Early Patenting Questions For Public Benefit Corporations

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Portfolio Media. Inc. 111 West 19 th Street, 5th Floor New York, NY 10011 www.law360.com Phone: +1 646 783 7100 Fax: +1 646 783 7161 customerservice@law360.

type of company: public benefit corporations (also called PBCs or B corps if certified).

These public benefits can be verifiable social or environmental goals with impacts beyond company profit.

1 Portfolio Media. Inc. 111 West 19 th Street, 5th Floor New York, NY Phone: Fax: Early Patenting Questions For Public Benefit Corporations By Michael Messinger and Casey Berger (March 12, 2018, 12:08 PM EDT) We take an initial look at patent activity and strategy by a new type of company: public benefit corporations (also called PBCs or B corps if certified). PBCs are unique from both conventional for-profit and nonprofit companies in the way they combine for-profit and public benefit aims. These public benefits can be verifiable social or environmental goals with impacts beyond company profit. In this way, PBCs often seek to align their missions with a more expansive and long-term view of value creation.[1] As Mahatma Gandhi challenged to be the change we wish to see. Crucial patent strategy questions that all companies face, such as when to obtain patents and how to use patents in the marketplace, take on added complexity for PBCs. In this article we examine the rise of PBCs, explore their initial patent activity, and then consider patent strategies suitable for benefit corporations. Surprisingly, many of these strategies can be drawn from those developed in forprofit high-tech and automotive industries. Michael Messinger Emergence of Public Benefit Corporations A PBC is a new type of corporation that combines traditional profit incentives with social and environment impacts. The public benefit component must be included in the corporate charter and is taken into account in long and short-term decisionmaking. In this model, shareholders may measure a company s performance based on financial gain as well as social or environmental gain.[2] Casey Berger The independent nonprofit B Labs now lists over 5,000 benefit corporations in the United States across 130 industries.[3] Some of the most well-known examples of benefit corporations are Kickstarter, King Arthur Flour Co. Inc., and Patagonia Inc. Up to 34 states, for the most part over the last six years, have passed legislation allowing public benefit business entity formation, and legislation is pending in six more states, as reflected in the figure below.[4] Wisconsin most recently joined the ranks of states allowing PBCs, as Wisconsin Senate Bill 298 became effective on Feb. 26, 2018.

Most of these states have passed legislation providing for public benefit corporations while two (Oregon and Maryland) now allow benefit limited liability companies.

2 Most of these states have passed legislation providing for public benefit corporations while two (Oregon and Maryland) now allow benefit limited liability companies.[5] Under these laws, new businesses can incorporate as benefit corporations and existing businesses can become benefit corporations by adopting requisite provisions into their corporate documents. Safeguards are in place to ensure transparency and accountability. Both self-reporting and third-party standards are often used to assess company progress in achieving particular social or environmental impacts. Standards are available from several governing bodies to assess performance in a variety of ways, including sustainability, social and environmental responsibility, enterprise-level sustainability, biodiversity, well-being of people and planet, and green business impacts.[6] A formal certification of compliance with a performance standard on a graded scale is available through B Labs. PBCs come in all sizes, and many carry out research and development and technological innovation suited for patenting. Early Patent Activity by PBCs Although PBCs are a relatively recent phenomenon, our initial research shows that many benefit corporations already have patent activity underway. However, determining exact figures for overall patent activity by benefit corporations is difficult. Patent applicants are not necessarily categorized or identified by corporation type. In some cases, we were able to search using terms, such as PBC," but not all benefit corporations are required by states to identify themselves with PBC in their legal names. We supplemented the search by using the names of a few well-known benefit corporations to gather

3 more data. Pending patent applications are also generally not made public until 18 months after filing if at all. With so many PBCs having been formed in the last six years, this 18-month publication lag may hide a relatively large proportion of additional filings by PBCs not described here. In this initial snapshot, we found that, like for-profit companies, PBCs are filing for patents across a range of industries. Patagonia, the first to register as a benefit corporation in California in 2012, has been consistently active in the patent space, filing several new applications and seeing six patents granted since its certification. Laureate Education, a PBC whose mission centers on making higher education more accessible and affordable, has also maintained an active patent portfolio since converting to a PBC in In addition to its seven granted patents, Laureate has seven pending applications in the education and mechanical engineering spaces. Two other benefit corporations, Lung Biotechnology (six patents) and Klean Kanteen (one patent) have patent portfolios in biotechnology and thermal containers, respectively. In just the last two years, we have seen several other benefit corporations active before the U.S. Patent and Trademark Office. Five PBCs filed applications now pending according to public USPTO records: Eleusis Benefit Corporation, Perlstein Lab, Luvozo, PIARC, and Ojai Energetics. Four PBCs had applications go abandoned recently: Fide (seven abandoned, one pending), AltSchool (one abandoned), Umewin (one abandoned), and Slipcal (one abandoned). We have even seen at least one PBC, Kickstarter, already engaged in patent litigation (Case No. 1:18-cv (E.D. NY)). While this is by no means an exhaustive list, the results sampled here show a diverse array of inventions and patent filings already made by PBCs. Patent Strategies of PBCs Beyond patent filing activity, let s consider what patent strategies might be best-suited for a PBC. As forprofit companies, benefit corporations share many of the same motives for patent protection as other for-profit companies. A PBC may file a patent application to protect inventions from unauthorized use by competitors or knock off importers, to attract investment, to monetize R&D, or to support collaboration. To this end, a patent strategy that helps increase a PBC s valuation and growth can at least indirectly help the PBC further its mission and positively impact its community. Many PBCs will want to go further and build patent strategies that align with their public benefit purposes. One area they can draw from is the for-profit high-tech and automotive industries where initiatives have been made to extend patent strategies to cover broader goals of freedom to operate and collaboration in addition to protection. Consider social goals that many PBCs have to create a culture of innovation and foster long-term working relationships with employee inventors. To this end, a PBC may implement a reward program for inventors who successfully help to file a patent application or obtain a patent. Creative brainstorming sessions (like HP s early thinkshops) can be held and new intellectual property harvested. To give employee inventors an explicit say in the assertion of any patent that results, a PBC may adopt an "innovator s patent agreement" approach, as pioneered by Twitter.[7] A PBC may wish to adopt an open innovation approach to foster the ingress and egress of ideas and innovation with others in their community and industry.[8] Many PBCs have social and environmental goals to promote the adoption of new renewable energy or sustainable technology in their industry including by competitors. Several patent strategies align with

4 this goal. PBCs focused on protection may wish to file in China and Germany, both of which have large markets and allow for injunctive relief in patent enforcement. New fast track options, like Track One in the U.S. and the Patent Prosecution Highway now available in 48 countries, can be tapped. Such patent acquisition can be coupled with a public commitment to RAND or RF licensing terms or transparent licensing terms. To spur development, a PBC can spin out or assign patents to a new company, like Microsoft did as part of its switch to a more collaborative IP orientation.[9] If a PBC lacks the full resources to implement or bring its new inventions to market, the PBC can license its patents in a joint development agreement or even give its patents to a startup like Google s Patent Starter program. To promote freedom to operate, a PBC can publicly adopt a defensive assertion pledge, like Tesla did for some of its electric car technology, or even go further by dedicating the patents to the public domain, like Toyota did for some of its fuel cell technology. Some PBCs may wish to participate in private solutions like the License-On-Transfer (LOT) Network to reduce unwanted patent assertion by certain nonpracticing entities. A PBC could even adopt an explicit sustainable patent strategy as part of its mission.[10] While it is still early to know what role patents will take for many PBCs, the birth of PBCs occurs at a time when companies are implementing a variety of patent strategies to protect innovation, encourage collaboration, maximize shareholder value, and promote freedom to operate. By starting with an innovative corporate form and purpose, PBCs may be poised to extend these strategies to meet forprofit and public benefit goals. This may be helpful for public benefit and nonpublic benefit companies alike. Michael Messinger is co-founder and Casey Berger is a senior IP specialist at Shami Messinger PLLC in Washington, D.C. The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general info rmation purposes and is not intended to be and should not be taken as legal advice. [1] See, A. Kassoy et al., Impact governance and management: Fulfilling the promise of capitalism to achieve a shared and durable prosperity, Center for Effective Public Management, Brookings Institution, July [2] See, [3] See, [4] See, [5] See, [6] See, [7] See,

5 [8] H. Chesborough, Open Innovation: The New Imperative for Creating and Profiting from Technology, HBS Press, [9] M. Phelps and D. Kline, Burning the Ships: Transforming Your Company s Culture through Intellectual Property Strategy, John Wiley & Sons, [10] See, M. Messinger, Environmentally Sustainable Patent Strategies, LAW 360, Sept. 14, 2015.

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