The Box Innovations v. Travel Caddy
37 CFR § 1.27(a) defines what is a small entity according to the USPTO. Essentially, 37 CFR § 1.27(a) defines a small entity as individual or small business that has only transferred any of it patent rights to another party that is also a person, small business concern, or non-profit. 37 CFR § 1.27(a) defines a small business concern is any assignment, grant, and/or license of any rights in the invention. Therefore, by a small entity licensing patent rights of their patent invention to a large entity, they would lose small entity status.
Outside The Box Innovations v. Travel Caddy, is a recent patent law case that is directed towards what is considered a small business concern. This blog post includes suggestions on how a patent attorney can avoid having a patent that they prosecuted be subject to an inequitable conduct law suit.
In The Box Innovations v. Travel Caddy, Travel Caddy made an arrangement for a distributor, The Rooster Group, to sell their patented product. The Rooster Group was a large entity with more than 500 employees.
Travel Caddy argued that The Rooster Group was its distributor and was not a licensee. However, the district court held that Travel Caddy had entered into a patent license because the agreement included provisions relating to supply, delivery, quantity and other terms congruent with a commercial sales agreement, such as exclusive sales rights. Additionally, the committed inequitable conduct because it had claimed small entity status while having a financial agreement with a large entity, and therefore Travel Caddy’s related patents were unenforceable.
On appeal, the Federal Circuit held that materiality and intent are two separate and distinct requirements to determine inequitable conduct. The Federal Circuit reasoned that though a false assertion of a small entity status was claimed, it did not amount to inequitable conduct because there was no evidence that Travel Caddy’s patent attorneys or employees of Travel Caddy involved in patent prosecution knew of the patent license to a large entity.
Therefore, the Federal Circuit held that Travel Caddy’s patent attorneys or employees of Travel Caddy involved in patent prosecution did not deliberately withhold information in order to pay small entity fees. In response, Travel Caddy could pay the differences between the small entity fees and large entity fees and be on their way.
Patent Attorney Takeaways:
1) Before filing a patent application as well as before paying an issue fee, ask the inventors/other employees at smaller companies if they are aware of who the distributors are for their product. It is very likely that at a small company if a patent product were being mass marketed, that an inventor would track the evolution of his/her product into the marketplace. If the inventor is unsure of who is making/selling the patent product, a patent attorney should follow up with the company’s general counsel. By following up with the inventors and/or general counsel, patent attorneys may avoid having inequitable conduct suits brought against them, and companies may avoid having their patents invalidated.
2) Upon conducting an inventor interview or in your invention disclosure form, make the inventor aware of what is required to maintain small entity status, and to let you know if their product is licensed or assigned to a company with a large entity status. By having a written statement in your inventor disclosure form about what the requirements to maintain small entity status, patent attorney’s may avoid malpractice suits that may occur if a company’s patents are held invalid due to inequitable conduct for failure to report a change in a company’s status from a small entity to a large entity.