risk management and compliance overview michael brodowski, ph.d. partner (intellectual property)...
TRANSCRIPT
Risk Management and Compliance Overview
Michael Brodowski, Ph.D. Partner (Intellectual Property)John Edwards Partner (Insurance)Mark Pomfret Partner (Employment)Thomas Turano Partner (Intellectual Property)
Today’s Agenda
Introduction IP Risk Considerations Employment Risk Considerations Insurance Risk Considerations
RISK
RISK - The quantifiable likelihood of loss or less-than-expected returns.
May be thought of in terms of expected value. Everyone is concerned about risk but risk is
frequently subjective. As reported in the Economist, some 1500 additional
people were killed in automobile accidents following September 11th, when more people chose to drive rather than fly.
RISK as a Business Condition
Sufficiently economically developed societies legislate to reduce societal risk.
Failure to meet these legislative requirements may result in either civil or criminal liability.
Today we will talk about three areas of risk and discuss ways to reduce risk in those areas.
Intellectual Property-Related Risk Management
Two areas of concern Your Company’s Intellectual Property Other’s Intellectual Property
Risk Management – Your Company’s IP
Ownership – Do you own what you think you own? Divulgation of IP – Did you lose rights by divulging
your IP? Transactional Considerations – Are you in breach of
your agreements? What is the worst that can happen?
Trade Secrets – Are they really secret and did you do all you should to protect the secrets?
Risk Management – Your Company’s IP
Ownership – Patents, Trademarks & Copyrights Employee Agreements – Do you have them? Explicit Assignment of Rights – Do you have
executed assignments? Consultants/Works for Hire – Are there agreements
in place? Do you explicitly recite nothing going either way?
Government Rights in Inventions – Was there government money involved in the development? Did you take all the steps necessary to secure rights?
Risk Management – Your Company’s IP
Divulgation of IP Divulgation of Invention – May cause a loss of patent
rights by publication or offering for sale Grace Period in United States – 1 year to file Loss of Non-U.S. Rights – Actual publication causes loss of
rights
Loss of Trade Secret Status – It’s not a trade secret once it is published
Patent Foreign Filing Licenses – May be required if the invention takes place in another country
Risk Management – Your Company’s IP
Transactional Considerations Compliance with License/Agreement Provisions
Frequent source of problems in investments and mergers
Proper Use of Open Source Code Open Source Code License Types – Viral and Benign Still must comply with license terms even if benign
Transferability Assignability of patent license rights needs to be in writing
Due Diligence Representations and Warranties Who owns the RISK?
Risk Management – Your Company’s IP
Trade Secrets Trade Secret Protection vs. Patent Rights – Can’t
have it both ways Maintaining IP as a Trade Secret
Policy and Procedures Must treat it as if it were a trade secret
Need-to-know basis
Risk Management – Other’s IP
Patent, Trademark & Copyright Clearance Monitoring of Other’s Patenting Activity Monitoring Significant IP Court Decisions and
Impact on Portfolio Defensive Portfolio Considerations
Risk Management – Other’s IP
Patents Clearance of Product/Service – “freedom-to-operate”
Attempt to ensure your product does not infringe before commercial release
Patent Opinions Relating to Infringement and Validity Formal reasoned opinions regarding non-infringement by
your product and/or invalidity of the relevant patent
Patent Reexamination/Non-U.S. Opposition Practice Attempt to invalidate a patent in a patent office instead of
litigation
Risk Management – Other’s IP
Trademarks Clearance of Proposed Trademark
Besides the issue of infringement, why advance another party’s mark?
Common Law vs. Registered Trademark Trademark rights by use vs. State, Federal or treaty
registration
Oppositions/Cancellation Proceedings To remove or limit a trademark held by another party
Risk Management – Other’s IP
Copyrights Registration NOT Required
Fair use vs. infringement
Registration vs. Non-Registration Statutory damages Right of U.S. entity to sue in the U.S. affected
Risk Management – Other’s IP
Monitoring of Other’s Patenting Activity Understand Patent Landscape, Keep Updated
Knowledge is Power Finding out about a problem early may permit a design-
around May permit fencing in of the patent
Patents, Patent Publications, Scientific Journals Downside – If not willing to follow through on
information, potential exposure to willfulness, treble damages and attorney fees
Risk Management – Other’s IP
Monitoring Significant IP Court Decisions and Impact on Portfolio Revisit portfolio analysis in view of changing legal
standards For example, has Supreme Court decision in KSR
rendered patents more susceptible to an obviousness invalidity finding?
Consider not only impact on other’s IP but Company’s IP too
Risk Management – Other’s IP
Defensive Portfolio Considerations Breadth of portfolio provides potential negotiating
leverage in dispute Need to evaluate leverage based on current legal
standards, e.g., KSR decision
Protection of IP Through Employment
Non-Disclosure Agreement Invention Agreement Non-Competition Agreement
– Legitimate Business Interest
– Reasonable in Terms of Content, Duration and Geographic Scope
Non-Solicitation Agreement
– Employees
– Customers
Practical Considerations (1)
Provide for favorable choice of law and/or consent to jurisdiction
Consider requiring former employees to disclose all employment/consulting relationships undertaken during restricted period
Get agreements signed at the outset of employment
Keep agreements in file, under lock & key Give copies to employee upon departure Remind employee of obligations
Practical Considerations (2)
Non-Disclosure Agreement
– Treat confidential information as confidential
– Secure the information
– Don’t let anyone see your IP without signing an NDA
– Include remedies that will produce real deterrence
– Ensure survivability language
Practical Considerations (3)
Non-Competition Agreement
– Don’t ask everyone to sign the non-compete
– Get a new non-compete if duties or nature of business change
– Focus on what you really need
– Consider paying for the non-compete
– California issues
– Weigh deterrent effect on attracting talent Always have a successors clause
Employee Classification Risk Avoidance
Introduction Exempt v. Non-Exempt Salary and Duties Tests Employer Recordkeeping Employee v. Independent Contractor
Employee Classification Risk Avoidance (2)
Proactive Practical Steps
– Audit
– Address Question and Complaint Through Hotline
– Establish Investigation Process
– Prepare and Abide by OT Policies
– Develop Payroll Integrity Policies
Wage Payment Risk Avoidance
Timing Payroll Information Vacation Policies Meal/Rest/Holidays Reporting Pay
Dangerous Documents Risk Avoidance (1)
Applications Offer Letters Equity Agreements Job Descriptions Personnel Records and File Retention Handbooks Electronic Communication Policies Restrictive Covenant Agreements
Dangerous Documents Risk Avoidance (2)
Performance Appraisals Up To Date– Supports Decision-Making– Workforce Planning
Retention of Key Performers– Inducements to Remain– Defined Role in Reorganization
Insurance For IP Risks
Comprehensive/Liability IP Defense IP Defense and Indemnity IP Infringement Abatement
Comprehensive/Liability & D&O
Not a Primary Source of IP Coverage Often Contain Exclusions Purporting to Bar
Coverage for Copyright, Patent and Trademark Claims
But IP Litigation Often Accompanied by Claims of Trade Secret, Misappropriation and Other Business Torts which Might be Covered
In These Policies, Pay Attention to and Avoid Language Regarding Allocation of Defense Costs
IP Defense and IP Defense and Indemnity
Protection for Claims Made Against You IP Defense – Costs of Defense Only
IP Defense and Indemnity
Costs of Defense and any Resulting Settlement – Judgment (Past royalties, Past Profits, Interest, Taxed Costs and Fees)
Claims – Made Claims First Made During Policy Period Claims First Made and Reported During Policy Period
Defense Costs Erode Limits Defense Settlement and Judgment/Cost Participation (5%-
25%)
IP Infringement Abatement
Indemnifies for Costs of Prosecuting a Patent Infringement Action
Must Claim Infringement and Request Authority to Commence Litigation
Subject to Deductibles, Participating Percentages and Limits Once Authorized, Litigation Expenses will be Advanced Periodically
Underwriting Process is Considerable and Can Cost Money Whether or Not Coverage is Offered
Patents Often must be Explicitly Identified
IP Infringement Abatement (2)
Timing of Infringing Activity is Critical Retroactive Dates Pre-Policy Awareness of Infringement or
Foreseeability of Infringement Economic Benefit/Presumed Economic Benefit
Carefully Consider What Constitutes Economic Benefit/Presumed Economic Benefit
Carefully Consider Whether Paybacks Will Exceed Economic Benefit
Comprehensive General Liability and D&O
Not a Primary Source of Employment Practices Liability (“EPL”) Coverage
Exclusions Purport to Bar Coverage for EPL Claims EPL Claims Often are Mixed with Other Claims, such
as Defamation Pay Attention to and Avoid Allocation of Defense
Cost Provisions and Scope of EPL Exclusion
Employment Practices Liability Insurance
The Principle Source of EPL Coverage (Wrongful Discipline, Discrimination, Retaliation, Breach of Contract, Other Employment Law Violations)
Claims – Made Claims First Made During Policy Period Claims First Made and Reported During Policy Period
Defense Costs Erode Limits Avoid Panel Counsel Obligations Carefully Review Defense Consent Clauses
Employment Practices Liability Insurance
Avoid or Revise Hammer Clauses Pay Close Attention to Potential Coverage Gaps
Analyze Interplay Between Claims – Made Language and Retroactive Dates Prior or Pending Litigation Exclusions