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PATENT & TRADEMARK & THEIR TAX ADVANTAGE




Trademark Frequently Asked Questions (FAQ)



Patent Frequently Asked Questions (FAQ)



Design Patent Procedure Checklist (FAQ)



Copyright Frequently Asked Questions (FAQ)
 



Potential Action Items I Can Help You With:

(1) Help Plan To Formalize IP Rights

(2) Draft, File & Prosecute A Regular Patent Application

(3) Strategize A Critical Timing Sequence To Test Perceived Value

(4) Advise On A Business Structure

(5) Advise on Worldwide Exploitation

(6) Tax Analysis of Proposed License

(7) Bankruptcy Analysis of Proposed License

(8) Use of Purchase Option for Timing

(9) §1235 Holder Status Evaluation

(10) Patent Application Restriction Planning

(11) Buy Low - Sell High Trademark

(12) Operational Isolation Planning

(13) Entity Sales Tax Liability Planning

(14) Distribution Sales Tax Minimization Planning

(15) Ordinary v. Capital Gains Segregation

(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 Analysis

(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 trademark?
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 happens then?


1. Why 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.

2. What is a Trademark in terms of its:

(a) 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.

(b) 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.

(c) Capital Asset Nature? A trademark is a capital asset under IRC 1253(a) & 1253(b)(2)

(d) 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 holding.

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 advertisements.

4. How does the American Trademark System Priority work in terms of a basic rule?
Two basic priority rules:
Rule 1: First SUBSTANTIAL user wins
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 1.

5. Is it a good idea that “just any” trademark should be applied for?
No. There are several reasons for this:

(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 database.

(b) If a business picks a weak mark its profitability can “bleed” away in several ways.

 

6. What 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 dictionary.

(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 ALIKE.

7. What about LOGOS?

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 names?

(a) The 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 business.

(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.

(c) Corporate 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 entity name.

10. Why can’t Trademark Right be simply purchased like a business license?

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 time.

In essence, 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?

A full 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.

12. Once I apply for the mark, what happens then?

The steps in getting a federally registered trademark after use has begun are generally:

(a) have the owning, quality specifying entity use the mark properly in interstate commerce (typically across a state lines)

(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 patents?
5. How are patents used to protect an invention?
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?

A large 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?

(a) A grant of monopolistic property rights by the U.S. Government through the U.S. Patent and Trademark Office for a short period of time.

(b) A 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).

(c) An instant capital gains asset in the hands of the creator under IRC §1235.

(d) 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?

(a) machines; such as an engine or a robotic arm for example;

(b) compositions of matter; such as a new useful molecule or drug for example;

(c) articles of manufacture; such as a Teflon sheet, or a fabric, for example;

(d) a process; such as making a new epoxy, or a process of treating a patient, for example;

(e) non-tuber type plants; such as orchid plants or tomato plants, for example.

4. Are there different categories of patents?

(a) 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.

(b) Design patents protect the appearance of useful articles.(term 14 yrs from issue)
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.

(c) 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) In 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.

(b) 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.

(c) 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.

(d) If 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 be infringing.

(e) A 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: info@infringeins.com; website: www.infringeins.com

(f) A 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.

(g) 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?

(a) A 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.

(b) A 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 at publication.

(c) A 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.

(d) 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.

(e) 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?

(a) The 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.

(b) It 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 value design.

(c) 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.

(d) 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.

(e) 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.

(f) 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:

(a) Keep improving and updating subsequent versions of the product.

(b) Design and develop companion product to build a product line.

(c) Use your low cost minima, the patent, and the offensive insurance program to maintain a product monopoly everywhere.

(d) Consider turning over to others the day-to-day operation of the company selling the product while maintaining product design function concentration personally.

(e) If 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.

(f) The controlling inventor may consider moves to buy or overtake competitors who have expertise in various other fields which will enhance the product.

(g) The controlling inventor may become a complete expert in the field to which your product relates, and actively anticipate your industry’s direction.

(h) 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 taking over.

 




Procedure Checklist for Design Patents

This 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.

1. Internationally, a design is known as an industrial design, but in the United States it is referred to as a design patent.

2. 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.

3. The 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.

4. Internationally, the design patent priority treaty period is 6 months instead of the 1‑year period applicable to utility patents.

5. A design patent has very limited language in the design patent specification; very little explanation or detail is permitted.

6. Even more importantly, the design patent normally has a very narrow interpretation. Courts will not strain to find equivalency as to designs.

7. 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 application).

My best 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 infringing product.

This is 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 involuntary royalties?

9. 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.

10. 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.

A 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 utilitarian purpose.

11. TM 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.

12. TM 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.

13. TM 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.

Three 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 U.S.

14. TM 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.

15. TM 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 application).

17. TM 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.

18. 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?

19. 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.

(b) 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.

(c) 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.

(d) 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".

(e) 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.

(g) 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).

20. 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.

21. 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.

22. 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."

23. At 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 expand.

24. At 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.

25. Receive the ribbon certificate approximately 1‑2 months after the issue fee is paid.

 



Why is copyright by far the least advantageous of the intellectual property rights?

1. With 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 civil liability.

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.

8.Many more.....

 



 

 



 

 

 

The PATENTAX 浪人

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