Archive for the ‘Licensing’ Category

Busy, Busy, Busy

Saturday, June 28th, 2014

Supreme CourtThe Supreme Court has had a busy time of it in June stirring the patent pot, with decisions in three cases and arguments in a fourth. The general rule is that whenever the Supreme Court decides a patent case, the law is left in worse shape than it was before. The recent decisions are no exception. This month, we’ll take a look at Limelight v Akamai, decided June 2, 2014.

In Limelight, the Court considered “inducement of infringement.” Inducement of infringement occurs when one person causes, or induces, another person to infringe a patent. Where the patent is to a method of doing something, the inducement rule for many years has been that (a) one person must induce another person to infringe the patent, and (b) the other person must actually perform all of the steps of the method and thus infringe the patent. The person who caused someone else to infringe is liable for infringement, just is the person who actually infringed.

This rule worked fine when things were made from steel and wood, but has been a problem for Internet-implemented inventions that can be performed over a computer network by different people in different locations and even different countries.

The stage is set for Limelight and Akamai.

MIT owned patents relating to storage and retrieval of content over the Internet. MIT licensed the patents to Akamai, which runs a service utilizing the MIT patent to store and retrieve content. The patent (and the Akamai service) involves storing large files on servers located in different locations, and, hopefully, near the user who wants access to the file. Local storage of the large files allowed faster access by the user. One of the steps of the patent is that Akamai ‘tags’ which of a customer’s files are to be stored in the local servers.

Limelight operates a competing service that is just like Akamai’s service, but with one important difference – Limelight does not ‘tag’ the files. Instead, Limelight’s customers tag their own files, using advice and assistance from Limelight. Because Limelight does not tag the files, no one person performs all of the steps of the patent and there is no one that Akamai can sue for direct infringement. Because no one person performs all of the steps of the patent, under the old rule Limelight cannot be liable for inducement of infringement. Akamai has no remedy. Seems unfair, doesn’t it?

The Federal Circuit Court of Appeals thought so. It decided that the old rule did not work in the information age and that Limelight’s actions in copying Akamai’s business but avoiding the patent should not be tolerated and that Limelight should be liable for inducement of infringement.

The Supreme Court reversed and reinstated the old rule, seeing no reason to change. As a result of the Supreme Court’s decision, Akamai is without remedy and Internet copyists are free to cut a step from a method patent, instruct someone else to perform the missing step, and avoid patent infringement altogether. The value of Internet inventions, or in fact any method patent that can be performed by different people, has just dropped.

–Robert Yarbrough, Esq.

Employer’s To-Do List: Get Invention Assignments from All Employees

Friday, May 30th, 2014

Do your employees create new inventions, products or designs?¬† Have all of your employees assigned all company inventions to the company?¬† If not, then the company does not own the invention, even if the invention was created on company time and with company resources and in the course of the employee’s work for the company.

That’s the takeaway from ¬†Peregrine Semiconductor v RF Micro Devices (S.D. Cal. 2014).

Peregrine developed new products and obtained patents for those products.  Peregrine sued RF Micro Devices for infringement of the patents.  During the course of the litigation, the parties learned that a former Peregrine employee should have been named as an inventor on the patents, but was not.  Peregrine usually obtained assignments of patent rights from all employees, but could find no such assignment from the former employee and the former employee had no recollection of signing such an assignment to Peregrine.  Instead, the former employee subsequently assigned his patent rights to RF Micro Devices, the accused infringer.

Peregrine now finds itself in the embarrassing position of co-owning the invention with RF Micro Devices,.

The case includes a discussion of the ‘hired to invent’ doctrine, in which a person is employed to solve a particular problem.¬† Under Federal common law; that is, law made by judges in their decisions, an invention created by a person hired to solve a particular problem is owned by the employer even if the inventor did not sign an assignment.¬† In the Peregrine situation, the former employee had performed several different functions for the company during the course of his employment and was not hired to solve a particular problem. He was not ‘hired to invent’ and Peregrine did not own his rights to the invention.

The result was that a preliminary injunction against RF Micro Devices was denied.

The bottom line?  Make absolutely sure that every employee has signed an agreement assigning patent rights to all company inventions to the company. The agreement can be in the employment agreement and can apply to inventions that the employee has not yet created.

— Robert Yarbrough, Esq.

Employees, Patent Rights and Government Contracts – Who owns that invention?

Thursday, July 28th, 2011

gavelEvery employer that engages in research and development work should obtain a present assignment of patent rights in future inventions from every employee.  The U.S. Supreme Court underscored this fact in the recent case of Standford v Roche.

Stanford University’s research employee worked on a project to detect HIV infection.¬† In the employment agreement, the employee “agree[d] to assign” to Stanford all inventions resulting from his employment.

Stanford arranged for the employee to perform work on the HIV project at Cetus, a small research company that had specialized DNA amplification capabilities.¬† As a condition of having access to the Cetus facilities to perform the Stanford work, the employee signed an agreement with Cetus saying that the employee “does hereby assign” to Cetus his inventions made as a result of his access to the Cetus facilities.

Get the picture?  The Stanford agreement was an agreement to assign in the future.  The Cetus agreement was a present assignment of rights to future inventions.

Stanford applied for and obtained patents on the HIV testing procedure.  Meanwhile, Roche acquired Cetus and commercialized the HIV test in the form of test kits, which are now widely used.  Stanford sued Roche for patent infringement and the lawsuit made it all the way to the Supreme Court, which found in favor of Roche.  The Supreme Court ruling has great importance for employers.

The bottom line:¬† An employee inventor is free to assign an invention made for an employer to someone else unless the invention is already assigned to the employer, even if the research was funded by the Federal government.¬† An obligation of the employee to assign inventions to the employer in the future is not good enough to preserve the employer’s rights in the invention.

Why it’s important:¬† Your employee can assign your invention to anyone, including your competitor, unless you already have an assignment from the employee.

If you are an employer, be sure to obtain a present assignment of future inventions from every employee.¬† If you are contracting for development of an invention or product, obtain a present assignment of future inventions preferably from both the development partner and each person working on the project.¬† You’ll be glad you did.

— Robert Yarbrough, 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.

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.