In one of my early posts in this blog, I wrote about due diligence practices for a situation where a buyer wants to investigate the effect of a potentially-concerning patent on a seller’s business.  In the post, I noted that sellers sometimes cite a practice of not reviewing any patents in order to avoid risking liability for willful patent infringement.  However, my view is that it’s usually preferable to know about a patent — and design around it or take a license — early in the stage of a product or company, rather than risk liability for infringement after the a new product achieves market success.

I wrote my first post before last year’s Federal Circuit opinion in In re Seagate Technology, LLC , where the court stated that mere knowledge of a patent is not sufficient to find liability for willful patent infringement, but instead a showing of “objective recklesness” is required.  To establish willful patent infringement under Seagate, the patent holder must show that the infringer acted “despite an objectively high likelihood” that its actions constituted patent infringement.

In the due diligence context, a buyer will want to know whether there is an objectively high likelihood that the seller is infringing a patent.  Sellers should be prepared to address significant issues of concern to buyers, and a seller’s response of “I don’t want to see the patent” may be harder to defend after Seagate.

A recent opinion issued by the Federal Circuit serves as a reminder that IP assignment clauses of employment agreements and employer IP policies must be carefully worded.  A vague obligation relating to future inventions may create questions about patent ownership if an inventor-employee leaves the company or otherwise becomes unavailable to sign patent assignment documents. 

In DDB Technologies, L.L.C. v. MLB Advanced Media, L.P., an inventor entered into an employment agreement that stated: Read the rest of this entry »

I recently ran across an IP due diligence issue that reminded me yet again of the importance of reviewing patent assignment documents and not simply relying on the USPTO’s assignment database.  In this situation, USPTO records indicated that the inventors assigned the patent to a corporate entity.  However, the assignment document actually stated that only certain claims of the patent were assigned to the corporation.

So what is the effect of such a document? Read the rest of this entry »

A technology purchaser, licensee or investor can obtain much less than expected if it fails to ask the right questions about patents. Essential questions to ask before entering into an IP transaction include:

Who is the owner?

A patent publication only identifies the owner at the time of first issue. Often, this is not the current owner. When a patent is assigned, the assignment is recorded with the U.S. Patent and Trademark Office.  Security interests, name changes, and other documents affecting title also may be recorded.  The buyer should obtain a complete chain of title from the original owner (which are the inventors, in the case of a patent).  The buyer also should check government records to ensure that the assignments were properly recorded.

Are the IP rights still in effect?

Most US utility patents have a term of 20 years from the effective filing date, so long as the patent owner pays maintenance fees at various time intervals.  If the owner failed to pay the fees, the IP rights may have lapsed.

Does the patent cover the relevant technology?

A patent includes a set of claims that define the patent’s coverage.  To infringe the patent, the infringer must practice all elements of at least one claim.  The patent also will include a background, detailed description and drawings.  The patent scope may not extend to this additional information.  When acquiring or licensing a patent, the buyer should review the claims to ensure that the patent covers the desired technology.

Will I infringe another patent by using this technology?

A patent grants a right to exclude others from making, using and selling an invention. However, a patent does not ensure a right to practice the invention, as the invention also may be covered by other patents.  The buyer may require the seller to warrant that it knows of no other necessary patents.  The buyer should also independently investigate whether other patent rights are required.

Are there relevant pending patent applications, and are they likely to result in patents?

A patent may not issue until several years after the filing date of an application, and patent rights have no effect unless and until a patent issues. When acquiring or licensing technology, the buyer should ask about pending patent applications and investigate the likelihood that the patent will issue.

Was the invention disclosed before a patent application was filed? In the U.S., a patent application must be filed within one year of the first offer for sale or public disclosure of an invention. If a patent application was not filed in that time period, the inventor waived patent rights. Most foreign countries are more stringent and require that an application be filed before any sale or public disclosure

(Adapted from an article originally published in TEQ Magazine.)

When performing due diligence, it often suprises me how often a company claims to have no intellectual property or other intangible assets.  However, even a company with no patents, registered trademarks or registered copyrights will have a significant amount of its value tied to intangible assets such as customer and supplier relationships, reputation, and other elements generally associated with goodwill.  In my last post, I wrote about preventive actions that a company can take to help manage adverse events that can damage a company’s goodwill.  In this post, I’ll discuss actions that a company can take after an adverse event — and hopefully after it took preventive actions — in order to guard against long-term harm to its brand. Read the rest of this entry »

The Federal Circuit recently issued two opinions addressing the question of “what is a patentable invention” in the context of software and business methods.  Although the opinions are not likely to cause a major change in current USPTO examination practice, they do affirm certain aspects of that practice.  The cases also will guide corporate IP managers and due diligence professionals who need to examine the likelihood that a software/business method invention is patentable — or whether an issued software/business method patent is likely to withstand a challenge in the future. Read the rest of this entry »

Today the IRS published a proposed rule that will add “patented transactions” to the categories of reportable transactions under the federal income tax regulations.  The proposed rule defines a “patented transaction” as “any transaction for which a taxpayer pays (directly or indirectly) a fee in any amount to a patent holder or the patent holder’s agent for the legal right to use a tax planning method that the taxpayer knows or has a reason to know is the subject of the patent.”  Patented transactions also include any “transaction for which a taxpayer (the patent holder or patent holder’s agent) has a right to payment for another person’s use of a tax planning method that is the subject of the patent.”   When the new rule is final, any person who pays or receives a fee for the right to use a patented tax planning method will be required to report the payment/receipt as a reportable transaction.  The proposed rule defines a “tax planning method” as “any plan, strategy, technique or structure designed to affect Federal income, estate, gift, generation skipping transfer, employment or excise taxes.” Although the number of issued patents covering tax planning methods is relatively small, the rules may be the IRS’ reaction to legislative action that seeks to ban tax patents altogether.  In fact, the patent reform bill passed by the House of Representatives on September 7 includes such a ban.

IP risk assessment often includes a review of whether a company risks liability — or even worse, a permanent injunction — based on infringement of a third party patent.  In the 2006 eBay, Inc. v. MercExchange LLC case, the U.S. Supreme Court effectively reduced the risk of a permanent injunction in patent cases by stating that a permanent injunction is not an automatic remedy.  Instead, the inquiry is fact-specific, and in the context of IP due diligence it may be difficult to assess the risk unless certain facts about the patent holder are known.

My colleagues Mike Renaud and Matt Kaplan at Pepper Hamilton recently published an analysis of the eBay case after CSIRO v. Buffalo Tech, Inc., a recent ruling from the Eastern District of Texas which highlights the fact that no “bright line” rule exists for determining when a permanent injunction is warranted.  To read the full article at the Pepper Hamilton website, click here.

In June 2007 the Free Software Foundation released version 3 of the GNU General Public License relating to open source software code.  Under version 3, distributors of open source software have the option to continue distribution under GPLv2 or changing distribution to GPLv3. 

When IP due diligence reveals that a software product is licensed using the GNU General Public License, the license version (GPLv2 or GPLv3) can be important.  For example, GPLv3 does not permit licensed open source code to be used as a “technological measure” for controlling access to a copyrighted work.  Thus, if the software product at issue includes technical features such as digital rights management (DRM) to prevent copying, GPLv3 prohibits the use of licensed open source code to achiee the DRM or similar features. 

In addition, GPLv3 expressly requires a user of open source code to license any relevant patents to others who also want to use the open source code.  Thus, if a software product is covered by a patent but also contains open source code, the resulting product’s code must not only be made available to others, but any patents covering the product also may be automatically licensed to others.  Of course, this can significantly reduce the value of the patent.

Issues such as these may require that IP due diligence include an inquiry into which version of the GPL covers open source code.  The complete text of GPLv3 is available from the GNU Project.

Last week the Federal Circuit’s opinion in In re Seagate Technology, LLC raised the bar for a finding of willful infringement in patent litigation.  Under the prior standard, whether or not the infringer relied on an opinion of patent noninfringement or invalidity was critical to the analysis of whether the infringement was willful.  Under the new standard, infringement is willful only if the patent holder shows that the defendant engaged in “objective recklessness.”  In particular, the Court stated that ”there is no affirmative obligation to obtain an opinion of counsel.” 

The change is important because a patent infringer can be liable for punitive (triple) damages if the infringement is willful.  Thus, the Court’s opinion indicates that patent opinions are not necessarily required to avoid liability for willful infringement.

So are opinions of counsel still valuable?  Yes, although the Seagate decision suggests that they may not be required in every situation.  Some examples of situations where patent opinions continue to have value after Seagate include:

• situations where an accused infringer beleives that it is at risk of being named as a defendant in a patent infringement suit, so that the infringer can document a reasonable belief that its actions did not amount to infringement of a valid patent;
• due diligence situations, with a “freedom to operate” opinion that minimizes infringement risks are minimized and reassures investors, lenders and possible acquirors; and
• pre-litigation preparation by patent holders, to ensure that they have a reasonable basis for filing a patent suit against an infringer.

In some cases, it may be possible to consider a streamlined opinion that briefly documents the basis for a belief of no infringement of a valid patent.  Thus, while Seagate may make it more difficult for patent holders to establish willful infringement, patent opinions can still be valuable where potential litigants want to understand the risks and actions for avoiding patent infringement liability.