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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…


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


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?


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


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


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


1010

NJ and DE are more friendly than PA to employers enforcing

Non-Compete/Non-Solicitation Agreements against

ex-employees.


TAKEAWAY

1111

� What is a Trademark Renewal?

– Every 10 years

– Requires “Statement of Use”

� Recent Law

– Inadvertent mistakes may be fraud

– Fraud -> CANCELLED REGISTRATION


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.”


Facts

1313

Applicant is using the mark in commerce on or in

connection with the identified goods/services.


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.


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.”


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


1717

Amend the Description of Goods?

“Medical devices, namely, neurological stents and catheters.”

NO – The amendment does not cure the fraud

Result

Registration cancelled


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.


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


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)


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� (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)


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


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


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


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


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


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


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


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?


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:


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


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


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


3535

� Potential infringer had opinion of competent counsel

� Potential infringer attempted to design around

Not Willful If:


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


3737

Short Answer

YES, but …


Are Business Methods Still Patentable?

3838

� New, Useful and Non-obvious:

– Process

– Machine

– Manufacture

– Composition of matter

� Laws of Nature

� Natural Phenomena

� Abstract Ideas


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


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


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


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.


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.


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


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


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


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


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.


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



2007 $11.6 Trillion $288 Billion 2.5% 467K 1.2MM


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


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


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


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


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


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


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


5858

� What Is It?

� Why Should I Care?


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”


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)?


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)?


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


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


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


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


66


“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!


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


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


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!


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


7272

THANK YOU!

Emerging Intellectual Property

Issues that Can Blindside

Corporate Counsel

emerging intellectual property issues that can blindside ... › lib › sitefiles › pdf ›...

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