Welcome to the Licensing Lawyer Blog!

November 16th, 2017
Welcome to the Licensing Lawyer Blog!

I know we're all inundated with electronic information, whether from "push" emails from various sources, blogs, listservs and other sources.  So why another blog?  Because:

  • It's sharply focused on licensing and IP transactions.  We'll be exploring some of the nitty-gritty issues and challenges that licensing people have to resolve in order to get a deal done  -- things like rights to improvements, patent indemnification, licensor duty to enforce against unlicensed infringers, joint inventions and the like.
  •  It's  about what licensing lawyers do: contracts.  It's about contract and deal structuring, drafting clear and succinct agreements that people can understand, deal strategy and negotiation.  In case you haven't noticed, there are lots of really lousy contracts out there -- so one of our goals is exploring "best practices" for contract drafting and negotiation in licensing and IP transactions.
  •  It's a highly interactive site where everyone can share their thoughts, insights and experience.  There are no right or wrong answers and no "experts" in this space: we can all learn from everybody else's experience.

 So welcome, and please join in!

Larry Schroepfer

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Joint Inventions and the "Patent Law Punt"

February 18th, 2016
Joint Inventions and the "Patent Law Punt"

One of the trickiest problems to deal with in any project that involves two parties collaborating to develop or implement new technology is how to allocate rights to inventions and developments that arise from the "joint" work. 

The problem is most obvious in a joint development agreement, where new inventions and technology are the very object of the agreement itself.  But it also arises in other contexts.  For example, any technology license that includes an element of technology transfer will likely result in the licensor's and licensee's personnel working together on a technical level, and this collaboration may well lead to new inventions, developments or improvements on existing technology.  The issue may even arise in a purchase and sale context where the buyer provides input on product requirements and may even provide some level of technical input and support.

The key question is how to handle ownership and rights to the inventions and technology arising from the joint development project.  The most common way is what I call the "Patent Law Punt": what's mine is mine, what's yours is yours, what's joint is joint, end of discussion.  This is contractually easy, but it doesn't really solve the problem, for a number of reasons:

  • Regardless of ownership, you still need to deal with what rights each party will have to use and to license all of the inventions and technology that arise from the joint effort.  If there's one thing I've learned in twenty years of practice in this field, it's that ownership isn't as important as rights.
  • Even if a party is the sole or joint owner of part of the developed technology, its ownership rights may be worthless without the right to practice the other party's developed technology.  It may even be worthless without the right to practice some of the other party's background technology.  As difficult as this issue can be, it simply can't be avoided if the parties are seriously thinking through what they want out of the collaboration.
  • In the United States, in the absence of an agreement to the contrary, joint owners each have the right to practice and to license joint intellectual property without consent of the other party or duty to account for any financial gain derived from it.  This may not be a desirable result for one or both of the parties.

So if the Patent Law Punt isn't generally the best way to deal with jointly developed technology, what is?

In my experience, a better solution is to allocate ownership of developed technology based on the technical nature of the development and is relationship to each party's underlying or background technology.  This means that if the development primarily relates to one party's underlying technology, that party owns it, regardless of who invented it (or whether it was jointly invented).

This approach allocates ownership of the developed technology where most of its value resides.  It is also consistent with the reason that companies engage in a joint development effort in the first place, since those projects usually involve complementary or synergistic (but different) technology.  There is little reason for a joint development effort if the parties are both bringing the exact same technology to the table.

There are, of course, issues with this approach, including the following:

  • You need to clearly define each party's "technology" for this solution to work.  These definitions can get very, very tricky.
  • There may well be an irreducible minimum of developed technology that doesn't clearly fall within either party's technology area, and you'll need to deal with how to handle this.  Joint ownership may be the only solution.
  • You still need to determine the non-owner's rights to the developed technology: to repeat, ownership isn't as important as rights.  However, this task is easier to handle if ownership of the developed technology resides where it most logically belongs.

So allocating ownership based on technology subject-matter (rather than using the Patent Law Punt) isn't a panacea.  But it's a better way to start thinking about the problem of joint inventions and joint developments on a macro level.

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Residuals: License to Steal?

January 26th, 2016
Residuals: License to Steal?

A provision that is increasingly being used in nondisclosure agreements (and nondisclosure provisions embedded in broader development or commercial agreements) is a so-called "residuals" clause.  This is especially true when it comes to technology development agreements, where the party receiving the confidential information is using it to develop something for the disclosing party. 

Basically, a residuals clause says that if in the process of working with the other party's confidential information, the receiving party learns or develops some "general stuff" (as opposed to "specific stuff"), then it will have the right to use this "general stuff" in the future despite the nondisclosure and nonuse provisions of the confidentiality agreement.  The argument is that we all learn by doing, and people cannot and should not be forced to try to "segment" their brains when it comes to what they know.  So, for example, a software algorithm that the receiving party creates would be off-limits, but methods of structuring algorithms in general would be a "residual" that the receiving party could use in the future.

This certainly has some intuitive merit.  I've been drafting contracts for more years than I'd like to admit to, and in the course of doing that I've built up a body of knowledge when it comes to the contract drafting process, contract structure and flow, and even specific contract provisions.  I have no idea when I first decided to order the sections of a license agreement the way I do, or when I first decided that I want all notices under the agreement to be given only by express mail and not by fax or email.  If these insights had been made under a nondisclosure agreement, I don't know how I could filter them out from future reuse.

Despite the intuitive merit of the "residuals" concept, there are some real problems here, particularly when it comes to technology development and sensitive and competitive technical information.  Fundamentally, these stem from the fact that I've never seen a satisfactory definition drawing the line between "general stuff" and "specific stuff".  The outlying cases are easy, but it's the close calls, where a potential dispute is most likely to arise, where the definition breaks down, and almost becomes circular: "general information" means "general ideas, concepts, techniques and knowhow" and, well, other "general stuff".  The best that can be said about residuals is what Justice Stewart said (and for which he was much vilified) about pornography:  I know it when I see it.

 So if the definition doesn't work and you're having somebody else develop sensitive technology for you, what do you do?  Here's a few thoughts:

  • The cardinal rule is that residuals should never, never, NEVER include rights under patents or copyrights.  It's one thing to say that the other party can use your confidential information if it's "general enough"; it's something else entirely to grant a patent or copyright license.  Any agreement that includes a residuals clause should explicitly exclude rights under any patents and copyrights.
  • Residuals should only include information that resides in an individual's "unaided memory".  Anyone making use of residual information should be prohibited from using or referring to any written or electronic documentation, including his or her own notes, notebooks, emails, or anything else.
  • If there are certain key personnel who are involved in the development, include a clause prohibiting those persons from working on (or assisting others in working on) a similar or competitive project, either indefinitely or for some defined period of time.  This may work with a mid- to large-sized company, but small developers will likely resist it, basically because they don't have people to spare.
  • Along the lines of the previous point, consider prohibiting the entire developer company from working on similar or competitive projects, again for some defined period of time.  A developer may agree to this if the period is reasonably short (say, a year or less), but this may be inadequate to protect the discloser's information.
  • If the technology is really, really sensitive (the kind of thing on which the company's whole business platform is based), and if the developer routinely does similar projects either for itself or your competitors, you may have no choice but to refuse to use them for the project.  This may disqualify the best developer candidate or candidates, but the risk may simply be too great.

2 comments

Comment from: noack.patent [Member]  
Andreas Noack

My first encounter with such a clause was one that was clearly off-limits. It simply said ‘everything that somone can remember is out’ (well, not that simple, but similar).
There was no limitation to ‘general’ information, and I though ‘well, are they sick?’

01/14/15 @ 14:05
Comment from: lgc451 [Member]  
Linda

Similar experience here, where the purpose was "items of mutual interest", and residual memory was anything and everything that the "recipient" came across. And of course, no IP protective clauses ….

02/29/16 @ 09:41

Licensor Duty to Enforce Licensed Patent Against Other Infringers

January 12th, 2016
Licensor Duty to Enforce Licensed Patent Against Other Infringers

It's one of the most uncomfortable conversations that a licensor can have with a "good and faithful" licensee.  The licensee points out that there are X number of its competitors that are selling infringing products, and the conversation goes something like: "How do you expect me to compete against people who aren't paying you royalties?  I'm the good guy -- I took the license and I'm paying you -- but you're letting these other companies off scott-free.  You gotta do something!!!"

Read more »

7 comments

Comment from: John W. Caldwell [Visitor]  
John W. Caldwell

Your comments, Larry, are exactly correct for licensors. The situation is somewhat simpler when a nonprofit is the licensor, however. The right to enforcement is one of a number of terms an academic institution just cannot tolerate. The counterbalance, of course, is the price of the license. In the academic case, policy issues attending these issues at least gives them a "place to stand."

As for licensee, however, I invariably advise that specific, clear and unavoidable enforcement provisions be placed into an exclusive license. This is, in my view, the very essence of exclusivity. If nothing else, a right to sue may be granted the licensee with the licensor agreeing to be an involuntary plaintiff.

If this right is not included, then the license is not really exclusive.

J

06/17/14 @ 10:39
Comment from: larry_schroepfer [Member]  

Absolutely agree in the case of an exclusive license. This is particularly important in the pharma/biotech space, where the exclusive licensee will spend a significant amount developing the product, and has diligence obligations to the Licensor to do so.

06/17/14 @ 13:15
Comment from: Stephen Juge [Visitor]
Stephen Juge

Many thanks for the helpful insights. Many years of consumer products trademark and copyright licensing legal work at Disney prove your points.

06/19/14 @ 11:07
Comment from: stephenjuge [Member]  
Stephen Juge

Thanks for the perceptive insights. My years of consumer products trademark and copyright licensing legal work at Disney prove your points in that context also.

06/19/14 @ 11:09
Comment from: admin [Member]  

As a non-lawyer, one question I would have is what is a common
amount (percentage of original licensing fees) to be granted in
the case of a royalty reduction to offset infringements made
by competitors ?

07/06/14 @ 16:02
Comment from: drllau [Visitor]
drllau

Litigation insurance is an option but they only cover small scale infringers. For larger firms, putting some teeth into the contractual enforcement, even against non-licensees who are not strictly infringing but may need freedom to operate is part of the cost of doing business.

10/30/14 @ 01:47
Comment from: Ross Vincenti [Visitor]
Ross Vincenti

Great article Larry. Litigation as you note is fraught with risks not to mention the costs. Very easy for the licensee to say "go get em", but the upside for the licensor is questionable.

01/13/16 @ 11:12

Hereinafter defined as "Celery"

October 21st, 2015
Hereinafter defined as "Celery"

One of the big differences between how most non-lawyers read a contract, and how most experienced transactional lawyers read a contract, has to do with the definitions.

In my experience, most non-lawyers take the definitions for granted.  They assume that they intuitively know what defined terms mean based on everyday usage of those terms.  So they plunge right into the agreement's operative sections without spending any real time on the definitions.

Most experienced transaction attorneys, however, know that the defined terms are often "where it's at" in understanding an agreement, and that they need to parse and to fully understand the definition structure before going to the operative provisions.  And the more complicated an agreement is, the more important this exercise becomes.

 Here's a few thoughts about definitions and their usage in an agreement:

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When an NDA Just Isn't Good Enough

September 9th, 2015
When an NDA Just Isn't Good Enough

In a previous post ("When an NDA isn't Just and NDA"), I said that all of us often become jaded about Non-Disclosure Agreements (commonly referred to as "NDAs" in high-tech companies but "CDAs" in pharma/biotech to distinguish them from the other NDAs -- New Drug Applications).  We see so many of these things that we know by heart what all is in them -- definition of confidential information; duties of nondisclosure and nonuse; duty to mark; five or so exceptions to confidentiality; injunctive remedies; choice of law and choice of jurisdiction; and blah blah blah blah blah blah .....

So when we have a situation where our company is disclosing confidential information to a third party (could be a supplier, customer, potential licensee, development partner or whoever), we quickly put in place a "standard" NDA and then proceed with the disclosure without giving the matter any further thought.  That's probably OK for the run-of-the-mill confidential information -- if it did get disclosed, it could be a problem, but not a break-the-company problem.

But what if we're disclosing the "Crown Jewels" -- the technology on which our whole business is based?  The classic case, of course, is software source code.  But in other companies, it might be things like formulations, compositions, biological material, process parameters, or anything else that, if it got posted on the internet, could completely compromise the company or its technology. 

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