Federal Circuit Stirs Up Questions about Unintentionally Delayed Maintenance Fee Payments

September 24, 2013

Stuart V.C. Duncan Smith

What This Means To You

  • Honest communication with the United States Patent & Trademark Office (USPTO ) is necessary to avoid needless litigation and protect the long-term value of your patent portfolio.
  • Even when you are confident that your interactions with the USPTO comply with the letter and spirit of the law, using the USPTO’s standard forms can mitigate some of the risk that a court will subsequently disagree.
  • Work with your patent attorney to create a rational and strategic process to assess the value of paying the patent maintenance fees.

Overview

In Network Signatures, Inc. v. State Farm Mutual Automobile Insurance Co., the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) addressed whether the failure to include an explanation of why a patent maintenance fee was unintentionally delayed is sufficiently dishonest to render the patent unenforceable.

Case Background

A government research lab decided to let one of its patents expire early by not paying the maintenance fee. Unbeknownst to the lab, a software company wanted to license the patent but communication system errors prevented the company’s offer from reaching the lab.

Weeks after the patent expired, the lab discovered the company’s interest and asked the USPTO to reinstate the patent. The lab used the USPTO’s standard form for “unintentionally delayed payment of maintenance fee” without further disclosing why the delay occurred.

The USPTO granted the lab’s request, and the lab licensed the patent to the company. Years later, the patent was the subject of a suit against State Farm Mutual Automobile Company, which argued the patent was not enforceable because the lab had been dishonest with the USPTO.

Decision Analysis

The Federal Circuit concluded that the lab’s use of the USPTO’s standard form without any further explanation was not dishonest in any way that mattered to the USPTO. The Court reasoned that, since the Patent Act, the USPTO’s regulations, and the USPTO’s standard form did not require an explanation, the lab should not be penalized for failing to provide one.

Takeaways

If taken too far, the holding in this case creates a trap for the unwary. As the dissent argued, the USPTO would not have reinstated the patent had it known what had actually happened. Although the USPTO did not ask for more information, its recently revised regulations make clear that it has the authority to do so.

Honesty with the USPTO is still paramount. While the majority gave favorable treatment to the use of the USPTO’s standard forms, other judges on the Federal Circuit may find ways to disagree. Thus, patent owners should not see this case as license to use those standard forms with impunity.

A rational portfolio pruning process could have averted this appeal. Unlike the lab’s arbitrary process of only keeping patents that generate licensing revenue, patent owners should engage patent attorneys to help develop a strategic valuation process that is sensitive to a patent’s potential future value.