[Ip-health] Proposed Rules: Identify the True Owner on Pain of Abandonment

Claire Cassedy claire.cassedy at keionline.org
Thu Feb 6 06:22:11 PST 2014


Proposed Rules: Identify the True Owner on Pain of Abandonment

February 5, 2014

By Dennis Crouch

In one of her first acts as de facto USPTO Director, Michelle Lee has
proposed a new set of rules associated with patent assignment recordation.
The proposal is quite complicated (occupying 18,000 words in the Federal
Register) but the general idea is (1) that information regarding who owns
which patents should be available to the public; (2) some rights-holders
have been taking steps to hide their identity; and therefore (3) the USPTO
proposes to require greater transparency. Although the proposal is signed
by Deputy Director Lee, it was a White House initiative well before she
took office.

The Office is proposing ... to require that the attributable owner, including
the ultimate parent entity, be identified ... on filing of an application (or
shortly thereafter), when there is a change in the attributable owner
during the pendency of an application, at the time of issue fee and
maintenance fee payments, and when a patent is involved in supplemental
examination, ex parte reexamination, or a trial proceeding before the
Patent Trial and Appeal Board (PTAB). The Office is also seeking comments
on whether the Office should enable patent applicants and owners to
voluntarily report licensing offers and related information to the Office,
which the Office will then make available to the public in an accessible
online format.

The recordation requirement would be retroactive and apply to all live
patents and patent applications. However, the USPTO suggests that "most
additional reporting will need to be done by companies that have
complicated corporate structures and licenses, which often include the
complex structures used by certain patent assertion entities ("PAEs") to
hide their true identities from the public." The proposed penalty for
failure to comply would have some teeth: abandonment.

Comments on the proposed rules are due by March 25, 2014 and can be emailed
directly to: AC90.comments at uspto.gov. The review is being spearheaded by
James Engel and Erin Harriman who are attorney advisors in the Office of
Patent Legal Administration (OPLA).

Why: Before getting into the details of the proposal, we might pause to
consider why the USPTO is proposing this new requirement. The USPTO
identifies several potential benefits of a more complete ownership record.
According to the USPTO, enhanced assignment information will:

"[A]llow [competitors] to better understand the competitive environment in
which they operate."
"[E]nhance technology transfer and reduce the costs of transactions for
patent rights since patent ownership information will be more readily and
easily accessible."
"[R]educe risk of abusive patent litigation by helping the public defend
itself against such abusive assertions by providing more information about
all the parties that have an interest in patents or patent applications."
In addition to these public benefits, the USPTO argues that the assignment
information will help the office in several ways, such as avoiding
conflicts of interest and better identifying double-patenting problems.

The key issues regarding the rules are (1) which rights-holders must be
named? (2) Under what circumstances must a parent-entity be named? (3) What
is the timeline for providing information to the USPTO? And (4) what would
be the consequences for failure to fully comply with the regulations.

Who is an Attributable Owner?: In my 1L property law class, we discuss all
sorts of way that property rights can be divided amongst present and future
interest holders; lienholders; easement holders; those with equitable
rather than legal title; etc. The proposed requirement here identifies
three particular class of rights-holders who will be required to record
their interest: (1) titleholders (someone who has been assigned title); (2)
those with rights-of-enforcement (such as exclusive licensees or others
that would be a necessary party to an enforcement action); and (3) entities
created in order to temporarily divest (or prevent vesting) of title or
enforcement rights (such as a trust, proxy, etc.). One difficulty here is
that patent ownership interests are defined by a mixture of local law
(state and/or foreign) and federal law. It is quite difficult to create a
simple rule that fits to each of the hundreds of potential local
jurisdictional mechanisms of operation.

Parent Entities: In addition to the attributable owner, the law would also
require the recordation of any "ultimate parent entity" of any of the
attributable owners. As a term of art, ultimate parent entity is already
defined by 16 CFR 801.1(a)(3) and the USPTO is intending to follow that
approach. Chapter 16 of the CFR generally relates to commercial practices
and is promulgated by the Federal Trade Commission (FTC). The definition is
as follows: "The term ultimate parent entity means an entity which is not
controlled by any other entity." The CFR provides the following three

1. If corporation A holds 100 percent of the stock of subsidiary B, and B
holds 75 percent of the stock of its subsidiary C, corporation A is the
ultimate parent entity, since it controls subsidiary B directly and
subsidiary C indirectly, and since it is the entity within the person which
is not controlled by any other entity.

2. If corporation A is controlled by natural person D, natural person D is
the ultimate parent entity.

3. P and Q are the ultimate parent entities within persons "P" and "Q." If
P and Q each own 50 percent of the voting securities of R, then P and Q are
both ultimate parents of R, and R is part of both persons "P" and "Q."

Although not clear from the definition, there is an idea that a parent
entity must exhibit some amount of control over the subsidiary. One purpose
here is to identify "hidden beneficial owners."

Penalty for Failure to Comply: Abandonment.

Read the Rules and Comment: 79 FR 4105 (2014).

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