Supreme Court Rules that Patent Owner Bears Burden of Proving Infringement in Licensing Dispute

Comments Off on Supreme Court Rules that Patent Owner Bears Burden of Proving Infringement in Licensing Dispute Written by on February 8, 2014 | Posted in Commercialization of Intellectual Property

The U.S. Supreme Court recently issued a decision in the licensing dispute case of Medtronic Inc. v. Mirowski Family Ventures, LLC, where the Court held that the patent owner had the burden of proving infringement when the licensee files a declaratory judgment action in a patent licensing dispute.

What are the facts in this case?

Medtronic was a sublicensee of a patent license between Mirowski and Eli Lilly.  The original sublicense agreement provided that, upon receipt of a notice from Mirowski that a new Medtronic product infringed a Mirowski patent, Medtronic would have the choice of either accepting Mirowski’s claims and curing the nonpayment of royalties or challenging Mirowski’s claims by filing a declaratory judgment action while still paying the disputed royalties. A subsequent agreement amended this procedure, enabling Medtronic to accumulate disputed royalties in an escrow account in the event that it decided to challenge Mirowski’s claims and file a declaratory judgment action.

In 2007, Mirowski notified Medtronic that seven of its products violated two of its patents.  Medtronic disputed the claims and filed for declaratory judgment in the Federal District Court in Delaware while continuing to pay the disputed royalties in an escrow account in accordance with the terms of the sublicense agreement.

The District Court found that Mirowski had not proved infringement but had the burden of proof to prove infringement.  The case was appealed to the Court of Appeals for the Federal Circuit, which concluded that a different rule applied, and that the party seeking the declaratory judgment of noninfringement bore the burden of persuasion.

The Supreme Court held that the same rule applied whether the patent owner filed an infringement suit against the sublicensee or the sublicensee seeks a declaratory judgment after being accused of patent infringement by the patent owner: the patent owner must prove that the infringement exists.

From my perspective, the Supreme Court reached the right conclusion: the declaratory judgment procedure and escrow option was put in place to allow the sublicensee to challenge the patent owner’s claims while continuing to otherwise meet the terms of the license.  The fact that the sublicensee disputed the patent owner’s claims should not have shifted the burden to the sublicensee to prove that it had not infringed–it is logical to expect that the patent owner should have to prove its claims of infringement.

What is the significance of this case?  The Supreme Court has now resolved the uncertainty that existed over who bears the burden of proof in a declaratory judgment action in a patent licensing dispute.  The elimination of uncertainty on this issue may prompt more patent licensees and sublicensees to take the step of challenging licensors’ interpretation of their patent licenses in lieu of paying the royalties demanded of them.  In light of this development, licensors who become aware of royalty dispute with a patent licensee or sublicensee should consider the merits of taking a more proactive approach to seeking a commercial resolution of such a dispute with their licensee before the licensee decides to escalate the issue to filing for declaratory judgment.  Moreover, this decision may impact the negotiating dynamic in situations where a patent owners seek to enforce its patent rights on a less than enthusiastic licensee, since a heavy-handed negotiating approach by the patent owner may be more likely now to prompt the licensee to file for declaratory judgment after the ink dries on a newly executed license agreement.  Patent owners engaging in such licensing negotiations should perhaps give more consideration to reaching an agreement with the reluctant licensee that is not so one-sided that the licensee will feel compelled to challenge the agreement after its execution.



Steering Clear of Marketing Traps Around Milestone Events

Comments Off on Steering Clear of Marketing Traps Around Milestone Events Written by on February 7, 2014 | Posted in Trademark Licensing

If you are in the marketing/advertising business, your success depends largely on coming up with innovative new ways to promote a customer’s product or event offering.  Thus, when a milestone event arises in the sports, music, or film worlds, you may be inspired to try to capitalize on those events by tying your marketing efforts to the milestone event.

There is only one problem: the names and marks associated with those milestone events are likely protected trademarks.  Thus, if you launch a marketing campaign without first procuring the necessary license from the trademark owner to use the trademarks, you will likely be the recipient of a stern cease and desist letter. . . .or worse.

What kinds of marks am I talking about?  Marks surrounding awards events and sport events are just some of the major events that come to mind that likely have a number of registered trademarks protecting the use of the names.   I recall, for example, not too long ago that a client came to me with a cease and desist letter regarding the alleged use of the word “Grammy” in conjunction with a publicized party.   According to attorney Gonzalo Mon who recently wrote an article on this issue, he has clients contemplating the use of ring-based marks and reference-based marks to the Olympics right now, any of which could be problematic if the client is not an official sponsor of such event specifically authorized to use the marks in question.  While I know from my own practice that marketing professionals have a tendency to grab and use third party marks without giving much consideration to whether or not they have the right to do so, and they often fly under the radar screen in engaging in such actions, it is not an advisable practice and it may catch a third party’s attention, particularly where the third party is charging a premium rate for the use of that mark.

So, as we come up on milestone events, if you are inspired with a great marketing or advertising idea, you should always assume that the marks surrounding such an event are going to be protected and engage in some research before making use of a event-related mark or mark that might be confusingly similar to an event-related mark.  How do you confirm that this is the case?  Well, a simple search of the USPTO database for the name of the event in question would be a good starting point for your research.  While you can absolutely run a question like this by a trademark attorney, searching the USPTO database does not require legal credentials, and I encourage all my clients to learn how to run searches themselves, as it is an easy skill to learn as a non-lawyer.  Typing in the word “Olympics” for example, brings up a long list of marks, and should alert you fairly quickly to the fact that there are in fact registered trademarks surrounding the event in question that you need to be aware of.  The same type of search should work for other events.

Of course, even if there are no federal trademarks in place surrounding a particular event mark, there still may be common law rights in a trademark that you might be infringing on if you use the mark without first obtaining a license, so just because your search of the database is clear, does not mean that you are free to use a particular mark.  Also, you should remember that the database only searches U.S. trademarks, so there are trademarks all around the world that potentially could be a problem if the mark in question may have a worldwide platform.

The  bottom line is that you should be cautious in marketing around events to ensure that you stay clear of legal problems in conjunction with those events.  The success you achieve with such a marketing campaign could easily backfire and result in legal woes that far outweigh any benefits you received from your marketing efforts.

Supreme Court to Hear Streaming TV Over the Internet Case

Comments Off on Supreme Court to Hear Streaming TV Over the Internet Case Written by on February 3, 2014 | Posted in Content Licensing, Copyright Infringement, IP Licensing Litigation

Like many cable and satellite TV consumers these days, I have been closely following the new options on the market for streaming TV service and hoping that the day will soon come when I can significantly reduce my monthly subscription costs without cutting off my access to live TV.   With the cost of living and working in Silicon Valley running so high already, expensive TV service is one of those expenses I just can’t help but resent each month, especially in light of the fact I have so little time to spend watching television programming anyway.  So, when I happened to come across the start-up Aereo,  their business model caught my attention, as you could access a number of channels with their service for a very low monthly price.  I remember thinking to myself that it was only a matter of time before there would be litigation challenging the Aereo model.  I did not have to wait long before that in fact happened. As you might expect, a group of broadcasters quickly filed for injunctions.  They lost in cases filed against Aereo in New York and Boston, as well as in an appeal to the Second Circuit.  However, they had more success in an injunction filed against an Aereo competitor, FilmOn,  in the D.C. Circuit.  Due to the split circuit decisions, the dispute has already made its way to the Supreme Court and will be heard later this year.

At issue is the question of whether or not Aereo’s service publicly performs copyrighted television programs   Petitioners argue that the Aereo model “would seem to be an obvious copyright violation–an entire business model premised on a massive for-profit unauthorized exploitation of copyrights where competitors’ prices are undercut because they seek authorization and pay fees” and that “Aereo offers precisely the kind of service Congress sought to prohibit when it revised the Copyright Act to define public performance to include retransmissions of over-the-air broadcasts to the public.”  The other side of the argument, which the Second Circuit Court of Appeals found compelling,  is the argument that the Aereo model does not infringe Petitioners’ public performance right since the transmission under the Aereo model is to a single subscriber and therefore is not a public performance.  In reaching this decision, the Second Circuit looked to prior precedent interpreting the public performance right and the transmit clause of the Copyright Act  in Cartoon Network LP, LLLP v. CSC Holdings, Inc., 5369F.3d 121 (2d Cir. 2008), stating that in that case the same Court had found that “in determining whether a transmission is to the public, it is important to discern who is capable of receiving the performance being transmitted” and held that a transmission of a recorded program to an individual subscriber was not a public performance.

I don’t have much of a track record in predicting how the Supreme Court will rule on a particular case, but as a technology attorney, I am more persuaded by the Aereo argument than the broadcasters’ position.  I think that given all the other relevant copyright decisions in this space over the years, there is reason to anticipate that the Supreme Court should decide in Aereo’s favor.  Whether they will or not, however, is another question entirely.

Obviously, the Aereo model has the major networks concerned.  It has been reported that CBS and Fox are already threatening to turn their broadcast channels into cable channels, asserting that they cannot afford to provide the type of content that they are currently providing from an advertiser-supported-only business model.  Professional sports leagues such as the National Football League and Major League Baseball have been reported to have also threatened to move their high-profile broadcasts such as the Super Bowl and World Series to cable, and certain cable and satellite TV companies are already exploring building services to compete with Aereo.

With all the ways to view and consume content now on the market, it was almost inevitable that we would be seeing streaming TV companies emerge on the market and that there would be litigation in an attempt to put any of the more successful models out of business.  I personally have been eager to see some changes in the marketplace on how I can access live TV programming, and I’ve been frustrated at the snail’s pace that such change has seemed to occur, as so many other new technologies flooded the marketplace.  Without question, a decision in this case has the potential to disrupt and transform the broadcasting landscape as it now exists.  Whether or not any such disruption will be beneficial to consumers remains to be seen.    As an interested consumer, I am hopeful that any change in the television marketplace that arises because of Aereo will be for the better.

To view the Petition for Writ of Certiorari filed with the Supreme Court, click here.   To view the Second Circuit Decision, click here.




Copyright Office Seeking Comments on Possible Change to Small Claims Remedies

Comments Off on Copyright Office Seeking Comments on Possible Change to Small Claims Remedies Written by on October 5, 2012 | Posted in Copyright Infringement, Copyright Legislation

As an attorney who largely represents small businesses and entrepreneurs, I have often found myself in the tough position of explaining to someone with limited resources just how difficult it was going to be to go after an infringer.  Either it is simply too cost-prohibitive to go after an infringer, or the client has the resources to pursue litigation, but the damage amount makes litigation difficult to justify.

Apparently the issue is getting some new consideration by Congress and the Copyright Office, as the Copyright Office has been asked by Congress to conduct a study to:

(1) assess the extent to which authors and other copyright owners are effectively prevented from seeking relief from infringements due to constraints in the current system; and

2) furnish specific recommendations, as appropriate, for changes in administrative, regulatory and statutory authority that will improve the adjudication of small copyright claims and thereby enable all copyright owners to more fully realize the promise of exclusive rights enshrined in our Constitution.

If you are a small business or an individual who has been faced with a small copyright claim matter and has any feedback on obstacles that you encountered in dealing with the matter, or if you have any thoughts on how the current system might be changed to better address copyright small claims matters, then the Copyright Office wants to hear from you.  You should submit your comments to the Copyright Office by October 19th at the submission link.

I personally would like to see changes made to better address small copyright claims matters, because I think that most copyright infringement at this point in time goes unaddressed because so little can be done about it.  I feel confident that many of you feel the same.  If you have any thoughts to share on this issue, please take the time to write the Copyright Office and share those thoughts, and make certain you do it in time to meet the deadline.




Google Reaches Settlement with Book Publishers in Copyright Infringement Case

Comments Off on Google Reaches Settlement with Book Publishers in Copyright Infringement Case Written by on October 5, 2012 | Posted in Copyright Infringement

Google has reached a settlement with several major American publishing companies, including but not limited to McGraw-Hill, Pearson Education and Penguin, John Wiley & Sons and Simon & Schuster  in a copyright infringement case challenging Google’s decision to scan the book collections of many major universities.  The Los Angeles Times is reporting that the settlement affirms the rights of copyright owners, who will now have the right to decide whether or not their books are scanned by Google.  According to the Los Angeles Times,  up to 20% of the content of any book included in the project will be viewable  on the Internet.  All other  terms of the agreement are confidential.  Attached is a  copy of the press release issued by The Association of American Publishers.

The Authors Guild has also been involved with litigation against Google over the same issue, and the terms of that settlement may shed some light onto what might have been agreed to in the new settlement.  A copy of original settlement agreement reached in that case is posted at the Author’s Guild website, as well as  a full description of the litigation history.  The current amended settlement terms from 2010 in that case are posted here, which as in the new decision, allowed for the removal of books from the scanning project but also provided revenue sharing terms for sales made by Google on the scanned content to third parties. 


Google Announces Controversial Decision to Factor Receipt of DMCA Notices into Ranking of Websites

Comments Off on Google Announces Controversial Decision to Factor Receipt of DMCA Notices into Ranking of Websites Written by on August 15, 2012 | Posted in Content Licensing, Copyright Infringement

Google has just made a controversial announcement that it will now be factoring the number of “valid” DMCA notices that it receives on a particular website into how it ranks that website in its search results.

The Wall Street Journal reported:

Google’s move comes as Google itself is attempting to become a major seller and distributor of professional video and music content through a variety of services, from its YouTube video site to the Google Play online-media store to its pay-TV service in Kansas City, which required deals with cable-channel networks. It is pursuing such initiatives partly in a bid to compete with Apple Inc. and Amazon Inc. among other tech companies that distribute media.

As you might expect, the announcement has been met with controversy.  Some observers are accusing Google of censorship, and others are accusing Google of caving into pressure exerted by the powerful recording industry and motion picture industry lobbies.

Those accusations are not exactly baseless, given the fact that Google itself reports that a high percentage  of the removal requests each month are received from the recording industry and various media corporations, and certainly those groups are looking for removal results.  Moreover, it is clear with Google’s purchase of YouTube and its development of Google Play that Google is looking to build a better media platform, and obviously the company is likely to meet less resistance in this space if it is seen as working with these companies rather than against them.  Anyone who follows copyright legal developments knows that these lobbies are powerful and aggressive in going after alleged infringers, regardless of their size or financial resources, and it doesn’t require much of a leap to imagine how those same lobbies could utilize those resources to cause the “censorship” of such companies on the Internet.

I would argue, however, that Google’s new policy may be beneficial to many companies in Silicon Valley who simply do not have the resources to pursue infringers in a court of law but want to do something about the fact that their copyright is being infringed.   I’ve represented many companies in recent years who have  fallen into this category, and they are always very frustrated when I explain to them the limitations of a DMCA notice.  They always want to more but just can’t afford it, and they usually hang up in disbelief that the U.S. system doesn’t better protect copyright owners.

Now, I’ll be able to suggest to those clients that they file a DMCA notice directly with Google before they throw in the towel on taking action against the infringer.   Since what irritates such clients the most is having those infringers competing with them on the Internet, I think most clients will be very pleased with having a new tool in their arsenal against infringers.

So, all in all, while I agree with the concerns voiced by Internet observers and agree that the potential exists for abuse,  I am on the whole pleased with this new Google policy development.





PayPal Launches New Internet Controversy over Decision to Censor Erotica Content Sold through Platform

Comments Off on PayPal Launches New Internet Controversy over Decision to Censor Erotica Content Sold through Platform Written by on February 27, 2012 | Posted in Content Licensing, IP Licensing Deals, IP Transactions

PayPal has set off a new controversy on the Internet by advising e-book sellers that they must remove all erotica content off their websites or PayPal will stop doing business with them.   In particular, PayPal is apparently concerned with content dealing with erotica fiction containing rape, incest, and bestiality, reported Technolog on MSNBC’s website.

According to a report by Tech Crunch, e-book publisher Smashwords received a notice from PayPal on Feb. 18th giving the publisher only a few days to achieve compliance with the “ultimatum.”  In response to the Paypal demands, Smashwords has posted this press release on its website advising authors, publishers, and literary agents of the new Smashwords position.

Zdnet is reporting  that AllRomance, Excessica and Bookstrand received similar notices.

As you might expect, the uproar over the Internet is on the fact that a payment processor is trying to “censor” obscene content sold over the Internet by third parties.  The concern is over the slippery slope of censorship and how dangerous this is for society as a whole.

On the other hand, PayPal is definitely not the only payment processing option available over the Internet, so these e-book publishers do have other options besides working with Paypal.  Moreover, PayPal is a privately owned company, and despite recent acts by the President and Congress to force particular behavior on privately owned companies, as far as I know, there are still laws in this country recognizing the right of privately owned companies to make their own decisions about how to run their businesses, including what customers to work with and what terms and conditions to operate under.  We may be on a slippery slope of private companies losing their autonomy to make their own business decisions, but at the moment, we still live in a country where private companies have some autonomy to make their own individual decisions.

Furthermore, we still have obscenity laws in this country, which are local in nature.  Can’t an international company like PayPal take the position that running payments to purchase obscenity would be a violation of the laws somewhere in this country?

According to many of dissenter voices over the Internet, the answer is a clear “no.” Constitutional rights to free speech are at risk when censorship is involved, say these dissenters.

In considering this issue, I must say that I am a strong proponent of free speech; however, at the same time, I personally see no value in this type of content, other than to law enforcement who might want to know who is reading it.  I would contrast this type of content with pure adult pornography in the sense that it is actually depicting criminal activity against a non-consenting third party or a third party who is not capable of consenting, whereas pornography does not by its very nature depict something that is of a criminal nature.  That puts this type of content, in my opinion, in a different category from mere obscene content.

I would also argue that companies like PayPal have the right to make business decisions based on their own conscience and morals, provided that those decisions do not violate any laws themselves. I worry about the direction our society is going in, if private companies are no longer the afforded the opportunity to make business decisions for themselves and the public good starts dictating private business behavior motivated by morality and conscience. Isn’t that how our society and other societies have gotten themselves in trouble in the past?

It will be interesting to see how this controversy develops. The Silicon Valley IP Licensing Law Blog will continue to follow the story and keep you posted on any new developments.

Apple Trademark Dispute with Proview Becomes a Global Fight

Comments Off on Apple Trademark Dispute with Proview Becomes a Global Fight Written by on February 24, 2012 | Posted in IP Licensing Litigation, Trademark Litigation

Apple’s trademark dispute with Proview is now being fought on two fronts: at the local level in China and here in Silicon Valley.

The Wall Street Journal is reporting that Proview has filed a lawsuit in Santa Clara County Superior Court claiming that Apple committed fraud when it used a company called IP Application Development Ltd., to purchase the iPad trademark from Proview on Dec. 23, 2009. According to The Wall Street Journal, there are emails in which a representative of IP Application Development told Proview “that it wanted to acquire the iPad name because it was an abbreviation of its company’s title, and that its future products wouldn’t compete with Proview’s products.”

Reuters is reporting that the strategy of filing now in the U.S. increases the likelihood that the dispute will disrupt Apple’s supply of iPads to China, and puts additional pressure on Apple to settle the matter quickly.

At the same time, Proview also likely needs this dispute resolved quickly, given its current financial situation. According to Reuters, Proview will be de-listed by the Hong Kong stock exchange this summer unless it comes up with a viable plan to deal with its debt. Going after Apple would appear to be its strategy for dealing with its current debt load.

As an outsider looking in on this dispute, it seems highly likely to me that a settlement in this matter will be reached at some point this year, since Apple stands to lose a significant amount of money in sales if its supply chain is disrupted and Proview is reported to be desperate for cash. The primary impediment to settlement is likely to be emerely the amount of money on the table, since Proview requires a certain amount of money as a business necessity to get out of its current financial problems and a settlement for less than that amount will not resolve its problems. Of course, if Proview is in such dire straits, Apple may be able to just drag out the dispute until Proview runs out of money; however, whether or not that makes sense as a legal strategy depends on how much money Apple is losing by not resolving the dispute. Thus, as with most things in business, reaching an agreement is all about the bottom-line.

What can be taken away from these recent developments in this dispute? Well, this story is full of lessons for Silicon Valley businesses, some of which I’ve raised in my prior blog posting regarding this matter. I think you can add to the list, though, tying up loose ends with your business before they cost you money. In my practice, I regularly work with start-ups who often neglect a long list of legal matters in their early years in order to keep expenses at a minimum, and they often what I would call “loose ends” that I identify for them as matters that might need to be “tied up” in order to avoid a dispute down the road. This is a good example of what can happen when a “loose end” for a business is left unaddressed–the other side can get into financial trouble and then the “loose end” may become a big headache for your business. When you identify loose ends, the temptation is always to let them slide because they aren’t a problem for you at the moment, but you have to weigh that preference against the cost that the price of tying up the loose end goes up down the road. It is unclear at the moment on the outside as to what extent this dispute developed out of a “loose end” or what the exact facts are in this dispute, but in my role in advising clients, many disputes often do evolve this way and this is certainly an example of what can happen when the stakes go up for the other side.

SOPA Blackout Protesters Succeed in Tabling SOPA and PIPA Bills; Focus Shifts to OPEN Act

Comments Off on SOPA Blackout Protesters Succeed in Tabling SOPA and PIPA Bills; Focus Shifts to OPEN Act Written by on February 23, 2012 | Posted in Copyright Legislation, IP Legislation

To follow up on my blog posting about the SOPA blackout, the SOPA blackout protesters achieved their desired result: SOPA and its companion bill PIPA were tabled after its co-sponsors withdrew their support of the bills, as the L.A. Times reported.

The focus of Congress will now shift to consideration of the Online Protection and Enforcement of the Digital Trade Act (the “OPEN Act”), H.R. 3782, which was introduced by Rep. Darrell Issa (R-California) on the day that the SOPA blackout was held. In a blog posting to the Silicon Valley Software Law Blog I explored whether the OPEN Act was a more viable alternative, writing as follows:

Obviously, the OPEN Act provides a far less drachonian approach to dealing with infringing foreign websites than what was contemplated by SOPA, which would have allowed full websites to be completely “erased” from the Internet. Instead, the OPEN Act’s approach goes to the heart of the problem: cutting off the ability of infringers to make a profit off of their infringement. So, in that respect, the OPEN Act is definitely improvement over SOPA. Also, there is an argument that the ITC is a more appropriate body to hear these kinds of disputes, since the agency already has been tasked with the job of addressing unfair import disputes, where intellectual property violations are involved. Furthermore, this bill focuses on the problem of infringement by foreign websites, so it targets the real source of concern over infringement as opposed to usurping existing methods of dealing with domestic infringers. . . . All in all. . . I think the OPEN Act is a much more palatable proposal for dealing with infringers, and that this bill is a far better working document than what we had on the table with SOPA and PIPA. At the same time, I think that the whole concept of adopting new legislation to deal with online infringers is still a work in progress warranting further consideration before any new legislation is adopted.

A working text of the OPEN Act has been posted for comment, and I would encourage all members of the Silicon Valley IP community to check out the website and provide your feedback to the proposed legislation. Unlike SOPA and PIPA, this particular piece of legislation is receiving support from some prominent online companies such as Google, Facebook, LinkedIn, and Twitter. As you might expect, it is not receiving the same kind of fanfare from the entertainment world.

The Silicon Valley IP Licensing Blog will continue following this story as it develops and keep you updated on any news.

Lessons for Silicon Valley Companies in Apple Trademark Dispute

Comments Off on Lessons for Silicon Valley Companies in Apple Trademark Dispute Written by on February 16, 2012 | Posted in IP Licensing Litigation, Trademark Filings, Trademark Licensing, Trademark Litigation

In case you have not been following the story, Apple has found itself in the middle of a trademark dispute in China over the use of its mark “iPad,” as MSNBC reported on its website yesterday.

You might wonder how in the world this happened, given Apple’s large, IP savvy legal department and the fact that China was such a large potential market.  Apple surely started focusing on the protection of its worldwide rights in the “iPad” mark the moment it conceived the concept and the name itself.

Well, according to MSNBC’s report,  a Chinese company reserved the mark originally back in 2000 and in 2009, Apple purchased the company’s worldwide rights in the mark from the company’s Taiwanese subsidiary.  However, the Chinese company maintains that it still owns the rights in the mark in the Chinese mainland, and that the subsidiary never had those rights to license.  Unfortunately for Apple, the Chinese company is now having financial problems, and so, the Chinese company is diligently pursuing this issue, no doubt in order to procure a large settlement from Apple that can keep the company in business.

The facts of this particular legal dispute provide a variety of lessons to Silicon Valley companies.

First and foremost, if you come up with novel business product that you plan on marketing worldwide, you need to devote resources before you launch to protecting your mark in all of your key markets and you  need to work with qualified local counsel in each country to ensure that your mark is actually protected in each of those key markets.  Then, when you have to enter into agreements with with  foreign companies, make sure that both your local and your U.S. counsel are experts in the relevant areas of law, so that they can confirm that the English and foreign language versions of your agreements give you the correct rights that you need to proceed.  When I negotiate agreements with China, for example, the agreements typically have one line in Chinese and another line in English, so it is important to confirm that both sentences read as intended.

Second, when you enter into agreements regarding IP,  do due diligence on the IP in advance to confirm ownership rights in the IP and also procure warranties and indemnifications regarding the ownership of the IP from any third party who is transferring rights in IP to you, so that you don’t find out down the road that you didn’t actually get what you paid for and have to absorb the losses directly yourself, when those losses are inevitably going to be far more expensive.

Finally, if you are launching a product for the worldwide market, make certain that the marks you want to build your brand around are protectable on a worldwide basis. So many clients that I work with do it backwards and select a name and develop their brand before they even stop to consider whether they can even protect the brand they are developing. Far too often I see companies have to start over 2 to 3 years into their business with rebranding everything because they discover that a third party is already using their mark. Even if they are successful in avoiding a lawsuit for trademark infringement, they run the risk of losing all of their Internet history for their old brand and having to spend thousands and thousands of dollars recreating all of their branded materials such as their website, business cards, landing pages, brochures, stationery and everything else. It can be a very costly mistake, even when the companies escape the worst case scenario of litigation.

The bottom line is that trademark protection planning needs to start on the day that you conceptualize a brand, and when you are trying to protect the brand off-shore, you need to make sure you are coordinating your U.S. and foreign representation to ensure that you are definitely protecting your brand in both locations.

Silicon Valley Prepares for SOPA Blackout Day Observation

Comments Off on Silicon Valley Prepares for SOPA Blackout Day Observation Written by on January 17, 2012 | Posted in IP Legislation

The Silicon Valley cyberspace community is currently preparing for tomorrow’s observation of SOPA Blackout Day. Organizers are requesting that participants make their websites go black for at least 12 hours tomorrow in observation of the blackout.

As I reported on the Silicon Valley Software Law Blog, Mozilla, Reddit, Word Press, Boing Boing and the English language version of Wikipedia have confirmed that they will participate in the blackout.

In addition, Politico is now reporting that Google will be joining in tomorrow’s protest, but will not be participating in the Internet blackout. Instead, Google will reportedly be posting a link on its homepage explaining its opposition to the Stop Online Piracy Act and the Protect IP Act.

The nonprofit organization Fight for the Future has posted a comprehensive list of the participants who have currently committed to tomorrow’s online strike.

In case you have not been following the SOPA controversy, the purpose for tomorrow’s blackout is to express online opposition to the proposed SOPA legislation. I discussed the controversy in the Silicon Valley Software Law Blog as follows:





[T]he Stop Online Privacy bill was introduced in late October, 2011 by the Republican Congressman Lamar Smith of Texas, which would allow the Attorney General of the United States to seek a court order against internet service providers to cause them to make a website disappear from the Internet. . . . The bill was designed to allow U.S. companies to shut down offshore infringers, and as you might expect is being championed by the Motion Picture Association of America and the Recording Industry Association of America, which of course, are highly invested in stopping the loss of profits to online privacy.

While few in the Internet world would disagree that online privacy is bad, the controversy over SOPA is over the concern that large companies are going to be able to censor or blacklist smaller Internet players and simply be able to “erase” their very existence from the Internet. Net has assembled a list of parties who oppose SOPA. The list includes companies, prominent individuals and educators, public interest groups, industry associations, websites and online services, cybersecurity and engineering groups, and international human rights advocates.





In case you are wondering what my position is on the issue, I am absolutely against infringement but am very concerned about the potential impact of this bill. As I wrote in the Silicon Valley Software Law Blog:





Like most attorneys who represent clients in the Internet space, I have found myself on both sides of this issue. It is not unusual to have a client come to me with a complaint about a third party infringing my client’s copyright on the Internet, and to find myself in the frustrating position of having to advise my client of the limited options available for dealing with the infringement. It is particularly frustrating when I am talking to a client who has limited resources and cannot afford the investment of resources that is going to be required to really go after the infringer.

In fact, even I have run into situations where my copyrighted works were being infringed on the Internet and I had to make a decision about how to best deal with the infringement.

At the same time, however, I am very concerned by the fact that Congress wants to further legislate in this area. I agree with many of my fellow Internet law experts that we should oppose in general the encroachment of government regulation of the Internet, and this bill appears to be very serious encroachment. Moreover, I am concerned about how a bill like this would be used. It is almost certain that the small content publisher on the Internet would be at a serious disadvantage in defending itself against SOPA-based actions. Large companies with large teams of lawyers would be in a position to effectively censor smaller entities on the Internet, since the accused would not be financially able to defend themselves. It is highly likely that a bill like this which would allow parties to “erase” websites from the Internet would be misused for the economic benefit of one party over another.

Of course, there is another issue. Given the fact that the very nature of Cyberspace is borderless, should a U.S. attorney general really be able to police websites offshore? If so, shouldn’t the equivalent officials for other governments be able to do the same thing? What kind of standard are we setting for the rest of the world to follow? I’m not sure we want certain countries’ political leaders to start erasing American websites from the Internet.

The bottom line is that the implications of this bill go beyond the intent of just getting offshore infringers that cannot be shut down off the Internet. The effects of this bill could be very far-reaching, and take us a step closer to the day when virtually every activity on the Internet is subject to government oversight and regulation–not only by the U.S. but also other governments around the world.




For any companies interested in supporting tomorrow’s protest by participating in the blackout, you still have time to get involved. has republished Google’s recommendations for how to participate in the blackout in a “web-friendly” way. Fight for the Future has also published instructions on its website on how to get involved.

What does Patent Reform mean for Silicon Valley Entrepreneurs?

Comments Off on What does Patent Reform mean for Silicon Valley Entrepreneurs? Written by on September 25, 2011 | Posted in patent legislation

The recent passage of the long-awaited Patent Reform bill was heralded by many around the country as great accomplishment; however, the bill was not without controversy, particularly in the Silicon Valley, where many who work with start-ups and tech companies expressed concern about the new legislation.

In my recent blog posting on the California Biotech Law Blog, I raised concerns about whether or not this bill was really good for the biotech industry. As you might expect, my concerns about the bill go beyond its effect on the biotech community–my concerns are relevant to the Silicon Valley start-up community as well.

It has yet to be seen as to whether or not the legislation will really improve the operations of the USPTO as promised, but the passage of this legislation has an immediate effect on inventors and start-ups, who now have to race to gather the capital necessary to file a patent on their invention, so that they can ensure that they are the first to file a patent on the invention. Like many who work with start-ups, I worry that this hurdle will now discourage innovation, particularly in these challenging economic times, since investors and loans are so difficult to come by. Why make the effort to invent at all if it is going to be such a challenge to protect your invention?

In truth, despite my concerns about this new legislation, I have faith that Silicon Valley entrepreneurs will overcome this hurdle as they do so many others. The Silicon Valley is a resilient place where people are used to overcoming challenges and setbacks. However, I remain puzzled as to why Congress chose to finally pass this bill, which had been introduced and debated by many prior Congresses. Why impose this new hurdle on inventors at this point in history during this economic crisis? Shouldn’t our policy be to encourage innovation at every opportunity so that we can get new businesses going that create new jobs? Placing new hurdles on cash-strapped inventors and start-ups in this economy just seems to defy common sense.

To see the full text of the American Invents Act of 2011, click here.

Amazon, Google, Wall Street Journal Move to Modify Applications on Apple App Store

Comments Off on Amazon, Google, Wall Street Journal Move to Modify Applications on Apple App Store Written by on July 25, 2011 | Posted in IP Licensing News

Moves by Amazon, Google, and the Wall Street Journal today to modify their applications on the Apple App Store suggest that Apple is taking steps to enforce its new royalty policies on companies selling on its App Store.

In my recent posting to the Silicon Valley Software Law Blog, I report on this new move and what it should signal to all companies–even the start-ups and sole proprietorships–selling on the App Store.

The bottom line: if you are distributing an application on the Apple App Store which links to a website where you offer additional products for sale, you should definitely take note of today’s news and anticipate what it will mean for your business. Clearly, large companies doing business on the Apple App Store are concerned about the impact that these new policies are going to have on their profits. If they are concerned, you should be too.

The Prinz Law Office Launches the Silicon Valley Software Law Blog

Comments Off on The Prinz Law Office Launches the Silicon Valley Software Law Blog Written by on July 25, 2011 | Posted in Blog News

The Prinz Law Office is pleased to announce the launch of its newest content offering: the Silicon Valley Software Law Blog.

Our latest blog will address legal issues of interest to members of Silicon Valley’s software industry.

The purpose of the new blog is to enable the firm to focus on the narrow topic of software legal issues while continuing to cover the broader topic of IP licensing issues on this blog.

If you have an interest in software legal issues, I encourage you to check out the Silicon Valley Software Law Blog.

How Does an Entrepreneur Protect His or Her Ideas for Launching a New Start-Up?

Comments Off on How Does an Entrepreneur Protect His or Her Ideas for Launching a New Start-Up? Written by on July 18, 2011 | Posted in Commercialization of Intellectual Property, trade secrets

When an enterpreneur calls me with questions about launching a new start-up, he or she is inevitably concerned about a single issue: protecting his or her ideas.

Most are a little disappointed to learn that ideas alone are not something that you can protect with an IP filing.

So, if ideas alone are not protectable, how exactly does an entrepreneur protect an idea long enough to get it off the ground?

My first piece of advice to entrepreneurs who call me with this issue is that they need to procure a well-written nondisclosure agreement, and use it with any friends, family, or business contacts that they share their idea with. Of course, I always caution them that the best form of protection is not to share confidential information in the first place, and if they do have to share confidential information, to keep the sharing to an absolute minimum. But certainly, to the extent they need to discuss their ideas with anyone else, the discussion needs to be covered by a nondisclosure agreement.

My second piece of advice is to make certain that anyone they hire to develop anything at all for them related to their idea needs to assign all their rights in whatever is developed to him/her or his/her company. The mistake I see entrepreneurs make over and over again is that they think payment amounts to a transfer of ownership rights. This is far from the case. If you pay for development and there is no assignment of rights to you, then the contractor will own the rights in what was developed.

My third piece of advice: if your idea constitutes an invention, you need to hire a patent attorney right away and get a provisional patent filed on your invention. Please note: THIS STEP WILL BECOME INCREASINGLY CRITICAL IF PATENT REFORM IS PASSED, SINCE THE NEW PATENT BILL WOULD MAKE THE U.S. A FIRST TO FILE SYSTEM, and you will lose your rights to the invention if someone else files the patent first.

My fourth piece of advice: if you have created or developed or recorded in any way your ideas and you are not concerned about having them published at the Libary of Congress, then you will want to register a copyright to cover what you created/developed/or recorded, so that there is a record of ownership.

My fifth piece of advice: If you come up with a great name for your company or product, immediately do a thorough search of the name on the USPTO website and the web to see if anyone else is using that name, and if so, confirm whether or not they are using it to describe similar services or a similar product that could be confused with your business, product, or service. A common mistake that I run into with my practice is that entrepreneurs get their heart set on a particular name, and then find out months or years later that they are infringing on another company’s trademark and realize that they have to change the name(s) they have chosen. Not only is this a huge waste of money, but it’s also a huge waste of time, since you will have spent an extended period advertising a mark that you have to drop. It is much easier to simply confirm that you are not infringing from the start.

At some point, you will of course want to protect the mark you come up with, but I don’t recommend doing it immediately since there’s a minimal amount of risk that another entrepreneur in your same space will come up with the same mark at the same time you do. It is far more likely that you will select someone else’s mark than that you will lose your mark if you wait to file it until you can afford to do so.

Finally, my sixth piece of advice: you should not let people use your ideas except pursuant to a well-written agreement, even if the third party is simply “testing” or “evaluating” your product. Entrepreneurs tend to be educated on the need for filing patents, copyrights, and trademarks, and are generally willing to spend money on those filings; however, they often forget that the agreements are perhaps the most important piece of the puzzle to IP protection and either try to draft their own agreements based on contracts they find or in many cases, they simply forget to enter into an agreement altogether. It is a really bad idea to permit third parties to use your IP without having a well-written agreement to govern the relationship, particularly if you want to retain the value of your IP, even if the other side simply wants to evaluate the product or services It will pay to take the time to do things the right way–even if you have to spend a little more money up-front to get the work done.

In summary, an entrepreneur can protect his or her ideas–but just not directly as a particular IP filing. Thus, to protect the idea an entrepeneur has to examine the individual elements of the idea to determine how to protect each element. By utilizing a combination of nondisclosure agreements, copyright and trademark registrations, patent filings, and agreements, the entrepreneur can protect his or her ideas long enough to get them to market and start making money.

Hiring a Third Party to Create for You? Don’t Forget the Copyright Assignment

Comments Off on Hiring a Third Party to Create for You? Don’t Forget the Copyright Assignment Written by on July 17, 2011 | Posted in Copyright Assignment, Employment Agreements

In this day and age, it is very easy to find someone to create almost anything for you or your business at the mere click of the mouse; however, what most people forget when they make that easy hiring decision: paying for the work does not mean that you OWN what was created–it merely means that you have the right to USE what was created.

In other words, if someone hands you work that he or she created and no copyright assignment is made, then you typically are just going to receive a nonexclusive license to use the work created. However, if the license is not written, then the extent of your rights is technically unclear and not actually defined. Thus, your license could be terminated at any time.

So, what does this mean? It means that if you decide to repurpose the work that was created and use it in an alternative way, i.e. other than what was contemplated by the contractor, then you may be committing copyright infringement. Similarly, if you decide to create a derivative work of the original work which was created, well then you may be commiting copyright infringement as well, since only the owner of the IP in a work can authorize the creation of derivative works.

In the current economy, I see this issue come up quite often in terms of payment disputes. The buyer of the work decides not to pay the invoice for the work that was created but wants to continue using the work. Obviously, if you only have a license to use work and you breach that license by not paying for the work, then you are technically infringing the copyright of the creator if you continue to use the work after the dispute arises.

Thus, the best practice when you are hiring someone to create something for you–whether it is artwork, text, videos, designs, software code, music, or any other type of creative work–is to make certain you get a copyright assignment from that person BEFORE you pay him or her any money for his or her work. And, if you have a payment dispute with the person you hire, you need to resolve that dispute and you should stop using the work until a resolution has been reached which involves an assignment of copyright. And, of course, it’s always best to discuss your expectations with this person when you hire him or her rather than after he or she has already finished the project, as he or she is always going to be more willing to enter into a copyright assignment before starting the job rather than after the work has been concluded.

Trying to Save Money with Do-It-Yourself Trademark Filings? How to Avoid Creating a More Expensive Headache for Yourself

Comments Off on Trying to Save Money with Do-It-Yourself Trademark Filings? How to Avoid Creating a More Expensive Headache for Yourself Written by on July 13, 2011 | Posted in Trademark Filings

I have been working with a number of start-ups in this recession tried to save money by filing their own trademarks, and ultimately ended up creating a more expensive headache for themselves because of mistakes they made in the application.

If your start-up is one of those businesses that is trying to cut corners in this recession, I would of course recommend that you at least pay the money to have an attorney review what you are filing before you file it.

However, if you are too cash-strapped to pay more than the USPTO filing fees, then I have a few tips for you:

(1) If you are filing an application on a name rather than a logo, pay the extra money to have a designer stylize your name rather than filing the words of the name in black type. Many of the problems I see with do-it-yourself applications arise where entrepreneurs just file the application on words rather than the stylized words. In my experience, the stylized words are more likely to receive a trademark than the words alone.
(2) Do a search on the USPTO website for the words in the name individually and, where there is more than one word in your mark, do searches of the words in various combinations, and just pick the key words in the name and search those. If your mark is already in use, look at what it is in use for and decide how close the current use is to your use. If the uses are similar, it may be best to pick another mark. You should also do a search of any images in your mark on the USPTO website to see if there are any similar marks currently in use.
(3) Do not make up from “scratch” your description of the services that your mark will describe. Instead, find the Trademark Acceptable Identification of Goods and Services Manual on the USPTO website, and try to find an approved USPTO description that refers to your services. You will have to pay a filing fee with the USPTO for each class that you select, so I generally recommend that entrepreneurs pick initially the class that most closely describes the goods or services that the mark covers and then list as many of the approved descriptions in that class that describe your goods or services as possible. Then, after you have compiled a list of the approved descriptions, you should put them into a paragraph format that reads well.
(4) Put together an example of the mark’s use in commerce to submit as your “specimen” to the USPTO, and make certain that the example that you submit refers to the services listed in the description you just wrote. If you don’t have an example yet to submit, then you may need to file an “intent to use” form, which will cost you an extra $100 ultimately, but will give you some extra time to create your example.
(5) If the USPTO writes you about your mark after it is filed, find the name of the attorney who is writing you and pick up the phone and call him or her rather than filing responses that may not address the questions or concerns of the attorney. If, after calling the attorney at the USPTO, you still do not understand what you need to do to get your application through the USPTO, then at that point, you should solicit the assistance of an attorney. The USPTO gives you six months to respond to USPTO correspondence, so take the time to pull together the money to obtain further assistance; however, you should not wait to the very last minute to obtain further assistance.

The bottom line: trying to save money by doing your own trademark filing can backfire and result in your spending even more money to clean up what you did yourself, so it’s always best to at least have an attorney look over your application before you file it. However, if are too broke to do even that, following these steps should minimize your risk of wasting your filing fees or ultimately creating a more expensive headache for yourself.

New Start-Ups Should Consider Collaboration Agreement as Alternative to Equity Agreement

Comments Off on New Start-Ups Should Consider Collaboration Agreement as Alternative to Equity Agreement Written by on July 10, 2011 | Posted in Commercialization of Intellectual Property, Employment Agreements

Given my Silicon Valley location, I often receive calls from start-ups who want to “give equity” to a developer that they’ve just started working with. When I receive these calls, I inevitably have a talk with the client or prospective client urging them to consider an alternative: entering into a collaboration agreement with the developer rather than actually giving the developer equity.

You might ask: why do I discourage start-ups for granting equity to a developer? Well, nine times out of ten the start-up has never worked with the developer before when they call me. They are generally proposing equity because they do not have the money to pay for the developer’s services, and the developer usually wants a large percentage of the company. Also, I know from experience that most clients terminate their relationships with their first developer within the first year of starting their business, so the odds are high those same clients will be coming to me within a year asking how they should go about kicking the developer out of their company.

Going into business with anyone is a huge commitment, and it despite the fact entrepreneurs are accustomed to granting equity in lieu of paying cash for services, doing it immediately with someone you have never worked with is a tremendous risk.

So, what do I recommend instead?

I recommend that start-ups in the position of requiring development work and not having the cash to do it should consider drafting a collaboration agreement.

Why use a collaboration agreement structure instead? Well, you can still share the profits arising from the development work with the developer; however, you can do it in such a way that if the relationship does not work out on a long-term basis, you can get out of it by ceasing use of the work that was developed. In the alternative, if the developer proves to be an integral member of your team, you can always provide equity down the road after the developer has proven his or her worth to the business.

In case you are not familiar with the collaboration model, this model is one that is routinely used in the Silicon Valley to describe an arrangement between two individuals or companies who have decided to pursue some sort of business opportunity together but have elected not to set up a separate business entity or to provide equity in an existing company to do it. The agreement provides a framework by which the parties can work together, defining how expenses will be shared, how profits will be shared, and what services each party will perform within the framework. It also defines how disputes between the parties will be resolved, in order to prevent a breakdown of the collaboration when there is disagreement.

All in all, I think it is the perfect model for many cash-strapped entrepreneurs to consider when they want to hire a particular developer but lack the cash to pay the developer for the services. It certainly is much less risky than taking a leap of faith and granting a large amount of equity in a company to a developer they have never worked with, and it really accomplishes the same purpose if the relationship works out, which is to share the profits made from using the work that is developed.

Technology Transfer Tactics Interviews Kristie Prinz on Tech Transfer Commercialization Dilemma

Comments Off on Technology Transfer Tactics Interviews Kristie Prinz on Tech Transfer Commercialization Dilemma Written by on February 12, 2010 | Posted in Commercialization of Intellectual Property

I wanted to share with blog readers an interview that I recently had with Technology Transfer Tactics on the issue of whether poster presentations jeopardize a tech transfer office’s commercialization offices. While the issue does not have much application to the business world and is really very specific to intellectual property which is developed by universities, I believe it may be of interest to some blog readers.

Click here to view the article.

Seventh Circuit Court of Appeals Issues Ruling Which Affirms Rights in an Exclusive License to Joint Intellectual Property

I just spent about five hours on the phone with multiple clients over the last few weeks explaining to them the ins and outs of exclusively licensing joint intellectual property, so I was pleased to see the decision of the Seventh Circuit Court of Appeals in the Wisconsin Alumni Research Foundation v. Xenon Pharmaceuticals, Appeal No. 08-1351 (7th Cir. 2010), which affirmed the licensor’s rights in an exclusive license to joint intellectual property.

In this case, as in my various clients’ cases, the parties had entered into a collaboration in which they agreed to jointly pursue research. The agreement provided Xenon an exclusive option to license any resulting technology, which again is often typical in collaboration agreements, particularly with universities. The parties filed a joint patent application deriving from the provisional application that the Wisconsin Alumni Research Foundation (“WARF”) filed before the collaboration began. Xenon exercised its option to exclusively license the technology, which gave Xenon the exclusive right to make, use and sell patented products under the joint patent application within the field of human healthcare. In exchange, Xenon agreed to pay the Foundation a percentage of any product sales, royalties or sublicense fees it received.

Xenon then went on to sign a license agreement with NovartisPharma AG (“Novartis”), which gave Novartis a license to the technology covered by the same joint patent application it had exclusive licensed from WARF. WARF demanded sublicensing royalty fees under the terms of the exclusive license, which Xenon refused, claiming it had the right to license its interest in the joint patent application. WARF sued Xenon, claiming that it had breached the terms of the exclusive license. The district court judge held in favor of WARF, ruling that Xenon breached the exclusive license agreement by granting a sublicense to Novartis without notifying WARF or conforming the sublicense to the terms of the exclusive license agreement. The judge held that Xenon owed WARF license fees, and that given Xenon’s breach, WARF had the right to terminate the exclusive license.

At the same time the district court judge ruled in Xenon’s favor on several issues:

  • He dismissed as moot the Foundation’s claim that Xenon breached its duty of good faith by failing to abide by the terms of the license agreement.
  • He held that the Foundation had not given Xenon proper notice or opportunity to cure before invoking its right to terminate the exclusive license agreement.
  • It denied the Foundation’s claims to a compound that had been discovered by a University researcher who had entered into a consulting agreement with Xenon.

In a subsequent ruling, the court vacated its earlier decision regarding the WARF’s right to terminate the license agreement. The case went to a jury on the damages issue and the jury awarded $1 million, which was later reduced by the court to $300,000.00.

So, that’s the background.  The Seventh Circuit ruled exactly as I would have expected, and agreed that Xenon breached its exclusive license by granting a sublicense on the joint patent without paying WARF’s  sublicense fees.  The Seventh Circuit also agreed that the breach triggered WARF’s right to terminate the agreement.  The Seventh Circuit also found that WARF owned the compound in dispute as well.

What did the Seventh Circuit find compelling here?

First, the terms of the exclusive license on the joint patent contemplated sublicenses and said that they were permitted upon the payment of a royalty/sublicense fee but specifically prohibited assignments without consent. So, even though Xenon before the agreement had the right to commercialize the patent independently of WARF, it gave up that right when it entered into the exclusive license. The Novartis license provided that Xenon would grant Novartis an exclusive license to all Xenon technology in the field of human and animal healthcare, which effectively was a sublicense to Xenon’s exclusive rights in the joint patent.

Second, the terms of the license require that Xenon was to pay WARF

(1) a royalty for direct sales by Xenon, which would be earned on the date that the product was sold, the date the invoice was sent on the sale of the product, or the date the product was transferred to a third party for promotional reasons, whichever came first; and

(2) “a percentage of any license fees, milestones, and royalty payments received by Xenon as consideration for the sublicense granted. . . .the percentage shall remain fixed at a rate of ten percent (10%) for years (1) and two (2) of this Agreement and seven and one-half percent (7.5%) thereafter until this agreement was terminated.”

In the second possibility, Xenon tried to argue that because the clause began with “for all Products sold by Xenon sublicensees” that it didn’t owe Novartis any money until such time that Novartis brought products to market at sold them. However, the court dismissed that interpretation, saying that in both the direct sales and sublicensing possibilities, the paragraphs began with “for all products sold” and that this phrase was just intended to distinguish direct commercialization from when a sublicensee commercialized the technology, and in the latter case, any compensation received triggered a payment obligation on Xenon’s part to WARF.

Third, on the damages issue, the Seventh Circuit found that the evidence was sufficient to sustain a damages award and that the issue of damages was not beyond the understanding of a lay juror and did not require the use of expert testimony.

Fourth, the Seventh Circuit dismissed the argument that because the agreement had a 90 day notice and opportunity to cure a material breach clause, that WARF’s decision to file suit during that 90 day period meant that it could not terminate the agreement for material breach until the court found Xenon in breach. The Seventh Circuit found that the ability to terminate the license was completely separate from the right to sue for breach of the contract, and that WARF had the right to sue after giving notice and had the right to terminate for breach after the 90 day period had lapsed.

Fifth, on the compound issue, the researcher assigned his rights to the compounds to the Foundation, and the fact that his work was conducted in part under the sponsorship did not change the ownership of the rights in the compounds.

All in all, this decision is a clear affirmation of the licensor’s rights in an exclusive license to jointly owned intellectual property. Parties looking to collaborate on the development of intellectual property and who have questions about how this all works from a practical perspective should look to this case as a reference.

At the same time, I think this case provides some good lessons to potential collaborators. You need to be very precise about what remains joint intellectual property and what will potentially be exclusively licensed intellectual property. If you do not intend to exclusively license all of the joint intellectual property, the agreement needs to be clear on this and it needs to be clear on what rights the parties jointly retain after the exclusive license is entered into.

You also need to be clear on what triggers payments to the licensor–in this case, the dispute was in part over a clause “on all sales of products”. The compensation language was obviously imprecise enough to provide fodder for a dispute. The parties clearly could have made a better choice on words.

As I have stressed to my clients, it is very important to think through all of the issues in a collaboration before you just draft and sign the agreement. This case is a good example of why that is so important.

FTC’s Suit Against Intel: What Will Be the Impact on the Silicon Valley?

Comments Off on FTC’s Suit Against Intel: What Will Be the Impact on the Silicon Valley? Written by on December 20, 2009 | Posted in FTC Litigation

The Federal Trade Commission (“FTC”) just filed suit against Intel this week, on the grounds that Intel’s “anti-competitive tactics have stifled innovation and harmed consumers.”

The FTC’s press release on the suit states as follows:

“The FTC’s administrative complaint charges that Intel carried out its anti-competitive campaign using threats and rewards aimed at the world’s largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer CPU chips. Intel also used this practice, known as exclusive or restrictive dealing, to prevent computer makers from marketing any machines with non-Intel computer chips.

In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips. Intel told its customers and the public that software performed better on Intel CPUs than on competitor’s CPUs, but the company deceived them by failing to disclose that these differences were due largely or entirely to Intel’s compiler design. . . .

[Intel has now embarked] on a similar anti-competitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia, the FTC Complaint charges. As part of this latest campaign, Intel missed and deceived potential customers in order to protect its monopoly. The complain alleges that there also is a dangerous probability that Intel’s unfair methods of competition could allow it to extend its monopoly into the GPU chip markets.

According to the FTC’s complaint, Intel’s anti-competitive tactics violate Section 5 of the FTC Act, which is broader than the antitrust laws and prohibits unfair methods of competition, and deceptive acts and practices in commerce. . . . The complaint also alleges that Intel engaged in illegal monopolization, attempted monopolization and monopoly maintenance, also in violation of Section 5 of the FTC Act. “

So, what is this suit all about?

Based on some of the commentary, it appears that the crux of the argument is as follows: Intel pressured computer companies into exclusive deals and manipulated data to make its chips appear better than its rivals. As a result, Intel kept the prices higher than they would have otherwise been if the rivals had been able to compete in the space.

I am not an antitrust expert, so it’s unclear to me at the moment how strong the FTC’s case is against Intel, but I think the more interesting question is what the FTC’s action means to the Silicon Valley.

A Marketwatch story today looked at the issue, and quoted several Silicon Valley commentators who had concerns about the potential impact of FTC action on innovation in the Silicon Valley.

I think the article raises some interesting points, but I wonder if the concerns about the impact of this one case aren’t a little exaggerated. It is hard to accept that any one suit could have such a detrimental impact on Silicon Valley innovation. After all, we have a tremendous amount of talent in the high tech industry here, and no single case can just turn that talent off.

On the other hand, certainly, everyone in the Valley will be watching to see whether or not the FTC prevails and what the consequences are for Intel, in order to gauge what this one action means for how Silicon Valley companies can operate in the future. Obviously, there were likely patents on all this technology, which would give Intel as the patent owner the right to license out its technology. The question will be how the two bodies of law intersect here: patent, which gives monopolies, and antitrust, which tries to prevent monopolies.

As for Intel itself, this case adds one more antitrust suit to its plate, in addition to the antitrust legal troubles it already had in Europe, Korea, and in New York State, by its attorney general. I am sure this is not what Intel needed in a bad economy which has hit both the Silicon Valley and the technology industry in general hard.

We will keep you posted at the Silicon Valley IP Licensing Law Blog on the developments in this case as they arise.

Series on ALI Software Contract Principles: Clarify Rules on Implied and Express Warranties in Software Contracts

Comments Off on Series on ALI Software Contract Principles: Clarify Rules on Implied and Express Warranties in Software Contracts Written by on June 23, 2009 | Posted in Software Licensing

We continue today with our series on the new American Law Institute Principles of the Law of Software Contracts with a discussion of what software companies need to know about the Principles’ treatment of warranties.

Again, for any of you who have not read our earlier postings on this subject, the importance of the Principles is that they may be used by courts to interpret and rule on disputes regarding software contracts in the future. Thus, software companies may want to take the time now to review their form agreements in anticipation of the possibility that the Principles may be used to interpret those agreements down the road.

So, what do you as a software company need to know about the Principles’ treatment of warranties?

Well, for the non-lawyers reading this blogposting : contracts can have express warranties, which are warranties that have to be spelled out very conspicuously in a contract to apply, and implied warranties, which are warranties which are read into an agreement. So, in talking about this subject, we are addressing what the new Principles say about the language that has to be in an express warranty to be valid, as well as what implied warranties will be read into a software contract, regardless whether the contract specifically talks about those warranties or not. We are also addressing what the Principles say about a party’s ability to disclaim certain warranties.

On the issue of express warranties, the Principles adopt the standard Uniform Commerical Code (“UCC”) view of express warranty, but interestingly enough do not require use of the words “warrant” or “guarantee” to constitute an express warranty. Also, the Principles clarify that distributors or dealers cannot be liable for breach of a software developer’s warranty, provided that they merely “transfer” the warranty provided by the developer but do not “adopt” that warranty themselves. The Principles provide that disclaimers of express warranties are unenforceable only if a reasonable party would not expect the exclusion or modification.While the position on disclaimers is a little unexpected, the Principle’s position on express warranties is bascially in line with what we as attorneys would expect.

On the issue of implied warranties, the Principles largely take the UCC position, allowing for an implied warranty of merchantability and an implied warranty of fitness for a particular purpose, and allowing both warranties to be disclaimed. However, the Principles do take a few noteworthy positions on the issue of implied warranties. First of all, the Principles take the position that one warranty cannot be disclaimed: the warranty that the software contains no material hidden defects of which the party was aware at the time of transfer. Also, the Principles say that this warranty does not take the place of any action for misrepresentation or any remedies. Second, the Principles take the position, that no implied warranty regarding material hidden defects that will be read into an agreement, where the purchaser of the software has tested the software in advance as fully as desired or unreasonably has refused to test it, provided that the warranties are with respect to defects that a test should or would have revealed. The position advocated by the Principles suggests that, if software companies are not already offering free trials or evaluation licenses to potential customers, it may be in their best interest to start doing so, in order to ensure that an implied warranty regarding hidden defects is not read into their software contracts.

In addition to addressing express and implied warranties, the Principles also take the position that these warranties automatically extend to certain third party beneficiaries such as immediate family, household members, and guests, and any other person who uses the software in a manner contemplated or that should have been contemplated by the software company. However, the Principles clarify that any disclaimers that would be effective against the purchaser are also effective against third party beneficiaries, so the Principles do not require the inclusion of any express disclaimer against third party beneficiaries.

What should you take away from this posting? Well, the important take-away point is that the Principles read in an implied warranty that there are no material hidden defects that cannot be disclaimed, but that this burden on the part of a software company may be negated by ensuring that the purchaser thoroughly tests the software in advance. So, if you are software company and you are not already taking steps to ensure software purchasers test the product in advance, you may want to implement policies now to ensure that this happens in the future.

Other related postings:

American Law Institute Approves Principles of the Law of Software Contracts
Series on ALI Software Contract Principles: Changes Default Rule from Implied Warranty to Implied Indemnification Against Infringement

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