IP  For  Entrepreneurs  September  17,  2013    Liz  Wiley,  The  Wiley  Firm  PC        

¡  1836  §  US  patent  number  1  

¡  1911  §  US  patent  number  1,000,000  

¡  16  August  2011  

§  US  patent  number  8,000,000  

http://www.uspto.gov/news/Millions_of_Patents.jsp    

The  Harvard  Business  Review  estimates  $1  trillion  in  potential  revenue  is  hidden  and  unrealized  in  the  patent  portfolios  of  companies,  universities,  and  government  institutions.    Investors  and  shareholders  are  demanding  greater  ROI  from  the  patent  portfolio  (mostly  for  struggling  companies).    

¡  Internet  pioneer    ¡  Revenue  of  over  $2  billion  per  year    

§  Down  73%  since  2006,  when  revenues  were  $7.8  billion    

§  Earnings  declined  from  $1.4  billion  in  2007  to  $13  million  in  2011  –  with  two  years  of  losses  totaling  over  $2  billion  in  between  

¡  After  its  deal  to  sell  800  patents  to  Microsoft  for  just  over  a  billion  dollars,  AOL  saw  its  stock  price  rise  by  62%  

¡  Lost  market  force:  slow  to  react      §  Forced  into  bankruptcy  after  131  years  in  business  as  dominant  force  

¡  1,100  patents  it  deems  important  (digital  imaging),  (over)valued  at  up  to  $2.6  billion  

 §  Citigroup  provided  Kodak  with  almost  a  billion  dollars  in  financing  

(DIP),  secured  by  all  of  Kodak’s  assets,  including  its  intellectual  property    

§  Selling  these  patents  would  allow  Kodak  to  pay  off  its  debts  and  gain  enough  operating  cash  to  fund  new  businesses  

   ¡  A  failure  to  monetize  the  patents  could  force  the  company  to  

liquidate,  putting  its  17,000  employees  out  of  work  

AGAINST  

¡  “Patent  trolls  hold  patents  and  then  enforce  them  when  they  find  evidence  suggesting  that  the  patents  have  been  infringed—even  though  the  holder  has  no  intention  of  making  any  product  using  the  patent’s  contents.”      

 ¡  This  practice  subverts  the  

purpose  of  patents  –  and  intellectual  property.  

 ¡  Acts  as  a  “tax”  on  innovation.    

FOR  

¡  Patents  are  assets  that  have  inherent  value  

¡  Value  should  be/can  be  generated  by  pursuing  legal  claims  in  furtherance  of  that  value  

¡  Patents  are  like  any  other  asset  that  can  be  financialized  (”monetized”)  and  assembled  into  a  portfolio  

http://wallstcheatsheet.com/trading/these-­‐big-­‐companies-­‐invest-­‐in-­‐patent-­‐trolls.html/    

Shortly after his return from England in 1849, Howe inspected some of the new sewing machines that were now on sale and he concluded that they infringed his 1846 patent. Regardless of what other features these new sewing machines may have exhibited, they used…the central elements claimed in Howe’s patent. … Since he was destitute, Howe required an investor to finance his patent infringement lawsuits, and he at last convinced George W. Bliss to invest in his litigation strategy (as well as purchase a one-half interest in Howe‘s patent from a previous financial backer, George Fisher, who had not realized any return on his investment).* At this point, Howe was ready to undertake ― his main preoccupation — indeed, his main occupation—for the next several years: namely, suing the infringers of his patent for royalties.

*In exchange for a partial ownership interest in his 1846 patent, Fisher provided Howe with approximately $2000. … Fisher thus sold his one-half interest to Bliss for approximately $3500.

Adam  Mossoff,  The  Rise  and  Fall  of  the  First  American  Patent  Thicket:  The  Sewing  Machine  War  of  the  1850s  ,  53  Ariz.  L.  Rev.  165,  183    (2009)  (emphasis  added).  

Texas  Trade  Secret  Law  

¡  What  it  can  be  §  “[A]ny  formula,  pattern,  device  or  compilation  of  information  …  used  in  one's  business  and  presents  an  opportunity  to  obtain  an  advantage  over  competitors  who  do  not  know  or  use  it”  

¡  Examples  §  Customer  lists,  pricing  information,  client  information,  customer  preferences,  buyer  contacts,  blueprints,  market  strategies,  drawings,  seismic  data,  in-­‐house  study  on  oil  and  gas  reserves  

“It  is  not  possible  to  state  precise  criteria  for  determining  the  existence  of  a  trade  secret.  The  status  of  information  claimed  as  a  trade  secret  must  be  ascertained  through  a  comparative  evaluation  of  all  the  relevant  factors,  including  the  value,  secrecy,  and  definiteness  of  the  information  as  well  as  the  nature  of  the  defendant's  misconduct.”        In  re  Bass,  113  S.W.3d  735,  739  (Tex.  2003)  (emphasis  added).  

“[T]the  party  claiming  a  trade  secret  should  not  be  required  to  satisfy  all  six  factors  because  trade  secrets  do  not  fit  neatly  into  each  factor  every  time.  We  additionally  recognize  that  other  circumstances  could  also  be  relevant  to  the  trade  secret  analysis.  Thus,  we  will  weigh  the  factors  in  the  context  of  the  surrounding  circumstances  to  determine  whether  geological  seismic  data  qualify  as  trade  secrets.    In  re  Bass,  113  S.W.3d  735,  740  (Tex.  2003)  (emphasis  added).  

¡  Extent  to  which  the  information  is  known  outside  the  company’s  business;    

¡  Extent  to  which  the  information  is  known  by  employees  and  others  involved  in  the  business;  

¡  Extent  of  the  measures  taken  to  guard  the  secrecy  of  the  information;    

¡  Value  of  the  information  to  the  company  and  to  its  competitors;    

¡  Amount  of  effort  or  money  expended  developing  the  information;    

¡  Ease  or  difficulty  with  which  the  information  could  be  properly  acquired  or  duplicated  by  others.    

 

¡  Effective  September  1,  2013    ¡  Broad  definition  of  “trade  secret”:  a  formula,  pattern,  

compilation,  program,  device,  method,  technique,  process,  financial  data,  or  list  of  actual  or  potential  customers  or  suppliers,  that:  §  Derives  independent  economic  value,  actual  or  potential,  from  not  being  generally  known  to,  and  not  being  readily  ascertainable  by  proper  means  by,  other  persons  who  can  obtain  economic  value  from  its  disclosure  or  use;  and  is  the  subject  of  efforts  that  are  reasonable  under  the  circumstances  to  maintain  its  secrecy.  

¡  Injunctive  relief  beyond  life  of  trade  secret  ¡  Damages  for  actual  loss  caused  by  the  misappropriation  or  unjust  enrichment  

¡  Royalty  for  unauthorized  disclosure  or  use.  ¡  Exemplary  (punitive)  damages  if  willful  ¡  Attorneys’  fees  if  willful  ¡  Attorneys’  fees  available  to  defendant  if  claim  of  trade  secret  misappropriation  made  in  bad  faith  

¡  Slip  of  paper  in  a  vault  somewhere  in  Atlanta,  Georgia  listing  17-­‐18  ingredients  

¡  Only  a  few  corporate  executives  know  the  exact  recipe;  each  bound  by  oath  not  to  reveal  contents  §  When  one  of  these  individuals  

dies,  the  others  approve  a  successor    

§  The  “keepers  of  the  recipe”  travel  separately  to  ensure  that  a  single  accident  won't  eliminate  all  of  them    

¡  Harland  Sanders  used  to  carry  around  the  secret  recipe  of  "11  herbs  and  spices"  in  his  car.  

   ¡  Today  the  recipe  lies  in  an  

undisclosed  vault  in  a  bank  in  Louisville,  Kentucky.  

 ¡  Only  a  select  handful  of  

individuals  know  the  exact  recipe;  each  individual  is  contractually  obligated  to  secrecy.    

¡  No  single  company  is  allowed  to  mix  all  the  ingredients.  

   ¡  The  herbs  and  spices  are  mixed  

by  two  different  companies  in  two  different  locations  and  then  combined  elsewhere  in  a  third,  separate  location.    

¡  To  mix  the  final  formula,  a  computer  processing  system  is  used  to  blend  the  mixtures  together  and  ensure  that  no  one  outside  KFC  has  the  complete  recipe.  

 

¡  Litigation  may  decide  whether  is  trade  secret  ¡  Defending  and  establishing:  

§  Confidentiality  agreements  §  Non-­‐competes  (consult  an  employment  law  attorney)  

§  Documentation  of  limited  employee  access  §  Not  widely  known  –  but  ok  if  public  information  incorporated  into  in-­‐house  market  study  

§  Proof  of  actually  following  in-­‐house  policies  

 Liz  Wiley  State  Bar  of  Texas  Board  Certified  Civil  Appellate  Law,  Texas  State  Board  of  Legal  Specialization  

 The  Wiley  Firm  PC  tel.  512.560.3480  |  fax  512.551.0028    skype  liz.wiley1  lizwiley@wileyfirmpc.com