Commercial transactions and patents: Important considerations to be noted
The intellectual capital of a business – its patent portfolio in particular – is one of many factors which ought to be thoroughly evaluated prior to entering into a licensing agreement or when considering a possible merger or acquisition. Therefore, there are a few points to consider during an evaluation of a business’ patent portfolio directly related to the law of patents in South Africa (as governed by the Patents Act 57 of 1978), but similar principles would apply in jurisdictions other than South Africa.
It is of the utmost importance to note that patents are territorial in nature and, furthermore, only a granted patent would bestow the treasured exclusionary rights in an invention on its owner. A so-called “international patent” simply does not exist – no international treaty or national law provides for it – and separate patent applications describing the invention would have to be filed in each and every jurisdiction where exclusionary patent rights are sought. Patent applications filed in a jurisdiction other than South Africa can be filed in South Africa via the Paris Convention for the Protection of Industrial Property (within 12 months of the date on which the first patent application describing the invention was filed) or the Patent Cooperation Treaty (within 31 months of the date on which the first patent application describing the invention was filed); these time-periods are non-extendible.
Furthermore, all granted patents have to be maintained and annual renewal fees are payable; a granted patent will lapse if a renewal fee is not duly paid. The Patents Act does provide for a procedure whereby a patent which lapsed due to the non-payment of renewal fees may be restored and a formal application to this effect would have to be filed with the Registrar of Patents. However, it is by no means a foregone conclusion that an application for the restoration of a lapsed patent would be granted and both the application and the circumstances surrounding the lapse would have to comply with certain peremptory provisions of the Patents Act. Importantly, if a lapsed patent is not restored, a third party would be free to make, use, exercise, dispose of, or offer to dispose of or import the invention described in the lapsed patent. Here, the ex-patentee would have no recourse against the aforementioned third party (in so far as the law of patents is concerned).
One should also be mindful of the fact that the exclusionary rights afforded by a patent are defined by and limited to the claims of the patent. The extent of these rights is affected by other granted patents or known technology (the so-called “prior art”) and a qualified patent attorney would be best placed to construe the claims of the patent in order to determine the true extent of the monopoly claimed.
Lastly, a thorough evaluation of a business’ patent portfolio should also include a detailed technology landscape report on the patent portfolios of its competitors and the state of the technological field in general. A technology landscape report can, among other things, identify key players and emerging trends in a technological field and a party privy to this information would have a competitive advantage over its competitors.
This highlights important points to be considered in a commercial transaction involving patents but is by no means exhaustive. Every commercial transaction is unique and merits a thorough evaluation of the parties’ patent portfolios.