Copyright Frequently Asked Questions (FAQ)
Potential Action Items I Can
Help You With:
(1) Help Plan To Formalize IP
(2) Draft, File & Prosecute A
Regular Patent Application
(3) Strategize A Critical
Timing Sequence To Test Perceived Value
(4) Advise On A Business
(5) Advise on Worldwide
(6) Tax Analysis of Proposed
(7) Bankruptcy Analysis of
(8) Use of Purchase Option
(9) §1235 Holder Status
(10) Patent Application
(11) Buy Low - Sell High
(12) Operational Isolation
(13) Entity Sales Tax
(14) Distribution Sales Tax Minimization Planning
(15) Ordinary v. Capital
(16) Utility + Design
Offensive Patent Insurance Strategy
(17) Defensive Patent Insurance Benefit Distribution
(18) Worldwide Searches
(Japanese & Russian Language Search Term Generation)
(19) Separate Line of
Business Sale Potential Preparation
(20) Using Trademarks To
Facilitate Security For Sale Of A Business
(21) Inventor Freedom License
(22) Planning For Tax
Minimization on Sale
1. Why have a TM-FAQ?
2. What is a Trademark in terms of.....
3. What is the difference between
TRADEMARKS & SERVICE MARKS?
4. How does the American Trademark System
Priority work in terms of a basic rule?
5. Is it a good idea that “just any”
trademark should be applied for?
6. What is the approach in selecting a
7. What about LOGOS?
8. How can registration of a GOOD
trademark help me financially?
9. What about (a) State Trademarks, (b)
DBA’s and (c) Corporate names?
10. Why can’t Trademark Right be simply
purchased like a business license?
11. What about searching?
12. Once I apply for the mark, what
have a TM-FAQ?
Because no matter how much I write on
this subject people seem to want something to read in 60 seconds or less.
is a Trademark in terms of its:
Definition and Purpose? It is considered to be an association with the
OWNER of the AGENT that SPECIFIES the nature and quality of goods or
services provided under the trademark.
Liability to the OWNER or AGENT. Since the owner is the per se
specifier of the nature and quality of the goods and services, the owner
will VERY LIKELY be personally liable for any faulty goods or injuries.
Capital Asset Nature? A trademark is a capital asset under IRC 1253(a) &
Bankruptcy Status. A trademark is not considered to be “intellectual
property” under the bankruptcy code and a bare trademark license should not
survive a right for the licensor bankrupt to hold onto it, however, a
licensor that breaks a license is liable for damages under the Sunbeam case
3. What is the difference between TRADEMARKS & SERVICE MARKS?
Trademarks are words and symbols under which physical goods are sold and
which require specimens in the application process which are actually
included with the goods (and not advertisements). Service marks are
words and symbols under services are performed and which require specimens
in the application process which, because there are no goods, are
4. How does the American Trademark System Priority work in terms of
a basic rule?
Two basic priority rules:
Rule 1: First SUBSTANTIAL user
Rule 2: A user who obtains registration +
FIVE years of use (and completes the section 8 &15 affidavits at the FIVE
YEAR MARK will cut off the priority rights of someone operating under Rule
5. Is it a good idea that “just any” trademark should be applied for?
No. There are several reasons
(a) In some cases the application for some
trademarks under conditions of use can result in a lawsuit served on the
applicant immediately upon showing up in the PTO computer trademark
(b) If a business picks a weak mark its
profitability can “bleed” away in several ways.
is the approach in selecting a trademark?
I have formulated
a set of 5 rules which can be employed as a pre-test before a full search is
done. Without some initial discernment in mark selection, an applicant could
end up doing many expensive searches in a row with an inefficient method of
learning what not to pick:
(a) Choose a word
having series of letters numbering 7-8+ which are not found in any
(b) The word
should not be descriptive IN ANY WAY of the good or services which will be
offered under the mark.
(c) The word
should not have any geographical designation. “Baikal” is a lake in Russia
and should not be chosen.
(d) The word
should not be anyone’s last name and preferably not anyone’s first name.
(e) The word
should NOT be in any way ALIKE ANY OTHER TRADEMARK (whether registered or
not), and remember that look-alike, sound-alike, spell-alike, smell-alike IS
A good logo is
preferably a picture which has no writing associated with it. If you
register a shape, or object with writing, it may likely be interpreted to
mean that you were NOT SEEKING PROTECTION FOR THE WORDS apart from the
object and that you were NOT SEEKING PROTECTION FOR THE OBJECT apart from
the words with the result being that you will get very narrow protection for
the narrow combination only. So, if you have an object, it should be applied
for after the main word mark is applied for and it should not contain any
lettering or words.
8. How can registration of a GOOD trademark help me financially?
If a good, broad, non-confusing trademark is
chosen, especially using the selection rules above, it helps financially in
the following ways:
(a) Chances of litigation are reduced.
Because trademarks last theoretically FOREVER, any money spent defending a
trademark must be CAPTIALIZED which means that money spent litigating is
normally not deducted.
(b) By registering a mark and taking
advantage of the procedural advantages of registration, the necessity to as
beware of a catastrophic stealth applicant who may cut off YOUR priority
rights is lessened since the Patent & Trademark Office is likely to reject
copycats who attempt to register close to a GOOD trademark. (weak marks
which already have dozens of similar applicants are less likely to be
stopped by the USPTO examination process.
(c) Chances of having your GOOD mark
challenged in the early years are reduced. While in the period between
application and incontestibility (typically six years). If your mark is
unique it may become more obvious that someone is trying to take advantage
and slip past the USPTO. The trademark examining attorney is more likely to
force a close applicant of a GOOD mark to file a petition for cancellation
of your mark as a prerequisite to registering a mark of an applicant who has
a trademark close to your trademark.
(d) With a GOOD registered mark, your
advertising dollars are much less likely to support your competitors who
become aware that you have a trademark either registered or applied for and
that you have greater rights against them should they adopt your trademark
or a close imitation. Stopping advertising bleed is important because it
allows your competitors to make a higher ROI than you because your
competitor didn’t have to pay for advertising while reducing your ROI due to
paying for advertising that is only partially effective.
(e) A GOOD trademark embodies a “buy low” /
“sell high” approach. By choosing a unique (GOOD) mark which lessens the
need for litigation, expensive appeals, expensive surveys, to even obtain
first registration, a unique, GOOD mark represents an applicant’s best
chance for low cost.
(f) A GOOD trademark has much GREATER
GOODWILL CAPACITY. This means that it gains value FASTER and ends up with
HIGHER VALUE as time goes by. Each unit of effort you put into your business
should result in units of wealth (money) to be earned now, and units of
goodwill (money) to be cashed in during the future.
(g) A GOOD
trademark can be an important lynchpin for retirement / succession / sale /
transfer of business. Where the business is sold and where it is held in a
pass through entity, it garner’s capital gains on sale. Where the business
is simply passed on, a GOOD trademark may be where the majority of the value
lies. Where circumstances require that a straight sale is not possible, the
use of trademarks to control the buyer until the purchase is culminated can
add some security to a purchase, lease, licensing arrangement.
9. What about (a) State Trademarks, (b) DBA’s and (c) Corporate
state trademark system can be necessary for business which are less likely
to transact business across state lines. The general rules are similar to
federal trademark system rules on priority, but differ in that California
law requires a new business which fails to register before a second business
comes into the state to give up significant rights against that later
(b) The basic DBA system was put into place
to help potential plaintiff’s sue the correct person and is a REQUIREMENT of
law to register whenever an entity does business through a name other than
its own name. Although there are some low -level exclusivity rules for a
given county, these rules are generally “trumped” by federal trademarks.
Business which do not transact across county lines are much more likely to
avail themselves of more local DBA and state trademark system.
names are not per se protectible if the name does not also rise to a level
of high profile such that it is used as a trademark. For example, a given
entity name can be filed in California, Nevada, Texas, Japan and Germany.
The motivation of the secretaries of state that accept corporate entity
names for filing have generally the same motivation as for a DBA, namely
that a given name on its registry should be generally distinguishable from
the other names, even if similar (and this usually means that the name is
alphabetically different than the name above and below the new registrant’s
10. Why can’t Trademark Right be simply purchased like a business
Trademark rights accrue to goods and services based upon the theory that
successful name recognition will follow increasing quality and excellence.
Rights in a name begin with the use of the name. For this reason, later
users can be foreclosed from using a name, and earlier users can be stopped
from using a name that others have used more intensely at a later point in
trademark registration is somewhat of formalization of the recognition that
a trademark/service mark is established or establishable in the minds of the
consumers. Surveys and sampling can give solid indications of substantial
use which can affect the simplistic Rule 1 on substantial use and Rule 2 on
whether a trademark should be struck because it has been abandoned or
whether the word has become generic and descriptive of the item that the
word has come to describe.
11. What about searching?
search for a trademark is always recommended before adoption. In some cases
a string of searches can result in a serial line of recommendations not to
adopt. The use of the rules of thumb above as a pre-search filtering
criteria can save money and time on a full search. Another pre-filtering
consideration is the use of a computer Internet search with the fewer hits
the better. It is helpful to search phonetic variants, such as K and C in
English, C and S in English, and so on. In addition, an applicant should
also consider searching foreign phonetic equivalents, regardless of whether
it is a search for a native foreign word or for a foreign transliterated
equivalent of an original English word. For example, even if you start with
a dictionary English word (not recommended), such as “take”, the Japanese
meanings can include (a) another family (b) bamboo, (c) excel (root word),
(d) to be boiled (root word) and others.
Purposes for searching include: (1) find phonetic equivalents in the target
countries (both domestic and foreign) to avoid infringement and to test the
“distance” of your proposed mark from existing marks, (2) find potentially
embarrassing transliterations in foreign languages, (3) test the
relationship between your mark and the generic names of goods that it might
describe in other countries, and (4) searching while forming the mark to be
searched to find potential for puns, triple inferences, and word puzzle
fragments. The more unusual the made up word, the more time that consumers
may spend trying to figure it out and it might actually come to have some
form of advertising multiplier.
I apply for the mark, what happens then?
steps in getting a federally registered trademark after use has begun are
(a) have the owning, quality specifying
entity use the mark properly in interstate commerce (typically across a
(b) get a photograph (preferably .jpg or
.pdf) of the mark preferably applied to the goods or advertised with the
services and showing proper use of the mark.
(c) formulate a complete list of all goods
and services which are to be used with the mark to be applied for & prepare
to consider the strategy of applying for multiple classes and/or multiple
marks in different classes.
(d) submit the application for registration
and await examination which may occur in about one year after submission of
the application to the PTO. If the Examiner has sufficient problems with the
application to reject it, the Examiner will send an office action and the
applicant will have 6 months to answer the action. If the Examiner has a
small question you may get a phone call. If the Examiner allows the case, it
will be sent to publications.
(e) In publications, the allowed application
is formatted for publication in The Official Gazette, which is read by law
firms world wide to check whether they are interested in starting an
opposition procedure to prevent the applicant from being granted a trademark
registration, or whether to request a delay in registration while they
“think about “ whether or not they want to start an opposition proceeding.
An opposition involves the possibility of
actions occurring under a time line lasting about one year and may include
requests for admission, interrogatories, depositions and briefings. All of
the evidence is submitted to the Trademark Trial and Appeal Board that may
rule on the complete case in a little over a year.
(f) If no opposition is filed after about
60-70 days after publication (in order to give internal and external mail a
chance to clear), the applicant may receive a single sheet registration
certificate which includes the class and goods included in the trademark.
(g) Beginning on a date which is five years
after registration of the mark, and before 6 years after the registration of
the mark, the owner of the registration has an opportunity to file
affidavits of continued use under section 8 and 15. This filing is required
to keep the mark in force.
(h) Assuming that the mark was maintained at
a time between 5 and 6 years from registration, the applicant will have the
opportunity to renew the trademark in the year leading up to the 10th
anniversary of registration (and similar periods every year before each 10th
year period anniversary thereafter). Therefore, beginning on a date which is
nine years after registration of the mark, and before the 10th year
anniversary, an owner of a registered mark has an opportunity to file
affidavits of continued use under section 8 and 9 to effect the 10 year
renewal. This is continued in each successive 10 year period to keep the
trademark or until and unless it is challenged for other reasons, including
and not limited to abandonment and having become generic.
1. Why have a GENERAL PATENT - FAQ?
2. What is a patent?
3. What can be patented?
4. Are there different categories of
5. How are patents used to protect an
6. If it is intended to never litigate,
are there other advantages to have a patent?
7. What is needed to start?
8.What happens in the future once
everything is in place?
1. Why have a GENERAL PATENT - FAQ?
volume is written (by others and me) about patents and business startup but
this one is an extremely elementary presentation which isolates PATENT from
other topics to help an inventor get a quick-startup.
2. What is a patent?
grant of monopolistic property rights by the U.S. Government through the
U.S. Patent and Trademark Office for a short period of time.
capital asset under patent as a capital asset under IRC §1221(where it is
not used in business) or IRC §1231 (but only where gains exceed losses).
instant capital gains asset in the hands of the creator under IRC §1235.
Like all intellectual property generally, patents grant a “negative right
only”. This is one of the biggest misconceptions about patents as many
people think that a patent is needed to be able to manufacture (which is not
true). A patent gives its owner the right to prevent others from making,
using, or selling. A patent holder who makes his/her/its own product which
is the subject of its own patent, might still be sued regardless of the
presence of their patent.
3. What can be patented?
machines; such as an engine or a robotic arm for example;
compositions of matter; such as a new useful molecule or drug for example;
articles of manufacture; such as a Teflon sheet, or a fabric, for example;
process; such as making a new epoxy, or a process of treating a patient, for
non-tuber type plants; such as orchid plants or tomato plants, for example.
4. Are there
different categories of patents?
Utility patents are for machines, compositions of matter, articles of
manufacture, & processes, however a process claim can generally have only
its use prevented.
Utility patents typically have a period
which lasts no longer than 20 years from filing, with the ability to sue
infringers starting if and when the patent issues. Divisional applications
and continuation patents are highly encouraged in order to keep competitors
guessing as to the configuration of protection obtainable over the 20 year
life of the base patent.
Design patents protect the appearance of useful articles.(term 14 yrs from
A figurine with a clock in it is useful,
but a figurine with no use may be relegated to the ranks of three
dimensional copyrights. In other countries this category is simply relegated
to the category of “designs”. Designs are somewhat trademark-like in that a
design patent may have the capability of being turned into a three
dimensional trademark, especially after the benefit of a presumption of
secondary meaning after five years of commercial use.
Plant patents are for non-tuber (non-potato) type plants
Plant patents have a term
similar to Utility Patents and are unusual in that the examination is
carried on at the U.S. Department of Agriculture. Plant descriptions include
evenness and unevenness of branching, leaf shape and much much more.
5. How are
patents used to protect an invention?
a Utility patent, before issue, the claims may be published.
Where the level of protection of
claims is maintained throughout the prosecution (i.e. claim issue of the
same scope as the claims filed) there may be some protection afforded the
inventor in the period after publication and before issuance.
After Issue, a lawsuit may be brought for infringement.
This type of litigation has a
number of difference from state court litigation. First, it progresses
rapidly, second, it is very expensive and involves experts who will likely
have conflicting testimony about the patent. Third, the total bill for a
patent law suit may easily be in excess of one million dollars. Further, the
judgement outcome is more highly levered than a typical court case over a
debt. On one hand it is possible to get a judgement for plaintiff which
includes damages, punitive damages and attorney’s fees, it is also possible
to get a judgement for defendant which includes attorney fees. This means
that litigants risk more than their own damages, but risk paying the other
side’s attorney fees.
Insurance is a good way to reduce the risk of offensive litigation cost.
Considering an offensive
insurance policy only (where the patent holder is not necessarily in
business but sues on the patent against an infringer), a policy can be
purchased which may cover 80% of the cost of litigating the patent. In many
cases the remaining 20% can be covered with a bank loan or with a slight
contingency for the litigating firm. It is not unusual for litigating
attorney fees to be charged at $500 per hour. The solid financial assurance
of an insurance policy can, with significant probability, entice a firm to
take the case for $400 per hour.
manufacture or sales of a product is performed, defensive Insurance is one
of the best ways to reduce the risk of defensive litigation cost, and a
countersuit relating to your those products manufactured.
Considering an defensive
insurance policy only (where the patent holder is protecting a manufacturing
business from the patent lawsuits of others), a policy can be purchased
which may cover 100% of the cost of defending a business, and even some
coverage for winding out of the business should the manufacturer be found to
combined offensive and defensive policy may be advantageous.
In some cases multiple products
can be added under one policy. The development of competition in this type
of insurance has progressed slowly & very few companies that deal in this
type of insurance. The contact for this insurance is Jim Shepherd,
Intellectual Property Insurance Services Corporation, 9720 Bunsen Parkway,
Louisville, KY 40299, Phone 800‑537‑7863 or 502‑491‑1144; Fax 502‑491‑4888;
E‑Mail: email@example.com; website: www.infringeins.com
product can have several utility patents and several design patents.
In general it is best to combine
all utility inventions in one patent application since it can be split by
the Examiner into separate inventions. Where an applicant initially applies
for separate inventions, the Examiner can force the patents to be joined
together with a terminal disclaimer. Patents which are forced to be tied
together cannot be sold separately, and this may be an impediment to
maximizing value. The ability of the PTO to operate in this way makes no
sense and is often driven by a desire to have a simpler Examiner search and
conserve Examiner time.
Design Patents can focus upon different parts of the design object.
For example, in a new
automobile, one design patent can be applied for with views focussing on the
grille, while another focusses upon the rear bumper, while a third focusses
on the wheels, for example.
6. If it is intended to never litigate, are there other advantages
to have a patent?
patent application and an issued patent are muniments of title. It is
difficult to encompass an invention without an official filed regular patent
application, even if it never matures into a patent.
patent application (especially a previously published patent application) is
a powerful explanatory document which can be used to save staff time in not
having to explain the invention over and over at a trade show. It also
enables a greater publication of the previously published patent application
which increases the knowledge of the claims as published regular patent
application as an “inchoate” state of claims rights warning as they existed
previously published patent application can be used for cross licensing.
Cross licensing can be an important part of business, and so long as no
“boot” or side payment is involved, the internal revenue code and case law
has established this transaction to be non-taxable.
Patents, trademarks and to a lesser extent, Copyrights, can be used to
secure & enhance the sale of a business.
The security comes from the
ability to hold the intellectual property back unless and until the buyer of
the business or separate line of business keeps their promises regarding the
purchase of business. Further, where patents are held personally
(recommended) the seller can derive instant capital gains from the sale of
that patent or patent application. Further, where it is held personally, the
business seller has a completely separate ability to further assure that the
business seller complies with a purchase agreement. The enhanced sale comes
both from an enhancement of the value of the business due to the value of
the intellectual property, and also from the flexibility in what is sold. A
business owner can sell the patents alone, in order to generate capital
gains, and can sell ordinary gain assets in the business for slightly above
cost. (This may come to the fore where capital gain treatment may not be
possible for the business such as a sale of assets out of a corporation
where the buyer does not want any residual gain tax effects in buying the
sellers business entity, or where the business is so new that one year has
yet to pass from the date of use of the business assets. Except for the evil
penurious desires of vulture capitalists, I can think of no impetus to put a
patent into a business entity, given the above advantages.
Advertising “Patent Pending” can be a weak threat, but the status of “Patent
Pending + $1 million dollar insurance policy” can be much stronger.
Combining these two may be enough to ward off some potential infringers.
7. What is needed to start?
first step is finishing the invention, preferably to a level that the patent
will stand on its own without further invention, and even more preferably
being ready to launch a finished product.
would be rare for anyone other than an obsessed inventor to get a design
down to a level that gives the maximum value in the invention for the
minimum cost to make the invention. Usually someone who is hired to do this
for the inventor will typically not push for the minimum cost / maximum
Care must be taken by the controlling inventor not to get ideas from others,
either deliberately or inadvertently, as they are very likely to become a
co-inventor. If someone becomes a co-inventor BEFORE they are bound to
convey their invention to the controlling inventor, the controlling inventor
might never be able to combine to keep third parties from making, using, and
selling the invention via patent, because joinder of all inventive entities
is required to enforce the patent.
Once the patent is filed it is desirable to start selling the invention.
Even where an inventor wishes only to license to a company and never “touch
product”, if this is made known to companies interested in the product, they
may be more likely to “wait the inventor out” until the rights can be
obtained cheaply, OR negotiate with the inventor until such time that the
inventor waives the deadline for foreign patent filing and simply start
making the product overseas.
Pick a trade show associated with the product for a grand launch. It may be
a best chance to get all potential buyers under one roof over several days.
Consider the one year period between the filing of a regular U.S. patent
application and its one year anniversary as a free sale period where the
patent rights to other countries may be sold and where each sale of each
patent in each country becomes a separate capital gain item. At the
applicable deadlines, the invention owner must pay to secure rights in the
patent overseas, either by filing a PCT (extension) or by filing
individually in the countries of interest, or both.
8. What happens in the future once everything is in place?
Consider one or more of:
Keep improving and updating subsequent versions of the product.
Design and develop companion product to build a product line.
your low cost minima, the patent, and the offensive insurance program to
maintain a product monopoly everywhere.
Consider turning over to others the day-to-day operation of the company
selling the product while maintaining product design function concentration
the controlling inventor is drawn to another field, consider selling the
company and the patents and start over inventing a completely unrelated
product in a new and unrelated industry.
controlling inventor may consider moves to buy or overtake competitors who
have expertise in various other fields which will enhance the product.
controlling inventor may become a complete expert in the field to which your
product relates, and actively anticipate your industry’s direction.
Begin to move into estate planning for yourself and your family, including
exit strategies to insure that the wealth you have built into the product
company will be harvested on sale or will succeed to the next generation
for Design Patents
information is usually given by phone, but since at least one person needs
the explanation in writing, this procedure is given, in the nature of a
warning with factors, and the physical procedure.
Internationally, a design is known as an industrial design, but in the
United States it is referred to as a design patent.
Design Patents v. Utility patents. In addition to many aspects outlined
below, a design patent protects the "way the product looks" and is thus
quite graphically like a three dimensional trademark. The claim in the case
is typically a single claim that is in standard language and required by the
PTO. Conversely, utility patents protect "how the product operates" and may
generally include "articles of manufacture, processes, compositions of
matter, & machines" and has individualized claims that set forth the limits
of what is being claimed as part of the invention.
characterization of design patent is an important characterization in the
United States because design patents get the same "instant capital gains"
abilities and treatment as a utility patent.
Internationally, the design patent priority treaty period is 6 months
instead of the 1‑year period applicable to utility patents.
design patent has very limited language in the design patent specification;
very little explanation or detail is permitted.
more importantly, the design patent normally has a very narrow
interpretation. Courts will not strain to find equivalency as to designs.
Design patents should be applied for on designs that will not change over
the productive life of the product. Soft products, such as sewn objects are
the least reliable in meeting a non‑change objective, because an individual
shop with different machines can inadvertently make different looks for an
object based upon the limitations of their machinery and starting materials.
Put another way, ideally, the design patent should be applied for when your
are confident that you could hit a "theoretical button" to start a million
identical units rolling off of the assembly line.
8. In addition to a generally narrow
interpretation, design patents can be made even more narrow by including
more views, and physical surfaces and areas and details of the inventive
product than less. As a simple geometric example, consider a cubic block
with six faces. If the cube is a device with an interesting front face, but
the other faces are plain, it might make sense to apply for design patent
protection for only one face. If the cube is a device with an interesting
front face and back face, but the other faces are plain, it might make sense
to apply for design patent protection for two faces (although this may or
may not be either possible or desirable in a single design patent
war story to aid in understanding of the above, is that a belt‑&‑attachment
patent holder once made a belt and two types of attachments to that belt,
where one could be used without the other. The belt was very generic and
old. The patent applicant thought he would save money by having the design
patent show the belt with both attachments mounted on the belt. This design
patent owner foolishly believed that he could threaten manufacturers who
made one attachment only. The design patent that shows 3 elements typically
requires that an infringer show at minimum the three elements in the
why the selection of what is included in a design patent application is
critical in determining the scope of the patent. If the belt‑&‑attachment
patent holder had not been "economizing" by trying to load everything into
one design patent application, he could have obtained a design patent for
each of his attachments (and one for the belt if it had been new). He would
have selected the design patent which matched the product being manufactured
by what he thought were putative infringers. Assuming this belt‑&‑attachment
patent holder had spent less than $2600 for an additional design patent, how
many tens of thousands of dollars could he have properly collected in
Further with regard to focussing upon what the invention is, another factor
is to leave out things that are ugly, things that might change if the object
were manufactured by someone else, and things that may be artificially
forced for a particular model of the invention. A good example is the
"bug‑eyed" Jeep grille consisting of a pair of headlights outside a
rectangular grille. Jeep designed variants on this theme and used the design
in dozens of vehicles of different type, size, shape and purpose.
Design Patent v. Copyright. One of the main dividing lines relating to what
can the subject of a design patent is the dividing line between copyright
and design patent. Why is this dividing line so important? (1) Design Patent
assets receive asset and instant capital gains taxation on sale, whereas
most copyright items are hard‑wired to prevent their even being assets, and
get no capital gains on sale. This severe difference is highlighted by the
goods that live close together on the Design Patent‑Copyright Border.
statuette of Marie Antoinette as a figurine intended only as a dust‑catcher
is a three dimensional copyright item. The same statuette with a clock
embedded into the bottom, or with a hole to enable it to be a pencil holder
makes it a design patentable item. In addition, you may have a first version
without a clock that might be copyrightable, and a second version with a
clock that is design patentable. You should likely do copyright for the
copyright version and design patent to the version which has some sort of
v. Design Patent ‑ Overview
Two and Three dimensional
trademarks share a lot of characteristics with design patents., and are
ideally meant to complement each other over time, especially at a point in
time 5 years after the product is being sold. The design patent gives a
quick start with severe tax advantages, while the later trademark has some
tax advantage, but lasts forever. In fact, I consider design patent to be a
"quick start" for a long term trademark where it is applicable.
v. Design Patent ‑ Fancifulness
Both dimensional trademarks and
design patents are supposed to capture non‑functional aspects of a
utilitarian object. Design patents are rarely challenged for having merger
for fanciful and utilitarian aspects as the deviancy from the utilitarian is
easy to achieve. The challenge to three dimensional trademarks in terms of
identifying which design (shape) features have a utilitarian function and
which are purely fanciful can be severe. In one case, a two‑pronged flat
fuse design was litigated and resulted in a list of specific shapes which
were purely fanciful and those that were functional. The result of the
identification of functional, utilitarian, non‑fanciful, & necessary
physical aspects of the an object acts as an indicator to those who wish to
copy the object, that those features are not covered by the three
dimensional trademark. Likewise, an indication of fanciful aspects of the
three dimensional trademark design is an indication of those aspects that
may constitute infringement if they are copied.
v. Design Patent ‑ Differences
Design patents (a) have a high
patentability allowance rate, (b) are fairly narrow in terms of enforcement
(c) have a ready tax deductibility, (d) produce instant is an asset
producing capital gains, (e) have almost zero liability to the holder of a
design patent, (f) have a novelty (newness) requirement, (g) take about 1‑2
years for issue ‑ typically without a substantive rejection, (h) have a 14
year from issuance validity, and (i) have some importation protection, but
typically only through an ITC court action which can then be used by customs
officials to seize infringing goods from entry into the U.S.
dimensional trademarks (a) have a low examination allowance rate, (b) are
visually narrow in scope, but legally expanded in their inforcement, (c)
have no deductibility for self created trademarks (but may have a 15 year
write‑off for acquired trademarks), (d) is an asset producing capital gains
but only after a one year holding period by the seller, (e) has great
liability to the owner of the trademark (which is one reason why it is
usually recommended that trademarks be held by a limited liability pass‑thru
entity), (f) no novelty requirement and in fact having more than 5 years on
the market is an advantage in applying because it enables the owner
applicant to invoke a "presumption" of "inherent distinctiveness / secondary
meaning" which can help the application, (g) takes about 2‑3 years to issue
as there will nearly always be a substantive rejection that must be argued,
(h) have an infinite life subject to periodic renewals, and (i) have some
importation protection by registering the trademark directly with U.S.
Customs to enable officials to seize infringing goods from entry into the
v. Design Patent ‑ Similarities & Synergies
When you get down to it both
design patents and three dimensional trademarks have the same objective,
namely to give some exclusivity (prevent knock‑offs) to an item so that
others cannot "palm off" items made by someone else by confusing the
consumer about their real identity. When you combine the "jump‑start" start
characteristic of design patents and the 5 year presumption in three
dimensional trademarks, it can be easily seen that the optimum path is to
apply for the design patent by the inventor before any products have been
made or sold, and then perhaps at 5‑6 years after introduction of the
product to then have an entity such as an LLC or corporation (preferably
having a relationship with the inventor) to apply for a three dimensional
trademark which might hopefully issue before the fourteen year term of the
design patent expires.
v. Design Patent ‑ Taxation Synergies
Design patents have instant capital gains to the inventor owners both during
pendency and 14 years after issuance. Low tax rates of 0%, 15%, 20% and
23.8% are available for warm blooded humans, and not C-corporations. The low
liability of ownership patent is typically held by the inventor. Typically
an LLC or similar entity if formed before selling a product to protect the
seller from liability of various kinds. (You may have to plan a bit farther
to get some sales, employment and income tax liability insulation). An
entity (which need not be the same or different entity that is buying,
storing and shipping inventory) is typically needed anyway because of the
liability inherent in being the trademark owner because "a trademark owner
is the entity that controls and specifies the quality and the nature of the
goods." In addition to the hundreds of ways you can get into trouble for
carrying on business, personal ownership of the trademark means that you
were the last person to check for defects and thus harm in the product
before it went out the door. Even being a trademark owner where you didn't
even touch the goods (such as by a license agreement) might be sufficient to
invoke liability. With a pass‑thru entity such as an LLC or S‑corporation,
that pass‑thru entity's adoption of the three dimensional trademark (and
other trademarks) if held for more than one year, will also result in the
low tax rates of 0%, 15%, 20% and 23.8% are available for warm blooded
humans, and not C corporations.
16. TM v. Design Patent ‑ Business Flexibility
Assuming a desire to get the
best tax treatment, the owner of the design patent and/or three dimension
trademark application is approached to sell the product "separate line of
business", the owner can simply sell the design patent and have all of the
consideration allocated to that aspect of the sale. Sale of the trademark by
the pass thru can be timed to occur later on when the one year holding
period is satisfied. Other timing alternatives include options to buy, where
more time is needed for a variety of reasons. Where the buyer lacks the
cash, the design patent (or application) and the trademark (or trademark
application) can be held by the seller and his entity as a fee‑simple
ownership option that does not require the risks otherwise inherent of
assignment followed by security interest recordations in the U.S. Patent &
Trademark Office, as well as the necessity to sue to obtain a return of
title of patents and trademarks should the sale of the separate line of
business fall through. If the sale does fall through the focus would be on
the sales contract and ancillary actions to force the buyer to return title
to the design patent (or application) and the trademark (or trademark
v. Design Patent ‑ Insurance Flexibility
For patents (both utility and
design) there is offensive patent insurance and defensive patent insurance.
It is my understanding that offensive patent insurance policies can be made
to cover both utility and design patents and applications aimed at the same
product. Defensive patent insurance is more "protect the manufacturer"
oriented and is usually centered upon the group of products being
manufactured, whether the manufacturer seeks patent protection or not.
Conversely, commercial liability insurance doesn't cover much intellectual
property at all without an "advertising rider" which helps the insured
defend against trademark and copyright law suits for inadvertently confusing
the public. The natural dividing lines between these insurance products is
helpful where the insured entities may or may not manufacture, or may or may
not have patents, etc. Further isolation of entities can provide some
additional insulation from lawsuit losses.
Your Personal Wealth and Tax Savings
Most state tax regimes do not
give a reduced tax rate for capital gains. Therefore it is of extreme
importance to consider relocating to a state having NO state income tax. As
an example, California has a state income tax top marginal rate of 13.3% Its
true that an inventor that makes a single invention or a series of smaller
inventions centered around one product or business, and who intends to never
sell his patent or trademark, it may not be worth uprooting and moving out
of state at least until retirement. If the business will never make more
than $100,000 per year, there is not much incentive in moving to a low tax
rate jurisdiction as you may already be paying a relatively low tax that is
offset by advantages of your high state tax locale.
However, for inventors that are prolific,
that want to continuously create and spin off new products and companies,
and where those inventors find themselves at the top of the tax brackets, it
makes sense to move their personal domicile and business operations to zero
tax rate states. An inventor that benefits from predominantly capital gains
will have a 23.8% tax rate plus that inventor's state tax rate. For such a
California inventor, and on a second $1 million per year in income, the
inventor will pay $238,000 in federal tax and $133,000 in California state
tax, a combined total of $ 371,000 in taxes, keeping $629,000. That same
inventor as a Nevada resident and on a second $1 million per year in income,
the inventor will pay $238,000 in federal tax and keeping $762,000. Why
WOULDN'T you move your domicile? (It doesn't mean you can't own property and
vacation homes in high tax states, but why have your residence there?
Physical procedure & time line for design patents:
(a) Finish the invention. This
means that what you have is something that is completely finished, the
internals are worked out, the production details are done, and you are
CERTAIN that it can be produced in high quantities with effectively no
variance between the 100th product produced and the 1,000,000th product
produced. In other words you know the exact unit cost to make the product
and you have taken steps to insure that THIS DESIGN will not change. Its ok
to have different future versions and improvements, but you have only one
version FOR THIS DESIGN. Once you file it, and because of the narrow nature
of design patents, you can't change it. The patent system gives you credit
for what you disclose and claim at the time you disclose and claim it.
Carefully consider the separate aspects of the design invention that you
would independently like to protect. Like the example above, it does no good
to load in several components of a design in a single design patent filing
when you know that smaller portions of the total design are likely to be
replicated and copied into other products independently. Put another way,
ask yourself which part of the design invention is most likely to be taken
and copied by someone else, without a taking and copying of the complete
object. Then ask yourself which part of the design invention is second most
likely to be taken and copied by someone else, without a taking and copying
of the complete object. Repeat for third most likely, etc. if applicable. If
the design portions are independent and independently copyable, ask yourself
if you mind if someone copied that (sub portion) of the product. If the
answer is "yes" you would be annoyed if someone copied that (sub portion) of
the product independently, then you should apply for separate design patent
applications on each of those (sub portions) of the product. Besides, should
someone copy the whole product in a rote fashion, you will have several
design patents covering the product as a whole.
Contract with a patent attorney to apply for design patent protection
preferably BEFORE the product is ever shown or ever known by the public.
Remember that except for the United States and its 1 year of allowed delay
of filing, the remainder of the world generally requires that a design
patent application be applied for before any introduction to the public. Any
internet showing of the product before the effective date of the U.S. design
patent filing date, may cause loss of all other world wide patent filing
rights. The foreign jurisdictions won't know at the time that you apply, and
you may only have positive proof after you have spent much money applying
overseas and much more money attempting to enforce your foreign design
patent, and then have the other side show you your mistake of publishing the
invention before its effective filing date.
Provide the patent attorney with a three dimensional computer model, if
possible, to insure that the details are present, and to enable you and the
patent attorney to critically look at and consider each physical element of
the design. If a three dimensional computer model is not available, insure
that the sample, drawing or model upon which the design patent exists will
exactly mirror and accurately depict the final product. If there is a
variance, you will have ended up spending money to design patent "product X"
while you ended up manufacturing "product Y" which will likely not be cover
"product Y" and you will have to file a second design patent to attempt to
capture rights in the design patent of "product Y".
While the patent application is being prepared, complete a comprehensive
business & marketing plan, taking into account foreign and domestic
production costs; packaging; overhead (including, at a minimum, patent
insurance, corporate entity formation costs, product liability insurance,
and inventory financing); costs associated with the product pipeline; cost
variations based on projected sales channels such as distributors and
distributor programs, direct Internet sales, and contract sales to catalogs;
and costs of selling or manufacturing in foreign countries, including
import/export efficiencies, tariffs, sea‑container packing densities, and
foreign tax effects of direct marketing or sales‑agent licensing, just to
name a few. A comprehensive and carefully detailed business plan including
at least these indicators is a prerequisite to determining the true value of
the product. Without this level of information, the value of the product
simply will not practically and reasonably be known. Check that you have
collected contact information for: all trade‑related magazines, trade sales,
and trade‑related product publications; All newspapers and magazines in any
way related to the invention, A list of product endorsers, particularly
those who might endorse without compensation, and even local elected
officials, comedians, radio personalities, and other public figures.
(f) Immediately consider the
purchase of offensive and defensive patent Insurance. Patent insurance in
the U.S. is handled by one carrier, Intellectual Property Insurance Services
in Kentucky. Contact Jim Shepherd, TOLL FREE: (800) 537‑7863, 9720 Bunsen
Parkway, Louisville, Kentucky 40299 (502) 491‑1144. If you are going to sell
the product directly, set up an LLC. Consider carefully any involvement with
sales tax due to both the criminal and civil liability attached. It may be
preferable to create a distribution/sales location in a state without
draconian laws that impose personal liability on the individual based upon
that individual's ownership of the entity conducting business.
Gather and produce all information needed to promote the product. Articles,
short, long, and medium; photos and drawings; video presentations, set up
software content a web site (don't launch or go live until a patent is
applied for). Set up a spread sheet with selective data, but with long term
projections in the event that someone wants to approach you to buy the
product, the patent, & the trademark in its entirety. Plan your trade show
appearance within no more than four months after your planned design patent
filing date. A trade show visit might provide the best opportunity to put
all your potential buyers in one place, and it also might be your best
opportunity to initiate large numbers of sales and may also be your best
opportunity to introduce your product to the industry. (never send anything
out or make anything available to the public until after the design patent
has been filed).
Once you are satisfied with the strategy and approach of the design patent
and the final design patent application(s), execute the signing papers and
have the patent attorney file the application. Send any filing papers to the
insurance company you have applied to for patent insurance. Note the filing
date and docket a reminder to consider foreign design patent applications
within 4 months of your U.S. design patent filing date to make sure that you
can take action well within the 6 month treaty date for filing overseas
using your U.S. priority date.
After you have proof that the design patent was submitted, begin your
marketing activities. The 6 month treaty right gives inventors the right to
export their priority date to foreign countries by filing in those
countries. Use this time period to entice foreign manufacturers and buyers
of your patent (should you choose to sell it) to pay you for the rights in
their country in advance of your filing for patent and trademark rights
there. Any foreign licensee‑buyers of your patent you are able to sell in
advance may generate tax favorable income AND secure rights overseas without
your having to lay out any capital. Whether you license or distribute in
another country will depend upon a myriad of factors too technically diverse
to be dealt with in this list.
Sell and market into every product segment imaginable. Include original
manufacturers, retrofit manufacturers, promotional products manufacturing,
sub licensing competing manufacturers, look globally and examine the
distribution chains of other manufacturers. If you go all‑out, you will have
valuable data to help you decide what to do at each point along with way in
your new product project. Always keep open to making an option to sell the
complete product line should the terms be "clean" and "reliable."
5 months after filing make a final decision on your foreign filing and
foreign patent insurance based upon (a) response at your trade show, (b)
current sales, (c) different market penetrations, (d) foreign licenses and
distribution agreements, (e) total sales, & (f) availability of funding to
about 1‑2 years after filing, note any office actions and respond; or note
any notices of allowance from the U.S. Patent & Trademark Office and pay the
issue fee by the non‑extendable issue fee date.
Receive the ribbon certificate approximately 1‑2 months after the issue fee
Why is copyright by
far the least advantageous of the intellectual property rights?
the exception of "music" (an exception carved out a few years ago)
copyrights that are "self created" have been "hard-wired" in the Internal
Revenue Code to be precluded from asset treatment. This means that
creator's copyright filings only become assets after the first sale.
This prevents non-music copyright creators from (a) capitalization, (b)
capital gains treatment, even from sale after holding for a year, and
potentially exposes copyright creators to self-employment tax where
creations are commissioned.
2. Copyright lawsuits operate under the
"loser pays" the winner rules. This means that even if a copyright
holder brought a law suit by prosecuting it alone (pro-se) without a lawyer,
loss of the case could mean a bill representing the cost of the winner's
legal fees and court costs. It might not be unusual for 3-4 attorneys
to be present on the opposing side, and the loser (copyright holder) could
be presented with a bill for millions. Thus, an ideal copyright
plaintiff might be someone who is destitute and therefore judgement proof.
3. Copyright Authors are under continuous
uncertainty about the extent to which they can deviate from absolute
originality. Where the author starts with anyone else's text, characters,
photos, artwork, and more; there is continuing worry about whether the work
they create is "derivative" of the original author's work and thus whether
the original author has rights in their creation. One author and a work
created compared to another author and another work created disguizes the
fact that many copyrightable works can perhaps each be related to dozens of
other works. Insurance may be utilizable for some aspects of these
types of controversy, but the author typically has to be "in business"
rather than a hobbyist.
4. Copyright issues and damages will
typically take a back seat to trademark issues and damages. This means that
copyright authors may be unable to effectively limit their focus strictly to
copyright issues. Where the copyright owner is also a trademark owner of
related rights, or where the copyright infringer has trademarks that
predominate over the copyright elements in the accused infringements, will
force a much more in-depth analysis of the costs and risks of bringing suit.
5. Greater threat of sanctions for less
obvious connections between the copyrighted work and accused infringer's
activities. Rule 11 sanctions are imposed where a plaintiff brings a
copyright suit without insuring that there is a reliable, recognized and
legitimate connection between the rights of the copyright holder and the
work of the putative infringer. Thus the copyright owner could be
sanctioned by the court, including the defendant's attorney fees, punitive
damages and court costs even before the case enters its substantive phase.
Because the extent of copyright rights is often not as characterizable as
rights in patent and trademark, the copyright owner is typically saddled
with the need to get costly expert opinions before a copyright lawsuit is
even contemplated, to try and assure the copyright owner that instituting a
suit will not result in sanctions.
6. The potential for a criminal copyright
indictment increases an author's angst to an even greater degree than for
7. Authors of older works are often
difficult to identify and contact. This ranges from physically
tracking them down to accurately finding a proper successor-in-interest with
whom to deal regarding re-production of portions the older work necessary to
create the type of work that the new author is trying to assemble.
The PATENTAX 浪人
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