There are a few reasons why owners and managers of job or contract shops—companies that often don’t have their own product lines—should be mindful of patents. For example, shops like these might actually develop a unique, marketable product at some point. In fact, I’ve encountered a number of them that have devised elegant solutions to common machining challenges that other shops have found to be valuable. In addition, processes, as well as products, can be patented. Plus, there are circumstances in which a shop making parts for a customer’s patented product can be held liable if a third party files a patent infringement claim.
This is why I thought it’d be helpful to get some input from Garet Galster, a registered patent attorney and founding partner of Smith Keane LLP (keaneip.com), a Hartland, Wisconsin, firm specializing in intellectual property laws. Mr. Galster highlights the following five points that shops should keep in mind, noting that situations involving the drafting of patents and related documents such as licenses, employee agreements and terms of purchase are unique and highly factually dependent. In other words, the general information he provides here is not, and is not intended to be, legal advice. Independent legal counsel for a particular situation should be sought.
• Think processes, not just products. Some shops simply machine parts per customer specifications. However, there are instances in which those specifications are ambitious, meaning changes to the product must be made or a new process needs to be developed to realize the desired result. If made by a shop, those product or process changes are the shop’s and/or its employees’ intellectual property, and may be patented apart from the initial design. Just because those innovative solutions may not be obvious when looking at a finished product does not mean that they are not valuable improvements worthy of patent protection.
For example, if a customer presents a drawing of a product that might conventionally involve a number of machining steps to complete, but a shop either shortens the process (in terms of number of steps and/or amount of time) or improves manufacturability by modifying the product design (by reducing material, combining components, combining machining steps, etc.), then the modification itself may be protected by a patent.
• Clarify employee assignments. Shop owners pay their employees (and sometimes independent contractors) to perform work on behalf of their companies, but those employees may solve problems or even innovate on their own. While certain common law doctrines have been established to balance the equities of shops and their employees, expectations related to ownership of inventions should be clarified in writing. All employee/contractor agreements should have invention assignment clauses to ensure that the shop owns the work product of its workforce.
• Know what a patent grants and doesn’t grant. A patent does not grant a right to make a product. Instead, it grants its owner(s) the right to exclude others from making, using, offering for sale or importing the claimed invention. Therefore, when asked by a customer to manufacture a patented product, a shop should ask if due diligence has been performed to determine the risk of infringement on any third party’s patent. If the customer has not done this, the shop may have to perform its own due diligence and/or request indemnification from the customer.
• Know when you might be liable for patent infringement. If a shop manufactures a product for a customer and a third party accuses that customer of infringing on its patent, the shop might be liable for patent infringement, too. The uniform commercial code (UCC) in most states includes a clause that should indemnify a shop that made a product solely to a customer’s specifications. That is, unless otherwise excepted, the UCC includes a warranty against third-party infringements if a shop makes a product based solely on customer specifications. In some cases, however, a shop makes design changes to enhance manufacturability. Regardless of whether the shop or customer owns the product change, it might be argued that the product was not made solely to customer specifications and the shop is therefore liable for patent infringement. Despite the UCC default warranty, a shop should clarify in customer agreements that the customer will indemnify the shop for any loss incurred by a third-party infringement claim.
• Think early when thinking about a patent. The United States recently became a “first-to-file” country. Previously, an inventor could obtain a patent if the inventor could prove that he or she was the first to invent a product, but perhaps later to file a patent application than another person. That is no longer the case. So while this means early patent application filing is important, diligent review and drafting remains necessary. Early application filing also starts a clock ticking on the amount of time an inventor has to file related international patent applications. In addition, due to the legal requirements of a patent application, early interaction with a patent attorney is advisable to review the particular situation.