This week the U.S. Supreme Court once again took action in the field of patent law.  This time, the Court addressed the “patent exhaustion” doctrine, which limits a patent owner’s right to restrict subsequent sales of a patented item after an initial, authorized sale occurs.  The Court’s decision has been the topic of much attention in the legal media this week.  However, it leaves at least two questions unanswered, and patent holders should consider those questions when drafting license agreements or filing patents in the future. Read the rest of this entry »

When a software license agreement imposes restrictions on transfer or resale of the software, is that restriction legally effective?  A recent decision from a district court in the state of Washington suggests that the answer may be “no” if the license governed a transfer of a physical copy (such as a CD) of the software and did not require the transferee to return the copy at the conclusion of the contract’s term. 

More on the court’s decision in Vernor v Autodesk follows below.  Read the rest of this entry »

Last week’s Federal Circuit decision in DataTreasury Corp. v Wells Fargo & Company highlights the interplay between federal and state laws in IP license agreements.  In the case, a patent license agreement contained an arbitration clause in which the parties agreed that all disputes would be subject to arbitration.  The patent holder/licensor then assigned the patent to DataTreasury.  When DataTreasury brought suit against Wells Fargo (parent of the licensee) Wells Fargo argued that DataTreasury was subject to the license agreement’s arbitration clause.

The court disagreed.  Noting that the agreement was governed by Minnesota law, and that Minnesota law does not (in most situations) impose an arbitration clause on a party who has not expressly agreed to it, the court held that DataTreasury was not subject to the agreement’s arbitration clause.

The lesson for licensees:  In many situations, patent, trademark and copyright owners are not willing to restrict their ability to assign the license agreement.  If so, a licensee should ensure that the agreement expressly requires the licensor to bind any successor-in-interest to all terms of the license agreement.  This may allow the licensee to bring a breach of contract claim if the successor-in-interest fails to accept all of the license terms.

Are we approaching a yet another new era for the distribution of copyrightable works to the mass market?   Radiohead, Prince, Peter Gabriel, and Paste magazine may be at the forefront of a new business model for the distribution of creative works.  Read the rest of this entry »

Technology Review reports that IBM has filed an application for a patent directed to a method for licensing a portfolio of patents using “floating privileges”.  Under the method, a licensee can obtain a license to an asset (e.g., a patent) from a portfolio of assets under a system where the license is triggered by a predetermined event, such as the filing of a patent infringement lawsuit.  The IBM patent application published last week as application number 2007/0244837.

To read the full article at the Technology Review website, click here. 

The Federal Circuit recently issued an opinion that once again reminds us that the word “exclusive” in a patent license does not necessarily mean that the licensee has all substantial rights in the patent. 

In International Gamco, Inc. v. Multimedia Games, Inc., the Court cited prior caselaw for authority that an exclusive territorial license — i.e., a license granting all substantial rights to a patent for activities that occur within a defined geographic area — gives the licensee standing to sue others for infringement of the patent within the territory without joining the patent holder in the action.  However, the Court also held that a patent license which is limited by a field of use — even if the license is exclusive within the field and also limited to a territory — does not enable the licensee to sue without joining the patent holder.  In International Gamco, the licensee was restricted to using licensed technology in the field of lottery games.  Accordingly, the Court held that the patentee could not sue others for infringement unless the patent holder also participated in the suit.

The Court’s reasoning for the decision included statements that a field of use license does not confer “all substantial rights” under the patent upon the licensee, and an accused infringer could be subject to multiple suits by multiple licensees. 

The lesson for licensees is that if enforcement of licensed patent rights is important, then the license agreement must either (1) avoid any field of use limitations, or (2) include affirmative obligations for the patent holder to be joined in infringement actions at the request of the licensee.

The time period from filing a patent application to receiving a patent can last many years.  In technologies such as software, biotechnology and communications, USPTO backlog often results in a three year (or longer) delay for an application is even reviewed.  However, inventors often find — or would like to find — others who are interested in licensing a technology before the patent issues.

Are there opportunities for licensing revenue for a pending patent application?  Sure, if the circumstances are right.  University technology transfer offices license pending patent applications all the time, and they even require the licensee to pay for future patent prosecution costs.  The key is to convince a licensee that it has something to gain by paying a royalty before the patent issues.  Some situations in which a royalty may be easier to get include:

• where the patent application has not yet published, and the licensee is also paying a royalty for the ability to obtain confidential information;

• where the patent applicant has useful know-how that is not included in the patent application, the licensee may also pay a royalty to gain access to that know-how; and

• where the applicant is willing to offer the licensee a reduced long-term royalty, some level of exclusivity, or another benefit in exchange for royalties while the application is still pending.

For example, if a licensee also desires to be trained in a process that is related to patent-pending technology, the applicant could train the licensee in the method, bind the trainee to a confidentiality obligation for trade secret aspects of the method, and establish that the trainee must pay a royalty any time that the trainee uses the technology for commercial gain.

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.

U.S. companies who enter into intellectual property license agreements with European companies often ask how, if they accept a choice of law clause that involves a European country, they can ensure that disputes under the license will be resolved in a particular European country. 

According to the IPR Helpdesk, a European Commission service relating to IP rights, parties are free to negotiate a forum choice clause in a license agreement.  However, if a party wishes to dispute the validity, existence or expiry or priority claim of a licensed patent, that issue must be brought in the state where the patent is registred, regardless of the agreement’s forum choice clause.  

If the parties choose an arbitration clause, the IPR Helpdesk recommends that the clause include the following details:

• Number and qualification of the arbitrators, procedure of their nomination;
• Domicile of the arbitration court (a contracting country party to the New York Convention should be chosen);
• Language (normally the language of the main contract);
• Applicable arbitration law (usually the law applicable at the domicile of the arbitration court).

Forum choice only becomes an issue in a very small number of cases, but the Commission’s guidelines are helpful reading for anyone who is drafting license agreements with European companies.

A common shortcut in due diligence is to give commercially-available, off-the-shelf (COTS) software a cursory review, since such licenses can easily be purchased if needed after the transaction is complete.  However, if a due diligence target is out of compliance with a COTS software license, the cost to correct the noncompliance can be substantial — especially for a small company or a company that does not ensure that its employees understand the risk of noncompliance. 

 The U.S. Court of Appeals for the Sixth Circuit recently issued a reminder of this cost in Thoroughbred Software International v. Dice Corp. (No. 06-2080, June 14, 2007), when it considered a software license that permitted the licensee to make one backup copy of each licensed product.  However, a software audit found the licensee made a 38 extra copies of one licensed product,and 31 extra copies of another product.  Although most of the copies were merely residing on computers that were not being used, the court found the copies to violate the terms of the license and awarded the software company nearly $184,000 in damages.  The Sixth Circuit also vacated the lower court’s denial of attorney’s fees and remanded the case to determine whether the infringing licensee should also pay the software company’s attorneys’ fees.

 A few well-placed inquiries during due diligence can help to avoid headaches down the road, since in most cases software noncompliance can be corrected before a transaction is complete.