Entering into a corporate transaction without a careful review of the intellectual property (IP) involved can have negative consequences on an enterprise’s future IP strategy. This is especially true when IP owners do not adequately supervise the corporate attorneys who are preparing the “customary” documents for a merger, acquisition, joint venture formation, equity investment, bridge loan or any other type of corporate transaction. Such adequate supervision involves a careful review of the “deal docs” for IP issues. Why? Because the corporate attorneys may often not appreciate or be aware of the unintended consequences of the language typically employed in such corporate transactional agreements, an IP-focused review is prudent to avoid such unintended consequences.
Invariably, a part of drafting (and negotiating) the deal docs involves preparing one or more IP-related schedules. That is, the specific patents, trademarks, copyrights, trade secrets, know-how and/or software involved in a transaction will be listed in one or more schedules. These schedules are then referred to in the transaction (i.e., “main”) agreement as the IP being licensed, acquired, divested, pledged, contributed or exempted – depending, of course, on the particular transaction.
As the year quickly comes to a close, I recently engaged in some file cleanup. During this cleanup, it struck me that the most common type of agreement – by far – I worked on for my clients in the past year was the Non-DisclosureAgreement (NDA). While NDAs are no doubt considered “routine” or “standard” by practitioners and business clients alike, I suggest that each time you engage in the drafting and negotiating of one in the New Year, you actually question the forms you normally use by considering the following:
1.Parties. Who is the contracting party? That is, does the Non-Disclosure Agreement (“NDA” or Confidentiality Agreement) specify a parent, affiliate or subsidiary company? Does the NDA allow the party receiving your client’s confidential information to share it with a parent, affiliate or subsidiary?
2.Personnel. Does the NDA need to specifically list the employees and other personnel of the receiving party who can rightfully access the confidential information?
3.Direction. Does the NDA contemplate a mutual (i.e., “two-way”) exchange of confidential information or just a “one-way” exchange?
As the late Judge Rich famously wrote in 1990, “the name of the game is the claim.” Extent of Protection and Interpretation of Claims—American Perspectives, 21 Int’l Rev. Indus. Prop. & Copyright L. 497, 499. That is, a beautifully-written Detailed Description section of a patent’s specification is pointless if the patent’s claims are drafted in a manner that renders their infringement remote or even near impossible! Okay, so why is this important? Well, let’s start with one of the Patent Bar’s best-kept secrets: not all of us, despite having earned our USPTO registration numbers, are truly gifted at drafting claims! With that said, we have taken a keen interest in studying the specific issue of how practitioners employ the conjunctions “and” and “or” in patent claims.
For those of us of a certain age, we can probably remember the School House Rock series of musically-animated, educational short films produced by the American Broadcasting Company from 1973 to 1985. One of the more well-known titles of the series, “Conjunction Junction: What’s Your Function,” sought to teach grade school children how to use conjunctions to connect words, phrases and clauses. (For older readers seeking some nostalgia, or younger readers wondering what we are talking about, the three-and-a-half minute film can be found here.) Fast forward a decade or two, now that we are registered patent attorneys, is a refresher course in order? More specifically, when writing patent claims, have we mastered when to use the conjunctions “and” and “or”? Have we even recognized the difference in the two?
Recently, it has struck me that many business folks who “negotiate tons of IP license agreements,” fail to understand the difference between covenants, representations and warranties that are “standard” in many such agreements. Well, that is not too surprising. What is very surprising, however, is that many of their lawyers also fail to appreciate the differences as well! Many think the terms are synonymous and thus use them interchangeably. They are not. So, for those of you tired of faking the funk, here is some (either fresh or refresher) “Contracts 101!”
A covenant is a promise by a party by which it pledges that something is either done, will be done or shall not be done.
Example 1: “Licensee shall pay Licensor a flat royalty based on 2.5% of Gross Revenues received from the sale of Licensed Products.”
Example 2: “Company A hereby covenants not to sue Company B under any patent listed in Exhibit A for infringement based upon any act by Company B of manufacture, use, sale, offer for sale or import that occurs after the Effective Date.”
In a recent article, I presented a taxonomy consisting of nineteen IP business models in the United States intellectual property marketplace. Although, admittedly, the taxonomy presented was not perfect, it adequately described what I observed as the continuing rise of intermediary business models in the marketplace. In that taxonomy, I included “IP middlemen” such as: Licensing Agents, IP Brokers, IP-Based M&A Advisors, IP Auction Houses, On-Line IP/Technology Exchanges, and University Technology Transfer Intermediaries. Individual inventors and corporate IP owners are used to dealing with accountants, lawyers and investment advisors – all professionals who are governed by state and/or federal professional regulations, and/or national association guidelines. Well, the question I pose is: What professional regulations govern the qualifications and conduct of all these IP middlemen?
The short answer to the above question is “none!” After all, there is no IP brokerage or IP middlemen governing body. Further, we should all realize that IP rights are not “securities” subject to state and federal (e.g., SEC) regulations. Lastly, we all know that all states’ bar associations regulate attorney conduct regardless of whether the attorney is “practicing law.” An informal survey I conducted, however, suggests the percentage of IP middlemen who are attorneys is less than 20%, with the remainder having business, financial and engineering backgrounds. Has the USPTO stepped in? No. That is, individual inventors and corporate IP owners should not feel at ease because the invention promotion industry has been the focus of a USPTO anti-scam public awareness campaign. This campaign, is simply not aimed at the numerous IP middlemen identified in my taxonomy.
A few months ago, I posted a three-part series entitled The Real McCoy: Should Intellectual Property Rights be the New Civil Rights in America? In that article, I explained that, in the last thirty years or so, there has been a shift from a labor economy to a knowledge economy. Consequently, intangible assets (with intellectual property rights (IPR) being chief among them) have emerged as the most powerful asset class, overtaking more traditional capital assets such as real estate, plant and equipment. I then went on to define and point out that there is an “Innovation Gap” – disparities between classes of people, caused by societal hindrances, which prevent them from securing the IP rights necessary to economically exploit the fruits of their creativity. I then argued that given the existence of an innovation gap, and the fact that we are in an information age with another industrial revolution on the way, IPR should be the focus of a renewed civil rights movement. After all, the world’s natural resources may be shrinking, but the opportunities for there to be new candidates for IPR ownership are ever expanding!
I ended my three-part article by recommending that members of the IP Bar should strive to volunteer more pro bono hours in order to help bridge the innovation gap. Encouragingly, I received some emails from IPWatchdog.com readers asking, “how can I help?” Well, after some research, here is a list of some organizations around the country seeking patent, trademark and copyright pro bono attorney volunteers.
In October of 2007, Ron Laurie and I first presented our paper, entitled “A Survey of Established and Emerging IP Business Models,” at the 8th Annual Sedona Conference on Patent Litigation. In that often-cited paper, we presented a new taxonomy comprised of seventeen IP business models in the marketplace. Although, admittedly, the taxonomy we presented was not perfect, we did feel that it adequately described what we observed as the rise of intermediary business models in the IP marketplace. So where are we now as we enter 2013?
The latest statistics show that the cumulative value of U.S. intellectual property is approximately $5.8 trillion (or 48.4% of GDP), and each year over half a million patent applications are filed, over a quarter million patents are issued, over 4000 patent infringement suits are filed and IP verdicts total over $4.6 billion with a median patent damage award of approximately $4 million. Against this backdrop, I now present an updated taxonomy containing 19 IP-related business models. The business models are in addition to the “traditional” operating companies and their “traditional” IP law firms. Further, while not pretending to be all-inclusive, a directory of players implementing one or more of these 19 IP business models is available for download at the end of this post.
What are these models and who are the respective players implementing them? These models and their players are generally referred to as “IP intermediaries” because they are neither the IP creators nor the IP “consumers” (e.g., licensees and purchasers). These intermediaries, however, attempt to perform one or more services or offer one or more products that connect the IP creators and the IP consumers.
During the course of my practice, I am continually amazed at the contents of IP and technology-related agreements I receive from opposing counsel who happen to be “good” lawyers at “good” firms. While not getting into all the “strange,” “sloppy,” or downright “wrong” legal verbiage I see, I do have one thing that has been bothering me lately. What’s that, you ask? Well, it’s the use of numbers and those silly parentheticals.
I am sure all of you have seen language in agreements such as:
“In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay to Licensee a one time, up-front, non-refundable license fee of one million United States dollars (US$2,000,000.00).”
“In consideration of the license rights granted herein by Licensor to Licensee, Licensee shall pay a flat royalty based on two and one-half percent (2.0%) of Gross Revenues received from the sale of Licensed Products.”
“Licensee shall pay any deficiency, plus interest thereon from the date each payment was due, within thirty (20) days of the date of any notice of such discrepancy.”
How to Write a Patent Application is a must own for patent attorneys, patent agents and law students alike. A crucial hands-on resource that walks you through every aspect of preparing and filing a patent application, from working with an inventor to patent searches, preparing the patent application, drafting claims and more.
Without hesitation I recommend One Simple Idea and think it should be required reading for any motivated inventor. There is so much to like about the book and so much that I think author Stephen Key nails dead on accurate. The book is educational, information and inspirational. For the $14 cover price it is essential reading.
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