TECHNOLOGY LICENSING TODAY
(Highlights of Technology Licensing Course)
Karl F. Jorda
David Rines Professor of Intellectual Property Law & Industrial Innovation
Director, Kenneth J. Germeshausen Center
for the Law of Innovation & Entrepreneurship
Franklin Pierce Law Center
Two White Street, Concord, NH 03301 USA
Seminar
Licensing Executives Society
Manila, Philippines
November 24-25, 2005
1
INTRODUCTION
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Live in “Golden Age” for IPRs
Patent filings and issuances are skyrocketing
Talk of patent “revolution,” “explosion,” “frenzy”
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“Anything under the sun that is made by man” is patentable
Courts, Congress, Justice Department — pro IPRs
Corporations built on patented technologies
Motto: Innovate or perish
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Value of IPRs for securing exclusivity — simply invaluable
Royalties for licensing IPRs in 2002: $150 billion
Over $1 billion for some companies
Universities jumped on bandwagon
2
THE AMERICAN PATENT SYSTEM
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The Constitution gives Congress the power to promote the progress of the
useful arts by securing for inventors the exclusive right to their discoveries
for limited times. (U.S. Const. art. I, § 8, cl. 8.)
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“The issue of patents for new discoveries has given a spring to invention
beyond my conception.” (Thomas Jefferson)
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“The patent system added the fuel of interest to the fire of genius.”
(Abraham Lincoln)
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“The advancement of the arts, from year to year, taxes our credulity and
seems to presage the arrival of that period when human improvement must
end.” (Henry L. Ellsworth, Commissioner, Patent Office Annual Report for
1843)
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“A country without a patent office and good patent laws is just like a crab
that can’t travel any way but sideways or backways.” (Mark Twain)
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“The American patent system has promoted countless applications of the
arts and sciences to the needs and well-being of our people.” (Franklin D.
Roosevelt)
3
PATENT SYSTEM INCENTIVES
1) To invent
2) To disclose inventions
3) To “invent around” prior inventions — improvements
4) To invest in innovation —
a) the most important incentive of all
(CAFC Judge Giles Rich)
b) ratio of requisite investment in the 3 phases of
innovation from lab to market, i.e. research, development
and commercialization is 1:100:1000. (This supports the
thesis of investment incentive.)
4
TENETS AND TRUISMS
on Intellectual Property Rights and Technology Transfer
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Technology transfers, licensing and investments are ever so much
easier to carry out and accomplish via patents and other IPRs as
vehicles or bases.
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Importation of technology leads not only to export of products but
also to export of adapted, improved technology (reverse
technology transfer).
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The days when technology transferors took advantage of
transferees (in developing countries) are gone, the realization
having taken hold that the only viable license is one that results
from a win/win approach and passes the fairness test.
5
REASONS FOR LICENSING
1) Unblock interlocking IPR’s
2) Settle IP litigation, interference
3) Grow and diversify the business
4) Deal with outside idea submission
5) Convert dormant IP portfolios into profits
6
HOW TO FACE THIRD-PARTY PATENTS
Starting point and first step in managing downside risk:
company policy is not to infringe valid patents of others
1. Determine scope — if outside, no problem
Caveat: positive doctrine of equivalents
(Even if inside there may be no problem by dint of negative doctrine of
equivalents)
2. Determine validity — invalid patent cannot be infringed
3. Work around it, design around it, invent around it
4. Wait till expiration, if not too far off
5. Take a license or buy patent or whole business
N.B. Different kinds of patents have different scope of protection
• Paper patent
• Commercially-used-patent
• Basic or pioneer patent
7
KINDS OF LICENSES
I.
Patent License
Trademark License
Know-How License
Trade Secret License
Copyright License
Software License
Hybrid License
Franchise
II.
Exclusive License
Non-Exclusive License
Sole (semi-exclusive co-exclusive) License
III.
Royalty-bearing License
Royalty-free License
IV.
U.S. (domestic) License
(Specific country) License
World-wide License
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KINDS OF LICENSES (cont.)
V.
Sublicense
Cross-License
Package License
Label License
Shrinkwrap License
Grantback License
Grant-forward License
VI.
Implied License
Compulsory License
VII. Shopright
Option Agreement
Secrecy Agreement
Consultation Agreements
Technical Assistance Agreement
Invention Agreement
Employment Agreement
Releases, Waivers
VIII. Assignments
9
DEVELOPMENTS &TRENDS IN
LICENSING/TECHNOLOGY TRANSFER
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Companies that didn’t used to license at all, now do it (CIBA-GEIGY,
DuPont, IBM, Westinghouse)
Royalties are going through the roof
Option Agreements are on the increase
Other quid pro quos are preferred, e.g. cross licenses, products
Dormant IP portfolios are licensed for profit
Hybrid Patent or Trademark /Trade Secret Licenses and Franchises
Other arrangements have been developed, e.g. joint venturing, corporate
partnering, co-marketing, co-promotion, strategic alliances, consortium
licensing (Sematech)
No anti-trust enforcement
Nine no-nos are history
Positive anti-trust through legislation
Above all — win/win philosophy, attitude more prevalent
10
INNOVATION: A THREE-STEP PROCESS
• one day an American firm announces a
breakthrough invention;
• next day the Russians claim they made
the same discovery twenty years ago; and
• on the third day the Japanese start
exporting the new product.
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KINDS OF PATENTS
I. Utility Patents
Design Patents
Plant Patents
II. Mechanical Patents
Chemical Patents
Electrical patents
Biotech Patents
Software Patents
Business Method Patents
III. Product Patents
Composition Patents
Use Patents
Process Patents
IV. Pioneer Patents
Basic Patents
Dominant Patents
Improvement Patents
Paper Patents
Picture Patents
Selection Patents
Poor Man’s Patents
Submarine Patents
V. Petty Patents (Utility Models)
Patents of Importation
Patents of Confirmation
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LICENSING OF PATENT APPLICATIONS
1)
2)
3)
4)
5)
6)
7)
Truism: a pending application confers no right of exclusion — only issued patent
do.
So how can one license an application that at law grants no right to exclude? If
one can’t license and exact royalties after patent term — why before?
Very commonly done — grammatical, substantive error?
If error — business community lives with it very well.
License is merely a withholding of a right to exclude others. License is not grant of
anything.
What’s rationale, rationalization, justification?
a)
§ 261 makes patent personal property, so application in and of itself is species
of property. Thus right to license application is inherent in lawful right to
assign application. Strained!
Better:
b)
Purported license = license of trade secret or
c)
Purported license = license of patent when issues or
d) Both
“Licensing of patent applications is a hybrid animal which requires special
treatment to avoid (potential problems.” (David Hill)
13
IMPLIED LICENSE
1.
Shopright — employer-employee relationship
2.
Via acquiescence of patent owner — sits on his/her rights — laches
3.
Business relationship — close cooperation on innovative project
See Wang v. Mitsubishi, CAFC, 1997
4.
Licensor-Licensee Relationship — under unlicensed but indispensable
patent — e.g. dominant patent issued later to licensor or earlier-issued
dominant patent acquired by licensor
5.
Seller-Buyer relationship under combination or method patent of seller
who sells a component or article for use in the patented combo or
method
See Jacobson v. Cox, Dist. Ct., Arizona
14
COMPULSORY LICENSES
In Foreign Countries
Compulsory License provisions
universal
Paris Convention — Art. 5
GATT TRIPS — Art. 31 (very
restrictive)
For non-working
For dependent patent
Rarely used
In United States
General Rule: No duty to use or license patented
invention (§ 271(d)(4)
Compulsory license notion = anathema in U.S.
However,
Forcing patentee to license = compulsory
license
Denying patentee injunctive relief = tantamount
to compulsory license
Examples:
Infringement by Government
Infringement by TVA
Infringement via assistance under International
Development Act
Compulsory license provisions in
— Atomic Energy Act
Air Pollution Control Act
Plant Variety Protection Act
Bayh-Dole Act (march-in rights)
As relief in Antitrust cases
Injunction denied — Public Health & Safety,
Unusual hardship on infringer without benefit
to patentee
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TYPES OF LICENSE TRANSACTIONS
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Assignment
– outright sale, transfer of title
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Exclusive license
– permission to one party only (licensee)
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Sole (semi-exclusive co-exclusive)
– permission to one other party (licensor and licensee)
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Non-exclusive
– permission to one or more parties (licensor and any number of
licensees)
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Covenant not to sue
– nonassertion agreement
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NON-EXCLUSIVE LICENSES
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No statutory basis
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Immunity from suit — covenant not to sue
– I.e. merely waiver of right to sue for conduct which would constitute
infringement and would be actionable, absent license
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No affirmative rights go with it
– e.g. re enforcement of licensed patent
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No freedom from competition
– if there is infringement, it is no legal injury
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SPECTRUM OF LICENSING
1) Option
2) Option/License
3) Covenant not to sue
Non-assertion agreement
4) License — Non-exclusive
Immunity from suit
5) License — Sole, Semi-exclusive, Co-exclusive
6) License — Exclusive
7) Assignment
8) Acquisition
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OPERATIVE LANGUAGE
A. Assignment
A sells, conveys, transfers and assigns to B
all its right, title and interest
in and to certain Patent Rights.
B. License
1)
A grants to B
2)
a (non) exclusive license under certain Patent Rights
3)
to make, have made, use, offer to sell, sell or import
Licensed Products (or to practice Licensed Methods)
4)
throughout the U.S.
5)
for the duration of the Agreement.
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THE ALL-IMPORTANT GRANT CLAUSE
The most important clause in a license agreement.
A typical basic grant clause might have the following five
elements:
1) A grants (or agrees to grant or grants and agrees to grant)
2) a (non) exclusive (or sole) license under certain IP Rights
3) to make, have made, use, offer to sell, sell or import Licensed Products
(or to practice Licensed Methods)
4) throughout the territory
5) for the duration of the Agreement.
Do not use such modifiers as “indivisible,” “irrevocable,”
“non-transferable” and “perpetual.”
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EXCLUSIVE LICENSE OR ASSIGNMENT?
Not uncommonly, what is perceived by the businessman as an
“exclusive license,” is best negotiated into the form of a patent
assignment perhaps with rights to reversions of title if royalties
are not paid — this because the exclusive license differs from
assignments only in areas (like who sues infringers and has
authority to compromise in settlement) which may be better
borne by the party actively in the business than by the passive
transferor of the technology.
Tom Arnold, “Basic Considerations in Licensing”, p.128
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PROTECTION OF (EXCLUSIVE) LICENSOR
1. Lumpsum payment — paid up license
2. Minimum royalties
3. Termination power — outright
• if a desired total not reached
• if annual minimums not maintained
4. Conversion to non-exclusive license
5. “Best efforts” clause
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dubious language
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variously interpreted
very strictly or leniently
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better: reasonable diligence consistent with interests of business
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best: objective, quantitative criteria of performance
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BETTER ALTERNATIVES FOR THE COMMON
“BEST EFFORTS” CLAUSE
A “best efforts” clause to the effect that ABC “shall exercise its best efforts to exploit the
Licensed Products” is dubious language.
Better: “reasonable diligence consistent with the interests of the business”
Best:
1. Best Efforts shall mean those efforts which a reasonably prudent person
knowledgeable of such matters would consider desirable, necessary or commercially
reasonable to further the intentions of the Parties hereunder”
2. Objective, quantitative criteria of performance
3. Conversion from exclusive to non-exclusive status
4. Termination power if specific levels of performance or annual minimums are not
maintained
5. Lumpsum up-front payment
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BEST EFFORTS OBLIGATION
Licensee shall exercise its best efforts to produce, sell and
offer for sale Licensed Machines. “Best efforts” shall mean
those efforts which are commercially reasonable to further the
intentions of the Parties with respect to quality as well as
quantity of the Licensed Machines produced. Production of
250 Licensed Machines per half year after March 1, 2001 of a
quality that conforms with established industry standards, will
satisfy Licensee’s best efforts obligation hereunder.
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WAYS TO PROTECT LICENSEES FROM THIRDPARTY DOMINANT PATENT RISKS
1) Hold-harmless clause with licensor
— getting licensee another license
— providing a non-infringing alternative or
— defending an infringement suit (but not open-endedly)
2) Cost-sharing arrangement
— if royalties have to be paid to third party
— if infringement suit has to be defended
3) Renegotiation of royalty provision
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A TROUBLE-FREE MFL CLAUSE
A very important clause in non-exclusive licenses.
Advisable
1. to stay away from vague phrases (such as, “other terms and conditions,”
2. to include escape clauses or exceptions, e.g. settlements,
3. to give licensee the right to terminate and negotiate the license, if a
subsequent licensee has been overly favored.
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PATLEX LICENSE
ARTICLE XII – MOST FAVORED LICENSEE
If subsequent to the effective Date of this Agreement another manufacturer of
lasers, laser systems, or Low or High Power Laser Tubes similarly situated to
LICENSEE is granted a license by PATLEX which provides to said another
manufacturer a combined royalty rate and royalty base materially more
favorable to said another manufacturer with respect to any of the Licensed
Patents than that provided herein to LICENSEE for lasers, laser systems and
Low or High Power Laser Tubes sold or leased in the United States, then
LICENSEE may, at its option, adopt the subsequent license in its entirety,
mutatis mutandis, as of the effective date of such subsequent license.
PATLEX shall notify LICENSEE of any such subsequent license and provide
LICENSEE an opportunity to exercise the option provided herein.
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ADDITIONAL CLAUSES NEEDING CLOSE
ATTENTION
Definitions — the second-most critical clause in licenses
Confidentiality — crucial where trade secrets are involved
Improvements — “grant-back” by licensee to licensor or “grant forward”
by licensor to licensee where they continue their R&D, a narrow, precise
definition, tied to the scope of the patent claims, in non-exclusive form
Sublicensing rights — especially important in exclusive licenses for
practical and legal reasons
Termination — this third most important clause is a multipronged
concept, each prong needs to be defined separately, a license never
terminates over night, different rights and obligations of the parties
continue
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ROYALTIES
Royalty-free
Royalty-bearing
Lump sum — single or installments
Running royalties
Fixed
Sliding
Increasing
Decreasing
Maximum (Cap)
Paid-up license
Minimum
Combinations of both
Most common combination
1) Initial lump sum (10%)
2) Running royalty (on net sales)
3) Minimum yearly royalty
- - - - -Total royalty income depends on
Royalty base
Royalty rate
Duration of agreement
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ROYALTIES
Non-exclusive Licenses
“Industry Standards”
“Folklore — Suspect as Royalty-rate Guide”
Chemicals 1-5%
Electronics 1-5%
Computers 3-5%
Consumer Products 2%
Pharmaceuticals 4-15%
For exclusive licenses
20-50% premium
Up to 300% premium in pharma field
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ROYALTIES
MOST IMPORTANT FACTORS
a)
the state of development of the subject technology (embryonic and
untested v. tested and commercial),
b)
the strength of the IP rights (solid v. weak, ease to design around vel non),
and
c)
the degree of exclusivity (exclusive v. non-exclusive)
----the amount of, and value added by, trade secrets
“Trade secrets are a component of almost every technology license...(and)
can increase the value of a license up to 3 to 10 times the value of the deal
if no trade secrets are involved.” (Melvin Jager).
d)
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ROYALTY-FREE LICENSES
There is significant royalty-free licensing.
Makes eminent business sense.
There is indeed great virtue in royalty-free licensing in terms of good will and good relationships,
bringing about increased sales of goods and supplies and hence larger market share.
Examples.
At one point in my career at CIBA-GEIGY Corp. (now Novartis), I prepared over 20 royalty-free
non-exclusive licenses to carpet manufacturers under patents I had obtained in the U.S. and
Canada on an important improvement in tufting carpets. CIBA-GEIGY was not in the business of
manufacturing and selling carpets but dyestuffs. CIBA-GEIGY had no intention to practice this
tufting method itself. Licensing was the best alternative. Rather than doing it for royalties, we did
it for free with the expectation that this would induce grateful carpet manufacturers to buy more
dyestuffs from CIBA-GEIGY. Carpet manufacturers were pleased to be licensed for free to
practice an important new technique for tufting carpets.
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ROYALTY-FREE LICENSES (2)
A more recent example is the royalty-free licensing by Iridian
Technologies of iris-scan patents. Iridian owns a broad patent and
another two dozen patents on iris-recognition software, which is able to
accurately identify people at airport security or automated teller
machines. They licensed these patents also on a royalty-free basis after
deciding that the “upside of software sales was greater than the
downside of collecting royalties.” They won contracts with Schiphol
Airport and the UAE government and expected other big government
contracts. Iridian will “end up getting a lot of business” per US Today of
August 15, 2005. This case also shows that giving away valuable patent
rights for free can be a savvy business move.
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ROYALTY-FREE LICENSES (3)
In the field of licensing law and practice there are other instances of, or
occasions for, granting free licenses.
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Interference settlement agreements.
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Grant-back provisions in license agreements often are royalty-free.
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Releases of patent rights to employees, where a corporation or university has no
interest in the employee’s invention.
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Hybrid patent/trade secret licenses with royalty based on the trade secrets.
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Corporations owning patents that would be infringed by university research grant
the university a royalty-free license.
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In standard setting situations, assurances by patentees to license on royalty-free
terms.
The conclusion is inescapable that royalty-free licensing of valuable IP rights in
preference to royalty-bearing licenses, is conducive to creating good will and
establishing or cementing good relationships, with attendant increases in
market share.
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DUE DILIGENCE
An investigation undertaken in the course of an IP transaction.
The purpose of a due diligence investigation is to provide the data
needed to analyze and assess the business and legal risks associated
with the IP rights that are the subject of the transactions.
Due diligence procedures may include, among other things:
1)
2)
3)
4)
identification of all IPRs involved in the transaction,
verification of ownership and inventorship of the IPRs,
determination of the enforceability or strength of the IP assets,
review and verification of all documentation associated with the IPRs,
including registrations, licenses, security liens, file wrappers, and claims of
infringement; and
5) interviews of those persons with knowledge of the subject IPRs.
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NEGOTIATION TACTICS
Prepare thoroughly
• do research on other side
• develop strategy
• prepare draft agreement or outline
Choose third or fourth choice candidate for first round
Form a team
Stage a dress rehearsal
Go in with win/win approach — not “wimpy/wimpy”
Assure comfort and convenience
Take good notes
Take up less controversial issues first
Take up money matters at end
• agreement clauses have economic weight
Use silence in negotiations
Volunteer to draft agreement
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NEGOTIATION OF LICENSING AGREEMENTS
A. Object —
1.
Good deal for both sides: win-win
B. Necessary pre-negotiation homework— the more the better
70% of negotiation is preparation
1.
Licensor’s information
a) about company
b) product or process description
c) proprietary position
d) sales history of product
e) materials, components and equipment required
f) cost data
g) licenses already granted
h) other
2.
Licensee’s information
a) place in market
1. names and volume of competitors
b) financial position
c) physical plant
1. availability of space and capital for expansion
d) ownership
1. other affiliations
2. other licenses
e) estimated costs for new license program
f) estimated future market
g) annual sales volume for past few years for other products, related and nonrelated
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NEGOTIATION OF LICENSING AGREEMENTS (continued)
C.
D.
Pre-negotiation internal discussions.
1. Selecting the team
2. Who does what
3. Practice negotiation – dress rehearsal
a) helps your people feel comfortable
b) try to determine and understand other needs
c) may discover your, or other’s, weak points
The negotiation
1. With as high a level as possible
2. With knowledgeable people on both sides.
3. Convince other party of reasonableness of your position
4. Listen to, and analyze, other party’s position
5. Know what is important and what is not — what you can give and what
you cannot
6. Be creative and flexible
7. Say enough, but not too much
8. Caucus as often as necessary
a) some emphasize items agreed upon
b) some emphasize items not agreed upon
c) a above is better
9. At end of session, state current status and what is next
10. Volunteer to prepare first draft
Homer O. Blair
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INESCAPABLE UNCERTAINTY
PRINCIPLE IN CONTRACT
DRAFTING
1. Semantic Dilemma
— undefined terms
— terms incapable of definition
— few terms universally understood to have a single meaning
e.g. “public domain”, “line of business”
if try to define, often substitute another uncertainty
stiff definitions important
2. Human Frailty
Imperfection of human intelligence and attentiveness, press of business
— can be mitigated
Can lead to three defects
a.) ambiguity
— two possible meanings —
— different from vagueness (imprecise boundaries)
e.g. “residence,” “period from June 15 to” can be eliminated
— of different words
— additional words
b.) excessive vagueness — e.g. “indivisible”
c.) unclear modifier
— most common, most dangerous
see p.46 of Brunsvold
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ADMINISTRATION OF LICENSING
PROGRAM POST-SIGNING ISSUES
Distribution of license agreement — “working copies”
Cooperation with Accounting re royalty set up
Continuing contacts with and monitoring, notifications of other party re
–
–
–
–
–
–
–
–
–
–
–
–
–
Quality control (in trademark licenses)
Royalty audits
Information exchange and technical assistance
Grantback and grant forwards
MFL clauses
Sublicenses
Patent activities
Patent markings
Bankruptcies — M& A’s
Renegotiation, revision
Termination — Multipronged
Breach of contract
`Other follow-through
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BASIC CONSIDERATIONS
•
Some threshold considerations, principles and rules to keep in mind for drafting technology license
agreements.
•
The only viable license agreement is one that results from a win/win approach and passes the
“fairness test.” A win/lose license agreement has no future. It is by far better to “open a
relationship” rather than “close a deal,” when concluding a technology license. Even a 500-page
agreement may not cover all possible contingencies.
•
Technology license agreements covering intellectual property rights (IPRs), and more particularly
patents and trade secrets, are unlike other general contracts. The laws relating to IPRs have
special characteristics and peculiarities, which leads to many misconceptions.
•
In technology licensing the “merchandise” involved in the transaction are IPRs and hence it is
imperative that one understands the nature of the “merchandise.” The IPRs, serving as the basis
of the transaction, determine much of the substance of the license agreement.
•
In drafting technology licenses, the grant clause is the most important one and hence requires
special attention. It is formulaic and has five crucial elements. The definitions and termination
clauses are the second and third most important clauses, respectively.
•
The payment clause is the very last one to be negotiated and finalized, because most other
operative clauses have economic weight and affect the size of the ultimate consideration.
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BASIC CONSIDERATIONS (2)
•
In royalty-rate setting, so-called industry standards are suspect as royalty-rate guides; instead
such factors as the stage of development of the subject technology, the strength of the IPRs and
the degree of exclusivity as well as many others among Tom Arnold’s “100 Factors Involved in
Pricing the Technology License” are determinative.
•
In drafting technology licenses and other IPR licenses, the trend is away from archaic formalistic
legalese and the preferred format or sequence of clauses is as follows: preamble, background,
definitions, grant of rights, royalties, payment of royalties, license restrictions, confidentiality,
enforcement/defense, future IP, duty to use, term and termination, other miscellaneous provisions.
•
Most technology licenses are hybrid agreements, covering both patents and trade secrets,
because without collateral know-how patented technology often cannot be practiced. But
because of the different characteristics of patents and trade secrets, especially as regards
duration, there has to be a differentiation in the treatment of patents and trade secrets. Royalties
have to be allocated separately to each, depending on their proportional value in the technology
package and there has to be a corresponding reduction of the royalty rate if the patent expires, is
declared invalid or the application does not issue, inasmuch as it is per se patent misuse to
continue to exact royalty payments once patent rights cease or don’t materialize (Brulotte v. Thys,
Supreme Court, 1964).
•
Anent the question of what role lawyers should play in licensing negotiations, many business and
licensing executives believe it is better to limit the lawyer’s role to cleaning up the contract
language once the business terms have been settled.
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LICENSING CASE HISTORY
CLOCK CALCULATOR PATENT
Four-Step Project
1.
2.
3.
4.
Exhaustive infringement search and study
Exhaustive validity search and study
Design of comprehensive Licensing Strategy
a) Patent ownership transferred to new subsidiary
b) Narrow royalty base
c) Low royalty rate
d) Offer of paid-up licenses
e) Agreements prepared for both paid-up and running royalty licenses
Implementation
43
LICENSING CASE HISTORY
GOULD LASTER PATENTS
CAST OF CHARACTERS
1) Gordon Gould
Sole inventor as Columbia graduate student — Owns 20% of patent rights and has a
20% share of the royalties.
2) Richard I. Samuel
Partner of Lerner, David, Samuel, et al — prosecuted Gould applications — became
President and CEO of PATLEX which had acquired 80% ownership in Gould patent
rights from REFAC, a New York City licensing outfit, initially retained by Gould/Lerner,
David, Samuel, et al to exploit Gould patent rights. (REFAC receives 16% and
PATLEX, 64% of royalty income.)
3) Herbert Dwight, Jr.
Entrepreneur and founder of Spectraphysics and its CEO till retirement in 1988.
4) Frank Borman
Former Astronaut and Chairman of Eastern Airlines, became Board Chairman of
PATLEX in 1988.
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LICENSING CASE HISTORY
GOULD LASER PATENTS
THE PRINCIPAL PATENTS
1.) USP 4,053,845
Optically Pumped Laser Amplifiers
Filed 4/6/59 — issued 10/11/77 — expires 10/11/94
2.) USP 4,161,436
Method of Energizing a Material
Filed 4/6/59 — issued 7/17/79 — expires 7/17/96
3.) USP 4,704,583
Gas Discharge Light Amplifier
Filed 4/6/59 — issued 11/3/87 — expires 11/3/2004
4.) USP 4,746,201
Brewster Angle Window Laser Device
Filed 4/6/59 — issued 5/24/88 — expires 5/24/2005
(Canada — 907,110 — ‘89)
45
LICENSING CASE HISTORY
GOULD LASER PATENTS
PATENT PROCUREMENT & LITIGATION
Difficult Prosecution
Multi-party Interferences
Three Re-examinations
Appeals from PTO to District Court and Federal Circuit
Infringement Litigation
Control Laser FL
Quantronix CA
General Photomics CA
46
LICENSING CASE HISTORY
GOULD LASER PATENTS
STANDARD PATLEX LICENSE
1. User License
Grant:
Non-exclusive worldwide license under USP 4,161,436 on “Method on
Energizing and Material” — immunity under all Gould patents.
Royalty:
1) 3% of purchase price of all lasers — for past infringement — within 60 days of
effective date.
2) 1% of purchase price on first, second and third anniversary of effective date.
3) 6% of purchase price for future purchases unless purchased from licensed source.
4) 8% for lasers which licensee hides.
5) In case of acquisitions of companies over $20M, royalties as per 1) — 4) within 60
days of acquisition.
47
LICENSING CASE HISTORY
GOULD LASER PATENTS
STANDARD PATLEX LICENSE
2
Manufacturer License
Grant:
non-exclusive worldwide license under all Gould patents.
Royalty:
For Past Infringement:
1) 5% of net selling price upon signing under USP 4,053,845.
2) 13% under USP 4,161,436.
3) 5% under Can. Pat. 907,110..
4) 6% under USP 3,562,662, 3,576,500 and 3,586,998.
48
LICENSING CASE HISTORY
GOULD LASER PATENTS
STANDARD PATLEX LICENSE
As Future Royalties:
1)
5% under USP 4,053,845
(Optically Pumped Lasers)
2)
2% under USP 4,704,583
(Gas Discharge Laser) or
3-1/2% or 5% depending on occurrence of certain
conditions.
3.)
3-1/2% under Application No. 869,831
(Brewster’s Nagle Window)
4)
3% under USP 4,161,436
(User patent)
5)
5% under Can. patent 907,100
6)
6% under USP 3,576,500
(Copper Vapor Laser)
7)
O% under any other Gould patent.
For multiple patents — highest rate.
Other terms:
Complicated provisions with respect to the above patents as to royalty base.
No royalty on governmental sales.
Licensee’s customers won’t be sued.
49
LICENSING CASE HISTORY
GOULD LASER PATENTS
KEY PROVISIONS — CRUX OF THE AGREEMENTS
Step-up royalty
from 2% to 5% in 2 steps
Triggers:
1) when one competitor licensed or sued up to 3-1/2%
2) when both competitors licensed or sued up to 5%
50
LICENSING CASE HISTORY
GOULD LASER PATENTS
PATLEX/COHERENT LICENSE
Sales Range
$ O — $12.5 million
$12.5 million and above
Sales Range
$ O — $7.5 million
$7.5 million and above
USA Sales
Royalty Rate
5.0%
4.0%
Foreign Sales
Royalty Rate
2.0%
1.6%
As long as Spectraphysics is neither licensed nor sued, royalty is only 3% of U.S. net
sales and 1.2% of foreign net sales.
Annual cap of $125K under Use Patent License.
Contains MFL Clause.
51
LICENSING CASE HISTORY
GOULD LASER PATENTS
VOLUME BREAKPOINTS OR DESCENDING ROYALTY SCALE
USA Sales
Sales Range
$ 0-$15 million
$15-$20 million
$20-$25 million
$25 million and above
Royalty Rate
5.0%
3.0%
1.0%
0.5%
Foreign Sales
Sales Range
$ 0-$ 5 million
$ 5-$10 million
$10-$15 million
$15 million and above
Royalty Rate
2.0%
1.0%
0.5%
0.25%
52
LICENSING CASE HISTORY
GOULD LASER PATENTS
This case history clearly illustrates the dynamic interplay of step-up
royalty/MFL clauses and a descending royalty scheme, with the
former inducing the smaller players to sign up when the bigger
competitors – here Coherent and Spectra-Physics – are holdouts
and thus have an additional competitive edge by not paying any
royalties. And the descending royalty schedules entice the
holdouts to take out licenses, inasmuch as their total royalty
exposure is significantly reduced, e.g. down to about 1.7% in the
case of Spectra-Physics.
53
INTELLECTUAL PROPERTY & IP RIGHTS
IP
Invention
Know-how
Brand name
Work of Authorship
IPR
Patent
Trade Secret
Trademark
Copyright
54
INTELLECTUAL PROPERTY (IP)
&
INTELLECTUAL PROPERTY RIGHT (IPR)
IP
Invention
Know-how, Invention
Brand name
Work of Authorship
IPR
Patent, Trade Secret
Trade Secret
Trademark
Copyright
55
Patents
Personal Skill
Generally Known
Trade Secrets
Technical
Information
Business
Information
Readily Ascertainable
56
Patentable
Subject
Matter
Personal Skill
Technical
Information
Generally Known
Trade Secrets
Business Information
Readily Ascertainable
57
HISTORY OF TRADE SECRETS
•
"Trade Secret law is the oldest form of intellectual property protection, " according to Perritt. (Cave
people?!)
•
Back in Roman times, the law afforded relief against a person who induced another’s employee
(slave) to divulge secrets relating to the master’s commercial affairs.
Trade secrecy was practiced extensively in the European guilds in the Middle Ages and beyond.
•
•
Modern law evolved in England in early 19th century — in response to the growing accumulation
of technology and know-how and the increased mobility of employees.
•
Recognized in U.S. by middle of 19th century, Peabody v. Norfolk (1868) held that a secret
manufacturing process is property, protectable against misappropriation; secrecy obligation for an
employee outlasts term of employment; a trade secret can be disclosed confidentially to others
who need to practice it and a recipient can be enjoined from using a misappropriated trade secret.
•
By the end of the 19th century the principal features of contemporary law were well established.
•
1939 the Restatement of Torts attempted to “codify” it.
58
DEFINITION OF “TRADE SECRET”
1. A trade secret may consist of any formula, pattern, device or compilation of
information which is used in one’s business, and which gives him an opportunity to
obtain an advantage over competitors who do not know or use it. It may be a formula
for a chemical compound, a process of manufacturing, treating or preserving
materials, a pattern for a machine or other device, or a list of customers.
(Restatement of Torts, § 757 comment b (1939))
2. A trade secret is any information, including a formula, pattern, compilation, device,
method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.
(Unif. Trade Secrets Act § l(4), 14 U.L.A. 372 (1985 & Supp. 1989)
3. A trade secret is any information that can be used in the operation of a business or
other enterprise and that is sufficiently valuable and secret to afford an actual or
potential economic advantage over others.
(Restatement (Third) of Unfair Competition, § 39 (1995))
59
TRADE SECRETS
The Restatement of Torts adopted and the courts relied on the following
criteria for determining whether a trade secret exists:
(1)
the extent to which the information is known outside of the business;
(2)
the extent to which it is known by employees and others involved in
the business;
(3)
the extent of measures taken to guard the secrecy of the information;
(4)
the value of the information to the business and to competitors;
(5)
the amount of effort or money expended in developing the information;
(6)
the ease or difficulty with which the information could be properly
acquired or duplicated by others.
60
TRADE SECRET
ECONOMIC ESPIONAGE ACT (EEA) DEFINITION
The term “trade secret” means all forms and types of financial, business,
scientific, technical, economic, or engineering information, including patterns,
plans, compilations, program devices, formulas, designs, prototypes, methods,
techniques, processes, procedures, programs, or codes, whether tangible or
intangible, and whether or how stored, compiled, memorialized physically,
electronically, graphically, photographically, or in writing if —
(A)
the owner thereof has taken reasonable measures to keep such
information secret; and
(B)
the information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable through proper means by, the public.
61
TRIPS DEFINITION
Natural and legal persons shall have the possibility of preventing
information lawfully within their control from being disclosed to, acquired
by, or used by others without their consent in a manner contrary to honest
commercial practices so long as such information:
(a) Is secret in the sense that it is not, as a body or in the precise
configuration and assembly of its components, generally known
among or readily accessible to persons within the circles that normally
deal with the kinds of information in question;
(b) Has commercial value because it is secret; and
(c) Has been subject to reasonable steps under the circumstances, but
the person lawfully in control of the information, to keep it secret.
(TRIPS Agreement, Part II, Sect. 7: Protection of Undisclosed Information,
Art. 39, Par. 2, 1994)
62
DEFINITION OF KNOW-HOW
Know-how. The knowledge and skill required to do something correctly.
(Dictionary Definition)
Know-how. Information that enables one to accomplish a particular task or
to operate a particular device or process. (McCarthy’s Desk Encyclopedia
of Intellectual Property, Second Edition, p.236)
Know-how is knowledge and experience of a technical, commercial,
administrative, financial or other nature, which is practically applicable in the
operation of an enterprise or the practice of a profession. (AIPPI Resolution
– Mexico Congress – 1973)
63
CHARACTERISTICS OF TRADE SECRETS
•
No registration requirement.
•
No subject matter or term limitation.
•
No tangibility requirement.
•
No strict novelty requirement.
•
Subject matter must not be generally known or available.
•
But secrecy is the most important criterion — a sine qua non. There are no
exceptions.
•
Affirmative measures must be taken to safeguard a trade secret.
•
Sufficient economic value or competitive advantage is also a requisite.
•
Proper criterion is not “actual use” but “of value to company”, i.e. negative
results can also give a competitive advantage.
64
SAFEGUARDING TRADE SECRETS
1.
Memorialize the trade secret policy in writing
2.
Inform employees of trade secrets
3.
Have employees sign Employment Agreements with confidentiality
obligations
4.
Conduct exit interviews
5.
Restrict access to trade secrets (on need-to-know basis)
6.
Lock gates and cabinets
7.
Label trade secret documents
8.
Restrict public accessibility
9.
Screen speeches and publications
10. Use contracts in dealing with third parties
65
MISAPPROPRIATION OF TRADE SECRETS
1.
Acquisition by improper means
2.
Acquisition by accident or mistake
3.
Use of or disclosure of a trade secret
a) Acquired improperly
b) In violation of a duty to maintain confidentiality
“Improper means” includes “theft, bribery, misrepresentation, breach or
inducement of a breach of a duty to maintain secrecy, or espionage
through electronic or other means.”
“Proper means” which do not support a claim for misappropriation,
include independent discovery, reverse engineering, or discovery
from observing what has been allowed to enter the public domain.
66
TRADE SECRETS
True or False?
1.
Patents and trade secrets are at best only alternative forms for protection of innovation.
2.
Trade secrets at best are but supplements to patents.
3.
Patents and trade secrets are mutually exclusive and one or the other has to be chosen
for protection to the exclusion of the other.
4.
Because the patent system requires enabling and best mode disclosures, patents
necessarily disclose and hence preempt all the trade secrets that are useful in the
practice of the patented invention.
5.
Because patents require disclosure of the invention as a quid pro quo for exclusivity, it
is reprehensible to rely on trade secrets.
6.
The patent specification, which discloses the best mode and otherwise is enabling, as is
required, is sufficient to practice the invention or to be licensed.
7.
Trade secrets are merely a matter of "contract rights created in trade secret
agreements" as per abstract of our "U.S. Patent & Trade Secret Law" course; that is, no
contract rights, no trade secrets. Hence, trade secrets are not property per se like
patent and copyrights.
8.
The fact that the trade secret to be utilized must be disclosed to others under secrecy
obligation set forth in a non-disclosure, confidentiality, secrecy or pre-negotiation
agreement, makes trade secret protection merely a matter of contract law.
67
TRADE SECRETS
True or False?
9.
Know-how, trade secrets and confidential, proprietary or "undisclosed" information are
synonymous terms and can be used interchangeably.
10.
There are great differences between patent and trade secrets in terms of duration,
scope of protection, kind of protection, degree of exclusivity, and costs.
11.
A patentable invention must be patented for protection, while only unpatentable knowhow can be protected via trade secrets.
12.
A trade secret by definition is "concealed" and "suppressed" under § 102(g), so that a
patentee has superior rights, even if he made the invention later in time.
13.
"Under current U.S. law the inventor who chooses trade secret protection, accepts the
risk that another inventor will seek and obtain patent protection, thereby excluding the
original inventor from using his own creation." (Pooley, MIP, Oct. '99, p.68)
14.
Trade secrets don't need protection because they are secrets. (So why this course?
What's there to talk about?)
15.
"Trade Secrets are the cesspool of the patent system." (Professor Kayton)
68
ROLE AND VALUE OF TRADE SECRETS IN
IP MANAGEMENT STRATEGIES
Overview
Introduction
I.
Integration of IPRs
II. Importance of Trade Secrets
III. The Patent/Trade Secret Interface
IV. The Patent/Trade Secret Complementariness
V. The Best Mode Requirement
VI. Exemplary Trade Secret Cases
VII. Conclusion
69
I. Introduction
•
In our knowledge-based high-tech era it is important to exploit the
overlap between IP categories for dual or multiple protection.
•
This is true especially between patents and trade secrets.
•
Patents and trade secrets are not incompatible but dovetail: the latter
can protect volumes of collateral know-how.
•
This results in synergistic integration and secures invulnerable
exclusivity.
•
Most technology licenses are hybrid licenses covering patents and
trade secrets.
•
Licenses under patents without access to collateral know-how are
insufficient for commercial use of patented technology.
70
II. Integration Strategy for IPRs
From former fragmentation by specialties, IPRs are now a “seamless web,” due to
progress in technology and commerce, per Professor Jay Dratler.
Professor Dratler was the first one to “tie all the fields of IP together.” “Integrative
treatment.” (Intellectual Property Law: Commercial, Creative, and Industrial –
1991)
In 1997 the authors of “Intellectual Property in the New Technological Age”
(Professors Merges, Merrell, Lemly & Jorde) also
• avoid the fragmented coverage
• approach IP as a unified whole; and
• concentrate on the interaction between different types of IPRs.
Thus we now have a unified theory in the IP world, a single field of law with
subsets and significant overlap between IP fields. Several IPRs are available for
the same IP or different aspects of the same IP for dual or multiple protection. Not
taking advantage of the overlap misses opportunities or, worse, amounts to
malpractice.
71
II. Integration Strategy for IPRs (continued)
Especially for high-tech products, trademarks and copyright protection may supplement patents,
trade secrets and mask works for the product’s technological content.
One IPR category is center of gravity and more important.
Other IPR categories are then supplementary but very valuable to
•
cover additional subject matter
•
strengthen exclusivity
•
invoke additional remedies
•
standup if primary IPR becomes invalid
and thus provide synergy and optimize legal protection.
Multiple forms of protection are especially important in the fields of biotechnology and computer.
The most important strategy is exploiting the overlap between patents and trade secrets.
Illustrative examples are:
•
GE’s industrial diamond process technology
•
Wyeth’s Premarin process
•
Pizza Hut decision
72
Multiple Protection in Biotech
Protection for a diagnostic kit involving
monoclonal antibodies:
•
•
•
•
•
Product patent on the test kit
Process patent on the preparation of the antibodies
Trade secrecy for production know-how
Copyright for test kit’s instructions
trademark
73
Multiple Protection for Computers
A data processing system can involve:
•
patented hardware and software
•
patented computer architecture on circuit designs
•
patented business methods
•
trade secret production processes
•
copyrighted microcode
•
copyrighted operating system
•
copyrighted instruction manual
•
semiconductor chips protected as mask works
•
consoles or keyboards protected by design patents
•
or as trade dress under trademark principles
•
trademark registration
74
IP Integration Concepts
EXPLOIT THE OVERLAP
DEVELOP A FALL BACK POSITION
CREATE A WEB OF RIGHTS
BUILD AN IP ESTATE
BUILD A WALL
BUILD A RINGFENCE (India)
OVERPROTECT
LAY A MINEFIELD
for
SYNERGISTIC EFFECT
via
DUAL OR MULTIPLE PROTECTION
75
III. The Importance of Trade Secrets
Trade secrets are the “crown jewels” of corporations — not the “cesspool
of the patent system.”
Mark Halligan: “Trade secrets are the IP of the new millennium and can
no longer be treated as a stepchild.”
James Pooley: “Forget patents, trademarks and copyrights…trade
secrets could be your company’s most important and valuable assets.”
Trade secret misappropriation cost Walt Disney $240 million and Cargill
$300 million.
88% of responses in an IPO Survey indicate trade secrets to be the really
important intellectual assets because patents have limits: patentability
requirements, publication, invent-around feasibility.
76
III. The Importance of Trade Secrets (con’t)
Trade secret protection operates without delay and undue cost against the
world — unlike patents which are territorial and so expensive to obtain and
maintain that only very selective foreign filing is done.
Patents are tips of icebergs in an ocean of trade secrets
• Trade secrets cover over 90% of new technology
• Over 80% of technology licenses cover trade secrets or are hybrid licenses
Trade Secrets are the “workhorse of tech transfer.” (Bob Sherwood).
77
IV. Patent/Trade Secret Interface
As a practical matter, licenses under patents without access to associated,
collateral know-how are often not enough, because patents rarely disclose the
ultimate scaled-up commercial embodiments of products and processes.
“In many cases, particularly in chemical technology, the know-how is the most
important part of a technology transfer agreement.” (Homer Blair).
“It is common practice in industry to seek and obtain patents on that part of a
technology that is amenable to patent protection, while maintaining related
technological data and other information in confidence. Some regard a patent as
little more than an advertisement for the sale of accompanying know-how.”
(Peter Rosenberg).
In technology licensing “(r)elated patent rights generally are mentioned late in the
discussion and are perceived to have ‘insignificant’ value relative to the knowhow.” (Michael Ward, Honeywell VP Licensing).
78
IV. Patent/Trade Secret Interface (continued)
“Trade secrets are a component of almost every technology license…(and) can increase the
value of a license up to 3 to 10 times the value of the deal if no trade secrets are involved.”
(Melvin Jager).
“One potential shortcoming of focusing on patents as a measure of innovation, besides the fact
that it ignores the other types of intellectual property, is that patents are often valueless absent
the ‘know-how’ that translates protected intellectual property into viable products.” (Gavin
Clarkson, Harvard).
“A company with one or more patents for its technology will usually have substantial valuable
technical and business information related to, but outside the direct coverage or disclosure
obligations of, its patents. The company can maintain vigorous efforts in both areas of legal
protection. (Jerry Cohen, Perkins, Smith & Cohen).
“It is frequently stated that know-how is the most valuable element of technology transfer. This is
consistent with the writer’s own experience.” (Robert Goldscheider).
Failed Brazilian tactic — translate foreign patents
CIBA-GEIGY examples: Eastman Kodak & DuPont licenses.
79
V. Patent/Trade Secret Complementariness
•
Supreme Court (Kewanee Oil, 1974): perfectly viable alternatives.
•
Not mutually exclusive but mutually reinforcing — dovetail, in harmony
•
“Coexistence is well-established.” (Don Chisum).
•
Inextricably intertwined: Most R&D data and collateral know-how cannot and
need not be included in patent applications — grist for trade secrets.
•
Trade secrets precede, accompany and follow patents.
•
Tom Arnold: it’s “flat wrong” to assume that “because the patent law requires
a best mode requirement, patents necessarily disclose or preempt all the
trade secrets that are useful in the practice of the invention.”
80
13
V. Patent/Trade Secret Complementariness (continued)
1. In the critical R&D state and before any patents issue, trade secret law
“dovetails” with patent law.
2. Assuming that a development has been enabled and the best mode
described, all collateral know-how not disclosed, whether or not inventive,
can be retained as a trade secret.
3. All R&D data, including data pertaining to better modes, developed after
filing, again whether or not inventive, can also be protected as trade secrets.
4. With respect to technologically complex developments consisting of many
patentable inventions and volumes of associated know-how, complementary
patenting and secreting is tantamount to having the best of both worlds
The question is not whether to patent or to padlock but rather what to patent and
what to keep a trade secret.
Best policy and strategy is to patent as well as to padlock.
81
VI. The Best Mode Requirement
The “best mode” requirement applies
• only to the knowledge of the inventor,
• only at the time of filing and
• only to the claimed invention
Hence best mode requirement is no impediment, because —
1. Patent applications are filed early in the R&D stage to get the earliest possible
filing or priority date.
2. The specification normally describes in but a few pages only rudimentary lab
experiments or prototypes.
3. The best mode for commercial manufacture and use remains to be developed
later.
4. Patent claims tend to be narrow for distance from the prior art.
5. As shown by case law, manufacturing process details are, even if available, not
a part of the statutorily-required best mode disclosure of a patent.
82
VII. Exemplary Trade Secret Cases
1. GE’s exclusive industrial diamond process technology
•
Holds patents (some expired) and trade secrets
•
Refused to grant licenses
•
Fast-track GE scientists stole trade secrets for Far Eastern interests for
million dollar payments
•
In the end got caught, tried, jailed
2. Wyeth’s exclusive Premarin manufacturing process
•
Has market exclusivity since 1942
•
Patents expired decades ago
•
Closely guards its trade secrets
•
Natural Biologies stole these trade secrets
•
Wyeth sued, got sweeping injunction
83
VII. Exemplary Trade Secret Cases (con’t)
3. Pizza Hut case
•
Pizza Hut supplier, C&F Packing, invented and patented a
manufacturing process for pizza sausage toppings and kept
improvements secret
•
Pizza Hut misappropriated trade secrets and got sued
•
Court decision:
1. patents are invalid on on-sale bar grounds (on Summary
Judgment)
2. trade secrets are enforceable and Pizza Hut had to pay
$10.9 million (after trial)
84
HYBRID LICENSES
Patents and trade secrets (and other IPRs)
Very prevalent — >80%
Problematic — different duration, etc.
Brulotte v. Thys Co. (Supreme court, 1964):
collection of royalties after patent expiration — per se patent misuse or antitrust
violation
Solutions:
•
Separate agreements — ideally
•
Lumpsum payments
•
Differentiation between patents and trade secrets
•
Allocation of royalties to each
•
Reduction of royalty rate if patents
• terminate
• declared invalid
• if applications not issued
•
Reduction of royalty-payment period (e.g. 10 years)
•
Grant of royalty-free license to patents
•
Grant of trade secret license — no patent license
85
TRADEMARKS
Trademarks identify products
Service marks identify services
Trade names identify businesses
N.B. Trade names may also be used in a trademark sense, e.g.
IBM is used:
•
as company name
•
to identify computer products
•
to identify computer leasing services
N.B. A trade name used as a trademark is a housemark, an umbrella mark.
Trade Dress — The totality of elements in which a product or service is
packaged or presented and which combine to create the whole visual image —
overall appearance.
86
TRADEMARK FUNCTIONS
1.
Identification – to identify one seller’s goods and distinguish them
from goods sold by others.
2.
Source – to signify that all goods bearing the trademark come
from, or are controlled by, a single, albeit anonymous, source.
3.
Quality – to indicate that all goods bearing the trademark are of
an equal level of quality, whether that level is high, low, or a
particular quality desired by customers, such as a reasonably
priced, no-frills motel chain.
4.
Advertising – to advertise, promote, and generally assist in
selling the goods.
87
TRADEMARKS
•
Generic marks – marks that denote the product itself, rather than the source of the
mark. They are never entitled to trademark protection, as they are incapable of
becoming trademarks.
•
Descriptive marks – marks that describe a significantly characteristic of the article.
They normally convey an immediate idea of the ingredients, qualities, or
characteristic of the goods. They are only entitled to trademark protection if a
secondary meaning is show. (Ten K, One-a-Day
•
Suggestive marks – marks that require the imagination, thought and perception of a
consumer in order to determine the nature of the goods. In this category, a mark is
considered as inherently distinctive and worthy of protection immediately.
(Coppertone, Playboy)
•
Fanciful marks – marks that sue a familiar word in an unfamiliar way. (Apple
computer, Camel cigarettes)
•
Arbitrary marks – marks which are invented solely for its use as a trademark. (Exxon,
Xerox)
88
MULTIPLE TRADEMARK PROTECTION
1.
Common Law Rights in area where used.
2.
State Registration
3.
Federal Registration
Advantages:
a)
b)
c)
d)
Nationwide constructive notice
Incontestability, strength
Customs seizure
Procedural advantages, presumptions
89
TRADE DRESS (“GET-UP”)
1.
2.
3.
Totality of elements in which a product or service is packaged or presented and which combine
to create the whole visual image – overall appearance.
• Type of trademark or identifying symbol of origin
• Includes size, shape, configuration, color, graphics, etc.
• Trademark principles govern – Landham Act §43 —
• (Not State Law)
Conditions
a)
Inherently distinctive or secondary meaning
b)
Non-functional
• No utility patent
• No ads promoting utilitarian advantages
• No alternative designs performing utilitarian task
• Result of simple, inexpensive manufacturing method
Examples
• Shape and appearance of a product
• Shape and appearance of a container
• Cover of a book or magazine
• Layout and appearance of a place of business
• Décor of restaurant (Taco Cabana)
• Layout of golf course.
90
GEOGRAPHIC DENOMINATION
1.
Appellation of Origin
Refers to both
a) a product’s geographic origin and
b) its distinctive product characteristics, caused by particular geographic
conditions or methods of production
e.g. Champagne sparkling win
Burgundy wine
Rochefort cheese
2.
Indication of Source
Refers solely to the geographic origin of production, e.g. Paris perfume
3.
Trademarks or Service marks containing a geographic term
91
OPERATIVE LANGUAGE
PATENTS
A.
Assignment
A sells, conveys, transfers and assigns to B all its right, title and interest
in and to certain Patent Rights.
B.
License
1) A grants to B
2) a (non) exclusive license under certain Patent Rights
3) to make, have made, use, offer to sell, sell or import Licensed
Products (or to practice Licensed Methods)
4) throughout the U.S.
5) for the duration of the Agreement
92
OPERATIVE LANGUAGE
TRADEMARKS
A. Assignment
A sells, conveys, transfers and assigns to B
all its right, title and interest
in and to certain Trademarks together with the good will of the business
symbolized by said
Trademarks and the registrations thereof.
B. License
1) A grants to B
2) a non-exclusive license
3) to use certain Trademarks in connection with the Agreement Products
4) in the Territory
5) for the duration of the Agreement.
93
TRADEMARK LICENSING
Special Considerations
Not property as such
(No licensing at all before Lanham Act)
No naked licensing or transfer
No sublicensing
Quality control = sine qua non
Differences in royalty-setting
Licensee estoppel OK
94
FRANCHISING
Franchising is big business.
Franchised businesses account for:
— one trillion in annual sales
— 30% of Gross National product
— 50% of all retail sales
— 10 million people employed
— 600,000 franchised locations
— one out of every 12 businesses
Very popular and versatile form of
— marketing and
— expanding businesses
nationally and internationally
Truly win/win business arrangement
But legally it is a minefield
95
FRANCHISING
Business Advantages
Franchisor’s Benefits
(a) The franchisor can engage in rapid system expansion and market penetration without the
expenditure of any capital whatsoever, but instead with an infusion of capital.
(b) The franchisor acquires the aggressive self-motivation of franchisees, whose ownership
fervor is generally far greater than that of employee managers.
(c) The franchisor can rely on “local entrepreneurs” that can decipher local requirements
because of their direct customer contact and garner goodwill engendered in that contact.
(d) The franchisor can obtain revenue from a variety of sources: a substantial fee for the sale
of the franchise, a royalty for the use of the mark and the business system, savings due to
reduction of large inventories and profits due to economies of scale in the production, storage,
and handling of products.
(e) The franchisor has the ability to motivate and control huge numbers of indirect employees,
avoids a certain amount of risk inherent in most businesses, receives the benefit of the constant
accretion to the value of its trademark or service mark.
96
FRANCHISING
Business Advantages
Franchisee’s Benefits
(a) The franchisee is given access to a proven product or service
that has been advertised and is known to customers.
(b) The franchisee benefits by the guidance provided by the
franchisor in the form of business standards and from a
standardized management system and methods of internal control.
(c) The franchisee is assisted in capital matters like site
selection, design and engineering of the facility, layout, choice and
sources for equipment, furnishings, supplies and even general
contractor services.
97
FRANCHISING
Types and Definitions
General Definitions
A form of distribution systems, a method of marketing, under which the
franchisor grants — in return for a fee — a franchisee the right to market
and distribute certain goods and/or services in accordance with specified
standards, in an agreed-upon relationship.
A trademark license is usually the core of a franchise relationship. The
license to use the trademark is the vehicle for the franchisee to become
part of the business system with uniform format and quality standards.
98
FRANCHISING
Types of Franchises
(1) A distribution franchise — one in which the primary purpose is for the franchisee to serve as an
outlet for products manufactured by or for the franchisor. Examples are franchised sales outlets
for bicycles, automobiles, and gasoline.
(2) A manufacturing franchise — one in which the franchisor permits franchisees to make and sell
products using either raw materials and/or specifications supplied by the franchisor. Examples
are mattress and bedding manufacturing and the local bottling and canning of soft drinks
(3) A “business format” — one in which the franchisor is primarily licensing a business format or
system, rather than selling goods identified with the franchisor. In this type of franchise, the
franchisee is primarily paying for the use of a franchisor’s well-known and advertised mark
together with training, operating specifications, and business know-how supplied by the
franchisor.
(4) An affiliation franchise — one in which the franchisor recruits into its system as franchisees
persons who are already established in the particular line of business. Each of the businesses is
required to adopt and use the franchisor’s mark, but they may be permitted to continue using
their own marks a secondary marks. These businesses rarely use the same overall presentation
or identity format except for the mark itself. Examples are insurance, financial, and real estate
brokerage services.
99
FRANCHISING
Legal Definition
1.
Federal Trade Commission (FTC) Rule
The FTC Rule is applicable to all relationships which meet the statutory definition of a franchise,
whether or not the parties intend to create a franchise and use the term “franchise” to
characterize the relationship.
(1) The franchisee sells goods or services associated with the franchisor’s trademark or service
mark. This element is satisfied if the franchisee has the right to sell or distribute goods
associated with the franchisor’s trademark, with or without a formal licensing agreement.
(2) The franchisor has the power to exert significant control over, or promises significant assistance
with, the franchised business via:
(a) offering formal sales, repair or business training programs,
(b) establishing accounting systems,
(c) furnishing management, marketing or personnel advice,
(d) selecting site locations, or
(e) furnishing a detailed operating manual.
Test: Whether the licensee has become dependent upon the licensor’s control or assistance.
Trademark quality control not relevant.
3)
The franchisee is required to pay the franchisor over $500 during the first six months of the
agreement.
100
FRANCHISING
Legal Definition
2.
State Definitions
A franchise relationship is one in which:
the franchisor provides goods or services for
the franchisee to sell,
the franchisee operates under the franchisor’s trademark or other
commercial symbol, and the franchisee pays some sort of fee.
Some states vary, New York does not require use of a franchisor’s trademark, if the
franchisee pays the franchisor a fee and submits to the franchisor’s requirements in
marketing and operations.
Many states include “business opportunities” and “business investments,” even
though they are not called “franchises.”
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FRANCHISING
Exceptions & Exemptions
(a) “Fractional franchises — where a business that has been in existence for more than
two years and the parties anticipate that the new franchise relationship will not
increase sales by more than 20% of the dollar.
(b) Oral agreements — where there is no writing evidencing any material terms of the
relationship.
(c) Single trademark licenses — where a trademark licensor offers only one trademark
license.
(d) Experienced franchise relationships —large and experienced franchisors,
sophisticated franchisees.
(e) Categories of industries — certain industries or categories of business arrangements
because of public policy considerations, or because these industries are already
regulated by other legislation, e.g. motor vehicle dealers, bank credit plans, sellers of
farm machinery, and marketers of petroleum products.
(f) Size and net worth —business arrangements initiated by franchisors whose net
worth exceeds a specific amount, or who have specified years of experience
administering franchise systems of a specified size.
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FRANCHISING
Franchise System Structure
A prospective franchisee has little choice but to put his entire faith and confidence in the
franchisor. From sources of supply to advertising, to orders, payments, credits, discounts, the
franchisee must look to the franchisor for total guidance in every material aspect of the
franchise relationship.
As franchising is a creature of contract, the entire structure of a franchise system will be
contained in a franchise agreement, which set forth in detail the rights, duties, obligations and
activities which each party pledges to undertake and perform. The basic franchise is the unit
franchise relationship, — only one — franchise outlet, at a specified location and within a
designated territory.
The beginning point of the franchise relationship is the duration of the franchise relationship. If
the term is too short, it will attract few buyers. Franchisees are purchasing a business
opportunity where time is needed to develop name recognition, to maximize goodwill and to
recoup their investment. If the term of the franchise is too long, the franchisor may be stuck
with a less than desirable franchisee, who is unwilling or unable to operate the franchise
successfully.
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FRANCHISING
Franchise System Structure
Another key feature of the franchise structure is the grant of territorial rights, an
“exclusive territory”. Selection of the franchise location and the construction of
the franchise unit are also important. Franchisor approval of any franchiseeselected site should always be provided for. Further, any relocation rights
should be addressed as well.
Two types of franchise relationships are the unit franchises and area
franchises. In unit franchises a franchisee is granted the right to develop and
operate one outlet at a specific location or with a defined territory.
Area franchises: multiple outlet franchises —may include subfranchisors and
master franchisors. A franchisee can develop and operate two or more outlets
within a defined territory.
104
FRANCHISING
Disclosure and Registration Requirements
A.
The FTC Rule imposes six different requirements in connection with the
“advertising, offering, licensing, contracting, sale or other promotion” of a
franchise.”
1.Basic Disclosures — Franchisors must give potential inventors a basic
disclosure document at the earlier of the first face-to-face meeting or ten
business days before any money is paid or an agreement is signed in
connection with the investment.
2.Advertised Claims — Only advertisements that include an earnings
claim are affected. Such ads must disclose the number and percentage of
existing franchisees who have achieved the claimed results, along with
cautionary language
3.Earnings Claims — If franchisors make earnings claims, they must
have a reasonable basis, and prescribed substantiating disclosures must be
given to potential investors in writing.
4.Franchise Agreements — Franchisors must give investors a copy of
their standard-form franchise and related agreements at the same time as the
basic disclosures, and final copies intended to be executed at least five
business days before signing.
5.Refunds — Franchisors must make refunds of deposits and initial
payments to potential investors, subject to any conditions on refundability
stated in the disclosure statement.
6.Contradictory Claims — No written or oral claims may contradict
information provided in a required disclosure.
105
FRANCHISING
Penalties
•
Failure to comply with any of the six requirements is a violation of the FTC
rule and can result in civil penalties of up to $10,000 per violation.
•
Also rescission, reformation, payment of refunds or damages, or
combinations of these remedies, and cease-and-desist orders.
•
There is no private right of action for violations of the FTC Rule.
•
Remedies under state law: a private right of action for rescission, damages,
costs and attorneys’ fees, and sometimes multiple or punitive damages.
•
Willful violations of state laws may also result in criminal penalties,
including fines and imprisonment.
106
FRANCHISING
Horror Stories
•
An IP agreement, especially a trademark license, and even a technology
license or a distributorship agreement, may inadvertently or accidentally
create a franchise and fail to comply with the federal and state franchise
laws and regulations.
•
This is a serious pitfall or trap for the unwary.
•
A party to a licensing or distribution agreement may be a franchisor and not
know it and find itself facing dire consequences.
•
Coverage under franchise laws cannot be avoided simply by describing a
relationship as a “license” or by some other name, or by drafting contracts
that do not literally reflect the characteristics of a franchise.
•
Examples: Kis Corp., Aristacar, Cooper Distribution, “All Snack,” etc.
107
International Considerations in Licensing
a) Importance of Licensing
The growth in importance of international licensing to the US economy is
unmistakable. Between 1950 and 1980, US companies signed approximately
32,000 licensing agreements. In the 1990s, licensing grew at an unprecedented
pace with the advent of technological developments in computer technology,
biotechnology and pharmaceuticals.
The incentives to licensing are obvious: companies from less developed countries
want to duplicate their more developed counterparts’ successes and are eager to
offer lower cost production alternatives and companies in more developed
countries seek new ides and new markets in which to exploit their existing
intellectual property assets.
The rules governing the transfer of technology have been evolving for decades
and will continue changing as the importance of licensing increases. The
governments of many countries recognize the growth of international licensing
and have worked to lower the barriers and ease the systematic impediments of
importing and exporting technology.
108
b) Cultural and Legal Differences
•
Variances in legal systems and cultures still can make international
licensing difficult at best and a potential trap for the unwary.
•
All of the issues surrounding domestic licensing remain but the international
license brings complexities of dealing in more than one legal system,
international law, governmental regulation, and different business and
cultural practices.
•
Moreover, hidden differences, special issues and unique syndromes
abound in the agreement negotiation and drafting stages
•
Two general categories of differences:
– Culture and language
– Different legal systems
•
Cultural differences in particular are the greatest stumbling blocks,
especially I the negotiation phase.
109
II.
Cultural Differences
a) Hidden Differences/Unique Syndromes
Three uniquely Japanese syndromes:
•
Black Ships Syndrome
The expression “Black ships have arrived again” recalls Commodore Perry’s
black ship in Tokyo harbor in 1854 and indicates exertion of pressure from
the outside, e.g.
• IBM’s move to Tokyo in 1984
• PIPA delegation in Tokyo in 1984: “Gray Ships”
Best to use low-key approach
•
Totem Pole Syndrome
Vestiges of caste system - authority and title are greatly valued
Government officials, e.g., MITI officials and JPO examiners higher
than lawyers and IP practitioners
The latter can’t be aggressive
Must help them help you
110
a) Hidden Differences/Unique Syndromes (cont’d)
•
•
Black Hole Syndrome
Tadao Umesao: In terms of communications Japan is like a Black Hole: It receives but does
not emit signals. Getting information has a positive social value while giving it is considered
harmful.
• Reluctance to “open the kimono”
• Resistance to auditing provisions
• Avoidance of definite commitments even in negotiations
• Ties in with “Silence is gold, eloquence is silver”
• Don’t “feel any need to reveal what (they) know.
• Are “glad to sit and listen.”
• With patience they “usually learn what (they) want to know.”
(See my article on “Patent Solicitation and Licensing in Japan”)
111
b) Negotiations
•
Preliminary negotiations are more important in the Far East than in the US.
•
Americans have a direct let’s get-down-to-business negotiation style.
•
In many other countries, establishing a social relationship comes first.
•
A personal relationship (“Guan Xi”) of mutual trust and respect.
•
Parties need to be able to have “heart-to-heart” (indirect) communications.
•
Americans can conduct business with people they don’t know or can’t stand —
“it’s just business.” Elsewhere, if they don’t know or like you, they won’t do
business with you.
•
Culture clashes can derail overseas deals — and quickly.
•
E.g. US Chief IP Counsel leaves Tokyo in a huff at the end of a week of
negotiations because “nothing had happened.” In fact, he also told me he had
insisted they “had to do it his way.”
112
b) Negotiations (cont’d)
Other true (apocryphal?) stories:
•
American negotiation team getting frustrated after ten days of “dilly-dallying” by
Japanese and leave at point when Japanese were ready to wrap up deal
•
Another American negotiation team getting impatient already on first day (Monday)
because of delegation small talk — delegation head pounds table and protests: “Let’s
get down to business. We have a plane to catch on Friday.” (Time is money.)
•
Three tractor salesmen go to Japan to sell tractors.
Make a great presentation with pricing. No reaction from Japanese.
Americans get nervous and lower price. Still no reaction from the Japanese.
Americans again lower price way beyond plan.
•
Silence of Japanese due to need to think about it and build consensus.
•
Patience is key — even in excruciating periods of silence.
•
Americans: Japanese approach to business negotiations wastes time
to business deals.
•
Japanese complain about the dry American Attitude to business deals
113
b) Negotiations (cont’d)
•
The extended preliminary socialization of about a week or more should
actually be welcome to American negotiators — it can also help in
understanding the mindset of potential licensing partner.
•
In this connection, it is helpful to bone up not only on the legal system
of the foreign country but also its geography and history and its
economic and political system, thereby showing a genuine interest and
understanding.
•
Also be aware of differences between monochronic (time schedules
are important) and polychronic cultures (human relationships are
important).
114
c) Drafting
• Many foreign parties consider a written agreement as a mere
memorial of the true agreement, i.e. the oral understanding.
• Hence, the preference for a general and short and even vague text,
e.g. “heads of agreement.” Statement of principles.
• Plus a clause providing that the parties will handle any issues that
may arise in a fair and reasonable manner. The agreement then
amounts to an “agreement to agree.”
• Long and legalistic agreements and specific provisions re e.g.
breaches raise suspicions of lack of trust.
115
c) Drafting (cont’d)
• Because of the need of brevity, the focus should be on the most
important clauses, i.e.:
–grant clause
–definitions clause
–termination clause
–royalties
• Sometimes Japanese may agree to a detailed written contract
because of the need to file agreements with foreigners with JPO
and/or FTC and also because of the American parol evidence rule.
Great reluctance to do so.
116
c) Drafting (cont’d)
•
Example of a clause that the parties will deal with issues that may
arise in a fair and reasonable manner.
•
Article 00
The parties shall discuss and decide in good faith the detailed
matters necessary to perform this Agreement or the matters not
provided in this Agreement.
If a significant change in the business circumstances arises, the
parties shall negotiate to change the terms and conditions of
this Agreement to conform to such a change and the benefit of
the parties.
117
c) Drafting (cont’d)
Comparative view of the meaning of contracts:
Signing a contract is “closing a deal”
Signing a contract is “opening a relationship
“A deal is a deal”
The deal is a work in progress
“If you don’t have it in writing, you don’t have it”
“It does not matter what you have on paper”
Sanctity of contract
Essence of the deal is the relationship,
subject to reasonable changes over time
An executed contract is a definitive set of rights
and obligations strictly binding the two sides
The “deal” being negotiated is not the
contract but the relationship between the
parties
Preference for very detailed contracts to cover
Any and all contingencies
Preference for statement of general
principles (“Heads of Agreement”)
To solve problems, parties look to their written
Contract
To solve problems, parties look to their
relationship
118
d) Different Language
• Often need to use another language.
• Then agreement in both languages, with one being the official
language.
• Preferably that of the country where any dispute is likely to be
handled.
• Parties also can agree that both versions are formally executed
and official. Avoidance of certified translations.
• Simple and straightforward language. Clear definitions of
terms having different interpretations.
119
III
Differences in Legal Systems
a) Comparison of Legal Traditions
United States
Japan
Pluralistic society
Homogeneous society
Political, religious, and social thought influenced by 18th
Century England and France
Political, religious, and social thought influenced by ancient
China and Korea
Common law heritage (England)
Civil law heritage (Germany, France)
Adversarial legal system
Inquisitorial legal system
Federal republic (federal and state governments have
separate court systems and their own substantive law)
Unitary state (jurisdiction and choice of law issues are nonexistent
Principle of stare decisis (judicial precedent) important in the
application of legal principles
Judicial precedent relatively unimportant (law is based upon
civil process and regulations)
Civil justice system most important dispute resolution
process (litigious nature of society)
Little reference to the civil justice system to resolve disputes
(reliance upon informal compromise or conciliation
procedures)
Jury system
No jury system
Elaborate mechanisms for discovery
Limited discovery
Punitive damages
No punitive recovery
Role of law critical in effective resolution of disputes; power
to shape society through judicial decisions, legislation,
regulation; important participant in business counseling and
negotiation
Lawyer viewed as an unnecessary evil: essentially barristers;
little involvement in business counseling or commercial
negotiation; business executives conversant with commercial
law
120
b) The Role of Lawyers in Japanese & US Societies
•
Great differences in the role lawyers play in Japanese and US societies.
•
Important with respect to the role an American lawyer should play in Japan
no matter what his/her mission is in Japan.
•
US society is organized around its legal system which plays a central role.
Law and politics are all important here.
•
In the Japanese society law plays only a peripheral role. In fact Japan can
function without law. Japanese society has been homogeneous for ages.
With deep-seated traditions. Tribal forces have prevailed over social
forces of industrialization and modernization.
•
US society is heterogeneous with a short history and significant
immigration throughout its history. No cultural traditions — law and order
is the glue that holds the society together.
121
b) The Role of Lawyers in Japanese & US Societies
(cont’d)
•
What governs social relations in Japan is “giri” — natural standards of
propriate conduct and “ninjo” — correct feeling while acting in correct
way. Thus, Japanese act in accord with “giri” with appropriate “ninjo”
and that’s what being Japanese is all about.
•
Japanese society is trusting, harmonious; we are suspicious, litigious.
•
Resort to law in Japan presupposes a total breakdown in social
harmony and is virtually the equivalent of violence. Litigation is always
a disgrace.
•
Thus, it’s logical that the Japanese don’t like lawyers. Lawyers have an
image problem in Japan, to say the least. They are a sign of trouble
and low on the totem pole.
122
b) The Role of Lawyers in Japanese & US Societies
(cont’d)
•
Lawyers must keep a low profile, as low as possible and preferably stay
out of sight. (Incidentally, this is also true in certain European countries,
especially in Switzerland.)
•
This is the reverse of their conduct in the US where they have to be
forceful, even aggressive and confrontational.
•
There is no horse-trading in Japan. American style hard bargaining
produces suspicion and paranoia.
•
US lawyers didn’t even get visas from Japan until about the mid-eighties if
their reason for traveling to Japan was to depose Japanese nationals or
go into law practice.
123
c) Differences in IP System
A. Patent Systems
Focus on inventor
Focus on invention
Focus on inventors’ rights
Focus on public rights
First to invent
First to file
No exclusions
Many exclusions
Inequitable conduct
None
Best mode requirement
None
Grace periods
Absolute novelty
Bogus prior art
None
No prior user rights
Prior user rights
Reexamination
Opposition
No compulsory licensing
Compulsory licensing
Secret pendency
Publication after 18 months
Continuations (-in-part)
None
124
Many differences in enforcement and litigation
c) Differences in IP System (cont’d)
B. Trademark Systems
Emphasis on use
No “famous marks”
(Dilution)
Emphasis on registration
Famous marks
C. Copyright Systems
Emphasis on work
Weak moral rights
Emphasis on author
Strong moral rights
D. Other Differences
Multiple protection
No utility models
Single protection
Utility models
125
d) Patent Systems: Divergence
United States
Japan
Objective:
Objective:
Exclusive rights to inventors
Utilization by Industry
Offensive purpose
Defensive purpose
Inventor applicant
Company applicant
High filing costs
Low filing costs
First-to-invent system
First-to-file system
1-year grace period
Absolute novelty
Jumbo cases
Many small applications
Shortest possible examination
Deferred examination
Broad claim scope
Narrow claim scope
No separate examination fees
High examination fees
No compulsory licensing
Compulsory licensing
No prior-user rights
Prior-user rights
Maintenance not expensive
Very high maintenance
Easy, broad discovery — jury trials
Difficult to enforce
Preliminary injunctions —
high awards — treble damages
Marginal remedies
Doctrine of equivalence
Literal narrow claims
intrepretation
126
e) Additional Considerations
•
Format and terms of an international license may track a corresponding
US license in many respects.
•
But competition laws, customs laws, employment law, tax laws loom
larger in international licenses.
•
And special considerations and issues in foreign countries may come
into play, such as governmental approvals, registration or recordation,
applicable language, choice of applicable law, export regulations,
arbitration, tax allocation and currency, etc.
•
Conversely, certain provisions the licensors routinely include in domestic
license may not be enforceable abroad, as for example:
–
non-competition covenants
–
territorial restrictions, etc.
127
f) Competition (Antitrust) Laws
Well developed antitrust now exist abroad.
Their applicability needs to be considered as well as US antitrust laws if
an international agreement would affect US commerce.
Two general regimes have existed:
a) “Ten commandments” approach
Lists of white, gray, black license restrictions
Prior approval requisite, unless “block exemptions” apply
China, European Union, Japan, Latin countries, South Africa
b) “Rule of Reason” approach
No submission for approval
Scrutiny or attack later, if (likely) adverse effect on competition
Australia, Germany, UK, US
Due to frequent revisions and complexities consultation with local counsel
is essential.
128
IV.
Conclusion
In licensing in Japan as well as in China and Korea and other foreign
countries, your objective should not be to drive a hard bargain and write
tighter legalistic agreements, but rather to establish better personal and
business relationships.
129
REACH OF U.S. ANTITRUST LAW
“The Tokyo Disconnection”
1.
Japanese fax paper manufacturers meeting in Japan in 1990
agreed to fix prices.
2.
Manufacturers sold paper to Japanese trading houses for specific
U.S. customers on the condition that they charge set prices.
3.
Paper makers monitored the trading houses to ensure that fixed
prices were charged.
4.
The Justice Department asked the Japanese government in 1994
to help get price-fixing evidence in Japan.
130
REACH OF U.S. ANTITRUST LAW (continued)
“The Tokyo Disconnection” (continued)
5.
The Japanese Prosecutor’s Office raided the Tokyo headquarters of two
Japanese companies, seized documents for the Justice Department and
later questioned company representatives in front of Justice officials.
6.
From 1994 through 1996, the U.S. government obtained indictments and
guilty pleas from Japanese companies on criminal price-fixing charges
under the Sherman Act.
7.
The 1st U.S. Circuit Court of Appeals held in March 1997 that the
Sherman Act can be used against foreign companies and citizens for
conduct that occurred outside the United States.
8.
The Sherman Act had gone abroad.
131
Thank you!
Karl F. Jorda
David Rines Professor of IP Law and Industrial
Innovation Director, Kenneth J. Germeshausen
Center for the Law of Innovation and
Entrepreneurship
Franklin Pierce Law, Concord, NH, USA
132
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