PATENT DUE DILIGENCE IN THE SALE-ACQUISITION OF A MEDICAL DEVICE COMPANY

One of the most important assets of a medical device company is often its patent portfolio. The portfolio can include issued patents, patent applications, and patentable inventions that are not the subject of issued patents or pending patent applications. Whether the seller or buyer of a medical device company, it is imperative to know what assets are in the company’s patent portfolio and factors that affect their value.

Commercially available, off the shelf patent databases do not often exist to hold the company’s patent portfolio information – at least for many medical device companies of a small to moderate size. Instead, the patent information might be in an excel spreadsheet kept by someone internally in the company. The information might be in the form of paper files kept in a file cabinet. So, where do you look for patent information? The following is a primer on where to look. Issued Patents & Patent Applications After checking the seller’s informal ways of keeping its patent information, the following steps can be taken: 1. Search the US patent office for issued patents and published patent applications

This can be done at the patent office website – http://patft.uspto.gov/.

Michael Shimokaji www.shimokaji.com

949-788-9968

Page 1 of 5 © Michael A. Shimokaji, 2015 The contents of this article represent the opinions of the author and not those of the author’s law firm or clients.

The Boolean search engine allows one to search in various fields of a

patent. For example, the search can be conducted by searching for seller as “assignee”, for known affiliates of the seller as “assignee”, and for known inventors of the seller as “inventor”. Though more difficult and time consuming, searches can be made of keywords in the “abstract” that describe the seller’s technology. 2. Search foreign patent offices for non-US patents and patent

applications

It is common for a patent application to be filed not only in the US but also in foreign countries where the seller makes and/or sells significant quantities of goods and services. If one is selling or buying a US patent asset, one would likely want to sell/buy counterparts to the US patent asset that exist in foreign countries.

A search for these foreign patents and applications can be made through a search engine at the European patent office website – http://www.epo.org/searching/free/espacenet.html.

At this website, not only can one search for European patents, but patents and applications from around the world. If one has a US patent number and/or serial number, it is also possible to identify its related patents and applications in foreign countries. 3. Determine who owns the patent and application

For US patents and applications, a search of the patent office assignment database will provide a title history of recorded assignments - http://assignment.uspto.gov/ One limitation to searching for assigned patent applications is that the search is be limited to published applications, as opposed to non-published and/or not yet published applications.

If one has the patent number or application number, a title search based on that information can be easily conducted. If that information does not exist, Page 2 of 5 © Michael A. Shimokaji, 2015 The contents of this article represent the opinions of the author and not those of the author’s law firm or clients.

a search of the currently recorded owner can be found by searching according to the seller’s name and/or seller’s affiliate name as “assignor” and “assignee.” A reason to search the seller/affiliate as “assignor” is to verify that a patent or application has or has not been transferred from the seller/affiliate to a third party. In addition, the assignment database search can disclose encumbrances, like security interests, held by third parties on the patent asset. Such encumbrances can affect the ability of the seller to transfer the asset, but also affect the value of the asset. 4. Determine the actual life of a patent

The life or term of a US patent is generally twenty years. The actual life of a patent, however, can vary in individual situations. For example, the non-payment of maintenance fees can prematurely terminate the life of a patent. These fees are payable for utility patents at the third, seventh, and eleventh years following the issuance of the patent. The failure to pay a maintenance fee will result in the patent expiring at the end of the payment period. If one knows the US patent number or application number, a search of the maintenance fee status can be conducted - https://ramps.uspto.gov/eram/patentMaintFees.

Another factor that can affect the actual life of a patent is a terminal disclaimer. This is a document that disclaims part of the normal twenty year life. The existence or non-existence of a terminal disclaimer can be found by examining the file history of the patent. The file history can be found in PAIR at the US patent office - http://www.uspto.gov/patents/process/status/index.jsp Yet another factor that affects a patent term is “patent term adjustment.” Due to delays in the patent office, the term of a patent may be adjusted to actually be longer than twenty years.

Page 3 of 5 © Michael A. Shimokaji, 2015 The contents of this article represent the opinions of the author and not those of the author’s law firm or clients.

The above factors can be used in the patent office’s “patent term calculator” to determine an actual expiration date of a patent - http://www.uspto.gov/patents/law/patent_term_calculator.jsp 5. Patents involved in litigation

When patents become the subject of US district court litigation, a notice is sent to the USPTO and the notice becomes a part of the patent file history found in PAIR - http://www.uspto.gov/patents/process/status/index.jsp.

The notice will identify the district court and case number. This will enable one to search PACER - https://www.pacer.gov/ - and view the documents filed in the litigation. The court documents can shed light on possible bases of patent invalidity, for example, which can affect the value of the patent. 6. Identify non-published applications & provisional applications

What might be viewed by some as a shortcoming in the US patent office is that certain non-provisional applications are not subject to public inspection because they have not been published. Provisional applications are not open to public inspection. Design patent applications are not published. Non-provisional applications may not be published earlier than eighteen months after filing. A further limitation is that the patent owner can request that the application not be published, even after eighteen months, if the application will not be filed in a foreign country. In these instances, both seller and buyer of the medical device company will need to rely on the company’s internal documents for identification of non-published applications and provisional applications. Patentable But Not Applied for Inventions For many medical device companies, patentable ideas are generated month after month. But many patentable ideas do not make it into patent applications. The reasons can be many – such as budget constraints or product Page 4 of 5 © Michael A. Shimokaji, 2015 The contents of this article represent the opinions of the author and not those of the author’s law firm or clients.

priorities. Yet, these patentable ideas can be valuable.

Where can these patentable ideas (but not applied for patents) be found?

The days of the bound lab notebook maintained by inventors may be gone in some companies. Some inventors may keep a computer journal of their patentable ideas. Some companies may have a process whereby inventors submit their ideas on “invention disclosure” forms. The challenge for seller or buyer of the medical device company is to work back through whatever processes (formal or otherwise) exist in the company to identify these patentable ideas. COMMENTS:

These steps are basic ones for a buyer or seller of a medical device company to consider as part of its patent due diligence. Some steps can be used as a quick filter to determine that a specific patent asset has little or no value. Whatever steps are employed, they need to account for the value of the transaction. Greater value, greater diligence.

Page 5 of 5 © Michael A. Shimokaji, 2015 The contents of this article represent the opinions of the author and not those of the author’s law firm or clients.