File Early and File Often: Protecting Patent Rights in World of Global Outsourcing

Perhaps more than any other market segment, the auto industry places a premium on lean and efficient processes. Now more than ever, suppliers must creatively leverage limited internal resources to meet increasingly demanding customer requirements.

Either by choice or necessity, suppliers often rely on strategic partnerships with outside companies to help develop and manufacture components for ultimate sale to OEMs. Joint-development arrangements, engineering-services contracts, joint ventures and contract manufacturing are just a few of the many options available.

Although these relationships can provide significant value for participants, suppliers should understand potential pitfalls for a company’s intellectual-property portfolio if the relationships are not managed carefully.

To preserve patent rights, it always has been a best practice to ensure that patent applications are filed prior to any outside disclosure of technology – including disclosures to strategic partners.

Companies with global patent portfolios understand this well, because most countries do not have the relatively forgiving 1-year “grace period” the U.S. provides (even under the new U.S. patent laws, a limited form of the grace period remains).

While confidentiality agreements do provide some measure of protection, they certainly are not a panacea.

Recently, the U.S. Court of Appeals for the Federal Circuit issued a decision that provides a sobering lesson for patent owners who utilize outsourced development or manufacturing operations.

In Hamilton Beach Brands v. Sunbeam Products, the plaintiff (Hamilton Beach) invented a device for securing lids on slow cookers (allowing users to transport food to a party with the lid solidly in place). Hamilton Beach enjoyed significant commercial success for its “Stay or Go” slow cooker that it attributed primarily to the patented technology.

After Sunbeam released a slow cooker that included a similar feature, Hamilton Beach sued to enforce its patents.

Sunbeam asserted the Hamilton Beach patent was invalid because of prior commercial activity by Hamilton Beach that resulted from Hamilton Beach's outsourcing of the manufacture of the slow cooker to a third-party Chinese manufacturer.

Under then-current U.S. patent laws, the sale of a product embodying a patented invention – or even the mere offer to sell such a product – served as a complete bar to patentability if that activity took place more than one year before the patent application was filed.

A notable point in the Hamilton Beach case is how the Court interpreted the interaction between Hamilton Beach and its contract manufacturer.

Hamilton Beach provided specifications to the manufacturer more than one year before its patent application was filed. In response, the contract manufacturer sent an email indicating it had received the order “and was ready to fulfill it upon Hamilton Beach's ‛release.’”

Hamilton Beach did not immediately issue its release, and instead waited until a later date that would have been within the 1-year grace period.

The Court interpreted the email as a commercial offer for sale. In the Court's view, the email served as an offer to produce and sell the product to Hamilton Beach, and all Hamilton Beach had to do to accept that offer was to give its release to the contract manufacturer to begin production.

Because the email offer occurred more than one year prior to the patent application filing date, the patent was declared invalid and all claims against Sunbeam immediately were moot.

Notably, this result would have occurred regardless of whether there was a confidentiality agreement in place, since the “public use” and “on-sale” bars are two entirely separate grounds for patent invalidation.

To help prevent unfortunate results like that experienced by Hamilton Beach, auto suppliers should track inventions carefully and file patent applications prior to any outside disclosure, even where a confidentiality agreement may be in force.

This is also good practice in view of the “first to file” and expanded prior-art rules of the recently enacted America Invents Act.

Stated simply, the best way to protect your patent rights is to have effective processes in place that allow you to capture and protect your valuable intellectual property.

Marcus Sprow is a partner and registered patent attorney with Foley & Lardner. He counsels clients on a wide variety of intellectual property issues, particularly those involving patent and trade-secret law, and is a member of the firm’s Automotive Industry Team.