Overview
The value of patents, and how they can be used as strategic business tools, is often only partially understood. Patents provide value in many ways beyond just being able to sue a competitor for damages. This advisory addresses strategic uses of patents, some differences in U.S. and Israeli patent law and some recommendations for Israeli compa- nies doing business in the U.S. Specifically, this advisory addresses:
-Strategic uses of patents
-What kinds of inventions are eligible to be patented (patent eligible subject matter)
-What dictates whether patent eligible subject matter should in fact be awarded a patent (requirements for patentability)
-Who gets the patent if two different companies file applications for substantially similar inventions (priority)
-The patent examination process and timing issues (how can you accelerate the time it takes to obtain a patent in the U.S. and Israel)
-Certain issues with respect to enforcement of patents; and
-Some recommendations for Israeli companies doing business in the U.S.

Strategic Uses of Patents
The value of patents is at an all time high. Hewlett Packard just agreed to pay Pitney Bowes $400 million in an out of court settlement of a patent infringement case. Suing competitors for damages is a well known use of patents. But it is not the only value of patents. Meaningful patents that protect the core features or functions of a company’s technology or its basic business methods can create significant business leverage. Such patents provide offensive value, defensive value and other strategic benefits.

Offensive Uses
Examples of offensive uses of patents include the obvious — suing competitors for damages or licensing to generate royalties. Profits generated from licensing patents can be significant. For example, IBM reportedly generates over $1.7 billion annually from patent licensing.

The ability to sue a competitor to obtain an injunction can also be a significant offensive weapon. For example, during the peak of the holiday season, Amazon obtained an injunction against Barnes & Noble’s use of a "one-click" feature on its online shopping site. In one of the most famous and devastating injunctions ever issued, Kodak was ordered to shut down its entire instant camera business because of infringement of Polaroid’s patented technology.

Some less obvious offensive uses of patents include cross-licensing patents to obtain access to a competitor’s patented technology; using patents to enhance bargaining positions in business deals (e.g., joint ventures, divestitures, etc.) and using patents as a sales and marketing tool, especially when competing against competitors without patents.

Cross-licensing
An example of an offensive use of cross-licensing is to trade patents to obtain access to another company’s technology. In many cases, competitors or even business partners have patented technology that the other wants to use. By cross-licensing, each party can obtain rights to technology to which it otherwise would not have rights, or for which it would have to pay potentially significant royalties to obtain.

Creating Leverage in Business Deals
When negotiating joint ventures, divestitures of business units and other transactions, patents can be leveraged as a valuable business asset. For example, suppose you have invented and patented valuable technology, but do not have or want to devote resources to the R&D and commercialization of the technology. You can leverage your patents by finding a joint venture partner that will commit the resources and you contribute the patent(s). In this way, you can capitalize on an asset that otherwise may lay dormant. When selling a business unit or company, the valuation is often much greater if patents are part of the assets sold. It is increasingly common in the acquisition of small technology companies that the primary value of the company is its patents and other intellectual property. Without having obtained patents, such companies may not realize as much value in these transactions.


Sales and Marketing Tool
The exploitation of patents in connection with sales and marketing activities is another offensive use of patents. This advantage may be actual or apparent. For example, an actual marketing advantage can result from significant patents if you can accurately claim an exclusive right to the patented technology or feature. An apparent marketing advantage may result even if you do not have a dominant patent. More companies are advertising "patented technology" to create the perception that the product is unique or that the company is innovative. Many companies even advertise products that are "patent pending" to create the perception of uniqueness.

More frequently, companies that have patents are using this asset as a sales tool. Consider the situation where your company and a competitor sell a similar product. They have a patent and you do not. You run the risk that your competitor’s sales people will tell the prospective customer that it will be sued for patent infringement if it purchases your product instead of the competitor’s patented product. In contrast, if you have the patented product and your competitor does not you may have the sales advantage.

Defensive Uses
Patents also may be used defensively. One defensive use of patents is the ability to protect your company’s investment in R&D. Without patent protection, competitors are free to reverse engineer and copy the features and functions of your commercial products, subject to relatively minor exceptions. Additionally, if you do not timely file for a patent on a new invention, a competitor that independently develops a similar invention can obtain a patent and, in some cases, prevent you from using your invention even if you had the idea first. This is particularly true and important in Israel where patents are granted to the first to file for a patent.

Patents also have defensive value as a bargaining chip. For example, if you have patents, and a competitor asserts a patent infringement claim against you, you can consider cross- licensing to resolve the matter. If you do not have patents, your options are to pay significant legal fees to fight the allegations or pay royalties to your competitor. If you are sued for patent infringement, your patents may serve as the basis for a counterclaim. Having a counterclaim against your adversary will create significant leverage for you in connection with settlement negotiations. In many cases, this will facilitate a prompt settlement. If you do not have patents and are sued for patent infringement you often have little, if any, leverage. Typically, you are left with the undesirable choices of paying a significant amount of money to defend the lawsuit (usually with no potential upside) or pay to settle the case.

Another incredibly valuable defensive advantage of patents is one that you may never know you received. Before bringing a patent infringement law- suit against you, most companies will often analyze your patents (if you have any) to determine whether you may raise any significant counterclaims. If you have potential counterclaims, this may deter the competitor from suing you. This is obviously a significant benefit, but one you may never know you received. If you do not have patents, your competitor can sue you without fear of a patent infringement counterclaim.

Strategic Value
Patents also have other strategic value. One example of the strategic value of patents relates to finance activities. If you are a start-up or emerging growth company, having patents will not guarantee you get funded, but not having patents or a patent will hurt your chances of get- ting funded. Venture capitalists and other investors often want to know that your technology or business method is protected. For companies of all sizes, patents can facilitate the ability to obtain financing. Banks and other lenders are now more willing to use patents and other intellectual property as collateral to secure loans.

U.S.-Israeli Patent Law
Patent-Eligible Subject Matter
In the U.S., any "process, machine, manufacture, or composition of matter, or any new and useful improvement thereof," is patent eligible subject matter. The U.S. Supreme Court has interpreted patent eligible subject matter to include "anything under the sun that is made by man." For example, in the U.S., it is possible to patent a business method, computer software (including software on a disk as an article of manufacture) and data structures, biotechnology inventions (including genes, purified proteins, genetically altered living organisms, including non-human animals, and genetically altered microorganisms), plants and ornamental designs. In the medical arena, the U.S. grants patents on medical devices and methods of medical treatment.

The only categories of inventions excluded from patent eligible subject matter in the U.S. are laws of nature, physical phenomena, abstract ideas and new plants found in the wild or new minerals found in the earth. For example, Einstein could not have patented the formula E = mc², as this is a law of nature.

Israeli patent law is similar with a few notable exceptions. In Israel, any "product or a process in any field of technology, which is new and useful" and "can be used industrially" is patent eligible subject matter. Two subjects explicitly excluded from patent eligibility are methods of therapeutic treatment of the human body and new varieties of plants or animals, except microbiological organisms not derived from nature. The exception of "micro organisms not derived from nature" from the exclusion on new varieties of plants and animals makes at least these types of biotechnological products and processes patent eligible subject matter in Israel.

Whether computer software and business methods are patent eligible subject matter in Israel is uncertain. Israeli patent statutes have been amended to stipulate that patent eligible subject matter may lie in "any field of technology" as long as the invention "can be used industrially." This broad language would seem to include computer software and business methods as patent eligible subject matter, however, it remains to be seen how the requirement for industrial use will be interpreted. Likewise, it is unclear whether a computer software invention can be protected as an article of manufacture.

Requirements For Patentability
Assuming an invention constitutes patent eligible subject matter, it must satisfy additional requirements to actually be patentable. In both the U.S. and Israel, the invention must be useful and novel. In the U.S., the invention must also be non-obvious. In Israel, the non-obvious requirement is phrased as the invention must possess "an inventive step."

A significant difference in the requirement for novelty is that in the U.S. applicants are allowed a one year grace period from the first public disclosure, public use or sale of the invention. This means that in the U.S., a patent application may be filed within one year of disclosure, use or sale. In contrast, the novelty requirement in Israel is one of "absolute" novelty. This means that if the invention is disclosed any- where in the world prior to the effective filing date of an Israeli patent application, it cannot be patented in Israel.

Priority of Invention
In the U.S., a patent will be granted to the applicant that was first to invent the subject matter of the application. For example, if two patent applications claim substantially identical inventions, the applicant who can prove that it was the first to invent — even if the second to file — may be awarded the patent (in certain circumstances). In contrast, under Israeli patent law, if two patent applications claim substantially identical inventions, patent rights will be awarded to the applicant that is first to file a patent application regardless of who was actually the first to invent the claimed invention.

Benefit of Earlier Filing Date
The U.S. and Israel are both signatories to the Patent Cooperation Treaty (PCT). Pursuant to this treaty, if an Israeli company files an Israeli application and within one year files a U.S. application for the same invention, the U.S. application will be deemed as if it were filed on the same day as the Israeli application. The same is true if a U.S. company first files in the U.S. and then in Israel within one year. The filing date of an application is important because it is the date used to determine who was first to file if there are conflicting applications and what other patents or publications may constitute "prior art" to that application to determine novelty and non-obviousness.


Timing and Examination
The time from filing an application to issuance of a patent in the U.S. and Israel is similar in many cases.

In each country the time for prosecution of a patent application may vary with the particular subject matter and complexity of the application. Typically, it will take from two to four years after filing for a patent to issue.

Each country also provides procedures for expediting prosecution. In the U.S., prosecution may be expedited for a variety of reasons (e.g., infringement, for inventions related to energy production, due to inventor’s age or health) or simply by paying a fee and providing the Patent Office with a summary of a detailed search of the prior art. In Israel, prosecution may be expedited for "reasonable grounds." Typically, reasonable grounds includes ongoing infringement.

In the U.S., each new application must undergo substantive examination prior to issuance. In Israel, applications typically are subject to substantive examination, but substantive examination may be bypassed if a patent based on an identical application has already been granted by an approved foreign office (e.g., the U.S. or European Patent Offices).

Enforcement
In both the U.S. and Israel, a patent grants the patentee the right to exclude others from making, using, selling, offering to sell, or importing the invention. The remedies for infringement in both countries include

injunction and/or payment of damages. In the U.S., damages may be trebled for willful infringement, while in Israel they may be doubled.

Israel has a concept of "compulsory licensing," which in some cases limits the right of the patentee to control the exploitation of an invention if the public interest so requires. For example, refusal to manufacture the patented invention in Israel and refusal to voluntarily license the manufacturing rights to an Israeli manufacturer, may be deemed an abuse of the patent monopoly and grounds for granting a compulsory license. In addition, if the patent covers a drug or other device for therapeutic treatment that is in short supply, a compulsory license may be granted for the importation of the drug or other device. In any case, the patentee is still entitled to royalties as fixed by the Registrar of the Israeli Patent Office.

Recommendations In light of these differences, Israeli companies doing business in or with the U.S.should consider the following recommendations*:
-If your invention does not constitute patent eligible subject matter in Israel, consider whether it may nevertheless be patent eligible subject matter in the U.S.
-If Israeli patent protection is desired, file a patent application in Israel before you disclose, use or sell the invention due to the absolute novelty requirement.
-If you disclose, use or sell the invention before filing in Israel, consider whether you may still file in the U.S., assuming the one year grace period has not expired.
-If you file an application in Israel, file a U.S. application or PCT application designating the U.S. within one year to get the benefit of your Israeli filing date.
-If you are doing business in or with the U.S., consider obtaining U.S. patents.
-Because of the "first to invent" rule in the U.S., keep records of when inventions are conceived and what was done to reduce the invention to practice (i.e., build a working device).

Please contact James G. Gatto, member and co-chair of Intellectual Property firmwide; Christopher Cuneo, patent associate; or the Mintz Levin attorney who regularly handles your legal affairs if you would like additional information on protecting your business’s intellectual property in the United States or Israel. Additionally, you may e-mail the firm at IP@mintz.com to register to receive periodic updates, alerts and in-depth analyses of important intellectual property issues.

*These recommendations are not intended to be specific legal advice for any company. Whether these recommendations are appropriate for you should be discussed with a competent patent attorney who has knowledge of all the relevant facts particular to your company.