IP Law Bulletin

1. Why do entrepreneurs need to protect their technical and scientific innovations?

If you start a grocery store, you probably are not selling a technical or scientific innovation, so your goal is to execute better than the grocery store down the street. You likely will compete on price, quality, and service. Businesses that develop technical and scientific innovations, such as Tesla, Apple, and Novartis, as well as startups, spend enormous sums of time and capital developing the next big thing. These companies directly capitalize on that innovation. Ideally, nobody other than the entrepreneur who developed that innovation can commercialize it, giving the entrepreneur the exclusive right to own and potentially build the protected market/product. Think of it another way—why spend all this time and effort to move the market forward just to let a competitor use it…and reap the benefits of your hard work!

Indeed, parties looking to acquire an innovative company (or analysts for an IPO) take a hard look at whether the technical and scientific innovation of that company is adequately protected. Unfortunately, poorly protected innovation can kill enterprise value and even kill a deal. Venture capitalists, private equity, angel investors, and others will make similar analyses because they strive for a positive return on their investments through an acquisition or IPO.

Updated August 3, 2020

The coronavirus seems to be exerting itself upon all phases of life, and your intellectual property is not immune.  While you, your families, your friends, and your colleagues are getting comfortable with the new normal of social-distancing, intellectual property (IP) offices worldwide have also been grappling with how to handle the impact of coronavirus (also referred to as COVID-19).  Responses from IP offices around the world are varied and evolving, as the landscape changes in each individual country and on a global scale.  For example, some offices, such as the European Patent Office (EPO), India, and the United Kingdom, have automatically extended deadlines, while others have refrained from any extensions but permit, under certain circumstances, remedial action for rights lost due to effects of the coronavirus.  While the U.S. Patent and Trademark Office (USPTO) has not provided for automatic extensions, certain deadlines associated with patent and trademark filings and fees may be extended for small and micro entities provided the delay in filing or payment was due to the COVID-19 outbreak.  Additionally, the USPTO will waive the petition fee to revive certain lost rights resulting from a failure to take action due to effects of the coronavirus. 

Building upon our recent note concerning general international intellectual property protection considerations, this article describes how foreign IP expansion efforts might play out in a case study format. The company, a hair restoration lotion manufacturer named WonderFlo Tonight, is fictional, but the fact pattern is derived from real world situations encountered by businesses as they seek to establish and protect their intellectual property in foreign markets.

In a case that could have a significant impact on the interpretation and drafting of patent licensing agreements, a patent licensee filed an appeal for an en banc proceeding at the Federal Circuit to challenge the court’s finding that a forum selection clause governing disputes that “arise out of and under [the Master License Agreement]” and does not explicitly allow proceedings at the Patent Trial and Appeal Board (PTAB) prevents proceedings from being initiated at the PTAB. If this holding remains intact, many licenses having forum selection clauses that are silent about PTAB proceedings may be able to be successfully relied upon to prevent PTAB proceedings.

Key Takeaway: Key business considerations relevant for choosing between patents and trade secrets include:  (1) Need for transfer of IP rights; (2) Life cycle of the product or service; (3) Cost of IP protection; and (4) Other business considerations.

Foreign filing licenses do not typically require much attention in daily practice since the license is routinely applied for and granted as a matter of course in new application filings. However, in certain situations ignoring the license may cause severe damage. 35 U.S.C. § 184 states that a person shall not file or cause or authorize to be filed a patent application (among other things) in any foreign country unless six months have passed since the United States application was filed unless otherwise authorized by a license obtained from the Commissioner of Patents, i.e., unless a foreign filing license is received from the United States Patent and Trademark Office (USPTO). A purpose for this rule is that it allows the U.S. government to protect national security by approving or disapproving the export of sensitive technologies, such as technology associated with warfare, nuclear, or security-related measures.

Last week, the United States Court of Appeals for the Sixth Circuit issued a decision in the case of Cyber Solutions International LLC v. Pro Marketing Sales, Inc. Although the decision blazes no new legal territory, the facts of the case and rulings offer important lessons for both lenders and licensees.

The decision recounts the start up efforts of an emerging company focused on cybersecurity technology. As the company grew, it obtained a secured loan from a lender. In return for the loan, the company granted the lender a first position lien on all company assets including intellectual property. As is typical in any secured financing, the lien extended not just to property then owned by the company but also to property subsequently acquired by the company. Pursuant to the loan arrangement, the company agreed to standard provisions such as a restriction on its ability to sell its assets outside of the ordinary course of business without the permission of the lender.

Summary: In Kimble v. Marvel Enterprises, Inc. 576 U.S. __ (2015), the Supreme Court relied on stare decisis, declining to overrule its 1964 Brulotte v. Thys Co. decision and holding that a patent owner cannot charge royalties for the use of an invention after the patent expires. Justice Kagan’s June 22, 2015 opinion affirmed the appellate court’s decision and maintains the status quo for patent licensing practice. As before, licensors should steer clear of Brulotte’s ban on post expiration royalties. However, the parties can use other intellectual property that is likely to live well beyond an underlying patent (e.g., trademark, trade secret) and other financial tools (e.g., amortization, partnering) to reach a competitive, mutually beneficial, and enforceable license agreement that exists beyond the life of the underlying patent.