Intellectual Property Issues in High-Tech Business CLEO 2002 – Long Beach, CA May 21, 2002

Copyright 2002 Joseph E. Gortych. All rights reserved

Joseph E. Gortych Schwegman, Lundberg, Woessner & Kluth, P.A.

Minneapolis, MN(www.slwk.com)

IP Basics

An idea or intellectual creation that is granted the same characteristics as physical property: Exclusive ownership Sell, lease, buy

Where does IP come from? Adam Smith, “The Wealth of

Nations” Innovation begins with the workers

closest to the things being worked on “A great part of the machines made use

of in those manufactures in which labor is subdivided, were originally the inventions of common workmen…”

United States IP Basis US Constitution

Article I, section 8:“Congress shall have power … to

promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

Main IP Categories

Patents Trade secrets Copyright Trademarks

Patents U.S. Constitution: one sentence

35 USC (United States Code) Hundreds of sections

37 CFR (Code of Federal Regulations) Many hundreds of sections

Manual of Patent Examination Procedures

Not the law, but law-based procedures Thousands of sections

What a patent is FOR To prevent others from using the

invention claimed in the patent “using”= making, using, selling,

importing “claimed” = staked out legal turf

What a patent IS A legal document Presumed valid Property (like real estate) A product Opportunity Roadblock

What a patent is NOT A guarantee A license to coin money A technical paper A blue print The finish line Free Fun to read

Patent Requirements

Invention must be: New Useful Statutory subject matter Non-obvious

Statutory Subject Matter: Utility: “any new and useful

process, machine, manufacture, or composition of matter, or any new and useful improvement thereof…”

Design: new, original, ornamental design for an article of manufacture

Plant: distinct new variety

“That’s Obvious!” “Obvious”

Lay definition: “readily apparent” Entirely subjective

Obviousness – Legal def’n One of ordinary skill in the art Combined references or reference

+ General knowledge References must suggest combination

Must be likelihood of success No undue experimentation

Non-Obviousness Secondary Considerations

Long-felt need Commercial success Failure of others Copying by others

Obviousness

Legaldef’n

Lay def’n

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IP in High-Tech High-tech industries are brain-

power (“intellectual”) industries

High tech industries must protect their brain-power-derived “property,” or it will be “taken”

Changing Nature of IP Today, patents are PRODUCTS

Produced (mass-produced) Bought Sold (assigned) Leased (licensed)

Revenue Generation

Texas Instruments: 50% of its profits

$1 billion deal w/Hyundai IBM: $1 billion/yr

Most patents issued/yr Stanford University

$60 million in royalties in 1998

Main High-Tech IP Issues Patenting IP Management IP Strategy IP-Related Agreements Commercial Use of Inventions Product / Trademark Clearances Corporate IP Education

Patenting

Patenting Issues Which inventions should be

patented? What type of application to file? How much will it cost? Should I seek foreign patents?

Options re: Inventions Protect as trade secret Publicly disclose (e.g., publish) Patent Use it and do nothing Don’t use it and do nothing

Invention Notebooks

Why keep an invention notebook? U.S. System is “first to invent” May be able to “swear behind” prior

art to show “constructive reduction to practice”

Proof of inventorship Interference proceedings

Invention Notebooks

Suggested requirements Bound pages Entries in ink Inventor: sign and date Witnesses

Read and understood Sign and date

Invention Notebooks Entries should be

In sufficient detail to show conception of invention

Readable, organized In INK Free of erasures (cross-out and initial) Not stored in a computer No unfortunate legal admissions

Invention Disclosures Key to documenting inventions Engineers/scientist must be taught

how to quickly prepare and submit Should be able to write up in 1 HOUR Disclosure form should not elicit

potentially damaging information E.g., the kind that can be used in court

against the company

Patent Applications Two basic types:

Provisional Non-provisional

Patent Applications Provisional application

Utility only (apparatus, methods…) Inexpensive ($150/$75) Informal Must convert to non-provisional < 1yr. No claims needed Not examined Secures filing date Must satisfy enablement requirement

Provisional Application When to use?

Unsure of need for patent Lack of funds Tight deadline Need to test market Need to establish earliest possible

filing date Impress Wall Street

What does a patent cost? Legal fees for application: $5-$20K Legal fees for processing: $500 USPTO fees: $2K filing, $2K issue Office actions: $2-$4K * (n) Maintenance fees: 3.3K total

@ 3.5, 7.5 and 11.5 yrs

What does a patent cost? Bottom line: $13-$30K/patent

Budget $20K per patent More for software patents

It is an ongoing expense Doesn’t include inventor time Foreign patents: Much more

expensive

Patent Validity / Enforceability Conventional wisdom:

1/3 of all patents invalid / unenforceable

Prior art obviousness On-sale bar Public use/Commercial advantage Lack of enablement / “written

description”

Trade Secrets

Trade Secrets Requirements

Any subject matter Inventions, recipes, processes, info,…

Commercial value or advantage Maintained secret w/ “reasonable

efforts”

When to use Trade Secret Unpatentable subject matter Patent too costly Not easily reversed engineered Fast-moving technology (< 3 yrs) Slow-moving technology (> 20yrs)

Duration: as long as it is kept secret

Trade Secret Protection “Just Do It” : no registration, govt.

fees,… Use “reasonable efforts”

Maintain TS register Mark TS info as TS/confidential Restrict employee access Confidential disclosure to 3rd parties Employee agreements, exit interviews

Copyright

U.S. Constitution: Art. 1, sec. 8, cl. 8 “original works of

authorship…”

Copyright Protection available where work is:

Original Fixed in a tangible medium of

expression Authorship is established

Key: only form of expression protectable

Copyright A copyright arises upon creation of

work Marking the work with © Federal registration

Needed to bring a copyright lawsuit Duration

Author’s life + 50 years Works for hire: 75 years

Copyright Areas of interest for high-tech

company Computer programs Manuals Advertisements Promotional materials Trade show/customer presentations Web page

Trademarks Definition: word/symbol

identifying: Source of goods = Trademark Source of services = Service mark

Trademarks Spectrum of distinctiveness

Generic terms (e.g., “paper”) Descriptive terms (e.g., “cleaner”) Suggestive terms (e.g., “renuzit”) Fanciful or arbitrary terms (e.g.,

“Kodak”) Level of protection increases from

generic to fanciful/arbitrary

Trademarks Usage = “common law” [ ]TM, [ ]SM

State Registration [ ]TM, [ ]SM

Federal Registration [ ]®

Trademarks Duration

As long as mark is used and is distinctive

E.g.: Coke, Arm and Hammer, … Infringement

“Confusingly similar” Same/similar channels of trade

IP Agreements

Types of Agreements Employee Assignment of IP Confidentiality

CDA, NDA Licensing

Patents Technology

Employee Assignment of IP Agreement assigns rights to all

inventions, ideas, etc. to company Should be standard procedure for

HR Dept.

Employee Assignment of IP If no IP assignment agreement,

who owns the IP the employee develops? Answer: the Employee!

Company has a “shop right,” I.e, non-exclusive, royalty-free right to use invention

Employee can license to others, including competitors of company

Confidentiality Agreements

Contractual framework for exchanging confidential information

Enables discussion in anticipation of a transaction

Prevents public disclosure

Confidentiality Agreements Include:

Definition of “Information” Information to exclude Permitted use of the Information Permitted disclosees Conditions, procedures for disclosure Efforts for maintaining confidentiality Term of agreement

Confidentiality Agreements “Information” to exclude: that

which: Already is/becomes public Already is in RP’s* possession Is disclosed to RP by third party RP develops independently Is required by law to be disclosed

*RP = Receiving Party

Confidentiality Agreements Key issues

People involved in the exchange of information must know the terms of the agreement!

Stick to the terms of the agreement

License Agreements An agreement that allows a party

to make, use, or sell a product based on an invention or technology owned by another, in exchange for a fee Not an assignment, which conveys

ownership

Licensing Agreements

Patent Covers specific patents

Technology Covers select information

Trade secrets Know how

License Agreements

Cost to obtain $2K - $7K for a good agreement dealing with

fairly complex technology Not a good idea to negotiate, draft pro

se Sophisticated companies know all the

licensing tricks Subtle points can come back to haunt if not

careful in negotiating agreement

Patent Licensing No confidentiality clause needed Watch for patent misuse (antitrust)

Tying to non-licensed product purchases

Paying $$ after patent expires Define product being sold Know half-life of patented

technology

Patent Licensing Royalty base factors

Definitions are KEY Gross or net selling price

Low for widgets: 0.5%-2% High for hot products: 7%-10% Typical: 2%-5% per units “sold”

If licensor: sold = $ invoiced If licensee: sold = $ collected

Technology Licensing Key sections

Definition of technology involved Deliverables Confidentiality Payment terms Term of agreement Exclusivity

Licensing Key Points If joint development

Specify rights to inventions, patents, info.

Keep good records Disagreements often arise between

companies over ownership of jointly developed IP

Licensing Key Points If sharing information with others

Do it in WRITING! Get commitments re: # sales, min.

royalty,… Keep good records

Licensing Key Points Licenses are crafted; not just

“forms” License is designed to protect

party/parties if deal goes south Want to avoid litigation over terms Know your bargaining position

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