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OWNERSHIP MATTERS

OWNERSHIP MATTERS. The Relevance of IP Ownership to Good Corporate Governance presented by: John R. Fuisz & Stephen K. Shahida February 2009. When Ownership Goes Wrong. Digeo buys patent “as is” for $4.1 million Assignment from one co-inventor was forged

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OWNERSHIP MATTERS

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  1. OWNERSHIP MATTERS The Relevance of IP Ownership to Good Corporate Governance presented by:John R. Fuisz & Stephen K. Shahida February 2009

  2. When Ownership Goes Wrong • Digeo buys patent “as is” for $4.1 million • Assignment from one co-inventor was forged • Accused infringer bought rights from correct inventor for $70,000. www.mwe.com

  3. Ownership Matters • Implicates many different people in the company • IP, Corporate, Employment lawyers, etc. • Trend is to scrutinize ownership in patent litigation • Relatively simple to fix with advanced planning www.mwe.com

  4. What Patents do • What Patents are not • Do not provide a right to use • Not the sole determining factor in exclusivity • Not uniform across all markets • What Patents are • Market barrier • Provides right to exclude • Cost to enforce • Limited life • Patents interact with other business concerns • Tax, HR, Corporate Structure, etc. • Intra-company use can impact value www.mwe.com

  5. Why Patents Have Value • A valuable, high quality patent portfolio increases the stock price and market capitalization of a publicly traded company. • [Deng, Z./Lev, B./Narin, F. (1999): Science & Technology as Predictors of Stock Performance. Financial Analysts Journal 55(5), page 20-32] • Good inventions covered by high quality patent applications are more often commercialized than others. • [Shane, S. (2001): Technological Opportunities and New Firm Creation, Management Science 47(2), page 205-220] • Patents with a broad scope of protection increase the value of a company. • [Lerner, J. (1994): The importance of patent scope: an empirical analysis. RAND Journal of Economics Vol. 25(No. 2), page 319-333] www.mwe.com

  6. Ownership Impacts • Right to apply for and prosecute a patent • Right to license • Right to enforce www.mwe.com

  7. Types of Ownership • Legal • 35 USC § 261 • In writing • Void against BPV if not recorded within 3 months • Equitable • Promise to assign is an equitable right • Relief limited to equity (injunction, accounting, declaration of trust, etc.) www.mwe.com

  8. Applicable law • US Federal requires writing • 35 USC § 261 • State / Foreign govern obligation • Problem countries / states • Choice of law • Germany • State law differences on implied-in-fact contracts • E.g. Florida www.mwe.com

  9. Determining Ownership • Identifying inventor of each claim • Joint inventors • Collaboration or common direction • Conception • Formation of a definite and permanent idea of a complete invention • Identifying inventor’s action • Conception to reduction to practice • Funding and facilities used • Inquiry is framed by agreements www.mwe.com

  10. Determining Ownership – Cont. • Employment agreements • Consulting agreements • Assignment to company • Transfers within the company • Rights of others • Joint development • Funding • Facilities • Equitable ownership www.mwe.com

  11. Government Complications • Executive Order 10096 • the invention is made using either government facilities, equipment, etc. • is made with the help of another government employee who is on official duty • the invention relates to the official duties of the inventor • Inequitable • Funding agreements • Federal laws / executive orders / federal acquisition regulations / regulations policies of each agency • Potential rights impacted include march-in rights, rights to require the owner to license others, rights to require licensing of background patents, rights to approve assignments, rights to limit terms of license agreements and reversionary ownership rights. • Licensee can sue in its own name without joining USG (35 USC § 207(a)(2)) • Want of title defense is available • 35 USC Section 261 – Bona Fide Purchaser protection www.mwe.com

  12. Scholastic Complications • University IP policies • Professors, Graduate Students, etc. • Signed writing not always required • Research Grants • Other ownership constraints • Flow of graduates into industry www.mwe.com

  13. Requires Coordination • IP Law • Patent prosecutors • Patent litigators • Corporate Law • M&As • Off-shore IP Holding • Patent Applications are confidential until published • Employment Law • U.S. • O.U.S. (Which foreign law applies?) www.mwe.com

  14. How It Goes Wrong - Litigation • 35 U.S.C. §281 – “A patentee shall have remedy by civil action for infringements of his patent.” • 35 U.S.C. §101(d) - “The word ‘patentee’ includes not only the patentee to whom the patent was issued but also the successors in title to the patentee.” • Standing to sue for infringement and subject matter jurisdiction can be destroyed • An action for infringement must join all co-owners. • Ethicon v. U.S. Surgical, 135 F.3d 1456, 1467 (Fed. Cir. 1998) www.mwe.com

  15. How it Goes Wrong - Prosecution • Lose ability to take advantage of certain aspects of the patent laws • The right to the benefit of an earlier filed foreign applications, i.e. 35 U.S.C. §119 • 35 U.S.C. §103(c) www.mwe.com

  16. Packaging Ownership • Attacking standing and subject matter jurisdiction vs. Ownership. • Accused infringer can not raise equitable rights of non-parties. • Mercantile Nat’l Bank of Chi. v. Howmet Corp., 524 F.2d 1031 (7th Cir. 1975) • Cannot challenge ancillary proceedings. i.e. bankruptcy proceedings. • MyMail, Ltd. v. American Online, Inc., et al., 476 F.3d 1272 (Fed. Cir. 2007) • Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3rd Cir. 1977) www.mwe.com

  17. Packaging Ownership – Cont. • Plaintiff has burden to prove standing and subject matter jurisdiction, which subsumes the ownership issue. • Plaintiff can meet initial burden of proof with an unrebutted written assignment. • Padrol USA, LP v. Airboss Railway Products, 320 F.3d 1354, 1368 (Fed. Cir. 2003) • Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1308 (Fed. Cir. 2003) • Once challenged, plaintiff must prove standing. • Cedars-Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1583-84 (Fed. Cir. 1993) • GAIA Techs., Inc. v. Reconversion Techs., Inc., 93 F.3d 774, 778 n.3 (Fed. Cir. 1996) • Burden does not shift to defendant. • TM Patents, L.P. v. IBM, 121 F.Supp.2d 349, 363 (SDNY 2000) • Court is not limited to pleadings and there is no presumptive truthfulness to Plaintiff’s allegations. www.mwe.com

  18. Dr. X Experience • Dr. X started work on his invention in Australia • Visited a US Research Institute and conducted some work there • Dr. X failed to enter into a separate agreement and was bound by the standard contract • Dr. X returned to Australia where he ultimately filed for a patent in the US • Dr. X sues for patent infringement • Judge stays case pending a decision on ownership www.mwe.com

  19. The Warranty Experience • X license Y the right to use patents • X provides a warranty of ownership of the patents • Y gets sued for what it claims is same technology • Y sues X for breach of warranty • Claim attempts to tie inventorship to ownership www.mwe.com

  20. Changing Inventors Goes Wrong • The relevant portion of § 119(a) reads [a]n application for patent for an invention filed in this country by any person who has, or whose legal representatives or assigns have, previously regularly filed an application for a patent for the same invention in a foreign country . . . shall have the same effect as the same application would have if filed in this country • Measured at the time the foreign application is filed • Scimed v. Medtronic, 468 F. Supp. 2d 60 (D.C.D.C. 2006) www.mwe.com

  21. Changing Inventors – Cont. • X names A and B on patent application filed first in France and one year later in the US • Y files for a patent after the French date but before the US date • C claims to have invented idea before X or Y • X buys C’s rights • X changes inventor on application to C • French filing was not on behalf of C and X loses priority claim www.mwe.com

  22. Simple Changes to Consider • Choice of Law • Ask for information • Get CVs • Disclosures on funds, facilities, etc. involved • Ask you partners • Establish an internal SOP before there is an issue www.mwe.com

  23. What You Need To Remember • Ownership of IP is important – be active • Recognize that ownership can be adversely effected at many stages • Employment agreements • Control over R&D • Use of non-party funds or equipment • Know when to ask questions • Many different legal disciplines are involved – Were the right attorneys involved? • When dealing with outside counsel in litigation, corporate matters, employee issues or patent prosecution, don’t be afraid to raise the issue! www.mwe.com

  24. Contact Information John Fuisz Tel: +1 202 756 8029 jfuisz@mwe.com Steve ShahidaTel: +1 202 756 8376 sshahida@mwe.com www.mwe.com

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