BY TYSON WINARSKI, ESQ., AND ELIZABETH STOKER-TOWNSEND OF STEPTOE & JOHNSON LLP

Nanotechnology is the science of mate-rials and devices of nanometer size,approximately the size of a small mol-

ecule or individual atom. Nanotechnologyis a multidisciplinary field, ranging frommore durable metal coatings to more stain-resistant fabrics to MagnetoresistiveRandom Access Memories (MRAM) chipsto sporting goods strengthened by carbonnanotubes (only one-sixth as heavy as steelbut 100 times more strong). Additionalproducts currently under developmentinclude small particles to increase drugdelivery, manufactured neurons aimed atreversing paralysis, and compounds to pre-vent algae growth in swimming pools.

Estimates place the market for nano-engineered information storage devices at$65.7 billion by 2011. MRAM, FRAM,holographic memory, ovonic unified mem-ory, molecular memory, nanotube RAM,MEMS-based memory, and polymer mem-ory will penetrate up to 40 percent of thestorage devices market within seven years.By 2015, the global impact of productswhere nanotechnology plays a key role willbe approximately $1 trillion annually.

Due to the newness and breadth of nan-otechnology, the United States Patent andTrademark Office (USPTO) categorizes nan-otechnology primarily under a broad rangeof existing classifications. Primary areas ofpatent activity for nanotechnology includeelectromagnetic applications in class 250;semiconductor device and manufacturingapplications in class 257 and 438; coatingsin class 427; and a diverse array of biologi-cal chemical applications in classes 423,428, and 435. Several USPTO classifica-tions include a subclass for a specific typeof nanotechnology, such as class 516/901that encompasses substantially pure carbonsuch as graphite, lamp black, carbon black,and fullerene. Fullerenes are a molecularform of pure carbon and include structureslike buckyballs and nanotubes. These twotypes of fullerenes are immensely strongconductive carbon structures that offer largereceptive surface areas and promising com-mercial applications. The discovery offullerenes, made in 1985, won the Nobelprize in chemistry in 1996.

The level of patent activity in the area ofnanotechnology has increased dramatically

over the past seven years. According to theNational Science Foundation (NSF), nano-tech-related patents began issuing from theUSPTO as early as 1976. The NSF esti-mates that several thousand have issuedannually since the early 1990s, with a largespike between 1996 and 1997 from 2519patents to 3623 patents. This trend hasincreased steadily with 6425 nanotech-related patents issuing in 2002, a numbersurpassed in 2003 according to the Journalof Nanoparticle Research.

Nanotechnology is reaching the brink ofcrossing the line from research and devel-opment into production and commercializa-tion. Altair Nanotechnologies, Inc., in itsshareholder update, stated that several ofits patented creations are currently beingtested for use in consumer products,including nano-zirconia, a substance beingused to strengthen polymer-based dentalfillings, and NanoCheck, a compound toprevent algae growth in swimming pools.

Altair expects to have the enhanced dentalfillings available to the market by the fourthquarter of 2004 and the NanoCheck prod-uct available in the first quarter of 2005.The NSF estimates that nanotechnologycould evolve into a $1 trillion industry by2015, providing roughly two million jobsworldwide. The Merrill Lynch NanotechIndex Report ventures that “nanotechnol-ogy could be the next growth innovation....the questions generally are of when, not if.”

The majority of nanotechnology fundingcurrently comes from the federal govern-ment. In December of 2003, PresidentBush approved a bill that will appropriate$3.7 billion over the next four years fornanotechnology research and development.Many of the nanotechnology firms are pri-vately owned ventures that survive on gov-ernment funding. Such companies includeAltair Nanotechnologies, Inc., whichreceived a $100,000 NSF grant this yearfor a six-month project, and NanoSonic,Inc., which has Air Force, NSF, and NASA

contracts. However, these grants are usu-ally for specific research topics or goals,restraining the company to the govern-ment’s needs and fiscal flexibility.Research-oriented universities such asHarvard, MIT, Arizona Board of Regents,and Regents of the University of Californiaalso provide immense funding for smallnanotechnology firms. Other small nan-otech ventures have paired with major com-panies, such as Intel and Motorola, forfinancial backing. For example, AirProducts and Chemicals, Inc., a Fortune5000 company, invested in Nanotech-nologies, Inc., last year.

Spin-off ventures from universities andcorporations are forming many of the lead-ing nanotech companies. For example,Northwestern University Professor ChadMirkin and his associates have formed twosuch companies from the fruits of theirresearch: NanoInk, Inc., which receivedthe first dip ink pen nanolithographypatent, and Nanosphere, Inc., a life sci-ences nanotechnology company that holdsseveral nanoparticle probe technologypatents. NVE Corporation, now publiclytraded on Nasdaq, is Honeywell’s spin-offnanotechnology company.

26 INTELLECTUAL PROPERTY TODAY APRIL, 2005

Nanotechnology Thriving on Patents

With the maturing of nanotechnology,nanotech firms are gaining more attention inthe financial markets. As a significant indi-cator of nanotechnology’s stock marketpotential, Merrill Lynch and Punk, Ziegel &Company both created nanotechnologystock indices in the spring of 2004, followedclosely by other investment firms. TheMerrill Lynch nanotech index (^NNZ)currently includes 24 nanotechnology-related companies in the fields shown intable below.

Punk Ziegel’s 15 company nanotechindex largely overlaps the Merrill Lynchindex, but includes two other instrumenta-tion companies: Nano-Proprietary, Inc.,and MFIC Corp. Both Merrill Lynch andPunk Ziegel purposefully chose companiesthat rely on nanotechnology for a majorityof their future profits. As a result, theirindices do not include major corporations,such as Intel and Hewlett-Packard, thatown numerous nanotechnology patents butare not “pure” nanotechnology companies.

A stock portfolio analysis of the compa-nies listed on these nanotech indices showsa direct correlation between patentissuance and stock price surges. For exam-ple, NVE Corporation’s (NVEC) stock rosefrom $25.81 to $36.43, or 41.15%, on theday its new MRAM patent was announcedin June of this year, USP 6,744,086.

Nanogen’s (NGEN) stock jumped over50%, from $3.79 to $5.74, when itannounced that it had received a patent for

technology that detects genetic variants,USP 6,753,148.

Some business experts, however, havethrown out a word of caution on nanotech-nology: dot com. Like the Internet busi-nesses in the late 1990s, some experts arewarning that nanotechnology is overhypedand that nanotech stocks are surging on abubble that is ready to burst. However, asSteven Milunovich, Merrill Lynch’s globaltechnology strategist, pointed out, nan-otechnology differs from the recent Internetcraze due to its serious patent and intellec-tual property barriers.

The patent portfolios of these emergingnanotech companies may protect thesefirms from the same fate as their dot comcounterparts. Unlike Internet companiesthat valued their worth in the number of“hits” on their website, nanotechnologyfirms holding issued patents have realassets. Companies with these patentedintellectual property assets own an exclu-sive niche in the market, a benefit that manycompanies in the dot com era lacked.Nanotechnology patents may prove the crit-ical factor with investment strategies. Theslow and deliberate patent process may giveinvestors confidence that publicly tradedcompanies holding nanotechnology patentsare more stable investments than thosewithout. As illustrated by several publiclytraded nanotechnology companies, as wellas the new nanotech stock indices, this cor-relation between patents and stocks mayalready have come to fruition.

The authors can be reached at Steptoe &Johnson LLP, 201 East Washington Street,Phoenix, Arizona 85004, (602) 257-5200.You can email Mr. Winarski attwinarski@steptoe.com and Mrs. Stoker-Townsend at elizabeth.stoker@asu.edu. Theauthors wish to thank Harold Fox, Esq., forcontributing his nanotechnology expertisetoward editing this article.