaw.com