Archive for the ‘Contracts’ Category

IPad Trademark Disputes Continue to Haunt Apple

Wednesday, February 29th, 2012

Trademark lawyers often enjoy following trademark disputes involving  famous trademarks. If you haven’t heard about Apple Computer’s court battle over ownership rights for the “iPad” trademark in China, read on.

The Chinese owner of the “iPad” trademark is not Apple but  a beleaguered video display manufacturer known as Proview.  In 2001, Proview obtained rights to the “iPad” trademark in China around the time it was developing a so-called Internet Personal Access Device (“IPAD acronym”), which only saw the brief light of day when it proved to be a market failure.  Later, in 2008, Proview fell into rough financial times when the economy went south along with two of its major customers, Polaroid and Circuit City, who filed for bankruptcy.

In 2009  Apple was developing its own iPad device so it created a company in the United Kingdom called “IP Application Development Ltd.,”  (yet another IPAD acronym)  established for the singular purpose of acquiring trademark rights to “iPad”.  According to the Chinese Court, a Proview subsidiary in Taiwan sold the “iPad” trademark to Apple’s UK company for $55,000.

Apple then sued Proview in China for wrongfully using the “iPad” trademark.  Proview fought back and in late 2011, the court issued its opinion, which rejected Apple’s lawsuit concluding that although Apple purchased rights to “iPad” there was no formal transfer of trademark rights.  Apple, according to the court, purchased the trademark from Proview’s subsidiary, not from Proview itself, which was unrepresented during the negotiations between Apple and the Taiwanese company.  Apple is appealing the decision.

It was widely reported that Proview would take its dispute to the United States and on February 24th, theWall Street Journal reported that it had filed a lawsuit on February 17th  in the Superior Court of the State of California in Santa Clara County claiming that Apple had committed fraud when it used Application Development Ltd., to purchase the iPad trademark from Proview.  What Proview hopes to gain by suing Apple on its home turf is unclear but Apple may be eager to settle to avoid disruption of its Chinese supply chains or sales to Chinese consumers.  It appears that Proview’s comeback strategy is built upon leveraging a lawsuit against the most famous technology company in the world.   Reuters news service reports that “[a] Shanghai court this week threw out Proview’s request to halt iPad sales in the city. But the outcome of the broader dispute hinges on a higher court in Guangdong, which earlier ruled in Proview’s favour.”

Apple, of course, maintains Proview refuses to honor its agreement. Undoubtedly, Apple has enough cash to make this story go away and we suspect that’s just what will happen.  The story also reinforces the well established opinion that enforcing intellectual property ownership rights in China may be problematical.

–Adam G. Garson, Esq.

Who Owns Your Invention?

Thursday, May 26th, 2011

TechGaurdJames Joyce (no, not the author) learned the hard way that selecting your form of business and assigning ownership are crucial steps in promoting an invention.  Mr. Joyce invented a new computer firewall and granted an exclusive license in the patent to TechGuard Security LLC, which was owned by Mr. Joyce and his wife.  Mr. Joyce agreed that TechGuard Security would pay him no royalty for the license.  The wife was given a controlling interest in the corporation so that the corporation could qualify for preference in government contracting.

Mr. Joyce and his wife subsequently divorced.  The wife is now CEO of TechGuard, which still holds the exclusive license to the patent rights and still does not pay Mr. Joyce a royalty.  Mr. Joyce is unhappy with his lawyers, who represented both Mr. Joyce and TechGuard at the same time.   The bottom line:  (a) remember that relationships can change over time; and, (b) make sure that both you and your lawyer understand who your lawyer represents.  See Joyce v Armstrong Teasdale, No. 10-1362 (8th Cir. March 29, 2011).

– Robert Yarbrough, Esq.

To Hold or Not to Hold

Thursday, January 27th, 2011

hand

A popular method for protecting and managing intellectual property (“IP”) assets — high valued assets, in particular — is to transfer them to a special company created for the purpose of creating, protecting, licensing, and monitoring, IP. Typically, a corporation may create a subsidiary to hold its IP, which it may license back to the parent and, perhaps, to third-party licensees.

Assuming that the holding company’s relationship with its parent is arms’ length and that it obeys all the appropriate corporate formalities, isolating the intellectual property protects the holding company from lawsuits against the parent, claims of the parent’s creditors, and the parent’s insolvency. It might also protect the IP from hostile takeovers of the parent company. Placing IP in a separate holding company may also provide an objective measure of its value, uncluttered by the operations of the parent. This may be of particular importance for obtaining financing and eventually selling the IP to a third party. From the income tax perspective, the Parent may deduct the royalties it pays to license the IP. Relieving itself of IP ownership may also reduce tax consequences based upon the parent’s net worth such as franchise taxes. Of equal importance is that the holding company subsidiary may not be liable for state income tax solely because it is a holding company. At the same time, the holding company is available to offer services to the parent as well as make loans and pay dividends.

Sound too good to be true? You may be right. States generally have an aversion to IP holding companies because they perform services but do not generate taxable income. Some states aggressively audit IP holding companies, hoping to “pierce the corporate veil” by proving that the holding company is the alter ego of its parent. Should the state require combined reporting for parent and sub as a result of an audit, it would eliminate the tax benefits of the arrangement altogether. North Carolina and some other states have enacted anti-passive investment company laws designed to eliminate the tax benefits of the intangible holding company. In recent years, IP holding companies have been challenged in Connecticut, Maryland, Massachusetts and New York. State legislative bodies in Connecticut, New York, Alabama, Mississippi, New Jersey, North Carolina, and Ohio have enacted so-called “Add Back” statutes. The Model Add Back statute provides that

For purposes of computing its net income under this chapter, a taxpayer shall add back otherwise deductible intangible expense directly or indirectly paid, accrued or incurred in connection with one or more direct or indirect transactions with one or more related members.

The bottom line is that if you believe that creating an IP holding company may be of benefit to your organization, you should be wary of the tax consequences, and plan to operate the holding company in accordance with state statutes to gain the expected benefits. Be sure to contact your tax professional as well as your lawyer to determine if having an IP holding company is right for your situation. Let us know if Lipton, Weinberger & Husick can help.

– Adam G. Garson, Esq.

Internships: It’s Not Just Another Free Employee

Monday, June 28th, 2010

internshipsWith the economy slow to recover, many firms, both for-profit and not-for-profit are offering summer internships, rather than paid positions.  Sounds good, right?  The employer gets free labor, and the intern gets experience and resume enhancement.  What could be better?  Well, it turns out that paying a fair wage could be better because both federal and state laws prevent unfair labor practices that include much of what many interns face.

So, what are the general laws outlined by the U.S. Department of Labor’s Wage and Hour Division regulating unpaid internships? The following six criteria must all be met in order for companies to lawfully offer unpaid internships:

1.  The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school or similar institution;

2.  The training is for the benefit of the trainee;

3.  The trainees do not displace regular employees, but work under close observation, instruction and supervision;

4.  The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded;

5.  The trainees are not necessarily entitled to a job at the completion of the training period; and

6.  The employer and the trainee understand the trainees are not entitled to wages for the time spent in training.

The federal and state labor departments may inspect a company’s operations for compliance.  Interns who feel wronged may also file for back pay and penalties, even if they agreed in writing to work for nothing.  In the end, it may be better and cheaper simply to pay interns, rather than lawyers!  To find out more about  the Fair Labor Standards Act (FLSA) and other laws that apply to interns and work-based training, you may visit the U.S. Department of Labor’s Wage and Hour Division web site or call WHD’s toll-free helpline at (866) 4US-WAGE, (866-487-9243).

– Lawrence A. Husick, Esq.

Eyjafjallajokull — Force Majeure

Wednesday, April 28th, 2010

volcanoThe interruption caused by Eyjafjallajokull has been devastating.  Putting aside the personal inconvenience and expense suffered by airlines, passengers and the travel and vacation industries, the consequence to other businesses has been far reaching — missed deliveries and shipments, upset production schedules, canceled meetings, delayed or canceled business deals, and more.  Believe it or not,  one source indicates that Eyjafjallajokull is not even among the ten most dangerous volcanoes in Europe, outranked by Vesuvius, Campi Flegrie, and Etna in Itally, Agua de Pau, Fumas and Sete Cidades in the Azores and Hekla in Iceland, among others.


So how do businesses deal with events that they cannot predict or control? In the world of contracts, it’s the “force majeure” clause that protects the parties when they cannot perform because of unforeseen events.  “Force majeure” literally means “greater force.”  A typical force majeure clause reads:

Company shall not be responsible for damages by reason of any strike, war, riot, insurrection, civil commotion, fire, flood, accident, storm, or any Act of God or any other causes beyond the control of the Company.

Pennsylvania courts — the few that have considered the force majeure clause — have held that such provisions will only protect parties whose performance is prevented by events beyond the “reasonable control” of the parties.  Certainly, war, floods, earthquakes, and volcanoes fall under this category.

These are easy cases, but how will courts view situations where a party’s performance is only frustrated by natural events, not prevented; or when government regulators prevent a party to perform under its contract (Rohm & Haas Co. v. Crompton Corp., Kaplan v. Cablevision of Pa); or if performance is prevented by a labor strike (Aquila, Inc. v. CW Mining)?  In these situations, courts tell us that they will look to the intent of the party as expressed by the language of the force majeure clause.  Does the language of the clause protect a party who partially performs? Does it specifically include failure to perform caused by government regulations or labor strikes?  Make sure your contracts contain a force majeure clause and make sure it is specific enough to protect you from those rare events that affect your industry. Unfortunately, nobody has a crystal ball.

(Thanks to Arnold Winter; photo by David Karnå, licensed under Creative Commons License)

– Adam G. Garson, Esq.

Don’t Go Naked When Assigning a Trademark

Wednesday, March 31st, 2010

So you want to sell your trademark to another business. You can do that because trademarks are considered property and may be bought and sold. But trademarks are also special kinds of property and one must use care when crafting the sale so that it is effective and enforceable by both parties to the transaction.

The outright sale of a trademark is referred to as a “trademark assignment,” that is, the sale of all one’s rights in a trademark. An assignment is distinguished from a “license,” which is the granting to another of a limited right to use the trademark in exchange for a royalty. When you assign a trademark to a third party, you are left with no rights in the trademark.

To insure that your sale or assignment of a trademark is proper, you must understand that trademarks are merely symbols of good will. “Good will” is the reputation and advantage that your business has acquired over time. One commentator has described the relationship between a trademark symbol and good will as “inseparable as Siamese Twins who cannot be separated without death to both.” Without a business or without good will, a trademark is worthless. That brings us to the first requirement: the trademark you wish to assign must be in use. If you’re not using the trademark then there is no associated goodwill and the trademark is worthless.

The second requirement is that assignment of a trademark must be accompanied by the goodwill associated with the trademark. Typically, a trademark assignment will recite that the trademark and the goodwill are being transferred to the buyer. This is more than a technical requirement. If the buyer of the trademark uses it in connection with different goods or services than the seller of a trademark, it may deceive the public into believing that the trademark is associated with something that it is not. A trademark assignment that is made without its associated goodwill is said to be an “assignment in gross” or a “naked assignment.” Such assignments, are forbidden by law and will be deemed invalid if challenged in court.

If you are interested in assigning a trademark or wish to buy trademark, it makes good sense to find a lawyer who can help you avoid the pitfalls. Let us know if we can help.

– Adam G. Garson, Esq.

Lessons Learned – Read Your Software Licenses Carefully!

Thursday, November 26th, 2009

License

A recent case before the United States District Court of Appeals demonstrates how important it is for companies to understand their software licenses when planning mergers and reorganizations.  Novelis Corporation learned the hard way when it completed an internal corporate restructuring.  Here’s what happened in Cincom Systems, Inc. v. Novelis Corp., 581 F.3d 431 (6th Cir. 2009).

In 1989, Cincom Systems, Inc. licensed two software products to Alcan Rolled Products Division (“Alcan Ohio”), an Ohio-based corporation that would later become known as Novelis. The license Cincom issued listed “Alcan Rolled Products Division” as the “Customer” and granted to Alcan Ohio “a non-exclusive and nontransferable license” to use Cincom’s software. Under its license, Alcan Ohio could only place the software on designated computers at its facility in Oswego, New York.

In the meantime, Alcan executed an internal restructuring under state statutory merger laws.  Although Cincom’s software remained on the same computers located in the same office as when the license was entered, the plant was now owned by  “Novelis.”  Cincom caught wind of the change and sued Novelis, alleging that Novelis’ actions violated the license agreement.  Novelis lost in the lower court, the parties stipulated to damages of $459,530.00 and appealed.

Novelis argued on appeal that under Ohio state merger laws, the change in ownership of the software did not amount to a transfer of the license.  The Court of Appeals disagreed, holding that state law does not control the assignability of patent or copyright licenses and to permit so would “undermine the reward that encourages invention.” The court held that the plain language of the agreement was clear, “no transfers are permissible without express written approval.”  It was a costly lesson for Novelis but it teaches us all that we have to read those software licenses.

–Adam G. Garson, Esq.

Is Your Patent Vulnerable to Foreclosure?

Thursday, September 24th, 2009

foreclosurePatents are personal property, just like your car. Can your creditors foreclose on your patent?  If you use your patent as collateral for a loan or create any other security interest in the patent and then default on the underlying obligation, the person holding the security interest in the patent can foreclose on the patent under state law and thereby acquire all rights in the patent.

The Federal Circuit Court of Appeals recently decided the case of Sky Technologies v SAP AG.  In that case, a defendant in a patent infringement case argued that the plaintiff did not have the right to enforce the patent because the plaintiff acquired its ownership of the patent through a foreclosure sale, rather than by assignment.  The Federal Circuit held that the person who acquired the rights in the foreclosure sale had the right to enforce the patent.

In short, a patent can have real value as collateral for a loan because a purchaser at a foreclosure sale can enforce the patent.

– Robert J. Yarbrough, Esq.