Decentralized Autonomous Organizations Create Legal Uncertainty and Opportunity

As Decentralized Autonomous Organizations become an increasingly popular means to bring global networks together, the legal uncertainties create opportunities for improvement and advancement. 

Blockchain technology has been an ever-growing development in creating shared data networks that verify and save various transactions. The newest development, Decentralized Autonomous Organizations (DAO), takes blockchain tech a step further by establishing an expansive, transparent, and objective rules-based structure. A DAO allows members to vote on how the organization will function: its rules, its finances, its objectives. Based on the DAO’s code, it will perform certain actions when a threshold vote (for example 50%) is met. Instead of a small group running the operations and making the decisions for the whole, the entire DAO membership has a voice in the day-to-day functions of the organization. Essentially a DAO executes its actions via code rather than behind closed doors.[1]

Membership into a DAO requires purchasing DAO tokens, like a cryptocurrency. Though a user must be authenticated, most DAOs are open to all and do not require authorization. Once inside, a member uses their purchased tokens to vote on proposals, options, and decisions based on the DAO’s objectives.[2] Some DAOs have been used to purchase sport teams or pieces of property. Others have been used as a means of financial investment. While others raise funds to support causes, like the war in Ukraine.  

Despite the scope of the DAOs, there are serious concerns that undermine their credibility. In 2016, a German startup created “The DAO” to generate support for an investment campaign. Less than two months later, it raised over $150 million from its members. Unfortunately, due to gaps in The DAO’s code, hackers were able to steal over $50 million from the fund. Though users were refunded their money and the account was frozen, the attack undermined the credibility of the code and the system.[3]

However, the technology has only improved in the last six years. So much so that several international and national legislative systems have recognized the legal structure of DAOs. The Marshall Islands became the first country to recognize DAOs as a legal entity. In the U.S., both Tennessee and Wyoming have enacted statutes to simplify incorporation for a DAO and for formation of the organizations as legal groups.[4] These developments implicate the future of DAOs and their legal possibilities. 

 Following the hacking of The DAO and the ongoing legislative action, the legal system has developed alongside the technology. For example, the SEC recognized DAO tokens and currency as a security and the IRS treats the tokens as a virtual currency. However, there are still serious holes in the legal system when it comes to DAOs.  

 For instance, because DAOs do not have a legal framework to operate within, their business operations are without boundaries. This creates problems when DAOs merge and combine as the organizations can contract without legal guidelines. This is exactly what happened when two financial DAOs merged and integrated their tokens. Without the legal structure to dictate the merger, users in the minority of the decision were left with little protection and security. Despite approval by DAO members, the agreement was open-ended and uncertain.[5]

Likewise, because ownership of a DAO is essentially non-existent, legal liability on an infringing DAO becomes unclear. It would be difficult to assert IP protection over all the users in a DAO, let alone to find all of those members. On the other hand, ownership over the intellectual property of a DAO’s code and software also becomes uncertain. This creates serious concerns when asserting and defending ownership over a DAO. Given hacks and leaks in the past, this lack of a legal ownership structure, though appealing, can pave the way for endless infringing.[6]

Nonetheless, some in the industry view the enforcement of intellectual property rights by a DAO as a healthy development for decentralized finance and a sign that DAOs have entered the economic mainstream.[7]

 As DAOs continue to become more widespread and far reaching, the law will be forced to adapt and grow with them. Despite the development of DAOs since their inception, there are still serious concerns and implications that need to be addressed before true decentralization and transparency can be reached. 


[1] https://www.thomsonreuters.com/en-us/posts/legal/daos-business-structure/

[2] https://www.bakerbotts.com/thought-leadership/publications/2022/may/intellectual-property-report

[3] https://www.forbes.com/sites/cathyhackl/2021/06/01/what-are-daos-and-why-you-should-pay-attention/?sh=4f91ae277305

[4] https://fedsoc.org/commentary/fedsoc-blog/the-legal-status-of-decentralized-autonomous-organizations-do-daos-require-new-business-structures-some-states-think-so

[5] https://www.mayerbrown.com/en/perspectives-events/publications/2022/02/decentralized-autonomous-organizationswhen-code-mirrors-law

[6] https://www.ropesgray.com/-/media/Files/articles/2022/04/20220414_Bloomberg_DAO_Article.pdf?la=en&hash=658041824B53B872F7A3554798E1971418EDA41E

[7] https://cointelegraph.com/news/daos-prepare-to-face-off-would-vigorous-ip-battles-be-good-for-defi


Prior Contract Clause Precludes IPR in Nippon Shinyaku Co., Ltd. v. Sarepta Therapeutics, Inc.

The Federal Circuit Court enforced the plain language of a confidentiality agreement to prevent an IPR proceeding from going before the PTAB.

In the summer of 2020, Nippon Shinyaku Co., Ltd. and Sarepta Therapeutics, Inc. entered into a mutual confidentiality agreement relating to a potential partnership for a Duchenne Muscular Dystrophy therapy. As a part of the deal, the parties settled on a two-year covenant not to bring any lawsuits relating to the treatment and its intellectual property. The agreement also included a forum-selection clause that required the parties to bring suits, including any patent disputes, to the District Court of Delaware following the two-year period.

Immediately following the conclusion of the two-year covenant, Sarepta filed seven inter partes review (IPR) petitions with the Patent Trial and Appeals Board (PTAB) in protest of Nippon’s patents. An IPR petition allows the challenger to protest the validity of a patent. In response, Nippon filed suit in the District of Delaware for patent infringement, breach of contract, and requested a preliminary injunction against Sarepta filing the IPR petitions.

Initially, the District Court of Delaware heard the case and rejected Nippon’s request for a preliminary injunction. It determined that the contract intended to preserve the ability to file IPR petitions because the forum-selection clause referred to federal district court litigation, not IPR proceedings. Rather, including IPR petitions in the forum-selection clause would time-bar the ability to file the petitions. In the interest of policy and public interest, the district court concluded that Sarepta should be allowed to file IPR petitions with the PTAB.

However, the Federal Circuit disagreed. In reversing the district court’s decision, the federal circuit held that the plain language of the agreement prevented filing outside the District of Delaware. The forum selection clause clearly provided the terms of the disputes. Because patent disputes were included in the forum requirement, they too had to filed with the District of Delaware. The court justified it decision based on past cases that upheld the ability for parties to waive their right to file an IPR petition. It concluded by noting that the policy factors actually weighed in favor of Nippon because Sarepta would otherwise have multiple opportunities to invalidate Nippon’s patent.

The opinion was precedential, and the court distinguished its decision from cases like Kannuu v Samsung based on the specific language of the agreement. And the decision will undeniably impact future contracts involving patent and intellectual property agreements. On one hand, the court’s decision benefits patents owners by increasing the burden of proof when arguing the invalidity of a patent. In district courts, the burden of proof requires the higher, “clear and convincing evidence” standard to find invalidity. However, the PTAB requires only a “preponderance of the evidence” to find a patent invalid, an easier standard to meet.[1] Patent owners who contract for a forum-selection clause in district courts will be better off when defending the validity of their patents.

The decision creates clear implications for contractual concerns when negotiating around intellectual property. Parties will have to be more aware of their agreements and the ease at which they can contract away their rights, even with a simple forum-selection clause. The Court has made clear that the plain language of a contract dominates. Parties should be intentional and considerate when negotiating their rights and agreements going forward considering that certain filings are not guaranteed and can be bargained away.

[1] https://www.jdsupra.com/legalnews/federal-circuit-rehearing-denial-in-6183834/


The West’s Use of Intellectual Property to Stifle Russia’s Commercial and Private Aircraft

As technology and innovation have progressed, war has transformed close behind, generating new types of weapons and threats. Russia’s invasion of Ukraine demonstrates the use of this development, including everything from Molotov cocktails to nuclear warfare. Though the West has not entered the fight, it has contributed to Ukraine’s efforts by not only supplying technology but by stifling it.

The United States Department of Commerce announced March 18, 2022, that it was imposing a new license requirement on aircrafts made in the United States or manufactured with more than 25% of its parts in the United States. Additionally, any action taken to assist these aircrafts, including refueling, maintenance, or repair, is prohibited. 1 In essence, the action has grounded 100 planes that arrived in Russia. The new rules have forced Russian airlines to start looking for alternatives to the ineffective and banned parts so their planes can fly without violating Western protocols. 2

This is a part of a larger effort by the Department of Commerce to cut economic and technological ties with Russia. The United States Patent and Trademark Office and the European Patent Office cut ties with both Russia’s intellectual property agency and the Eurasian Patent Organization. The USPTO will also not grant requests for Russian patents for entrance into the Global Patent Prosecution Highway, which allows expedited processing once approved in the originating patent office.3 In response, Russia issued a decree that prevents patent holders from “unfriendly countries” to receive any compensation for the invention.4 On top of that, the Chinese National Intellectual Property Administration has expanded entrance for Eurasian patent holders into its Patent Prosecution Highway program.5 Both sides are attempting to stronghold their enemies’ patents while supporting its allies. Clearly, as war and violence progress in Ukraine, the fight will continue among the soldiers but also among the countries’ patent offices.

1 https://www.commerce.gov/news/press-releases/2022/03/commerce-department-identifies-commercial-and-private-aircraft-exported
2 https://www.reuters.com/world/exclusive-us-targets-abramovich-plane-99-others-over-russia-export-violations-2022-03-18/
 3 https://www.uspto.gov/about-us/news-updates/uspto-statement-engagement-russia-and-eurasian-patent-organization
3 https://www.jdsupra.com/legalnews/united-states-halts-work-with-russian-1849952/
3 https://www.epo.org/news-events/news/2022/20220301a.html
4 https://www.natlawreview.com/article/russia-suspends-compulsory-license-payments-some-non-russians?amp
5 https://www.natlawreview.com/article/uspto-cuts-ties-eurasian-patent-organization-china-national-intellectual-property

Design Day 2022 Highlights

On April 21, 2022, the United States Patent and Trademark Office hosted its annual Design Day event, featuring speakers discussing recent developments in design patent practice. The virtual event was joined by over 600 attendees.

The amount of design patents filed in FY2021 increased by 17.6% over the previous year, to a total of 54,201 applications, a new record for the USPTO. The increase in design patent applications shows the recognition of the value of design patent protection by inventors and rights holders. Of those filings, 40.4% originated in the United States, while 30.5% were from China. As a consequence of the increased volume of filings, first action pendency increased to 16.6 months, while total pendency remained relatively flat at 21 months.

The next presentation focused on the anticipated entry of China into the Hague system in May 2022. The Hague system allows an applicant to file a single international application for a single international registration, which is then examined according to the laws of each contracting party designated in the registration. With China’s entry on May 5, 2022, the Hague system will include 76 contracting parties, covering 94 countries.

To align with the requirements of the Hague Agreement, China has updated its design laws to increase the patent term from 10 to 15 years, and to include protection of partial designs. Prior to this update, the entire article of manufacture was required to be claimed in a Chinese design patent application. After May 5, applicants for Chinese design protection will be able to disclaim subject matter in broken line, allowing the claiming of only the desired portions of an article.

Subsequent speakers discussed suggestions for effective appeal briefs and examiner’s answers, particularly for obviousness rejections. For examiners, it was recommended to construe the claim when helpful, create a composite of multiple references, and address the differences and their effect on overall similarity. For practitioners, it was recommended to determine the differences and the overall visual impression created by the differences alone and when viewed in the composite of multiple references. The visual impression of the composite can then be compared to the claimed design and the difference between the two determined.

The Patent Trial and Appeal Board’s views on the obviousness of changes in proportion were also discussed. With respect to changes in proportion, many examiners have relied on In re Stevens, 173 F.2d 1015 (1949), which stated that changes in proportion as per se obvious. However, the PTAB has now been giving consideration as to how mere changes in proportion can create a significant difference in the overall visual impression of an article. In particular, in In re Salas, 2019 WL 7790867 (2019) the PTAB declined to view Stevens as a per se rule that all changes in arrangement and proportion are unpatentable. Rather, board referred to In re Blum, 364 F.2d 904 (1967) which stated that  there are no portions of a design that are immaterial or not important.

 In re Surgisil was a 2021 Federal Circuit decision that changed long-standing anticipation analysis for design patents. Prior to this case, examiners relied on In re Glavas, 230 F.2d 447 (1956), which stated that anticipation of a design does not require that the prior art and the claim design were from analogous art. In the Surgisil case, the examiner rejected the design of a lip implant based on the appearance of an art tool. The applicant appealed to the PTAB, which affirmed the rejection, stating that only minor differences exist between the two designs, and the article of manufacture can be ignored for the purposes of determining the claim scope. However, the Federal Circuit reversed, holding that the board decision was erroneous, and that the claim language should match the article that is identified. Consequently, the art tool could not anticipate a design of a lip implant. Subsequent to Surgisil, the test for applicable prior art for designs would now depend on the particular article of manufacture to which the design is applied.

In re Maatita: in this 2018 case, the Federal Circuit held that some designs, for example shoe bottoms, are capable of being enabled by a single plan view drawing. This has led to filings where complex, three-dimensional objects, such as ceiling fans, are depicted by a single, perspective-view drawing, with examiners rejecting those as non-enabled and indefinite. Board decisions have considered this scenario to be a different factual inquiry than that in Maatita. For example, foreshortening distortions due to perspective can introduce uncertainty to the design claim in certain circumstances. At this point, the sufficiency of a single perspective view is not dictated by Maatita, but rather is decided based on a case-by-case analysis.

For more information and analysis regarding design patent protection in the United States and abroad, as well as analysis regarding the impact of these recent developments on your IP rights, please feel free to reach out to us.


USPTO First Office Action Estimator Now Available

The United States Patent and Trademark Office (“USPTO”) has announced the availability of an online First Office Action Estimator tool to provide an estimate on when to expect a first Office Action for pending U.S. patent applications.

The estimator has been updated to account for the recent changes to the methodology for assigning patent applications to patent examiners.  In fiscal year 2001, the USPTO transitioned to using the Cooperative Patent Classification (CPC) to assign applications.

While the estimator can provide helpful insight, the estimates are not guaranteed by the USPTO.

You may access the First Office Action Estimator here.


Protecting Intellectual Property in the Cannabis Industry

The ever-growing cannabis industry has induced evolution in both the business and legal worlds. In the past few years, legal sales of cannabis for medical and recreational purposes have significantly increased and are projected to continue rising. The cannabis industry includes both plant-touching and ancillary businesses. Plant-touching businesses focus on breeding and cultivating the cannabis plant, extracting its compounds, and dispensing it. Ancillary businesses involve “everything but the plant”, i.e., cultivation supplies, extraction equipment, smoking accessories, as well as the legal, marketing, and financial aspects of the industry.

As the cannabis industry booms, tensions between state and federal law have been created. While more and more states have legalized the medical and recreational growing, sale, and use of cannabis, federal law still forbids it. However, federal legalization may be looming, especially with the government being under Democratic control. Supreme Court Justice Clarence Thomas indicated, in a recent statement denying cert. for Standing Akimbo, LLC, et al. v. United States, that intrastate regulation of marijuana may no longer promote the Federal Government’s interests.

Ethical rules for attorneys, particularly in the IP world, also come into play. Patent Rule 11.102 (d) states that “[a] practitioner shall not counsel a client to engage, or assist a client, in conduct that the practitioner knows is criminal.” It is important for attorneys to know which ethical rule regime is followed in the state where they are advising a client regarding the cannabis industry. Some states, such as Virginia, are silent and follow along with Patent Rule 11.102 (d), while other states have explicit or generic carve-outs or ethics opinions regarding cannabis.

When it comes to prosecuting cannabis-related patents, it is important to be informed about Federal law. The USPTO has issued cannabis-related patents in the past; the US government has upheld these patent rights, indicating no ethical issues for attorneys prosecuting cannabis patents. The duty of disclosure is vital in prosecution, as there is limited cannabis-related prior art for examiners to consult. Initial USPTO access to relevant prior art also helps when it comes to enforcement of the patent.

To federally register a cannabis-related trademark, the use in commerce of the mark must be legal. There must also be compliance with the Controlled Substances Act regarding source of extraction and THC content. If the mark is being used for a drug, food, or beverage, it must comply with the Food Drug and Cosmetics Act.

With the differences and tensions between state and federal law and the ethical implications regarding the growing, sale, and use of cannabis-related products and technologies, it is vital to have a well-informed and experienced attorney to guide you, particularly in the prosecution and enforcement of patents for such products.


USPTO Deferred Subject Matter Eligibility Response (DSMER) Pilot Program to Launch February 1, 2022

A new Deferred Subject Matter Eligibility Response (DSMER) Pilot Program will launch at the USPTO on February 1, 2022. This Pilot Program is designed to address issues currently present in examination of applications for eligibility under 35 U.S.C. 101.

The Pilot Program will allow applicants to defer examination under Section 101, such that the application is first examined under all grounds of patentability under Sections 102, 103, and 112. Under the Pilot, applicants will first amend claims to overcome rejections under the more objective patentability standards of these Sections, which may also have the benefit of informing the examiner that the claims are eligible under Section 101 as well. Subsequent to examination under these Sections, the examiner will conduct an eligibility analysis under Section 101. It is intended that such an examination sequence will result in stronger, more reliable, and higher quality patents.

Participation in this program is by invitation only. The criteria for participating in this program are listed on the DSMER Pilot Program page of the USPTO website.


Maier & Maier Recognized in U.S. News “Best Law Firms” Rankings

 

Maier & Maier PLLC has been ranked as a top law firm for Patent Law in the latest U.S. News – Best Lawyers® “Best Law Firms” rankings. We are thankful for this recognition and our wonderful clients and esteemed colleagues who made this success possible.


Additional Filing Fee for Non-DOCX Format Delayed Until 2023

An additional filing fee for any nonprovisional utility patent application filed under 35 U.S.C. 111, including continuing applications, that are not filed in DOCX format was set to take effect on January 1, 2022.  However, on November 22, 2021, the USPTO issued a final rule delaying the effective date of the new fee until January 1, 2023.  The reason for the delay is to give both the USPTO and applicants more time to adjust to DOCX filing procedures and to address known issues.


United States Patent and Trademark Office Expands Prioritized Examination (Track One) Program

The United States Patent and Trademark Office (USPTO) has further expanded their Track One prioritized examination program by increasing the annual limit on accepted requests. Previously, the USPTO only accepted 12,000 Track One requests per fiscal year, but this announcement increases the limit to 15,000 requests per year.

Track One expedites the patent prosecution process by allowing applicants to receive a final disposition (such as a notice of allowance or final rejection) of a patent application within twelve months from the date of the Track One request.

This is an important development, since Track One allows applicants to avoid lengthy prosecution with less requirements than other prioritized examination programs. An application under Track One typically receives a final disposition in under six months on average. Non-track one applications, however, don’t even receive a first office action for over 16 months, and remain pending for an average of 23.2 months.

At Maier & Maier we take pride in developing sophisticated patent portfolios for our clients and are well equipped to navigate and take advantage of the Track One, Patent Prosecution Highway, or other programs offered by the USPTO.