Hovey Williams, LLP

Intellectual Property Issue Spotting

By Crissa Cook

In 2007, over 450,000 utility patent applications were filed in the United States Patent and Trademark Office (USPTO), with almost half of those applications originating from foreign countries.  Nearly 400,000 new trademark applications were filed, and over 150,000 new trademarks were registered.  Over the past ten years, utility patent filings have increased over 111%, while trademark filings increased 75%.  What this means is that businesses small and large are placing increasing emphasis on their intellectual property, and even routine business transactions often involve intellectual property issues in one form or another.  There are many significant issues that every general practice attorney should be able to spot when counseling their clients, and that clients themselves should be aware of so their everyday business decisions are well-informed and based on the most comprehensive information available. 

For example, in new business ventures, it is important to determine whether there is any potentially patentable subject matter involved, such as a new process, machine, manufacture, or composition of matter.  If so, the timing of the first public disclosure of the invention is a crucial point to consider to ensure that patent rights are not lost.  In the U.S., there is a 12-month grace period within which to file a patent application.  The clock starts running from the date of the first public disclosure or use, and even offer for sale of the invention.  In most foreign countries, however, there is no such grace period, and the patent application must be filed before any such public disclosure.  In addition, in the U.S., failure to file the patent application within that 12-month grace period constitutes a statutory bar to patentability of the invention.  That is, if this deadline is missed by even one day, the patent rights are lost – meaning the client is barred from receiving a patent.  Therefore, it is important to immediately determine if any such public disclosure has occurred to determine the deadline for filing a U.S. patent application.  It is also essential to make sure non-disclosure agreements are in place if the technology is to be discussed or disclosed to third parties for potential testing, manufacturing, or distributing of the technology. 

New businesses will also want to consider whether a proposed name, slogan, or logo for the new business can be registered as a trademark or whether the mark is already owned by another.  Thus, a thorough trademark search of the USPTO database and the state trademark records can prevent the client from committing too much time and energy in a mark that is already taken.  This also avoids headaches down the road, such as when creating a website for the business and registering a domain name.  It is also important for the client to keep good records of the first date the mark was used and accurate examples of the real world use of the mark (i.e., specimens such as labels, tags, or brochures where appropriate).  These issues should also be considered each time an existing business wishes to add a new product name, changes the company name, logo, or slogan, etc.

Intellectual property issues are also frequently involved in the purchase or sale of a business.  First, it is important to consider whether any trademarks or patented technology are essential to the business and desired to be included in the purchase.  Next, it is crucial to determine who actually owns that intellectual property.  That is, make sure that the company being bought is the true owner of the relevant patents or trademarks involved.  For example, in the U.S., only inventors can apply for a patent.  Therefore, inventors as employees are the actual owners of the patent until there has been a valid assignment of those rights to the employer.  It is also not uncommon for a trademark to become associated with a certain company even when that company does not own the trademark, but is rather only a licensee.[1]  Finding out that the business to be acquired is not the owner of the important trademark or patented technology will necessarily impact the important terms of the sale, such as the price, depending upon how willing the true owner is to license or assign those rights to the purchaser (and at what price).  If this information is not discovered early in the process, it can be an unwelcome surprise and may cause the transaction to fall through entirely.  Finally, it is essential to obtain a valid assignment of all relevant intellectual property.  As with general property law, there must be a present (and not future) assignment of the rights, and the assignment of a patent or trademark must include the right to sue for past infringement.  Trademark assignments must also include an assignment of the goodwill in the trademark, a valuable asset in its own right. 

At the other end of the spectrum, if the products or names associated with the business to be acquired are not patented or trademarked, consider what liabilities this may expose the purchaser to.  For example, it might be wise to have an intellectual property attorney review the transaction to determine whether any of the products being sold or names being used potentially infringe the intellectual property rights of others.  Knowing the rights and potential liabilities of the parties involved is essential to negotiating the best terms for your client. 

Finally, there are a few key issues that should be noted with respect to copyright law and business transactions.  Copyright can only be claimed by the author of the work, unless it was a “work for hire.”  The ten statutory classes of work for hire are specifically set forth in section 101 of the copyright statute.  The most common class of work for hire is work prepared by an employee in the scope of their employment.  In this case, the employer is considered the author (and owner) of the copyright.  The employer-employee relationship is defined and determined according to general agency law principles.  On the other hand, a work created by an independent contractor, such as a company’s website prepared by an outside website developer, is not owned by that company.  Rather, the website developer is considered the author of that work.  Therefore, it is important for the company to obtain a written assignment of the copyright. Whether a work is “made for hire” is often a complex determination, especially when one of the other nine statutory classes are involved.  Thus, it is important for clients to work closely with their intellectual property attorney to ensure the proper assignments are procured when necessary. 

[1] One of the most famous cases involved the purchase of Rolls-Royce Motor Cars Ltd. by Volkswagen (VW) in 1998 after VW outbid BMW when the car company was put up for auction.  However, in the transaction VW acquired everything but the rights to the Rolls-Royce name and logo.  This was because the trademark was not owned by Rolls-Royce Motor Cars, but by Rolls-Royce P.L.C., an aircraft engine manufacturer, formerly associated with the car company.  Rolls-Royce P.L.C. had a pre-existing working relationship with BMW and eventually sold the name to BMW for a fraction of the price paid by VW for the Rolls-Royce Motor Cars factories and operations.  After lengthy negotiations, VW retained the Bentley line of cars (also acquired in the transaction) along with the factories and operations, while BMW took over the manufacture of the Rolls-Royce line in 2003.

Crissa Cook is an associate at Hovey Williams. You can contact Crissa at .(JavaScript must be enabled to view this email address).

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