IP Law Bulletin

In Golan v. Holder (No. 10-545, January 18, 2012), the U.S. Supreme Court upheld § 514 of the Uruguay Round Agreements Act (URAA) which restored copyright protection to certain works of foreign authors that had previously been in the public domain. Users of foreign copyrighted works first published abroad between 1923 and 1989 will need to continue to assess their liability and decide whether they need to attempt to locate the owners of the restored copyrights.

The recording industry is already reeling from the effects of the Internet -- illegal downloading of new releases has contributed mightily to a drastic reduction in industry sales in these early years of the Third Millennium.

Not every copyright issue nowadays arises from the Internet.

Here’s one that arises from venerable needle and thread.

Haute couture is tired of knock-offs and is trying to “put its Manolo down.”

New York Senator Charles Schumer - - what, you were expecting Nebraska’s Ben Nelson to take the lead on this? - - is sponsoring the Innovative Design Protection and Piracy Prevention Act, intended to provide three years of copyright protection for fashion designs. This short term is itself interesting: first, if you write a non-pseudonymous book, your copyright is good for life plus 70 years; second, I’m showing my age, but didn’t the “chemise” and Rudi Gernreich’s topless bathing suit each come and go in about four months? Compared with life plus 70 years, three years seems absurdly short; compared with the labile nature of fashion (which mutates faster than a clever bacterium), it seems absurdly long.

Nevertheless, no matter how ardently you may long for the next Bonfire of the Vanities, it’s hard not to sympathize somewhat with a hardworking fashion designer. Personally, I’m not sure I see the point of what he or she does; on the other hand, I freely confess I could never design a dress or a mule myself.

There could be sticky wickets. The proposed law would protect original designers only against “substantially identical” copies. The standard for copyright infringement otherwise is “substantially similar.” “Identical” will be a higher bar for a plaintiff designer to clear. But let’s face it: the purpose of the proposed legislation is to deter knocking-off in the first place, rather than to provide an effective remedy for completed copying. Who’s going to order up 10,000 dresses from a Chinese tailor based on his or her own judgment call that he or she is being only “similar” and on no account “identical.”

And how will evidence be introduced?

Will runways be installed in courtrooms for models to descend wearing the “accusing” and the “accused” works?

Will aging designers whose stars are fading find second careers as expert witnesses?

Those farther down the fashion food chain are supposed to be protected from liability: buying or selling a knock-off inadvertently is not actionable. Will a phrase like “friends don’t let friends buy knock-offs on purpose” pass into the language? Amateur seamstresses (of either gender) may copy protected designs for personal use. (TiVo for clothes?) But what happens if you and your son are the same size, and he asks one night to borrow your “Tommy Hilfiger”?

I know not what course others may take, but as for me, you’ll find me at my local Goodwill Industries second-hand clothes shop.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.

Intellectual property rights broadly encompass patents, trade secrets, know-how, proprietary data, registered designs, copyrights and trademarks, among other things. Most often, such rights originate with a commercial entity and the owner retains the rights throughout their lifetimes as legal leverage against competitors.

However, there are times when an owner of intellectual property (IP) may want to transfer some or all of its IP but an outright sale is not an attractive option. For example, the owner may be a non-practicing entity (NPE) – a term that encompasses (1) individual inventors who, for one reason or another, may not be able to commercialize their IP, (2) universities and other research institutions that seek to transfer technology as part of their mission, (3) commercial entities whose business plans change and find themselves with surplus IP or (4) so-called “trolls” that accumulate patents and other IP as middle-men and then seek to license the rights to the highest bidders.

Even when the owner practices the IP, there can be advantages to sharing IP with others, e.g., as part of a settlement of litigation or a cross-license that may resolve a stalemate where two or more parties may have mutually blocking IP.

Licensing, as opposed to complete transfer or assignment of IP, provides the owner with several advantages. By retaining ownership, the seller (licensor) retains title and typically has an easier time reversing the transfer of rights if the buyer (licensee) doesn’t live up to its end of the bargain. In many instances, the party seeking to acquire the IP rights does not have sufficient financial resources to pay the full value upfront – or may perceive the IP as highly speculative but be willing to pay more if the technology can be successfully commercialized. A well-drafted license agreement therefore not only gives the licensor an opportunity to more readily terminate the agreement if future payments are not made but also allows the parties to “share in the upside.” License agreements can also delineate the responsibilities of each party for maintaining or enforcing the patent rights.

Thus, licensing allows greater flexibility and reduces the risk that the IP will be over or undervalued. If the desired revenue strategy is a stream of income, i.e., royalties or contingent payments, then licensing is often the most appropriate choice.

What are the components of a license?

A typical patent license will specify the rights granted, the term of the grant, the consideration in exchange for the grant, records and reporting, representations and warranties regarding the patent, how infringement issues will be handled, tort liability for products or services covered by the license, and other factors.

Grant clause

The grant clause sets forth what patent rights are being conveyed. The grant can be exclusive (i.e., only the licensee has the right to exploit the patent rights) or non-exclusive (i.e., the licensor can grant similar rights to other parties). The grant can be limited by geography (such as U.S., worldwide), and field of use (such as for cellphones but not laptops).

Improvements

A patent license can also define each party’s rights to improvements of the patented technology. Depending on the negotiation, improvements might be solely owned by the licensor, licensee, or jointly owned by both. The party with more bargaining power often insists on controlling the rights to improvements.

Consideration

The payment of consideration can be structured in many ways. The license agreement typically requires a licensee to pay an upfront license fee as well as ongoing royalties based on a percentage of sales or on a per-unit basis. The license can also require minimum annual royalties or minimum annual product sales to be sure the licensee is diligently marketing the products or services covered in the patent. The license agreement can also require that the licensee provide reports to the licensor, e.g., of sales or revenue, to ensure accurate royalty payments.

Milestone payments are a particularly useful way to deal with the speculative nature of IP rights and ensure that the licensor shares in the success of commercialization. For example, milestone payments upon capitalization of the licensee or FDA approval of a product that embodies the IP are common provisions.

Shifting the financial responsibility for the ongoing pursuit of patent rights or maintenance of such rights is another form of consideration that a licensor may seek as part of the agreement.

Infringement

A patent license can also control each party’s responsibilities for enforcing the patent rights along with apportioning liability if the licensee is sued for infringement. Generally, each party wants to have control of any infringement litigation but also wants to avoid being required to defend or indemnify the other party.

Depending on the terms of the agreement, an exclusive licensee can have the right to sue for infringement. The license agreement can determine how the costs of litigation are apportioned between licensor and licensee. For example, the license can provide a licensee the right to withhold all or part of royalties to offset costs of litigation. The license agreement can also define how the proceeds of successful litigation are divided. Damages can first be allocated to cover litigation costs and then divided between the parties according to predetermined percentages, for example.

Due diligence

License agreements can require due diligence by the licensee to develop and/or commercialize the IP. Such terms are typical in university license agreements to ensure that the IP is used and not just put on the shelf. For example, the licensee can be required to use reasonable efforts to develop and commercialize products covered by the license. License agreements will also typically include milestones that must be met in order for the licensee to maintain the license. The license can also require submission of periodic reports regarding the licensee's activities related to the development and testing of the products covered by the licensed IP.

Indemnities and product liability

Licensors and licensees can provide various indemnifications to each other in a license agreement. The license can include representations and warranties concerning the IP and can require indemnification against any inaccuracy or loss arising from those representations and warranties. For example, the license can include representations by the licensor that they own clear title to the IP, that the IP is valid and enforceable, and/or that none of the products produced under the IP are known to infringe other IP held by third parties. In turn, the licensor can require the licensee’s compliance with applicable laws, such as export controls, tax codes, etc.

The license agreement can also include indemnification terms ensuring that liability for defective products produced by the licensee does not extend to the licensor, who likely has limited if any control over the actions of the licensee. Alternatively or in addition, the licensor can require that the licensee carry sufficient liability insurance.

Dispute resolution

License agreements can require the parties to provide notice of any breach of the agreement and can specify periods during which any such breach can be cured. The license agreement can also be drafted so as to provide in advance for arbitration or mediation of disputes. For example, the agreement can require binding arbitration rather than litigation.

Transferability

License agreements can provide the licensee a right to sublicense or assign the IP. The licensor can require approval of any such sublicense or assignment. For example, the licensor may wish to prevent a competitor from obtaining license to the IP. However, it can be important for the licensee to have the ability to assign the license without restriction as part of the transfer of the business.

Termination

License agreements can include negotiated provisions that establish how and for what reasons the agreement can be terminated. For example, the agreement can specifically provide for termination upon breach of certain terms of the agreement. Note, however, that clauses that provide for automatic termination of the license agreement if one or the other party seeks or is placed under bankruptcy protection may not be enforceable. On the other hand, clauses that provide for termination for failure to pay royalties may be enforceable regardless of bankruptcy.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered advertising.

Imagine…

You’ve traveled to the ends of the Earth to present your bid to the government ministers of a foreign potentate. The machinery you propose to offer in response to His Majesty’s request-for-proposal is superior to the products of your rival bidders.

As you wait in the foyer of the palace with your competitors, you observe, to your utter shock and amazement that one of your competitors has several key slides that are, to put it bluntly, exact copies of your own slides -- photographs of the machine you manufacture, charts and diagrams explaining its use and processes, etc. All that has been changed is the company name on the slides.

"What to do? Let’s remember first that notions of copyright, routed in the West by The Digital Millennium, are more honored in the breach than the observance in many places in the East."

So you’re not going to remonstrate with His Majesty or his ministers, and, besides, relief can be very satisfying in the form of an injunction issued by a U.S. district court.

You’re going to win the bid on the merits and then hurry home to sue your infringing competitor.

Except you can’t. You never registered your copyright in your marketing and sales materials. Who, you thought, would ever steal them? And a registered copyright is a prerequisite to bringing an action for copyright infringement in a U.S. district court (Federal courts have exclusive (no state courts) jurisdiction of copyright disputes).

When you create something (called a “work”), your copyright in the work arises automatically at the instant of creation. But this instant copyright is like a dead mobile phone without a charger. Great in theory but absolutely useless without its “charger,” i.e., a U.S. Copyright Office certificate of registration.

Well, you say, I’ll proceed to register my copyright. Good idea: fill out your application, pay the $35 (online) filing fee, and wait for the Copyright Office to get back to you (4-5 months).

UNLESS, and now finally to the point: you ask the Copyright Office to accord your application “Special Handling.” The fee is an additional $760, and with Special Handling, you can be in court, as was the accuser in this case, in five business days.

The story you have just read is based on a true story. The infringer in this case was hauled before a U.S district court. It is now subject to an injunction prohibiting infringement.

Appendix
You’re thinking, can’t I just put notice of copyright on my work and be protected? The answer is “no.” The familiar copyright notice is an historical artifact beloved of lawyers. But yes, as a practical matter, it will deter people who would otherwise be “innocent” infringers and it may help you make a case for “willful” infringement (and higher statutory damages), but in and of itself, it is neither necessary nor sufficient to protect your copyright.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.

In July of 1994, Dr. Lister registered with the United States Copyright Office a manuscript describing a method of playing golf in which players use a golf tee on any shot that is not in a designated hazard area or on a green. Later learning that his copyright registration would not protect any potential invention, he filed a patent application directed to his method in August of 1996.

Following several rounds of rejections and amendments, including two appeals to the Board of Patent Appeals and Interferences, the Federal Circuit decided whether Dr. Lister’s registration of his manuscript with the U.S. Copyright Office qualified as prior art under 35 U.S.C. § 102(b) against his own patent application. The Board previously overturned a rejection under 35 U.S.C. § 102(a) that relied on Lister’s manuscript because it was held that an inventor’s own manuscript cannot be prior art under 35 U.S.C. § 102(a). ¹

The parties did not dispute the existence or the date of Dr. Lister’s copyright registration for his manuscript. The parties also did not dispute that the manuscript disclosed the claimed invention. The parties did dispute whether the manuscript was publicly accessible.

Generally, a publication is considered publicly accessible if it is available to persons interested and having ordinary skill. A publication does not need to have actually been accessed to be considered publicly accessible. Further, convenience is not a factor in determining public accessibility. While cases involving disclosures stored in libraries have held that a reference must be cataloged, indexed, and shelved in a meaningful way to provide public accessibility, cataloging and indexing is not a requirement of public accessibility.

Dr. Lister’s manuscript was available to the public both through the U.S. Copyright Office, and through private databases provided by Westlaw and Dialog. In the present case, it was determined that the access provided by the U.S. Copyright Office was not sufficient to be considered publicly accessible because it did not allow for searching in a meaningful way. At the time, searching of U.S. copyright registrations could only be performed by searching the last name of an author or the first word of a title. The Westlaw and Dialog databases, on the other hand, were considered publicly accessible because they allowed for keyword searches of the title (but not the full text) that would have allowed an interested person having ordinary skill to locate Dr. Lister’s manuscript.

Although the Westlaw and Dialog databases were considered publicly accessible, the rejection could not be maintained because the examiner was unable to establish when Dr. Lister’s manuscript was made available for search by either Westlaw or Dialog. Further, the evidence did not contain any information related to the general procedures practiced by Westlaw and Dialog for cataloging copyright registrations. In view of prior “thesis” cases that relied on general procedures to prove a likely publication date, it is likely that such information would have been sufficient to prove a likely date by which Dr. Lister’s manuscript was made available for search by either Westlaw or Dialog.

Comparing the situation to one in which an examiner finds a reference on the Internet but is unable to prove when the reference first appeared on the Internet, the Federal Circuit determined that Dr. Lister’s reference could not be relied upon to reject Dr. Lister’s patent application under 35 U.S.C. § 102(b) without first establishing that it was publicly accessible on either Westlaw or Dialog more than a year prior to the filing date of Dr. Lister’s patent application. The Board’s decision was thus vacated and remand ordered.

Despite the favorable decision for Dr. Lister in this particular aspect of his prosecution, we do not believe this case should change the behavior of those filing patent applications. Potential patentees should remain cautious with any publications they make that could include disclosures of potential inventions. As our readers know, the public disclosure of an invention begins the one year window in which patent applicants have to file a patent application in the United States and terminates the opportunity patent applicants have to file a patent application in most every other country. Pinning one’s hopes to some other organization’s publication policies is generally not prudent. Thus, applicants benefit from filing an application before, or at the very least within one year of, any public disclosure that could possibly be construed as disclosing aspects of a potential invention.

 ¹ An inventor cannot disclose his or her own invention before he or she invents it.  Thus, 35 U.S.C. § 102(a) requires disclosure by another  that would provide evidence that a patent applicant is not the first to invent.

This advisory was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617-439-2000.