InfoPAKSM IP in Business Transactions: United States …€¦ · · 2014-07-29Plant patents which...

InfoPAKSM

IP in Business Transactions: United

States Overview

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IP in Business Transactions: United States Overview

Copyright © 2014 Association of Corporate Counsel

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IP in Business Transactions: United States

Overview

July 2014

Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 tel +1 202.293.4103 fax +1 202.293.4107

This InfoPAKSM is a guide to intellectual property law in the United States. The IP in business transactions Q&A gives an overview of maintaining an IP portfolio, exploiting an IP portfolio through assignment and licensing, taking security over IPRs, IP and M&A transactions, and the impact of IP on key areas such as competition law, employees and tax.

To compare answers across multiple jurisdictions, visit the IP in business transactions Country Q&A tool at http://uk.practicallaw.com/7-501-7488.

This Q&A is part of the Practical Law multi-jurisdictional guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-mjg.

http://www.acc.com/

http://uk.practicallaw.com/7-501-7488

http://uk.practicallaw.com/crossborderhandbook3-500-0022

Contents

1. Overview of Main IPRs ................................................................................................................... 5

A. What Are the Main IPRs in Your Jurisdiction? How Are They Protected?................................................................. 5

II. Maintaining IPRs ............................................................................................................................. 7

A. Search and Information Facilities ............................................................................................................................................. 7

B. Maintenance of Main IPRs .......................................................................................................................................................... 8

C. Monitoring Infringement .......................................................................................................................................................... 10

III. Exploiting IPRs .............................................................................................................................. 11

A. What Are the Main Steps in an IP Audit in Your Jurisdiction to Determine the Content of an IP Portfolio? 11

IV. Assignment ................................................................................................................................... 13

A. Scope of Assignment ................................................................................................................................................................. 13

B. Formalities for Assignment ..................................................................................................................................................... 14

C. Main Terms for Assignments .................................................................................................................................................. 15

V. Licensing ....................................................................................................................................... 16

A. Scope of Licensing ...................................................................................................................................................................... 16

B. Formalities for Licensing .......................................................................................................................................................... 17

C. Main Terms for Licences.......................................................................................................................................................... 17

VI. Taking Security ............................................................................................................................. 19

A. Is Security Commonly Taken over IPRs? ............................................................................................................................ 19

B. What Are the Main Security Interests Taken over IPRs? ............................................................................................... 19

VII. M&A ............................................................................................................................................... 20

A. Due Diligence .............................................................................................................................................................................. 20

B. Warranties/Indemnities ............................................................................................................................................................ 23

C. Transfer of IPRs .......................................................................................................................................................................... 24

VIII. Joint Ventures ............................................................................................................................... 25

A. Is It Common for Companies to Set up Joint Ventures in Your Jurisdiction to Develop Projects that

Heavily Involve IPRs? ................................................................................................................................................................. 25

IX. Competition Law .......................................................................................................................... 26


Copyright © 2014 Practical Law Company (PLC) & Association of Corporate Counsel

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A. Main Provisions and Common Issues ................................................................................................................................... 26

B. Exclusions/Exemptions ............................................................................................................................................................. 27

X. Advertising .................................................................................................................................... 27

A. To What Extent Do Advertising Laws Impact on the Use of Third Party Trade Marks? ..................................... 27

XI. Employees and Consultants ......................................................................................................... 28

A. Who Owns Each of the Main IPRs Created by an Employee in the Course of His Employment? Is

Compensation Payable in Relation to Employee IPRs? What Main Steps Can an Employer Take to Ensure It

Owns Each of the Main IPRs? ................................................................................................................................................. 28

B. Who Owns Each of the Main IPRs Created by an External Consultant? What Main Steps Can a Business

Take to Ensure It Owns Each of the Main IPRs? ............................................................................................................... 29

XII. Tax ................................................................................................................................................. 30

A. What Are the Main Taxes Payable by a Licensor on the Licensing of the Main IPRs? ........................................... 30

B. What Are the Main Taxes Payable by a Seller on the Disposal of the Main IPRs? .................................................. 30

XIII. Cross-Border Issues...................................................................................................................... 30

A. What International IP Treaties Is Your Jurisdiction Party to? ....................................................................................... 30

B. Are Foreign IPRs Recognised in Your jurisdiction? .......................................................................................................... 32

XIV. Reform ........................................................................................................................................... 33

A. Are There Any Proposals for Reform? ................................................................................................................................ 33

XV. Online Resources .......................................................................................................................... 34

A. United States Patent and Trademark Office (USPTO).................................................................................................... 34

B. Copyright Office ......................................................................................................................................................................... 34

C. State Department ...................................................................................................................................................................... 34

D. World Intellectual Property Organization (WIPO) ......................................................................................................... 34

E. Administrative Office of the United States Courts .......................................................................................................... 34

F. International Trade Commission ........................................................................................................................................... 35

XVI. Contributor Profiles ..................................................................................................................... 35

A. Patrick J Coyne ........................................................................................................................................................................... 35

B. Paul Barker ................................................................................................................................................................................... 35

C. Denise Main ................................................................................................................................................................................. 36

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks

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1. Overview of Main IPRs

A. What Are the Main IPRs in Your Jurisdiction? How Are They

Protected?

1. Patents

The following patents exist:

Utility patents which protect any new and useful process, machine, manufacture, or composition of matter, or new and useful improvement on them.

Design patents which protect new, original, and ornamental designs for manufactured articles.

Plant patents which protect asexually-reproduced and non-tuber propagated plant varieties.

Patents are protected by federal law under the Patent Act. Patents are based on examination and approval of an application.

Utility and plant patents are protected for the following terms:

For applications filed on or after 8 June 1995, the patent term is 20 years from the filing date of the earliest US non-provisional application to which priority is claimed.

For applications filed or enforceable before 8 June 1995, the patent term is the longer of 17 years from the issue date or 20 years from the filing date of the earliest non-provisional US or Patent Cooperation Treaty 1978 (PCT) application to which priority is claimed.

Design patents are protected for 14 years after being granted.

2. Trade Marks

A trade mark is any designation used in commerce that distinguishes the goods and/or services of its owner from the goods and/or services of others. Federal registration requires use in interstate commerce; common law protection requires use within a state. Service marks, collective membership marks, and certification marks are also protected. Trade marks are protected by:

State common law.

State statutes.



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Federal law under the Lanham (Trademark) Act (Lanham Act).

Filing an Affidavit of Use between the 5th and 6th year following trade mark registration protects the mark for the balance of the initial ten-year term. Filing a Section 9 Trademark Renewal before the end of each ten-year term renews protection for an additional ten-year period.

3. Copyright

Copyright protects original works of authorship that are fixed in a tangible medium of expression. Copyright is protected only by federal law.

For works copyrighted before 1 January 1964, copyright expires if not renewed in the 28th year. If renewed, the works receive a second term of 47 years. Renewal is optional (and recommended) for works originally copyrighted between 1 January 1964 and 31 December 1977. Copyright renewal is automatic for works copyrighted on or after 1 January 1978.

4. Design Rights

Industrial designs are protected as design patents and trade dress is protected as a trade mark.

5. Confidential Information

Trade secrets are protected by state laws. The following conditions must be satisfied:

The information must not be publicly known.

The information must confer an actual or potential economic or business advantage on its owner.

The owner must take reasonable steps to keep it confidential.

6. Other

In addition to the above IPRs, US law provides for:

Mask Work Registration Certificates, which protect the topography of semiconductor chips. Registration must be applied for through the Copyright Office within two years of the first commercial use.

Plant Variety Protection Certificates. These protect sexually reproduced and tuber-propagated plant varieties, and are issued by the US Department of Agriculture.

For further information about the main IPRs, see Main IPRs: United States.


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II. Maintaining IPRs

A. Search and Information Facilities

1. What Facilities Are Available to Conduct IP Searches and Obtain IP

Information on Registered IP Rights?

a. Patents

The United States Patent and Trademark office (USPTO) website (www.uspto.gov/patents/resources/index.jsp) offers various tools, resources, and guidance for preparing and filing applications, and searching published applications and issued patents. Step-by-step guidance for filing a utility patent application is also provided (www.uspto.gov/patents/resources/types/utility.jsp).

Search services are also available through a wide range of commercial vendors. A patentee can monitor the status of their patent application and review the prosecution history through the USPTO's Patent Application Information Retrieval database (PAIR) system. The USPTO publishes its Official Gazette each week, listing published patents, notices, and a variety of other information regarding patents.

b. Trade Marks

Searching services are available on the USPTO's website (www.uspto.gov/trademarks/index.jsp), as well as through a wide variety of commercial search services. The PTO website is limited to federal applications and registrations, whereas commercial services offer a much broader range of options, including state applications and registrations, domain name registrations, internet usage, state incorporation information, business registrations, and electronic yellow pages.

The Trademark Office offers several electronic tools to facilitate searching, including:

Trademark Electronic Search System (TESS) for registrations and applications.

Trademark Document Retrieval (TDR) for securing electronic copies of application files.

Trademark Applications Retrieval (TARR) for the status of pending and registered marks.

Trial and Appeal Board Inquiry System (TTABVUE) for access to files of appeals and contested proceedings.



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The Trademark Office also publishes a weekly Official Gazette containing information comparable to the Patent Office's Official Gazette (see above, Patents).

c. Copyright

Federal copyright registrations may be searched on the Copyright Office's website (www.copyright.gov). The Library of Congress also offers an electronic search system for the Library's collection, apart from Copyright Office operations. Commercial services also provide comparable searches. As registration is not required and lack of novelty or similarity to a prior work is not required to obtain copyright, extensive searching is not necessary nor will it be definitive.

d. Design Rights

Designs may be searched on the USPTO's website, using the search term "PN/D". Searching for designs, however, is inherently problematic, as design patents and trade dress are essentially pictorial.

e. Confidential Information

Trade secret information must be confidential. Thus, there is no way effectively to search for trade secret rights. Public domain sources are typically searched to determine whether or not the alleged trade secret information has instead become publicly available.

f. Other

Mask works, plant patents, and other forms of intellectual property protection are more difficult to search.

B. Maintenance of Main IPRs

1. What Steps Must a Business Take to Maintain the Registration and Status of

Its Main IPRs?

a. Patents

Maintenance fees must be paid for utility patents at three-and-a-half, seven-and-a-half, and 11.5 years after the grant. If the maintenance fees are not paid, the patent expires. Plant and design patents do not require maintenance fees.

b. Trade Marks

Common law rights are maintained through continuous use of the mark in commerce. Federal registration and many state registrations are subject to renewal requirements.


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Federal registration must be renewed every ten years. The mark must still be in use in conjunction with the goods and/or services in interstate commerce. Non-use for a period of three years generally raises a presumption of abandonment.

c. Copyright

Depending on when the works were first copyrighted, copyright may need to be renewed (see Section I.A.3).

d. Design Rights

Design patents are not subject to maintenance fees. Trade Dress registrations are subject to the same renewal requirements as registered trade marks (see above, Trade marks).


To protect a trade secret, the company must take reasonable steps to maintain the confidentiality of the secret, such as:

Mark trade secret documents, and handle them, as confidential.

Impose access controls, barriers, and signs, as appropriate.

Use non-disclosure agreements when dealing with third parties.

Use employee agreements that set out employees' obligations regarding confidential information, and periodically remind employees of their obligations.

Limit access to trade secrets to only essential employees.

Screen proposed disclosures prior to public disclosure.

Set up other internal security measures, including sign-in procedures for visitors.

f. Other

Mask Work Registration Certificates and Plant Variety Protection Certificates are non-renewable and no maintenance fees are required.



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C. Monitoring Infringement

1. What Steps Can a Business Take to Avoid Committing an Infringement of

Another Party's IPRs and to Monitor Whether a Competitor Is Infringing Its

IPRs?

a. Patents

It is recommended to monitor patents being issued to one's competitors, in a particular technology area, and to new entrants. Periodic searching and monitoring publications, presentations at trade meetings, trade catalogues, and other commercial sources are typically helpful.

b. Trade Marks

A thorough search by a reputable provider should be conducted before using a mark. This will help avoid infringing the rights of third parties as well as identify how broadly the mark may be protected. It is also recommended to monitor new applications filed with the Trademark Office and to oppose or petition to cancel confusingly similar applications or registrations. Periodic searching, combined with effective commercial intelligence, can help detect infringement.

c. Copyright

Copyright infringement is typically harder to detect. Commercial services are available to monitor certain publications and broadcasts, and frequent, targeted internet searches may help detect infringement. Commercial software tools and services are also available.

d. Design Rights

Infringement of design patents and trade dress is typically detected in the same manner as for patents and trade marks, respectively (see above, Patents and Trade marks).

e. Confidential information

Employees should be educated to minimise the risk of misappropriating another's trade secret rights, particularly new employees who may have had access to the trade secrets of a past employer.

f. Other

Although tear-down and reverse engineering of chips is a common practice, it is critical to avoid misappropriating all or a material part of third-party's registered mask work.


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Competitors' Mask Work Registration Certificates should be monitored to identify protected mask works.

Reproducing protected plant varieties is to be avoided. Detecting and proving infringement may be difficult, as the patent owner must prove genetic relatedness of the accused to the patented plant varieties. This typically requires genetic fingerprint data, isozyme analysis, and phenotypic comparisons.

III. Exploiting IPRs

A. What Are the Main Steps in an IP Audit in Your Jurisdiction to

Determine the Content of an IP Portfolio?

1. Patents

The main steps in an IP audit are as follows:

Defining the objective of the audit (such as, for example, licensing (in or out), acquisition, valuation, risk assessment, assertion, defence), and tailoring the level of effort to the goals of the audit.

Identifying all issued patents and patent applications owned by or licensed to the target, as well as all innovations for which patent protection has not yet been filed.

Reviewing maintenance fee records (worldwide) to ensure that all fees are paid.

Reviewing assignment records (worldwide) to determine that all patents and applications are properly assigned and recorded.

Defining the priorities (that is, determining which assets can be exploited, leveraged through patent licensing and joint ventures, sold, or abandoned).

Reviewing patent licences.

Conducting searches (Freedom to Operate (FTO) and validity) to ensure that the target is free of infringement claims and to assess the strength of the target's patent assets.

Conducting a thorough search of all litigation and contested proceedings involving any of the target's patents and/or applications.



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Reviewing legal opinions concerning potential infringing products.

Comparable steps are followed with respect to auditing all types of IP assets, with the distinctive variations noted below.

2. Trade Marks

In addition to precautionary steps that are described in relation to Patents (see above), the following should be identified:

All brands that are being used to identify the source of goods and/or services, and asses the degree to which they are protected.

Collateral assets, such as domain names.

3. Copyright

All original works of authorship that are fixed in a tangible medium of expression are potentially protectable; yet, not all works are equally valuable to a business. The focus must be on those works that are most valuable, such as:

Substantive information content included in reports, publications, and so on.

Manuals (user manuals, repair manuals, and user guides), advertising copy, and collateral materials.

It should be confirmed which works have been registered within three months of first publication, as it may affect the ability to recover statutory damages and attorney's fees for infringement of these works.

See also above, Patents.

4. Design Rights

The same guidelines applicable to patents and trade marks apply to design patents and trade dress, respectively (see above, Patents and Trade marks).

5. Confidential Information

The following steps should be taken:

Identifying trade-secret information that is valuable to the business.

Searching publicly available documents to assess whether the trade-secret information remains confidential or has instead entered the public domain.


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The audit should confirm that effective steps have been taken to maintain the secrecy of the information, including reviewing:

Employee agreements.

Non-disclosure agreements.

Internal security measures.

Patent filings, presentations, and publications.


6. Other

The following should be confirmed:

That mask works have been registered with the Copyright Office within two years of first being commercially exploited.

That novel plant varieties have been patented or registered.


IV. Assignment

A. Scope of Assignment

1. On What Basis Can Main IPRs Be Assigned?

IPRs are a bundle of individual rights that can be assigned, together or separately. IPRs can be assigned in whole or in part. It is important that any assignment be in writing and specify what rights are being assigned. The rights that can be assigned include:

Patent rights.

Rights to future inventions.

Trade marks (provided the goodwill associated with the mark is also assigned).

Copyright.

Design rights.



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Trade dress.

Trade secrets.

Mask works.

Plant patents.

Plant variety certificates.

Applications to register a mark may be assigned only if certain conditions are satisfied.

B. Formalities for Assignment

1. What Formalities Are Required to Assign Each of the Main IPRs?

a. Patents

An assignment must be in writing signed by the assignor. The signature of the assignor can be notarised or otherwise legally acknowledged. The assignment may be void against any subsequent purchaser of the same patent unless the assignment is recorded at the USPTO or recorded in the patent application file within three months of the date of the assignment or before a subsequent purchase. Unless the assignment is filed concurrently with the application, patents must be identified in the assignment by number and patent applications by serial number.

b. Trade Marks

Assignment of a trade mark must be in writing. To be effective, the assignment must include the goodwill associated with the mark.

c. Copyright

Assignment of copyright must be in writing. To be effective against third parties, it must be recorded.

d. Design Rights

Design patent assignments must satisfy the requirements for patent assignments; trade dress assignments must satisfy the requirements for trade mark assignments (see above, Patents and Trade marks).


An assignment of a trade secret should be in writing, and under most circumstances, identify the trade-secret information. As there is no registration system, assignments of trade secrets are not recorded.


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f. Other

Assignment of Mask Work Registration Certificates, Plant Variety Protection Certificates, and other forms of IP must also be in writing.

C. Main Terms for Assignments

1. What Main Terms Should Be Included in an Assignment of IPRs?

Assignments of IPRs should:

Identify the assignor and assignee.

Identify the IP being assigned by application, number, inventor/user/author, owner, date and title.

Identify the scope of assignment, that is, in whole or in part:

whether it includes continuations, divisionals, and foreign counterparts; and

the rights to recover for past, present, and/or future infringement.

Identify the consideration for the assignment.

Specify assignor's warranties, for example, that the assignor is the owner and that it has not previously been licensed or assigned to a third party.

Identify the controlling jurisdiction and law, for example, providing that the assignment is construed and governed by the laws of the State of Delaware.

Assignment of a registered trade mark must include the goodwill associated with the mark to be recorded.



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V. Licensing

A. Scope of Licensing

1. On What Basis Can the Main IPRs Be Licensed?

a. Patents

Patents can be licensed and sub-licensed, in whole or in part, exclusively or non-exclusively. Licences may be limited as to time, geographical area, or field of use.

b. Trade Marks

This is the same as for patents (see above, Patents).

c. Copyright


d. Design Rights

Design patents and trade dress may be licensed and sub-licensed, in whole or in part, exclusively or non-exclusively. As with trade marks, it is common to specify that the goodwill associated with the trade dress inures to the licensor and not to the licensee. Licences may be limited as to time, geographical area, or field of use.



f. Other

Mask works, plant patents and other forms of IPR may be licensed in the same manner as patents.


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B. Formalities for Licensing

1. What Are the Formalities to License Each of the Main IPRs?

a. Patents

A patent licence can be implied or express, formal or informal. As with any contract, the minimum requirements are an offer, acceptance, and consideration. Normally, patent licences are in writing, signed by the licensor and the licensee, and identify the rights licensed. An exclusive patent licence must be in writing. Patent licences can be, but typically have not been, recorded at the USPTO.

b. Trade Marks

A licence should be in writing, signed by the licensee and licensor, and identify the rights licensed. Verbal licences between parents and wholly-owned or majority-owned subsidiaries are permissible but not advisable. Trade mark licences are typically not recorded.

c. Copyright

A licence must be in writing, signed by the licensee and licensor, and identify the rights licensed. Copyright licences are typically not recorded.

d. Design Rights

A licence must be in writing, signed by the licensee and licensor, and identify the rights licensed. Design patent and trade dress licenses are typically not recorded.


A licence must be in writing, signed by the licensee and licensor, and identify the rights licensed. Trade secret licences are not recorded. The licence should identify the trade-secret information and specify the steps that will be taken to maintain secrecy.

C. Main Terms for Licences

1. What Main Terms Should Be Included in an IP Licence?

The terms of a technology licence in the US are the result of bargaining between the parties and, generally, are not established by governmental requirements. These include:



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Identity of the licensor and licensee.

Identity of the IP being licensed, by application or number, description of original work or copyright registration number, and title, and description of trade secrets or know-how.

Scope of licence grant, for example, exclusive or non-exclusive, territory, term, field of use, rights (make, use, sell, offer for sale, or import), whether it may be sub-licensed.

Confidentiality provisions.

Licence fees, royalties, and other consideration.

Payment schedule, record keeping, audit rights, remedies for late payment.

Term of the licence, and right to terminate for material breach.

Optionally, indemnification to protect the licensor, warranties of title and right to grant licences, disclaimer of warranties of validity or non-infringement of third party IP, force majeure provision, arbitration or other alternative dispute resolution.

In relation to non-exclusive licences, whether most-favoured licensee and third party infringement provisions are included.

In relation to exclusive licences, whether best efforts, milestones, and minimum payments are included.

Terms controlling transfer, merger or acquisition, and bankruptcy.

Choice of state law jurisdiction for disputes.

Except for the first three bullets above and some consideration provisions, all other terms are subject to negotiation and are not required. Except for limited patent and copyright issues, state contract law controls the interpretation and enforcement of licence agreements.


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VI. Taking Security

A. Is Security Commonly Taken over IPRs?

Intellectual property rights are typically assigned as security. Patents, trade marks and copyrights can be assigned as security. An assignment, even if only as security, may restrict the IP owner in asserting, selling or licensing the IPRs. At a minimum, it may complicate these further transactions until the security is released. Potential lender problems include hidden encumbrances and failing to file with the correct governmental entity to perfect a security interest.

B. What Are the Main Security Interests Taken over IPRs?

In addition to assignments as security, security interests can be granted under state law (Uniform Commercial Code) in each of the intellectual property assets. These are typically recorded with the Secretary of State of the state in which the owner and/or the IP asset is located, as well as with the appropriate governmental authority.

1. Patents

Security interests must be in writing. To be effective, the security interest must be recorded with the Secretary of State of the state in which the owner and/or the IP asset is located. The security interest may be, but is not required to be, recorded with the USPTO.

2. Trade Marks

Security interests must be in writing and recorded with the Secretary of State of the state in which the owner and/or the IP asset is located. In addition, trade mark security interests should be recorded with the USPTO.

3. Copyright

Security interests in registered copyright must be in writing and recorded with the Register of Copyrights. Security interests in unregistered copyright must be recorded with the Secretary of State of the state in which the owner and/or the IP asset is located.



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4. Design Rights

Security interests in design patents must satisfy the requirements for patents; requirements for security interests in trade dress are the same as for trade marks (see above, Patents and Trade marks).

VII. M&A

A. Due Diligence

1. What IP-Related Due Diligence Is Commonly Carried out in Both a Share

Sale and an Asset Sale?

Due diligence is critical to determine the scope and the value of the assets being acquired as well as identifying potential liabilities. A good due diligence process may help both parties properly value the transaction, and may help the buyer better protect the assets, identify and correct defects, avoid liability, and detect and stop or prevent infringement. The scope of the investigation is generally broader for a share sale; for an asset sale, it is typically limited to the assets and related assets.

a. Share Sale

In a share sale, for each legal entity affiliated with the target, it is appropriate to:

Review the corporate documents (articles of incorporation, bye-laws, and so on).

Identify outstanding securities, including: stocks, warrants, and options.

If the target is publicly traded, review all Securities and Exchange Commission (SEC) filings and shareholder communications for the past five years.

Review the target company's strategic plans, forecasts, budgets, and market analyses for the past two years.

Identify all of the target's products and/or services, sales, cost of goods sold, margins, taxes, and market share.

Identify the target's 20 most substantial competitors and ten largest suppliers and review each of its products and sales for the past two years.

Review the target's annual and interim financial statements for the past five years.


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Review all federal, state, and local tax returns for all open years, as well as all property tax bills and assessments, letters of deficiency, and assessments for the past two years.

Review all citations, notices, and warnings from any federal, state, or local governmental entity.

Review all real and personal property (owned or leased) and intangible property (owned or licensed).

Review all IPRs and applications and licences, sub-licences, and assignments.

Confirm ownership of the target's IP assets by reviewing original assignment documents and recorded assignments.

Review the following, among others:

all employment-related matters;

insurance coverage, policies, and procedures;

internal IP policies;

all government secrecy orders, export controls, and similar restrictions;

operations, including production, quality assurance, analyses, audit, and consulting reports;

compliance with all applicable environmental, Occupational Health and Safety Administration (OSHA), and labour requirements;

review all foreign operations, offset programs, export and import licences, agreements, permits, and approvals.

Determine the following, among others:

whether the owner has filed for bankruptcy or receivership, and evaluate the status of all liens, claims, and/or encumbrances;

if the owner has ever been involved in litigation or an IP dispute;

if the owner is aware of any third party who may be infringing its IP rights;

if any third party has asserted any infringement claim or demand, or if the owner has been sued for infringement of any IP rights;

if any judgment has been entered relating to any IP rights of the owner.

Foreign claims should be investigated as well.

b. Asset Sale

In a share sale, for each legal entity affiliated with the target, it is advised to:



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Identify:

the assets (patents, trade marks, copyrights, trade secrets);

all related assets (for example, priority claims);

assets cross-referenced in the target and related assets.

Obtain invention disclosure documents, if available.

Obtain and review internal files including inventor notebooks, marketing plans, and drafts.

Investigate and confirm proper inventorship, authorship, ownership, and/or use of the assets.

Confirm that all assignments have been executed, are in proper form, and are properly recorded.

Review the file history of the asset and identify any irregularities.

Confirm that all issue and maintenance fees (patent) have been paid, affidavits of continued use and incontestability and renewals have been filed (trade marks), and that the work has been registered (copyright).

Determine whether the asset has been assigned or encumbered and, if so, whether the encumbrance has been released.

Check state Uniform Commercial Code filings and confirm that no encumbrance burdens the asset and, if so, secure its release.

Evaluate any potential third party ownership claims.

Review all licences granted under any IP assets.

Determine whether the owner has filed for bankruptcy or receivership.

Investigate whether the owner has ever asserted the asset against a third party.

A number of further steps should be taken for important patent assets, cost and time permitting. For example:

Investigate whether the subject matter of any patent was sold or offered for sale more than a year before its priority date.

Evaluate whether each patent includes an enabling disclosure and claims that are clear, concise, and definite.

Determine whether the owner has:

licensed or permitted any third party to use the asset;

received any royalties or consideration for use of the asset;

ever been involved in litigation or a dispute regarding the asset.


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B. Warranties/Indemnities

1. What IP-Related Warranties and/or Indemnities Are Commonly Given by

the Seller to the Buyer in Both a Share Sale and an Asset Sale?

a. Share Sale

Warranties and indemnities typically include:

Ownership of stock, authority, and consents.

That the corporation is properly organised, in good standing, and has power and authority to engage in its ongoing business activities and the transaction.

Capitalisation, ownership of stock, and registration of securities, if required.

That articles, books, bye-laws, and records are in proper form and up-to-date.

That financial statements are true and correct.

Absence of changes and undisclosed liabilities.

Litigation.

Licences.

Compliance with applicable laws and regulations.

Title to and condition of property, including inventories and insurance.

Timely filing and payment of taxes, and the absence of letter rulings.

Contracts and commitments.

Environmental compliance.

That intellectual property assets are properly identified, owned, do not violate rights of others, and that there is no notice of infringement.

Accounts, indebtedness, and investments.

Product/service warranties.

Employees, including benefits plans.

Typically, the warranties requested of the seller include all of the above and those requested of the buyer are more limited, namely:

Corporate matters.

Authorities.

Consents.



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Disclosures.

b. Asset Sale

Warranties and indemnities typically include:

That the corporation is properly organised, in good standing, and has the power and authority to engage in its ongoing business activities.

That no action will be taken by the seller to contravene or frustrate the transaction.

That any necessary regulatory approvals have been obtained.

Capitalisation, ownership of stock, and registration of securities, if required.

Articles, books, bye-laws, and records are in proper form and up-to-date.

That financial statements are true and correct.

Absence of changes and undisclosed liabilities.

Compliance with applicable laws.

Identification of assets.

Ownership of the assets, without lien or encumbrance.

Status of the assets.

No infringement of others' rights and no notice of claim of infringement against the seller.

Commitments, licences and agreements affecting the assets.

Litigation and contested proceedings.

For both a share and an asset sale, these warranties may be backed by an indemnification obligation, requiring the seller to defend and compensate the buyer for any breach.

C. Transfer of IPRs

1. How Are the Main IPRs Transferred in Both a Share Sale and an Asset Sale?

a. Share Sale

In a share sale, shares are typically transferred. The assets are not transferred directly. If there is a name change as a result of the transaction, it will be necessary to record appropriate assignments in the name of the successor. All IP licences must be reviewed to determine whether they terminate for change of control.


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b. Asset Sale

In an asset sale, the individual assets are sold. It is necessary to execute and record written assignments for the various IP assets: patents, trade marks, and copyrights (see Section IV).

VIII.Joint Ventures

A. Is It Common for Companies to Set up Joint Ventures in Your

Jurisdiction to Develop Projects that Heavily Involve IPRs?

Setting up joint ventures for this purpose is common. Joint ventures are frequently employed to secure access to greater levels of capital while managing risk, particularly in industries in which research and development costs, and the risks associated with new technologies, are high.

Main IP-related provisions that should be included in a joint venture agreement include:

The parties' identity.

The joint venture's scope.

Authority to participate in the joint venture.

Whether or not the parties are constrained to act in a manner that may contravene or frustrate the joint venture's purposes.

That any necessary regulatory approvals have been obtained.

Details of assets being contributed, including any IPRs being transferred or licensed.

Each party's obligations and rights relative to the other parties.

How decisions are made and by whom.

How disputes are resolved (for example, mediation, litigation or arbitration) and in what jurisdiction.

What constitutes a breach of contract and remedies for breach of contract.

Non-compete and non-disclosure provisions.

Financing and distribution.

Auditors' identity.



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Confidentiality.

Termination.

IX. Competition Law

A. Main Provisions and Common Issues

1. What are the Main Provisions of Your National Competition Law that Can

Affect the Exploitation of the Main IPRs?

The three main provisions of US competition law that affect IPRs are the:

Sherman Antitrust Act.

Clayton Antitrust Act.

Federal Trade Commission (FTC) Act.

The Sherman Act governs monopolisation and attempted monopolisation. The Clayton Act governs acquisitions of assets. Both acts are enforceable by private action and by the government. The FTC Act gives the FTC non-exclusive authority to regulate unfair methods of competition; there is no private right of action under the FTC Act. Section 5 of the FTC Act is very broad and has been used by the FTC to redress conduct that the FTC considers to constitute unfair competition.

In addition, the International Trade Commission (ITC) treats IPR infringement (patent, trade mark, copyright, and trade secret) in the import trade as an act of unfair competition enforceable under section 337 of the Tariff Act.

2. What Are the Most Common National Competition Law Issues that Arise

in the Exploitation of the Main IPRs?

Fraudulent procurement and misuse of patent and copyright are the most common issues. If a patent or copyright are procured through fraud on the Patent or Copyright Office, the enforcement of these rights may subject the owner to a claim of monopolisation or attempted monopolisation. All of the remaining elements of a violation of the competition laws must be satisfied, in addition to proving the fraudulent procurement.


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In addition, certain licensing and settlement practices may be challenged as misuse or unfair competition. Settlements of infringement litigation in the pharmaceutical area are scrutinised. For example, a patent owner may sue a generic drug maker who is threatening to enter a market allegedly protected by the patent. In settling the infringement case, the patent owner may pay the generic entrant to drop their challenge and agree to stay out of the market for a period of time. These settlements have been challenged by private parties and by the FTC. Most of these challenges, to date, have been unsuccessful but the practice continues to be scrutinised closely both by the FTC and Congress.

B. Exclusions/Exemptions

1. What Exclusions or Exemptions Are Available for National Competition

Law Issues Involving the Exploitation of the Main IPRs?

No exemptions or exclusions apply. The IP and competition laws coexist in the US. The United States Supreme Court held in 2013 that enforcement of a patent is subject to the restraints of the anti-trust laws, even within the lawful scope of the patent. However, unless there is fraudulent procurement, courts typically do not find a violation of competition laws when the rights being asserted are within the proper scope of the patent or trade mark.

X. Advertising

A. To What Extent Do Advertising Laws Impact on the Use of Third

Party Trade Marks?

Truthful advertising is not restricted and is protected by the US Constitution as commercial speech. In addition to enforcement by the FTC as a matter of consumer protection, false advertising can be challenged under the trade mark law (Lanham Act). This requires a false statement that is likely to cause confusion, mistake, or deception. If, instead, a mark is used fairly to describe the goods, it is not considered infringement.

Comparative advertising is permitted. Challenges to advertising claims that are puffing or clearly exaggerated and that consumers are not likely to believe (for example "best", "number 1") typically fail.



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XI. Employees and Consultants

A. Who Owns Each of the Main IPRs Created by an Employee in the

Course of His Employment? Is Compensation Payable in Relation

to Employee IPRs? What Main Steps Can an Employer Take to

Ensure It Owns Each of the Main IPRs?

1. Ownership

A patented invention is owned in the first instance by the inventor. US law does not recognise artificial persons (that is, corporations, partnerships and other juridical entities) as inventors.

A trade mark is owned by the first person to use the mark in commerce, whether a natural or legal person.

Copyright is owned by the author who first reduced the work to a tangible medium of expression. US law recognises juridical persons as authors.

Trade secrets can be owned by individuals or juridical entities.

2. Compensation

There is no entitlement to compensation.

3. Main Steps

Patents can be assigned, as discussed above (see Section IV). Typically, employment agreements require employees to assign patent rights to their employer.

Copyright can be made as a work for hire, or can be assigned. Works made by employees in the regular course of their employment are considered works for hire.

Trade secrets can be assigned. As a condition of employment, employees should be required to sign an employment agreement setting out their obligations in relation to the company's trade secrets, including ownership and confidentiality.


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B. Who Owns Each of the Main IPRs Created by an External

Consultant? What Main Steps Can a Business Take to Ensure It

Owns Each of the Main IPRs?

1. Ownership

A patented invention is owned in the first instance by the individual inventor.

A trade mark is owned by the first person to use the mark in conjunction with the goods or services in commerce. This may be a consultant.

Copyright is owned by the author, unless the work is a work for hire.

Trade secrets are owned by the person (natural or legal) who uses the secret to obtain some commercial advantage and maintains it in confidence. Businesses that use consultants to develop IPRs should include in their consulting agreements provisions defining who owns the IPRs and specifying the consultants' obligations to transfer and assist in perfecting IPRs, if they are assigned to the business.

2. Main Steps

Steps to ensure the business owns each of the main IPRs could include, for example, negotiating an assignment of IPRs. Patents can be assigned (see Section IV). Since a patented invention is owned in the first instance by the inventor, employment agreements typically require employees to assign patent rights to the employer. As a condition of engagement, external consultants should be required to assign patent rights to the business retaining them.

Copyright can also be a work for hire, or can be assigned. Works made by employees in the regular course of their employment are considered works for hire. Copyright works made by independent consultants and contractors are typically not considered works for hire, unless the consultant or contractor is using the employer's space, resources and so on, or the parties agree to assign the work.

Trade secrets can be assigned. As a condition of employment, employees should be required to sign an employment agreement setting out their obligations in relation to the company's trade secrets, including ownership and confidentiality. Similarly, external consultants should be required to assign trade secrets and maintain confidentiality.



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XII. Tax

A. What Are the Main Taxes Payable by a Licensor on the Licensing

of the Main IPRs?

Taxation of intellectual property rights depends on the interest and the transaction in which they are involved. Intellectual property rights are intangible assets but may be considered capital assets of a business. As such, the cost of investment in IPR may be amortised and depreciated. Royalty income is typically ordinary income.

B. What Are the Main Taxes Payable by a Seller on the Disposal of

the Main IPRs?

The sale of IPR is treated as the sale of an intangible asset. Typically, the treatment of the sale as taxable is subject to the same principles as for any other asset.

XIII.Cross-Border Issues

A. What International IP Treaties Is Your Jurisdiction Party to?

The US is a signatory to a number of:

World Intellectual Property Organization (WIPO)-administered treaties, including:

Berne Convention for the Protection of Literary and Artistic Works (1989) (Berne Convention);

Inter-American Convention on the Rights of the author in Literary, Scientific, and Artistic Works General Inter-American Convention for Trade Mark and Commercial Protection (1931);

Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (2003) (Madrid Protocol);

Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (1972);


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Paris Convention for the Protection of Industrial Property (1887) (Paris Convention);

Patent Cooperation Treaty (PCT);

Patent Law Treaty (2000) (PLT);

Singapore Treaty on the Law of Trademarks (2009);

Strasbourg Agreement Concerning the International Patent Classification (1975);

Convention Establishing the WIPO (1970);

WIPO Copyright Treaty (2002);

WIPO Performances and Phonograms Treaty (2002).

IP-related multilateral treaties, for example:

International Treaty on Plant Genetic Resources for Food and Agriculture;

Kyoto Protocol to the United Nations Framework Convention on Climate Change;

Convention on Biological Diversity;

International Covenant on Economic, Social and Cultural Rights;

Convention for the Protection of Cultural Property in the Event of Armed Conflict (13 June 2009);

Protocol (III) additional to the Geneva Conventions of 12 August 1949, and relating to the adoption of an additional distinctive emblem (8 September 2007);

International Plant Protection Convention (2 October 2005);

Agreement establishing the World Trade Organization (WTO) (1 January 1995);

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) (1994) (1 January 1995);

United Nations Convention on Contracts for the International Sale of Goods (1 January 1988);

Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (2 December 1983);

International Convention for the Protection of New Varieties of Plants (UPOV) (8 November 1981);



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Convention concerning the Protection of the World Cultural and Natural Heritage (17 December 1975);

Universal Copyright Convention as revised on 24 July 1971, with Appendix Declaration relating to Article XVII and Resolution concerning Article XI (10 July 1974);

Agreement on the Importation of Educational, Scientific and Cultural Materials (2 February 1967);

Universal Copyright Convention of 6 September 1952, with Appendix Declaration relating to Article XVII and Resolution concerning Article XI (16 September 1955);

Protocol on Uniformity of Powers of Attorney which are to be Utilized Abroad (16 April 1942).

Regional treaties, such as:

Inter-American Convention on the Rights of the author in Literary, Scientific, and Artistic Works General Inter-American Convention for Trade Mark and Commercial Protection (1931);

NAFTA-North American Free Trade Agreement (1994).

In addition, the US is a signatory to dozens of bilateral treaties relating to IP rights (see www.state.gov or www.wipo.int/wipolex/en/profile.jsp?code=US).

B. Are Foreign IPRs Recognised in Your jurisdiction?

1. Patents

Foreign patents are not recognised.

2. Trade Marks

Foreign trade marks are not recognised. Consideration is currently being given to extend protection to well-known international marks (see Section XIV). The unauthorised misuse of certain geographic designations (for example, "champagne") may be challenged as false advertising.

3. Copyright

Foreign copyright is not recognised. Nonetheless, copyright is created in a comparable manner worldwide, and once created, is recognised.


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4. Design Rights

Foreign design patents are not recognised; the position in relation to trade dress is the same as for trade marks (see above, Trade marks).

XIV.Reform

A. Are There Any Proposals for Reform?

On 16 September 2011, the America Invents Act became law, changing the US from a "first-to-invent" to a "first inventor-to-file" system. Full implementation of the Act will likely take 20 years or more. Current proposals for additional reform include, among others:

Further amendments to the America Invents Act.

Extending covered business method review-type post-grant challenges to all types of patents.

Extending trade mark protection to well-known marks and enhancing remedies for trade mark infringement.

Constraining illegal downloading of copyrighted works and rogue websites.

Precluding reverse payments to an alleged infringer to settle an infringement action.

Identifying the real-party-in-interest in patent infringement cases.

Requiring pleading of patent infringement claims with specificity.

Fee-shifting in patent infringement cases.

Limiting and/or requiring registration of infringement demand letters.

Limiting enforcement of standards-essential patents.

Restricting discovery and limiting the district court's discretion in management of patent infringement cases.



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XV.Online Resources

A. United States Patent and Trademark Office (USPTO)

W www.uspto.gov

Description. This website is maintained by The United States Patent and Trademark Office (USPTO) and provides current information on patent and trade mark application procedures and the status of applications and registered patents and trade marks.

B. Copyright Office

W www.copyright.gov

Description. This website is maintained by the Copyright Office and provides current guidance on copyright generally, the application procedure, and the status of applications and registrations of copyrights.

C. State Department

W www.state.gov

Description. This website is maintained by the State Department and provides current information regarding United States treaties and treaty obligations.

D. World Intellectual Property Organization (WIPO)

W www.wipo.int/wipolex/en/profile.jsp?code=US

Description. This website is maintained by the World Intellectual Property Organization and provides current information regarding intellectual property treaties. There are translations in multiple languages.

E. Administrative Office of the United States Courts

W www.uscourts.gov

Description. This website is maintained by the Administrative Office of the United States Courts and provides information that is updated annually regarding the administration of the United States district and appeals courts, including handling of IPR disputes.


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F. International Trade Commission

W www.usitc.gov

Description. This website is maintained by the International Trade Commission and provides current information regarding Section 337 investigations into unfair trade practices, including IPR infringement in international trade.

XVI.About the Authors

A. Patrick J Coyne

Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

T +1 202 408 4470

F +1 202 408 4400

E [email protected]

W www.finnegan.com

Professional qualifications. Washington D.C., US; USPTO, US

Areas of practice. Trial and appellate attorney: patent, trade mark, copyright, and trade secret claims; related anti-trust and unfair competition issues; and general commercial litigation; products liability; domestic and international arbitration matters.

Recent transactions

Clients include: United Technologies, LG Electronics, InterDigital, FMC, Gold Peak, Energy Conversion Devices and Ovonic Battery Company, Ciena, Mobil Oil Corporation, Trex Company, Danaher, Jacobs Vehicle Systems, Allegheny Teledyne, and Merrell Dow Pharmaceuticals.

B. Paul Barker




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T +1 650 849 6620

F +1 202 408 4400

E [email protected]

W www.finnegan.com

Professional qualifications. California, US; Washington D.C., US; Virginia, US; USPTO

Areas of practice. Patent prosecution; patent interferences; strategic counseling, with a particular focus in the fields of biotechnology, pharmaceuticals, and alternative energy.

Recent transactions

Practice includes drafting opinions, conducting due diligence analyses, directing re-examination and reissue proceedings, and developing and managing patent portfolios.

C. Denise Main


T +1 202 408 4228

F +1 202 408 4400

E [email protected]

W www.finnegan.com

Professional qualifications. Washington D.C., US; Florida, US

Areas of practice. US district court and appellate litigation involving US patent rights including Hatch-Waxman Act matters. Counseling multinational clients regarding US patent rights by providing infringement, validity, and enforceability opinions primarily in the chemical and pharmaceutical areas.

Recent transactions

Represents Otsuka Pharmaceutical Co., Ltd. in litigation proceedings concerning Otsuka's antipsychotic drug Abilify®.

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