EcoTech Law Group, P.C.

Jointly Owned Intellectual Property

Wed, 25 May 2011 00:00:00 -0700

Often a place loaded with pitfalls, joint ownership is commonly misperceived to be a “fair” solution for situations involving multiple contributors. Consider a proposed partnership or merger where both parties want to have the ability to use the patent for any purpose. One might suggest one party keep the patent and to license it to the other party without any fees or royalties for a perpetual period. However, because both parties would like to retain the exclusionary right of a patent, completing negotiations of this point of a contract is not easy.

The most common form of IP allocation, therefore, in collaborations, is joint ownership, eliminating license agreements and sharing exclusionary rights. This, of course, requires joint registration with the USPTO. But the solution of shared IP assets is problematic. A common misperception of jointly owned IP is that it allows each party to use the IP freely, that no one else can use the IP, and that it’s fair (not favoring either party). In reality, each joint owner may have the duty of accounting to the other joint owner. Each owner may or may not have the ability to license to third parties or sue third parties for infringement without the consent or cooperation of the other joint owner. Essentially, to join in any suit enforcing the patent, all the joint owners must join. This is a major problem, as not all parties may have shared interests in litigation. Additionally, depending on the nature of the IP and the resources of each party, joint ownership would favor or be problematic for at least one party.

One should also know that the default rules vary from one kind of IP to the next, such as the duty of accounting for copyrights but not patents.

Also, the rules vary based on jurisdiction; for instance, joint owners of U.S. patents can license to third parties without the other’s consent, while Canadian and UK patent owners cannot.

As a general matter, joint owners should say “no” to joint IP; it is often unfair and, of greater importance, unworkable. There is typically a better way to structure the allocation of rights for shared IP assets. It is important to conduct due diligence by reviewing the relevant agreements, learning the facts, and performing any necessary legal research. Be sure to cover your bases with explicit representations and warranties about any agreement.

Clean Energy: Have We Reached the Tipping Point?

Thu, 03 Mar 2011 00:00:00 -0800

Recently, clean technology has become a popular cause across society. Mainstream media and key corporations alike cover and support green energy programs and initiatives. But as we look forward, is the current wave of interest in clean energy strong enough to carry the issue to the forefront of global policy indefinitely? And, what impact will that have on us in the legal profession?

Even average consumers are taking an interest in the green phenomenon. The clean-burning Toyota Priusrepresents one out of every fifty cars purchased in the United States, and was recently named one of the ten best inventions of the decade by ABC News. While high gas prices have created financial incentives to purchase vehicles like these, even products with high installation costs have seen increases among consumers. Despite the fact that solar panels can often cost upwards of $10,000, installations continue to rise in homes and businesses. Whether you’re on the road, swimming in a friend’s pool, or looking at the roof of the company you work for, odds are you have seen green energy put to work.

As would be expected with any hot new sector, large numbers of interested parties are scrambling to gain control of the industry. New entries to the market often put profits ahead of progress, opting to work in silos instead of partnering for technological advantage. The United States Patent and Trademark Office’s recent pilot program to accelerate green technology patents is designed to encourage innovation and rapidly improve technology to keep America competitive. Because the quality of the technology itself will determine the green movement’s impact, it is the pioneering intellectual property and patents that will drive the industry.

Clearly, from a legal standpoint, intellectual property and patent related work should increase as the number of companies that work with green technology continue to rise. Interestingly enough, junior attorneys could potentially have an advantage in this field. In spite of their lack of experience in the courtroom, their more recent classroom education and practical exposure to the technologies involved could attract clients who seek an attorney familiar with their field. Smaller legal groups might also thrive in this environment, as they are often more adaptable and quick to take on new ideas.

Twenty years ago, real estate was all the rage. Ten years ago, the dotcom bubble was fast expanding. Today, clean technology is center stage. Although consumers, corporations, and inventors play a pivotal role, legal professionals need to take note and take advantage of new trends, realizing their position in propelling the energy industry forward.

Excerpts from Interview with Climatologist Stephen Schneider

Sat, 15 Jan 2011 00:00:00 -0800

Shortly before Stephen Schneider’s untimely passing, Jamal Modir, an associate at EcoTech Law Group, P.C., interviewed Mr. Schneider, a Stanford climatologist, author of Science as a Contact Sport, and co-recipient of the Nobel Peace Prize. The interview touched on issues ranging from the cleantech industry, to the government’s role in green-related policies, and the future of our transforming earth. Below are notable excerpts from this interview.

What is the role of the government in the cleantech field? Is it a good use of the taxpayer’s dollars to support it?

To this, Schneider somewhat hesitantly says yes. Was it in taxpayers’ best interest to bail out a bunch of greedy bankers? Maybe not, he says. But at the same time, the Internet did not invent itself. Nuclear power did not invent itself. Both were largely government funded. And for that matter, any major technical innovation has always involved pump priming.

Even coal plants are deeply subsidized. And Schneider thinks the coal industry has no room to feel that it’s absurd and ridiculous for the government to prop up solar industries and create competition. “Excuse me ‘coal,’” he says sarcastically, “You’re still to this day not charged an externality fee for sending kids to the hospital with asthma, raising the sea levels, and destroying the fish in Minnesota with mercury.” For coal, government funding has only come as a result an inability to perform due diligence when assessing market price.

Because he believes it’s the role of the government to foster technology that better serves industry and the economy as a whole, Schneider believes using tax dollars to support green technology is appropriate. Coal and nuclear power have a hundred years head start. It’s not such a terrible thing for a few decades to give way to a greener, cleaner and potentially more sustainable alternative, but it needs a boost out of the starting gate. In Schneider’s words, “you’ve got to give some pump priming to those entrepreneurs.” After a while, he thinks, the government will start withdrawing that and hopefully alternative energy will be able to thrive on its own.

What will the face of renewable energy be in the future: solar, wind, nuclear, carbon capture, tidal?

There is no way to know for sure. Schneider likens it to placing bets on who’s going to win the Super Bowl in the preseason. A combination of methods will likely yield the best results, but only trial and error or “learning by doing feeding frenzy,” can distinguish the true market leader. At the moment, we can’t yet tell which of these options are going to scale up, lose or gain social acceptability, or even remain cost effective. Nuclear industry would be ready to scale up if it were not so socially unacceptable an energy source. Who wants a power plant in their neighborhood? The same goes for wind farms, which many see as an eyesore. But even that can change. Wind farms located offshore obviate a lot of those issues.

In reality, our potential with new energy is boundless. Recently, inventors have found ways to engage in use carbon capture and sequestration, bio char, algae, and negative fuel. We don’t know that we can scale those methods up. Schneider states. “I am for trying. I hope they work, but they’re not going to fund themselves.”

While Schneider sees solar energy as having the most potential to replace coal, it has yet to solve a massive problem—storage. We need energy when the sun isn’t up.

Regardless, with so many options to help fund, investors should diversify. While it lowers ROI, before the kinks are ironed out, many of these energy sources may present problems and difficulties we have yet to think of. Lowering the global average of CO2 emissions is really the end goal.

When will all governments come together and finally work cohesively to affect climate change?

At this, Schneider laughs. His answer: “When a hurricane takes out Miami and Shanghai. We have to be kicked in the teeth, if not three feet higher. We are not good at dealing with long-term crises. When did we have national and international mobilization for serious climate policy? The 88’ heat waves. The liars and spin doctors in the fossil fuel and auto industry, and some bankers, and the chamber of commerce all got together and pulled millions of dollars into the global climate coalition. They lied their way into getting everybody to believe the problem was solved while all climate scientists said the problem wasn’t solved and they succeeded, and they’re doing it again.”

While heavy-handed, Schneider’s opinion perhaps accurately reflects that palpable natural disasters, as perceived by the media, are required to validate the work of climate theorists and mobilize a response. According to Schneider, the ’88 heat wave was one such disaster; Katrina could have been another, but, according to Schneider, Bush, his administration, and the congress were so entrenched in denial that they wouldn’t have reacted even if the public had believed. All hurricanes are random; they were just more intense because the gulf was warmer.

(Stephen Schneider was one of the leading advocates for advancement of our nation’s—and world’s—cleantech policies. We at EcoTech Law Group wish his family our deepest condolences.)

Alza Corp. v. Andrx Pharmaceuticals (Fed. Cir. 2010) (be careful what you ask for . . .)

Fri, 07 May 2010 11:47:00 -0700

On April 26, 2010, in ALZA Corp. v. Andrx Pharms., LLC, No. 2009-1350, the Federal Circuit affirmed the District Court of Delaware’s finding that ALZA’s U.S. Patent No. 6,919,373 (“the ’373 patent”), covering methods for treating Attention Deficit or Attention Deficit Hyperactivity Disorders (“ADD” or “ADHD,” respectively), was invalid for lack of enablement.[1] In doing so, the court held that the ‘373 patent specification failed to enable a person of ordinary skill in the art to make and use the claimed invention without undue experimentation based primarily on: the quantity of experimentation required, the lack of guidance in the specification, the absence of working embodiments, and the breadth of the claims. The court further held that these deficiencies could not be cured, as argued by ALZA, by relying on the knowledge of a person of ordinary skill in the art to serve as a substitute for teachings absent from the specification.

The ’373 patent claims methods for treating ADD and ADHD through a methylphenidate (“MPH”) drug dosage form that has an ascending release rate over an extended period of time (i.e., controlled release). Prior to the claimed invention, ADD and ADHD were treated with immediate-release formulations of MPH that needed to be administered several times daily, the most popular of which was Ritalin®. The ‘373 patent’s once-a-day method of treating ADD and ADHD with extended-release formulations helped solve the problem of patient compliance with a schedule that requires multiple daily doses, particularly for children who need to take at least one dose while at school.

Claim 1 of the ‘373 patent, the only independent claim at issue before the Federal Circuit, recites: ”A method for treating ADD or ADHD comprising administering a dosage form comprising methylphenidate that provides a release of methylphenidate at an ascending release rate over an extended period of time. (’373 patent at 23:12-15.) Plaintiff ALZA markets and sells the drug Concerta®, which is encompassed by this claim. Andrx Pharmaceutical, LLC and Andrx Corporation (collectively, “Andrx”), produce a competing generic version of Concerta®, which ALZA alleges infringes the ‘373 patent.

At the Markman hearing, the lower court agreed with ALZA’s proposed broad construction of claim 1 covering both “osmotic” and “non-osmotic” oral dosage forms with ascending release rates of MPH, not just the non-osmotic oral dosage forms, as Andrx proposed. Alza Corp. v. Andrx Pharms., LLC, No. 05-642, at 2 (D. Del. Oct. 5, 2007) (order on claim construction).[2] As the Federal Circuit noted, however, the lower court’s adoption of ALZA’s proposed construction ultimately undermined ALZA’s lawsuit, because claim 1 is not enabled with respect to the non-osmotic oral dosage forms. Slip Op. at 9 & 14.

The ’373 patent specification primarily describes osmotic dosage forms to administer MPH at an ascending release rate over an extended period of time, and the Federal Circuit agreed with the district court that such dosage forms were enabled. Id. The court held, however, “that the specification of the ’373 patent … does not provide sufficient guidance for a person of ordinary skill in the art to make the non-osmotic dosage forms as claimed.” Id.

ALZA argued that non-osmotic dosage forms were enabled by the following passage in the specification:

“There are many approaches to achieving sustained release of drugs from oral dosage forms known in the art. These different approaches include, for example, diffusion systems such as reservoir devices and matrix devices, dissolution systems (including, for example, “tiny time pills”) and matrix dissolution systems, combination diffusion/dissolution systems, osmotic systems and ion-exchange resin systems as described in Remington’s Pharmaceutical Sciences, 1990 ed., pp. 1682-1685.”

Id. at 10 (quoting ‘373 patent at 3:53-62. This passage, according to ANZA, is sufficient to allow a person of ordinary skill in the art to practice the aspect of the claimed invention covering non-osmotic dosage forms. The Federal Circuit disagreed.

The court explained that this passage provides “no guidance as to how to achieve ascending release with non-osmotic dosage forms.” Id. (quoting Alza Corp. v. Andrx Pharms., LLC, 607 F. Supp. 2d 614, 655 (D. Del. 2008). “Instead, it provides only a starting point, a direction for further research.” Slip Op. at 10-11 (internal quotation omitted). Then, the court noted that ALZA even concedes that a person of ordinary skill in the art must engage in an “iterative, trial-and-error process to practice the claimed invention even with the help of the ‘373 patent specification.” Id. at 11. Thus, resolving the enablement issue requires a factual determination of whether “undue experimentation” is required to carry out this process. Id.

The Federal Circuit agreed with the lower court’s findings that despite the specification’s disclosure, undue experimentation would be required to make non-osmotic dosage forms of the claimed invention. Id. In particular, the Federal Circuit noted that ALZA’s reliance on its expert’s testimony was problematic because the expert, who contended that this process was “routine” and “easily made by those skilled in the art,” applied a higher level of skill in the art than that which the lower court properly adopted. Id. at 11, 12-13. Further, the lower court properly relied on the testimony of two ALZA employees, who explained that despite its efforts, ALZA had not been able to develop the non-osmotic dosage forms. Id. at 12.

Moreover, the Federal Circuit held that the factors set forth in In re Wands, 859, F.2d 731, 735 (Fed. Cir. 1988),[3] “weigh in favor of finding that the experimentation required to practice part of the claimed invention was not routine.” (Id. at 13.) In particular, the court noted that seven of the eight Wands factors supported a finding of undue experimentation, id. at 9, and particularly: the quantity of experimentation, lack of guidance in the specification, absence of working embodiments, and breadth of the claims, id. at 14. Thus, claim 1 of the ‘373 patent fails to satisfy the enablement requirement of 35 U.S.C. § 112, ¶ 1.[4]

At least two major points emerge from this case. First, arguing for broader claim construction may render the claim invalid because the specification may not fully enable the more expansive claim scope. Therefore, when asserting a patent in litigation, the patent holder must be careful to temper its desire for a broader claim scope with considerations of whether a broader claim scope will undermine other aspects of patentability, e.g., enablement. Second, the knowledge of the ordinarily skilled artisan, as established by the court, may fail to compensate for information absent from the specification with regard to enabling novel functional limitations. Therefore, the patent applicant must ensure that the specification does more than suggest a mere starting point for a person of ordinary skill in the art to practice novel aspects of the claimed invention. And, unlike ANZA in this case, the applicant must have a reasonable view of what constitutes a person of ordinary skill in the relevant art.

[1] The district court also found the patent to be non-obvious and not infringed. The Federal Circuit did not reach these issues.

[2] While this was not clear from the Federal Circuit’s opinion, presumably, ALZA believed that Andrx’s product was a non-osmotic dosage form.

[3] The Wands factors for undue experimentation are: (1) the quantity of experimentation necessary; (2) the amount of direction or guidance presented; (3) the presence or absence of working examples; (4) the nature of the invention; (5) the state of the prior art; (6) the relative skill of those in the art; (7) predictability or unpredictability of the art; and (8) breadth of claims. Wands, 858 F.2d at 737.

[4] Though not addressed by the Court, the same arguments ALZA made to support its argument that claim 1 is fully enabled could also support a finding that the asserted claim is invalid on obviousness grounds. For example, ALZA argued that “creating non-osmotic dosage forms and manipulating their release rates was well known to a person of ordinary skill in the art at the time the ’373 patent application was filed.” Slip Op. at 6. Further, ALZA argued that non-osmotic dosage forms with ascending release rates could be made with only routine effort by those skilled in the art because the methods and materials used to produce dosage forms with constant, descending, or ascending release rate profiles are essentially the same and well known.” Id. at 7. Either of these arguments could also support a finding that the disclosed invention was obvious to a person of ordinary skill in the art, and therefore, invalid under 35 U.S.C. § 103.

Patent Office Reduces Backlog on Business Method Patents

Thu, 22 Apr 2010 21:45:34 -0700

According to one USPTO insider, the Patent Office has significantly reduced their backlog for the examination of business method patent applications. Two years ago, the PTO was six years behind in examining business method patent applications. This dreadful backlog raised questions about their relevancy and whether an inventor should even bother filing a business method application. To address this backlog problem, the Patent Office hired several new examiners in the business methods art units. As a result of this influx of new hires, the backlog has been reduced to less than three months.

Rumor has it that the Director of business methods is in hot water because he had over-hired examiners in that art. Apparently, there are now so few business method cases per examiner that they are resorting to transferring mechanical cases onto their docket. Well, at least inventors can now have their business method applications examined promptly.

Innovation and Change: A New Normal in the Legal Profession?

Fri, 09 Apr 2010 12:03:35 -0700

It’s no secret that the past few years have seen drastic economic changes. But how have these changes impacted the way we do business? And how have changes in industry impacted the norms and practices for those of us in the legal profession? At the Churchill Breakfast Club, I recently had the pleasure of hearing a panel including Paul Lippe (CEO, Legal OnRamp), Aric Press (Editor-in-Chief, American Lawyer Magazine), Bill Deckelman (General Counsel, CSC), and Mark Chandler (General Counsel, Cisco Systems) address this topic.

According to Lippe and Chandler, the economy has had a dramatic effect on law firms—typically the larger firms—serving corporate clients. Over the past few years, there has developed a sometimes accurate perception that lawyers at large firms bill clients excessively. With more employees and greater resources, the benefits of using large firms outweighed the costs, even with what is sometimes referred to as “fluffy” billing, i.e., billing for work that does not genuinely add value for the client. But when companies don’t have the funds to cover estimates, invoicing, and client development, the cost of using a firm who practices “the old-fashioned way” becomes insupportable. In Silicon Valley, where start ups and venture capital reign, this holds especially true. Emerging companies seek a competitive advantage, and bank on value-added efficiency. If large, traditional law firms want to survive in the new economy, they’ve got to change the way they do business—tackling inefficiencies, and where possible, cutting down hours. As Lippe pointed out, “This is how we’ve always done it” is an express ticket to a severance package in the real world.

Cost reduction is key at the moment, as competition from many small and mid-size firms will force lawyers to be more efficient as costs are now an issue. It’s not the hours spent, but the product to the client that’s most important. While GC’s were once left to their own devices in a veritable “black box,” the curtain has been removed. They are now measured by company-wide standards: client intimacy, process innovation, predictable pricing, alternate staffing, technology enhancement, and defined quality.

In-house legal departments also must comply with new practices. Mark Chandler heads the legal department at Cisco Systems, which gets measured the way every other team in the company does. They must demonstrate that deals are going through and their work is creating value for the company as a whole. Chandler must show that threats to the company are managed and compliance is in order, without waste. When the metric is based on how much time is put into a product rather than the result of that time, the value is denigrated.

In addition, the use of electronic tools to monitor value-added efficiency is increasing. Automated document management, tracking systems, and electronic contracts are popping up everywhere with the assumption that digital records provide greater transparency. Because clients currently demand more knowledge about where their money is going, boutique firms, many of which already use these kinds of programs—and many of which are better suited to adapt to these new circumstances—may well be the better choice for industry.

The transformation trickles down to law schools, as law firms will demand graduates who can provide specialized, efficient services—graduates with more practical knowledge. And with the new technological applications, technological understanding is key. But will these changes stick? Is the adoption of more efficient practices just a blip on the legal radar screen, or has a “new normal” emerged in the profession? Only time will tell. In the meantime, those firms that do put productivity before profit will have a clear and credible advantage.

Myriad Genetics Case Alert

Mon, 05 Apr 2010 01:45:00 -0700

On March 29, 2010, the Southern District of New York issued an order in Association for Medical Pathology et al. v. USPTO, Myriad Genetics & the Directors of the University of Utah Research Foundation (S.D.N.Y.), finding on summary judgment that all 15 of the challenged claims are invalid under 35 U.S.C. § 101. Although the majority of the 152-page opinion focused on the invalidity of the 9 composition claims (which may essentially render any composition-of-matter claim covering isolated and purified DNA invalid), this update focuses on the invalidity of the remaining 6 method claims because from a validity standpoint, method claims in the life science industries appear to be more viable.

The District Court found that the method claims at issue fail Bilski’s “machine-or-transformation” test. Slip Op. at 141-47; see also In re Bilski, 545 F.3d 943, 950 (Fed. Cir. 2008) (en banc). Myriad argued that while data-gathering steps are not expressly claimed, Bilski’s transformation requirement is nevertheless satisfied because data gathering is necessary to carry out the claimed “analyzing” and “comparing” steps. Specifically, Myriad argued that such transformation is (1) implied by the inclusion of the phrases “from a human subject” or “from a tumor sample” in the claim language, (2) found in the specifications’ description of the process of obtaining DNA sequences, (3) found in the isolating and sequencing DNA steps described in the dependent claims, or (4) implied by the fact that isolating and sequencing DNA is required for “analyzing” or “comparing.” Slip Op. at 141-47. In rejecting Myriad’s arguments, the District Court primarily relied on the Federal Circuit’s decision in Prometheus Labs. v. Mayo Collaborative Services, 581 F.3d 1336 (Fed. Cir. 2009).

Briefly, the claim in Prometheus covered a method for determining the proper dosage of thiopurine drugs and disclosed three steps: (1) administering (e.g., a drug), (2) data gathering, and (3) correlating. See Prometheus, 581 F.3d at 1340. The Federal Circuit held that the data gathering step satisfied Bilski’s transformation requirement because it included the extraction and measurement of the metabolite concentrations, which implied a transformation of a patient’s tissue samples.[1] Id. at 1346-47.

The District Court distinguished the method claim in Prometheus from the method claims at issue in Myriad. The court noted that unlike the Prometheus claim, Myriad’s claims only recite the abstract mental steps of “analyzing” or “comparing” DNA sequences. Slip Op. at 141-47. The court also rejected Myriad’s arguments that data-gathering steps are necessary to carry out the “analyzing” and “comparing” steps under scrutiny, and therefore should be read into the claims. Instead, the court maintained that because Myriad’s claims only recite mental steps, the challenged claims are invalid under 35 U.S.C. § 101. Id. at 149.

The District Court further entertained the notion that even if the challenged method claims were read to include the transformations associated with isolating and sequencing human DNA, these “transformations” would still fail the Bilski test because they would be mere data-gathering steps that are “not central to the purpose of the claimed process.” Id. at 145-47. According to the court, a claim reciting a step of “performance of clinical laboratory tests on an individual to obtain data for the parameters” is a mere data-gathering step to obtain clinical data. Id. at 145-46 (quoting In re Grams, 888 F.2d 835, 837 (Fed. Cir. 1989). Like the Federal Circuit in Grams, the District Court found that isolating and sequencing DNA, even if incorporated into the method claims, would be “nothing more than data-gathering steps on which to perform the claimed comparison or analysis.”[2] Slip Op. at 146.

While this is certainly an extremely important—and controversial—decision to the biotechnology and pharmaceutical industries, it will take time to sort out its implications, as it will certainly be appealed to the Federal Circuit. Notably, the Supreme Court’s forthcoming decision in Bilski will likely impact the Federal Circuit’s analysis of the Myriad court’s ruling. Nevertheless, if the District Court’s decision is left unaltered, it is fair to speculate that most—if not all—composition claims covering isolated and purified DNA sequences would be rendered invalid.

The same, however, does not hold true of method claims directed to correlations. Indeed, method claims, such as those in Prometheus, which recite transformative administering and data-gathering steps,could still be relied upon to protect important innovations in the life sciences. Moreover, the Myriad court’s analysis suggests that claims reciting only data-gathering and correlating steps (such as those discussed in Justice Breyer’s dissent in Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124, 126-27 (2006)), would also be valid so long as claimed data-gathering steps satisfy Bilski’s requirement that such steps are not mere “extra-solution activity” and are “central to the purpose of the claim.”

Thus, the practitioner should be careful to ensure when drafting such claims that: (1) to the extent possible, do not rely only on a data-gathering step to satisfy Bilski’s transformation requirement; (2) when relying on a data-gathering step, disclose that step expressly in the claim; and (3) make sure that the expressly claimed data-gathering step is “central to the purpose of the claim,” and not superfluous.

[1] The Prometheus court also held that the administering step satisfied Bilski’s transformation requirement because it resulted in changes to both the patient’s biochemistry and the drug metabolites. Prometheus, 581 F.3d at 1346.

[2] It should be noted that the Federal Circuit in Prometheus distinguished Grams because in the Prometheus claims, “the administering and determining steps … are part of treatment regimes for various diseases” and therefore “not insignificant extra-solution activity.”

The Underappreciated Value of Research and Development Tax Credits

Sun, 07 Mar 2010 17:28:00 -0800

Since 1981, the government has made an effort to subsidize innovation in business through providing a Research and Development (“R&D”) tax credit. In spite of their often-invaluable benefits, R&D tax credits are a resource that has long been ignored by companies in many sectors.

I recently met with Carey Cadle, partner at the accounting firm Gallina LLP, who explained why R&D Tax Credits often slide under the radar. According to Cadle, it’s all about perception. Up until 2003, the strict requirements for attaining credits made it difficult for most companies outside the Fortune 500 to receive any benefit. But over the past six years, the rules have changed so that the credit would no longer be limited to work that was truly groundbreaking, making it easier for small to mid-sized business to also gain from the federal program. And, for these smaller businesses, gains from R&D credits are potentially even greater, as the credits represent a much higher percentage of their assets.

To receive credits, businesses need not necessarily develop a patent. They can also be compensated for streamlining internal processes or attempting to use more efficient materials. Cadle stated: “Developing an improved process is all you need, making what you do better faster cheaper … any design work is also qualified.” As such, Cadle explained, “many of the day-to-day activities of employees are product or process improvements, and a significant portion of their salaries can be recaptured.” In fact, he says, 90% of what Gallina captures in credits comes from employee wages—salaries of employees, even executives, who operate the firm’s R & D efforts. Credits can also go toward encouraging outside consultants to make business more efficient. Even patent work conducted by an outside attorney counts. It’s refundable up to 13 cents on the dollar.

Smaller businesses would be certainly doing themselves a favor to become a little more educated about R&D tax credits. For Gallina, the average tax credit is $250,000. Some businesses have savings upwards ofseveral million dollars. To get the ball rolling, all that’s necessary is an organizational chart, a list of employees working on the development project, and a copy of a tax return. Far from the days of arduous forms and strict requirements, it might be time for businesses to change the way they look at R&D.