Category Archives: Business and Transactions

White House urges restrictions on non-compete agreements

55276389 - businesswoman sitting with employment agreement in front of her.This week the Obama administration issued a “call to action” statement in which it urged state governments to restrict many of the non-compete agreements that employers often impose on employees. The statement calls on state legislatures to adopt certain “best practices” for regulating employee non-compete agreements, including:

  • banning non-compete clauses for certain categories of workers, such as workers under a certain wage threshold, workers in certain occupations that promote public health and safety, and workers who are unlikely to possess trade secrets;
  • refusing to enforce non-compete clauses against workers who are laid off or terminated without cause;
  • disallowing non-competes unless they are proposed before a job offer or significant promotion has been accepted;
  • requiring employers to give additional consideration (i.e., more than just continued employment) to workers who sign non-compete agreements;
  • encouraging employers to better inform workers about the law in their state and the existence of non-competes in contracts and how they work; and
  • encouraging the elimination of unenforceable provisions through the use of legal doctrines that make such provisions (or contracts containing them) void.

The statement follows the administration’s May 2016 report titled “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.” The administration stated that the May 2016 report was intended to address “issues regarding misuse of non-compete agreements and describe[] a sampling of state laws and legislation to address the potentially high costs of unnecessary non-competes to workers and the economy.”

The statement noted that the laws of three states (California, Oklahoma, and North Dakota) already contain significant restrictions on non-compete agreements signed by employees, and at least a dozen states have considered legislation in this area during the past year.  To accompany the report, the White House also published a “state-by-state explainer” of existing state non-compete laws to help interested parties understand the restrictions that are already in place across the country.

The proposal is certain to attract a significant amount of attention, both pro and con. Regardless of whether states adopt the statement’s recommendations, the statement does highlight the fact that many different standards for employee non-compete agreements exist across the country. Because of this, employers should be careful to note that a particular form agreement may be fine for employees in some states but less-than-ideal for employees in a different state.  The “explainer” document can be a helpful tool to help employers understand those differences when they hire new employees across the country.

[Image credit:  Kittisak Jirasittichai]

Will your patent assignment document satisfy new European Patent Office requirements?

19469909 - signing a document in the officeEffective November 1, 2016, new European Patent Office (EPO) Examination Guidelines governing the transfer of European patent applications will take effect. The new Guidelines make two changes that transacting parties need to know:

  1. the assignment document must include the signatures of both parties (i.e., assignor and assignee); and
  2. the assignment document must include the precise job title of each person who signs the document.

In the past, it was common for a patent holder to execute an assignment in favor of an assignee, without the assignee signing the document. Under the new Guidelines, the EPO will no longer accept an assignment document that uses the single-signature format.

In the past, some assignment documents would list the signing party as something like “authorized representative.” This EPO will no longer accept this practice, either.

The new Guidelines only affect the transfer of pending applications, not granted patents.  However, transacting parties should consider following the new Guidelines in all patent assignments, since the general contract laws of several European countries (including Great Britain and France) typically require both parties to sign a contract. The new Guidelines are also consistent with Article 72 of the European Patent Convention, which states that an assignment of a European patent application requires “the signature of the parties to the contract” (emphasis added).

(Thanks to my Fox Rothschild partner Marilou Watson for bringing this change to my attention.)

[Image credit:  Oleksandr Nebrat]

Do your employee/contractor non-disclosure agreements comply with new DTSA notice requirements?

Magnifying glassHave you updated your company’s form employee and independent contractor non-disclosure agreements lately? Do they comply with the notice requirements relating to “whistleblowers” that took effect May 11, 2016 under a new federal law? If your answer is “no” or “I don’t know”, read on.

The new Defend Trade Secrets Act helps U.S. businesses protect their trade secrets by asking federal courts to order seizure of property necessary to prevent dissemination of the trade secrets. It also permits businesses to seek injunctions and damages in federal court for trade secret misappropriation.

The DTSA also provides some immunity for whistleblowers who use trade secrets by stating that:

An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that (a) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

and

An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.

The immunity section of the DTSA is especially important for employers because it requires employers to provide with notice of the DTSA’s immunity clauses “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” The Act defines “employee” to include both actual employees and independent contractors. If an employer does not comply with the notice requirement, the employer’s ability to recover damages against that employee in a federal action for theft or other misappropriation of trade secrets will be limited.

Employers can comply with the notice requirement by updating their form employee and independent contractor agreements to include either the notice requirement or a cross-reference to a policy document (such as an employee handbook) that states the employer’s reporting policy for a suspected violation of law.

For additional information about the DTSA, including the law’s seizure and damages provisions, see this previous IP Spotlight post.

[Image copyright:  bacho12345]

IP3: Industry Patent Purchase Program allows patent owners to offer patents to leading global companies

A new website will give patent holders a limited-time opportunity to offer their patents for sale to some of the world’s largest companies.  According to a press release from Allied Security Trust (AST):

IP3 creates a patent marketplace that brings together a pool of significant money from [participating] companies … to purchase patents in a format that allows sellers to set their own price for their patent assets and reduces the time and complexity usually associated with patent transactions.  IP3 builds on the success of Google’s innovative 2015 Patent Purchase Promotion (PPP), and seeks to attract the submission of high quality patents from patent owners across a wide array of industries during a limited time period.

Participating companies include Google, Facebook, IBM, Microsoft, Adobe, SAP, Ford, Honda , Hyundai, Kia Motors, Verizon,  Cisco, Arris, leading cable service providers, and others. Technologies that the group is particularly interested in include enterprise software, communications, networking, semiconductors, content delivery and cloud computing.

The IP3 portal (ip3ast.com) will be open from May 25, 2016 to June 8, 2016. AST expects that all transactions will be completed by the end of September 2016.

What did Lexmark v. Impression Products change about U.S. patent law?

6480523_sActually, not much.  However, it did resolve a controversy that was brewing after two Supreme Court decisions called into question whether selling a patented article outside the United States would exhaust the patent holder’s rights to exclude use or sale of that article inside the United States. The case also confirmed that patent holders can impose post-sale restrictions in the terms of sale when selling patented articles.

In Lexmark Int’l Inc. v. Impression Products, Inc. (Fed. Cir., en banc, Feb. 12, 2016), Lexmark sold patented printer ink cartridges under a two-tiered pricing program: (1) a low price with permission for only a single use; and (2) a higher price with no use restrictions. Lexmark sued several aftermarket cartridge sellers who were refilling and reselling cartridges that were originally sold under the single-use price model outside of the U.S.

Patent Exhaustion and International Sales

“Patent exhaustion” is the legal doctrine that provides an authorized purchaser of a patented article the authority to engage in certain activities that the patent would otherwise prohibit. The authority given by patent exhaustion include reselling the patented article. However, that authority is not without limits. For example, in a 2001 case (Jazz Photo Corp. v. Int’l Trade Comm’n), the Federal Circuit ruled that a sale of a patented article outside the United States does not authorize the buyer to import the article back into the United States or sell the article within the United States.

In Lexmark, the Federal Circuit considered whether the limitation of Jazz Photo should still hold after the U.S. Supreme recently reached a different conclusion with respect to copyrights. In Kirtsaeng v. John Wiley & Sons, Inc., the Supreme Court ruled that the Copyright Act’s “first sale” doctrine permitted an authorized purchaser of a copy of a work to resell that copy regardless of where it is purchased.

However, in Lexmark the Federal Circuit declined to apply the reasoning of Kirtsaeng to U.S. patent law. The court noted that the Copyright Act expressly gives owners of copyrighted items to take certain acts with respect to the item, but that the Patent Act includes no equivalent provision.

Post-Sale Restrictions

In Lexmark the court also addressed whether the patent holder could impose a “single use” restriction on purchasers of its cartridges. While the district court said “no”, the Federal Circuit reversed, stating that:

[a] sale made under a clearly-communicated, otherwise lawful restriction as to post-sale user or resale does not confer on the buyer and a subsequent entity the ‘authority’ to engage in the user or resale that the restriction precludes.

The court noted that it reached the same conclusion in several decisions dating back to its 1992 decision in Mallinckrodt Inc. v. Medipart, Inc., and it declined to change that precedent in this case.

What’s Next?

While the Federal Circuit’s decision maintained the status quo, that status could be questioned again if the Supreme Court decides to review any aspect of the decision.

To help protect against possible changes by the Supreme Court, which has been very willing to trim the rights of patent holders in recent years, patent holders who sell products abroad may wish to include contractual terms that clearly restrict resales within the United States. Patent holders also may wish to explore contractual relationships that do not result in a “sale” such as a sale by an affiliated foreign entity that is not the patent holder (and not subject to U.S. patent rights), or an arrangement in which the patent holder retains title to the article.

[Image credit:  Norman Kin Hang Chan]

It’s not just the holiday season, it’s also H-1B season

This post is more about the “business” than the “intellectual property,” but I thought that IP Spotlight readers would be interested in a recent blog post by my partner Catherine Wadhwani, who reminds tech companies and other employers that hire talented foreign professionals who may need H-1B sponsorship about an upcoming deadline for filing H-1B petitions.

Companies who are hiring (or who plan to hire) a foreign professional should be aware that the timing of a cap-subject H-1B petition is extremely sensitive. The time to file an H-1B-cap subject petition is fast-approaching and it’s best to be prepared.

For more information, here is a link to Catherine’s post discussing the upcoming “H-1B cap season”.

Court finds that ambiguous assignment agreement does not break chain of title

It’s always important to ensure that intellectual property agreements are carefully drafted.  However, on rare occasions a court will see past a drafting error and interpret an agreement to match the apparent intent of the parties, even if certain language of the agreement may conflict with that interpretation.

This happened in a recent case from the Southern District of Indiana. In a consolidated order involving suits that GS CleanTech Corporation (CleanTech) brought against various defendants in that court, the defendants filed motions for summary judgment and asserted that CleanTech lacked standing to bring the suit because CleanTech had not established title to the asserted patents.

CleanTech acquired the patents from GS Ethanol Techs. Inc. (GSET) and other entities by an assignment agreement dated May 15, 2009. The defendants asserted that the chain of title in the patents was broken by a January 2008 Security Agreement in which GSET and the other owners conditionally assigned the patents to YA Global Investments, L.P. (YA Global).

The defendants argued that although the document was titled “Security Agreement,” it was actually an assignment because of the grant clause conveyed “a continuing interest in the patents” to YA Global. The wording of the grant clause was immediate, the agreement was recorded against the patents, and so the defendants argued that the Security Agreement passed ownership of the patents to YA Global.

The court disagreed, stating that the remainder of the Agreement made it clear that the intent of the document was to grant “a continuing security interest in the patents” rather than actual title, even if the grant clause didn’t include that specific word.