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1
Emerging Intellectual Property
Issues that Can Blindside
Corporate Counsel
April 1, 2009
Chris Dervishian, RatnerPrestiaChris Lewis, RatnerPrestiaRobert Seitter, RatnerPrestia
Alex Plache, Saint-GobainJohn Gregory, StreamlightMichele Pilotte, Johnson Matthey
22
Emerging Intellectual Property Issues thatCan Blindside Corporate Counsel
I. Trade Secrets/Non-Compete Agreements
II. Trademark Renewal Fraud
III. Geographic Scope of Patents
IV. Injunctions & Treble Damages
V. Patentability of Business Methods
VI. Patent Infringement Indemnification
VII. Backlog/New USPTO Rules
VIII. Open Source Software
IX. Forum Shopping & Patent Reform
33
I. Trade Secrets/Non-CompeteAgreements
� Employee Confidentiality Agreements
� Non-Compete/Non-Solicitation Agreements
What Can They Take? What Can They Bring?
44
Courts are unlikely to issue preliminary injunctions for Anticipatory Breach of a Confidentiality Agreement
But…
I. Trade Secrets/Non-CompeteAgreements
55
Where departing employee who has knowledge of valid technical trade secret and where there is a substantial likelihood that the employee will use that trade secret in competitive employment, a preliminary injunction can be obtained
Recognized in DE, NJ and PA
I. Trade Secrets/Non-CompeteAgreements
Inevitable Disclosure Doctrine
66
Non-Compete/Non-Solicitation Agreements
� Enforceable if Reasonable and supported by Consideration
� Courts strictly construe these agreements
� PA, NJ and DE Courts will blue line agreements to remove or modify unreasonable terms
� In some other states, Courts will not enforce if any term is unreasonable
Can They Be Stopped Before They Get Here/There?
I. Trade Secrets/Non-CompeteAgreements
77
� New employee signs when starts employment, employment is consideration– Send copy of non-compete with offer letter
� Existing Employee– PA
• Continued employment is not consideration
• Annual salary increase is not consideration
– NJ and DE
• Continued employment is consideration
� When non-compete is required for existing employee, spell out raise, bonus, stock options, etc.
Consideration
I. Trade Secrets/Non-CompeteAgreements
88
� PA will not enforce if employee terminated for cause even if agreement provides otherwise
� NJ and DE will look at four corners of contract and will enforceif it covers terminated employee
I. Trade Secrets/Non-CompeteAgreements
Terminated Employee
99
� Include choice of law and forum selection clauses
– No guarantee
– Some courts will apply law of State where ex-employee resides
� Include injunctive relief clause
� Liquidated damages clause not enforceable in all states; may be basis for denial of injunction
Housekeeping
I. Trade Secrets/Non-CompeteAgreements
1010
NJ and DE are more friendly than PA to employers enforcing
Non-Compete/Non-Solicitation Agreements against
ex-employees.
I. Trade Secrets/Non-CompeteAgreements
TAKEAWAY
1111
� What is a Trademark Renewal?
– Every 10 years
– Requires “Statement of Use”
� Recent Law
– Inadvertent mistakes may be fraud
– Fraud -> CANCELLED REGISTRATION
II. Trademark Renewal Fraud
Trademark Renewals -> Read Before You Sign
1212
� Trademark: NEUROVASX (Reg. No. 2,377,883)
� First Use in Commerce: Nov. 15, 1999
� Goods: “Medical devices, namely, neurological stents AND catheters.”
II. Trademark Renewal Fraud
Facts
1313
Applicant is using the mark in commerce on or in
connection with the identified goods/services.
II. Trademark Renewal Fraud
Statement of Use
� Includes warning that willful false statements may jeopardize the validity of the application or registration
� Declares that all statements are true.
-> Signed by: Jeffrey A. Less; President/CEO
Declaration
1414
Statement of Use: “Medical devices, namely, neurological stents and catheters.”
Actual Use: Catheters, not stents.
II. Trademark Renewal Fraud
What Mistake?
1515
How can there be any intent?
“A trademark applicant commits fraud in procuring a registration when it makes material representations of fact in its declaration which it knows or should know to be false or misleading.”
II. Trademark Renewal Fraud
BUT IT WAS JUST A MISTAKE!!
1616
� Word Mark: PANASONIC� Goods: IC 007: G & S: (GROUP I)-ELECTRIC HOUSEHOLD AND COMMERCIAL APPLIANCES-
NAMELY, [ ELECTRIC AIR PURIFIERS, ELECTRIC DISHWASHERS, ] ELECTRIC VACUUM CLEANERS, [ ELECTRIC AUTOMOTIVE VACUUM CLEANERS,] [ ELECTRIC FLOOR POLISHERS, ] [ ELECTRIC HOT PLATES, ELECTRIC PANS, ] ELECTRIC POTS, [ ELECTRIC BLANKETS,] [ ELECTRIC FOOT WARMERS, ] [ ELECTRIC BED WARMERS,] [ ELECTRIC SHEETS, ] [ ELECTRIC KETTLES, ] ELECTRIC PRESSURE COOKERS, [ ELECTRIC GARBAGE DISPOSERS, POCKET WARMERS, BATTERY OPERATED HEATING ELEMENTS USED AS GAS APPLIANCE LIGHTERS, AND ELECTRIC VACUUM CLEANERS FOR BLACKBOARD ERASERS; (GROUP II) - ][ ELECTRON TUBES, ] RESISTORS, CERAMIC CAPACITORS, [ OIL SEALED ] CAPACITORS, TUNERS, MINIATURE ROTARY SWITCHES, TRANSFORMERS, [ IGNITION TRANSFORMERS,] CERAMIC TRANSDUCERS, [ DEFLECTION YOKES, ] [ MAGNETIC MOTOR CONTROL SWITCHES, ] MOTOR SPEED CONTROLLERS, [ AND BALLASTS; (GROUP III)-COMMUNICATION AND SOUND SYSTEMS-NAMELY, ] VIDEO RECORDING TAPES, HEADPHONES, [ INTERPHONES, WIRELESS MICROPHONES, ] WIRELESS RECEIVERS AND AMPLIFIERS, AUTOMATIC TELEPHONE CALLERS, [ MOBILE RADIO TELEPHONE SET ] [ (GROUP IV)-LAMPS ] -NAMELY, [ INCANDESCENT LAMPS,] FLUORESCENT LAMPS,[ MERCURY LAMPS, SODIUM LAMPS, HALOGEN LAMPS, WALL LIGHTS, INFRARED LAMPS, ] FLASHLIGHTS, [ LANTERNS ] [ SMALL HIGH-INTENSITY FLASHLIGHTS, ] [ PORTABLE FLUORESCENT LAMPS, HEAD LAMPS, ] [ POCKET LIGHTS, BICYCLE SIGNAL LIGHTS, BATTERY OPERATED PORTABLE EMERGENCY LIGHTS. AND (GROUP V)-ELECTRIC APPARASIGNAL LIGHTS, DYNAMO LAMPS AND SPOTTUS-NAMELY, ] [ PIEZOELECTRIC SPARK DEVICES,] [ ELECTRIC MOTORS, INCLUDING PHONO MOTORS, SEWING MACHINE MOTORS, CLUTCH MOTORS, SUBMERSIBLE INDUCTION MOTORS, VACUUM CLEANER BLOWER MOTORS, STORAGE BATTERIES, AUTOMATIC BATTERY CHARGERS, PROJECTOR CARBONS, GAUGING CARBONS, DOORBELLS AND BUZZERS FOR THE HOME, PORTABLE BATTERY OPERATED ESCORT ALARMS TO BE CARRIED ON THE PERSON FOR THE PURPOSE OF SIGNALING FOR THE NEED OF ASSISTANCE, BATHTUB WATER LEVEL ANNUNCIATORS FOR THE HOME, ELECTRIC BICYCLE HORNS, AND ELECTRIC FISHING FLOATS ]. FIRST USE: 19560315. FIRST USE IN COMMERCE: 19560315
[ELECTRON TUBES]
First Use in Commerce: March 15, 1956
MARK: PANASONIC
II. Trademark Renewal Fraud
1717
Amend the Description of Goods?
“Medical devices, namely, neurological stents and catheters.”
NO – The amendment does not cure the fraud
Result
Registration cancelled
II. Trademark Renewal Fraud
Can We Fix It?
1818
Make sure the mark is still in use in connection with ALL of the goods/services identified in the trademark registration.
II. Trademark Renewal Fraud
TAKEAWAY
19
III. Geographical Scope of Patents
� Shrimp deveining machine comprising:
1. a knife;
2. a trough; and
3. conduit for providing a water jet
� Method for deveining shrimp comprising the steps of:
1. cutting shrimp; and
2. spraying cut shrimp with water
� Direct Infringement – Section 271(a)
� Indirect Infringement – Section 271(b) & (c)
Direct and Indirect Infringement – U.S. only
20
� General Rule was that infringing act must occur within
the U.S. for liability
The Dope:
� If an assembled product is claimed, we could make the
component parts in the U.S. but ship them overseas
before assembly and be fine, right?
� For claimed methods, we should be fine if the method is
carried out overseas, right?
Rope-a-Dope
III. Geographical Scope of Patents
21
� Shrimp deveining machine (1972)
� Congress enacts Section 271(f) (1984)
� Catalyst for producing ethylene oxide (2005)
� Software for digitally encoding and compressing speech
(2007)
History of Section 271(f)
III. Geographical Scope of Patents
22
� (1)Whoever … supplies … from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined … in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent … shall be liable as an infringer.
� (2)Whoever … supplies … from the United States any component of a patented invention that is especially made or especially adapted for use in the invention and not a staple article or commodity of commerce suitable for substantial noninfringing use … intending that such component will be combined outside of the United States … shall be liable as an infringer.
The Law – 35 U.S.C. § 271(f)
III. Geographical Scope of Patents
23
Cardiac Pacemakers v. St. Jude Medical
� Federal Circuit Panel Decision: Microsoft did not overturn
decision in Union Carbide that 271(f) applies to method claims
� Rehearing en banc just granted:
“Does 35 U.S.C. § 271(f) apply to method claims, as well as product
claims?”
Section 271(f) Today
III. Geographical Scope of Patents
24
One cannot avoid liability for patent infringement of an apparatus claim (and possibly a method claim) simply by having a claimed product assembled (or put into use) overseas.
TAKEAWAY
III. Geographical Scope of Patents
2525
35 U.S.C. § 283 Injunctive relief “may” be granted
35 U.S.C. § 284 Damages “may” be increased up to three times
Statutory Remedies for Patent Infringement
IV. Injunctions & Treble Damages
2626
Until eBay v. Merc Exchange
“To obtain a permanent injunction, a patent holder must demonstrate that:
(1) it has suffered an irreparable injury;(2) no adequate remedy at law (such as damages) exists;(3) the balance of hardship between the plaintiff and
defendant warrants a remedy in equity; and(4) the public interest would not be disserved by a permanent
injunction.”
A Knockout Punch
IV. Injunctions & Treble Damages
2727
In cases where patent holder and infringer are competitors
– injunction granted
In cases where patent holder and infringer are not competitors
– injunction denied
In cases where patent holder has licensed the patents
– injunction denied
Post eBay Case Law
IV. Injunctions & Treble Damages
2828
� District court focus is now on irreparable injury and adequacy of damages
� Permanent injunctions were denied in 30% of reported decisions.
As a Result
IV. Injunctions & Treble Damages
2929
� In Paice v. Toyota, the Federal Circuit permitted the infringer to continue using the patented invention in exchange for the payment of an ongoing royalty
� Court encourages parties to negotiate
What Happens When Injunction is Denied
IV. Injunctions & Treble Damages
3030
Case law holds that the ongoing royalty is not:
� Subject to a jury trial under the Seventh Amendment
� Justified as a matter of course
� The pre-verdict royalty
� The pre-verdict royalty trebled
What is the Ongoing Royalty?
IV. Injunctions & Treble Damages
3131
� Require an evidentiary hearing to evaluate additional (unexplained) economic factors
� Take into account the fact that the patent has succeeded a battle test
Case Law suggests that a determination of the ongoing royalty may:
IV. Injunctions & Treble Damages
3232
� 35 U.S.C. § 284 sets no standard for an award of treble damages
� Courts developed the willful infringer standard for treble damages and attorneys’ fees.
Treble Damages/Attorneys Fees
IV. Injunctions & Treble Damages
3333
� In re Seagate Technology“…clear and convincing evidence that the infringer acted despite an objectively high likelihood that its actions constituted infringement of a valid patent”
� “Risk … was either known or so obvious that it should have been known.”
Seagate’s Reckless Conduct Standard
IV. Injunctions & Treble Damages
3434
� Pre-Seagate patentee prevailed on willfulness 60% of time
� Post-Seagate patentee prevailed on willfulness 36% of time
As a Result Treble Damage Awards Decrease
IV. Injunctions & Treble Damages
3535
� Potential infringer had opinion of competent counsel
� Potential infringer attempted to design around
Not Willful If:
IV. Injunctions & Treble Damages
3636
Courts are now less likely to enter an injunction or award treble damages against a patent infringer and may order the payment of an ongoing royalty for a compulsory license.
TAKEAWAY
IV. Injunctions & Treble Damages
3737
Short Answer
YES, but …
V. Patentability of Business Methods
Are Business Methods Still Patentable?
3838
� New, Useful and Non-obvious:
– Process
– Machine
– Manufacture
– Composition of matter
� Laws of Nature
� Natural Phenomena
� Abstract Ideas
V. Patentability of Business Methods
General Rules Re Patentability
Inventions Eligible for Patent
Judicially Created Exceptions
3939
Bilski and Warsaw Tried to Patent Hedging a Bet
A method for managing the consumption risk costs of a commodity by:
a) initiating a series of transactions between said commodity provider and consumers of said commodity;
b) identifying market participants for said commodity having a counter-risk position to said consumers; and
c) initiating a series of transactions between said commodity provider and said market participants …
Example of a Business Method
V. Patentability of Business Methods
4040
“Machine or Transformation Test”
A claimed process is patent-eligible if:
(1) it is tied to a particular machine or apparatus, or
(2) it transforms a particular article into a different state orthing.
In re Bilski (Fed. Cir. 2008)(en banc)
Judicially-Created Rule
V. Patentability of Business Methods
4141
� Portfolio Value May be Diminished
– Your own portfolio
– Acquisition Target
� Cost for patenting may have increased
� Diminishes Effect of Some Patent Holding Companies
� Review pending applications
– Possibly amend claims in view of Bilski
� Review issued patents
– Consider reissue of patent
� Review existing license agreements
V. Patentability of Business Methods
Why Should You Care?
What Can You Do?
4242
Patentability of business methods is questionable; patents issued in the last 10 years may still be asserted.
V. Patentability of Business Methods
TAKEAWAY
43
� Variations by industry
� Variations by context of transaction
– Sale of Goods
– Technology Transfer Agreement
� Is Agreement on Indemnification reached?
VI. Infringement Indemnification
Defend, Indemnify and Hold Harmless
44
(2) Unless otherwise agreed, a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of the rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of compliance with the specifications.
VI. Infringement Indemnification
UCC § 2-312. Warranty of Title and Against Infringement; Buyer's Obligation Against Infringement.
45
Chemtron, Inc. v. Aqua Products, Inc.
(v. Viking Injector, 3rd Party Def.)
� Aqua found liable for patent infringement
� Aqua sued Viking, its supplier, for contribution and indemnification, based solely on the UCC warranty made “without limitation”
� Viking found not liable
– Warranty is for goods as delivered
– Warranty is for goods, not for buyer’s conduct after the sale
– Patent actions governed by federal law
Limit on the UCC Warranty by Seller
VI. Infringement Indemnification
46
Considerations from Seller’s Perspective
� Willful infringement
� Consider expressly disclaiming warranty of non-infringement (or try to make it knowledge-based)
� Limit liability to value of infringing products under contract
� Exclude ‘use’ of product beyond contemplated use
� Infringement to the extent arising from
– Modification of Products by Buyer
– Combination or use of a Product with any other components if the infringement would have been avoided or
– Seller’s compliance with Buyer’s specifications
VI. Infringement Indemnification
47
Considerations from the Buyer’s Perspective
� Don’t Rely on Being Indemnified for your Willfulness
� Watch out for the ‘Use Trap’ if relying on UCC
� If specifications are provided, be sure that they are
precise and clear
VI. Infringement Indemnification
48
Requirements on Seller Upon Notice of Alleged Infringement
� Get a license for Buyer,
� Replace product with non-infringing product,
� Modify product so it no longer infringes, or
� Provide a pro-rata refund and accept return of product
VI. Infringement Indemnification
49
Consider the scope of and exclusions to indemnification, and recognize that the UCC provision may govern in the absence of an Agreement on indemnification.
VI. Infringement Indemnification
TAKEAWAY
5050
USPTO Backlog Grows And Grows
GDP in 2000$
R&D in2000$ R&D/GDP
Patent Applications
Filed
Patent Applications Pending
1980 $5.2 Trillion $82 Billion 1.6% 115K 182K
1990 $7.1 Trillion $130 Billion 1.8% 175K 245K
2000 $9.8 Trillion $279 Billion 2.8% 312K 485K
2007 $11.6 Trillion $288 Billion 2.5% 467K 1.2MM
VII. Backlog/New USPTO Rules
5151
New Rules
� To Be Effective November 1, 2007
� 2 New Rules Limit Refiling of Applications
� 2 New Rules Limit Number of Claims that Can Be Submitted
The USPTO TRIES For A Knockout With
VII. Backlog/New USPTO Rules
5252
� Tafas, SmithKline Beecham and Glaxo Group brought suit to enjoin enforcement of these rules.
� In April, 2008, District Court granted injunction because these rules were “substantive rules that change existing law and alter the rights of applicants such as [appellees] under the patent act”
Not Everyone Likes Them
VII. Backlog/New USPTO Rules
5353
� On March 20, 2009, Federal Circuit affirmed District Court’s decision with respect to one rule and reversed/remanded with respect to other three rules
� Three of the Rules held to be procedural and within the scope of USPTO’s rule making authority
And The Federal Circuit Issues a Split Decision
VII. Backlog/New USPTO Rules
5454
� Whether any of the rules are arbitrary and capricious
� Whether any of the rules conflict with Patent Act in ways not addressed in opinion
� Whether all USPTO rule making is subject to notice and comment under 5 U.S.C. § 553
� Whether any of the rules are impermissibly vague
� Whether the rules are impermissibly retroactive
Issues on Remand
VII. Backlog/New USPTO Rules
5555
� Current House appropriations bill will not increase USPTO funding
– USPTO will operate on fees received; About $2 billion
– House urges USPTO to be more efficient
And Will Continue to Grow
VII. Backlog/New USPTO Rules
5656
� USPTO could increase fees to cover cost of new examiners
� Deferred examination of applications to reduce number that will be examined
� Require applicants to search, submit results and a patentabilitystatement
Other Solutions to Reduce Backlog
VII. Backlog/New USPTO Rules
5757
No federal money is available to solve the growing PTO backlog problem, leaving applicants to choose among: suffering longer pendency times; allowing the PTO to promulgate more burdensome rules; or working towards a solution.
TAKEAWAY
VII. Backlog/New USPTO Rules
5858
� What Is It?
� Why Should I Care?
VIII. Open Source Software
Open Source Software
5959
� “Source Code” - the human readable version of software.
� “Object Code” – the machine executable code derived from Source Code.
� “Closed source” – e.g., Windows, Word, TurboTax
� “Open source” – e.g., Linux, OpenOffice
“SOURCE”
“OPEN”
VIII. Open Source Software
6060
� Software provided under an open source software license
– E.g., GPL (Linux); Apache, BSD, …
� Basic Principles
– No restriction on copying, modifying, or distributing
– Source code usually provided with distribution
– Usually No Warranty, Support or Indemnification
– No royalty
– … provided that certain conditions are met.
What is Open Source Software (OSS)?
VIII. Open Source Software
6161
POTENTIAL BENEFITS
� Shorten development time
� Code in Public View
– Increased reliability, rapid bug-fixes
– Increased security – exposed to extreme scrutiny
� Less Reliance on Vendor (in theory)
– With access to source, another vendor can fix bugs
and provide support
Why use Open Source Software (OSS)?
VIII. Open Source Software
6262
POTENTIAL PITFALL #1
– License Violation
What damages for non-compliance? - It’s given away for free!!
What did you violate?
� License Condition OR Covenant in Contract
-> Copyright Infringement
-> Injunction is an available remedy
VIII. Open Source Software
6363
POTENTIAL PITFALL #2
- OSS Can Infect Proprietary Software
Why Should I Care?
- Required disclosure of proprietary software
- Diminished IP value
Combine
Open Source Software(OSS)
Open Source Software(OSS)
Proprietary Software
VIII. Open Source Software
6464
� Due Diligence Considerations
– Identify OSS Use/Confirm License Compliance
– Consider OSS impact on valuation
– Review indemnification, warranty and support obligations
pertaining to OSS
– Consider performing a code scan
� IP Portfolio Management
– Establish an OSS compliance policy
– Perform periodic code scans
� Inbound Software Licensing
– No warranty, support or indemnification
– Combining with proprietary code?
� Outbound Software Licensing
– Customer restrictions re OSS
Practice Tips
VIII. Open Source Software
6565
Open source Software is often hidden in other software; this may infect proprietary software and diminish its IP value and may create a risk of copyright infringement and possible injunction.
TAKEAWAY
VIII. Open Source Software
66
IX. Forum Shopping & Patent Reform
“Let’s take it OUTSIDE ... I mean, in Texas!”
55%
37%
33%
31%
51%
PatenteeSuccess
Rate
$19.7MM
$4.6MM
$8.7MM
$1.5MM
$10MM
MedianDamagesAward
1.8
3.4
2.9
2.1
1.7
Time to Trial in Years
E.D. TX
N.D. IL
N.D. CA
S.D. NY
C.D.CA
Court
Source: U.S. Fed’l Courts websitewww.uscourts.gov
67
� TS Tech’s Motion to Transfer Venue was denied
� TS Tech petitioned for a Writ of Mandamus to direct the E.D.
Texas to transfer patent infringement case to Ohio
� Federal Circuit orders transfer because E.D. Texas
was not as convenient as Ohio
� Ohio was locale at center of case
The Federal Circuit: You mean, in Ohio!
IX. Forum Shopping & Patent Reform
68
� Failed to properly consider the cost of attendance for
witnesses
� Failed to give proper weight to “relative ease to access to
sources of proof”
� Failed to account for public interest of having localized
disputes decided at home
Factors Misapplied by District Court
IX. Forum Shopping & Patent Reform
69
� To establish a pilot program in certain United States district
courts to encourage enhancement of expertise in patent cases
among certain district judges
� Not less than six United States district courts, in at least three
different judicial circuits, shall be designated
� At least three judges designated on each court
� Cases are to be randomly assigned, but if an “undesignated
judge” is assigned a patent case, that judge may decline
Patent Courts Bill Introduced
IX. Forum Shopping & Patent Reform
70
� Proportional Damages
� First-to-File
� Willfulness Claims Throttled
� Enhanced Post-Grant Review
� Amended Venue Provision
Maybe this session, but don’t hold your breath!
IX. Forum Shopping & Patent Reform
71
Think twice before filing suit in your “Sweetheart Court,” and keep an eye on Congress as it considers a Patent Courts Bill and Patent Reform Legislation.
TAKEAWAYS
IX. Forum Shopping & Patent Reform
7272
THANK YOU!
Emerging Intellectual Property
Issues that Can Blindside
Corporate Counsel