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.”
A rather astonishing thing is happening currently in the United States Court of Appeals for the Fourth Circuit. The United States federal government, by and through the Department of Justice, is actually arguing in favor of stripping licenses to U.S. patents away from seven companies so that they can be shaken down by a subsequent acquirer of those patents. Yes, the United States government in its infinite wisdom believes that a negotiated patent license ought to be stripped away from companies who have detrimentally relied on the licenses in making business decisions, advancing their own research and development, and with respect to manufacturing and distributing products.
Collectively you rise as one and say — “that can’t be!” What nonsense are you trying to spew? Sadly, it is true and if you keep reading you will soon understand all the sordid details. But suffice it to say that to call this position of the government anti-patent would be unfair to thoughtfully taken positions that call into question one or more patent rights. Indeed, this position can only be properly characterized as ridiculous, garbage, inane and/or idiotic.
The case is In re Qimonda AG, which arises from the insolvency of Qimonda AG, which is a German semiconductor manufacturer headquartered in Munich.
That fellow seems to me to possess but one idea; and that is a wrong one. — Dr. Samuel Johnson
The Brookings Institution’s new report Building an Innovation-Based Economy draws on “two dozen innovation leaders” for its findings. Only one section, “Increasing Commercialization and Technology Transfer,” names no leaders backing its recommendations, perhaps with good reason.
Brookings wants new regulations imposed on university and federal laboratory patent licensing, presenting theoretical problems with no supporting facts. Brookings lightly brushes aside the Bayh-Dole Act’s thirty-two year record of success. The Act believes that technology creators, not the bureaucracy, best understand how to manage resulting inventions. Those recommending sweeping changes face a high burden of proof that Brookings doesn’t attempt to meet.
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.”
Our interview took place on Friday, December 14, 2012. During our interview we talked about the nearly constant challenges to gut Bayh-Dole, which is the very foundation of university technology licensing and the piece of legislation called the most successful domestic legislation in the post World War II era by none other than The Economist. We also discussed what it is that universities do and how, despite what the critics say, the basic research done by universities is hardly ready for the marketplace. To read the interview from the beginning please see Part 1.
Without further ado, here is Part II (the finale) of my interview with Todd Sherer.
Todd Sherer, PhD, is Director of Technology Transfer at Emory University. Sherer and his staff in the Office of Technology Transfer manage more than 800 active technologies developed through basic research. But he is not just the Director of Technology Transfer. Sherer is also the current President of the Association of University Technology Managers(AUTM), which has as its core purpose the supporting and advancing of academic technology transfer both within the United States and around the globe.
On December 10, 2012, AUTM published the results of the AUTM U.S. Licensing Activity Survey: FY2011, and the AUTM Canadian Licensing Activity Survey: FY2011. Among the findings of the survey were that the 58 institutions (i.e., 31 percent of the 186 respondents) reported that 2,821 of their licenses paid $662 million in running royalties based on $37 billion in product sales, implying an average royalty rate of 1.8 percent. The survey also contained very positive news about startups founded around university technologies. Some 66 institutions (i.e., 35 percent of the 186 respondents) reported employment of 24,653 by 1,731 operational startups, an average of 14 employees per startup.
Upon receiving the press release I set up an interview with Sherer, which was conducted on December 14, 2012, via recorded telephone call. What follows is Part I of our two-part interview.
A multinational corporate client, who was concerned about potentially defending non-practicing entity (NPE) patent suits, recently asked me about its options for joining a U.S.-based defensive patent pool. Upon doing the research, I was surprised to learn that there are only really three options: Allied Security Trust, RPX Corporation, and Intellectual Ventures!
First, some background.
NPEs, as most of us know, are entities that own one or more patent portfolios, attempt to license them through targeted letter-writing campaigns and then file patent infringement suits against those letter recipients who refuse to enter into non-exclusive licenses. In some cases, due the U.S. Court of Appeals for the Federal Circuit’s 2007 ruling in Sandisk Corporation v. STMicroelectronics Inc., NPEs often file law suits first and then attempt to negotiate a license with the accused infringer/defendant.
The Association of University Technology Managers (AUTM), a nonprofit association of academic technology transfer professionals surveys North American universities, hospitals and research institutions each year on a host of data points that reveal licensing activity. Examples of the type of information gathered includes the number of patents, the number of invention disclosures, the number of startups created and the amount of licensing income received. The results are available in the AUTM U.S. Licensing Activity Survey: FY2011, and the AUTM Canadian Licensing Activity Survey: FY2011, published Dec. 10.
This year AUTM included additional questions to better ascertain the economic impact of technology transfer.
In the case of product sales, 58 institutions (31 percent of the 186 respondents) reported that 2,821 of their licenses paid $662 million in running royalties based on $37 billion in product sales, implying an average royalty rate of 1.8 percent. Only 65 of these licenses yielded more than $1 million in royalty income.
The U.S. patent system has garnered a lot of attention over the past several months, much of it a negative portrayal of patents as a tool more likely to stifle than protect innovation—and much of that sentiment stemming from Apple’s recent legal triumph over Samsung.
As the larger business, government and societal debates continue relative to the future role and efficacy of the patent system, it’s worth taking a moment to remind ourselves that product and technology licensing is not anathema to the qualities of fairness and transparency.
Patent pooling is one example of a proven, effective tool that is helping industry better manage its licensing programs. By “pooling” patents from many license holders, licensors generally are able to lower transaction costs and administrative overhead, and benefit from a centralized model that encourages patent bundling and fair play. Licensees likewise enjoy advantages in the form of lower royalty fees and a single point of contact that eliminates the need to negotiate separately with multiple license holders.
The Goose that Lays the Golden Eggs. Courtesy The Gutenberg Project Ebook of Punch, or the London Charivari, 2/19/1919
UPDATED (see comment #4)
Several public interest groups recently filed a march in petition under the Bayh-Dole Act asking NIH to force Abbott Laboratories to license its competitors for the production of Ritonavir, a drug used to treat AIDS. Abbott used federal funding in making the invention. The complaint is that Ritonavir is more expensive for private users in the US than it’s priced abroad. This is a repetition of a similar action dismissed by NIH in 2004 as regulating prices is not a trigger for march in’s under the law.
Hopefully the Obama Administration agrees with the prior dismissal and again denies this latest effort.
The new petition also lays a trap for other drug developers. It proposes that any drug derived from federal funding also be subjected to march in licensing if it’s sold at a higher price in the US than in seven ”comparison countries,” or if US prices are higher than median prices abroad.
The theme of the AIPF annual meeting this year is “intellectual property as a corporate asset.” There are indeed presentations sprinkled across the two days of this meeting that relate specifically to this topic. Another recurring and equally treated topic is the use of the Internet in practice in a variety of contexts — attracting clients, networking generally and use of the Internet for investigations.
I’m not going to rehash my entire day at the AIPF meeting, but there were several presentations that I found particularly interesting.
The Invisible Hand: Models for Monetizing Patents in the 21st Century
The first speaker of the day is Richard M. Ludwin, Associate General Counsel for IBM Intellectual Property Law. He is speaking about patent monetization. One of the first points he made was that intellectual property lawyers are different than many other lawyers because our work-product directly relates to the product that hits the market. That is, indeed, one of the things that makes patent practice exciting. From my perspective it is quite exhilarating to work with a client to figure out what pieces and parts of the grandiose innovation are likely to be protectable. Find that core and you can build in a direction that is unique, and which can be yours.
In my first article, I posed the question whether the “Smart Phone Patent Wars” were giving IP rights – and more specifically, patents – a bad rap? My conclusion was an unfortunate “yes,” with the villains being a handful of companies that willingly contributed patented technologies to various standard setting organizations (SSOs), encouraged their use in a host of consumer electronics, and years later charge the very producers they encouraged to implement these standards with patent infringement. In my second article, I examined the so-called “Fair, Reasonable and Non-Discriminatory” (FRAND) licensing terms that SSOs require of their participants and concluded the phrase has no clear, widely-accepted definition or standards for determining compliance. In my third article, I examined the patent policies of four major SSOs and concluded that none offered any clear guidance on what constitutes a FRAND license leading to unnecessary and counterproductive litigation. In my fourth article, I made a few observations among the flurry of activity as to the market effects of these patent wars. Now, I report on potential congressional action on the horizon and the increasing focus on the U.S. International Trade Commission (ITC).
Pew Research recently reported that 46.0% of Americans now own a smartphone device, making them more commonly owned than regular, basic mobile telephones. This ownership figure rises to 66% for the sought-after consumers population aged between 18-29. Thus, there is no surprise that the smart phone patent wars rage on, and members of Congress have noticed.
Stewardship: taking good care of the resources entrusted to one
Circa 1980: Senator Birch Bayh (right) and Staffer Joseph Allen (left) in a Bayh-Dole hearing.
What should we say about a steward that manages billions of dollars in public research funds not aimed at finding commercial products and turns them in to hundreds of billions of dollars in economic impact while supporting millions of jobs? You would think that a sincere “thank you” was in order. But many are saying that the system producing such riches is broken. Remarkable.
A new study shows that this spinning of straw into gold is precisely what our academic research organizations have been quietly doing year after year. The just released report “The Economic Contribution of University/Nonprofit Inventions in the United States: 1996-2010” provides a much needed dose of good economic news when we sorely need it. It shows that the university/industry R&D partnership created by the Bayh-Dole Act of 1980 is essential to our economic growth while protecting public health and well-being.
Below is summary of some of the patent deals from the last several weeks that caught my eye. If you have any “patent business” or “patent deal” news you would like to share please send me a message using our contact form.
IV Announces Silicon Labs as Newest Licensee
Silicon Laboratories, Inc. (NASDAQ: SLAB) joins Intellectual Ventures’ more than 30 industry-leading customers around the world as a licensee of Intellectual Ventures. On Monday, July 2, 2012, IV and Silicon Labs, an innovator in the semiconductor space, announced that they entered into an intellectual property license agreement providing Silicon Labs with access to the majority of IV’s extensive patent portfolio. Although not specified by number of patents licensed, the IV portfolio consists of nearly 40,000 patents in more than 50 different technology areas.
Editor’s Note: What appears below are the prepared remarks of Bernard J. Cassidy. Mr. Cassidy testified earlier today before the House Committee on the Judiciary’s Subcommittee on Intellectual Property, Competition and the Internet. The Hearing was on “The International Trade Commission and Patent Disputes.” Mr. Cassidy’s remarks are published here with his permission.
Chairman Goodlatte, Ranking Member Watt, and Members of the Subcommittee,
My name is Bernard J. Cassidy, and I am Executive Vice President and General Counsel at Tessera Technologies, Inc., which is headquartered in the heart of Silicon Valley, in San Jose, California. We have facilities in Charlotte, North Carolina, Rochester, New York, and Arcadia, California as well as in Europe and Asia. I deeply appreciate this opportunity to speak before you regarding the importance of the International Trade Commission to my company and our innovation economy.
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. The treatise is continuously updated to address relevant Federal Circuit and Supreme Court decision impacting patent drafting.
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