Intellectual Property Library

Assets & Finance: Audits and Valuation of Intellectual Property
Internal Controls, Materiality, and Investment

Lisa M. Brownlee

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© 2012 Thomson Reuters
This publication was created to provide you with accurate and authoritative information concerning the subject matter covered; however, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or other professional advice and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.

ISBN #978-0-31-4608536

Dedication
This book is dedicated to my family.

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In addition to this treatise. Competition and Tax Law in Munich. and managed the Žrm’s international Internet/e-commerce law practice. and Federal Acquisition Regulations: Intellectual Property and Related Rights with Law Journal Press. Brownlee earned her B. assisting the corporate Žnance/M&A department. She founded. How to Chase Down and Defeat Cyber Criminals. where she associated with one of the major Dutch law Žrms (now dissolved) and commenced writing this treatise. where she was Lead Articles Editor of the Law Review. and Intellectual Property Due Diligence and Audit Boot Camp.A. developed. As account manager. The Netherlands. Risk Assessment and Management with West.D. She also presents live CLEs for West and for its related company. Brownlee is presently in private consulting practice. and managed the Žrm’s intellectual property due diligence practice. Brownlee relocated to Amsterdam. developed. Patent Law Update: In re Bilski and Progeny.About the Author Lisa M. Brownlee was awarded a fellowship at the Max Planck Institute for Intellectual Property. she authored and regularly updates Intellectual Property Due Diligence in Corporate Transactions: Investment. degree from the Seattle University School of Law. degree in English in 1986 from the University of Washington and her J. an M. Hollander). Brownlee managed the Žrm-wide service of multinational v . and managed all aspects of legal due diligence.A. She also founded. Ms. where she developed expertise in international intellectual property and computer law. Federal Publications. Ms. a division of ALM. In 1993 Ms. and trade secret protection and enforcement. Ms. copyright. and advised on international trademark. degree from Pennsylvania State University in 1983. Upon graduation. and has presented webcasts for WestLegal Ed Center: Intellectual Property Due Diligence and Ethics: Avoiding Ethics and Securities Violations (together with Andrew J. In 1994 Ms. Brownlee associated with one of the (then) top three Seattle Žrms.

E-commerce. ASP agreements. and Internet contracts. Ms. software. Brownlee became Of Counsel to Morrison Foerster. European and international trademark protection and enforcement and on international registration. the Žndings of which were published in the Trademark Reporter. with the Žrm of Glenn D. She has experience advising on all aspects of European e-operations. and directorial boards. on line communications policies. Godfrey & Company. entertainment and Žnancial industry clients. In addition. management and protection of domain names. Brownlee has developed and negotiated a full range of computer hardware. Ms. merchandising. Brownlee has served on numerous international professional association editorial. LLP in their Brussels Oce.computer. including e-sales and distribution. In 2001 Ms. Another important aspect of her practice was advising on Benelux. distribution and VAR agreements. and best e-practices. Brownlee completed a sabbatical in Belize. advisory. vi . including the Board of Directors of the Computer Law Association. where she consulted on implementation of new intellectual property laws in accordance with GATT TRIPs. She also advised on complex patent licensing and dispute matters. including license/shrink-wrap and click-through agreements. the BNA E-Commerce Law Report Advisory Board. and the Editorial Board of the Trademark Reporter. In 2003 Ms.

comprehensive. accounting. economic analysis. Žnancing. Reilly contributed Chapter 6. Gauntlett also serves as an expert witness for policyholders on insurance coverage for intellectual property lawsuits. Mr. and state of the art view on each of their specialized aspects of IP/business practices. University of California at Berkeley.com) in Irvine. and planning purposes. Reilly earned an MBA degree in Žnance and a BA degree in economics both from Columbia University. whose contributions have been instrumental in ensuring that this text presents the most insightful. Mr. litigation. He specializes in the valuation. ROBERT F.Acknowledgements The Author is pleased to introduce four contributing authors. and certiŽed business appraiser. Valuation of Intellectual Property. His practice includes valuation consulting. Gauntlett represents policyholders in insurance coverage disputes regarding complex business litigation and intellectual property matters presently pending in 30 states. magna cum laude.gauntlettlaw. He can be reached at (773) 399-4318 or rfreilly@willamette. Mr. chartered Žnancial analyst. He is a certiŽed public accountant/accredited in business valuation/certiŽed in Žnancial forensics. and transfer price estimation of intellectual property for transaction. lost proŽts/damages analysis. Gauntlett is a 1979 graduate of Boalt Hall School of Law. where he served as a member of the California Law Review. Gauntlett. certiŽed management accountant. and Žnancial advisory services.A. taxation. bankruptcy. He received his B. REILLY Mr. Mr. He is a managing director of Willamette Management Associates. the principal of Gauntlett & Associates (http://www.com DAVID GAUNTLETT Chapter 7 (Insuring IP Assets) was authored solely by David A. California. from the University of California at Irvine. He vii .

and launching and managing brands. ANDREW J. travel. copyrights. from Wesleyan University. and online services. A former chief IP counsel of a multibillion dollar company. he manages several global trademark portfolios comprising trademarks in more than 140 countries. trademarks. He is registered to practice with the U. His diverse industry experience includes computer software and hardware issues. trade secrets.A. consumer packaged goods. Mr. and M. and mergers and acquisition transactions. IP due diligence.S. viii . Patent and Trademark Oce. Mr. Gauntlett is a highly recognized published author in the area of insurance coverage. licensing.D. and Žnancial institutions. Hollander is of counsel at K & L Gates LLP. from Cornell University. Hollander contributed substantial material to the Securities and Exchange Commission regulations discussions in Chapter 1 and to the patent law discussions in Chapter 5. HOLLANDER Mr. and Vice-Chair of the IP Owners Association’s Insurance Committee. newsletter editor and Chair Emeritus for the IP Committee of the Torts and Insurance Practice Section of the ABA. from Fordham University. e-commerce. Mr. the Internet.S. He represents clients on issues relating to patents. Hollander also advises on portfolio management strategies. B. He earned a J. health and beauty aids.was Chair of the Special Committee on Insurance for the IP Section of the ABA.

merchandising/famous branding. Even setting aside the volumes of EU and member country laws on IP and related topics passed in the last two decades. coupled with the increasingly volume and complexity of laws and regulations governing them. international copyright duration and protection in the e-environment. and e-commerce/edistribution/telecommunications. as well as international (EU/NL) legal counsel to scores of multinational companies in nearly every major IP-intensive industry. the Internet was essentially non-existent and biotechnology law was in its infancy. compels corporate and banking/Žnance lawyers as well as non-lawyer advisors and the stakeholders themselves. Reasonable minds can dier about the effects of the proliferation of laws and regulations governing these rights. from entertainment. is as in-ux today as it was in the late 1990s. and much has stayed the same. What has changed considerably is the volume of laws governing these rights. What is remarkable to me about the evolution of the intersection of IP and business is this: nearly every aspect of IP law. the expansion of intellectual property laws domestically and worldwide is vast. In intellectual property law. Žrst to invent. and prior user rights: all of these are but examples of where the law was and remains in incredible ux. some things have changed tremendously. to become fully educated on these topics in this vast category of ix .Preface When I started practicing intellectual property law two decades ago. and enforcing these rights. Žrst(inventor)-to-Žle. Protection of famous marks.S. I have provided domestic U. the ever-increasing intensity of Supreme Court and Federal Circuit focus on cases involving these laws. the intangible nature of these rights. disputes over and registration of domain names. on essentially the same topics. and the increase in the stakes involved in properly protecting. to privacy/encryption companies and biotech/GMO concerns. From a practical standpoint. exploiting.

Lisa M. the better it is for us and them: IP is as risk-fraught today as two decades ago. quantiŽcation. exploited. This is not to say the task is impossible. these rights will always be recalcitrant to deŽnitive delineation. This book strives to aid in these understandings. The purpose of this book is to educate business and Žnance professionals on the key aspects of intellectual property law. in particular patent law. I value your input and suggestions on topics you think are helpful and/or otherwise in this book. if not tangible. The book also aims to highlight key changing areas of intellectual property law. Understanding the fundamental principles of intellectual property assets is critical to understanding the contexts in which they function. litigated. It is also as interesting and rewarding. amorphous. The more our clients know about the indeŽnite. Despite laws’ attempts to tame these rights into something “intangible”.invaluable assets. and assess how those changes will impact investments in several key intellectual property-driven industries. just a bit complex. Brownlee February 2010 x . these rights can best be described as consistently. and discuss how these rights are treated from an asset perspective: how they are created. All views expressed in this book are the authors’ and reect her personal views in her individual capacity. They are products of the human mind. if not predictably. Nothing herein shall be deemed to represent the views of her clients. insured and reported. valued. evolving nature of these rights. As such. and valuation.

Andresen Information Security and Privacy: A Practical Guide to Federal. Shue and James V.J. Tripp Antitrust Intellectual Property and Antitrust Law William C. Vergari Law and Business of Computer Software 2nd Edition Katheryn A. Tripp First Amendment Law Handbook edited by Rodney A. State and International Law Andrew Serwin Copyright xi . Nimmer State Computer Law Virginia V. Publishing. Kutten Information Law Raymond T. Quittmeyer. Peter C. Law. Kemper Computer Software Agreements: Forms and Commentary John H. Smolla Intellectual Property Law Review edited by Karen B. Liability. Nimmer Internet Law and Practice International Contributors Law of Computer Technology Raymond T. and John Matuszeski Computer Software: Protection. Holmes Computer and Related Law Computer and Information Law Digest Kurtis A.RELATED PRODUCTS FROM WEST Anthology Entertainment. Ridley. and the Arts Handbook edited by Karen B. and Forms L.

Smolla The Rights of Publicity and Privacy. and the Arts Alexander Lindey and Michael Landau Media. Legal Concepts And Business Practices Robert Lind et al. Artifact & Architecture Law Jessica Darraby Cable Television and Other Nonbroadcast Video Robert Brenner. Abrams Entertainment & Sports Art. and Reporters Len Nieho and Slade Metcalf updated by Rodney A. Monroe Price. Broadcasters. Copyright Litigation Handbook Raymond J. Film and Multimedia and the Law James Sammataro Fundamentals of Sports Law Walter Champion Law of Defamation Rodney A. Thomas McCarthy Smolla and Nimmer on Freedom of Speech xii . Publishing. Smolla Law of Professional & Amateur Sports Gary Uberstine Lindey on Entertainment. Dowd Copyright Registration Practice James E. and Michael Myerson Entertainment Law Robert Fremlin and Michael Landau Entertainment Law. 2d J. Hawes and Bernard C. Ulmer & MULTILAW International Contributors Rights and Liabilities of Publishers.Patry on Copyright William F. Advertising & Entertainment Law Throughout the World Andrew B. Hazard Jr. Dietz The Law of Copyright Howard B. Patry Copyright Law in Business and Practice John W.

Brownlee Calculating Intellectual Property Damages Richard B. Brownlee Intellectual Property in Commerce Prof. Jager Modern Licensing Law Raymond T. Epstein Forms and Agreements on Intellectual Property and International Licensing David de Vall and Peter McL. Colley Licensing and the Art of Technology Management Robert Goldscheider Licensing Law Handbook Melvin F. Dodd xiii . Anawalt Licensing Eckstrom’s Licensing in Foreign and Domestic Operations: The Forms and Substance of Licensing Robert Goldscheider Eckstrom’s Licensing in Foreign and Domestic Operations: Joint Ventures Terence F. Troxel and William O. Kerr Franchise and Distribution Law and Practice W. Smolla General Titles Assets & Finance: Audits and Valuation of Intellectual Property Lisa M. Access and Protection Howard C. Ward Intellectual Property in Mergers and Acquisitions David Klein Intellectual Property Law for Business Lawyers Kinney & Lange. MacLaren Eckstrom’s Licensing in Foreign and Domestic Operations: Text David M. Thomas M.Rodney A. IP Strategy: Complete Intellectual Property Planning. P.A. Nimmer and Je C. Michael Garner Intellectual Property: Due Diligence in Corporate Transactions Lisa M.

Jr. Battersby and Charles W. Matthews. Donald C. Grimes Patents Annotated Patent Digest Robert A. Carl Moy Patent Applications Handbook Stephen A. and John Land Patent Law Basics John G. Cooper Designs and Utility Models Throughout the World International Contributors Federal Circuit Patent Case Digests Kevin L. Upchurch Manual of Patent Examining Procedure. Reiley III. Battersby and Charles W. Christopher Marchese. Russell Generic Pharmaceutical Patent and FDA Law Shashank Upadhye Guide to European Patents Andrew Rudge Intellectual Property Litigation Guide: Patents & Trade Secrets Gregory E. and Robert C. Donald C. Mills III. 8th from the U. Highley Patent Law Fundamentals John G. Patent & Trademark Oce Moy’s Walker on Patents R. Mills III.Multimedia and Technology Licensing Agreements Gregory J. Biotechnology and the Law Iver P. Becker Patent Application Practice James E. Highley Patent Law Handbook xiv . Department of Commerce. Hawes Patent Claims Ernest Bainbridge Lipscomb III Patent Damages Law and Practice John Skenyon.S. Grimes The Law of Merchandising and Character Licensing: Merchandising Law and Practice Gregory J. and Robert C. Reiley III.

Agris Trademarks McCarthy on Trademarks CD-ROM McCarthy on Trademarks and Unfair Competition J. Hawes and Amanda V. Thomas McCarthy Practitioner’s Trademark Manual of Examining Procedure annotated by James E. Krugman Trademarks Throughout the World 5th Edition International Contributors Trade Secrets Trade Secrets Law Melvin F.Lawrence M. Dwight Trade Dress Protection William E. Levin Trademark Law Practice Forms Barry Kramer and Allen D. Sung and Je E. Schlicher Patents Throughout the World International Contributors Practitioner’s Manual of Patent Examining Procedure Cheryl H. Dwight Trademark Trial and Appeal Board Practice and Procedure Gary D. Schwartz Patent Law Practice Forms Barry Kramer and Allen D. Squyres Trademark Registration Practice James E. Jager Trade Secrets Throughout the World Melvin F. Jager Unfair Competition xv . Brufsky Patent Law: Legal and Economic Principles John W. Hawes and Amanda V. Brufsky Trademark Manual of Examining Procedure United States Patent and Trademark Oce Trademark Practice Throughout the World Mary M.

West 610 Opperman Drive Eagan. MN 55123 Visit West on the Internet: http://store.westlaw. McCabe and John W.com xvi .Callmann on Unfair Competition. McKenney and George F. Philip J. Long III Protecting Intellectual Property Rights Across Borders Timothy P. Bateman If you would like to inquire about these West publications or place an order. Trainer and Vicki E. Trademarks and Monopolies Louis Altman Federal Unfair Competition: Lanham Act § 43(a) Charles E. please call 1–800–344–5009. Allums Unfair Competition and the ITC: Actions Before the International Trade Commission Under Section 337 of the Tari Act of 1930 Donald Knox Duvall.

generally IV. TRANSACTIONS INVOLVING PUBLICLY TRADED COMPANIES Securities-regulated entities and transactions—Generally Due-diligence standards Disclosure requirements Requests for conŽdential treatment xvii § 1:15 § 1:16 § 1:17 § 1:18 . § 1:11 § 1:12 § 1:13 § 1:14 FINANCING TRANSACTIONS Financing transactions involving less than complete ownership Fundamental risks Managing risks in the investment document Loans and security interests in Žnancing IP companies/transactions V. CONDUCTING AN IP DUE DILIGENCE AUDIT: AN INTRODUCTION I. § 1:10 STATUTORY MERGERS AND CONSOLIDATIONS Statutory mergers and consolidations. § 1:4 § 1:5 § 1:6 § 1:7 § 1:8 § 1:9 ASSET PURCHASE TRANSACTIONS Acquisition of assets—Generally DeŽnition of assets and liabilities Asset acquisitions involving retained or divided rights IP-related employees in asset acquisitions Asset purchases compared with share acquisitions Successor liability in asset acquisitions III.Table of Contents CHAPTER 1. PRELIMINARY MATTERS Introduction Fundamental issues for all transactions Structure of the transaction § 1:1 § 1:2 § 1:3 II.

TRADEMARKS. and SEC professional conduct rules SEC Attorney Conduct Rules Issued Pursuant to Sarbanes-Oxley—Attorneys subject to the rule — —Appearing and practicing — —Issuer CHAPTER 2. Internal Controls Sarbanes-Oxley Section 409. SERVICE MARKS. INTRODUCTION TO INTELLECTUAL PROPERTY I. securities law. § 1:19 § 1:20 § 1:21 § 1:22 § 1:23 OTHER TRANSACTIONS REQUIRING DUE DILIGENCE Joint ventures Licensing transactions Purchasing assets in bankruptcy proceedings Preparation for sales and other divestitures Internal audits for asset management VII. AND TRADE NAMES Generally Constitutional basis for rights Statutory provisions Regulations Common law rights § 2:6 § 2:7 § 2:8 § 2:9 § 2:10 xviii . § 1:24 § 1:25 § 1:26 § 1:27 § 1:28 § 1:29 § 1:30 § 1:31 SECURITIES REPORTING REQUIREMENTS OF SARBANES-OXLEY Sarbanes-Oxley and IP management and reporting obligations Sarbanes-Oxley Section 302. TRADE DRESS. PATENTS Generally Constitutional basis for rights Statutory provisions Regulations Common law rights § 2:1 § 2:2 § 2:3 § 2:4 § 2:5 II.Audits and Valuation of Intellectual Property VI. Material Events Attorney-client privilege. Executive CertiŽcation of Financial Reports Sarbanes-Oxley Section 404.

Table of Contents § 2:11 Trademarks. § 2:29 § 2:30 § 2:31 § 2:32 § 2:33 TRADE SECRETS Generally Constitutional basis for rights Statutory provisions Regulations Common law rights CHAPTER 3. PRELIMINARY MATTERS Introduction and checklist of important issues xix § 3:1 . SEMICONDUCTOR CHIPS Generally Constitutional basis for rights Statutory provisions Regulations Common law rights Semiconductor chips as property right § 2:23 § 2:24 § 2:25 § 2:26 § 2:27 § 2:28 VI. PRELIMINARY MATTERS IN IP AUDITS I. § 2:12 § 2:13 § 2:14 § 2:15 § 2:16 § 2:17 DOMAIN NAMES Generally Constitutional basis for rights Statutory provisions Regulations Common law rights Domain names as property right IV. service marks. and trade names as property rights III. § 2:18 § 2:19 § 2:20 § 2:21 § 2:22 COPYRIGHTS Generally Constitutional basis for rights Statutory provisions Regulations Common law rights V.

generally Buyer's due diligence team members Domestic counsel Intellectual property counsel Outsourcing of due diligence tasks Target Company due diligence team members Legal control of due diligence teams V.Audits and Valuation of Intellectual Property II. and interviews. CONFIDENTIALITY AND INTELLECTUAL PROPERTY A. IN GENERAL Background ConŽdentiality pertaining to the fact of the transaction Trade secrets and proprietary information Plant tours. product demonstrations. generally Attorney-client privileges and intellectual property Work product doctrine and intellectual property documentation Disclosures resulting in waiver of privilege C. § 3:13 § 3:14 LETTERS AND AGREEMENTS BETWEEN THE BUYER AND THE TARGET COMPANY Letters of intent/memorandums of understanding ConŽdentiality agreements between Buyer and Target Company IV. outside experts ConŽdentiality obligations toward third parties § 3:2 § 3:3 § 3:4 § 3:5 § 3:6 B. § 3:11 § 3:12 COMMON INTEREST AND SUCCESSORS IN INTEREST DOCTRINES Common interest doctrine Successor in interest doctrine III. xx SCHEDULING THE IP DUE DILIGENCE Scheduling the IP due diligence. generally § 3:22 . § 3:15 § 3:16 § 3:17 § 3:18 § 3:19 § 3:20 § 3:21 DUE DILIGENCE TEAM MEMBERS Due diligence team members. § 3:7 § 3:8 § 3:9 § 3:10 ATTORNEY-CLIENT PRIVILEGE AND WORK PRODUCT DOCTRINE Attorney-client privilege and work product doctrine.

OVERVIEW AND PROJECT OBJECTIVE Overview DeŽning the project objective Organization and production of documents § 4:1 § 4:2 § 4:3 II. AND RECORDKEEPING IPDD project communication and documentation. § 4:4 INTELLECTUAL PROPERTY DUE DILIGENCE CHECKLIST Intellectual property due diligence checklist and explanations Checklist deŽnitions “Agreement” “Business” “Dispute” “Document” “Employees” “Exploit” “Intellectual property” xxi § 4:5 § 4:6 § 4:7 § 4:8 § 4:9 § 4:10 § 4:11 § 4:12 . IPDD PROJECT COMMUNICATION. DOCUMENTATION. CONDUCTING AN IP AUDIT I.Table of Contents § 3:23 § 3:24 § 3:25 § 3:26 § 3:27 § 3:28 § 3:29 § 3:30 Activity duration estimates Project start and Žnish times Schedule calculations IPDD scheduling—IPDD schedule control IPDD cost planning and performance Project cost estimate Project budgeting Determining actual cost VI. generally Meetings Project documentation and recordkeeping Internal memorandums Interim progress reports Final report § 3:31 § 3:32 § 3:33 § 3:34 § 3:35 § 3:36 CHAPTER 4.

ASSETS ELIGIBLE FOR PATENT PROTECTION Overview Subject matter Utility Priority Novelty Nonobviousness In-use and on-sale bars Enablement under 35 U. PRELIMINARY MATTERS Introduction and checklist of important issues § 5:1 II.C.Audits and Valuation of Intellectual Property § 4:13 § 4:14 § 4:15 § 4:16 § 4:17 § 4:18 § 4:19 § 4:20 § 4:21 “Target company” Checklist general items List of relevant company personnel List of Target Company contact individuals Market information Scope of documents produced Intellectual property budget Foreign-language documents Internet considerations III. § 4:22 § 4:23 § 4:24 § 4:25 § 4:26 § 4:27 § 4:28 PRODUCTION AND CONTROL OF DOCUMENTS IPDD project communication and documentation. ANALYZING THE RESULTS OF IP AUDIT I. document review Target Company's perspective on the due diligence Overview of document procedures Target Company's position on drafting and responding to the intellectual property due diligence checklist Minimizing risk of misplaced and lost documents Data room procedures Virtual data rooms CHAPTER 5.S. § 112 Patentability opinions § 5:2 § 5:3 § 5:4 § 5:5 § 5:6 § 5:7 § 5:8 § 5:9 § 5:10 xxii .A. PATENTS A.

AND TRADE NAMES A. § 5:14 § 5:15 § 5:16 § 5:17 OWNERSHIP Overview Joint inventorship Improper attribution of joint inventorship Inventions created by Target Company employees D. § 5:27 § 5:28 § 5:29 § 5:30 § 5:31 PROPER EXPLOITATION Introduction Licenses and patent misuse Litigation Infringement Misuse in enforcing patents III. the Target Company's patents E. SERVICE MARKS. registration xxiii § 5:32 § 5:33 . TRADEMARKS. ASSETS ELIGIBLE FOR TRADEMARK PROTECTION Introduction Marks that qualify for U. § 5:11 § 5:12 § 5:13 SCOPE OF RIGHTS Basic rights granted under patent law Duration of rights Limitations on rights C. § 5:18 § 5:19 § 5:20 § 5:21 § 5:22 § 5:23 § 5:24 § 5:25 § 5:26 ADEQUATE PROTECTION Overview Enforcement and failure to enforce Whether use of inventions depends on preexisting or third-party rights In-bound licenses and cross-licenses Dependent patents and improvements Whether the Target Company's inventions are adequately protected Target Company's invention disclosure and review policies and proceduress Geographic scope of patents Claims in. and prosecution history of.Table of Contents B.S.

§ 5:57 § 5:58 § 5:59 § 5:60 § 5:61 § 5:62 § 5:63 ADEQUATE PROTECTION 1. Administrative Matters Introduction Registrations. laches. and interferences Statute of limitations. § 5:64 xxiv Is Use of Mark Dependent on Third-Party Rights? Introduction .Audits and Valuation of Intellectual Property § 5:34 § 5:35 § 5:36 § 5:37 What is not protectable as a federal mark? Rights in unregistered marks Trade names and commercial names State trademark registrations B. § 5:38 § 5:39 § 5:40 § 5:41 § 5:42 § 5:43 § 5:44 § 5:45 § 5:46 § 5:47 § 5:48 § 5:49 SCOPE OF RIGHTS Introduction Strength of marks Famous marks Rights conferred by a federal supplemental registration Rights conferred by state trademark registration Common law rights Trade name rights Duration of rights Exceptions to rights Concurrent use registrations Consent agreements Exemptions from liability C. cancellations. and related documents Federal and state registration Statements of use/incontestability Intent-to-use applications Oppositions. applications. and acquiescence 2. § 5:50 § 5:51 § 5:52 § 5:53 § 5:54 § 5:55 § 5:56 OWNERSHIP Introduction Initial ownership Joint ownership Marks created by employees Marks created by independent contractors Assignments Recordation of assignments and liens D. estoppel.

ASSETS ELIGIBLE FOR COPYRIGHTS PROTECTION Overview DeŽnition of rights Works protectable under copyright Requirement of originality: qualitative and quantitative Whether the work is Žxed in a tangible medium of expression Works and information excluded from copyright protection Internet considerations § 5:79 § 5:80 § 5:81 § 5:82 § 5:83 § 5:84 § 5:85 B. assignability.Table of Contents § 5:65 § 5:66 § 5:67 § 5:68 Scope of license and exclusivity Change of control. § 5:76 § 5:77 § 5:78 Is Mark Likely to Become Subject of Litigation? Introduction Trademark clearance and infringement searches Trademark watching services IV. COPYRIGHTS A. § 5:86 § 5:87 SCOPE OF RIGHTS Introduction Right to reproduce the copyrighted work in copies or phonorecords xxv . § 5:71 § 5:72 § 5:73 § 5:74 § 5:75 Proper Exploitation Overview Naked licenses Genericness and changed use of mark Use of the ® and ™ symbols Abandonment 5. § 5:69 § 5:70 Does Scope of Mark Adequately protect the Target Company's Actual Use? Overview Prosecution history of the Target Company's mark registrations 4. and rights of termination Enforcement and defense of marks Options 3.

and estoppel Customs recordation Derivative works and compilations Use of copyright notices: the © and ® symbols Proprietary markings: sales to the U. compilations. government Whether use of Target Company's copyrights is dependent on preexisting or third-party rights Derivative works of preexisting works Collective works. or by rental. or lending Right to perform or display works publicly Right to authorize or license the doing of any exclusive right Moral rights Duration of rights Limitations on rights The fair use doctrine Exhaustion of rights Additional limitations C. lease.Audits and Valuation of Intellectual Property § 5:88 § 5:89 § 5:90 § 5:91 § 5:92 § 5:93 § 5:94 § 5:95 § 5:96 § 5:97 Right to prepare derivative works based upon the copyrighted work Right to distribute copies by sale or other transfer. laches.S. § 5:98 § 5:99 § 5:100 § 5:101 § 5:102 § 5:103 § 5:104 § 5:105 § 5:106 OWNERSHIP Overview Initial authorship Joint authors Assignments Recordation of assignments and conicting assignments and transfers Assignment of jointly authored works Scope of assigned rights and the copyright divisibility principle Termination of assignments Priority between conicting transfer of ownership and nonexclusive license D. and contributions thereto . § 5:107 § 5:108 § 5:109 § 5:110 § 5:111 § 5:112 § 5:113 § 5:114 § 5:115 § 5:116 § 5:117 § 5:118 xxvi ADEQUATE PROTECTION Introduction Registration of copyrights Registration formalities Maintenance of copyrights Statute of limitations.

ASSETS ELIGIBLE FOR TRADE SECRET PROTECTION Overview Value Not generally known and not readily ascertainable through proper means Subject of reasonable eorts to maintain secrecy § 5:125 § 5:126 § 5:127 § 5:128 B. and estoppel Whether use of the trade secrets is dependent on preexisting or third-party rights Whether the scope of trade secret law suciently protects the products of the Target Company xxvii . and open source distribution Whether the copyrights are. TRADE SECRET AUDIT A. § 5:129 § 5:130 § 5:131 SCOPE OF RIGHTS Introduction Duration of rights Exceptions to rights C. the subject of litigation V. § 5:136 § 5:137 § 5:138 § 5:139 § 5:140 § 5:141 § 5:142 ADEQUATE PROTECTION Overview Use of nondisclosure/noncompete agreements with employees Special circumstances Misuse of trade secrets Statute of limitations. laches. § 5:132 § 5:133 § 5:134 § 5:135 OWNERSHIP Initial ownership Joint ownership Trade secrets created by employees Assignment D. freeware. or are likely to become.Table of Contents § 5:119 § 5:120 § 5:121 § 5:122 § 5:123 § 5:124 Inbound licenses and cross licenses Rights of termination Whether the scope of the copyrights suciently protects the products of the Target Company Whether the copyrights have been properly exploited Shareware.

VALUATION OF INTELLECTUAL PROPERTY ASSETS § 6:1 § 6:2 § 6:3 § 6:4 § 6:5 § 6:6 § 6:7 § 6:8 § 6:9 § 6:10 § 6:11 § 6:12 § 6:13 § 6:14 § 6:15 § 6:16 § 6:17 § 6:18 § 6:19 § 6:20 § 6:21 § 6:22 § 6:23 § 6:24 § 6:25 § 6:26 § 6:27 § 6:28 § 6:29 xxviii Overview IdentiŽcation of intellectual property Patents Trademarks Copyrights Trade Secrets The intellectual property commercialization process. or are likely to become. the subject of litigation Internet considerations CHAPTER 6.Audits and Valuation of Intellectual Property § 5:143 § 5:144 § 5:145 Whether the trade secrets have been properly exploited Whether the trade secrets are. and intellectual properties generally Common terms of intellectual property license agreements Common terms of other intellectual property contracts Typical parties to the intellectual property commercialization process Factors that the valuation analyst should consider Factors related to whether the subject intellectual property is valuable Reasons to analyze commercial intellectual property-general Reasons to value commercial intellectual property-speciŽc Generally accepted intellectual property valuation approaches and methods —Market approach valuation methods — —Market approach valuation principles — —The market approach valuation process —Cost approach valuation methods — —DeŽnition of intellectual property cost — —Intellectual property cost components — —Cost new less depreciation —Income approach valuation methods — —Measures of commercial intellectual property income — —Income approach valuation methods—Summarized Direct capitalization procedures Yield capitalization methods Income tax amortization adjustment Remaining useful life analysis . goodwill.

Table of Contents § 6:30 § 6:31 § 6:32 § 6:33 § 6:34 § 6:35 § 6:36 § 6:37 § 6:38 § 6:39 § 6:40 § 6:41 § 6:42 § 6:43 § 6:44 § 6:45 § 6:46 § 6:47 § 6:48 § 6:49 § 6:50 § 6:51 —Expected eect on the income approach value indication —Expected eect on the cost approach value indication —Expected eect on the market approach value indication —Common factors inuencing intellectual property expected RUL Valuation synthesis and conclusion —Illustrative example of the cost approach and the income approach —Illustrative example fact set and analysis assumptions —Selection of valuation approaches and methods Cost approach analysis —Cost approach valuation variables Income approach analysis Valuation variables —Income approach valuation analysis —Value conclusion Illustrative example of the market approach —Illustrative example fact set and analysis assumptions Market approach valuation variables Guideline intellectual property license search procedures Guideline patent license agreement royalty rates Illustrative example of a royalty rate adjustment grid Market approach valuation analysis Summary and conclusion CHAPTER 7. INSURING IP ASSETS § 7:1 § 7:2 § 7:3 § 7:4 § 7:5 § 7:6 § 7:7 § 7:8 Overview Buyer's rights to acquire coverage under the policies of target company —Coverage for intellectual property and business tort claims —When does buyer obtain the beneŽts of target company's insurance coverage? —BeneŽts available to a buyer under target company's policy —When should buyer add target company as an “additional insured” under its policies? Target company's interests in analyzing its potential coverage for pre-acquisition activities —Retention of target company coverage that may respond to present liability exposure xxix .

Audits and Valuation of Intellectual Property § 7:9 § 7:10 § 7:11 § 7:12 § 7:13 § 7:14 § 7:15 § 7:16 § 7:17 § 7:18 § 7:19 § 7:20 § 7:21 § 7:22 § 7:23 § 7:24 § 7:25 § 7:26 § 7:27 § 7:28 § 7:29 —Target company's opportunities to pursue insurance that will cover post-acquisition claims for preacquisition activities —Insurance coverage opportunities where a target company has licensed intellectual property and assumed indemnity obligations thereunder Types of intellectual property claims that may fall within target company's insurance coverage Evaluating policies to gauge potential coverage for intellectual property torts Insurer denials should be scrutinized and challenged “Advertising injury” coverage must be analyzed in light of a three-part test Patent infringement coverage Copyright infringement coverage Trademark infringement coverage Trade secret misappropriation coverage Pertinent exclusions and their impact on coverage First publication exclusion Knowledge of falsity exclusion Exclusion for advertisers. or publishers Intellectual property exclusions Events that may trigger coverage under a third-party liability or intellectual property defense policy Receipt of demand to cease and desist from infringement or to license under asserted intellectual property rights Receipt of complaint Receipt of a counterclaim or third-party claim Entry of judgment An insurer's denial of its insured's tender extinguishes insured's duty to provide further information about additional developments in the underlying action Events that may trigger coverage under a third-party liability or intellectual property defense policy—Notice of appeal Courts have held that where facts originally tendered to the insurer are incompletely alleged but later clariŽed with more speciŽcity. the insurer's defense duty is triggered and relates back to the original tender When assessing oense-based coverage. broadcasters. courts have held it of no moment that the facts tendered to the insurer were raised in dierent forums How to pursue IP litigation in conjunction with coverage Whom to pursue coverage litigation against § 7:30 § 7:31 § 7:32 § 7:33 § 7:34 xxx .

legalization. and disclosures Post-transaction intellectual property audit CHAPTER 9. TRANSACTIONS INVOLVING IP ASSETS § 8:1 § 8:2 § 8:3 § 8:4 § 8:5 § 8:6 § 8:7 § 8:8 § 8:9 § 8:10 § 8:11 Overview Intellectual property due diligence report Intellectual property-related conditions to closing Postclosing contractual obligations Security interests and other contingent rights in subject intellectual property Intellectual property management participation Technology cooperation and escrow agreements Short-form intellectual property assignments. IP ASSET MANAGEMENT § 9:1 Overview xxxi . warranties. and recordation Schedules of assets and liabilities IP Representations.Table of Contents § 7:35 § 7:36 § 7:37 § 7:38 § 7:39 § 7:40 § 7:41 § 7:42 § 7:43 § 7:44 § 7:45 § 7:46 § 7:47 § 7:48 § 7:49 § 7:50 What to pursue relief for in a coverage action Events that present an opportunity to aid client's intellectual property enforcement strategy through a pursuit policy Ten questions intellectual property owners and attorneys should ask regarding insurance coverage Analysis of insurance coverage products that address intellectual property disputes Procuring insurance coverage for pursuit of infringers Policy providers Procuring insurance for defense of intellectual property lawsuits Advertising liability policy Directors and ocers insurance coverage Errors and omissions policies Selecting the coverage that suits the company New opportunities to address risks from mergers/acquisitions—Regulations and warranties insurance Documents typically required for “representations and warranty” insurance Issues raised by representations and warranty insurance Checklist for negotiations Conclusion CHAPTER 8.

S. Buyer-Target Company ConŽdentiality Agreement Form C. xxxii Key Provisions of Statutes Relating to SarbanesOxley Act Laws and Regulations Governing Intellectual Property Ownership and Transfers U. Intellectual Property Attorney's Checklist for Communications with Insurance Carriers Form L. Appendix 3.Audits and Valuation of Intellectual Property § 9:2 § 9:3 § 9:4 § 9:5 § 9:6 § 9:7 § 9:8 § 9:9 Intellectual property compliance committee Preserving current assets Litigation activities Portfolio organization Prioritization of assets Intellectual property legal budgeting Internal policies and procedures Promoting the growth of the intellectual property assets FORMS Form A. Intellectual Property Due Diligence Report Outline Form F.R. Intellectual Property-Related Conditions to Closing Form H. Form K. Insurance Policy Forms Checklist: Target Company Insurance Coverage APPENDICES Appendix 1. Patent Reform — An Analysis of H. 1145 . Target Company Representations and Warranties Pertaining to Intellectual Property Form G. Checklist of Trade Secret Protection Measures Form E. Appendix 2. Nonbinding Letter of Intent (Buyer to Target Company) Form B. 1908 and S. Checklist for Court Acceptance of Defendant Reliance on Validity/Infringement Opinions as Defense to Willful Infringement Form I. Factors Used in Determining Applicability of AttorneyClient Privilege to Communications with Patent Agents Checklist of Key Rules for Insurance Policyholders in Coverage Disputes Form J. Intellectual Property Due Diligence Checklist Form D.

Table of Contents Appendix 4. Industry Impact of Proposed Patent Law Reform: A War Without Winners? Table of Laws and Rules Table of Cases Index xxxiii .

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