How To Follow The Leader

There's nothing wrong with copying your competitors' good ideas -- provided you play by the rules

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Anyone who reads the business pages knows that the costs of losing a patent suit can be ruinous. Not only can the dollar damages be severe; a company can also be enjoined from making, using, or selling its product. And since the 1982 centralization of patent appeals into a single court, U.S. patent holders have been better protected than ever before.

But that doesn't mean that when a competitor launches a clearly superior product your only recourse is to wring your hands. The fact is, copying that product may be a completely legal and intelligent business decision that can safely and quickly improve your company's competitive position. To decide if that is so in your particular case, here are some steps you should follow.

* Try to find out if the new product is protected by a patent or if a patent has been applied for.

Often this can be done simply by examining the product or packaging for a patent number or the statement "(patents) pending." If you don't have any luck there, you should have a patent search done. Computer databases are available that have useful information about all of the recent patents issued by the U.S. Patent & Trademark Office. If no patent is found by computer, you should consider a manual search of patents in the Patent & Trademark Office, especially if you know that the company marketing the new product tends to patent its products. An added advantage of a manual search is that it can uncover additional patents that may be problematic. Do not expect to find any data about patent applications, however; that is not public information.

It is possible, though perhaps not advisable, simply to ask your competitor about patents and pending patent applications. If the company tells you that a U.S. patent application has been filed and gives you the serial number of the application, you can ask the Patent & Trademark Office whether the patent has been issued or whether the application has been abandoned. Of course, by asking your competitor about patent protection, you put it on notice that you are considering a change in product. In addition, if you approach a competitor less than a year after its product has been placed on the market, the inquiry might induce it to seek patent protection when it hadn't intended to otherwise. (Under U.S. patent laws, patent rights are forfeited if a product has been on the market for a year.)

* If no U.S. patent is found, check for corresponding foreign patent applications covering the product.

If a search does not uncover a U.S. patent owned by the company involved, it is still possible that a patent has been applied for but has not yet been issued. You don't want to back yourself into an expensive corner by copying and manufacturing the product, only to find yourself in infringer when the patent is issued at a later date. Since foreign applications are published relatively quickly (usually 18 months after the first filing), and generally before a corresponding U.S. patent is issued, check for equivalent foreign patent applications covering the product. The foreign application often tells you whether a U.S. counterpart application has been filed, and may suggest what it covers.

* Once the patent is identified, determine whether its claims cover the product your company seeks to market.

A patent number appearing on a competitor's product does not necessarily mean that the patent protects that product. Sometimes it means only that your competitor mistakenly believes that it does. For example, it's not unusual for a company to apply for fairly broad patent coverage. The Patent & Trademark Office may reject some of the designs in the application as unpatentable, approve others, and issue a patent on the latter. A company might put the patent number on its product without checking to see whether the particular design it is using was rejected or approved. It's up to you, therefore, to confirm that the patent claims actually cover the design you're interested in pursing.

Unfortunately, however good your own research skills may be, for credibility in the courts, the determination about claims is a task best turned over to your patent attorney. A well-reasoned lawyer's opinion that a patent claim doesn't cover your product is not a guarantee that you won't be sued, but it does reduce the chances.

If a reputable patent attorney concludes that the patent's claims do not cover the product you want to manufacture or market, and assuming that no other patent applies, you are in a strong legal position to go ahead with the product or process with or without improvement.

* Alternative if a conflicting patent is found: licensing

If you find that a U.S. patent covers the product sought to be copied, all is not lost.

In many instances, the first approach that should be taken is to determine the validity of the patent. Even though a U.S. patent has been issued, it may be unenforceable or invalid. The ways that a patent can be shown to be invalid, and thus unenforceable, involve intricacies of the patent laws too detailed to discuss here. Again, to protect yourself, you should get an opinion from your patent attorney.

If you don't want to do that, or cannot obtain an opinion that the patent is invalid, you might seek a license from the company owning the patent. Sometimes a patent owner will not only grant a license, but will also provide manufacturing know-how to its licensees. Of course, the company owning the patent will require royalty payments, which may be quite high. And there is no guarantee that it will grant a license.

You can often get a sense of whether it is worth seeking a license -- and the likelihood of being offered one -- by the past performance of the competitor. A quick rule of thumb: if the patent owner tends to patent its inventions routinely, is protective of its patents by regularly bringing patent-infringement actions, and tends to grant licenses, seeking a licensing arrangement can be a fruitful strategy. If the company is one that generally refuses to grant licenses, or is lax in seeking or enforcing patents, your asking about licensing may merely alert it to your interest in the product.

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