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US Patent Law - Discouraging an International Business Model?

In the recent decision of Solvay S.A. v. Honeywell International, Inc. (2009-1161, Fed. Cir. 2010), the Federal Circuit held that despite both being first to possess an invention in the U.S. and practicing reasonable diligence prior to filing, Honeywell did not receive priority under 35 U.S.C. § 102(g)(2), because the invention was first made in Russia by an agency under a contract with Honeywell (then Allied Signal).  As a result, despite Solvay being the second to invent, the District Court’s finding of invalidity of Solvay’s U.S. Patent No. 6,730,817 was reversed, and the finding of infringement by Honeywell was affirmed. 

Even if a goal of 35 U.S.C. § 102(g)(2)’s requirement that “before such person’s invention thereof, the invention was made in this country by another inventor…” is to protect and favor U.S. businesses, it seems like the wrong result when a U.S. company creates an invention abroad via a contractual business relationship and is not awarded priority over another company that independently invents the same invention second in time. 

Honeywell had not publically disclosed the invention; it was kept secret within the company.  Thus the provision of 35 U.S.C. § 102(a) that “the invention was known or used by others in this country…” did not apply.  As discussed in the M.P.E.P. at 2132.01(I), “known or used” in § 102(a) means publicly known or used.  If Honeywell had disclosed or used the invention this way, then § 102(a) would have applied, but it would have started the § 102(b) clock as well.  Additionally, and perhaps more importantly, such a disclosure would have resulted in the loss of foreign filing rights in most countries. 

The business relationship between Honeywell and the Russian agency didn’t allow Honeywell to successfully argue that a business organization located in the U.S. made the invention first, and 35 U.S.C. § 102(g)(2) requires the invention to be made “in this country”.  For companies that choose to outsource inventing activities abroad, a solution is to rapidly file a PCT application designating the U.S., perhaps preceded by a national stage filing in the country in which the invention was made.  By treaty, a PCT filing in English designating the U.S. is treated like a regular U.S. filing for priority purposes.  However, this clearly gives companies that invent in the U.S. an advantage, as they can seek the protection of § 102(g)(2), and can thus potentially withhold an invention from the public for a longer period of time with less worry.  The U.S. inventor will need to be vigilant to ensure no § 102(b) disclosures occur, but otherwise they need only be reasonably diligent prior to filing.  This could allow companies that invent in the U.S. to be more selective about what they ultimately seek to patent, and to bring an invention to a more highly finished state at the time of patenting, which can increase the quality and corresponding value of granted patents.  Even a slight time advantage can be extremely important for inventions that bring in the highest profits near the end of their patent term, such as pharmaceuticals. 

But with the tremendous amount of outsourcing of traditional U.S. business of late, with cost savings at the root, perhaps we should be happy with interpretations of U.S. Patent Law that counteracts  this outward flow? 

Guest post written by Nicholas Lanzatella, associate attorney at Schwegman, Lundberg & Woessner, P.A. 

The opinions expressed herein are those of the author and not necessarily those of the firm or any of its members, and are presented for educational purposes only.

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