American Recovery and Reinvestment Act of 2009: Stimulating Innovation and Creating Intellectual Property

This article summarizes some of the key provisions of the Act that promote innovation and technology development and how an intellectual property protection plan can assist companies seeking to take advantage of the Act in these areas.

Manufacturing Bonds Now Can Be Used to Finance Expanded Technology Facilities

Traditionally, proceeds of a tax exempt $10,000,000 small issue bonds could be used to finance the construction of certain manufacturing facilities for private companies, provided that only 25 percent of such proceeds were used to finance facilities directly related and ancillary to the manufacturing facility. For bonds issued after the date of enactment and before 2011, the Act expands this rule by providing that any facilities that are functionally related and subordinate to the manufacturing facilities can be financed without regard to the 25 percent limit so long as those facilities are located at the same site. In addition, the Act provides that bonds issued during those two years may finance facilities used for the creation or production of intangible property, including a patent, copyrights, formula, process, design, know-how, format or similar items.

Tax Credits and Incentives for Clean Technology

To promote clean technology, the Act includes a new tax credit for investment in tangible personal property used for the production of certain renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture or sequestration. Cleantech manufacturers in these fields can apply for a portion of the $2.3 billion of available credit through an application process with the U.S. Treasury Department.

Information Technology for the Health Sector

The Act requires that the government develop standards by 2010 to allow for the electronic exchange and use of health information on a nationwide basis. While the Act implements stronger federal privacy and security provisions to protect personally-identifiable health information, it also provides for a $19 billion investment in health information technology and provides incentives to accelerate the adoption of such technology by health providers.

Research and Development Funding

The Act implements several funding programs designed to fund research and development projects both in the public and private sectors. For example, the Department of Energy has $2 billion available to invest in energy efficiency and renewable energy research and development that it will award to universities, national laboratories and companies on a competitive basis. To name a few more, the Act provides for $11 million for smart-grid technology projects and $2 billion in grants for advance battery systems. The Act also allows the Department of Energy to use $6 billion to make Federal loan guarantees under the Innovation Technology Loan Program for next generation nuclear, clean coal and renewable energy projects. The guarantees are to provide assistance for new or significantly improved technologies that avoid, reduce or sequester the emissions of greenhouse gases and other air pollutants, and that provide a reasonable assurance of repayment.

Intellectual Property Strategy

While the Act strives to inject a large amount of money into the economy, the allocated funds are only temporarily available to interested parties. Thus, timing will be critical to obtain funding and it will be important, in some cases, for companies to simultaneously develop and commercially exploit its new technologies to take full advantage of available funding. In doing so, companies can demonstrate value and solidify market position by implementing an intellectual property protection plan. An intellectual property protection plan can involve conducting patentability searches and filing for patent protection for new products, as well as, conducting freedom to operate analyses to determine if a new product causes any infringement concerns.

Patent protection establishes a company's market share for a new product by preventing competitors from making, using, importing, exporting or selling the product for 20 years from the filing date of the application. Obtaining a patent can take several years due to backlogs at the U.S. Patent and Trademark Office. Such a delay can cause problems for those who are seeking to commercialize their products immediately because a patent cannot be enforced against others until it issues. However, through programs such as the accelerated examination program, patents can be obtained now within a year of filing. For example, the fastest patent to issue in 2008 was U.S. Patent No. 7,408,364 which issued in less than 80 days. While accelerated examination incurs significantly greater up-front costs than traditional examination and some question the advisability of making the disclosures required by the process, such costs and disclosure requirements can be offset by obtaining a patent within a year and having a longer period of a time to enforce the patent against competitors. Thus, when rushing to commercialize a product to take advantage of the funding made available under the Act, a company should also strategically consider filing for patent protection and evaluate whether the application should be filed under the new accelerated examination procedure.

Prior to a new technology being commercialized, it may be advisable for a company to first conduct a freedom to operate analysis to ensure that the commercialization of the new technology is not going to infringe the rights of another. A freedom to operate analysis involves gaining a firm understanding of the new technology, performing searches to uncover patent rights owned by others that could be relevant to the new technology, and analyzing the search results to determine if an infringement risk exists. By performing such an analysis, a company can provide some assurances to its investors and customers that the technology that is about to be commercialized will not run afoul of any other party's patent rights. Without such an analysis, a company may be in store for a rude awakening when it launches its product only to find out that another party can sue the company for infringing its rights and stop the company from making, selling or using the technology.

Conclusion

It is no surprise that the American Recovery and Reinvestment Act of 2009 focuses on promoting innovation and technology development in its attempt to jump start the economy because innovation and technology have always been the building blocks for a strong American economy. While the Act requires businesses to act quickly to take advantage of the funding made available, business leaders need to remember that they also need to act simultaneously to protect the business' intellectual property resulting from technological developments, thereby, protecting their new market position.