Rule of Law

Clawback Agreements in Commercial Litigation – Can You Unring a Bell?

Imagine this scenario: Woe Mart, Inc. – a multibillion dollar corporation – is deep in disputes with suppliers. Woe Mart’s General Counsel is trying to negotiate a settlement to avoid litigation. One day, Woe Mart gets notice from the suppliers’ lawyers of a suit to be filed in federal court along with a request to preserve any/all evidence, including electronic evidence. Woe Mart decides to hire a brilliant, seasoned litigator to defend against this frivolous lawsuit. Naturally, you get the call! You haven’t reviewed any documents, but your chat with Woe Mart’s General Counsel tells you this is a high stakes, multi-party complex commercial case. The first thing you do is have Woe Mart’s General Counsel email all employees instructing them to suspend all document destruction and institute a litigation hold. Next, you meet with Woe Mart’s IT personnel. Being the seasoned litigator, you are aware that discovery disputes are the black holes of complex commercial litigation. Woe Mart’s IT personnel inform you that they possess many types of electronic data that may be subject to discovery: email and attachments, word processing documents, spreadsheets, presentation documents, graphics, animations, images, audio, video and audiovisual recordings, instant messaging and voicemail. After a preliminary review, you realize that responding to discovery requests is a Herculean task – both in effort and cost.

Soon you are in a Rule 26(f) conference with opposing counsel. You discuss a discovery plan and try to agree with them on the repositories of electronically stored information that are relevant to the case. During discussion, opposition tells you they’ll serve discovery requests seeking copies of all emails sent or received by any employee concerning Woe Mart’s suppliers. If they insist on this, it will take months to review the emails for applicable privileges and protections. Opposing counsel proposes that you forgo preproduction review and produce all data under a “Clawback Agreement (CA).” You decide to discuss this with Woe Mart’s General Counsel and promise opposing counsel that you will get back to him. Before calling General Counsel, you decide to brush up your knowledge about CAs in federal courts.

CAs evolved as a safeguard against inadvertent waiver of attorney-client or work product privilege – especially when dealing with a large volume of documents. In a CA, both parties agree in writing that inadvertent production of privileged materials will not automatically constitute a waiver of privilege. If the producing party realizes the disclosure in a reasonable time, he can request the document’s return, or “claw it back” and the other party must comply. The other party is barred from using the privileged document to further his client’s case.

Federal Rules of Civil Procedure were amended to provide for this clawback scenario. The Federal Rules of Evidence appear to follow suit. However, parties (with the apparent encouragement of courts) have been using CAs to clawback the inadvertent disclosure of privileged material even before the amendment of the Federal Rules. The general rule that partial disclosure on a subject will bring in its wake total disclosure can be avoided by entering into a contract. Courts are willing to enforce partial waiver between two parties, whereby the waiver of some privileged materials will not constitute waiver of all between the two parties.

During your research on CAs, you come across a case that jolts you – Victor Stanley, Inc. v. Creative Pipe, Inc. Stanley highlights the danger of not using a CA. In Stanley, defendant’s counsel, acknowledging the vast volume of documents to be produced, initially requested that the court approve a CA. The court was willing, but upon obtaining a time extension to produce documents, defendant’s counsel withdrew his request for a CA. Parties did not enter into a CA prior to discovery production. Unfortunately, defendant’s counsel erroneously produced documents that were within parameters of privilege and should have been withheld. The court ruled that defendant’s counsel was aware the case involved review of voluminous material and that there was a danger of inadvertent production of privileged info. The court also observed that the defendant’s counsel had initially wisely sought the protection of a CA. Had the defense not abandoned his request for a court-approved CA, he would have been protected. However, having abandoned the request for a CA, the defendant’s counsel waived any privilege for these documents. Once the disclosure of privileged material is made, any order issued to redress the disclosure – in absence of a CA – would be the equivalent of closing the barn door after the animals have run off. After reading the Stanley opinion you make a note to include CAs as a standard tool in your litigator’s toolbox.

However, upon doing further research you find out that CAs may not be the right answer in every situation. A CA, despite all its protective clauses, can’t guarantee against privilege waiver in other litigation contexts. Courts have rejected parties’ claims of privilege pursuant to protective agreements from prior litigation. In Genentech, Inc. v. U.S. International Trade Commission,  the plaintiff inadvertently disclosed 12,000 pages of privileged documents in a multi-district patent infringement suit. After the district judge held that privilege as to those documents had been waived, the administrative law judge presiding over another patent suit involving Genentech and different defendants ruled that the privilege waiver extended to that proceeding. Genentech argued that no general waiver applied to the second case because the parties to the district court case had been subject to a protective order. Because the appeals court determined that Genentech had failed to use adequate procedures to review for privilege in the first action, the court’s finding of waiver in the second proceeding was sustained.

Also, CAs will be of little help if used to offer selective waivers. This is where a party is willing to disclose privileged information to one party, for example a governmental agency, and not to other parties. Federal courts – including the Sixth Circuit– have struck down selective waivers (even when unconditional confidentiality agreements are entered into prior to the disclosure). Although some decisions have held that entering into an unconditional confidentiality agreement might, under some circumstances, protect the materials from subsequent compelled exposure, litigators shouldn’t bank on this. As the court in Navajo Nation v. Peabody Holding Co, upbraiding a party for strategic use of disclosures, held: “Parties should not be permitted to disclose documents for tactical purposes in one context, and then claim attorney-client privilege in another context.” 

Now you pause. You wonder about a strategic dilemma of using CAs. It is impossible for the receiving lawyer in such an arrangement to erase from memory the privileged material that he glimpsed. Can you unring a bell? Regardless of whether a court decides to enforce a CA, the fact remains that the receiving attorney has been exposed to privileged information and may still be able to use it to further his client’s case. Even if that attorney does not formally seek to enter an inadvertently disclosed document into evidence, he can use the information contained therein as a springboard to related documents or testimony. In effect, you fear that you may very well assist your opponent in developing his trial plan.  This however is a matter of strategy and a decision to use or not use a CA would have to be made on a case by case basis.

Your research also tells you that there is a danger that use of a CA in federal litigation may be deemed as a waiver of the privilege in subsequent state court litigation.  Clawback provisions in the Federal Rules, while respected in federal courts, may be deemed a common law waiver of privilege in state courts – not only for the document in question but also as a broad waiver of the subject matter involved.  Therefore, care must be taken to identify the controlling law in each jurisdiction.  You decide to find out the controlling law in your state – Michigan.

Michigan has recognized the attorney-client privilege as “the oldest of the privileges for confidential communications known to the common law.”  It has long held that a waiver of the privilege does not arise by accident.  Michigan courts have set forth principles explaining privilege and its waiver:

(1) In Michigan the attorney-client privilege has a dual nature – it includes both the security against publication and the right to control introduction into evidence of such information;

(2) This dual nature of the privilege applies where there has been inadvertent disclosure of privileged material;

(3) An implied waiver of the privilege must be judged by standards as stringent as for a “true waiver,” before the right to control the introduction of privileged matter into evidence will be destroyed, even though the inadvertent disclosure has eliminated any security against publication;

(4) A “true waiver” requires an intentional, voluntary act and cannot arise by implication or the voluntary relinquishment of a known right and

(5) Error of judgment where the person knows that privileged information is being released but concludes that the privilege will nevertheless survive will destroy any privilege.

You are happy to note that in Michigan a document “inadvertently” produced that is otherwise protected by the attorney-client, privilege remains protected. Absent a “true waiver,” a document retains its privileged status, regardless of whether it has been publicly disclosed. You happily note that unlike some federal courts, Michigan courts have held that counsel’s failure to take reasonable precautions to protect from inadvertent disclosure of privileged or protected material is not enough to be a true waiver.

However, you are troubled by the fact that in Michigan, once privileged info is disclosed to a 3rd party by the one who holds the privilege, privilege disappears. Privilege need only be validly waived once to be conclusively destroyed. Unfortunately, no Michigan case discusses a CA.

Also, you find that in Michigan “involuntary disclosure” of info by court order doesn’t amount to waiver of privilege.  You finally see light at the end of the tunnel. You decide the best option is for the parties to agree to a CA and then request the court to incorporate the clawback provisions into a scheduling or protective order. However, you make sure that your participation in drafting the protective order is not interpreted in any manner as a waiver of privilege.

You now turn to the issue of protective orders. You are aware of the recent amendments to the Federal Rules of Civil Procedure whereby clawback provisions can be adopted and incorporated into a protective order. Protective orders – often negotiated by the parties and entered by the court on a stipulated basis – have become commonplace prior to producing documents in discovery. In complex commercial litigation, it is not unusual for a court to enter a detailed protective order fleshing out all the contours for production and exchange of information, including inadvertent disclosure of privileged material. Three rules potentially govern the entry of such protective orders: the court can issue a scheduling order under Fed. R. Civ. P16; a protective order under Fed. R. Civ. P26(c); or a discovery management order under Fed. R. Civ. P26(b)(2). You correctly reason that having a CA provision incorporated into a protective order would allow your client to contend in a later proceeding that disclosure of privileged/protected info in the former case was involuntary and pursuant to court order. Where there is a protective order in place, courts have allowed the terms of the protective order to trump existing case law – in some cases, a protective order may operate to change the effect of unforgiving case law.

Of course, being an experienced litigator, you are also aware that the existence of a protective order does not allow a privilege holder to sit on its right to retrieve the privileged document. A cavalier attitude or failure to act promptly to retrieve the document may nullify any CA.

Having researched federal case law on CAs and having found little on this in Michigan, you review your options. You are aware that federal courts have continued to encourage the use of CAs in commercial litigation – more so after the rules were amended. It is highly likely that your court would agree to a proposal of incorporating CA provisions in a protective order to speed up discovery. Without a CA, you are faced with an exhaustive and complete pre-production review of physical and electronically stored documents with privileged material. You know this would be time consuming, expensive, and unrealistic. Even then, prudence mandates that you utilize the safety net of a CA for any inadvertent disclosures. Finally, you distill the essential rulings of the federal courts regarding the CAs, juxtapose them against existing Michigan jurisprudence and come up with three conditions that should protect your inadvertent disclosure from a challenge in your current federal litigation or any future state litigation: (a) the party claiming the privilege took reasonable steps – in view of the volume of data to be reviewed, the time permitted in the scheduling or protective order to do so, and the resources of the producing party; (b) the producing party took reasonable steps to assert promptly the privilege once it learned that some privileged information inadvertently had been disclosed, despite the exercise of reasonable measures to screen for privilege and, importantly; (c) the production had been compelled by court order that was issued after the court’s independent evaluation of the scope of electronic discovery permitted, the reasonableness of the procedures the producing party took to screen privileged material and the amount of time that the court allowed the producing party to spend on production. 

           

You surmise that a properly drafted CA that has been incorporated into a court order would achieve its goal: unring a bell in case of an inadvertent disclosure. You are now ready to call the General Counsel.

For resources/citations, see this article on our website at lorandoslaw.com

Ashish Joshi
http://www.articlesbase.com/law-articles/clawback-agreements-in-commercial-litigation-can-you-unring-a-bell-747764.html

How to be a Law School Superstar

Superstars Know The Best Way To Focus Is To Take The Occasional Break

A law school superstar lives, breathes, and eats the law, but is sensible enough to take a break every once in a while and do something outside of the realm of law school to keep his or her mind sharp and hungry enough for more law once break time is over.

Superstars Know How To Manage Time and Meet Deadlines For School — They Also Ask For Help When They Need It

To rule the realm of law school when your sensibly taken break is over, a law school superstar either arrives at law school an expert in time management, or quickly transforms him or herself into such an expert. A law school superstar quickly realizes that the amount of work he or she faces would overwhelm a typical person, so a law school superstar makes it his or her business to effectively prioritize the workload so that the most important stuff gets taken care of right away, with the less important stuff taking a back seat. Most law school superstars make connections with more experienced law students who can help them determine how to prioritize their workloads.

Superstars Keep Shining Even During Their Breaks From School

In addition to performing at the top of their game in their assignments and in the classroom, law school superstars are always on the lookout for their next great opportunity to gain exposure to the practice of law outside the classroom. Law school superstars don’t work at Starbucks over their breaks, but instead have used their time management skills during the year to find the time to reflect on how best to utilize their time away from school. Of course, they will schedule some fun to keep their minds refreshed just as they do during the school year, but during their times of reflection, they will have discovered the highest caliber internships and clerkships available to them. And, being law school superstars, they will have applied for these opportunities early and secured them handily. In this way, a law school superstar can smoothly make the transition from superstar law student to superstar lawyer once the juris doctorate is in hand.

Superstars Know The Key To Shining Is Specialization

How do law school superstars know which summer work is the best for making them into superstar lawyers after graduation? They have put some thought into what area of law they would like to practice once they get out of school. They probably had some idea before entering law school, but since they are superstars, they also did their homework once they got to school. Law school superstars investigate the various possibilities for the trajectory of their careers by talking to more experienced students, faculty members, and mentors. By formulating a clear idea of what kind of superstar lawyers they’d like to be upon passing the bar, superstar law students are able to arrange their experiences in law school to maximize their chances of securing a position in the field of their choice.

Elizabeth Saas
http://www.articlesbase.com/college-and-university-articles/how-to-be-a-law-school-superstar-87832.html

Cyber Crime Law Separating Myth From Reality

Remember Bruce Willis, the main protagonist in the fourth installment of the Die Hard series last summer?Live Free or Die Hard depicts Willis as the New York police department detective John McClane who is commissioned to capture a gang of ‘cyber terrorists’ intent on shutting down the entire world’s internet. In today ‘sincreasingly volatile world of mobile activated bombs and websites of various militant groups, it is not hard to imagine the Die Hard scenario materializing in real life as well.

One of the most fascinating aspects of modern technology is how it has penetrated every scope and strata of society. Everyone from the uneducated mechanic to the high-profile chief executive officer of a firm now carries a mobile and is aware of what a computer is. This infiltration of technology in our communities has, by and large, proved to be beneficial. But like every other good thing, technology too can be exploited. This exploitation, among other things, has resulted in certain crimes being committed through or against
computers, their affiliated networks and the information contained within them.
Thus, came about the neologism of cyber crime.

Even though the term is now widely used in law circles, disagreements are
aplenty regarding what actually entails cyber crime. President of Naavi.org,
India’s largest cyber law information portal suggests that the term is a
misnomer. “The concept of cyber crime is not radically different from that of
conventional crime,” says in a report on the portal, “Both include conduct
whether act or omission, which cause breach of rules of law and [are]
counterbalanced by the sanction of the state. Cyber crime may be said to be [one
of] those species, of which, the genus is conventional crime, and where either
the computer is an object or subject of the conduct constituting crime,”

However, despite the similar legal nature of both conventional and cyber crime,
they are substantially different in practice. Cyber crimes are far easier to
learn how to commit, require fewer resources relative to the potential damage
caused, can be committed in a jurisdiction without being physically present in,
and until recently, their status of illegality has been, at best, vague. As the
global technology policy and management consulting firm McConnell Institute
notes in a comprehensive report on the subject, many countries’ existing archaic
laws threaten the global information dynamic

“The growing danger from crimes committed against computers, or against
information on computers, is beginning to claim attention in national capitals.
In most countries around the world, however, existing laws are likely to be
unenforceable against such crimes”.

The report added, “Existing terrestrial laws against physical acts of trespass
or breaking and entering often do not cover their ‘virtual’ counterparts. New
kinds of crimes can fall between the cracks.”

Furthermore, efficient law enforcement is further complicated by the
transnational nature of cyberspace.

“Mechanisms of cooperation across national borders are complex and slow. Cyber
criminals can defy the conventional jurisdictional realms of sovereign nations,
originating an attack from almost any computer in the world, passing it across
multiple national boundaries, or designing attacks that appear to be originating
from foreign sources. Such techniques dramatically increase both the technical
and legal complexities of investigating and prosecuting cyber crimes.”

To protect themselves from those who would steal, deny access to, or destroy
valuable information, public and private institutions have increasingly relied
on security technology. But in today’s rapid world of e-commerce, self
protection, however essential, alone cannot make up for a lack of legal
protection. Many countries, therefore, now have separate legislation against
such activities.

The bill covers two basic types of cyber crimes. One in which computers
themselves are targets (such as criminal data access, data damage, malicious
code, and various other kinds of information theft on computer networks), while
the other in which computer and other technology are used as a tool to commit
virtual versions of various conventional crimes (such as cyber terrorism,
electronic fraud and forgery, cyber stalking and spamming, etc).

For the average internet surfer, unaware of the technical definitions of most of
these offences, the law may appear quite confusing at the first glance. It shall
come as no surprise, therefore, that disagreements regarding the ordinance’s
interpretation persist even in the broader legal fraternity. In particular, it
has come under fire from civil rights groups and a section of lawyers who
denounce it as “effectively and practically [...] useless against cyber crimes”
but nevertheless creating “enormous obstructions and nuisances for IT enabled
[...] businesses and individuals” as well as considerably sacrificing individual
liberties such as that of privacy.

Mark Tamale (former member of the information technology law forum and the
ministry of science and technology) who has been at the forefront of the
awareness campaign, ‘Take a bite out of the cyber crimes law’ has criticised
this and other sections of the ordinance as being too ambiguous. He implies that
the law could, as a consequence, render even something as innocuous as googling
‘how to make an atomic bomb’ a ‘terrorist act.’ Surely however, the ‘knowingly
engages in’ portion of the statue as well as the subsequent definition of

‘terrorist-ic intent’ should make this a highly unlikely possibility.

A more pressing concern however, at least for the average citizen would be of
privacy. Sections of the law pertaining to corporate responsibility require all
internet service providers to store up to 90 days of data regarding consumers’
internet usage. Service providers are also, in turn, legally bound to comply
with federal law enforcement agencies if they require such data. Such broad
ranging powers for the law enforcement agencies are a common feature of the
ordinance, which also empowers the Federal Investigation Authority to issue an
arrest warrant without any direct involvement of the judiciary.

This means that in effect if the peoples found out how you took a picture of the
man that always stands at the beginning of your lane and then posted it in your
blog, then you may end up in jail (section 13 (d) of the bill renders it illegal
to distribute any image on the Web without the prior explicit consent of the
person in the picture). You may also be arrested for bombarding all your
‘frands’ with Valentine Day wishes (section 13 defines cyber stalking as
‘communicating obscene, vulgar, profane, lewd, lascivious or indecent language,
picture or images with an intent to coerce, intimate or harass any person using
a computer network, internet, network site, electronic mail or any other similar
means of communication’).

Worse still, if you committed any of 21 crimes enlisted in the bill in your
office premises, you will not only end up in jail yourself, but land your bosses
in hot water as well. For section 21, on offenses by a corporate body, holds any
corporation responsible for any action which was committed on its instruction or
for its benefit. Some of these definitions, even by layman standards paint very
abstruse criteria.

Even if one puts aside valid concerns about the lack of procedural safeguards
and due process to protect the rights and the liberties of individuals, one
cannot help but wonder how it will become a nightmare to implement the law, and
then prove any accusations in a trial, especially given the international nature
of cyber crime. Unless the crimes mentioned in it are defined in a manner
consistent across other international jurisdictions, coordinated efforts by law
enforcement officials to combat cyber crime will remain largely complicated and
unsuccessful. There is also a most pressing need to educate law enforcers
themselves about the nature of technology involved, so they can distinguish
aptly between a casual surfer and genuine cyber criminal. The past reputation of
our law enforcement agencies does not leave one with a lot of confidence in this
respect.

In short, a separate ordinance for cyber crimes is in it self a step in the
right direction. After all, rule of law in any capacity always constitutes
towards blossoming a trustworthy environment for business and individuals to
work in. But merely passing a law has never been enough to curtail any crime;
the real deterrent will be its implementation and awareness among the public.

Howard Haines
http://www.articlesbase.com/k-12-education-articles/cyber-crime-law-separating-myth-from-reality-711763.html

Strategies for Preparing for a Patent Interference

Strategies For Preparing for an Interference

Table of Contents

I. The Benefits of Timely Recognizing a Potential Interference

II. Obtain and Use Competitive Intelligence

III. Patent Procedures Relating to Competitive Intelligence

A. Limit Access to Your Client’s Applications

B Obtain Information Regarding Competitor’s Patent Applications

IV. The Law Relevant to Requesting an Interference

A. 35 USC 102(g)(1) – Procedural Limitations on Secret Prior Art

B. 35 USC 135(a) – Criteria for an Interference

C. 35 USC 135(b) – The Statutory Bar

D. 37 CFR 1.604, 1.607, 1.608, and 1.617, and Requesting an Interference

E. 37 CFR 1.658(c) Estoppel, Interference Estoppel, and Issue Preclusion

1. In the USPTO

2. In Subsequent Litigation

V. File Early

VI. Respond to Published United States or PCT Applications

VII. Consider Splitting Subject Matter Between Applications in View of Temporal Delays and Interference Estoppel

A. Probable Time Line for an Interference

B. Predicting the Outcome and Consequences of the Outcome

1. Consequences of Losing the Interference

2. Consequences of Prevailing in the Interference

C. Costs of an Interference

VIII. Count Formulation for an Interference Request

IX. Table 1 – Comparison of Data Sources

I. The Benefits of Timely Recognizing a Potential Interference

Timely recognizing a potential interference allows your client to act before certain legal and business options are foreclosed. Failing to request an interference within one year of the issuance of the target patent bars your client (1) from obtaining an interference and (2) from obtaining patent claims defining substantially the same subject matter as claimed in the patent.1 Failing to request an interference within one year of the publication of an application will under certain circumstances also bar your client from obtaining both an interference and the claims in the published application.2

Applications targeting a patent for an interference that are filed after the issuance of the target patent must make certain showings in the interference by the burden of clear and convincing evidence as opposed to the otherwise generally applicable burden of the preponderance of the evidence.3 Promptly requesting an interference with a target application may result in an interference with the target application as opposed to an interference with a patent issued from the target patent. Dragging the target application into an interference before it can issue into a patent can be advantageous because, normally, no patent will issue from the target application until judicial review of the interference is terminated.5 The duration of the interference and all judicial review can be substantial. Therefore, failing to timely request an interference could result in your client unnecessarily facing a patent instead of an application for the duration of the interference and judicial review of the interference. Furthermore, if your client requests a stay in litigation in which it has been accused of infringement of a patent based upon the existence of an interference involving the patent, it is more likely that the stay will be granted if an interference is procedurally advanced relative to the litigation than vice versa.6 Finally, late recognition of problem patents increases the costs of designing, licensing, or abandoning the market.

For all of the foregoing reasons, early recognition of the potential for an interference can be advantageous. Conversely, preventing a competitor from timely identifying your client’s patent applications increases the value of your client’s patent portfolio. I focus in this paper on practices you can employ to identify relevant patent information, such as potential interferences, to prevent competitors from identifying your client’s patent information, and to explain what you can or should do when you identify a potential interference.

II. Obtain and Use Competitive Intelligence

Your client will never know a patent problem exists (until it is too late) unless it is obtaining competitive intelligence. Each company should employ a procedure to obtain competitive intelligence. Most companies set up an information “watch,” which is a periodic retrieval of targeted information, as part of this procedure.

There are numerous commercial databases containing relevant patent and non-patent information. Table 1 (see section VIII) lists some of the more popular commercial database sources, and it lists pros and cons of each vendor’s services.7 As Table 1 shows, no one vendor supplies all potentially useful sources of competitive intelligence. Therefore, a good policy is to use a plurality of database vendors to gather relevant information for analysis.

If a company does not have an in-house information specialist, it may be cost effective and more reliable for it to contract with a consulting information specialist instead of attempting to internally implement a watch. This is because a suitable “watch” may involve retrieving data from multiple data vendors, and the watch may need to be tweaked from time to time to provide desired information. Moreover, it may be desirable to conduct non-automated database searches for certain information. Information specialist organizations include the Association of Independent Information Professionals (AIIP), the Society for Competitive Intelligence (SCIP), the Special Libraries Association (SLA), and the Patent Information User’s Group (PIUG).8

One source of patent competitive intelligence is disclosures by or to your client, typically in connection with offers to sell IP, settlement or merger negotiations, or duties pursuant to a joint venture. Consider including in the underlying agreement terms defining the rights to pursue inter partes administrative actions, such as interferences. Likewise, be aware of the possibility of requesting administrative action, such as interferences, if your agreement permits (or does not expressly exclude) them.

III. Patent Procedures Relating to Competitive Intelligence

In this section, I list procedures to employ for (1) limiting or delaying access to your client’s patent or confidential information and (2) obtaining access to information about patent applications of others.

A. Limit Access to Your Client’s Applications

If there is information that you feel obliged to submit in a 35 USC 111(a) patent application, a reissue patent application, or a reexamination, and you want that information to remain confidential, consider filing the information pursuant to MPEP section 724 concurrently with a rule 37 CFR 1.59 petition to have the information expunged if the information is found to be not important to patentability. If you file such a petition, the confidential information will not be made available to the public and will be returned to the applicant if an examiner determines that the information is not “important to a reasonable examiner in deciding whether to allow the application to issue as a patent.”9

Second, anyone can access the file of an abandoned unpublished United States patent application if the application is referred to anywhere in the file history (not just when it is referred to in the specification) of an issued patent.10 Why is this important? Partially because of the duty to disclose “Information Relating to or From Copending United States Patent Applications,”11 such as information “[f]or “different applications pending in which similar subject matter but [arguably] patentably indistinct claims are present.”12 Accordingly, it is a common practice to file IDSs containing copending application statements. These statements may include the specification, figures, claims, or merely the serial numbers of the related applications. Keep in mind that the claims are potentially material vis-a-vis a double patenting determination. In any case, that practice can eventually enable an adverse party to access the file histories of the cited applications – - even if those applications are subsequently abandoned. In addition, for reexaminations and reissue applications, that practice provides your client’s competitors potentially damaging information. Therefore, you may want to file a 37 CFR 1.59 petition along with each copending application statement.

B Obtain Information Regarding Competitor’s Patent Applications

If you are interested in whether there are any pending applications related to either a published United States application or an issued United States patent, simply look on the continuity link for parent and child data in PAIR, or telephone or fax your request for that information to the USPTO.13 Continuity and status information is extremely useful in targeting patent applications for an interference or a public protest.

In certain instances, an application priority to which is claimed in a PCT publication is not readily available from the USPTO. In those instances, be aware that copies of the priority applications may be obtained directly, promptly, and inexpensively from the International Bureau in Zurich.

You can request status information from the USPTO to determine whether a 371 application has been filed based upon a published PCT application by sending a request for status information to the PCT Legal Office either by mail or by facsimile to 703-308-6459, including a cover of the published PCT application, and a letter requesting status. The PCT Legal office will then mail you a letter providing status, including the US serial number, if one exists.14

Finally, you can now order from the USPTO a copy of any paper cited in the PAIR file for a published application.15

IV. The Law Relevant to Requesting an Interference

Deciding what action, if any, to take when you identify a potential interference requires knowing the relevant law. The relevant law includes inter alia 35 USC 102(g), 35 USC 135(a), 35 USC 135(b), 37 CFR 1.604, 37 CFR 1.607, 1.608, and 1.617, 1.658(c) and related interference estoppel, and 37 CFR 1.657. 35 USC 102(g) defines the circumstances in which secret inventions are prior art. 135(a) defines what constitutes interfering subject matter. 135(b) defines a patentability and interference bar. Rules 604 and 607 define the requirements for an applicant to copy claims and request an interference. Rule 608 defines the showing an applicant must make prior to the interference to convince the examiner to recommend the interference.16 Rule 617 defines the degree of proof required in an applicant’s 608(b) showings necessary to avoid losing the interference when it is declared. 37 CFR 1.657 defines who has the burden of proof on priority.

I briefly review this law below and provide practice advice interspersed with the review. However, note that you are obliged to notify the examiner when you present claims substantially similar or copied from a target patent or application that you are doing so, and failure to do so is a sanctionable act of misconduct.17 Merely citing the target application or patent in an IDS is not sufficient to satisfy this obligation.

A. 35 USC 102(g)(1) – Procedural Limitations on Secret Prior Art

35 USC 102(g)(1) defines inventive activity that occurred abroad to be prior art only in an interference.18 In contrast, 35 USC 102(g)(2) defines inventive activity that occurred in the United States to be prior art without limit to the type of action.19 As a consequence, a company’s inventive activity that occurred abroad will not provide a 102(g) prior art invalidity defense to a charge of infringement of a patent. It follows that foreign company’s have a greater incentive than domestic companies to request interferences, since that action is more likely to be the foreign company’s only recourse to avoid liability for patent infringement.

B. 35 USC 135(a) – Criteria for an Interference

35 USC 135(a) states that an “application … which, in the opinion of the Director, would interfere with any pending application, or with any unexpired patent…” may be the basis of an interference. In other words, the statutory language leaves the criteria for what constitutes interference at the complete discretion of the Director. The Director’s discretion is circumscribed by 37 CFR 1.601(j) and (n), which define an “interference-in-fact” based upon a “same patentable invention” test. A literal reading of those rules would indicate that the test for interfering subject matter is the same as the usual test for obviousness-type double patenting; a one-way obviousness test. However, in Winter v. Fujita,20 an expanded panel of the Board held that interference-in-fact required a “two-way patentability analysis,” stating that:

Resolution of an interference-in-fact issue involves a two-way patentability analysis. The claimed invention of Party A is presumed to be prior art vis-a-vis Part B and vice versa. The claimed invention of Party A must anticipate or render obvious the claimed invention of Part B and the claimed invention of Party B must anticipate or render obvious the claimed invention of Party A. When the two-way analysis is applied, then regardless of who ultimately prevails on the issue of priority, the Patent and Trademark Office (PTO) assures itself that it will not issue two patents to the same patentable invention.

Winter still leaves some wiggle room as to when there exists interfering subject matter since a “two-way patentability analysis” does not specify that there must be two-ways obviousness between the claimed inventions. However, my current understanding from the case law and the guidance provided by members of the Trial Section21 of the Board at various bar meetings is that an interference would require two-ways obviousness between the parties’ claims, except in unusual circumstances. However, one important point to note is that a claim in an application to a species of a genus may be insufficient to provoke an interference with a claim in a target application or patent to the genus.22

C. 35 USC 135(b) – The Statutory Bar

35 US 135(b)23 provides a “triple whammy.”

First, it precludes untimely attempts to provoke an interference.

Second, it precludes getting a patent on claims defining substantially the same subject matter as claims in an issued patent or published US application that are not timely presented.

Third, since the 135(b) “substantially the same subject matter” criteria may be narrow than the135(a) “same patentable invention” criteria, anomalous situations may occur where 35 USC 135(b) may bar an interference even when claims that were timely presented met the 35 USC 135(a) criteria. As a result, the applicant requesting the interference (1) may be barred from the interference and (2) barred from getting a patent even when there is no 135(b) bar. This is because 37 CFR 1.131 does not allow antedating a patent or published application for claims that define the “same patentable invention”24 as the claims in the patent or published application.

35 USC 135(b)(2) presents special problems since it bars late presented claims to “an application published under section 122(b) of this title,” and 35 USC 374 accords to published PCT applications the same force and effect as published US application, except for 102(e) and 154(d).25 The special problem arises in that not all PCT applications are published in English, but all PCT publications may serve as the basis for a 135(b)(2) bar. Accordingly, it may be difficult to identify a claim in a foreign language (e.g., Japanese, German, or French) published PCT application defining subject matter that would be a problem for your client, and just as difficult to determine whether your client’s applications have support to copy those claims. However, if you can identify potentially relevant PCT published applications, you can address this problem by obtaining an automated English translation of at least the claims using free web services, such as those linked on my firm’s web site at: http://www.neifeld.com/autotrans.html

The terms of 135(b)(2) limit the bar based upon published applications (including PCT application) to claims presented in applications filed after the publication date of the published application. Thus, there is no time bar on copying claims in an application that was pending when the potentially interfering application was published. 35 USC 374 would imply that no 135(b)(2) bar would exist to claims filed in your client’s own PCT application when your client’s own PCT application was filed prior to the publication date of the target application. However, in my opinion, the USPTO has not clearly defined whether it considers claims in a PCT application in the international stage to be “pending.” Accordingly, your client should not rely upon “pending” claims in its own PCT application to satisfy 135(b)(2), unless that application has been nationalized in accordance with 35 USC 371.

D. 37 CFR 1.604, 1.607, 1.608, and 1.617, and Requesting an Interference

Rules 604 and 607 specify what you need to show to get into an interference.

37 CFR 1.604(a) specifies the requirements for requesting an interference with a pending application, which are: (1) suggesting a proposed count, (2) presenting at least one claim corresponding to the proposed count or identifying at least one claim in its application that corresponds to the proposed count, (3) identifying the other application and, if known, a claim in the other application which corresponds to the proposed count, and (4) explaining why an interference should be declared. 37 CFR 1.606 is useful in understanding item (4). Rule 606 states that before “an interference is declared between an application and an unexpired patent, an examiner must determine that there is interfering subject matter claimed in the application and the patent which is patentable to the applicant subject to a judgment in the interference.” Thus, the explanation why an interference should be declared should at least allege that the claims in the application are patentable to the applicant, but for the potential interference.

37 CFR 1.607(a) specifies the requirements for requesting an interference with an issued patent. These requirements are the following: (1) identifying the patent, (2) presenting a proposed count, (3) identifying at least one claim in the patent corresponding to the proposed count, (4) presenting at least one claim corresponding to the proposed count or identifying at least one claim already pending in its application that corresponds to the proposed count, (5) if any claim of the patent or application identified as corresponding to the proposed count does not correspond exactly to the proposed count, explaining why each such claim corresponds to the proposed count, (6) applying the terms of any application claim identified as corresponding to the count, and not previously in the application to the disclosure of the application, and (7) explaining how the requirements of 35 U.S.C. 135(b) are met if the claim presented or identified in your client’s application as interfering were not present in the application until more than one year after the issue date of the patent.

37 CFR 1.608(a) applies when the effective filing date of an applicant requesting an interference with a patent is later than the effective filing date of the target patent by no more than three months. Rule 608(a) requires the requestor to file a statement alleging that there is a basis upon which the applicant is entitled to a judgment relative to the patentee. Since the allegation is usually based upon priority, you must conduct a priority investigation to make this statement.

37 CFR 1.608(b) applies when the effective filing date of an application in which an applicant requesting an interference with a patent is later than the effective filing date of the target patent by more than three months. Rule 608(b) requires the applicant requesting the interference to submit evidence and explanations demonstrating that applicant’s application is prima facie entitled to a judgment relative to the patent. However, rule 608(b) states that “the examiner will consider the evidence and explanation only to the extent of determining whether a basis upon which the application would be entitled to a judgment relative to the patentee is alleged and, if a basis is alleged, an interference may be declared,” whereas 37 CFR 1.617(a) states that the APJ will review the evidence filed in connection with rule 608(b), and, if the APJ determines that the “evidence fails to show that the applicant is prima facie entitled to a judgment relative to the patentee, the administrative patent judge shall, concurrently with the notice declaring the interference, enter an order stating the reasons for the opinion and directing the applicant, within a time set in the order, to show cause why summary judgment should not be entered against the applicant.” 37 CFR 1.617(b) also states that “additional evidence shall not be presented by the applicant or considered by the Board” in response the show cause order. In other words, if the applicant’s interference request alleges but does not make a prima facie case for a date of invention prior to the effective filing date of the target patent, the applicant will not be able to supplement that evidence and will be faced with a show cause order, most likely resulting in swift judgement against the applicant.26 Accordingly, whenever a 608(b) showing is required, it is essential that the showing be sufficient so that the applicant is prima facie entitled to judgement relative to the patentee.

E. 37 CFR 1.658(c) Estoppel, Interference Estoppel, and Issue Preclusion

1. In the USPTO

37 CFR 1.658(c) defines the estoppel effect in the USPTO with respect to all issues that were or could have been raised in the interference.27 This includes estoppel with respect to claims defining patentably indistinguishable inventions from a count,28 and to claims to subject matter commonly disclosed (whether or not claimed) in any applications involved in the interference.29

2. In Subsequent Litigation

Issues decided in an interference proceeding may be accorded issue preclusion effect in subsequent litigation. The burden of proof on most issues in an interference proceeding is preponderance of the evidence.30 The corresponding burden in infringement litigation is clear and convincing evidence. In all cases, the burden of proof in the interference proceeding is no higher than the burden of proof in infringement litigation. Therefore, the decisions on issues actually litigated in the interference proceeding should be granted issue preclusion effect in subsequent infringement litigation.31

F. 37 CFR 1.657 – Burden of Proof on Priority

37 CFR 1.657 defines the burden of proof as to date of invention to be on the party with the later effective filing date, and that the burden increases from preponderance of the evidence to clear and convincing evidence if the effective filing date of the application is after the effective filing date of the target patent, and that burden does not shift based upon submission of priority evidence.32

V. File Early

If your competitive intelligence is lucky enough to identify that your client’s competitor is about to file a patent application on contested technology, or obtain a patent on that technology, your client should file immediately. As just shown, the burden of proof on priority depends solely upon effective filing and issue dates, and pointedly does not depend upon evidence of inventive activity.

VI. Respond to Published United States or PCT Applications

Assume your client identifies a published United States or PCT application (1) which designates the United States and (2) the claims of which cover or relate to your client’s technology. Your client should first consider preserving its rights in view of 35 USC 135(b)(2).

135(b)(2) will bar your client from presenting claims to substantially the same subject matter as claimed in a published application when your client files such claims (1) more than one year after publication and (2) in any application filed after the date of the publication. Therefore, your client should consider either copying claims from the published application in a previously filed 35 USC 111(a) or 35 USC 371 application or filing a new application and copying the claims in the newly filed application. Your client should copy exactly the same claims as in the published application (to the extent possible based upon support in your client’s application’s specification) to ensure compliance with 135(b). In addition, your client can present additional claims modeled after the published claims which exclude limitations for which your client arguably does not have support in their specification, exclude limitations for which your client arguably does not have an early priority date, and correct indefiniteness problems. This approach provides the best possible chance for your client meeting the 135(b) bar and also obtaining allowable claims that are also interfering with the target claims.

Keep in mind that you are obliged to notify the Office of the target application and the fact that you are copying claims from it, even if the target application is a PCT application in the international stage. This is because 37 CFR 1.604(b) states that you must notify the Office when you present a claim that you know “define[s] the same patentable invention claimed in a pending application for all purposes except 102(e) and 154(b), pursuant to 35 USC 374. Therefore, the requirement to notify the Office when copying claims from an application specified in 37 CFR 1.604(b) applies to copying of claims in a PCT application in the international stage.

Moreover, if your client files a new application for use as a vehicle for interference with a national stage or continuation of the published PCT application, consider filing a non-publication request, and an IDS identifying your client’s applications disclosing or claiming similar subject matter, and a 37 CFR 1.59 petition to expunge the IDS information. Similarly, your client should consider filing IDSs in the cited applications identifying the new application along with petitions to expunge in those applications.

Note that your client’s opponent in the interference will have access to the file history of your client’s involved application and all applications to which it claims priority. Therefore, even a non-publication request in your client’s involved application will not immunize information regarding your client’s similar applications identified in an IDS from eventual discovery.

It is extremely unlikely that the USPTO would declare an interference involving claims in a PCT application.34 Therefore, even though your client may promptly copy claims into their application, it makes little sense to present a complete 37 CFR 1.604 request at that time. You should file the 604 request in your client’s application when there is a 35 USC 371 national stage (or 35 USC 111(a) continuation) of the target PCT application, since you can then identify in your client’s interference request the United States serial number of the target application. A 371 application will be published several months after it is on file in the USPTO. However, as a third party, you can periodically request status information from the USPTO based upon the publication of a PCT application to determine whether a corresponding 371 application has been filed in order to identify the serial number of the 371 application prior to its publication. That will allow you to more promptly request an interference.

You should promptly file an interference request targeting the published United States 35 USC 111(a) or 371 application because it takes most interference requests roughly two years to mature into interferences.35 Prompt filing increases the chances that an interference request will be considered and an interference declared prior to issuance of the target application into a patent. Moreover, you should periodically check for papers filed in the target application using PAIR, obtain copies of paper filed in it, copy into your application any additional or amended claims presented in the 371 application to which your client believes it has a right, and update your 604 request accordingly.

When you file an interference request targeting a competitor’s application or patent, consider filing a paper in the style of a public protest in each of the applications related to the target application or patent pointing out that the subject application is related to the target application or patent, and should be examined in view of that fact relationship.36 That may bring the existence of the interference request to the attention of the examiners of the related applications, and enable those examiner to consider the impact of the interference request on the subject application. This action may result in the related applications being included in the interference, having prosecution in them stayed until the interference is terminated, or at least receiving a heightened level of examination.37 However, you are also obliged to serve a copy of any public protest on the attorney for the target application, 38 thereby notifying the adverse party of your interference request. You will have to weigh benefits and drawbacks of this procedure in each situation.

VII. Consider Splitting Subject Matter Between Applications in View of Temporal Delays and Interference Estoppel

Your client needs to take into consideration the potential time line, outcome, consequences of the outcome, and cost when deciding what action to take in view of a potential interference. Based upon these considerations, your client can make a reasoned decision (1) whether to attempt to provoke an interference and (2) whether to also attempt to promptly obtain issued patents on closely related but arguably non-interfering subject matter. The important point is to identify these issues prior to taking action and to weigh the benefits and drawbacks before deciding to act.

Keep in mind that the motivation for filing most interference requests is that the existence of another’s exclusive right to the target claims is unacceptable from a business perspective. Therefore, the most important goal of most of the parties requesting interferences is to obtain cancellation of the other party’s claims.

A. Probable Time Line for an Interference

Most probably, an interference request will result in an interference in roughly two years after the date the request for the interference is filed. Most probably, the interference proceeding in the USPTO will take about two years. Most probably, any 35 USC 146 action following the interference will take about two years. Most probably, any 35 USC 141 appeal will take about a year. Therefore, any hard fought interference and its judicial review may take on the order of five years. Most probably, post interference prosecution and issuance of a prevailing applicant’s application will take about a year.

B. Predicting the Outcome and Consequences of the Outcome

Predicting the outcome of an interference depends upon the known facts of the case (e.g., your priority evidence and known prior art) and guesses as to unknown facts (e.g., your opponent’s priority evidence and unknown prior art). Thus, any such prediction and the confidence level of the prediction depend upon the facts of the case.

1. Consequences of Losing the Interference

If your client “loses”39 the interference, it may end up with no patent, and 37 CFR 1.658(c) may bar it from any claims to any subject matter disclosed or obvious in view of the disclosure of the other applications (or patents) involved in the interference. In contrast, if your client does not provoke an interference, it may obtain claims dominating or subservient to the claims of the target application or patent, and these may be claims that your client would be precluded from obtaining if it pursued an interference. Theoretically, that should not happen since, theoretically, your client and the owner of the target application or patent should be entitled to the same claims in any case. However, interferences adduce additional evidence than exists in ex parte prosecution, decisions of the APJs on patentability and the scope of interfering subject matter may differ from those of ex parte examiners, and failure to either raise certain issues or carry the burden of proof on certain issues in an interference may all result in different outcomes in interferences than in corresponding ex parte prosecution.

2. Consequences of Prevailing in the Interference

If your client prevails in the interference, (1) corresponding claims in the opponent’s application or patent will be canceled, and your client’s application will be entitled to an amount of term extension40 unless term is limited by a terminal disclaimer. In addition, issue preclusion may apply in a follow on infringement litigation by your client on its patent issuing from its application involved in the interference against the other party in the interference.

If your client has previously obtained patents with claims to closely related subject matter, you may be forced to file in your client’s interference application a terminal disclaimer to moot a double patenting rejection, thereby losing any potential term extension that may be afforded by the AIPA due to the duration of the interference and subsequent judicial review. This is a factor to weigh when considering prosecution of related applications. In this regard, also keep in mind your rule 56 duty to provide information from the interference to the examiner examining any relevant application, whether you win or lose the interference.41

C. Costs of an Interference

Most interferences cost several hundred thousand dollars to litigate; roughly ten percent of the cost of a patent infringement litigation. Interferences are procedurally complex, usually requiring the interplay of priority and patentability issues respecting both parties’ claims. However, interferences allow much more limited discovery than district court infringement litigation, they do not deal with issues of infringement or damages, and therefore they cost less than infringement litigation.

VIII. Count Formulation for an Interference Request

The vast majority of interference proceedings terminate prior to a decision on priority. However, priority is the ultimate issue, and the reasons why interferences terminate are logically related and dependent upon priority. For example, a decision on motions that a party lacks support for its involved claims will result in termination of the interference via a judgement against that party. However, lack of support implies that the party does not have priority for the subject matter defined by the count. Likewise, parties settle or concede based upon factors including the likelihood of prevailing on priority. Therefore, priority is an issue you should be concerned with when requesting an interference.

Priority in an interference is awarded on a count by count basis. The party losing priority with respect to a count will not be entitled to claims corresponding to that count, which are all claims that define the same patentable invention as the count. Claims corresponding to the count are supposed to define obvious variations of the subject matter defined by the count. The count is supposed to define subject matter that is non-obvious over the of the prior art. The count is an artificial legal construct defined by the APJ at the beginning of the interference in the declaration of the interference. However, interference requests must include a propose count or counts. Often, the proposed counts are the same as the counts defined in the declaration of the interference.

Moreover, a party requesting (via motion) in the interference proceeding that the count be change has the burden of the preponderance of the evidence to explain why the count should be changed. The majority of motions in interferences are denied. Therefore, it is statistically unlikely that the count will be changed via a motion in an interference. Therefore, your client has the possibility of influencing the outcome of the interference by what count or counts it proposes in its request for an interference, and what claims it presents prior to the interference.

The logical procedure to follow to propose a count is to determine your client’s relevant priority information, obtain what priority information you can regarding the target application, such as the disclosure of any applications to which the target application claims priority, relevant press releases on the target company’s products, publications of the named inventors, and information on the employment histories of the named inventors, and propose a count (1) that you believe to be non-obvious over the prior art and (2) that provides the highest probability that your client will have priority over the other party’s priority for the subject matter defined by that count.

In addition, you should present in the interference request claims identical (or as close as possible given the limitation of support in your client’s application) to the proposed count. This is at least because the existence of such claims may preclude an argument by your opponent in the interference why the count should be changed.

IX. Table 1 – Comparison of Data Sources

Database sources for competitive intelligence is available at http://www.neifeld.com/strategies_020827.pdf. All of the database vendors noted in this chart provide fee based services. Most of the Internet sites are free, but some require registration or subscription. Table 1 is courtesy of Martin Goffman Associates.

FOOTNOTES

1 135 USC 135(b)(1)(“A claim which is the same as, or for the same or substantially the same subject matter as, a claim of an issued patent may not be made in any application unless such a claim is made prior to one year from the date on which the patent was granted.”); and In re McGrew, ___ F.3d ___, ___, 43 USPQ2d 1642, 1635 (Fed. Cir 1997)(Rich J.)(“The application of section 135(b) is not limited to inter partes interference proceedings but may be used, in accordance with its literal terms, as a basis for ex parte rejections.”).

2 35 USC 135(b)(2)(“A claim which is the same as, or for the same or substantially the same subject matter as, a claim of an application published under section 122(b) of this title may be made in an application filed after the application is published only if the claim is made before 1 year after the date on which the application is published.”). You can file copied claims in your application at any time if your application was pending when the target application was published.

3 Bamberger v. Cheruvu, 55 USPQ2d 1523, 1526 (PTOBPAI 1998)(“We recognize that when an application is filed after a patent issues, that [sic] the applicant must prove priority by clear and convincing evidence. Price v. Symsek, 988 F.2d 1187, 26 USPQ2d 1031 (Fed. Cir. 1993). In the interference before us, the Bamberger application was copending with the application which matured into the Cheruvu patent. We leave for another case the determination of whether unpatentability should be based on clear and convincing evidence in those interferences where the junior party application was filed after the senior party patent issued.”). Issues of derivation and fraud always require proof by clear and convincing evidence. See Price v. Symsek, 988 F.2d 1187, ___, 26 USPQ2d 1031, 1033-34 (Fed. Cir. 1993) as to derivation and Litton Sys., Inc. v. Honeywell, Inc., 87 F.3d 1559, 1570, 39 USPQ2D 1321, 1328 (Fed. Cir. 1996), vacated and remanded on other grounds, 117 S. Ct. 1240 (1997) as to fraud.

4 I polled the members of the Interference Committee of the AIPLA to determine the average delay between requesting an interference and declaration of the interference. The average delay was about two years. See Neifeld, “Report of the January 2002 meeting of the Interference Committee of the AIPLA,” published in the AIPLA Quarterly Bulletin and available at http://www.neifeld.com/advidx.html.

5 Cf. Lin v. Fritsch,14 USPQ2d 1795, 1798 (Comm’r 1989)(“The normal practice of PTO is not to issue patents based on applications involved in an ongoing interference. The interference rules authorize petitions to the Commissioner in interference cases for the purpose of seeking a waiver of a rule of practice. 37 CFR §1.644(a)(3) [Rule 644]. Inasmuch as Rule 644 is not inconsistent with law, it has the force and effect of law. In re Rubinfield, 270 F.2d 391, 123 USPQ 210 (CCPA 1959), cert. denied, 362 U.S. 903 [ 124 USPQ 535 ] (1960). Rule 644 gives the Commissioner jurisdiction to reach the merits of Lin’s petition.”).

6 Whether or not a court grants a stay requested based upon the existence of an interference depends on various factors including how advanced the litigation is relative to the interference, the number of issues that will not be resolved by a decision in the interference, and the hardship to the non-moving party. See Chiron Corp. v. Abbott Labs., 1996 U.S. Dist. LEXIS 317, *8-9 (N.D.Cal. 1996)(advanced litigation); General Foods Corp. v. Struthers Scientific and Int’l. Corp., 309 F.Supp. 161, 161-2 (D. Del. 1970)(advanced litigation and several other patents in suit); Research Corp. v. Radio Corp. of America, 181 F.Supp. 709, (D. Del. 1960)(advanced interference); Sanwa Foods, Inc., v. Wenger Mfg., Inc., 18 USPQ2d 1493 (D. Kan. 1990)(interference so advanced decision expected prior to trial deemed grounds to deny request for stay); NL Chemicals, Inc. v. Southern Clay Prods., Inc., 14 USPQ2d 1561 (D.D.C. 1989)(stay granted where the PTO interference encompassed all of the issues in the district court action); R.E. Phelon Co., Inc. v. Wabash, Inc., 640 F.Supp. 1383, 1385 (N.D. Ind. 1986)(stay granted where both parties joined in the request for the stay).

7 Courtesy of Martin Goffman, Ph.D., Goffman & Associates. I use Goffman & Associates for most of my proprietary database information needs. See www.Goffman.com.

8 See www.aiip.org for the AIIP. The AIIP is directed to general information. See www.scip.org for the SCIP. See www.sla.org for the SLA. See www.piug.org for the PIUG. The PIUG is directed to patent information.

9 MPEP section 724.04, August 2001, page 700-250.

10 See http://www.uspto.gov/web/offices/pac/dapp/opla/frule/supq&a.pdf Q&A 85 on page 24, and see form PTO/SB68, at http://www.uspto.gov/web/forms/sb0068.pdf and specifically section 1.B.

11 MPEP section 2001.06(b).

12 MPEP section 2001.06(b), page 2000-5, August 2001; interpolation supplied.

13 USPTO FILE INFORMATION UNIT, Crystal Plaza 3, Tel: 703-308-2733; Fax: 703-305-6067.

14According to Examiner Leonard Smith, PCT Legal Office, USPTO.

15 See https://www3.uspto.gov/vision-service/Product_Services_P/msgProductFees.

16 Interferences are declared by an Administrative Patent Judge (APJ), not by the examiner. 37 CFR 1.610)a).

17 See 37 CFR 10.23(c)(7) and Bovard v. Respondent, Office of Enrollment and Discipline (“OED”) Proceeding D96-01 (Commissioner’s Decision, August 27, 1997).For a description of ethical duties in interferences, see Neifeld, “A Practitioner’s View of Ethical Considerations Before the Board in Interferences,” September 2002, available at http://www.neifeld.com/advidx.html

18 35 USC 102(g)(1) reads:

during the course of an interference conducted under section 135 or section 291, another inventor involved therein establishes, to the extent permitted in section 104, that before such person’s invention thereof the invention was made by such other inventor and not abandoned, suppressed, or concealed….

19 35 USC 102(g)(2) reads:

before such person’s invention thereof, the invention was made in this country by another inventor who had not abandoned, suppressed, or concealed it.

20 53 USPQ2d 1234 (PTOBPAI 1999)(expanded panel consisting of Stoner, Chief Administrative Patent Judge, McKelvey, Senior Administrative Patent Judge, and Schafer, Lee, and Torczon, trial section administrative patent judges)(opinion by SAPJ McKelvey).

21 The Trial Section of the Board is a section of the Interference Division of the Board. The Trial Section includes about eight APJs. The APJs of the Trial Section have declared, presided over, and decided most of the interference proceedings since inception of the Trial Section in 1998.

22 For a discussion of this issue see Neifeld, “The Standard for the Existence of an Interference” 83 JPTOS 275 (April 2001), also available athttp://www.neifeld.com/advidx.html.

23 35 USC 135(b) reads:

(b)(1)A claim which is the same as, or for the same or substantially the same subject matter as, a claim of an issued patent may not be made in any application unless such a claim is made prior to one year from the date on which the patent was granted.

(2) A claim which is the same as, or for the same or substantially the same subject matter as, a claim of an application published under section 122(b) of this title may be made in an application filed after the application is published only if the claim is made before 1 year after the date on which the application is published.

24 However, see In re Eickmeyer, 202 USPQ 655, 661, 602 F.2d 974, 980 (CCPA 1979)(“At the same time, we do not regard the opposite result (proposed here by the PTO) to be justifiable, namely: leaving an applicant in a position where he cannot overcome a reference by a 131 affidavit because the PTO has decided that the reference claims his invention, while, at the same time, he is denied an interference because the PTO has decided that the claims of his application and those of the reference are not for substantially the same invention.”)

2535 USC 374 reads:

The publication under the treaty defined in section 351(a) of this title, of an international application designating the United States shall confer the same rights and shall have the same effect under this title as an application for patent published under section 122(b), except as provided in sections 102(e) and 154(d) of this title.

26 See Basmadjian v. Landry, Interference No. 103,694, paper No. 22, pp 57-58 http://www.uspto.gov/web/offices/dcom/bpai/prec.htm (PTOBPAI 1997) (precedential to the Board) (Judgement entered against Basmadjian because Basmadjian’s 608(b) showings did not prima facie establish diligence; additional evidence submitted by Basmadjian’s in response to the show cause order was not considered since Basmadjian did not show good cause why the additional evidence was not submitted with 608(b) showings.).

27 37 CFR 1.658(c) reads:

c) A judgment in an interference settles all issues which (1) were raised and decided in the interference, (2) could have been properly raised and decided in the interference by a motion under § 1.633 (a) through (d) and (f) through (j) or § 1.634, and (3) could have been properly raised and decided in an additional interference with a motion under § 1.633(e). A losing party who could have properly moved, but failed to move, under § 1.633 or 1.634, shall be estopped to take ex parte or inter partes action in the Patent and Trademark Office after the interference which is inconsistent with that party’s failure to properly move, except that a losing party shall not be estopped with respect to any claims which correspond, or properly could have corresponded, to a count as to which that party was awarded a favorable judgment.

28 In re Deckler, 977 F.2d 1449, 1452, 24 USPQ2d 1448, 1450 (Fed. Cir. 1992)(the judgement in the interference may be used as a basis to subsequently reject claims of the losing party to the same patentable invention as the count).

29 49 Fed. Reg. 48440 second column lines 25-61; In re Shirmer, 69 F.2d 556, 558, 21 USPQ 161, 163 (CCPA 1934); and Avery v. Chase, 101 F.2d 204, 40 USPQ 343 (CCPA 1939), cert. den’d, 307 U.S. 638 (1939); and 37 CFR 1.633(e).

30 Bruning v. Hirose, 161 F.3d 681, ___, 48 USPQ2d 1934, 1938 (Fed. Cir. 1998)(“Accordingly, this court holds that, during an interference involving a patent issued from an application that was copending with the interfering application, the appropriate standard of proof for validity challenges is the preponderance of the evidence standard.”); Brown v. Barbacid, 276 F.3d 1327, 1333, 61 USPQ2d 1236, ___ (Fed. Cir. 2002)(“Specifically, this court (or the Board on remand, as the case may be) must determine, based on the entire evidentiary record, whether Barbacid ultimately prevailed in proving priority by a preponderance of evidence.”).

31 Section 27 of the Restatement of Judgements (second) states the general rule of issue preclusion, which is that: When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim.

32 Brown v. Barbacid, 276 F.3d 1327, 1333, 61 USPQ2d 1236, ___ (Fed. Cir. 2002).(“In sum, under 37 C.F.R. § 1.657(a) and (b), the ultimate burden of proof always remained on the

junior party, Barbacid. Thus, the Board erred in stating that the burden of proof shifted to Brown at any point in this case.”)

33 There is no authoritative legal opinion on this issue. However, a PCT application may form the basis for a rejection of a claim as specified in 102(e), and possible based upon 102(g). See the discussion of the purpose for an interference and why applications qualify as prior art under 102(g) in Neifeld, “Viability of the Hilmer Doctrine” 81 JPTOS 544 (July 1999) and Neifeld, “Viability of the Hilmer Doctrine” 81 JPTOS 544 (July 1999), respectively, both available at http://www.neifeld.com/advidx.html.

34 It appears that the Board would have jurisdiction over a PCT application in an interference via application of the terms of 35 USC 374 to 35 USC 135(a), but I know of no such interference.

35 See “Report of the January 2002 meeting of the Interference Committee of the AIPLA” published in the AIPLA Quarterly Bulletin, available at http://www.neifeld.com/advidx.html.

36 37 CFR 1.291 specifies the rules for public protests. A protest filed after the date of publication of an application will not be entered into the applications 37 CFR 1.291(a)(1). However, the existence of the interference issue should still be noted by the examiner.

37 MPEP 2315.01 first paragraph states that:

Where one of several applications of the same inventor or assignee which contain overlapping claims gets into an interference, the prosecution of all the cases not in the interference should be carried as far as possible, by treating as prior art the counts of the interference for the purpose of making provisional rejections and by insisting on proper lines of division or distinction between the applications. In some instances, suspension of action by the Office cannot be avoided. See MPEP § 709.01.

38 37 CFR 1.291(a)(2).

39 The concepts of winning and losing depend upon the goals of the parties in the interference. However, in this context, winning and losing refer to the effect on a claim by claim basis of the final decision or judgement in the interference. See 35 USC 135(a).

40 The pre-AIPA law provides for up to five years of interference term extension, and the AIPA provides for day for day term extension. See 35 USC 154.

41 See Eli Lilly v. Cameron, Interference No. 104,104, paper No. 18 (PTOBPAI 2001) (non-precedential) (adverse judgement that “is material to the patentability with respect to pending claims in other applications under consideration before” the Office falls within the rule 56 duty not withstanding Lilly’s characterization of request for entry of adverse judgement as not an admission).

Richard A. Neifeld
http://www.articlesbase.com/patents-articles/strategies-for-preparing-for-a-patent-interference-136697.html

What is difference between Rule of Law in USA and India?

Concept of Rule of Law is Strictly followed in USA with different standards which do not match with Indian Constitution’s Article 14.

they are very much different im sure on that.

Cyclic Character of Modern Economic Development

Important appropriateness of  development of modern economy is its cycled  character. Puriny every structural crisis of the world economy new opportunities are formed. Capital of the countries, which were leaders during last cycle, is being devaluated. Qualification  of lab our forces in field using old technologies are being ruined, while the countries, which managed to create innovational potential proved to be in the center of attracting capital which is independent from the old production. Consequently, the countries that implemented  scientific-technical and industrial capital investment policy in prospective fields will be given a competitive advantage. The realization of  this policy in the phase  of structural crisis gives its authors the opportunity to achieve  economic growth on the  basis of competitive advantage.

 

Basic scientific and radical innovations are recognized as the main means of overcoming structural crisis, that are implement thought acquiring new achievements and rising the effectiveness of traditional development .

 

In order to move to the stable stage of economic develop it’s important to increase innovational-investment act vitas and to involve new technological directions and basic technologies at trajectory  of firm economic development. The economic policy that is oriented at encouraging  investment, in innovations provide modernization of economy, also gives rise to its competitiveness.

 

Innovative way of development in investment policy. Thus, the main importance is given to the innovative type of development, that implies the growth of government role in exercising investment policy. Highly development countries. Take the responsibility of financing fields like fundamental  science and high-risk research, as well as the development of scientific research infrastructure. Spreading new ideas and educating population. The implementation of this functions takes place against the background of high-scale investments. that creates favorable conditions  for production growth on the basis of scientific innovations.

 

Currently, the government tries to develop institutions that will support vestment in new  technologies, stimulate innovative activities, encourage progressive technological changes, that unities financial tab our and informational recourses.

 

Currently government  tries to create development institutions , which will support investments in new technologies, stimulate innovative activities, encourage progressive technological changes, that unites financial, lab our and informational resources. The state may avoid the responsibility of developing   the production activities , where special markets and competitive relations are formed. At the same time it must encourage new, high-risk directions of investment activities, that pave the way to creating production on the   basis introducing scientific and technical achievements.

 

For example the wave of economic regulations that spread from developing countries in the late 8 th lost century covered the traditional branches of economy but it had no connection with high-technological sector, conversely the importance of direct state support institutions for innovation activities were risen. At the same time, the importance of working out state strategy for scientist technical and social economic development grows. The state aims at creating enterprises , that will manage to gain com putative advantage over the companies of inner and foreign markets. They  must consentrate their resourses on prospective  fields of production.

 

The direct instruments of state influence are oriented at supporting  private initiatives and innovative enterprises that will stimulate investment activities in certain fields and production initiatives.

 

The necessity of financing science and its current condition:

 

Active investment process, especially in scientific and technological fields, innovative and scientific-technical activities lays in the foundation for economic growth. Nowadays the decline in scientific technical potential is caused by  the fact that there is no more unity between scientific researches and their usage  former. scientific staff has been dismantled  and number of intellectuals have left the country.

 

Consequently, the country becomes more dependent on foreign trader.

 

So, in order to create favorable conditions for economic growth capital renewal is essential, but it’s very complicated, because of  the decrease in state financing and absence of ordering production, Science and education have no inner resources for development.

 

During the last few years there has been significant  reduction of scientific and educational research expenditures. As a result, the share of expenditures in GWP spent on science in 1999 amounted to 0,97%, which is twice less than in 1990. In 2006, the expenses spent on educational field amounted to only 1,5% of the GWP, which is the lowest index among the transitional countries.

 

Significant reduction of company’s demand on innovations resulted in increase of financing Scientific field from the state budget. Budgetary expenditures on scientific-research and construction work have been absolutely reduced and they are tend to decline against the GWP as veil as the budgetary share of the expenses. The degradation of Scientific potential is proved by sharp decline in expenditures used in research and construction work pond it resulted in dropping behind highly developed countries. Expenditures on Scientific research in the USA (1998) amounted to 794% per person, in Japan – 715. in Germany 511 and 611in Russia, whilst in Georgia it only amounted to 2,8%.

 

Due to the sharp decline in financing the Scientific field, renovation of scientific facilities detoriorated. The salaries in Scientific field were decreased, The coefficient of renewing main foundations in Scientific technical field significantly dicreased. According to the latest statistical data, 311 ml. Gel was invested in renewing main capital, that amounted to 60% of all the capital invested, in Georgia Instead of renewing Countrys technical market, most of the capital was invested  in activities connected to local market. 29% of this capital was invested in real estate and construction worth.24% in transportation and communications The problem of heeping, supporting and developing fundamental and research centers of science aggravated. During the Soviet era 20% of production was created in the USSR, but now Georgia’s shave in the  World scientific production in only 0,3%.Implementation of innovations require a wide range of activities, from doing research to producing new output. Priorities of innobative activities change at every stage of economic development.

 

In order to achieve economic growth in current conditions in the country. it is necessary to develop scientific innovations that create new and don’t take into consideration current directions of technological development This lays the foundation for putting so-called innobative multiplication into motion. which is connected to investments and results in production increase. that creates improved scientific innovations. They exchange old technologies. Introduction of this innovations is exercised by new investments, that encourage the further growth in production. Thus, innovative multiplication makes good influence on production growth and takes the economy out of depression and leads it to a long-term development stage.

 

Distribution of investments on Scientific – technical works.

 

It’s relatively typical for developed countries to distribute private and state capital investments even on scientific and technical works. For example, The USA’s private investment share in innovative market amounts to 50%. Similarly, according to the figures of state Expertise, 10% of innovations is given a strategically important status and accordingly they are financed from government sources. Japan finances 33% of all scientific research, 73% of scientific-research and constructive works is implemented on the basis of self – financing in the USA, in Germany this index amounts to 70%, in Japan and UK 62%, France and Italy 57%, So the only possible mechanism for promoting social and economic development is it’s technical modernization and move to innovative type of development.

 

Technical modernization of equipments and their reconstruction requires attracting important investments in innovative field. Here it is important to activate state policy on scientific and technical branches and to work out important directions for scientific-industrial development of economy. AT the same time, the state, that takes important part on technical modernization of the economic sector must take the responsibility of financing fundamental sector of science and high-risk researches, restore activity of  science financing from the state budget and develop scientific infrastructure. In order to define the proportions of sharing investments its essential to focus on cyclical development of economy and, on Intensive types of re-production, that is reflected on the statistical law of dividing expenditures, for example, spending on fundamental research, applied work, capital investment amounts to 1:3:9:27.

 

Statistical law of resource division in accordance with scientific-technical potential is used at the production development stage where scientific and technical progress is achieved by practical laws, which help to solve the problems of production stabilization and development.

 

The reason of decrease in scientific potential the decrease in scientific potential in post communist countries is  caused by lack of restructuring  scientific organizations privatization of research centers has   not brought any desirable results. The reason for this is that enterprises don’t order them to do research. Simultaneously,  scientific staff has got older, the last tend years science suffered from loosing its intellectual potential. In this case, it will  be reasonable to merge different scientific organizations and some research institutions must be transferred to enterprises to manage , in this way  scientific technical potential will become much  stronger.

 

The sources and ways of funding science restructuring research institutions and dividing it into firms with developed financial, economic marketing and commercial infrastructures will increase the practical use of research work results. Contract based applied science makes the realization of  scientific technical projects they will be implemented at the expense of the state budget, non state expenses attracted by Ventura, sharing  other financial mechanisms. The question of mobilizing these sources  can be solved on the basis of aimed, scientific and technical programs on regional and federal levels in accordance with the market demand.

 

They can be implemented in the    form of portfolio investments using stock marked tools. Providing  the state with grants and sale guarding institutions by investment agency and trust management has practical  us eye. For forming non budgetary recourses for financial    innovations it is necessary  to use amortization funds on renovation in the part, where production expenses, especially those. spent on research and innovations. are taken into consideration as well as the expenses of wearing out financial expenses , that is included  in the production cost and is reflected on the production prize. In addition to that revenues that  came from selling scientific-technical production, or having the right to own intellectual and industrial units as well as the revenues from scientific and technical units and selling the right to own them must  be considered, too.

 

The role of innovation foundations .

 

Practical usage of abovementioned sources is implemented according to the special rules and amounting , on the basis of used methods. The expenses received from these sources are transferred  to a separate  sub account `innovation foundation”  Greeting. State funds for innovations which is aimed at realizing prospective directions  of science  and technical development enables to  work out modern competitive production and organize its production. besides using state budgets expenses,   other  market mechanisms for attracting investments are used as well .

 

Nowadays mechanism for investing in innovations are used only in case banking structure , which mobilizes recourses and regulates this use in science is taken  into consideration banking  structures directed at investments, accumulate vast sums through creating consortiums and other financial and investment institutions, in order to attract own funds for innovative programs of investment. On condition of Budgetary deficit banks au the phases of innovative   cycle and provide insurance service. Participation of banks in the field creates extra   stimulus for different firms. No other structure manages and controls innovative recourses as the banks.

 

Effective use of stock market instruments provide opportunities  to attract investments in innovative field. Its main aim is to divide investment recourses among fields and provide inner and foreign  investment flows in more prospective sectors of national economy. Transitional economy doesn’t provide the conditions for populations to transform their savings  into innovative investments and provide economic growth. Monetary potential saved in the country is practically unused. According the same data the amount of savings is much more higher than in the USA and west European countries. In order to invest funds existing in the country in essential sectors of economy it is necessary to make the forms of collective investment perfect, it includes. investment share  funds, credit contacts joint stack and commercial funds . After that government should control their activity and they must draw their . attention to new forms of scientific-innovative and investment forms.

 

Main stages of innovative development.

 

Innovative development of economy as any process must be oriented at its stages, levels and phases. First of all the technological basis of the field  whose production has more demand on the market must be renovated. At the  same time the market is expanding  with importing goods, introducing innovations that is oriented at modernizing  recourse-saving technologies and improving consuming qualities. So at this stage our main aim is to create infrastructural and institutional grounds for firming scientific technological  potential. than we have to organize the enterprises that produce and sell new technological range-that enables the country  to restore its positions on the world market of scientific technologies.  Simultaneously the role of the country in production and investment activities that is directed at commercializing innovations must be strengthened. Little  by little of will move from supporting  quantity aspects of scientific technical field to quality aspects and to new  forms of engineering, that use  modern informational technologies.

 

Main directions of state investment innovative policy of the state in future main directions of  state innovative investment policy are: 1. choosing national priorities of innovative field development for realizing innovative projects, choosing the projects of technologies that influence production growth and rise in country’s  competitiveness. 2. Coordination of activities of  legislative and  executive bodies to work out complex approach to solve this question concerning country’s innovative development, effective functioning of innovative systems and implementation of state’s innovative investment strategy.

 

3. maintaining and developing scientific and industrial-technological potential of fundamental science, working out employee’s training system for maintaining and developing modern scientific and technological level and developing science to a higher level.

 

4. Providing favorable economic and financial conditions for activating innovative works, developing ventral, engineering and investment-industrial activities and for rising competitiveness creating  favorable conditions for investing in innovation field enables  modernization of scientific and technical basis of national industry as well as rising the competitions of the country.

 

New directions of innovative activities and priorities of innovation policy consists of three stages. At on initial stage the main goals are reproduction of the technical basis of the field whose production has stable demand on the market than market expands by producing the goods that replace the imported ones  innovations  are oriented  at modernizing the enterprises, that  use the recourse-saving technologies and improve consuming qualities. So at first it’s necessary to create economic infrastructural and institutional basis for moving to investment stages of state development. At the second  stage the enterprises  that realize the technological order are created. After that the production is introduced on inner and foreign markets that  makes production competitive in the sector where national product were not presented before, and it creates new scopes for demand, where national products dominates to must the demands. At this stage country’s activities are directed at attracting high-scale private investments, creating necessary infrastructure for investment-development their support and perfection.

 

At the third stage the following important questions must be solved. Country’s support for innovative infrastructure, creating conditions for demand on national products, informational support to enterprises making stable contact with science and industry.

 

New ways of implementing scientific-innovative  and engineering activities.

 

A State focuses on new forms of scientific innovation and engineering, that use modern informational technologies and little by little they move from quantity aspects to quality ones, that are implemented in the following way:

 

1. Maintaining and developing scientific and industrial potential and using them in achieving modern technological level.

 

2 Choosing rational strategy and priorities for developing innovative field. Implementation  of critical technology and innovative projects in the fields that  influence the effectivness of production and their competitiveness.

 

3. Creating favorable economic and financial condition for activating innovative works, legal industry and competitiveness.    

 

-           To implement this measures following practical activities must be exercised:

 

The process of providing information must be radically improved and commercial structures must be involved in developing scientific educational and innovative activities.

 

- reconstructing the part of research and project institutions and closing the places working ineffectively.

 

- Creating the system at venture investment. state support of venture business in scientific technical field is necessary until the industry get interested in them.

 

- Developing the system of noon. state innovative risk and private  supplly, creating insurance groups within the framework of financial-industrial groups, that will undertake high-risk insurance, that is linked with creating innovative production. insurance companies, together will share the risk.

 

- Using modern methods for prognosing engineering and scientific production marketing.

 

-  Developing small innovative business by creating favorable conditions and infrastructure for setting up small enterprises and their functioning.

 

- Creating suitable legislation, that will regulate relations in intellectual  property field, work out normative acts that are directed at exercising state policy. It foresees involving the results of scientific-technical results in industrial circulation, that is implemented at the expence of the state budget.

 

- making typical state contracts in order to balance legal interests of the participants in the process from the point of using scientific-technical results.

 

Thus, following the innovative way of development, must not be the only factor white  working out investment policy. In connection to that, the role of country is defined by creating the mechanisms, which forms national innovative system and develops innovative production.

 

Creating favorable conditions for developing innovations provides modernization of technological basis of the economy and grows the competitive of national production.

 

- Preparing typical state contract for balancing legal interests of those who participate in the process of using the results of scientific-technical work.

 

So the main factor while working out investment policy is to move economy to the innovative way of development. In this regard a country’s main role is to create the mechanisms, that will provide the formation of national innovative system and development of innovative business, that will make the modernization of economy’s technological market of the economy possible and will give risk to competitiveness of national production.

 

The formation of adequate investment activity model in the market system of economy provides replacement of investment recourse division with new forms of investments. For its part it has to work out the investment policy, that will accord with changed economic conditions.

 

Official concept of reforming Georgia’s market economy is based on simple monitory principles. Their realization was expressed in size minimizing the country’s role, robotizing foreign economic activities, privatizing state property and forming market structures.

 

The principles, boundaries and forms of state participation in investment activity

 

Analysis of Georgian-economic conditions shows that solving important problems in country’s investment development is impossible only on the basis of self regulation, that is distinguished with its low quality. A state needs to strengthen its role in the field of investments, correct economic policy.  At the same time state participation boundaries in the investment process must be defined by taking the way of economic development, that is characteristic to the period of moving to market economy, into consideration conditions of strengthening the state role in the investment process.

 

Analyzing the possibilities of strengthening state role in investment process, we must take into consideration the fait, that counting’s participation in the process has same boundaries, these boundaries are defined by real financial possibilities, on  the other hand the country must encourage the process of attracting investment rather than blocking them. State participation in investment process is not the same as turning economy to administration process. It implies the increase of a long-term policy of the state, effectiveness of particular activities in the conditions of encouraging investments.

 

The topic of state participation pineapples in the investment activities is closely linked with limiting necessary financial potential for investment promotion Approximate calculations show that in order to restore the amount of investment to the pre-reform level, foreign investment growth is possible. According to 2002-2012state program in the next five years 10 $ are expected.

 

As we have at ready mentioned the role of the country as the investor in the market economy is maintained for the fields that are vital and important. More importance is given to regulating the investment process in the way, that creates favorable regime for private investors activities.

 

The conditions existing in Georgian economic investment strategy is oriented at moving from stable investments to creating necessary investment environment for private investors. These two parts that are essential for the state investment policy must support prosperous fields of production and the policy must have systematic character. 

 

Defining strategic priorities of investments.

 

 On defining strategic priorities we must take into consideration competitive advantage exiting on the world market, that is reflected on high-technologies. The brunches which maintain potential advantages are: energy sector, turism, agricultural machines and technologies, food etc .

 

Investing in innovative production will encourage new directions for investment flow, rising production level and encouraging economic growth. This approach is well known in the world products. Our priority must be effective programs that meet inner needs in economy, in this regard we  have to support national enterprises, and the development of vital brunches of economy.

 

At the same time it must be taken into account that in the world integrated economy, development of investment cannot be stable and increasing source of profit in producing rival products only in the inner market.

 

Significant  condition of effectiveness in the state investment policy is to work out the conception of structural alteration in industrial sector. It’s especially concerns about such prioritative approaches according which must be defined the reform strategy and mechanism of industries from different groups, supporting forms and methods from the state, organization models of industrial structures in accordance with real, amongst them institutional conditions in the world economy.

 

The basis of economic growth and quick development can be large corporations, that have scientific – technical potentials in mobilizing resources and effective  integration possibilities in the world industrial unions. Small business industries, that have really important meaning for the function of market economy, nowadays are singled out with extremely low technical level and lack of investment resources, that make it necessary  to quest  their place in industrial chains of the large structures. The formation of stable and effectively developing, diversificational, corporative unions and financial-industrial groups demand state supporting reinforcement of corporative circle from the state, amongst  them even by means of participation of corporations in the capital. Development of corporative forms will help the realization of long term industrial programs, and create conditions for the stable economic growth.

 

Stirring to activity of stake investment politics. At a modern stage, stirring to activity of stake investment about the stable economic growth in the basic condition of Georgian economy. Essential approaches of stake investment politics are: the reinforcement of supporting in prroritative tendencies of economic development formation of justifiable and economic conditions of stimulating the interest of investments in the real sector of economy and the agreement between central and regional investment politics.

 

State investments and supporting in prioritative tendencies of economic development. The realization of up-to-date tasks of economic development demands more active state backing of investment field. Simultaneously, the importance of state investment must be growing up not as mush from the standpoint of size of centralized sources, but from the positions of state guarantees, insurance and orient list of private investors.

 

The problems of investment budgetary financing. Budgetary financing of investment activities has still been happening on the basis of these approaches that essentially limit the state influence on the course market alterations and structural changings in economy.

 

Herewith, these shortcomings are not as mush conditioned by restricted possibilities of budgetary system, as by complicated and wrong strategies of sharing centralized investments and the lack of effective control of their usage.

 

Failures in the state investment politics make it necessary to solve this problem, as afterwards not having orientation or having defective one becoming the problem investors. Analysis confirms the existence of distinct dependence between state priorities and investment motivations of private investors. that must surely be taken into account while working out on perspective tendencies of investment politics. Otherwise  it will be impossible to make ground for stake investment politics and for the agreement of investors’ interests of different levels. Reserved dimensions will again have more passive character and will not guarantee planned results. It must also be mentioned that insufficient or unsystematic backing of separate manufacturers or regions, falls down stimuli of accumulation and afterwards self-financing process and it prevents the formation of business executives market behavior.

 

While analyzing the problem about the possibilities of manufacturers’ investment support it is impossible not to take into consideration the extreme restriction of budget/ At the same time, modern conditions, the increase of levels in the realization clearness and confirmation of investment politics and consideration of budget planning reality are not less important.

 

In Georgian economy. where unreliable forms of calculation dominate. it is difficult to male real prognoses about the mass index of money. Budgetary politic is being worked out in the conditions of complicated factors, that aggravates the difficulty of real budget formation and fulfillment of the received one.

 

State investments, as in the realization of economic growth of prioritative factor; usage of international experience will not be perspective without mentioning up-to-date conditions of Georgian state finances and the inevitability of budget  system alternation. e.g. one of the successful example of economic reforms is the experience of Germany. Its budget system is well formed and it is manifested clearly in the distinction of current and investment expenses in the control of pure usage of budget sources in establishment and protection of maximum size of budget deficit financing at the expense of credits with the sum of for seen investments expenses. This method is called “golden rule” and is established the 115th article of the basic law of Germany.

 

In Georgian economy, as it is clear from the results of reforms, the compensation of the growth of state non-productive expenses was not happening, correspondingly with the growth of budget investment expenses. On the contrary, it was one of the factors, that conditioned the reduction of state centralized investments and weakening of state investment function. In accordance with, the usage of state investments as the factor of economic growth, requires essential changing’s in the organizations of budget politic and budget system.

 

While working on the budget, it is necessary to define the prioritative tendencies and use the forming principle of the normative that define the levels of budget, according to the singled out tendencies; division of current and investment budget on the normative basis, denial the possibility of exceeding expenses over incomes while planning the budget; strict definition of sources, how to cover the investment budget deficits. It is also necessary of budget on the usage of sources in control realization technology, in order to reinforce the frscal role of budget fulfillment.

 

An  important problem, connected to the usage of state investments is their low effectiveness compared with the private ones. While sharing the state Financial resources, used tendencies do not help to increase the effectiveness of investment and restructure national economy.

 

In the organization of investment process, lack of systematic ground and insufficient quality of budget planning caused permanent  failures in financing the state investment programmers.

 

This fact approves  that, it is necessary to reinforce the role of selective approach, gather state investments towards the strictly defined prioritative approaches, keep strict control and select competitive projecting during state investment.

 

Selecting mechanism of investment projects on the basis of competition/ In market economy, where basic criterion of investment is the effectiveness of investment, it is impossible to use the old technologies of sharing unpaidly, among enterprises in centralized capital investments, which don’t stimulate industries to improve their effectiveness, as direct state investments are less effective compared with the private ones. Thus, the most acceptable approach is the state supporting to private investments.

 

State supporting to private investments is realized in these investment  projects by means of the partial participation of the state, which have passed the competitive casting. The goal of centralized investment resources on the competitive basis is the reinforcement of investment assets, mobilization of private national and foreign investor’s capital towards the prioritative approach in economic development, and the growth of effectiveness in all forms of property such as commercial, budgetary and national-economic investments.

 

A new rule of financing investment projects in the financial ensuring of investment competent project, gives the right to investors to choose the participation forms. These forms can be as follows:

 

State investment revocable two year-term credit; its payment percent for the usage, compiles ¼ of central banks refunding rate;

 

to strengthen the port of these shares of an oncoming enterprise in the state property, that is sold in the market from the income of investment project during two years and the income obtained in this way goes to the state budget.

 

While taking decision about giving funds from central budget, a leading criterion is to insure the setting of object (industrial powers) into action in the given term, in the conditions of decreasing funds, attracted from the state budget and to increase the effectiveness of the usage of centralized resources.

 

The obligatory conditions, to present investment projects for the competition are:

 

In the total amount of money, spent on project realization, the share of centralized investment resources must not be exceeded more than 20%, it must be ensured at the expense of private investor’s own, attracted and borrowed funds.

 

In total amount of common expenses, investor’s own share mustn’t be less than 20%.

 

In the field of investors’ supporting, new approaches such as connection to the certification of investment projects, giving state guarantees, creating the budget for development are used.

 

Certification of investment projects, defines the possibility of increasing state supporting share up to 50%, while such analogies are not producing industrial products for exportation about 30% – for importation, with less price.

 

In the conditions of budget funds restriction, many investors consider the state guarantees of certified projects, as the most desirable form of state supporting. Guarantees secure about refunding not the total amount of money of risk, but part of it, in case of failure the effective investment project realization, due to the reasons that are not in investor’s compensation; On its side, investor must present counter-guarantees, amongst-mortgage.

 

Development budget can be formed as the special instrument, that collects investment resources of state budget in order to finance investment projects and attract the funds of private investors.

 

Development budget resources can be used for partial financing of investment projects, at the initial – competitive, valuable and refundable stages, also the borrowed funds for giving state guarantees on the competitive basis. (When upper limit of guarantees compiles 40% of borrowed funds).

 

In the competition of procuring the funds for development budget, such investment projects should be taken, that satisfy the following conditions:

 

Correspondence of development budget to the goals;

 

Security of positive meanings of pure discounting income;

 

In the total amount of money for project realization, investor’s own share mustn’t be less than 20%, but for large projects (more than 50 million $ – less than 30%.)

 

In the countries of developed economy, as a rule, examination of investment projects is made by experts, invited by investors themselves or by the participant financial institutes of project financing.

 

Selective, restricted supporting of prioritative approaches in industrial development by governments and the competitive selection of effective projects gives distinct results. Foreign experience proves that, such measures, as a rule is an efficacious stimulus of investment attraction and helps to realize projects.

 

Governance of state property in the state economic sector.

 

Governance of state property, as the factor of investment effectiveness in the state economic sector. Activation of the state role in the investment field, implies the development of state governance, reaching quantitatively higher level, restructurization of state sector and development for investment providence.

 

In must be said that, in the countries even under developed market economy, the governance of state sector is fulfilled under strict state governance control, from the interests of national economic development. State sector fulfillers the supporting function only for vitally important and unprofitable industries, but also stimulates local industries.

 

State sector, must distinctly occupy the leading positions in achieving priorities of economic development and form the potential of economic growth. Simultaneously, investment projects of state industries must be drawn up according to the demands of competition and effectiveness. It is essential that, invested funds to be used purposefully and the movement of financial flows be controlled strictly by the state.

 

Herewith, while realizing state activities in the real field (amongst in the field of investments), stimulation in  the activities of analogical faces in  non-state sector and not their restriction must surely be taken into account, as enterprises under  the state support are stable on the one hand, but less effective on the other side.

 

Activation of the state investment role must not be manifested only in effective investment projects of science-capacious industries, high technologies and vitally important fuelds by direct participation. More important constituent part of investment supporting of society in the conditions of market relation development is the encouragement of economic subjects’ investment activities and it must be oriented on progressive structural alteration. This implies the working out of optimum methods of economic regulation, development of accumulation mechanisms and active assistance to turn them into industrial investments.

 

Formation of institutional-legal and economic surroundings for the stimulation of investments in the real sector of economy.

 

Greating the available conditions for increasing investment actives by the state, requires purposeful influence on reproductive processes at macro and micro-economic levels. This. most important sphere, where the activation of the state investment role must be manifested effectively and in a new manner, at a new stage of economic reforms is – monetary-credit field.

 

Monetary-credit methods for investment stimulating. Insuring the growth of stable investments, first of all implies the augmentation of economic monetarism, era diction of money disproportions, reduction of interest rate, renewal of taxation system, depolarization of national currency and its role augmentation.

 

The increase of economic monetarism is possible by means of restriction of monetary-credit emission. While defining the level of danger of its inflation results, it must be mentioned, that inflation can also be caused by the other factors, besides emission. Thus, struggle against it, cannot be defined only at the basis of emission restriction. First of al it is necessary to provide the functioning of manufacture solidly. The growth of monetarism level in the real sector of Georgian economy is the most indispensable condition, that on its  side is the leading, deflationary factor.

 

Essential condition to protect against  the inflated results of monetary-credit emission is to create and put in motion such mechanisms, that change macroeconomic conditions and direct money-flows for supporting manufacture. During the process of using such approach, the size of emission defines the objective demand of industrial sector of economy, expert the funds moved to financial markets.

 

While defining the parameters of purposeful growth of money, calculation of the structure of money delivery is vitally important. Different channels of money emission have heterogeneous sensibility towards the inflation.  Therefore, expansion of money delivery is possible by payment of promissory notes of non financial industries, by means of banks refinancing and under the purposeful direction of emitted sources to finance the industrial investments. Less inflation channel of emission  is financing industrial investments by the state institutes of development.

 

Basic instrument for the regulation of money flows, is purposefully the state influence on the dynamic of interest rates. e.g Project supporting of the most importantly acknowledged industries for the purpose of investment activation is possible with preferential rates and by credits. Movement of preferential credits, this time must be realized by state banks system of development and the strict control establishment must expel the usage of funds aimlessly and financial speculations.

 

Experience of the countries under market economy shows that, regulation of interest rates is generally effective method to reinforce business activity in the period of crisis, when disbalance of economic systems situation is deepening. After achieving balanced progress in economic balance and financial sectors, generally the necessity of state interference in economy is lessening and accordingly the role of state influence on the dynamics of interest rates, formed on money markets is also decreasing.

 

The usage of state regulation is distinctly cyclic. In the conditions of sharp structural disproportions, when the working of market mechanism can’t provide the keeping, on the one hand, development  of surplus production and devaluation of main capital off, but  on the other hand augmentation of investment activity, the role of state influence on economy, amongst in the field of purposeful control on money flow is expanding, but while moving to the stable growth of economy-decreasing  . It is proved  by the practical analysis about getting over the structural depressants  (post war) in Western European countries and in the USA, and by the restoration of economy in France and Germany.

 

State regulation of interest rates was applied in the countries, under developed market economy (post war-in Japan, during along period –in France and in the USA during the period of so called `Roosevelt’s new policy, as well as the range of those developing countries , that showed the solid high tempers of economic growth (India, China, South – Eastern Asian countries etc). Important scales of accumulation here was reached for the purpose of national manufacture development, as a result of active influence on interest rates ( on its side, accumulation made it possible to hasten the speeds of economic development) also, for this purpose, direct and indirect methods for the purposeful regulation of money flow and inner accumulations convert into investment were used, namely for the formation of development state banks, loan-saving association and other  specialized credit institutes, through founding district  normative of credit politics for non-state banks and rates of preferential taxation.

 

For example, in Japan, investment financing and production growth conditions were formed through the state control strengthening on using the population savings and interest rates, which were gathered in postal-saving institutions and banks, afterwards their remittance to the state institutes, long-term crediting banks and truste savings banks took place.

 

Savings transt formation mechanism into investments in the USA was based on the wide development of loan-savings associations, that attracted the savings of private sector for giving purposeful credits to the range of housing construction and industrial branches.

 

In many developing countries, stable growth of economy was conditioned by localization of the greater share of money flow in the state banks, that locate mobilized savings in industrial investments and crediting resources, in accordance with the installed priorities of social-economic development.

 

Improving the structure  of mass of money is also connected to the cutting down  the share of cash, that is in circulation, for what it is necessary to set up strict  restrictions about the cash payment in all the field of economy, to continue calculation through computers and widen barren forms of  payment circulation. Taking these measures will expense the business economic field of banking sector and will be propitious for investment potential growth of the banks.

 

One of the basic task of payment system, at modern stage is its complete renewal, restriction of barter transaction, driving a great part of taxation means out of circulation, as they don’t  play a part of complete recourse in the formation of saving potential. Main ways to solve this problem are following: realization of inter imputation for financing fixed and circulating capitals, reduction the price of credit resources and security of plural debts.

 

For increasing the regulation effectiveness of money circulation and expel the activation possibilities of such emissive mechanisms, which are not accompanied with the expansion of goods delivery, it is necessary to strengthen the control and currency regulation.

 

Formation of effective infrastructure of financial market.

 

A) The influence on the investments activity of banks.

 

Looking through the previous system of regulation (in accordance with the selective priorities of economic politics) requires changings of the forms and methods in the banking sector and restructurization of banking system in economy, by meant realization of investment functions of the banks. Restructurized banking system must comply the requirements of armful investing  through high trustworthiness and guidance. It must also ensure the appropriate level of credit delivery resources by means of available interest rates for manufacturing fields.

 

In the growth of investment activity of banking system, it is essentially important to create the system of investment encouragement and insurance. State guarantees existence is one of the condition just for this. Cutting down the normatives of reserve assignments and preferential taxation are also belonged to these activities.

 

B) Creation of the system of deposit guarantees.

 

World experience shows that, the establishment of deposit guarantees is the inevitable component for vast mobilization of the population savings. It potentially increases separate institutes as well as the liquidity of the whole system and is the reliable means against taking deposits unexpectedly and frequently out of the banks.

 

One of the first systems for deposit insurance was formed in the USA in 1933-34, as a result of additional stabilizers investigation in marketing economy. Nowadays, these systems operate in the range of developing countries (Argentina, Colombia and so on).  Herewith in Great Britain, in the USA and in Canada, they are performed with independent state corporations, but in France and Sweden and private banking links. In Austria, Great  Britain and the Netherlands in the case of broken credit organizations, private deposits are given; In Germany deposit delivery of credit institutes are addressed to, while in Canada – deposit delivery, managing the property of bank and giving crediting guarantees are addressed to.

                                                          Economic Dr of Science,

 

                                                          professor Lamara Qoqiauri

 

lamara qoqiauri
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