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Encyclopedia of Electrical and Electronics
Engineering |
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Intellectual Property
Patents, Trade Secrets,
Copyrights and Trademarks
By Joseph S. Iandiorio
I. THE PROTECTION AVAILABLE
II. ESTABLISHING THE PROTECTION
III. INTERNATIONAL PROTECTION
IV. FROM INVENTION TO PATENT: THE INVENTOR'S ROLE
V. REGISTERING A TRADEMARK
VI. REGISTERING A COPYRIGHT
VII. SOFTWARE PROTECTION
VIII. CONTRACTUAL PROTECTION
IX. LICENSING AND TECHNOLOGY TRANSFER
X. INFRINGEMENT AND LITIGATION OF INTELLECTUAL PROPERTY<
IX. LICENSING AND TECHNOLOGY
TRANSFER
A license is simply a special form of contract
or agreement. Each party promises to do or
pay something in return for the other party
doing or paying something too. Those contracts
that deal with transfer of technology, or
more broadly, intellectual property -- patents,
trade secrets, know-how, copyrights, and
trademarks -- are generally referred to as
licenses. The licensed property can be anything
from the right to use Mickey Mouse on "T"
shirts or to make copies of the Star Wars
movie, to the right to operate under the
McDonald's name or to use a patented method
of making a microchip or to reproduce, use
or sell a piece of software. Basic to any
licensing activity is of course a valuable
property right to be licensed. Typically
this is a patent, copyright, trademark or
trade secret.
A. Typical Provisions
Typically the term license
is used to refer
to a number of different
types of contracts
involving intellectual
property, including
primarily an assignment,
an exclusive license
and a non-exclusive license.
An assignment is an outright
sale of the
property. Title passes
from the owner, the
assignor, to the buyer,
the assignee. Assignments
can take a number of forms.
An assignment
can be of an entire patent
including all
the rights under the patent.
It can be an
undivided fractional portion
of all the patent
rights (i.e., 30% undivided
interest). It
can be all the rights embraced
by a patent
limited to any geographical
part of the United
States.
A license is more like
a rental or lease.
The owner of the property,
the licensor,
retains ownership; the
buyer, the licensee,
receives the right to operate
under the property
right, be it a patent,
trade secret, know-how,
copyright, or trademark.
An exclusive license
gives the licensee the
sole and exclusive
right to operate under
the property to the
exclusion of everyone else,
even the licensor.
A non-exclusive license,
in contrast, simply
permits the licensee to
operate under the
licensed property but without
any guarantee
of exclusivity. If the
licensor can find
more licensees he can license
them. Others
may already be licensed.
The licensor himself
can operate under the property.
An assignment by definition
is exclusive
since the assignee is acquiring
full right
and title to the property.
Many licensees
prefer an assignment or
exclusive license
because they want a clear
playing field with
no competitors in order
to maximize their
revenue from the property
and justify the
license cost. Within either
of these forms
-- exclusive license or
non-exclusive license
-- there may be included
a right to sublicense,
which is the right of the
licensee to license
others. This removes part
of the licensor's
control over the property
and at the same
time increases the licensee's
liability for
not only his own conduct
and payment, but
that of all his sublicensees
too. A sublicense
is an important and valuable
right which
is not automatically conveyed
with the primary
license right. It must
be expressly granted.
The term "transferrable"
in a license
means that the license
can be transferred
as a whole along with the
part of the licensee's
business to which the license
pertains: it
does not confer the right
to sublicense.
Licensors often prefer
a non- exclusive license
because it spreads their
royalty income over
a number of diverse licensees,
thereby increasing
the chances of a successful
return. In addition,
if the property is freely
available to all
credible businesses then
no one is left out
or disadvantaged. All have
an equal chance
to compete and the chances
are lessened of
a lawsuit from a rejected
potential licensee.
Great care must be exercised
to clearly define
the property being licensed.
Is it more than
one patent or just one
patent, or only a
part of one patent? Is
it just the trademark
or the entire corporate
image, names and
advertising and promotional
scheme and graphics?
If it concerns copyright,
does it cover just
the right to copy a book
or other printed
material in the same print
form, or does
it include the right to:
translate it into
another language; adapt
it for stage, screen
or video; create derivative
works; merchandise
its characters and events
on T-shirts and
toys? If it involves know-how
or trade secrets,
where are they defined?
The licensee must
be sure that he is getting
what he wants
and needs. And a licensor
must be sure to
make clear the limits of
his grant. In a
software license if the
grant is only to
use the software, not to
modify it or merge
it with other software,
that must be expressly
stated.
Time limits must be unequivocally
stated.
When a patent is involved,
care must be taken
not to extend the term
of the license beyond
the expiration of the patents.
Any such arrangement
can be considered an attempt
to extend the
patent right beyond the
statutory period
and can invalidate the
license as well as
making the patent unenforceable.
Payments
should be scheduled for
post-patent expiration
only if the totality of
the business circumstances
dictate: for example, if
it was done to ease
the payment burden and
is not truly an extension
of the patent exploitation.
If trademarks, copyrights,
know-how or trade
secrets are involved in
addition to or instead
of patents and the royalties
and other considerations
are based at least in part
on them, then
the patent term limit is
not strictly applicable.
In many cases, shorter
license periods are
preferred because it permits
the licensor
to re-acquire control and
the licensee to
get out from under the
burden sooner if the
license is not working
out. There is no time
period on assignments.
Assignments, like
diamonds, are forever.
A license may have numerous,
different limitations
besides time. The unit
quantity or the dollar
value of products or services
sold may be
limited. Thus a licensee
could be limited
to production and sale
of only a fixed number
or dollar value of the
potential product
per month or per year.
But this approach
runs the risk of violating
the antitrust
law, if, for example, the
licensor uses this
limitation to control supply
or prices in
the market.
The license can also be
limited geographically.
That is, the licensee may
be limited to making
and selling a patented
device only in a single
county, state or region.
Care must be taken
here, too, to avoid conflict
with the antitrust
laws. And it must be understood
that the
geographical limits only
apply to the first
sale. In the case of a
patent the licensee
can only be restricted
to making and selling
the patented device in
the designated territory.
Once the licensee has parted
with the product,
no further control can
be exercised over
where it can be used or
re-sold. Geographic
limitations appear frequently
in trademark
licenses, especially those
involving franchising.
Field of use limitations
are quite common
too. This limitation restricts
the licensee
to exploiting the licensed
property only
in a designated field or
market. For example,
a license for technology
relating to an engine
may be limited to separate
uses or sizes
of engines for each different
license. The
division could be by use,
such as lawn mowers,
farm tractors, automobiles,
boats and planes,
or by size, such as 0-10
horsepower, 11-50
horsepower, 51-500 horsepower.
If the licensed
property is a trademark
or copyright the
license might be limited
to only wholesale
or only retail, or certain
types of stores
such as discount stores,
chain stores, supermarkets
or department stores. Or
the limitation could
be to the type of goods:
toys, children's
clothing, children's furniture,
posters,
a TV show, a comic book
serialization.
Clauses which require a
licensee to buy certain
supplies from the licensor
as a part of the
license agreement are often
appealing to
licensors, but they are
not recommended.
Such provisions are commonly
referred to
as "tying" clauses
and can violate
the antitrust law. To compel
a licensee to
take one item in order
to get another is
anticompetitive. However,
if there is a valid
business reason it may
be permissible: the
patented machine won't
work well without
the proper quality supplies.
But even in
that case the courts prefer
that the licensor
publish specifications
that must be met and
then let the licensee purchase
its supplies
from whomever it wishes
so long as the specifications
are met.
Avoiding tying is a common
problem where
the licensed property involves
trademarks:
trademark licensors are
compelled to monitor
the product produced and
sold or the service
provided by the licensee
in order to ensure
that the public is getting
the quality that
the licensor has established
for its goods
or services. When a trademark
is assigned
or sold with the entire
business to which
it relates, no further
supervision or control
need be exercised by the
original owner over
the subsequent use of the
mark. However,
if the owner of the mark
is merely licensing
the mark to another, control
must be exercised.
Otherwise the transfer
is deemed merely a
naked license and constitutes
an abandonment
of the trademark. The rationale
behind this
is that without the requirement
of control
the right of a trademark
owner to license
a mark separately from
the business in connection
with which it has been
used would create
the danger that products
bearing the same
trademark could be of diverse
quality. If
the licensor were not compelled
to take some
reasonable steps to prevent
misuse of his
trademark in the hands
of the licensees,
then the public would be
deprived of its
most effective protection
against misleading
use of a trademark. The
trademark would no
longer be a guarantee of
consistent quality
established by the licensor.
But even with
such extreme burdens and
consequences on
the licensor, courts prefer
the public specifications
to tying.
The delicate issue of tying
can arise in
many ways: a licensor requires
that a licensee
take a license under a
patent in order to
get a license under a trademark,
or under
a number of patents in
order to get the one
patent the licensee desires.
Again, however,
valid business reasons
can excuse such behavior.
Perhaps the most universal
concern in negotiating
a license is: how do you
assign a dollar
value to intellectual property?
First, you
determine what it cost
to acquire that property,
to build that property.
There is the research
and development cost involved
in coming up
with a new invention; there
is the design
cost of coming up with
a new trademark or
copyrighted work; there
is the cost of commercializing
the invention; there is
the cost of advertising
and promoting the trademark
or copyrighted
work, which can run into
millions of dollars
a year; and there are always
incidental costs,
like the legal costs, engineering
costs,
and accounting costs. All
of these are hard
costs that went into creating
the property.
Second, you can determine
how this intellectual
property affects the profitability
of the
product or the business.
Can you charge more
because you have a famous
name, or because
of the new features that
your invention has
bestowed on the product?
Can you cut costs
because of the new technology
of the invention?
If you can, you determine
dollar values for
those figures.
You might also determine
how much your intellectual
property increases your
gross revenues by
opening new markets or
by getting a greater
percentage of established
markets. All of
these figures can be converted
into dollar
amounts for valuation.
While a "typical"
royalty rate
for a non-exclusive license
for patents,
trade secrets or know-how
is universally
stated to be 5%, that rule
is honored in
the breach as much as in
the keeping. Non-exclusive
license royalty rates in
patent licenses
can be 10%, 20%, 25%, or
even higher. And
exclusive license royalty
rates always tend
to be higher because the
licensee is getting
total exclusivity and the
licensor is at
risk if the licensee does
not perform. Exclusive
licensors generally demand
initial payments
for the same reason. In
determining a reasonable
royalty as a damage award
in an infringement
suit, courts have considered:
the remaining
life of the patent; the
advantages and unique
characteristics of the
patented device over
other prior devices; evidence
of substantial
customer preference for
products made under
the patent; lack of acceptable
non-infringing
substitutes; the extent
of the infringer's
use of the patent; and
the alleged actual
profit the infringer made
which is credited
to the patent.
Trademark royalties vary
widely with the
scope of the rights converted
from a mere
license to a total business
franchise package.
Copyright royalties are
in the neighborhood
of 15% for authors of books
and games including
video games, but these,
too, vary widely
as a function of the nature
of the rights
conferred.
The length of time or term
of the license
is critical in setting
royalties, too. The
longer the term, the longer
the licensor
is at the mercy of the
licensee's ambition.
This drives up the price,
both lump-sum,
up-front payments and royalty
schedules.
Geographical coverage counts,
too. The more
of his exclusive territory
he gives up the
more the licensor will
demand. Uncertainty
in the market place for
the licensed property
due to an untested product,
environmental
concerns, or FDA approval
drives down the
price, while savings in
manufacturing and
sales costs, or a famous
trademark, or a
"hot, new property"
like E.T. drives
up the price. A new feature
that makes the
product more appealing
without great increase
in cost will also tend
to increase the royalty
rate or up-front payment.
Care must be taken in setting
the basis of
the royalty. It is tempting
to strike right
at the heart of the matter
and settle on
a royalty, for example,
of one half the savings
or one tenth of net profit.
But these are
uncertain and changeable
quantities which
create the opportunity
for mischief and misunderstanding.
It is better to translate
those values into
the equivalent percentage
of the selling
price, the most visible
and easily ascertainable
figure. Separately, care
should be taken
to choose a fair and proper
royalty base.
It is generally not fair
to claim a royalty
on a one million dollar
system based on the
inclusion of a $100 patented
component. On
the other hand, if that
$100 component is
the very thing that makes
the million-dollar
system work and makes it
appealing and saleable,
it may be unfair to measure
the royalty only
by the value of the $100
component.
In any commercial agreement
in which the
consideration promised
by one party to the
other is a percentage of
profits or receipts
or is a royalty on goods
sold, there can
be found nearly always
an implied promise
of diligent and careful
performance and good
faith. But licensors generally
seek some
way to ensure that the
licensee will use
his best efforts to exploit
the property
and maximize the licensor's
income. One approach
is simply to add a clause
in which the licensee
promises to use his "best
efforts".
Another approach is to
compel certain achievements
by the licensee. The license
may require
a minimum investment in
promotion and development
of the property. That may
be expressed in
dollars, man hours or even
specific stated
goals of performance or
sales. Or the simpler
approach of a minimum royalty
can be employed:
the licensee pays a certain
minimum dollar
amount in running royalties
annually, whether
or not the licensee's sales
actually support
those royalties. Not a
pleasant condition
for the licensee but a
lot of peace of mind
for the licensor.
Perhaps the best insurance
for performance
is a competent, enthusiastic
licensee. A
little preliminary investigation
of the licensee:
net worth, credit rating,
experience, reputation,
manufacturing/sales capability,
prior successes/failures,
can assuage a lot of fears
and eliminate
risky licensees. A reverter
clause which
evicts the licensee and
returns control to
the licensor upon unmet
goals is the ultimate
protection. Often the licensor's
greatest
concern is that the licensee
might now or
later sell one or more
competing products
so that there arises a
plain conflict of
interest. A non-compete
clause can prevent
this, but antitrust dangers
are raised by
such clauses and licensees
do not like this
constraint on their freedom.
Other approaches
are safer, e.g., minimum
performance levels.
The license should make
clear that there
is no implied grant under
any other property
of the licensor. But the
licensor must be
sure to convey in the license
all the rights
necessary to fully effect
the purpose of
the license. Granting a
license under a patent
while holding back on another
dominant patent
or important improvement
patent is not only
inviting trouble, it could
raise more serious
issues of misrepresentation
or fraud. Even
selling a patented machine
may imply a license
to make the patented device
produced by the
machine.
Grant-back clauses are
those that compel
the licensee to assign
or license back to
the licensor any new properties
developed
by the licensee. Licensors
do this so they
will not be cut out of
their own technology
by the march of progress.
Licensees object
because they do not wish
to perpetuate the
dominance of the licensor
nor to share the
innovations that only they
have funded. Antitrust
issues can arise if the
grant-back is of
an assignment or exclusive
license, especially
if the licensor has a right
to sublicense
and uses this perpetual
technology lifeline
to control a segment of
an industry. A mere
non-exclusive license for
the purpose of
permitting the licensor
to keep a level playing
field is generally acceptable.
Generally there is included
in each license
a provision that the license
is not transferrable
by the licensee: the licensee
cannot assign
the license. This is done
to prevent the
licensor from suddenly
finding himself in
bed with a licensee he
did not choose or
approve, one who might
be his largest and
toughest competitor and
whom the licensor
would never have licensed.
However, the constraint
on transferability of the
license is not
without limitations. For
example, the licensee
may not agree to be prevented
from transferring
the license along with
the sale of the business
to which the license pertains.
A right of
first refusal to the licensor
sometimes alleviates
the problem, as do short
license terms.
Very often licenses are
the result of litigation
or threatened litigation.
Especially in these
cases a release for past
infringement should
be included. This simply
ensures that the
licensee cannot be sued
for damages accrued
prior to the date of the
license.
A marking clause is normally
required by
the licensor. Such a clause
requires the
licensee to accompany each
use of the trademark
or copyright or each product
embodying a
patented invention with
a suitable notice
identifying the patent
number or announcing
the trademark or copyright
protection. This
not only avoids any misunderstanding
as to
ownership of the property,
but also bestows
certain rights against
copiers not otherwise
available: a patent infringer
is not liable
for damage if he had no
notice of the patent,
unless the patented product
was marked with
the patent number.
The desire for a fair and
even playing field
normally dictates the inclusion
of a "most
favored licensee"
clause, which promises
that if a later licensee
is given a license
on better terms than an
earlier licensee,
then the earlier licensee
has a right to
insist on those better
terms for itself.
A warranty clause compels
the licensor to
state that he has all right,
title and interest
in the property necessary
to undertake this
licensing agreement: there
are no other licensees
(if this is an exclusive
license), there
are no other prior commitments,
the government
has no rights, and other
similar assurances.
Basically the licensor
guarantees that he
has the right to give what
he is giving.
Serious problems can arise
when an infringement
occurs. Who will sue the
infringer? Who will
pay for the litigation?
Who will choose and
control trial counsel?
Who will share in
any recovery and how will
it be apportioned?
All of these concerns are
handled in one
or more clauses under the
heading of obligation
to sue infringers.
Of no less importance is
the handling of
new properties which are
created under the
license. Who is to pay
for the filing for
new trademarks and copyrights
and patents?
Who will choose and supervise
the patent
attorney chosen? The licensee
may, as the
licensor, wish to see the
property strongly
upheld in any litigation
in order to strengthen
the licensee's position
against its unlicensed
competitors. But there
are conflicting interests
here, too. While the licensor
wants to sustain
his property against infringers,
the licensee
may hope that the scope
of coverage of the
property is narrowed or
eliminated so the
licensee can be free from
the need for a
license. The same conflict
is possible in
pursuing patent, trademark
and copyright
protection initially. Broad
coverage granted
by the U.S. Patent and
Trademark Office or
the Copyright Office will
benefit the licensor
and an exclusive license
but not necessarily
a non-exclusive licensee.
The use of the licensor's
name on or in connection
with the licensed property
should be clearly
defined. In some cases
the licensor desires
its name to be used fully
and properly. In
other cases the licensor
may allow its name
to be used only in specific
forms and in
limited situations, or
may not allow its
name to be used at all.
The licensee may
have similar desires. These
issues depend
on the party's need to
promote its name on
one hand and to protect
its reputation and
limit its liability on
the other hand.
The responsibility for
defending against,
and indemnification for,
product liability
suits is a serious concern.
A licensor can
be liable for the deeds
of its licensee if
the licensor's technology
is used in the
product or even if only
the licensor's name
or trademark is associated
with the product.
A clause that defines each
party's responsibilities
and duties is useful to
minimize disputes
if such problems arise.
Confidential disclosure
clauses are necessary
in nearly every license
agreement, especially
those involving trade secrets,
know-how and
patent applications. Such
clauses are not
only necessary in protecting
the property
which is the subject of
the license, but
also of all the technical,
business, financial,
marketing and other information
that the
parties will learn about
each other during
the license term and even
during negotiations
before the license is executed.
A clause defining adherence
to government
regulations is also a commonly
needed provision.
Who must obtain FDA approval?
Who must obtain
the export license? approval
from the State
Department regarding the
munitions list?
Who is liable for the proper
labeling? importation
taxes? export fees?
There should be a clause
that defines the
circumstances -- time,
conditions, notice
-- under which each party
can terminate the
license. Typically the
licensee can elect
to terminate after some
initial period of
time and the licensor can
terminate upon
any default in payment
or other obligations
by the licensee. Each party
can terminate
upon a breach of the agreement
by the other.
And the license normally
terminates or expires
automatically after a predetermined
period.
No license is complete
without reporting
and payment provisions.
The licensee must
report sales or use of
the licensed property
periodically (monthly,
quarterly) in written
statements setting forth
the number and dollar
value of sales, for example,
in the case
of a patented product.
Payment is made according
to that report within a
predetermined period.
The licensor has the right
to inspect the
licensee's books at reasonable
times to ensure
that the reports are honest
and accurate.
Variations in the amount
of royalties paid
of more than some stated
percentage, e.g.,
10%, often requires a penalty
such as twice
the deficiency, for example,
or payment of
all audit costs.
B. Foreign Licenses
The foregoing clauses and
concerns pertain
generally to all licenses,
domestic U.S.
as well as foreign. There
are other clauses
which are more peculiarly
suited to foreign
agreements.
Geographic divisions may
be more readily
applied and more essential
in order to abide
by the somewhat different
treatment of intellectual
property in each country.
The manufacture
and use of the patent,
trade secret and know-how
based product may be limited
to the U.S.,
but sales may be permitted
worldwide.
Payment must be defined
as to the currency
in which it will be made
as well as who will
pay any taxes or transfer
charges.
Government approval for
transfer of royalties
and repatriation of capital
must be provided
for between the parties.
Some countries subsidize
their own companies who
can then sell below
market price. When dealing
with a licensee
who has that subsidy available
the licensor
will insist on a clause
that grants him the
same subsidy as the licensee
or denies it
to the licensee in order
to maintain a level
playing field in world
markets.
Provision must also be
made for the particular
currency in which payment
will be made. Indexing,
such as to the price of
gold, may also be
included. Language must
also be included
to condition the effective
date of the license
on the date when all government
rules and
regulations of all involved
countries have
been met: when the U.S.
government approves
the export of the technology,
the license
is registered with the
proper authorities,
and the foreign government
approves the license.
Generally a force majeure
clause common in
European countries is employed
to excuse
defaults when external
events -- war, insurrection,
strikes, shortages, lightning,
flood -- prevent
performance. A clause designating
the official
language of the original
license document
and of any counterpart
originals as well
as the controlling language
in case of dispute
is often included. Finally,
a clause which
specifies the country whose
laws are to apply
in resolving any dispute
is added to remove
any possible source of
confusion in interpretation
of the license.
A license agreement is
a special form of
contract in which each
party promises to
do something in consideration
of the promises
of the other party. It
is based on a business
understanding between the
parties and common
sense applied to attain
the business goals.
But it is more difficult
and complex than
normal contracts because
its subject matter,
intellectual property --
patents, trademarks,
copyrights, trade secrets
and know-how --
are very unique forms of
property. The properties
require special action
for their creation
and maintenance.
And great care is necessary
in licensing
such properties to maximize
their returns
and prevent their loss.
X. INFRINGEMENT AND LITIGATION
OF INTELLECTUAL
PROPERTY
Infringement. The very
word can generate
reactions of fear, dread,
annoyance and confusion
-- no matter whether you
are the one making
the charge or you are the
accused infringer.
The attempt here is to
explain simply what
constitutes infringement
of intellectual
property rights and the
typical course of
infringement litigation.
All infringement is based
on the violation
of some right. In the case
of patents that
is the exclusive right
to make, use, sell,
offer for sale or import
the patented invention.
Infringement of a trademark
occurs when an
unauthorized party uses
in commerce a similar
mark with similar goods
or services so as
to cause a likelihood of
confusion. A copyright
is infringed when the owner's
exclusive right
to reproduce, prepare derivative
works, distribute,
perform or display the
copyrighted work is
done without his authorization.
A trade secret
right is violated when
a commercial or technical
business secret is stolen
by theft or violation
of a confidential relationship.
A. Patent Aspects and General
Conduct of
Litigation
Understanding patent infringement
begins
with precisely identifying
the patented invention.
The drawings and the description
of the drawings
in a patent do not define
the patented invention.
Rather, it is the claims:
the numbered paragraphs
at the end of the patent
that define the
scope of protection of
the patent. It is
claims that delineate the
zone of exclusivity
reserved to the patent
owner which if entered
by any other unauthorized
person constitutes
infringement of the patent.
In order to determine
whether a product or process
infringes a
patent one must read those
claims element
by element on the accused
device. Every element
in the claim as characterized
in the claim
language must be present
in the accused device
for there to be infringement.
Sometimes a
court will find infringement
even though
the claim is not literally
infringed if the
infringing device has the
same purpose, functions
in the same way and produces
the same results.
This is known as the doctrine
of equivalents.
Patent infringement can
take three different
forms. Direct infringement
occurs when the
infringer makes, uses,
sells, offers for
sale or imports a patented
device. Contributory
infringement occurs when
a party sells a
component of a patented
machine, manufacture,
combination or composition,
or sells a material
or apparatus for use in
practicing a patented
process which constitutes
a material part
of the invention. The contributory
infringer
must know that the thing
he sells is especially
made or especially adapted
for use in an
infringement of the patent
and not a staple
article or commodity of
commerce suitable
for substantial non-infringing
use. Inducing
infringement occurs simply
when one party
induces another to infringe
such as by supplying
instructions or materials
for producing the
patented invention. It
is also infringement
to import into or sell
in the United States
a product made elsewhere
by a process patented
in the U.S. during the
life of that process
patent.
A patent owner has the
right to sue an infringer
in federal court. Patent
suits cannot be
brought in state courts.
An accused infringer can
also bring suit.
If a patent owner is threatening
suit, causing
customers to desert the
accused infringer,
scaring suppliers, driving
away investors,
the accused infringer can
bring a Declaratory
Judgment suit first, asking
the court to
declare the patent invalid,
not infringed,
unenforceable or all three.
Any time a patent
owner brandishes the patent
there is the
risk that the accused infringer
will bring
suit first and in whatever
location he chooses
provided jurisdiction and
venue requirements
are met. That is why a
letter charging infringement
must be carefully drawn
and the patentee
must carefully weigh his
conduct. For if
the words or deeds of the
patent owner raise
a reasonable apprehension
of suit in the
accused infringer the infringer
has the right
to file a Declaratory Judgment
action first
to attempt to put an end
to the harassment.
The law seeks to prevent
a patent owner from
profiting from the threat
without ever putting
the patent to the test.
In a patent infringement
suit a patent and
each and every one of its
patent claims is
presumed valid. That means
the infringer
has the burden of introducing
sufficient
evidence to overcome the
initial presumption
and prove invalidity. And
each claim stands
on its own: that one claim
is held invalid
does not necessarily invalidate
any other
claim of the patent. If
the accused infringer
is found to infringe even
a single claim
the patent is infringed.
An alleged infringer can
defend on a number
of grounds: the patent
is invalid; not infringed;
unenforceable because it
was misused, to
control unprotected goods
for example; the
invention was not novel;
was obvious; was
insufficiently disclosed
-- that is, the
patent did not explain
how to make and use
the invention sufficiently
for one skilled
in the art to understand;
and/or that the
inventor did not disclose
the best mode of
carrying out the invention.
There are powerful remedies
available against
infringers. An injunction
can be fashioned
by the court to stop the
infringer from making,
using and selling the patented
device to
preserve the patent owner's
exclusive right
to practice the invention.
Damages can be
and usually are awarded
-- Polaroid was awarded
nearly one billion dollars
in damages from
Kodak after trial. The
damages are to be
adequate to compensate
the owner for the
infringement. They will
be at least equivalent
to a reasonable royalty.
Interest and costs
can be added and the damages
can be increased
up to three times actual
damages, for example,
if the infringement was
willful. Embarking
on a course of infringement
without an opinion
of patent counsel that
the patent is not
infringed or is invalid,
unenforceable or
defective in some way can
be grounds for
charges of willful infringement.
While an
infringer's profits generally
cannot be recovered,
they can be considered
damages if those profits
are from sales that the
patent owner would
have made but for the infringement.
Attorney's
fees, which in many cases
are greater than
the damages, can be awarded
in exceptional
cases, e.g., willful infringement;
failure
to make proper, timely,
discovery; frivolous
claims; general obstreperous
behavior. Damages
can only be recovered for
a period of six
years prior to the filing
of the complaint
or counterclaim for infringement.
If the
patented product is not
marked with the notice
"patent" or "pat."
and
the patent number no damages
can be recovered
unless the infringer has
actual notice that
he is infringing such as
by letter or by
filing suit.
Between the time a suit
is instituted by
filing the complaint in
federal court and
the time the trial actually
begins, there
is a period during which
discovery is made
and various motions can
be filed. Both of
these activities can be
expensive, time consuming
and vexatious for the litigants
as well as
hectic for the attorneys.
This period generally
begins after the defendant
has filed and
served its answer to the
complaint.
However, a motion to dismiss
can be filed
before the filing of the
answer in an attempt
to end the case before
it begins. Grounds
for such a motion include:
lack of jurisdiction
of the court over the subject
matter or over
the defendant; improper
venue (wrong locale
of court); insufficient
process or service
of process (improper service
of the complaint
on the defendant for example);
failure to
state a proper legal claim;
or failure to
join a necessary party,
for example, the
patent owner.
If the case survives this
first assault,
an answer will normally
be filed and a schedule
for discovery will be set.
During this time
each party can serve on
the other party written
questions called interrogatories
which must
be answered in a set time.
Each party can
also serve on the other
party requests for
admissions to save the
time and cost of proving
facts which are undisputed
or plainly obvious.
If a party denies those
admissions and it
later appears that there
was no real question
of those facts, the costs
and attorney's
fees required to prove
those facts can be
assessed against the party
who refused to
make those admissions.
Each party can take the
deposition of the
other and of third party
witnesses and can
subpoena documents of third
parties as well.
Depositions are proceedings
whereby a sworn
witness is questioned by
one side's attorney,
then cross-examined by
the other's and all
the questions and answers
are recorded by
a certified court reporter.
This normally
takes place at one of the
attorneys' offices
or at the premises of one
of the parties
or anywhere else at the
agreement of the
parties. The recorded testimony
is later
submitted to the witness
for verification
and signature and can be
used in court at
trial. Each party can also
request the other
to produce all relevant
documents: "documents"
includes everything from
notes on napkins
to electronic media. In
all of these discovery
procedures there is wide
latitude as to the
subject mater. Unlike court
proceedings where
inquiries are generally
confined to eliciting
evidence relevant and material
to the issues
being tried, there is no
such limitation
during discovery. One can
pursue any discovery
paths which may lead to
relevant evidence.
This can be annoying to
litigants but it
is the procedure and should
be understood.
During this pretrial period
the court will
generally suggest or even
urge the parties
to settle. The court will
also require identification
of proposed witnesses and
of issues to be
explored during discovery
and will impose
a schedule for discovery
that must be adhered
to by the parties. Additional
motions may
be brought as new issues
arise or as new
evidence on old issues
is discovered. At
some point one or both
parties may bring
a Motion for Summary Judgment
in an attempt
to win the case without
having to go to trial.
This motion is submitted
based wholly on
"paper": deposition
transcripts,
answers to interrogatories,
admissions, documents
and affidavits but no live
testimony. The
moving party can win only
if it shows that
there is no genuine issue
as to any material
fact and that the moving
party is entitled
to judgment as a matter
of law. The opposing
party will try to show
to the contrary: that
there are material facts
in controversy.
One by-product of such
a motion is that both
parties pretty much reveal
the entire theory
of their case and all of
their proofs which
otherwise might not have
been disclosed until
trial.
Often one of the parties
feels a need for
instant redress and cannot
wait until after
discovery and trial. For
example, a patentee
may want the accused infringer
stopped now
before trial because the
infringer's shoddy
knock-offs are stealing
the patentee's limited
market for the patented
goods and souring
the buying public's taste
for the product
because of the poor quality
of the knock-offs.
Or the accused infringer
may seek such preliminary
relief because the patentee's
charges of
infringement have scared
off customers, suppliers,
potential strategic partners
or financial
investors.
In that case the aggrieved
party can move
for a preliminary injunction.
In that proceeding
after no or limited discovery,
based on documentary
evidence, transcripts of
deposition testimony
and a hearing in the nature
of a mini-trial
in court before a judge
or magistrate, the
moving party presents its
case and the other
party opposes.
To prevail on a motion
for preliminary injunction
the moving party must prove
not just that
he is likely to win after
a full trial on
the merits but that he
will be irreparably
harmed if he does not get
the injunction
now, that the other party
will not be unduly
harmed, and the public
will not be prejudiced.
Any decision to move for
a preliminary injunction
must be carefully weighed.
First, it requires
a complete disclosure of
the case in order
to show a strong likelihood
of ultimate success
after trial so you essentially
have to prove
your entire case now. Second,
in addition,
you must prove irreparable
harm, no unfair
prejudice to the opposing
party and careful
preservation of the public's
stake in the
affair. Third, it must
all be done in great
haste, sometimes before
all the facts and
theories are fully obtained
and considered.
Fourth, if the motion is
not granted, the
opposing party will be
elated, buoyed up,
feeling he "won"
the case when
all that really happened
was that the judge
saw no need for instant
redress. The judge
might have felt that the
movant had shown
a likelihood of success
on the merits but
was unconvinced that irreparable
harm would
result if an injunction
was not immediately
issued. But the opposer
will not always see
it that way, he will believe
it vindicates
him, validates his position
and it may inspire
him to fight all the harder.
On the other
hand, if the moving party
wins, it shows
that the court is already
convinced of the
soundness of his position
and is predicting
ultimate victory. That
can end the case quickly.
B. Trademark Aspects of
Litigation
A trademark owner has the
exclusive right
to use his trademark on
his goods in commerce.
If the trademark is registered
in the U.S.
Patent and Trademark Office
then other additional
rights inher. A registration
extends the
owner's exclusive right
throughout the U.S.
even to locales where he
has not yet used
the mark. And it establishes
jurisdiction
over trademark infringement
suits in federal
court.
Federal registration also
allows the registrant
to give notice that the
mark is registered
with the words "Registered
in U.S. Patent
and Trademark Office"
or "Reg.
U.S. Pat. and Tm. Off."
or (r). However,
in an infringement suit,
if there has been
no such notice displayed
with the mark, then
no profits or damages can
be recovered unless
the infringer had actual
notice of the registration.
Certain exclusive rights
are bestowed by
federal registration. Any
person who uses
any reproduction, counterfeit,
copy or colorable
imitation of a registered
mark in connection
with the sale, offering
for sale, distribution
or advertising of any goods
or services which
are likely to cause confusion,
to cause mistake
or to deceive will be liable
as an infringer.
Also liable as an infringer
will be anyone
who reproduces, counterfeits,
copies or colorably
imitates a registered mark,
applies it to
labels, signs, prints,
packages, wrappers,
receptacles or advertisements
intended to
be used in commerce on
or in connection with
the sale, offering for
sale, distribution,
or advertising of goods
or services, if that
is likely to cause confusion,
mistake or
deception.
An infringer who is engaged
solely in the
business of printing the
mark for others
is only liable to an injunction.
Similarly,
where an infringement occurs
by virtue of
appearing as paid advertising
matter in a
newspaper, magazine or
electronic medium
the publisher will only
be liable to an injunction.
Even then an injunction
may not issue if
stopping further publication
of the infringing
mark delays the time of
publication or programming
beyond its normal time.
An infringer not in those
limited categories
listed above will be subject
to an injunction
against future infringing
activities as well
as the infringer's profits,
damages sustained
by the trademark owner
and the cost of the
action. The court can also
award treble damages
and attorney's fees. Further,
the court may
order that all labels,
signs, prints, packages,
wrappers, receptacles,
and advertisements
bearing the mark in the
possession of the
infringer and all plates,
molds, matrices
and other devices for making
them be delivered
up and destroyed without
any reimbursement
to the owner.
When a registered mark
is involved in litigation
the court may determine
the right of that
mark to a registration
or cancel it in whole
or in part, restore a cancelled
mark or take
any other action needed
to rectify the registration
and may order the U.S.
Patent and Trademark
Office to carry out the
action determined
by the court.
The remedies for counterfeit
marks are much
more stringent. In the
case of counterfeit
marks a court upon proper
showing may grant
an ex parte order to seize
the counterfeit
goods without previously
informing the alleged
counterfeiter. Such an
order can result in
the sealing of a warehouse
before the owner
even has notice that a
proceeding has been
filed against him. To obtain
such extraordinary
measures the moving party
must show that
if notice were given the
counterfeit goods
would be destroyed, moved,
hidden or otherwise
made inaccessible. The
court will take custody
of the goods and the moving
party must provide
adequate security, e.g.,
a bond sufficient
to cover any damages if
the seizure is later
adjudged to have been wrongful.
A party who
had his goods wrongfully
seized may recover
damages for lost profits,
cost of materials,
loss of good will, punitive
damages and attorney's
fees.
The discovery procedures,
including depositions,
interrogatories, requests
for production
of documents and requests
for admission,
are the same procedurally
as in patent cases.
The same procedural motions
are available
for trademarks as for patents:
motions to
dismiss, motions for preliminary
injunctions,
and motions for summary
judgment as well
as Declaratory Judgment
actions. But, the
evidence sought and the
proofs required are
different. Here the trademark
owner will
seek to prove infringement
by showing likelihood
of confusion, copying of
the mark by the
infringer, and the owner's
prior use, widespread
use and substantial advertising
and promotion
while the alleged infringer
will seek to
show no likelihood of confusion,
that the
mark has been misused in
violation of the
antitrust laws, or was
obtained wrongfully
or through fraud or that
the mark is descriptive
or generic. Considered
in determining likelihood
of confusion is similarity
of the appearance,
sound, impression, or meaning
of the marks,
similarity of the goods,
similarity of the
channels of trade in which
the goods move,
and similarity in the purchasers.
C. Copyright Aspects of
Litigation
Copyright protects original
works of authorship
fixed in a tangible medium
of expression,
e.g., print, film, phonograph
records, electronic
media. Note the protection
extends to "original"
works not just "novel"
works. That
is, as long as the work
is original with
the author that author
will have copyright
protection. Thus theoretically
if two people
using the same camera,
settings, and film
take the same picture of
the Washington Monument
and produce the identical
photographs, each
owns the copyright in his
photograph. Practically,
if such an event should
occur one of the
photographers will claim
the other copied
his work. To prove this
he must show his
photograph was made first
and the other photographer
had access to it. This
coupled with the similarity
of the photographs will
prove a prima facie
case of copyright infringement
which the
other party can defend
by showing no access
and independent creation.
Note also that
copyright protects the
form of the expression,
not the idea or concept
behind it. The copyright
owner cannot stop other
photographers from
taking the same picture
of the Washington
Monument. Lotus cannot
stop others from making
spreadsheets only from
making one similar
in look and feel to Lotus'
1-2-3.
In addition to the usual
definitions of fraud,
invalidity, non-infringement,
non-copyrightable
subject matter and misuse
theories, also
available under copyright
law is the defense
of fair use. Fair use arises
when the work
was copied for purposes
of criticism, comment,
news, teaching, scholarship
or research.
To determine whether a
fair use exemption
applies courts examine
the purpose and character
of the use (commercial
or non-profit); the
nature of the work; the
amount of the work
copied; and the effect
of the copying on
the market for the work.
Copyrightable works take
many forms: literary
works; musical works; dramatic
works; pantomime
and choreographic works;
pictorial, graphic
and sculptural works; motion
pictures, and
other audiovisual works;
sound recordings
and architectural works.
Copyright also covers
compilations and derivative
works but only
the new authorship contribution
not the underlying
preexisting material.
The copyright owner has
certain exclusive
rights which if violated
constitute infringement:
to reproduce the work;
to prepare derivative
works based on the copyrighted
work; to distribute
copies by sale, rental,
lease or lending;
to perform the works publicly;
and to display
the work publicly. In addition
the authors
of visual art works have
the rights of attribution
and integrity. The author
must be claimed
as the author of his work
and can prevent
the use of his name with
any work not authored
by him or any work authored
by him but substantially
changed. The author can
prevent any intentional
or grossly negligent destruction
of his work
and can prevent any intentional
distortion,
mutilation or modification
of the work.
While copyright notice
is no longer required
since the U.S. joined the
Berne Convention
in March 1989 and lack
of notice no longer
forfeits copyright protection,
it is still
prudent to apply the notice
to prevent the
defense of innocent infringement
in mitigation
of actual or statutory
damages.
While copyright registration
is not mandatory
no action for copyright
infringement of a
U.S. work can be brought
unless a registration
is obtained or has been
or will be applied
for. In addition, no statutory
damages or
attorney's fees can be
recovered for infringement
of an unpublished work
commenced before the
effective date of its registration
or for
infringement commenced
of a published work
after first publication
and before the effective
date of its registration
unless registration
is subsequently made within
three months
of the publication of the
work.
Copyright infringement
actions, like patent
infringement actions, can
only be brought
in federal court. At any
time during an action
for copyright infringement
the court may
order the impounding of
all copies made or
used in violation of the
copyright and of
all plates, molds, matrices,
masters, tape,
film negatives or other
articles by which
copies can be made. As
a part of a final
judgment the court can
further order the
destruction or other disposal
of those items.
A copyright infringer is
liable for actual
damages and profits or,
at the election of
the copyright owner, statutory
damages. Thus
the copyright owner can
recover the damages
suffered by him and any
profits of the infringer
attributable to the infringement.
The copyright
owner need only prove the
infringer's gross
revenue and the infringer
must prove his
deductible expenses and
profits attributable
to other factors.
Alternatively, the copyright
owner can elect
to recover statutory damages.
If it can be
shown that the infringement
was willful,
the upper limit of recovery
can be extended.
The court can award costs
and attorney's
fees.
Unlike for patent and trademark
violations,
copyright law provides
that any person who
willfully violates a copyright
for commerce
or financial gain can be
criminally liable
and infringing copies as
well as the means
for making them can be
forfeited or destroyed.
Further, a fine can be
imposed for fraudulent
removal or alteration of
a copyright notice,
fraudulent giving of copyright
notice or
false representation of
a material fact in
an application for copyright
registration.
The discovery procedures,
including depositions,
interrogatories, requests
for production
of documents and requests
for admission,
are the same procedurally
as in patent cases.
The same procedures are
available for copyright
as for patents and trademarks:
motions to
dismiss, motions for preliminary
injunctions,
and motions for summary
judgment as well
as Declaratory Judgment
actions.
Litigation progresses in
a similar manner
in cases involving trade
secrets and unfair
competition, trade dress,
false advertising
and similar issues except
that there is no
government "deed"
to the property
as there is with patents,
trademarks and
copyright: the existence
of the "property"
and its ownership must
be established by
external evidence.
This Passage was Posted with the Exclusive Permission of Wiley & Sons
Publishers and It May NOT Be Reproduced, Edited, Transmitted or
Reprinted in ANY Fashion without the Written Permission of Wiley &
Sons Publishers.
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