Chapter 17 - Protection and Licensing of Intellectual Property

Competitive Circumstances - Licensor might

Grant rights to two or more licensees who are willing to compete to develop the target market - If licensor scared that licensee may fail and competing technologies may come into the market - then licensee may negotiate compensating advantage like a reduced royalty payment

International Exhaustion

Free reimport whether or not there is a danger of confusion - Australians argue the rights to trade are part of the property purchased

Consumers reaction to gray market

Generally delighted by gray market because obtain goods of comparable quality for lower price

FRAND

Fair, reasonable, and nondiscriminatory licensing - can significantly reduce the risk of patent hold-up and the perceived advantages of litigation - applies only in limited circumstances - has not curbed litigation in a meaningful way

Antitrust considerations

IPR can sometimes allow a company to monopolize a market - FTC and DOJ indicated that IP should be treated no differently than other forms of property - Federal Circuit supported exclusion of antitrust principles from the world of IP

If labor is substantially cheaper in a foreign country

IPR owner may shift production offshore - US company may not know its way around the foreign country and risks nationalization - might prefer contracting with domestic firm

Notification-Registration Schemes

More open to technological transfer - countries with general system of notification make exceptions for areas of heightened concern

Nature of gray market problem

Principally threatens US licensor if the product is sold at a lower price abroad than in the US - gray marketer could purchase goods abroad more cheaply, transport them back to US, and place them in direct competition with US licensor - also stimulated by international currency fluctuations

Observations of franchises

1. Franchiser will only keep renewing a if franchisee meets defined marketing quotas 2. Trademark protection is a big issue for franchising 3. Competition laws, franchisers must be concerned about application of laws to tied purchase clauses in franchise contracts 4. Franchisers face special difficulties repatriating profits but solve by creating hard currency sections within franchise stores 5. Franchiser must be alert for franchise tax laws 6. Careful to avoid entanglements of language politics

European Patent Convention

Allows for a consolidated multinational patent application - a patentee can obtain protection in all EU countries by filing a single application

Industrialized countries

Became compliant to TRIPS with minor adjustments

Pre-approval: discretion

- Some give government officials a broad range of reasons for disapproving a transfer of technology - Others say all transfer-of-technology agreements are prohibited unless a specific reason can be found for them to be permitted

Dangers of Notification-Registration countries

- Some provisions of a registered contract might not be enforceable under a country's laws - The risk that the government bureaucracy can make an unauthorized disclosure of the foreign party's IP -- some foreign investors may not wish to risk piracy of their IPRs

Termination Issues negotiated

- The length of time during which the licensee may exploit the licensed IPR - What events may cause the license to terminate early - What rights the licensee will have in the IPR after termination

TRIPS Requirements

- signatories must enact minimum substantive standards of protection - must create a viable enforcement mechanism - must apply treaties' national treatment requirements -- so all foreign IPR owners receive same protection as local nationals

Main problems with Paris Convention

1. Convention does not require any minimum substantive standard of patent protection 2. Convention lacks an enforcement mechanism - two defects fixed with TRIPS Agreement

Firms that facilitate transactions between IPR owners and potential purchasers

1. IPR clearinghouses - provide IPR strategy advice, valuation, infringement analysis 2. IPR brokers - handle IPR auctions and brokerages 3. IPR aggregation funds - for open source software 4. Firms that identify and acquire patents for the purpose of preventing violations and litigation costs

Licensee goal in negotiation

- Low royalties - Minimize or abbreviate duration of non competition or nondisclosure provisions

TRIPS improvements to Paris Convention

- Sets minimum standards of IP protection: nation can no longer comply with international IP law if law provides no effective protection - Requires signatory countries to ensure that enforcement procedures available under laws to permit effective action against any act of infringement covered in Agreement -- includes expeditious remedies to prevent infringement -- includes remedies which constitute a deterrent to further infringements

Pre-approval: authority

- Some delegate specific types of authority to government entities and contain relatively objective standards - Others have laws written in general terms and vest broad interpretive powers in the bureaucracy

Pre-approval

More intrusive type of regulatory scheme - Indicative of relatively protectionist government policy

Varying attitudes of nations

Used to be reflected in their laws Now TRIPS mandates what each country's law must say so attitudes are reflected in how laws are enforced

Basic types of regulatory schemes provide format for IPR transfer agreements

1. Prior-approval 2. Notification-registration 3. No regulation

Other nations enforce

laws in a discriminatory fashion so foreign parties do not have confidence that their rights will be vindicated against infringement

US licensors argue that gray marketers

receive a "free ride" on US marketing efforts - may be stealing some return

If a gray market product is so different as to call into question the quality of the domestic product

the licensor should be granted relief

Confidentiality and Improvements

A clause sets forth the licensee's obligation to keep the licensed technology confidential so that third parties cannot exploit it - important if technology primarily protected by trade secret - may also bargain over the specific means by which the licensee will be expected to safeguard the confidential technology (employee confidentiality agreements)

License

A limited permission to use the US firm's trademarks, copyrights, or know-how in making products for sale in the vicinity of the foreign company's country

Uniform Domain Name Dispute Resolution Policy

Adopted by ICANN Set forth general "first to file" rules for domain names - excepted bad faith filings - led to practice of cybersquatting - submit complaints electronically to WIPO

Franchise

An arrangement in which the licensor permits the licensee to sell certain goods under the licensor's trademark or service mark under a franchising agreement - typically condition its use on the licensee's observance of certain quality standards

PCT - EPO protection

Applicant may complete the PCT standard or filing and designate the EPO as a "country" of origin to obtain both EPO and PCT protection

Berne - Paris similarities

Based on a national treatment scheme: Each signatory nation must afford foreigners the same treatment as its own citizens

Scope of ACTA

Broad and would call for cooperation among member-states and civil and criminal enforcement of IP laws that protect patent, industrial design, trademark, and copyright or related rights

Bad faith

Common law: Intentional wrongful behavior UDRP: includes some negligence without a finding of intent -- failure to conduct prior checks for third-party rights constitutes bad faith

WIPO Copyright Treaty

Computer programs are protected as literary works

Trademarks - Paris Convention

Confers a right of priority to trademark holder if the foreign registrations are made within six months after the original registration - Trademark prosecution usually based on the law of the country where registration is sought

EC Council Regulation 2081/92

Creates restrictive rules to protect trademarks and geographical indications for geographical products and foodstuffs - US and Australia complained about this - Court ruled that EC's regulation failed to provide national treatment

Copyrights - Berne Convention

Deals with the granting of copyrights among signatory nations - Signatories agree to grant national treatment to copyright holders from other signatories automatically from the moment of creation rather than the time of filing - difficult to enforce but fixed by TRIPS

Pre-approval: Delay

Delay used to deter transfer of technology that require patents

TRIPS improvement to trade secret protection

Established minimum standards for trade secret protection after model of uniform trade secret statutes in US

TRIPS improvement to Berne

Establishes 50-year copyright protection pursuant to the Berne Convention

Community Trademark Regulation

Europe's centralized multinational trademark registration system - Allowed a single trademark registration enforceable throughout the EU - Provides a unified enforcement authority, the Office for Harmonization in the Internal Market

PCT Application

Filed on a standard form with the World Intellectual Property Organization - WIPO processes common application and forwards to countries designated by applicant - Only applies to utility patents

Paris Convention

Guarantees that in each signatory country, foreign trademark and patent applications from other signatory countries will receive the same treatment and priority as those from domestic applicants - principle of "national treatment" - right of priority

China IPR History

Had communist regime - all existing statutes were repudiated - intellectuals lost political power Reestablished diplomatic relations - entered bilateral agreements with US covering copyright law - Enacted first comprehensive copyright laws and entered into WTO - completely overhauled its IP system, amending patent, copyright, and trademark laws to comply with TRIPS

Emerging Nations under TRIPS

Had to enact a new statutory scheme to be compliant to TRIPS - Must adopt IP laws that approximate those of Europe and North America - Including adequate domestic enforcement mechanism - first to impose positive obligations on WTO signatories to adopt new laws

International Trade Commission

Independent, quasi-judicial federal agency Carries out investigations under this provision upon the filing of a complaint by the trademark holder or by the ITC on its own initiative - may exclude products that have one or more components that infringe a US patent - complaint must establish that its trademark is being infringed and that it has a domestic industry that uses the trademark

Anti-Counterfeiting Coalition

International firms from developed nations joined to form - Trade group that pressures governments to enforce IPR laws - Group has grown exponentially over the years

Right to Use and Conditions of Use

Licensor generally seeks to restrict the licensee's use of transferred IPR - Geographical limitations - Field of use limitations - Output or customer restrictions

Grant back

Licensor may seek a grant back to itself of ownership in or at least the right to use, often without compensation, any new improvements in licensed technology or any new technology created based on licensed technology

Geographical limitations

Licensor of a name brand doll may limit the licensee's sale of that doll within a specific nation

If ITC determines violation

May issue a limited-exclusion order - excluding some of the items in question Or a general-exclusion order - excluding all of items in question President may reject or modify exclusion order issued by ITC before it is final

If firm is producing at the full extent of its domestic manufacturing capacity

May not have the resources to expand significantly - licensing or teaming with a foreign company with adequate capital and perhaps other attractive assets can expand the market without substantial additional capital

US firm may have ample funds and a good product but an inadequate R&D capability

May wish to team with a foreign company that has strong R&D infrastructure to expand to new geographic markets in short term while developing enhanced products for future

TRIPS improvement to Patent protection

Members must recognize patent holders' right to assign or license their patents - Term of patent protection must be at least 20 years - Establishes patent protection for any new inventions in all fields of technology provided they are non-obvious and useful

Principle of "National Treatment"

No signatory country can give IP protection to its own citizens unless it provides the same protection to the citizens of the other signatories - targets discrimination against foreigners obtaining patents

Confidentiality and Improvements - Licensee may

Often will try to limit the length of time during which it must maintain confidentiality

Utility patent

Patents protecting a novel and useful process, machine, manufacture, or composition of matter

Patents under EPC

Persons seeking European patent complete the same PCT application form and file it with the European Patent Office - grant of a European patent by the EPO must be validated in a member state and enforcement occurs in the member state's courts rather than a common European court system

Regional trademark exhaustion

Principle calculated to protect free access to markets within the Union while protecting the integrity of the common market from nonmembers - ECJ EU's Trademark Directive: Permits reimport from one Union country to another but to forbid reimport from other countries into the EU

US Section 337 of Tariff Act

Prohibits the importation of articles that infringe a US patent, trademark, or copyright - powerful tool for preventing importation of goods that infringe a US trademark, patent, or copyright - after TRIPS accepted by other nations, Congress amended Section to respond to concerns about discrimination

Field of use limitations

Restrict the applications for which the licensee may employ the IPR

Intellectual property rights

Rights to technological know-how or artistic work

Treaties governing international IPR

Streamline and standardize procedures, expand the geographic scope of protection, and create a much stronger international IPR enforcement network - Paris Convention - Patent Cooperation Treaty -

Patent Cooperation Treaty

Supplement of the Paris Convention - Establishes a centralized utility patent application process - Signed by 142 states

Gray Market (Parallel Trade)

The importation of merchandise produced and sold abroad and then imported back into the US for sale in competition with the US trademark owner

Cybersquatting

The registering of a domain name with the intent to profit from the goodwill of a trademark belonging to another - often cybersquatter offers to sell domain to company who owns trademark at an inflated price

Issue with any transfer

The risk of losing control of the IPR and helping to establish a competitor abroad - may give powerful foreign firm an opportunity to research around the patent and develop non-infringing alternatives, or other products whose infringement cannot be proved

Countries may combat IPR violations and copyright piracy

Through TRIPS Agreement and the WTO dispute settlement proceedings, or - USTR annual review of global state of IPR - JCCT to get results on IPR protection

Licensor goal in negotiation

To be sure that licensee agrees not to use the IPR in competition with the licensor or to disclose it to a potential competitor

IPR Transfers

Transfer of IPR to a foreign business in exchange for a fee or other form of remuneration - transfers need not involve any capital investment abroad - usually involve manufacturing or merchandising a product or service in the foreign country - US investors can avoid the substantial risks and legal entanglements of capital investments abroad

When exclusion order final

US Customs will attempt to stop the article from entering the US and may seize inventories of the fakes already in the US

When quality of gray market product is indistinguishable from domestic product

US courts have not been solicitous of the rights of licensors - courts prize benefits of price competition over concerns about a free ride for gray marketers

Royalty

US firm may grant a license for a fee called a royalty

Anti-cybersquatting Consumer Protection Act

US- first nation to pass legislation to curb cybersquatting Prohibits registering, trafficking in, or using a domain name with bad faith intent to profit from the goodwill of a trademark owner

Geographical Indications

Where a product, particularly wine or liquor is marketed by reference to a geographic region

Anti-Counterfeiting Trade Agreement (ACTA)

Would establish a new international legal framework that countries can join on a voluntary basis and would create its own governing body outside existing international institutions like WTO and WIPO

US firm may enter into licensing or cross-licensing arrangements

to expand their business operations and gain access to new product lines - may also enter into these arrangements to share initial and maintence costs to prevent barriers to entry

How US might transfer agreements

1. US firm might grant a license for a (royalty) fee 2. US firm might provide the IPR and physical components to a foreign manufacturing plant that will fabricate the produce for re-export back to US concern - foreign product may be a component of US ultimate product and will thus be integrated in the US by US firm 3. US firm can use a transfer of technology as its contribution to a joint venture abroad in exchange for a share of the joint venture

US firm may possess a utility patent but lack the breadth of management capabilities, developmental resources, or marketing skills to exploit all its applications simultaneously

After the company reserves patent applications that seem most consistent with its skills, it may license the basic technology to other firms, each of which is authorized to develop a specified product or geographic market

Copyright Term Extension Act (Sonny Bono Copyright Term Extension Act) (Mickey Mouse Protection Act)

Developed countries have substantial film and music industries and therefore have strong incentives to protect copyrighted works CTEA: extended copyright terms in the US - delayed the date at which copyrighted works would enter the public domain until at least 2019

No enforcement mechanism

Disputes under treaty are to be resolved by the International Court of Justice - most signatory countries either do not recognize the court's jurisdiction or ignore rulings with which it doesn't agree

Emerging economies- copyright provisions

Do not have strong incentives to pass legislation protecting and enforcing IPRs and have historical or societal conditions that have hindered such legislation

Priority claim

Given to a patent application if at least one of the applicants named in the PCT application is a national or resident of a PCT signatory - Applicant has up to 30 months after filing to begin the administrative processing of the application in the countries in which it wishes to obtain protection - allows applicant to lock in an application date while giving it time to raise capital on the basis of the patent filing

No minimum standard of protection

If a nation has no pharma R&D capability, it can decide to not protect R&D patents - although it is a law aimed at foreigners, it is lawful

Output or customer restrictions

If licensor plans to use the licensee as a source of products for the licensor's own distribution requirements

Competitive Circumstances - Licensee might

Often demand exclusive rights in the IPR within some geographic area in order to enhance its chances of earning an adequate return on investment - when exploitation of the licensed IPR requires significant financial or other resources of the licensee

Industrialized emerging countries enforcement

Often have bunch of laws to protect domestic and foreign IPRs but fail to enforce them or do not have adequate procedures to enable foreign parties to enforce them

Resolutions of IP disputes at ITC

Often much faster than in federal courts 0 ITC has broad power to order discovery overseas - while foreign responders might refuse to comply, the ITC can consider such noncompliance when it determines whether it will issue an exclusion order

Resolution of Dispute - exhaustion doctrine

One view: the trademark holder has no right to control goods after it sells them in commerce - after sale, trademark holder has exhausted control and cannot complain of competition - would create a wide-open gray market

Holders of trademarks dealing with gray market

Oppose gray marketers, noting that some products sold abroad under their trademarks are actually different from the domestic products

Madrid Agreement Concerning the International Registration of Marks (Madrid Protocol)

Provides a centralized filing system on a standard form and a designation of the countries in which trademark registration is sought - Enforced by WIPO - US has not signed

Why US firm might transfer agreements

Provides marketing or other opportunities that the firm otherwise could not exploit efficiently

Right of Priority

Provides that the date of an applicant's foreign application is deemed to be the same as the date of the applicant's original application on the same invention, so long as the foreign application was filed before the first anniversary of the original application - prevents a race to file

Parallel import issue on TRIPS

Purposefully left open in TRIPS because divisions among nations too wide to permit comprehensive agreement

TRIPS requirement for enforcement

Requires WTO countries to ensure that IPR laws are enforced and to call for seizure of goods infringing on IPR rights - failure to enforce such laws can give rise to WTO trade proceeding

Berne - Paris differences

Requires all signatory nations to enact certain minimum substantive laws - Includes prohibitions against copying literary and artistic works and granting authors exclusive rights to adaptations and broadcasts of works - No filing requirement - author only needs to affix the symbol (c) and year of authorship

TRIPS GATT Agreement on Trade-Related Aspects of Intellectual Property Rights

Requires every member of the WTO to abide by Paris and Berne conventions - seeks to remedy some weaknesses of Conventions (minimum standard of protection, enforcement mechanism)

Developed nations counter to escape clause

Said exception intended to permit patent infringement only for 1. Noncommercial purposes 2. Research 3. Experimentation for testing or improvements 4. Educational purposes

Escape Clause

Signatory nations may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public (morality) - includes protection of human, animal, or plant life - protection of health or avoiding serious prejudice to environment

Agreement Relating to Community Patents

Signed by EU countries - Created a unitary system for the application and grant of European patents and a uniform system for the resolution of litigation concerning patent infringement

Confidentiality and Improvements - Licensor may

Try to preserve confidentiality for the anticipated useful life of the trade secret