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IP Aspects of Business Law - Outline

IP Aspects of Business Law - Outline

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04/18/2012

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Sections

  • 1. Basic forms of IP and pros/cons
  • 2. IP assets
  • 3. Setting up a business entity
  • 4. Stock sales
  • 5. Ownership of IP in employment contexts
  • 6. Licensing
  • 7. IP Due Diligence and SEC Disclosure
  • 8. IP in Mergers and Acquisitions
  • 9. Tax & Insurance Implications of IP
  • 10. IP Antitrust Issues
  • 11. IP in Bankruptcy

IP Aspects of Business Law Professor Sung 1. Basic forms of IP and pros/cons a. Trade secrets i.

Low cost, high risk, indefinite term ii. Misappropriation b. Copyrights i. Low cost, low risk, 95 year term ii. Copying & Derivative works c. Trademarks i. Low cost, moderate risk, indefinite term ii. Consumer confusion and dilution d. Patents i. High cost, low risk, 20 year term ii. Infringement (high cost to enforce) 2. IP assets a. Capturing value through IP – Hokanson i. Consequences of overlooking IP issues: 1. Greatly increased expenses 2. Unrecoverable loss of valuable rights ii. Once you identify an IP right you need to protect: 1. Patent a. File provisional patent i. Be careful not to sell or show off ii. CANNOT AMMEND at a later date so DON’T BE SLOPPY b. Provide a full and complete written description of how to make and use the invention for which the patent is sought 2. Trademark a. Can the company adopt and use the mark in interstate commerce without the legit assertion of rights by another b. Can the company get federal trademark registration for the mark c. Domain names d. Motor City – i. Under UTSA must: 1. Be valuable by not being generally know and not being readily ascertainable 2. Reasonable efforts to maintain secrecy ii. Disclosure of TS to others who w/o obligation to protect confidentiality of info extinguishes property right 3. Copyright a. Benefits are that you get statutory damages along with attorney’s fees and costs

b. Work for hire (contract) b. How a start up can put its IP at risk – Cundiff i. Common mistakes 1. No clean break a. Breach of fiduciary duty to employer b. May lose IP rights if starting up similar company to type employed at 2. No search a. Begin the search early for domain names and register trademarks (and perform a search) well in advance of public announcement 3. Only thinking about the internet 4. No worker agreements a. Need a paid work contract to ensure exclusive rights to the IP developed 5. No NDA/CDA a. Make potential investors sign 6. It’s business, not personal a. Get confidentiality agreements and plan for succession/exit of personnel early 7. Forbearance a. Don’t go after every infringer, but can’t be a pushover 8. Ostrich behavior a. Keep an eye out for infringer b. Have counsel respond in writing ii. Valuation 1. Valuation of IP Assets – Hagelin a. Cost method i. Measures value of asset by cost to buy identical or equivalent asset – assumes that economic value provided through life of asset is commensurate with development cost ii. Basically = how much cost to product asset b. Market method i. Based on comparable transactions between unrelated parties ii. How much asset would sell for in the market c. Income method i. PV of net economic benefit obtained over the lifetime of the asset ii. How much COULD the asset generate? d. Traditional 25% rule i. Value of a license should equal 25% of gross profits e. Industry standards i. Uses references to toyalty rates in similar past transactions

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ii. Limited since by definition each IP asset is different Ranking i. Often used in conjunction with industry standards approach, uses five components: 1. Scoring criteria 2. System 3. Scale 4. Weighting factors 5. Decision table Surrogate measures i. Reference to patents themselves, most common are # of patents issued to company, payment of patent maintenance fees and prior art citations – correlating average with firm’s MV ii. Can only be used to evaluate portfolios Disaggregation methods i. Value = apportions some fraction to total value to IP by setting value of intangible assets equal to value of firm minus firm’s money and tangible assets ii. Income = apportion some fraction of total earnings to IP assets (tech factor method and knowledge capital score card) iii. Monte Carlo = assign range of values w/ probability to each value as in value of disaggregation method iv. Option method = adopt Black-Scholes to value IP as a ―wait and see‖ Competitive Advantage Valuation (CAV) i. States that IP assets have no value, all value resides in tangible assets which incorporate them – combines the income and disaggregation approach ii. What is the value of the asset measured against existing technology?

2. Cases a. Hughes i. Lost profits not reasonably measured ii. Need reasonable royalty 1. Court will conduct hypothetical negotiation between licensor and willing licensee before start of infringement 2. Some profit for infringer b. Pfaff i. On sale bar 1. Clock on securing patents runs from time offered for sale

2. Must file w/in one year of on-sale advert – anytime a company has a sales force this becomes an issue 3. Ready for patent a. Actual reduction to practice b. Constructive reduction to practice 4. Experimental use – an acceptable use that does not start toll ii. Often disconnect between sales people and R&D/IP department iii. Licensing 1. Basic elements: a. Who i. Assignability and acquisition b. What i. Patent right versus technology (know how) c. When & where i. Term and field use d. Why i. Exploitation versus peace e. How i. Cross-license, patent pools 2. Negotiation of Royalties and Other Sources of Income from Licensing – Goldscheider a. Elements that increase licensor’s assets: i. Relevant, assumable, enforceable patents ii. Trade secrets and know-how related to subject tech iii. Ancillary trade secrets, including marketing insight and contacts iv. Established product trademarks v. Software, ad support vi. Active and productive R&D facility vii. Pattern of successful licenses viii. Reputation for diligence in pursuing infringers ix. Reputation for protecting licensees from independent actions from 3rd parties b. Licensor can assume risk by agreeing to lowering licensing rates in exchange for royalties c. Other options include lump-sum and periodic lump-sum payments, prepaid royalties, minimum royalties, barter, equity, return sale of key ingredients to licensee, sublicensing, etc. d. Rates i. Comparables ii. Success kicker iii. Revisions

and not being readily ascertainable through proper means by. techniques. graphically. Payments i. Most favored licensee e. designs. other person who can obtain economic value from its disclosure or use. compiled. methods. or in writing if – i. from not being generally known to . from not being generally known to. $10M for company d. ―Trade Secret‖ means information. and not being readily ascertainable by proper means by. $500K or 15 years in prison for individual c. compilations.iv.S. program devices. photographically. formulas. including patterns. pattern. Equity stake iv. Uniform Trade Secret Act: USTA §1(4) a. processes. plans. programs. technique. or process. Minimum royalty f. 1st Res. Trade Secrets 1. Term ―trade secret‖ means all forms and types of financial. the public. Derives independent economic value. Upfront royalty ii. or engineering information. electronically. pattern. A trade secret may consist of any formula. treating or preserving material. economic. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy 2. actual or potential. program device. . b. and whether or how stored. or memorized physically. and ii. business. or compilation of information which is used in one’s business. a pattern for a machine or other device or a list of customers. The owner thereof has taken reasonable measures to keep such information secret. AND ii. prototypes. Torts §757 a. and which gives him an opportunity to obtain an advantage over competitors who do not know or sue it. The information derives independent economic value. Very few convictions under the EEA – Many do a deal with the DA (who is uninterested in IP cases) while you file civil claim. actual or potential. scientific. that: i. method. including formula. a process of manufacturing. device. whether tangible or intangible. §1839(3) a. Economic Espionage Act (EEA) 18 U.C. It may be a formula for a chemical compound. procedures. Person will have to plead 5th in order not to perjure 3. compilation. or codes. technical .

Close to current business ii. Sole Proprietorships . Martin – attempted to abscond with material and found new company based on this knowledge i. Ease or difficulty with which concept could be reproduced b. Case application under the Economic Espionage Act (EEA) a. Known to employees and others involved in business iii. Ownership ii. Amount of time effort and money spent on development vi. Control iii. Change/exit b.4. Learning Curve – six common law factors determine trade secret status i. DeGiorgio – customer lists are trade secret. Value of concept v. A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others. Case application under USTA a. Main concerns with business formation i. D guilty since knew that employee would use knowledge from P c. reasonable effort made to maintain secrecy ii. Mangren – Essential ingredient misappropriated i. Measures taken to guard secrecy iv. Case application under non-USTA jurisdictions a. Lange – attempted trade secret theft under EEA. Setting up a business entity a. Pribich – worker didn’t infringe on any info that was unknowable to the public. Torts a. Found to be conspiracy under EEA language c. value was in testing b. Financial risk/reward allocation iv. 3rd Res. 5. DuPont – secret was obtained through ―improper means‖ that violated ―commercial morality‖ tort standard 7. no conviction under EEA 3. Process was independently researched and developed. attempt was made through use of password to maintain secrecy d. Buffets – recipes are easily discernable and no effort to protect so no trade secret 6. Types of entities i.

Pros a. Higher level of regulations and compliance c. High cost b. Limited liability c. Costs are higher than ―regular‖ partnerships iii. b. Officer & management financial control e. Difficult to access funds Personal liability for debt and tort Death of owner dissolves the entity ―Pass through‖ taxation to individual owner Minimal costs in start up Business is freely transferable Ready accounting Personal income taxed once No new legal entity . Shared profit/control 3. 2. Corporations 1. Sub S corps may be able to avoid this in some states 2. e. f.Each partner personally liable to unlimited amount Shared profit/control – each partner has full control – disputes can be messy c. Must have at least one general partner and one limited partner c. Joint/several liability e. Cost depends upon complexity of agreement c. Pros a. General/limited partnerships a. b. Officer management e. c. Dissolution/buyout messy 2. d. Need to file with local state agency to establish b. Cons a. ii. General partners have unlimited liability while limited partners have limited liability at the cost of control of the business d. Cons a. b. Partnerships 1. Can create complex financial products to finance business b. Moderate formalities d. c. Perpetual existence 1. Pros a. Cons a. ―Pass through‖ taxation to partners b. Profits subject to double taxation – at corporate and personal level d. Preferred structure for VC and other investors since it gives them some control d.

Financing i. Factors influencing structure of capital 1. Minimizing the cost of secured capital 3. Basic forms 1. Pros a. IPO ii. Preferred stock (anti-dilution/convertible) 4. Traditional sources of capital 1. Negotiation a deal to the satisfaction of both parties 4. Venture leasing 4. Angels vi. Company’s current financial condition 4.iv. Obstacles to overcome for financing 1. Identifying a source of capital 2. Private placements – equity or security interests v. Homework a. LLCs 1. Private Placement 5. Angel 3. Maintaining a stable flow of capital going forward iii. SBICs 2. Government programs – SBA loans. Venture 1. Steps for entrepreneur to secure financing 1. Venture lending 3. The company’s operating history 3. Risks associated with company’s business iv. The amount of capital needed 2. Asset audit b. Attempt to put a value on all IP assets . Not preferred method of investment by VCs and Angles b. Board control 3. Personal resources 2. Limited liability for member b. Primary equity 1. Seed 2. bankruptcy or withdrawal of member 2. Cons a. grants 3. Liquidity/staging 2. Stockholder agreement 5. Tax ―pass through‖ c. Entity dissolves on death. Venture 4. Employment contracts vii. All members participate in management creating top-heavy decision early on c.

Similar to PJ problems in International Shoe ii. Relationships e. Wedding a. Licensing iii. Director of comp. Vendo – one company invests in another and the market share decrease. Provide disincentives for key employees to leave the enterprise 5. Define all assumptions and expectation b. Beware of founder’s disease – founder good at innovation but terrible at management d. Specify fund usage d. president. A had royalty contract with comp. Freedom to operate iv. IP considerations i. Case application i. Generation/procurement ii. Watch for changes in laws. In Re Peregrine . Farwell – Comp. ID IP that is vital and verify ownership b. A and royalty payment were discontinued depriving shareholders in comp. regulations. Prenuptial phase a. Person was board chair. Matchmaking a. Courting a. and majority shareholder .c. Director and successor roles 2.B bought out comp. Fiduciary responsibility 4. Determine which IP assets are most fundamental to business 2. Disgorgement iv. A of royalty payments 1. Due diligence to verify all info is accurate and up to date 4. Fairness iii. Person was both corporate director and officer 2. Henderson – Director of A does not own IP that was developed while there and cannot seek to patent that same IP in new venture 1. Determine the scope of rights associated with IP and grounds for (un)enforcablity of those rights c. Conflicts of interests 3. Lost profits 4. Go out on lots of dates with VCs finding one that matches your industry and capital needs 3. Loss of future opportunity 3. Set out expectations of R&D and product development c.dissent among federal courts as to whether only UCC-1 filing is needed. found that investor was in same biz and held liable for activities to undermine 1. market conditions b. B. Enforcement v.

Correction of inaccurate. Recklessness iii. Statements ii. Materiality ii. Rule of superior knowledge i. Can be guilty of: 1. or misleading prior disclosures f. Disclosure risk factors iii. If feels that he was ―frozen out‖ the appropriate remedy was available in court 1. Two types of especially tricky areas of communication i. incomplete. Statutory or regulatory obligations iii. Unlawful ―[t]o use or employ. Materiality ii. Shareholder loyalty in closely held corporation has a duty of loyalty 2. Rexford – still owed fiduciary duty to company he owned stock in. Elements to consider i. P knew of false statement or omission . Removal from corporate position b. Reliance (defenses) 1. Dealing in good faith – need a fair. Elements of fraudulent misrepresentation i. There was a theft of corporate name 3. Intent iii. in connection with the purchase or sale of any security any manipulative or deceptive device or contrivance in contravention of [that which is] necessary or appropriate in the public interest or for the protection of investors. SEC §10(b) i. Unwinding transactions v.‖ c. Intent 1. The entity with superior knowledge is in the best position to know something about it – the party with superior knowledge is obliged to disclose d. Misleading statements a. honest and open manner 4.2. Projections 1. Half truths e. Equitable relief a. Buried facts b. Stock sales a. Insider trading ii. Actionability of a disclosed prediction does not turn on whether or not the prediction in fact proves to be accurate 2. Bespeaks caution doctrine a. Reliance b. Literally false statements 2. Theft of corporate opportunity 3. Duty to disclose i.

It is never clear until it goes to trial. Withholding patent counsel’s opinion that patent reinstatement was likely 2. Truth – Medtest had only filed a patent application and its patent counsel had informed the company that the process was patentable 3. Reckless conduct 4. False statement – Medtest had a US patent to its testing process 2. Omission – anticipation of rejection by USPTO regarding Chargefaster patent application 2. Misrepresented patent coverage to the company’s sole product 2. Gompper 1. Nathanson 1. Materiality legal standard – whether a reasonable investor would have considered an omitted or misrepresented fact important in deciding whether to invest iii. P would have made purchase/sale even had she known of false statement/omission 3. iv. Truth on the market a. In an open market communication even if there is a false or misleading statement that investor might not be aware of is self-correcting -. To what extent must facts known to company about unusual business risk or heightened version of a common business risk must be disclosed ii.2. The IP component exponentially complicates matters. Alna 1. Every time there is a lawsuit or an appeal there are analysts calling lawyers attempting to extract more information. Zirn 1. Pommer 1. Chargefaster significant contribution to Watsco earnings 3. Market was not efficient 4. Complaint must allege defendants made false and misleading statements either intentionally or with deliberate recklessness 2.with increased speed of information a decrease in liability. VISX’s ―ferocious‖ litigation defense of its patents rebutted notion that it believed its patents to be valid 3. Being a corporate officer may not suffice to create an inference of the scienter absent special circumstances (like a one product company) v. Case application i. Corporate directors have a fiduciary duty to disclose fully and fairly all material information within the company’s control when it seeks stockholder action . Market price did not respond to misrepresentation 5. A growing issue that will absolve liability in this area g.

a. c. ii. While you are employed the provisions are easier to enforce. Covenants not to compete 1. Very rare. b. Trade Secrets – implied duty of confidentiality 1. Equitable fraud as a cause of action 5. Unless sign the document. Need to be reasonable in scope. The degree to which the invention is related to the employer’s business c. The employee is then under a duty to not disclose such information. Invention assignments 1. hired to invent 1. The nature of the work for which the employee was hired b. Copyright – work for hire 1. ii. Degree to which invention is related to employer’s business iii. Extent to which employee used employer’s time and resource to develop the technology . Law must balance the policy that businesses with trade secrets must be able to protect them with the fact that employees with knowledge of those secrets leave and seek employment elsewhere with the skills and knowledge gain from their experience. iv. Usually the copyright stays with the creator. Inventor gets ownership in event of silence of assignment provision in employment contract.3. iii. relate to the employers business. Not enforceable in all states – CA notable exception iii. Post-employment contract 1. and have a reasonable enforcement timeframe. Used by employers to override the shop right joint custody of IP. When confidential trade secret information is disclosed to employees the employee must be given notice that it is secret. Nature of work for which employee was hired ii. If they work for a company. Shop-right – company gets rights where the thing is invented on company time regardless of the inventor. Ownership of IP in employment contexts a. Patents – shop rights. Default IP assignments i. Ownership in Trade Secret matters depends upon three factors: a. 2. or are under a contract. most done by contract today. Implied duties of employees a. of a work-for-hire type then the work that they create cannot be copyrighted by them – the copyright stays with the organization that retained their services. are very hard to enforce. Hired to invent analysis: i. Contractual restrictions i. The extent to which the employee used the employer’s time and resources to develop the trade secret 3.

and c. Skill required b. dexterity. nontransferable royalty free license giving an employer the right to use an invention patented by its employee 2. Control over when and how long to work g. skill. An ex-employee is bound by an enforceable covenant or other confidential relationship 3. Standard 1. Work prepared by and employee within the scope of her employment b. b. Implied duty of confidentiality and loyalty 3. Source of tools and instrumentalities c.C. Defler 1. CCNV 1. When hired to ―invent‖ those inventions will revert to employer and inventor will not own simple shop right iii. §101 a. Duration of relationship e. Company did not infringe patent by disseminating specifications to contractor. An employee hired to apply her inventive ability owes a duty to assign patent rights to her employer 2. McElmurry 1. and subjective knowledge she obtains in the course of her employment is not the employer’s property 2. Right to assign additional projects f. Hiring party right of control a.S. Case analysis i. Also allows ―have made‖ foundry rights 3. Injunctive relief and disgorgement of salary already paid v. manual and mental ability. Method of payment . ii. Inevitable disclosure – jurisdiction that says a competitor may not hire an employee due to fact that even if they are ethical they will still need to e. an employee’s aptitude. Power company acquired ―shop right‖ in patented level detector developed by its employee at company's expense. Company's shop right entitled it to duplicate detector and to continue using it in its business. Doctrine of inevitable disclosure iv. Location of work d. Shop right is an implied nonexclusive. The Court of Appeals held that: a. Absent a trade secret and express agreement otherwise. Work specially order or commissioned if set forth in a written agreement 2. Customer list 2. Work for hire – 17 U. Wexler 1.d.

employee would reveal employer's confidential information and trade secrets and would violate privileges 2. Employee benefits and tax treatment vi. Unenforceable as against public policy 3. and just 3. **CA will not enforce post-employment non-compete agreements ix. Work relatedness to hiring parity’s normal business j. Nike 1. Employer sought to enjoin former employee from testifying in suits against it. Employer did not establish a likelihood of success on the merits of any of its claims of privilege. Freedom 1. Under Oregon law. viii. vii. they may be considered unenforceable as against public policy. Courts look skeptically upon employment contracts that require employee to assign his inventions to his employer. Hiring an pay of assistants i. so that duty terminated on the specified date. The Court of Appeals held that: a. Injunction was not crafted in sufficiently precise terms to identify the information being protected. Contracting out of the default rules i. Needs to be a transition period – where transitioning to new employer or on own 4. and d. Resignation agreement precluding employee until a specified date from disclosing employer information supplanted employee's implied duty of confidentiality. Holdover/trailer – postemployment obligation to assign 2. Must be fair. Licensing a. Union Pacific 1. May not adversely impact the public 6. Exclusive and non-exclusive licenses . if allowed to testify. b. May not extend beyond any apparent protection the employer reasonably requires 4.h. Invention assignment provisions may not be open ended with respect to time or subject matter 2. c. May not prevent the inventor from seeking other employment 5. Ingersoll 1. An employee’s knowledge of confidential information is sufficient to justify enforcement of a non-compete agreement if there is substantial risk that the employee will be able to divert all or part of the employer’s business given her knowledge 2. reasonable. alleging that. parties have the power to alter a former employee's implied duty of confidentiality. where such contracts are open-ended with respect to time limit or subject matter.

A patentee is estopped from claiming the validity of a patent if the plaintiff had a full and fair opportunity to litigate the claim in a prior adjudication that found the patent invalid Objective .Getting around the patent i. c. d. Role of government funding in the research 1. Really put people in position that just need to SELL RIGHTS OUTRIGHT Res Judicata i. 1. TS owner must show reasonable diligence in protecting the TS – even when licensing. TS owner has right to control the disclosure of the TS. f. however once the secret becomes generally known it is no longer protected. Concerns need to watch for: ii. e. Argue that the patent you just licensed is invalid . Hepatitis immunity patent case 2. Non-exclusive licenses come with little (no) rights ii. Abbot 1. Can put clause in agreement which would require joinder by patent holder e. Unreasonable restraints ii. Any reservation of rights AT ALL will preclude d. g. TS protection only prevents the use of disclosure of the secret by those standing in a special relationship to the TS owner and those who utilized improper means to acquire the information ii. Limited exceptions where someone can stand into your shoes. Claim preclusion (res judicata) 3. TV antenna patent case 2. Clause often found in royalty contracts for reduced fee when enters the public domain Rights to sue i. Standing to sue 3. Blonder-Tounge 1. transfer of substantial rights=standing to sue(no real example) c. TS protection has the potential to endure indefinitely. Terms and conditions Limits on private ordering i. Owner of the patent b. Government will retain a non-exclusive license to the tech iii. Who has standing to sue? a. contracts should be carefully negotiated. iii. University policies promoting the free dissemination of information Trade secret licensing i. Against public policy University Licensing i.b. Design around ii. Absent the transfer of all substantial rights an exclusive licensee does not have standing to sue without joinder of the patent owner 4.

publicly disclosed product 2. Estoppel i. or not infringed 2. Matsushita 1. Post patent expiration royalties 2. Lump sum payment 3.h. Quanta v LG 1. The sale of a device that practices patent A does not by virtue of practicing patent A. TI had no market power k. Patent exhaustion after first use ii. Unpatented. Philips 1. Medlmmune 1. Brulotte 1. Aronson 1. including methods embodying patented product 2. Cross-licensing i. Pro-competitive effects must be weighed against anti-competitive ii. Tying the patent of a laser printer to the cartridge (which is unpatented) i. Potential remedies 1. Art III – potential D preemptively suing for infringement iii. Texas Instruments 1. Second TI case (p 452) 1. Procedural mechanisms 2. unenforceable. 6C DVD patent pool 2. Patent pools – legal given industry structure i. Patent cross license 2. exhaust patent B. Sales cap termination ii. Jazz 1. Package patent license to CD technology . Patent cross-license 2. No per-se patent misuse due to tying 3. Patent Exhaustion & First Sale Doctrine i. A public policy against collection of royalties after expiration (a basis for killing a patent) v. No preemption 3. Licensee is not required under Art III jto break or terminate its license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid. The first authorized sale of a patented item exhausts the patentees rights to that item. Lear case 1. But if the device practices patent A while substantially embodying patent B. Licensee not estopped from arguing patent invalid ii. Prior notification rules iv. its relationship to patent A does not prevent exhaustion of patent B j.

Commercial advantage of company’s IP portfolio 3. Assignment of IP by or to the company . Due diligence – 1. A copyright license may extend to cover new uses not explicitly included in the license but which reasonably falls within the medium described by the license 7. Unforeseen use a. gov’t support for aerospace research) b. applied-for. Review documents a. Potential liabilities associated with company’s IP portfolio or in use of IP in operation of the business iv. Listerine 1. Disney Fantasia 2. Trade secret license iv. ii. not measured by any absolute standard but depending upon the relevant facts of the case. Movie theater to home video 3. IP Due Diligence and SEC Disclosure a. Warner 1. Trademark license 2. and material unregister IP along with underlying documentation b. A measure of prudence. activity or assiduity as is properly to be expected from and ordinarily exercised by a reasonable and prudent person under particular circumstances. Reasons for performing due diligence: 1. Step-by-step process of IP due diligence: 1. Understand the business a.2. Nature of the business with industry specific nuances (i. IP Due Diligence in Business Transactions – Kasselman i. No termination provision v.e. Boosey 1. The structure of the deal c. Licenses or other agreements granting or obtaining rights to IP c. Not patent misuse under rule of reason analysis iii. Trademark cancellation based on lack of systematic control over licensees use of trademark vi. The value of the IP in relation to the deal 2. Importance of IP within framework of deal 2. Not just a tech company phenomenon – need to do IP due diligence in every business transaction iii. Dawn 1. Schedules of registered. Dawn donut sues grocery chain with store bakeries selling Dawn products 3.

Out-side firms c. Buyer consideration upon learning status of IP: 1.d. R&D) 5. Need to conduct independent searches by scheduled IP and by company name 4. improvements. Conduct interviews a. Report findings 7. Flaws can affect the purchase price of the interest in the company 6. Company’s name change was never recorded b. Other agreements affecting the company’s use of IP including consulting. covenant not to sue. Whether the business remains viable w/o IP 2. cease and desist letters and contacts 3. discoveries. Existing and potential liabilities i. In-house council b. reexamination. Relating to owned or licensed IP ii. e. non-disclosure. Summary description of subject matter held as trade secrets h. IP related claims and correspondence. Material IP i. whether it can be reinstated 4. Whether entry of the IP into the public domain reduces the company’s competitive advantage vi. Whether continued use of the IP poses risks of litigation 5. Whether there are alternatives to the IP 3. Whether it is active iii. etc) f. works of authorship. interferences or other adversarial proceedings before any IP registry i. How it is used in the business and any other company businesses b. Company is not listed in applicable IP records as owner a. JV. Common IP ownership issues 1. Confidentiality. including pending and threatened claims. IP is in the name of affiliated company . List of proprietary and 3rd party software g. Opposition. Identify issues a. A comprehensive report should allow the reader to ID: a. etc. non-compete and employee/consulting agreements covering rights in IP (assignment of inventions. Conduct searches a.e. If the IP was issued or register. Material 3rd party agreements c. People in the company familiar with IP related aspects of business (i. Who owns it ii. R&D. prior acquisitions. consent to use. With respect to the operation of the business v.

Legal analysis 3. Due diligence defense based on reasonable belief in accuracy of disclosure i. Include IP experts in the due diligence team ii. d. c. underwriters) a. Confirm everything – computer search need to be accompanied by further inspection v. e. Was it reasonable in scope? ii. Government funding requires licensing to the US government 3. Insider directors a. balancing disclosure and diligence 1. c.Hildebrand i. Outside directors and others outside parties (i. Ensure the IP due diligence plan reflects the importance of IP in the deal iii. Understand the dynamic relationship between the documents and the core business vi. The company no longer owns the IP 2. Foreign laws may impact the deal Feit i. Take nothing on faith – trust but verify iv. Was there any indication of impropriety? iii. Not required to predict the nature of a 3rd party future conduct iii.e. Little if any due diligence defense 2.b. Knowledge categories – level of disclosure required to perform under due diligence. Attorney-client 2. Omission of material fact versus due diligence defense Knogo i. Covenants not to sue IP Due Diligence: A Critical Prerequisite tow Capital Investment . No waiver – to what extent is disclosure a waiver a. IP often used as collateral with financial institutions and once debt paid a release letter is not recorded 2. Encumbrances 1. Acquisition pursuant to which company obtained rights is not recorded d. Focused on meaning of ―Surplus surplus‖ ii. Impending Microsoft launch ii. Attorney-client privilege 1. not a common interest for litigation purposes Stac i. How to reconcile disclosure with confidential negotiations with third party . Exclusive licenses to 3rd parties precluding the company’s use of IP 4. Was there smoke even if no fire? iii. Common interest defense. There is a gap in the chain of title vii. Inventor/author never assigned rights to the company e.

defendants will be liable for innocent or negligent material misstatements or omissions. under Securities Act. 2. MBI stock swap in acquisition ii. v. Made with scienter. The time. Depressed value based on nondisclosure of licensing that eliminated MBI patent infringement risk iii. That the registration statement contained an omission or misrepresentation. That proximately caused the plaintiff's injury. 3. Duty to update until date of sale of securities iv. The content and manner in which these statements misled the plaintiffs. Superior knowledge doctrine is the common-sense guide through this area of law iii. a plaintiffs must allege: 1. In order to state a false registration statement claim. Video-on-demand software ii. 4. Aliance i. documents.iv. Local laws dictating transfer of B&D trademarks 1. 4. The precise statements. and person responsible for the statement. In a false registration case that sounds in fraud. a plaintiff must demonstrate: 1. Threshold requirement for a registration statement or prospectus misrepresentation claim. Scienter is not required for liability for material misstatements or omissions in registration statement. a plaintiff must demonstrate: 1. place. 5. vi. Section 10(b) requires scienter and covers statements made not only in the registration statement or prospectus but also in other documents and in oral communications. Latin America marketing by Windmere ii. Sherleigh i. 3. the cautionary language must therefore meet a threshold of specificity. it would have misled a reasonable investor about the nature of his or her investment. based on failure to disclose . f. 2. Lost nCube patent h. and 2. or misrepresentations made. To successfully state a securities fraud claim under Rule 10b-5. What the defendants gained by the alleged fraud. v. iv. Of a material fact. That the omission or misrepresentation was material. Seachange i. A defendant can fully benefit from the shelter of a safe harbor of the Private Securities Litigation Reform Act (PSLRA) only when it has disclosed risk factors in a warning accompanying the forward looking statement. On which the plaintiff justifiably relied. that is. g. A misstatement or omission.

Views of individual courts will affect the outcome of the trial with some taking more inclusive view with other more restrictive. its subsidiary. Misstatement as to ability of Maynard to retool iii. intent and knowledge may be averred generally j. The resulting entity will bear the name of one of the prior entities and carry on in the legal continuation of that company. FRCP 9(b) 1. 2. Allows parties to share otherwise privileged information without waiving attorney client privilege. 1. iii. Malice. AET acquisition of Maynard ii. Acquiring (surviving) company = corporation that continues to exist iv. IP in Mergers and Acquisitions a. Legally advantageous to have one or the other as the surviving entity 3. i. is presence of affirmative statement that is made misleading by material omission. Triangular merger – 1. Burstein i. iv. Exchange should always take place via outside council. Corporate transaction that joins two corporate entities. Forward triangular merger – subsidiary stock is owned by acquiring company. 2. Instead they can provide a list of public documents which were prepared for a freedom-to-operate study. Factors in considering merger type: 1. Companies should not transfer any sensitive information during the early stages of negotiation. Target (disappearing) company = corporation that is subsumed v. Fraud must be pled with particularity 2. an acquiring company.information. ii. Keep distance for tax/regulatory reasons 2. Merger – 1. Basic Terminology i. Where a new corporate entity is created through the combination of two prior corporate entities but many of the characteristics of the prior corporations iii. Applicability depends upon the relationship between the parties at the time the information was shared. where subsidiary takes over the target company 3. and a target. ii. Consolidation – 1. Involves three entities. Corporate and tax law considerations . Companies relying on common-interest agreements must accept some uncertainty of risk of waiver 8. Common-Interest Doctrine and IP Due Diligence i. Reverse triangular merger – target merges with subsidiary so that target is the surviving company vi.

Preemption i. No obligations to enforce IP against 3rd parties c. Ability to solely control the enforcement of rights against infringing or misappropriating third parties 2. Sole Ownership a. Exclusive License a. If enters bankruptcy proceedings may not be able to retain rights – even in event of successful re-org ii. IP rights in connection with sale of a business unit i. Terminable or will expire at the end of a specified term e. except would be terminable or would be limitations on sublicensing/assignment c. Usually have no role in deciding how to protect IP asset 4. Joint owners will usually agree on whether and to what extent must account for profit realized from exploitation of IP c. non-terminable rights c. Permanent. Can be given right to enforce licensed IP rights against 3rd party infringers in the field of use to which exclusivity applies (CAVEAT – Standing rules) d. If within a defined field of use an exclusive license would be same as sole ownership in that field. No role in pending prosecution of pending patent applications or maintenance in force of licensed patents d. Unfettered discretion to use distribute to 3rd parties and commercially exploit the IP in any manner b. May not be freely assignable or sub licensable f. No right to enforce licensed rights against suspected 3rd party infringers b.vii. Rules of allocation in sale of business unit . De facto merger – where target company sells most of its assets to acquiring company and then dissolves b. Protection and maintenance of jointly owned IP more complex 3. Single joint owner doesn’t always have the power to grant exclusive licenses b. Mergers governed by state law ii. Non-exclusive license a. IP assignment governed by federal law c. May only exercise specifically granted rights b. Ownership v Licensee Rights 1. Joint Ownership a. Ability of one owner to enforce IP rights may be constrained by arrangements made btwn partners d.

subject to seller and buyer negotiations of which ones they wish to purchase 3. Sometimes agreements provide that all improvements belong to the owner of the IP and will be reverted (LOOK FOR ANTITRUST) c. Improvements/New developments 1. General allocation rules used to specify which trade secrets and copyrights are to be transferred 4. Usually agreements provide that buyer will own any improvement. Internal use rights b. Generally no ability to transfer 3rd party tech licenses 6. Could be different if licensor or licensee e.1. and/or co-development e. If software products involved then might need to create source code escrows c. but if disclosed then can be used . Third party licenses generally need to be reviewed on a case by case basis 5. Most often based on whether IP or other asset of the seller ―primarily relates to the business‖ or is ―used primarily in connection with the business‖ 2. No requirement. License Agreements Relating to sale of business unit 1. If granted and if software then should specify if licensee party to provide only object code to its customers ii. Distribution rights i. Scope a. Patent and patent applications usually reviewed on case-by-case basis. If seller retains IP which is used in retained business will grant exclusive license within a field of use which often supplemented by non-compete covenant v. More problematic in case of patent license – ―naked‖ licensing is often not permitted iv. Extent of exclusive rights 1. Ownership a. likewise with seller b. Licensee party might also require broad rights when working with partners and JV. If software will need sublicensing rights to distribute products to customers ii. Inclusion in license grant – could provide that periodically must update one-another on improvements made or no disclosure requirements d. Consent to assign to the Buyer any agreements usually required iii. Not unusual for independent contractors to have access to and use licensed IP d. Sublicenses i.

Often requirement that licensor join so can get standing 3. d. 3. Lawyers advising on licensing agreements should have bankruptcy and merger issues at the forefront of their discussion. Inadequate consideration of paid for assets transferred iii. Generally non transferable without prior written consent of licensing party viii. Factors to determine if one business is a continuing interest i. Surviving corporation in statutory merger did not acquire patent license rights of constituent corporations where provisions of patent license agreement against assignment and transfer did not contain exception for merger. Transfer of operating assets ii. DL Corp Code §259 provides that all property rights of constituent corporation shall be vested in the corporate entity surviving or resulting from the merger. (patent not assigned) and . 2.f. B & S may negotiate broad patent cross license or covenants not to sue that apply to all new developments vi. The continuation of business activities iv. The structure of a license agreement may determine whether or not the license will survive a merger or bankruptcy event. Incapability of the selling company to pay ongoing obligations e. Some licensor insist on retaining right to terminate by reason of breach of confidentiality covenant or transfer in violation of agreement vii. Licenses and mergers 1. PPG 1. Assignability i. Commonality of officers v. despite arguments that licenses were not ―transferred‖ because they passed by operation of law from constituent Ohio corporation to surviving Delaware corporation. Enforcement of IP 1. As IP has moved to the center of business value creation so too has the importance of clarification of who owns what in any merger. Assignability 1. Termination 1. Where no ongoing payments may prefer to have perpetual and irrevocable licenses 2. Where one side concerned about other exercising rights beyond scope of license may want a termination for breach 3. If exclusive license granted then not unusual to have exec licensee granted right to enforce against infringers in the field of use 2. In event of non-exclusive license usually licensee has no enforcement rights ix.

Delaware. TXO 1. Failure to deliver Impact of ineffective transfer and due diligence i. no preemption 3. Ed Peters 1. Trade secret – state law. h. The Court of Appeals held that: a. and Texas merger statutes authorized use of seismic data by surviving corporation after merger. Has acquiring company paid less than adequate consideration for the assets c. Warranties 3. Subsequent equipment license agreement was ineffective to modify patent license agreement and provide defense as a matter of law to claim of infringement. and b. Does the company have title to transfer? a. Asset transfer b. Subsidiary into parent merger 2. Motorola 1. Spin-off 2. j. Parties intent 3. BioLife 1. i. Verson 1. Contract ambiguity 2. Need to include termination clause in contract Successor Liability Factors *** On Exam i.f. (contract terminated) ii. Bankruptcy . Paragon 1. Places a burden on contract 4. 2. Is the divesting company left incapable of paying its creditors Conversion/Misappropriation of TS i. Have assets have been transferred to successor b. Is the acquiring company continuing the prior company’s business d. Must look at under totality-of-circumstances a. Merger did not constitute transfer or disclosure of seismic data to third party as prohibited by confidentiality provision of subsidiary's contract with data owner. Do both corporations share at least one common officer e. Transfer Issues i. Holder of nonexclusive patent license may not assign its license unless right to assign is expressly provided for in license agreement. Ohio. patent licenses are treated as personal to license holder and therefore are presumed to be not assignable 2. Presumption of non-assignability of non-exclusive licenses Ambiguity i. g.

a product. Long term at 0-15% iii. Government revenue ii. Attorney’s fees paid by client to obtain patents.9. Curb ―negative‖ behavior 2. When E-I=NOL can be carried forward 15 years and deducted against future income. Fall under IRS §174 1. 2. Short term at 10-35% 2. Deduct expenses if receipts kept 2. formula. a. Capital Asset (IRC §1221) i. c. Expenses of investment are deductible and produce tax saving while the gains from investment are subject to tax. Many start ups are never profitable. Encourage ―positive‖ behavior b. investments by startups are subject to asymmetrical tax schemes. a plant process. R&D and Experimental Expenses i. Expenses deductible against income ii. Ordinary income taxed at 10-35% ii. Influence behavior 1. Tax rates i. Start-up i. are also deductible e. Under IRS §172 a start-up may deduct expenses only against income. Companies with sources of past or present income may deduct expenses of the start-up activity that exceed start-up activity income as incurred. Lower rate on capital investment gains encourages long term investment d. Employer’s tax advantage 1. Tax and Accounting issues – Bankman & Gilson i. b. May be amortized over 5 years OR expensed in the expensed in the tax year they are incurred 3. foreign or domestic. but does not include – 1. Tax & Insurance Implications of IP a. most will pay employees with some sort of stock option which leads to IRC §382 which sharply restricts the value of NOL. All ―reasonable‖ expenses incurred for experimental or pilot models. Capital Gains 1. Net operating loss in excess of current income may be carried forward for 15 years and deducted against future income f. invention or other such property 4. c. Why tax? i. Term capital asset means property held by the taxpayer (whether or not connected with his trade or business). Stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on .

Used in trade or business or 2. 1. or devise) of property consisting of all substantial rights to a patent. Governs most transfers of issued patents ii. If there is net loss then all of the gain and losses are traded as ordinary gains losses b. Individual inventors received favorable long-term capital gains treatment for the sale of their patents. i. an "invention" or patent application does qualify. inheritance. regardless of whether or not payments in consideration of such transfer are – a. or an undivided interest therein which includes a part of all such rights. Contingent on the productivity. Any sale by a "holder" of "property" that consists of "all substantial rights" to a patent. Under §1231(a)(3) total gains and losses on sales and conversions of all depreciable property 1. use. Contracts purporting to transfer rights to patent applications. iii. However. or disposition of the property transferred.g. In general 1.hand at the close of the taxable year. An exclusive license to ―make. Sale or Exchange of Patents – IRS §1235 i. To determine capital gains treatment: . or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business 2. Depreciation of IP assets i. A transfer (other than by gift. and sell‖ is considered a sale ii. v. even if the sale was in the form of periodic royalty payments (e. for an exclusive license). All issued patents are IRC §167 depreciable property and will fall under the provisions of IRC §1231 unless they otherwise qualify as capital assets or qualify for treatment under §1235. by any holder shall be considered the sale or exchange of a capital asset held for more than 1 year." or "trade secrets" representing inventions reduced to practice therefore represent a transfer of capital assets so long as the technology transferred also passes muster under subsection (1). or b. Capital Asset IRC §1232 i. "technology.. use. is treated as a long term capital transfer regardless of the holding period. Property used in trade or business of a character which is subject g. If there is net gain h. These are not depreciable assets because they have no definable lifetime. iv. ii. or undivided interest therein. Converted involuntarily or by compulsion after having been held for 1+ year a. Payable periodically over a period generally coterminous with the transferee's use of the patent.

for purposes of determining gain from a sale or exchange. If not then either categorized as royalty income or income derived from the sale of short-term capital assets – subject to normal income rate. A copyright. IRC §1235(a). or similar property. Limitation on exchange under IRS §1235 i. IRC §1235(b)(1). a literary. The donor must obtain written confirmation from the charity regarding any income from the donated property. whether the transfer constitutes a sale rather than a license arrangement and 3. b. . Parallels the hired-to-invent principle. j. or artistic composition. 2. Capital Asset (IRC §1221) i. In the case of a letter. Charitable Contributions of IP i. Copyrights – same standard as hired-to-invent principle by replaced by work made-for-hire where author can assign rights. whether the holding period for long-term assets is met a. ii. vi. or devise" do not qualify under this section. inheritance. memorandum. but does not include – 1. l.1. iii. If so. If so. the donor's initial charitable deduction is limited to the lesser of the donor's basis in the contributed property or the fair market value of the property. iii. held by a. For purposes of this subtitle. A taxpayer in whose hands the basis of such property is determined. or similar property. The charity must report income received or accrued with respect to the contributed property to the IRS. k. Excludes anyone other than the actual living inventor(s). a taxpayer for whom such property was prepared or produced. . or c. the term "capital asset" means property held by the taxpayer (whether or not connected with his trade or business). Whether the property transferred is a recognized patent or capital asset 2. Excludes assignments by employees to their employers. musical. Transfers by "gift. If a donor contributes a patent or other intellectual property to a charitable organization. A taxpayer whose personal efforts created such property. The donor is allowed to deduct additional amounts in subsequent years based on a percentage of the income received by the charity with respect to the contributed property. IRC §1235(b)(2)(A). in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B) . a letter or memorandum. ii. When all provisions met then holder is entitled to the capital gains rate. .

2. American Jobs Creation Act of 2004 1. with a possible additional series of deductions determined from income realized from IP by the done. Protection under traditional CGL: 1. What type of donation of partial interest in IP will warrant deductions 2. vii. New standards problematic: focus on deduction determinations on owner’s tax base in donated IP. Limited to the lesser of taxpayer’s basis in contributed property or the FMV of the property. Commercial General Liability Insurance – CGL i. additionally taxpayer permitted to deduct certain additional amounts in the year of contribution or in subsequent tax years. Trademark infringement 2. Special consideration given to: 1. Publication of material that slanders or libels a perons or organization or disparages a person’s or organization’s goods products or services b. How IP interests should be valued for purposes of determination size of deductions 3. Offense must have been committed in the course of advertising the insured’s goods products or services (NEXUS REQUIREMENT) . Copyright infringement iv. IRS suspicious of donors overvaluing IP donation in order to gain larger tax benefit. vi. Advertising injury attempted to be used by companies to cover IP 1. How the potential of donated interest to produce future income should be taken into account v. Based on 12 year deduction schedule m. Misappropriation of advertising ideas or style of doing business or d. Found in the advertising injury provisions of CGL policies covering damage arising from: a. where internal IP is donated will be production cost less portions of that cost that have already been deducted as business expenses – may involve very complicated formulas to determine. Typically used to cover slander/liable ii. Publication of material that violates a person’s right to privacy c.iv. Two criteria MUST be met before coverage extended a. new standards now limit deduction for IP to the donor’s tax basis in IP. Infringement of copyright slogan or title 2. Alleged conduct must fall within the scope of one of the enumerated offenses described as an advertising injury (and not within one of the policy’s exclusions) b. Right of privacy iii.

Copyrights. IP liability b. although explicitly mentioned in CGL coverage need to be tied back into the advertising nexus n. Coverage includes b. . Alleged offense occurred during term of the policy iii. Claim arose out of insure advertising activities. Patent infringement liability c. Board may be liable for a loss which arises from an unconsidered failure of Board to act in circumstances in which due attention would have prevented the loss iii. Media liability insurance g. Directors have duty to carefully consider implications of corporate actions before permitting corporation to take them 2. Cost of bringing suit against infringer c. financial. Technology liability insurance e.i. Offense occurred in the court of the insured’s advertising activities v. Errors and omissions insurance o. and iv. IP is likely to play an increasingly important role in the enterprise value and in corporate transactions such as acquisitions. IP insurance – currently two prominent forms i. Internet professional liability insurance h. IP agreement insurance f. abatement or offensive coverage 1. Cost to defend against counterclaims d. Liability of Corporate Officers and Directors for Infringement of IP Interests – Bochner & Karuse i. and competitive point of view. ii. corporate partnering and IPO. Enforcement polices – also known as pursuit. Directors have duty of care which boils down to two facets: 1. Warranty and representation insurance d. Directors face potential liability claims for breach of duty as IP management becomes more critical from a strategic. Complaint filed against injured alleges an offense covered b advertising injury provision ii. Defense (liability) policies 1. however courts are still split vi. Cost of reexamination of insured patent in USPTO e. Courts generally find that coverage present for TM infringement claims. Internet and computer network security insurance i. Cost to reissue patent ii. Types a. Can be very expensive and many companies require validity opinions drafted a.

Inability of senior management to articulate the company’s IP strategy 2.Under Insurance code section 533 an act deliberately done for the express purpose of causing damage or intentionally performed with knowledge that damage is highly probably or substantially certain to result is not insurable. and developments that could affect shareholder value p. copyrights and TS. Court holds that a contract of insurance is construed most strongly against the insurer. American Century 1. Develop IP strategy that addresses company’s needs both offensively and defensively 3. Syms 1. Steps to remedy: 1. 3. Tax evasion 2. . Lack of process for determining when key patents expire and evaluating potential impact on company 4. Case Law i. Offensive should extract max value from assets 4. But held: no coverage for White’s copyright infringement iv. Mez 1. Simms architectural plans may be tangible assets subject to misappropriation 2. Senior management’s inability to describe the Company’s IP assets and tie them in with core businesses 3. Defensive should include monitoring of competitors patents 5. Further . particularly where insurer is denying coverage 3. Lack of company policy to ensure that newly hired employees do not inadvertently bring with them or use proprietary information vi. Advertising injury asserted for Mez’s holding patent infringement 2. Wrongful act of patent infringement relating to internet security and automated telephone tech 2. State farm 1. Red flags in Corporate Transactions: 1. Sham transaction ii. Current standard of review is the “business judgment rule” essentially provides that a director shall not be liable for bad business decisions provided the director acts in good faith and in a manner the director believes to be in the best interest of the corporation and shareholders. Lack of knowledge regarding competition and industry patents 5. Management should make routine presentations to BoD regarding IP management strategy. Inventory IP and know what business it is connected to 2. v. Need to figure out FMV of royalties and find if any ―damages‖ were paid to patent owners. Held: no coverage by Pacific iii. including key patents.iv.

Companies can’t buy out the stock of a competitor where effect would be to lessen competition 3. or attempt to monopolize. Focus was restriction on manufactures (who tended to be large) rather than retailers (who were very tiny at the time) iii. or with foreign nations 3. $10MM for corporation ii. Tends to ―create a monopoly‖ 6. License fees seen as normal costs of doing business and not covered 10. Felony (3 years) b. Established government agency that a. Market definition controls whether the person is a monopolist a. IP Antitrust Issues a. Sherman Act – 15 USC §2 1. or combine or conspire with any other person or persons. Every person who shall monopolize. Illegal to attach conditions of exclusivity to sale where the effect lessens competition or tends to create a monopoly 2. Just because patent creates a monopoly does not mean that can be struck down on anti-competitive basis 6. Legal liability a. Relevant Statutory law i. Unfair competition and unfair or deceptive business practices are unlawful 2.3. Section 18 – deals with M&A 5.18 1. Market power occurs where there the market definition matches the market b. Section 14 – restraints placed on purchasers by sellers of products or services 4. More specific than Sherman Act. False adverts . If you have market power and price is unrelated to anything – you are considered a monopolist 4. ―Substantially lessens competition‖ or b. so some business actionable under Sherman is not under Clayton 7. Patents are only monopolies when the block any acceptable noninfringing substitute 5. Clayton Act 15 USC§14. Penalties a. Focus was on protecting consumers from i. Federal Trade Commission Act 15 USC §45 1. Polices markets regarding unfair and deceptive trade practices b. to monopolize any part of the trade or commerce among the several States. In order to be monopolist need to be able to control the behavior of the market 2.

and c. May actually promote integrative efficiencies (scale. judged on the: a. Capacity b.ii. etc) 3. Most likely to challenge tie-in if: a.4302 1. Evaluated under the rule of reason 3. distribution. Development iii. Exclusive dealing 1. ii. allocation of markets. production. or using competing tech 2. selling. enter into agreements restricting marketing. Can NOT exchange info amongst competitors. etc. distributing. Reasonableness i. Also. Product iv. Occurs when license prevents the licensee form licensing. Evaluated under rule of reason a. An agreement by a party to sell one product. If licenses are sold in package this may create an illegal tie-in effect iv. Horizontal restraints 1. Existence of restraint in parties with horizontal relationship does not necessarily entail anticompetitive behavior 2. Some analysis truncated – price fixing. National Cooperative Research Act 15 USC §4301. In evaluating reduction on competition factors include: . Seller has market power in the tying product b. complementary R&D. deals with M&A and has concurrent jdx with DoJ in reviewing them iv. Deceptive contract terms c. 3. Process b. Resale price maintenance 1. Illegal when commodities have passed into the channels of trade and are owned by dealers 2. Effects on competition in properly designed relevant research ii. Contracts for JV are not illegal per se. etc. Antitrust i. Arrangement has an adverse effect on competition in relevant market for tied product. Per se illegal for licensor of IP right in product to fix a licensee’s resale price iii. Tying arrangements 1. or agreement that will not purchase that tied product from another supplier 2. Can engaged in joint venture for basic research or testing purposes 2. Efficiency justifications for arrangement do not outweigh the anticompetitive effects 3.

Agreements of two or more owners of different IP creating IP pools to license to one another or 3rd parties 2. Maybe pro-competitive because: a. Integrating complementary tech b. Avoiding litigation 3. Pool participants collectively possess market power in relevant market 6. Pooling may also be found anticompetitive if retarding innovation vi. Anti-competitively forecloses the exploitation and development of. Cross-licensing and pooling arrangements 1. In absence of offsetting efficiencies may be challenged as unlawful restraint of trade 5. Arrangement under which licensee agrees to extend to licensor of IP right to use the licensee’s improvements to licensed tech 2. Clearing blocking positions d. Promote subsequent licensing of results of innovation (virtuous cycle) 3. Effect of settlement diminishing competition among entities that are actual or potential competitors b. When have anti-competitive effects: a. Duration of exclusive dealing arrangement c. Drawbacks a. Exclusion from pooling arrangements is unlikely to have anticompetitive effects unless: a. Other characteristics of input and output markets (concentration. Share risks and reward for further investment in innovation b. Limiting rivalry in innovation markets . Naked mechanisms to accomplish price-fixing or market division 4. Degree of foreclosure in relevant market b. Benefits a. Excluded firms cannot effectively compete in the relevant market for good incorporating licensed tech and b. When cross-licensing involves horizontal competitors must consider a.a. Promotes exploitation and development of licensor’s tech and b. responsiveness of S&D to P changes v. Reducing transaction costs c. competing tech 4. Collective price or output restraints b. entry. Grant-backs 1. Likelihood dealing may have anticompetitive effect a. Adversely affect competition if reduce incentives to engage in R&D b. or otherwise constrains competition among.

Requires court to consider benefits and harms of an agreement to determine a section one violation a. Rule of Reason 1. Exceptions 1. Increasing the licensors’ incentives to disseminate licensed tech or c. Promoting dissemination of licensees’ improvements to licensed tech b. Idea of IP property 1. Tie-outs – restrictions on licensee’s ability to sell products that compete with licensor’s patented products Two types of analysis under antitrust: **looking for this in initial analysis i. Agreements among competitor to divide up markets by geography ii.c. Mandatory grant-backs v. Unilateral refusal to deal i. Tying of unpatented supplies iii. Mergers/acquisitions 9 no-nos – NO LONGER IN FORCE i. result in antitrust liability ii. Licensee veto power of licensor’s grant of further licenses vi. Specifying price licensee can charge on resale of licensed products ix. Caveat in that IP is not necessarily the same as other property . All other anti-competitive behavior defined under act 2. unconditional refusal to license a valid patent cannot. by itself. Refusal excludes competition in a secondary market Antitrust – IP Interface (Pate Article) i. Drug reverse payment now leading trust issue for the FTC now. Otherwise increasing competition and output in relevant tech or innovation market vii. f. A unilateral. Post-sale restrictions on resale by purchasers of patented products viii. Agreements among competitors to set prices 2. d. Restrictions on sales of unpatented products made by patented products vii. Refusal prevents emergence of a new product for which consumer demand exists 2. Evaluated under the rule of reason – not per se unlawful 5. Per Se 1. Refusal is not justified by any objective considerations 3. For competition law purposes IP should be treated in essentially the same way as other forms of real property a. 4. Mandatory package licensing (patent pools) ii. e. Agency evaluates pro-competitive effects: a. Compulsory payments of royalties in amounts not reasonably related to sales of patented products iv.

Disclosure requirement and limited term of patents c. IP system rests on long term innovation – while short term results would be realized by forced licensing the incentive in innovate would be lessened d. Way in which IP law favors consumer a. Should be rare since enforcement agency should not impose duty that it cannot reasonably supervise .ii. Standards organizations now require reasonable and nondiscriminatory licensing (RAND) a. owner can choose to license or not b. Difficulty is that parties later disagree about pricing b. Rewards innovators with exclusive rights serving as incentive to bring goods and services to market b. Refusal is not justified by any objective considerations and iii. IP rights only provide right to EXCLUDE others – nothing else Specific Practices and the Freedom to License 1. Cannot by itself be a violation of antitrust. Refusal prevents emergence of new product for which consumer demand exists ii. Owner does not have right to impose conditions on licensees that would effectively extend the patent beyond the duration of patent c. Unilateral refusals to license tech a. iv. 2. Fair use under copyright law ii. iii. When complaining of excessive royalties complaint is putting cart before horse a. Unique difficulties both ex-ante and ex-post Compulsory licensing 1. IP is neither particularly free from scrutiny under antitrust laws nor particularly suspect under them 3. US strict right of refusal tempered by EU which imposes limits i. NOT used to ensure ―fairness‖ 2. IP licensing is generally pro-competitive First Principles of US IP law and Antitrust 1. Strike a balance between these rights and public access i. Sole focus is on specific anti-competitive behavior/actions as judged by their effects on markets and consumer welfare a. v. Excessive royalties without more is losing strategy 2. Refusal excludes competition in a secondary market Excessive Royalties in Standard Setting 1. Must first id some anticompetitive conduct beyond refusal to license and attempt to charge 3. Include fail-safe procedures under which rivals or customer can sue to declare IP right non-infringed or unenforceable 3.

Monopolization of OS and browser markets 2. Allows the debtor to pause ongoing or postpone prospective litigation. EU approach – illegal tying 2. Section 362 of Bankruptcy Code i. Refusal has no valid business justification 11. IP rights and market power 1. and other proceedings is put in place. d. Market power in tying arrangement is typically a per se violation 6. Denial prohibits creation of new product 4. Integration of browser making uncoupling difficult 4. Reject the contract 2. Dell 1. Section 365 of Bankruptcy Code i. IP cannot be presumed to establish market power 2. Unitary consumer demand argued by Microsoft was of Microsoft’s own doing ii. IP in Bankruptcy a. Refusal has anticompetitive effect on secondary market 5. Licensor and licensee have ongoing obligations under the license c.vi. By filing bankruptcy petition a stay of various judicial. Assume and assign the contract . Chapter 11 = reorganization (this presents many more problems) b. VESA standard setting organization for VL-bus card 3. Single patent may have dozens of close substitutes 3. Dell failed to disclose but was ready to enforce patent rights iii. Tying – rule of reason analysis 5. Refusal to supply requested code to Sun viewed as violation 3. Executory contracts (leases and licenses) are left up to trustee to decide how to handle the obligations. Standard setting USB port 2. Prohibited users from removing icons or using alternative browsers b. Rights granted though patents are not exclusive in the economic sense a. administrative. Microsoft – in EU court 1. Bankruptcy i. Case law i. Windows 90% of market share 3. Conduct a. Three options available: 1. Approach is to avoid rigid tests and rely on review of likely economic effects to marketplace as a whole g. Executory Contract i. Assume the contract 3. Chapter 7 = liquidation ii. Microsoft 1. Excessive Patenting and Patent Enforceability vii.

. Trustee rejection 3. 365(n) 2. and ii. 365(a) 2. The duration of such contract. iii. Any period for which such contract may be extended by the licensee 2. 1. IP Allocation 1. Two sides of the relationship i. 365(n)(2) a. under such contract— i. Licensee may terminate or retain rights ii. However. as described in paragraph (1)(B) of this subsection. or c. If the trustee rejects an executory contract under which the debtor is a licensor of a right to intellectual property. . Licensee rejection 3. Typically each partner brings something to the table – tech. Whether IP arose independently of the JV (background IP) or in operation of JV (foreground IP) 2. does not extent to trademarks and does not apply to the situation where licensee is debtor and elects to reject the license. . for— i. Association of independent business entities that join for a common commercial purpose of defined scope and duration 2. Licensor may sue for breach of contract f. ii. capital. If the licensee elects to retain its rights. management expertise ii. The licensee shall make all royalty payments due under such contract for the duration of such contract and for any period described in paragraph (1)(B) of this subsection for which the licensee extends such contract e. 365(n)(1) a. the licensee under such contract may elect— b. Definition of JV 1. Default is joint ownership of IP developed under the JV . . Particular problem when debtor is licensor and licensee may be put in position of not being able to use IP. Ownership v licensing of IP a. Under Section 365(n)(1) & 365(n)(2) the licensee may continue to use the IP while debtor is in bankruptcy. To retain its rights. . The trustee shall allow the licensee to exercise such rights. Debtor licensee 1.ii. To treat such contract as terminated . Debtor licensor 1. IP Allocation Strategies in a JV – Laurie i.

Casey 1. Inheritances or property settlements acquired 180 days after filing 4. and profits from property of the estate b. products. Automatic arrangements still in existence iii. Obligation to assign existed at time of filing 3.11 filing 2. Licenses: exclusivity. field of use royalties ii. Against Joint Owners – JV agreements generally held against their creators 4. Against 3rd parties – usually negotiated in the contract agreement creating the JV b. iv. Enforceability of contract provisions a. Bankruptcy Estate and the Automatic Stay – Case law i. Right to enforce – under patent law each joint owner must join in suit to enforce c.11 filing 2. Holding: Patented process developed post-petition by employees of corporate debtor-in-possession. Right to exploit – absent agreement to contrary default rule is that each joint owner can exploit the patent without permission of the other and without duty to share royalties i. non-derivative Foreground and Derivative Foreground i. Proceeds. Date of C. were assets of debtor individually and excluded from property either of original Chapter 11 estate or from Chapter 7 estate created on subsequent conversion of case. Must classify IP base on nature of IP b. Court held patent on device invented by debtor after filing of his original Chapter 11 petition.a. was ―property of the estate. Optimizing rights to use of non-IP Owning JV i. as well as any income derived from patent. International considerations – different default standards in different countries 3.‖ where process was developed and tested by debtor's employees using equipment and funds included in . Not a snapshot of the estate on the day entered into bankruptcy ii. Penick 1. rents. Patent included in estate 4. Post-filing assets acquired are include if: a. Includes right to license to 3rd parties b. Preferred IP allocation strategies a. each of whom had signed confidentiality and assignment agreements in favor of debtor. Trustee sought to include in bankruptcy estate patent filed three years after C. IP ownership: background. Non-competition covenants g. IP not included in bankruptcy estate 3.

Stay will be lifted if: i. 1. In Re: The Singer Co. v. Dyno exclusive license to market Singer Brazil’s needles in the US 3. C-Tek 1. Checkers 1. CVG files for bankruptcy 3. Under work for hire doctrine debtor was the copyright issue vi. Simplified 1. 11 bankruptcy and assumes licenses 3. Cambridge files for C. NYSBVP security interest 3. Schlumberger buys Cellnet IP 2. BCN retains rights under 365(n) 5. Suit violated automatic stay 5. Software included in bankruptcy estate vii. Automatic stay did not toll Checkers filing deadline 5. Pasteur 1. stopping virtually all collection efforts. Cannot shirk responsibilities that arise after enter bankruptcy viii. When debtor has no equity in property that is not necessary for successful reorganization h. Lubrizol 1. Checkers fails to file Section 8 affidavit 4. Held in favor of Richmond iii. and patent application was prosecuted on behalf of estate using estate funds. BCN JV of Cellnet and Bechtel 3. Checkers sand CVG in trademark cancellation 2. a. IIS created derivative work 4. Groz sues Dyno 4. Cellnet files for bankruptcy and rejects BCN licenses 4.Chapter 11 estate. Cellnet 1. Pasteur competitor . Creditors interest in the property of the estate is not adequately protected by the bankruptcy proceeding ii. 362(a) Bankruptcy Code – requires invocation of automatic stay. Royalties flow to Cellnet not Schlumberger ii. Pre-365(n) – decision prompts creation 2. Singer BV and Singer Brazil 2. Lubrizol nonexclusive licensee 3. Richmond licensor files for bankruptcy and rejects Lubrizol license 4. Debtor company seeks to include software copyright in bankruptcy 2. Cambridge sells to bioMerieux. Treatment of licenses in bankruptcy and termination outside of bankruptcy (365(n) issues) i. Gives the debtor a breathing spell as attempts to reorganize assets and satisfy all creditors. C Tek debtor copyright owner 2. Pasteur cross licenses patents with Cambridge 2.

Need to plan ahead for change of control Catapult 1. Assumption upheld Hapgood 1. Pav-Savr and Vasso partnership 2. Assumption and reorganization upheld 5. Hewitt’s refusal upheld 4. 4. Hapgood sought transfer of Hewitt’s patent right to new company 3.iv. Catapult files for bankruptcy and assumes licenses 4. vii. vi. Vasso awarded liquidated damages but Pav-Savr denied IP because Vasso was continuing business SW 1. No automatic assignment through employment agreement Pav-Savr 1. SW dissolves 3. Hapgood succeeded by Hapgood Plow 2. Catapult merges with MPCAT. Perlman licenses patents to Catapult 2. No trade secrecy . Pasteur license failed to include termination provision for change of control 6. v. wholly owned subsidiary of Mpath 3. SW and Nutrition JV 2. Pay-Savr dissolves 3.

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