Patent Reexamination Statistics were recently updated by the USPTO.
Ex Parte can be found here:
and Inter Partes can be found here:
Patent Reexamination Statistics were recently updated by the USPTO.
Ex Parte can be found here:
and Inter Partes can be found here:
Last week, Jason Witten was invited to speak on contract, IP issues and the Buy American Act at the latest C5 Convention on Defense Contracting held at the Jumeirah Hotel in Frankfurt, Germany. It was an excellent event covering all of the relevant FAR and DFAR provisions. The speakers had close to 30 years experience – EACH! Jason’s 15 years made him the youngest speaker there, and was very humbled by the honor to be named among these experts.
The feedback by the attendees was that this was the best, most in-depth, conference of its kind. In fact, most of the speakers even stayed for each others’ presentations and added to the discussion. The result was that at any one time there were 10+ attorneys, Army Colonels, in-house contract administrators for large corporations, and the heads of the DCAA’s Southern European Office bringing their decades of experience to bear on a single issue in a roundtable environment. Jason said he’d never seen anything like it. If you have the chance to attend the next one, it is highly recommended. Here’s the link to C5: http://www.c5-online.com/
Quick update: Attendees’ feedback about how I did was sent to me over the holidays. This is what they, as well as the dozen, or so of my fellow presenters and colleagues who stayed for my presentation had to say:
“On a scale of one to four, with one (1.0) representing excellent, two (2.0) good, three (3.0) fair and four (4.0) you received from delegates 1.3 for content and 1.3 for presentation. For your Day 2 session the marks are 1.3 and 1.3 respectively too. I think you will also be pleased to know that delegates left some very positive comments:
‘…Well-presented/helpful, Useful; relevant and very engaged; To the point; Short & to the point’
‘Excellent and address a key subject force; personable and well prepared. Engaging speaker; Covered IP issues very well; Awesome! IP is a tough subject’
…It has been a pleasure working with you and we hope to work with you again in the near future.
With many thanks and kind regards,
C5 Communications Ltd.”
Jason Witten has been selected to speak at the C5 Conference on the topic of defense/government contracting with a focus on IP. The conference is set to take place in Frankfurt, Germany on December 4-5, 2013 at the Jumeirah Frankfurt Hotel. If you are interested in attending, please contact Witten Law, Ltd. at email@example.com, or C5 directly. The link to C5 is: http://www.c5-online.com/
More details to come.
Now that the US Supreme Court has finished its year, and some of its IP decisions have had some time to “season,” I thought it would be a good time to round-up a few of the big IP based rulings (quoting extensively from the opinions themselves):
Association for Molecular Pathology v. Myriad Genetics, Inc. (2013) __ US __ (patentability of human DNA sequences)
Respondent Myriad Genetics, Inc. (Myriad), discovered the precise location and sequence of two human genes, mutations of which can substantially increase the risks of breast and ovarian cancer. Myriad obtained a number of patents based upon its discovery. This case involved claims from three of them and required the Court to resolve whether a naturally occurring segment of deoxyribonucleic acid (DNA) is patent eligible under 35 U. S. C. §101 by virtue of its isolation from the rest of the human genome. The Court also addressed the patent eligibility of synthetically created DNA known as complementary DNA (cDNA), which contains the same protein-coding information found in a segment of natural DNA but omits portions within the DNA segment that do not code for proteins.
Had Myriad created an innovative method of manipulating genes while searching for the BRCA1 and BRCA2 genes, it could possibly have sought a method patent. But the processes used by Myriad to isolate DNA were well understood by geneticists at the time of Myriad’s patents “were well understood, widely used, and fairly uniform insofar as any scientist engaged in the search for a gene would likely have utilized a similar approach,” 702 F. Supp. 2d, at 202-203, and are not at issue in this case.
Given that the method of gene isolation was not patentable, once Myriad found the location and sequence of the BRCA1 and BRCA2 genes, Myriad sought and obtained a number of patents that in relevant part: 1) asserted a patent claim on the DNA code; or 2) asserted a patent on the cDNA code. Myriad’s patents would, if valid, give it the exclusive right to isolate an individual’s BRCA1 and BRCA2 genes (or any strand of 15 or more nucleotides within the genes) by breaking the covalent bonds that connect the DNA to the rest of the individual’s genome.
However, laws of nature, natural phenomena, and abstract ideas are not patentable.” Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012) 566 U.S. ___, 132 S.Ct. 1289, ___ L.Ed.2d ___ (2012) (slip op., at 1). Rather, “`they are the basic tools of scientific and technological work’” that lie beyond the domain of patent protection. Id., at ___ (slip op., at 2). As the Court has explained, without this exception, there would be considerable danger that the grant of patents would “tie up” the use of such tools and thereby “inhibit future innovation premised upon them.” Id., at ___ (slip op., at 17). This would be at odds with the very point of patents, which exist to promote creation. Diamond v. Chakrabarty, 447 U. S. 303, 309 (1980) (Products of nature are not created, and “`manifestations . . . of nature [are] free to all men and reserved exclusively to none’”).
The Court held that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring, rather it is man-made. As a result, Myriad lost its patent claims related to DNA, but kept its claims related to cDNA.
As a result of this ruling, on June 13, 2013 a company by the name of Ambry Genetics issued a press release that it would begin testing for the BRCA1 & 2 genes. However, Myriad has been quick to jump on this. On July 9, 2013, Myriad sued Ambry alleging infringement of claims that survived the Supreme Court ruling in ten different patents.
Bowman v. Monsanto Company (2013) __ US __ (patent exhaustion in second generation of genetically modified seeds)
Under the doctrine of patent exhaustion, the authorized sale of a patented article gives the purchaser, or any subsequent owner, a right to use or resell that article. Such a sale, however, does not allow the purchaser to make new copies of the patented invention. The question in this case is whether a farmer who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission.
Respondent Monsanto invented a genetic modification that enables soybean plants to survive exposure to glyphosate, the active ingredient in many herbicides (including Monsanto’s own Roundup). Two patents issued to Monsanto cover various aspects of its Roundup Ready technology, including a seed incorporating the genetic alteration. See Supp. App. SA1-21 (U. S. Patent Nos. 5,352,605 and RE39,247E); see also 657 F. 3d 1341, 1343-1344 (CA Fed. 2011).
Monsanto sells, and allows other companies to sell, Roundup Ready soybean seeds to growers who assent to a special licensing agreement. That agreement permits a grower to plant the purchased seeds in one (and only one) season. The farmer may not save any of the harvested soybeans for replanting, nor may he supply them to anyone else for that purpose. The agreement’s terms prevent the farmer from co-opting the patented genetic process to produce his own Roundup Ready seeds, forcing him instead to buy from Monsanto each season.
Petitioner Vernon Bowman is a farmer in Indiana who purchased a mixed bag of seeds that contained some of the seeds covered by the patents. He killed the plants that were not covered by the patents, and grew others. Monsanto sued Bowman for infringing its patents on Roundup Ready seed.
Bowman raised patent exhaustion as a defense, arguing that Monsanto could not control his use of the soybeans because they were the subject of a prior authorized sale (from local farmers to the grain elevator). The District Court rejected that argument, and awarded damages to Monsanto of $84,456.
The Federal Circuit affirmed. It reasoned that patent exhaustion did not protect Bowman because he had “created a newly infringing article.” The “right to use” a patented article following an authorized sale, the court explained, “does not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.”
The Supreme Court agreed. Accordingly, Bowman could not “`replicate’ Monsanto’s patented technology by planting it in the ground to create newly infringing genetic material, seeds, and plants.”
The doctrine of patent exhaustion limits a patentee’s right to control what others can do with an article embodying or containing an invention. Under the doctrine, “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008). And by “exhaust[ing] the [patentee's] monopoly” in that item, the sale confers on the purchaser, or any subsequent owner, “the right to use [or] sell” the thing as he sees fit. United States v. Univis Lens Co., 316 U. S. 241, 249-250 (1942). The court has explained the basis for the doctrine as follows: “[T]he purpose of the patent law is fulfilled with respect to any particular article when the patentee has received his reward . . . by the sale of the article”; once that “purpose is realized the patent law affords no basis for restraining the use and enjoyment of the thing sold.” Id., at 251.
Consistent with that rationale, the doctrine restricts a patentee’s rights only as to the “particular article” sold, ibid.; it leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item. “[T]he purchaser of the [patented] machine . . . does not acquire any right to construct another machine either for his own use or to be vended to another.” Mitchell v. Hawley, 16 Wall. 544, 548 (1873); see Wilbur-Ellis Co. v. Kuther, 377 U. S. 422, 424 (1964) (holding that a purchaser’s “reconstruction” of a patented machine “would impinge on the patentee’s right `to exclude others from making’. . . the article” (quoting 35 U. S. C. §154 (1964 ed.))). Rather, “a second creation” of the patented item “call[s] the monopoly, conferred by the patent grant, into play for a second time.” Aro Mfg. Co. v. Convertible Top Replacement Co., 365 U. S. 336, 346 (1961). That is because the patent holder has “received his reward” only for the actual article sold, and not for subsequent recreations of it. Univis, 316 U. S., at 251. If the purchaser of that article could make and sell endless copies, the patent would effectively protect the invention for just a single sale.
Unfortunately for Bowman, that principle decided this case against him.
While there are strong opinions attached to this case, they are for the most part not directly related to the issue presented to the Court – which was “replication” of the technology. Most who believe in the protection of IP rights would agree that the right to make and control copies of IP rests with the owner of the IP. In the end, you have no more right to copy a patented seed for financial gain, than you have to copy a copyrighted CD for financial gain.
Kirtsaeng v. John Wiley & Sons, Inc. (2013) WL 1104736, 568 US __, 133 S. Ct. 1351 (international copyright exhaustion)
Quoting in large part the Supreme Court’s decision, the Court was asked whether the “first sale” doctrine applies to protect a buyer or other lawful owner of a copy (of a copyrighted work) lawfully manufactured abroad. Can that buyer bring that copy into the United States (and sell it or give it away) without obtaining permission to do so from the copyright owner? Can, for example, someone who purchases, say at a used bookstore, a book printed abroad subsequently resell it without the copyright owner’s permission?
Respondent, John Wiley & Sons, Inc., publishes academic textbooks, and was the relevant American copyright owner. Wiley often assigns to its wholly owned foreign subsidiary, John Wiley & Sons (Asia) Pte Ltd., rights to publish, print, and sell Wiley’s English language textbooks abroad.
Petitioner, Supap Kirtsaeng, a citizen of Thailand, moved to the United States in 1997 to study mathematics at Cornell University. While he was studying in the United States, Kirtsaeng asked his friends and family in Thailand to buy copies of foreign edition English language textbooks at Thai book shops, including Wiley’s books, where they sold at low prices, and mail them to him in the United States. Kirtsaeng would then sell them, reimburse his family and friends, and keep the profit.
However, each copy of a Wiley Asia foreign edition will likely contain language making clear that the copy is to be sold only in a particular country or geographical region outside the United States.
Section 106 of the Copyright Act grants “the owner of copyright under this title” certain “exclusive rights,” including the right “to distribute copies . . . of the copyrighted work to the public by sale or other transfer of ownership.” 17 U. S. C. §106(3). These rights are qualified, however, by the application of various limitations set forth in the next several sections of the Act, §§107 through 122. Those sections, typically entitled “Limitations on exclusive rights,” include, for example, the principle of “fair use” (§107), permission for limited library archival reproduction, (§108), and the doctrine at issue here, the “first sale” doctrine (§109).
Section 109(a) sets forth the “first sale” doctrine as follows:
“Notwithstanding the provisions of section 106(3) [the section that grants the owner exclusive distribution rights], the owner of a particular copy or phonorecord lawfully made under this title . . . is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy or phonorecord.” (Emphasis added.)
Thus, even though §106(3) forbids distribution of a copy of, say, the copyrighted novel “Herzog” without the copyright owner’s permission, §109(a) adds that, once a copy of Herzog has been lawfully sold (or its ownership otherwise lawfully transferred), the buyer of that copy and subsequent owners are free to dispose of it as they wish. In copyright jargon, the “first sale” has “exhausted” the copyright owner’s §106(3) exclusive distribution right.
What, however, if the copy of Herzog was printed abroad and then initially sold with the copyright owner’s permission? Does the “first sale” doctrine still apply? Is the buyer, like the buyer of a domestically manufactured copy, free to bring the copy into the United States and dispose of it as he or she wishes?
To put the matter technically, an “importation” provision, §602(a)(1), says that
“[i]mportation into the United States, without the authority of the owner of copyright under this title, of copies . . . of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies . . . under section 106 . . . .” 17 U. S. C. §602(a)(1) (2006 ed., Supp. V) (emphasis added).
Thus §602(a)(1) makes clear that importing a copy without permission violates the owner’s exclusive distribution right. But in doing so, §602(a)(1) refers explicitly to the §106(3) exclusive distribution right. As we have just said, §106 is by its terms “[s]ubject to” the various doctrines and principles contained in §§107 through 122, including §109(a)’s “first sale” limitation. Do those same modifications apply—in particular, does the “first sale” modification apply—when considering whether §602(a)(1) prohibits importing a copy?
In Quality King Distributors, Inc. v. L’anza Research Int’l, Inc., 523 U. S. 135, 145 (1998), the Court held that §602(a)(1)’s reference to §106(3)’s exclusive distribution right incorporates the later subsections’ limitations, including, in particular, the “first sale” doctrine of §109. Thus, it might seem that, §602(a)(1) notwithstanding, one who buys a copy abroad can freely import that copy into the United States and dispose of it, just as he could had he bought the copy in the United States.
But Quality King considered an instance in which the copy, though purchased abroad, was initially manufactured in the United States (and then sent abroad and sold). This case is like Quality King but for one important fact. The copies at issue here were manufactured abroad. That fact is important because §109(a) says that the “first sale” doctrine applies to “a particular copy or phonorecord lawfully made under this title.” And the Court must decide here whether the five words, “lawfully made under this title,” make a critical legal difference.
In the Court’s view, the answers to these questions were, yes. The Court held that the “first sale” doctrine applies to copies of a copyrighted work lawfully made abroad. Thus, Kirtsaeng was free to sell the books printed in Thailand in the US.
The effect of this ruling was immediately felt in the 2nd Circuit where judgments against defendants similarly situated to Kirtsaeng were all reversed. Pearson Educ., Inc. v. Kumar, et al. Court of Appeals, 2nd Cir. June 20, 2013. Further, the District Courts have already been applying the ruling. AFL Telecommunications, LLC V. Surpluseq.com Incorporated, Ariz. Dist. Court, May 20, 2013. Note however, that it is limited to materials first made and sold outside the United States. This will not apply to materials first manufactured in the US. As a result, we could see more domestic production of US materials which would be a boon to US based printers.
Already, LLC v. Nike, Inc. (2013) __ US __ (impact of covenant-not-to-sue on declaratory judgment jurisdiction in trademark cases)
The question is whether a covenant not to enforce a trademark against a competitor’s existing products and any future “colorable imitations” moots the competitor’s action to have the trademark declared invalid.
Respondent Nike designs, manufactures, and sells athletic footwear, including a line of shoes known as Air Force 1s. Petitioner Already also designs and markets athletic footwear, including shoe lines known as “Sugars” and “Soulja Boys.” The parties had a dispute over whether Nike’s trademark for Air Force 1s was valid and infringed by Already.
In March 2010, Nike issued a “Covenant Not to Sue.” Its preamble stated that “Already’s actions … no longer infringe or dilute the NIKE Mark at a level sufficient to warrant the substantial time and expense of continued litigation.” The covenant promised that Nike would not raise against Already or any affiliated entity any trademark or unfair competition claim based on any of Already’s existing footwear designs, or any future Already designs that constituted a “colorable imitation” of Already’s current products.
However, Already sought to continue to pursue a declaratory relief action seeking a judgment that Already did not infringe Nike’s trademark because the trademark was invalid. Nike sought to dismiss the case because Already was no longer in jeopardy of being sued by Nike due to the Covenant Not to Sue. The district court agreed with Nike, dismissed the suit, and the Second Circuit affirmed.
Central to the Supreme Court’s analysis, Nike’s covenant now allows Already to produce all of its existing footwear designs — including the Sugar and Soulja Boy — and any “colorable imitation” of those designs. Thus, “it is hard to imagine a scenario that would potentially infringe [Nike's trademark] and yet not fall under the Covenant.” Related, Already did not assert any intent to design or market a shoe that would expose it to any prospect of infringement liability.
Thus the correct analysis as to whether a covenant not to sue “eliminates a justiciable case or controversy,” is based on the totality of the circumstances, including “(1) the language of the covenant, (2) whether the covenant covers future, as well as past, activity and products, and (3) evidence of intention … on the part of the party asserting jurisdiction” to engage in conduct not covered by the covenant.
In the present case, the justiciable case or controversy was eliminated, and Already had no further claim for declaratory relief.
The effect of this case has been interesting. The courts in the Eastern District of Arkansas and the District of New Jersey refused to dismiss cases even though there was a covenant not to compete finding that the covenant was no unconditional and irrevocable. Perfectvision Manufacturing, Inc. V. PPC Broadband, Inc., Case No. 4:12CV00623 JLH (EDArk., June 10, 2013); Astrazeneca LP v. Breath Limited, Consolidated Civil Action. No. 08-1512 (RMB/AMD), Member Case No. 09-1518, No. 09-4115., 10-5785, 11-3626 (DNJ May 31, 2013).
As a result, it appears the covenant not to compete must be broad and airtight in order to withstand this test.
Finally, it is worthy to note that several courts – including the Supreme Court itself – have cited this ruling for the holding that an “actual controversy” persist throughout all stages of litigation, and thus it appears this ruling will be used extensively for said proposition. Hollingsworth v. Perry (June 26, 2013) __ US __.
FTC v. Actavis, Inc. (2013) __ US __ (reverse payments to settle patent litigation)
Company A sues Company B for patent infringement. The two companies settle under terms that require (1) Company B, the claimed infringer, not to produce the patented product until the patent’s term expires, and (2) Company A, the patentee, to pay B many millions of dollars. Because the settlement requires the patentee to pay the alleged infringer, rather than the other way around, this kind of settlement agreement is often called a “reverse payment” settlement agreement. And the basic question here is whether such an agreement can sometimes unreasonably diminish competition in violation of the antitrust laws. See, e.g., 15 U. S. C. §1 (Sherman Act prohibition of “restraint[s] of trade or commerce”). Cf. Palmer v. BRG of Ga., Inc., 498 U. S. 46 (1990) (per curiam) (invalidating agreement not to compete).
In this case, the Eleventh Circuit dismissed a Federal Trade Commission (FTC) complaint claiming that a particular reverse payment settlement agreement violated the antitrust laws. In doing so, the Circuit stated that a reverse payment settlement agreement generally is “immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” FTC v. Watson Pharmaceuticals, Inc., 677 F. 3d 1298, 1312 (2012). And since the alleged infringer’s promise not to enter the patentee’s market expired before the patent’s term ended, the Circuit found the agreement legal and dismissed the FTC complaint. Id., at 1315.
The Supreme Court disagreed.
First, the specific restraint at issue has the “potential for genuine adverse effects on competition.” Indiana Federation of Dentists, 476 U. S., at 460-461 (citing 7 Areeda ¶1511, at 429 (1986)). The payment in effect amounts to a purchase by the patentee of the exclusive right to sell its product, a right it already claims but would lose if the patent litigation were to continue and the patent were held invalid or not infringed by the generic product. Suppose, for example, that the exclusive right to sell produces $50 million in supracompetitive profits per year for the patentee. And suppose further that the patent has 10 more years to run. Continued litigation, if it results in patent invalidation or a finding of noninfringement, could cost the patentee $500 million in lost revenues, a sum that then would flow in large part to consumers in the form of lower prices.
Second, these anticompetitive consequences will at least sometimes prove unjustified. See 7 id., ¶1504, at 410-415 (3d ed. 2010); California Dental Assn. v. FTC, 526 U. S., 756, 786-787 (1999) (BREYER, J., concurring in part and dissenting in part). But that possibility does not justify dismissing a complaint. An antitrust defendant may show in the antitrust proceeding that legitimate justifications are present, thereby explaining the presence of the challenged term and showing the lawfulness of that term under the rule of reason. See, e.g., Indiana Federation of Dentists, supra, at 459; 7 Areeda ¶¶1504a-1504b, at 401-404 (3d ed. 2010).
Third, where a reverse payment threatens to work unjustified anticompetitive harm, the patentee likely possesses the power to bring that harm about in practice. See id., ¶1503, at 392-393. At least, the “size of the payment from a branded drug manufacturer to a prospective generic is itself a strong indicator of power”—namely, the power to charge prices higher than the competitive level. 12 id., ¶2046, at 351.
Fourth, an antitrust action is likely to prove more feasible administratively than the Eleventh Circuit believed. The Circuit’s holding does avoid the need to litigate the patent’s validity (and also, any question of infringement). But to do so, it throws the baby out with the bath water, and there is no need to take that drastic step. An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival. And that fact, in turn, suggests that the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market—the very anticompetitive consequence that underlies the claim of antitrust unlawfulness.
Fifth, the fact that a large, unjustified reverse payment risks antitrust liability does not prevent litigating parties from settling their lawsuit. The relevant antitrust question is: What are the reasons for settlement? If the basic reason is a desire to maintain and to share patent-generated monopoly profits, then, in the absence of some other justification, the antitrust laws are likely to forbid the arrangement.
In sum, a reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects; one who makes such a payment may be unable to explain and to justify it; such a firm or individual may well possess market power derived from the patent; a court, by examining the size of the payment, may well be able to assess its likely anticompetitive effects along with its potential justifications without litigating the validity of the patent; and parties may well find ways to settle patent disputes without the use of reverse payments.
Thus the Supreme Court held, these considerations, taken together, outweigh the single strong consideration—the desirability of settlements—that led the Eleventh Circuit to provide near-automatic antitrust immunity to reverse payment settlements.
The effect of this ruling has had an immediate effect. On June 24, 2013, the Supreme Court vacated and remanded Merck & Co., Inc. v. LA Wholesale Drug Co. to the United States Court of Appeals for the Third Circuit for a ruling consistent with Actavis. Now the courts will be forced to examine the settlement agreement to determine whether it is anticompetitive, rather than simply applying immunity, and as a result, like it or not, this will take more time.
Today I’d like to go a little bit deeper with you on the topic of Background and Foreground Intellectual Property, and pay particular attention to the scope of licenses after the contract ends.
Definitions. When two parties enter a contract to make a new product, at least one of them, usually at least the supplier, will come to the deal with some background knowledge of how to build the product. That background knowledge can have intellectual property (“IP”) in it. The IP in the background knowledge is known as “Background Intellectual Property” or “Background IP.”
Typical Transaction. In a typical transaction parties do not sell their Background IP. Rather, any Background IP implemented in the new product will be licensed to the customer, along with any new IP that is created while developing the new product. That new IP created while developing the new product is called “Foreground IP.” It is not uncommon for Foreground IP to be sold to a customer as a “work for hire” if the customer is willing to pay for exclusive use of it, but it is usually less expensive for the customer to license it.
Now licensing Background and Foreground IP is not really a problem during the life of the contract, or as long as the customer does not think of a way to change the IP, but things can get tricky when the contract ends or the customer wants to build upon the IP.
In the most basic contracts where IP is handled as a subsection, there will be language that seeks to share some of the supplier’s common law IP rights in developing the IP. It will define IP and say (“grant”) the customer a “royalty free, irrevocable, perpetual, world-wide, non-exclusive license” to the IP. While this is better than nothing, it exhibits a lack of thought on the matter.
If your IP is valuable to you, here is how to make it better:
Assignment. Consider a paragraph that warrants that the supplier’s employees have assigned their rights in the IP to the supplier as a “work for hire.” In some broad common law right countries, like France, this is important so that a disgruntled employee does not hang-up your IP rights, especially in copyright.
Work for Hire. Are you buying the IP outright? If you are, you will need language stating that the supplier is performing a “work for hire” for you, the customer, and is assigning all of its and its employees’ rights in the IP to the customer. The customer will need related language about the supplier assisting the customer with paperwork to make sure the IP is assigned to the customer.
Be Specific About Licenses. What are you licensing? You need to state whether the license runs with the product. For example, can the customer can use the IP as it exists in the product, but not separate from it? Make this clear. A perfect example is Background IP vs. Foreground IP. The license to Background IP is almost always limited to use in the product. The customer cannot reverse engineer it , or otherwise use it separately.
However, Foreground IP may be different. Be clear about whether the customer can use the Foreground IP independently of the supplier. A customer may have a strong interest in using the Foreground IP in another product that the supplier is not involved in. That is perfectly legitimate if the customer paid for the non-exclusive license such that both the supplier and the customer can use the IP as they wish.
If you are the customer, you should consider having language in your contract which clarifies that you have given consideration for this non-exclusive license. Perhaps consider deleting the standard “royalty-free” term, and instead say a one-time, lump sum fully paid-up royalty has been paid for the IP as part of the purchase price of the product.
Time Limitations. Related, the default language noted above gives a “perpetual” license. You may want to reconsider this. As a supplier, you may want to clarify that there is no “perpetual” license to Background IP. Licenses to Background IP expire with the termination of the contract. Further, if your Foreground IP license is tied closely to use in the product, you may want to limit the license in Foreground IP to the length of the contract.
The foregoing limitations are even more relevant when your product is information itself, like marketing data. Does the customer have a right to use the data once the contract ends? This raises really interesting issues in the area of copyright.
Copyright. Copyrights can be parsed a thousand ways. You can limit how the data is accessed. For example, can the data be accessed online through the supplier’s servers? Can it be downloaded or printed? Think of YouTube. You have a license to view the copyrighted material only on the medium of the YouTube website. You have no rights to transfer the material, or any part of it (like just the audio) to another medium, such as saving it to disk.
So let’s say you have a perpetual, non-exclusive, worldwide license to some Foreground IP in your contract, and the Foreground IP is copyright, but there is no provision for the supplier to provide it to you on disk. Where are you? There is law that says you are limited to the product itself, or by whatever method the supplier provides it, because you did not license a right to independently access it on disk. For example, in the US, 17 U.S.C. §1201 states if digital material is protected by a technology that controls access to the resource, you cannot legally bypass the access control mechanism, even to preserve it. So in your contracts, have you inadvertently (or intentionally) limited the medium?
Further, you can limit what part of a copyrighted material can be used. You see this on iTunes and Amazon where you can only listen to part of a song prior to buying it, or movie trailers where you can only watch part of the movie.
In perhaps a more usable example, if the supplier is providing software that includes both Background and Foreground IP, is the customer limited to using the Foreground IP independently of the product? If you are the customer, what good is the Foreground IP without the Background IP? Back to the previous example, what good is the Foreground IP if you don’t have it saved in a format where it can be used?
So you may want to consider carefully limiting, or de-limiting the medium you can save and use the IP on, otherwise you may not be able to access the IP in a useful manner and your perpetual license is useless.
Sublicenses, Derivatives & Privacy. If you have a perpetual license to IP that is not tied to use in the supplier’s product, presumably you have this free-standing IP that you can do what you want with, right? Maybe not.
Does your license include an express right to sublicense the IP? If it does not then you cannot go to another manufacturer because that manufacturer is a third party that you are subcontracting with. If you do not have a right to sublicense, then the manufacturer does not have a right to practice the IP. If you need the help of a third party to use the IP, then the IP is useless to you.
Related, does your license to the IP give you the right to make derivative works? If it does not, you may not be permitted to adapt it to new products or other uses. Arguably, you have paid the supplier to take the product to the next level by adding new IP to it, but now you are prevented from adding on to that new IP and taking your product in a new direction. If you are a supplier, this is another way to limit the use of the IP to the specific product you are providing.
Confidentiality issues arise here as well. What if the licensed IP contains confidential information limited by contract or privacy law? There are a couple issues to consider here. If the IP is in the trade secret category of confidentiality, then the express right to sublicense is critical, but if you have the right, then you should be okay.
The trickier question is privacy law. What if you are an insurance company who has contracted for a product with a hospital or a university that includes medical data.
In general, data gathered from dozens, hundreds or thousands of people will not run afoul of privacy laws if the personal identifying information is stripped out of the data in compliance with the law. A good example would be medical statistics where names and other identifying features are not disclosed, like, “In a study of 1,000 pregnancies 33% suffered morning sickness.”
In the US this is what is known as a “limited data set.” 45 C.F.R. § 164.514(e). See also 45 C.F.R. §164.512(i),and 45 CFR §164.514(e). In the UK this concept is put into practice with the Clinical Practice Research Database, and although I am not an Australian solicitor, Australia’s efforts to reduce these concepts to plain English are worth a note, such as Australia’s Privacy in the Private Health Sector (November 2001) §A3,which states, “The NPPs (National Privacy Principles) do not apply to de-identified information or statistical data sets, which would not allow individuals to be identified.” [Obligatory Disclaimer: Please do not take this as Australian legal advice. Consult an Australian attorney. In fact, don’t take any of this as legal advice. You must consult with an attorney.]
However, sometimes data without personal identification is not useful. For example, some issues need to be tracked and followed-up on. In these situations, the front line of this issue is the hospital or university needs to have acquired good patient releases consenting to the customer’s intended use of the information. A customer can craft contract terms that require the supplier’s compliance with applicable laws like HIPAA in the US, the Data Protection Act 1998 in the UK, and Australia’s Privacy Act 1998 and its amendment Privacy in the Private Health Sector (November 2001). For example, in the US it is expressly permitted by law to condition treatment upon the patient’s consent to disclosure. 45 C.F.R. §508(b)(4). Of course, care still needs to be taken to strictly comply with the law.
In sum, private data can only be used or disclosed in special circumstances, such as with the individual’s consent, or for some health/safety or law enforcement reason, but it must be voluntary and informed.
In your agreements, I would suggest the citation of precise statutes a customer demands compliance with in the jurisdiction you intend to operate, and indemnity obligations on the part of the supplier should there be a claim that these laws were not followed.
For more information, in the US please see the NIH’s publication of “Protecting Personal Health Information in Research: Understanding the HIPAA Privacy Rule,” and in Australia please see” Information Sheet 9 – 2001 Handling Health Information for Research and Management.”
The Government. Finally, a word needs to be given to certain rights of governments to use this data. This is especially true if the customer is the government. Health information is highly valuable for many reasons, most importantly for an individual’s on-going health care, but sometimes also for wider public health and safety reasons. For example, in the US, public health or safety may permit disclosure of unredacted dated. 45 C.F.R. § 164.512(j &k) 45 C.F.R. § 164.512(k). See also, Australia’s Privacy in the Private Health Sector (November 2001) §4.2 and Information Privacy Principles 8-11.
Privacy laws are not the only governmental rights. Many governments have broad power to take IP from suppliers and use it how they please. At the extreme end, it can be taken for national defense and safety. However, most often it will be a contractual duty either expressly stating the government’s unlimited rights, or hidden in a citation to a law that gives the government that right. For example, in the US, §52.227 of the Federal Acquisition Regulations and §252.227 of the Defense Federal Acquisition Regulations give sweeping rights to the US government and its contractors. When contracting with the government, or one of its contractors, often times there will be a paragraph in the agreement that simply states these sections apply. In reality, some are mandatory, and some are not, so it is worthwhile to discern the two.
If you work for the government, you need to have a firm grasp of how these laws can help you, and if you contract with the government, you need to understand what may be asked of you.
In conclusion, your IP agreements may not need all of the provisions discussed here, but you very well may want to build on the minimalist boilerplate language of a “royalty free, irrevocable, perpetual, world-wide, non-exclusive license” so that you have a clear understanding of what your rights to the IP are, and in particular, what you can and cannot do with the IP after the contract ends.
There is a split in the US Appellate Courts about the application of the Computer Fraud and Abuse Act (CFAA). 18 USC §1030. The CFAA creates civil and criminal penalties for accessing a computer “without authorization,” or “exceeding authorized access.” When Congress enacted this law in 1984, it intended to apply the CFAA to computer hackers. Penalties can be a fine, or even jail time. 18 USC 1030(c). For example, in the case of United States v. Morris, 928 F.2d 504 (1991), Robert Morris created a “worm” that could slow down a computer once infected. He was sentenced to three years of probation, 400 hours of community service, a fine of $10,050, and the cost of his supervision.
However, employers have tried to apply it to its employees who allegedly misuse proprietary information. In essence, arguing that although they had authorized access to the information, that the employee’s use of that information exceeded the scope of the authorization.
The result is that there is a split in the US Courts. The First, Fifth, Seventh and Eleventh Circuit Courts of Appeals which cover Maine, Massachusetts, New Hampshire and Road Island; Lousianna, Mississippi and Texas; Illinois, Indiana and Wisconsin; and Alabama, Florida and Georgia, respectively, have held that employers can bring civil suits against their former employees under the CFAA. For examples, see United States v. John, 597 F.3d 263 (5th Cir. 2010), Int’l Airport Ctrs., LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006), and United States v. Rodriguez, 628 F.3d 1258 (11th Cir. 2010).
However, the Fourth Circuit (Virginia, West Virginia, Maryland, North Carolina, and South Carolina) and Ninth Circuit (California, Oregon, Washington, Arizona, Montana, Hawaii, Idaho, Alaska, Nevada, Guam & Northern Mariana Islands) Courts of Appeals disagree holding that such an employee may be misusing the information, but nonetheless had authorized access to it, and as a result the CFAA does not apply. For examples, see United States v. Nosal, 676 F.3d 854 (9th Cir. 2012) and WEC Carolina Energy Solutions, LLC v Miller, et al., Case No.11-1201 (4th Cir. 2012).
The result is either Congress will need to amend the law again, or the US Supreme Court will need to take a case clarifying the matter. This is of importance because all employers and employees are affected by it, and there is potential criminal liability. Also, Bradley Manning has been indicted for violations of the CFAA (among other things). So there could be a very interesting showdown between the well-reasoned, compassionate positions of the Fourth and Ninth Circuits versus the perceived desire of the government to throw the book at Bradley Manning.
For now, however, whether you live in those Circuits applying CFAA to employees or not, it is much wiser to simply have a good employee contract and/or confidentiality agreement that prohibits misuse of proprietary information.
Customers often negotiate for IP Escrow Agreements from their Suppliers. This is how an IP Escrow Agreement works: The Customer wants to have a reliable source for products. Therefore, the Customer asks its Supplier to put all of the IP required to manufacture the Supplier’s product into an escrow account with an Escrow Company. The Escrow Company holds the IP and agrees to only release it to the Customer under certain circumstances. These circumstances are usually something drastic, like the Supplier going out of business.
The trouble is that it may not be enforceable. If the Supplier goes into bankruptcy (US) (“administration” in the UK), that IP is an asset that the Bankruptcy court will want to sell to help pay off the Supplier’s creditors. This creates several problems for the Customer. If the Customer has not provided real consideration for the IP, the Bankruptcy court will want that consideration. A non-exclusive license could cost more than the Customer anticipated. Worse still, if the Customer wants an exclusive license, then the Customer will likely have to buy the IP outright (if the Supplier is to be liquidated), and that could be very expensive. If the Customer does not want to buy the IP, the Bankruptcy court will sell it to a third party, who will want to block the Supplier from using it. All the time and money the Customer spent in the IP Escrow, will have been money wasted.
A perfect example of this is the controversial decision in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985). In that case, the Bankruptcy court rejected the Customer’s license and the Customer lost the right to use the IP pursuant to 11 U.S.C. §365(a). The result was so controversial, that three years later, Congress amended the Bankruptcy Code, adding §365(n) which allows licensees to continue using the IP after rejection, provided it the license meets certain conditions, the main two of which are 1) it can only be used as long as the original contract was to run; and 2) the licensee continues to make royalty payments.
This creates a few problems for the Customer, however, because 1) often the Customer’s contract is open ended in which case it could be terminated at the end of the current logical interval (and that could be as short as fulfilling the most recent purchase order); 2) often the Customer is not paying a separate royalty, and could thus fail this part of the test; and 3) the Bankruptcy Code does not include “trademarks” in its defined list of “Intellectual Property” protected by this section.
As a result, some courts have been willing to step in and save the agreements, but others have not. A good example is the case of Sunbeam Products, Inc. v. Chicago American Manufacturing, LLC, Case No. 11-3920 (7th Cir., decided July 9, 2012) In this case, the court saves the contract, and is critical of the Lubrizol decision. It highlights the split between the US Circuit Courts on this issue.
So this is a serious trap that varies from court to court. Your contracts that create an IP Escrow arrangement need to include at a minimum:
1) IP licensing principles;
2) A clear discussion of the consideration in terms of a royalty, or analogous to a royalty; and
3) How long the contract will run.
All contracts are a bit different, so the foregoing terms may not be all you need. You will likely need bespoke terms as well. So if it is worth it to you to get IP escrow, it would behoove you to speak to an experienced attorney to help you craft the terms correctly. Otherwise, after all that effort requiring your Supplier to put its IP into escrow, checking to make sure it is complete and paying for the escrow account, you may have just engaged in expensive folly.
The USPTO issued its new Reexam statistics last month.
Ex Parte can be found here:
and Inter Partes can be found here:
On December 19, 2011, the mobile telephone maker, HTC, lost an action to Apple in the International Trade Commission (“ITC”). ITC Investigation No. 337-TA-710. Apple’s original Complaint was substantially pared down by the ITC so that in the end it only covered Claims 1 and 8 of US Patent Number 5,946,647 for a function where your phone can identify and highlight things like email addresses, phone numbers or websites, and then you can click on that highlighted text and your phone automatically dials the number or takes you to that website, etc.
As a result, this would be a simple work around for HTC to build into its new phones – simply eliminate that function. HTC prepared for this result and its new phones supposedly don’t have it. Unfortunately, HTC’s new phones have been held up in US Customs until it can be verified. You would think this would be a relatively simple process, but it is taking some time and costing HTC a lot of money in lost sales and legal fees.
So that raises the bigger question about the enforceability of ITC exclusion orders in general, and the process involved.
When an exclusion order is issued, the real work for US Customs begins. First, US Customs Border Protection (“CBP”) officials have to train the field agents on what to exclude. In addition to the actual study of the ITC’s §337 Investigation and Exclusion Order, CBP works with the parties separately, or ex parte, to identify the products to be excluded.
During this consultation, the Respondent, i.e. the party in HTC’s position, will not only try to narrowly tailor the scope of the Exclusion Order, but it will also attempt to show the CBP that the Order does not apply to its new products. HTC will further be attempting to persuade Apple that the Order does not apply to its new products because if Apple stipulates, then it speeds up the importation of the new products.
Of course, the Complainant, in this example Apple, will want the broadest possible interpretation of the Exclusion Order. Moreover, given the litigious and competitive nature of the market, it is unlikely Apple will agree to stipulate, as the speedy resolution of this issue is not in Apple’s best commercial interests.
If either party is not satisfied with the CBP’s interpretation of the Order, they both have remedies they can pursue. Pursuant to 19 CFR §210.75(a), Apple can commence informal proceedings in the ITC through the Office of Unfair Import Investigations for an Enforcement Proceeding, and if the result of this Motion is not to its liking, it can commence formal proceedings entitled an Enforcement Complaint pursuant to 19 CFR §210.75(b). This proceeding can also result in the amendment of the Order to catch any issues/product aspects that may have been omitted in the original Order. In addition, Apple can seek civil penalties for a violation of the Order.
On the other side, if HTC believes the CBP’s enforcement is overreaching, catching products that are not in violation of the Order, HTC can file a petition under 19 CFR §171, subpart B to get the goods released.
However, this procedure only works where the parties and goods are well defined. Many exclusion orders go unenforced because the CBP is not capable of identifying all of the goods that should be excluded. For example, portable DVD players are imported into the US from many different sources. An exclusion order for a feature that is not obvious without operating the device, such as the one Apple complains of, can easily go undetected by US Customs field agents. They simply don’t have the resources to open the thousands of imports from hundreds of manufacturers and test if the feature is present. In fact, the Complainant may not even know all the companies that are importing infringing goods that should be excluded. Further, if sales are over the internet and shipped directly to the end-user it easily avoids detection. Moreover, if the exclusion order is “limited,” as it is in the Apple-HTC case, then it is “limited” to the Respondent(s), and does not prevent downstream customers from importing it. Under these circumstances, the exclusion order is not effective.
ITC cases are labor intensive, and therefore very expensive. Moreover, once a complainant has won an exclusion order there remains a great deal of work to do in order to enforce it – at great expense. As a result, parties considering this remedy should carefully weigh the costs involved against the ability to enforce the exclusion order before heading down this path.