Legal development

Patent entitlement - the corrosive effect of failing to document the inventive process

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    What you need to know

    • Inventiveness and inventive concept are distinct matters which relate to separate issues – patentability and entitlement. It is important to not conflate these concepts and risk misunderstandings as to the conception of the invention (as opposed to its validity), which has flow-on implications for patent entitlement.
    • When selling business assets, unless the assets are broadly defined, rights to an invention not expressly listed and not used in the business will not pass to the purchaser. In these circumstances, the purchaser of the business would have no basis to later claim a patent even if it is proven that it should have been filed in the name of the vendor prior to the asset sale.
    • Even if a patent has been filed in the name of an incorrect (unentitled) owner, delay in bringing a claim for rectification could be fatal.

    What you need to do

    • Ensure that the inventive process – from the "eureka" moment to commercialisation – is clearly and sufficiently documented contemporaneously.
    • Implement clear and structured procedures for how steps in an inventive process are recorded.
    • Ensure that agreements to sell assets in business sale transactions are drafted broadly to include rights to any inventions and patents that the vendor may be entitled to in the future, even if not presently registered in its name or used in the business.
    • If you believe you are entitled to a patent filed in another party's name, act quickly to assert your rights. Do not idle and allow the other party to invest time developing and commercialising the invention to only later attempt to claim the benefits of that work.

    A recent decision of the Federal Court has re-examined the principles of patent entitlement in Australia and illustrated the possible dangers for patentees and inventors where insufficient records of the inventive process have been maintained.

    A novel process to treat concrete

    In early 2006, inventors Gareth Glass, Nigel Davison and Adrian Roberts filed a patent application (No. 2006224340 B2) for a novel process of treating concrete (the E-Chem patent). The invention sought to protect and prevent the corrosion of steel in reinforced concrete.

    The method claimed a single anode system, which used a hybrid of electrochemical treatments – temporary electrochemical treatment and permanent cathodic protection. At the time, a person skilled in the art, as a result of the common general knowledge, would recognise these methods as two distinct classes of electrochemical treatment requiring two different types of anodes – an inert or a sacrificial anode.

    The E-Chem patent was granted on 18 November 2010.

    Follow the inventor(s)

    At the time of filing, the trio were directors and shareholders of E-Chem Technologies Limited (E-Chem) and subsequently transferred their rights in the E-Chem patent to E-Chem in January 2019. Prior to commencing at E-Chem, the inventors were employed by Fosroc International Limited (Fosroc) from 2002 to 2004. By July 2004, all three inventors had ceased their employment at Fosroc.

    In January 2009, Vector Corrosion Technologies Limited (Vector) acquired the assets and business of Fosroc. Vector claimed that it was either wholly or jointly entitled to the E-Chem patent because the inventive concept was conceived while the inventors were employed by Fosroc in the UK. Vector said that section 39 of the Patents Act 1977 (UK) operated so that Fosroc was entitled to the E-Chem patent by virtue of the employment relationship and that right flowed to Vector.

    Vector made a claim under the Patents Act 1990 (Cth) for the register to be rectified to correct the ownership of the E-Chem patent in Australia. The ultimate issue for determination was when the inventive concept was conceived.

    Australian laws on patent entitlement

    Section 15(1) of the Patents Act operates so that a patent may only be granted to the inventor of the patent, or an "eligible person" who derives title to an invention from the inventor. In Australia, grounds for patent revocation exist where the patentee is not entitled to the patent. Vector also sought, in the alternative to its entitlement claims, to revoke the E-Chem patent under section 138(3) of the Patents Act on the basis that E-Chem, the patentee, was not entitled.

    When (and what) was the inventive concept conceived?

    Before turning to the timing of the inventive concept, Justice Jagot ascertained "the heart of invention" – a sacrificial anode (used usually for cathodic protection) that was capable of functioning in two different modes and for different purposes. Following this, Justice Jagot considered the evidence from the critical time period, 2002 to 2004, when the inventors where employees of Fosroc.

    Justice Jagot accepted the clear consistency in the inventors' evidence that the inventive concept was conceived in their work leading up to and including the Bell Street carpark project between October 2004 and March 2005 – after their departure from Fosroc. Furthermore, Dr Glass' evidence indicated that the problem he was considering in 2003, while still employed at Fosroc, was distinct from the problem being considered in 2004/2005 as prompted by the Bell Street carpark project.

    Justice Jagot concluded that the first conceptual step in developing the inventive concept occurred in October 2004 and that by 8 February 2005 the inventive concept had been conceived because at that point Dr Glass was confident the invention could be made to work. The work done after, although necessary, did not contribute to the inventive concept.

    Therefore the invention was not conceived while the inventors were employed by Fosroc and Vector's claims were rejected in their entirety because "Fosroc possessed no such rights in the E-Chem patent at any time".

    Assignment of patent rights

    Justice Jagot also made some observations on whether the assignment of assets and rights to Vector was sufficient to also transfer any rights to the E-Chem invention to Vector if Fosroc had in fact been entitled. Specifically, Justice Jagot considered whether the Patents Act contains a discretion to disallow rectification of the register even if entitlement to a patent has been established. Ultimately, these matters were not determinative because of the finding that Fosroc had no entitlement but they provide important commercial guidance.

    On the assignment of rights to Vector, Justice Jagot observed that this was an asset sale and that the assets referred to were specific patents (which did not include the E-Chem patent) as well as inventions used or held for use in the operation of the business. It was concluded that if Fosroc had been entitled to the patent, such rights would not have passed to Vector regardless because of how the assets in the sale agreement were described (Fosroc did not use the inventions in the business or hold them for such use because Fosroc did not believe that it had any entitlement).

    E-Chem also argued that even if Fosroc and Vector had an entitlement to the patent, the Court should exercise discretion to not rectify the register. Justice Jagot did not express a concluded view on whether the Patents Act contains any such discretion. However, she did observe that Vector's delay in bringing its claim was substantial and caused serious prejudice to E-Chem and she would have exercised such a discretion against Vector. The fact was that Vector "sat on its hands" for around 8 to 10 years while E-Chem built its business and commercialised the invention. Therefore, the prejudice that would be suffered by E-Chem as a result of Vector's "unreasonable and inordinate delay … borders on the incalculable".

    Authors: Kellech Smith, Partner and Giulia Falvo, Graduate.