Now Is the Time to Press Even Harder for Immigration Reform

grads throwing caps

After receiving the best education America has to offer, many foreign-born grads have to take their knowledge and talent to countries with more welcoming immigration policies. But it doesn’t have to be this way.

Universities are in a unique position to leverage incubation spaces and attract foreign entrepreneurship, but these communities need to work to encourage highly-skilled, foreign-born graduates to stay in America.

Our CEO, Matt McCooe, recently wrote a piece for Entrepreneur that discusses how legal immigration benefits the U.S. economy, and what university communities can do to spur economic growth through academic-entrepreneurial ventures. I invite you to read the article here.

What You Need to Know About Non-Competes

white board meeting

You have trade secrets, and keeping them out of the hands of your competitors is critical to your business. But with ever-changing laws, not to mention recent criticism levied at noncompetes, are they still the best way to go? We asked experienced attorneys for advice. Here’s what they said.

“Noncompetes sound like a great idea for startups [because] they allow you to prevent employees who leave from taking the knowledge and experience they gained at your company and using it somewhere else. But the devil is in the details. Many jurisdictions view noncompetes negatively, because they don’t want contracts to stop people from getting work after they’ve left a job. States like California completely disregard any kind of noncompete language. Other states take a different approach, allowing noncompetes as long as they are reasonable. This generally means that noncompetes last for less than two years, are narrowed down to just other companies that directly compete with you, and apply only to a reasonably small geographic area. Even so, I recommend checking with the local state laws and court precedent to see what counts as ‘reasonable’ and whether noncompetes are even recognized at all!”

Zachary Strebeck is an attorney who works with video game and software startups at Zachary Strebeck Law

“Companies often require their employees to sign restrictive covenant agreements that include noncompete, nonsolicitation and confidentiality clauses. A noncompete prohibits a former employee from working for a competitor, while a nonsolicit typically prohibits a former employee from soliciting customers or employees, and a confidentiality agreement prohibits the disclosure of confidential information. The Obama administration estimated that about 18 percent of American workers are covered by a noncompete agreement, about 37 percent of American workers have worked under such an agreement at some point in their careers, and about 14 percent of American workers making less than $40,000 a year are subject to a noncompete. Congress recently passed the Federal Defense of Trade Secrets Act, which prevents the misappropriation or misuse of a trade secret. Many states also have their own trade secrets act.

“Because noncompete agreements impact the marketplace, courts carefully scrutinize these agreements. Due to the potential harm to both the company and the employee, these situations are often expedited, so noncompete cases proceed very quickly. To determine whether a noncompete is enforceable, judges evaluate several factors, which vary by state. These factors include how long the employee worked for the company and whether the employee received enough of a benefit for the noncompete, how broad the noncompete is in terms of time, geography and the restricted activities; the types of clients the company [has]; and the employee’s access to confidential information.

This area of law is constantly changing, and several states have recently passed new laws to restrict noncompetes, especially for low-wage employees.

“Companies concerned about protecting their vital information should craft creative agreements that evolve with the law and have strong remedies. Businesses should also determine their goals to help shape their agreements. Is the goal to prevent competition generally or with a specific entity? Is there a concern about losing clients or employees? And what do the restrictions indicate about the business to potential employees, clients and the general public? The answers to these questions can help companies determine the right agreement to protect their business.”

Amit Bindra is a partner and employment law attorney at the Prinz Law Firm

“There are better ways to protect your intellectual property. Noncompetes are treated under state business law. This means that what works for a noncompete is going to be different, sometimes extremely different, for each state. In the modern world, where startups often have virtual employees in many different states, this creates problems. The noncompete you write for employees in your home state might not hold up in the state court of your virtual employees. You can try to solve this with choice of law clauses, but these might not always hold up. State courts generally have jurisdiction over people working in their state, even if the companies they are working for are out of the state.

“Patents and nondisclosure agreements, however, are national. The same patent can be used to exclude a company in California or a company in North Carolina. Under the federal nondisclosure law signed by Obama, nondisclosure agreements can also be used across the country to prevent employees from sharing business secrets, even after they leave the company.

“If you use a noncompete, use it only for high-level employees. Courts have taken a dim view of lower-level employees (production line employees, for example) being forced to sign noncompetes. [Also,] the noncompete needs to be reasonable in geographic and time scope (what this means is different for each state)—a noncompete covering the entire world and all time will not work.”

Daniel W. Cole is an intellectual property lawyer and patent attorney with Olive Law Group

“One of the most common mistakes startups make when instituting noncompetes relates to timing. Generally speaking, noncompete agreements (and other restrictive covenants) must be supported by consideration to be enforceable. When hiring a new employee, the offer of employment provides the necessary consideration to support the noncompete agreement. But startups often neglect to use employment agreements of any kind early on, so it’s common for a startup to present noncompete agreements to employees after they’ve already been working there for some time. When this happens, it’s imperative for the startup to offer additional consideration—usually in the form of a salary increase, bonus or promotion—to ensure the noncompete is enforceable. The promise of continued employment is not sufficient consideration to support the noncompete.”

Mark Tyson is the founding attorney of Tyson Law, a business law firm

“Startups working with proprietary technology should include confidentiality and nondisclosure provisions in their employee contracts in addition to company policies. Many courts do not look favorably on noncompete provisions, and even when they are included, there usually must be limitations on scope, geographical area and how long the company expects the noncompete period to last. Courts will also look at whether there is additional compensation as consideration for the noncompete.”

Caroline Conway practices business and family law at The Law Office of Caroline A. Conway

The Importance of Legal Entity Structure for Startups

Startup Business Structure: Guide to Legal Entity Structure

Two keys to success in almost any entrepreneurial venture are preparedness and adaptability. When you are bold enough to start a company based on your own unique vision, there are many challenges and issues to consider. But what should not get lost in the ether is choosing the proper type of business entity for your company. Your legal entity structure is both the foundation and the framework that will prepare you to achieve your business aspirations in the future.

As circumstances may change over time, in either your business situation or the prevailing laws, you should be nimble enough to adapt. Case in point, as outlined later in this article, there are some brand-new changes to the Connecticut Limited Liability Company Act that are worth considering if you have established, or are considering establishing, an LLC.

TYPES OF BUSINESS ENTITIES
Sole Proprietorship
The simplest and, by far, the most common form of U.S. business entity is the sole proprietorship. Apart from actually opening for business and filing a certificate for the trade name you will operate under, there are no other formal or legal requirements—so there are no associated costs. It is also an advantageous form of ownership from a tax perspective as all income and expenses flow through to your personal income tax return. So, business losses can be used to offset income from unrelated sources. The downside is that the business owner is personally liable for any debts, judgments or other liabilities of the business. In some cases, however, a personal umbrella liability policy may provide some protection.

Partnership
If two or more individuals will be involved in your business, either as owners/operators or passive investors, a partnership may provide an adequate business structure to meet your needs. This can be a general partnership, in which all partners share in the management responsibility and business liabilities, or a limited partnership with a combination of general partners and limited partners, the latter of which bear no responsibility or risk exposure beyond the level of their personal investment. Exposure to liability rests solely with the general partners in a limited partnership. To lend some formality to the business arrangement and to avoid misunderstandings over roles and accountability, a partnership agreement is usually a good idea. As compared with a sole proprietorship, the accounting for a partnership is a bit more complex. There may be legal expenses involved if you decide to create a partnership agreement, but both entity forms enjoy the benefits of a relatively simple business structure to own and operate along with pass-through tax treatment.

Corporation
An independent legal and tax structure that is separate from its owners, the corporation is widely considered the best entity structure for business owners who anticipate a significant growth trajectory and seek personal protection from business liabilities and debts. There are a number of state filings and ongoing regulatory and administrative requirements that can be expensive and time consuming, but on the plus side, corporations are perhaps best suited to attract outside investors and shareholders. On the downside, corporations are subject to so-called double taxation in that the business itself is a taxable entity, and the profits, when distributed to owners in the form of dividends, are also taxable to the owners personally. Of course, with the assistance of an able accountant, you may be able to reduce tax exposure by deducting qualified business expenses and by allocating profits to the owners in the form of reasonable compensation.

The subchapter S, or S corporation, is a corporation structure sometimes chosen by smaller companies principally to protect the organization from double taxation. Some of the disadvantages include a limit in the permissible number of shareholders (not more than 75), the requirement that all shareholders be U.S. citizens, and the inability to offer equity interests other than common stock.

Another subset type of corporation that is widely popular in some circles today is the benefit corporation. This entity structure codifies a corporate commitment to act morally, ethically and responsibly with regard to society and the environment. Currently, 33 U.S. states and the District of Columbia have passed laws permitting the formation of benefits corporations, and six other U.S. states are reportedly “working on it.”

Limited Liability Company (LLC)
Considered by some to be the best of both worlds, the limited liability company shares key advantages of both corporations and partnerships. If you form an LLC, you can take advantage of the liability protection of a corporation along with the pass-through tax treatment of a partnership. LLCs also share some of the disadvantages of corporations and partnerships. There is some initial red tape—such as applying for tax ID and employer ID numbers. And just as corporations are required to file a certificate of incorporation and create a set of related bylaws, LLCs must file a certificate of organization and, if there is more than one member, create an operating agreement. After formation, however, LLCs are spared some of the ongoing formalities of corporations. For instance, you will not be required to hold annual meetings and maintain official minutes. One of the disadvantages you’d face is that, as with partnerships, LLCs cannot go public and therefore cannot issue publicly traded stock, making it more challenging to raise capital.

DECISION POINTS

As we have clearly delineated under each of the legal entity structures outlined here, the two principal deciding factors in selecting a form of legal entity are taxes and personal liability. The ability to attract investors and raise capital has been shown as another key issue to consider. Finally, but not insignificantly, there is the cost of establishing and maintaining the chosen business structure—primarily legal, accounting and administrative expenses and ongoing record-keeping requirements.

EXPERT GUIDANCE

To delve into the complexities of this topic for startups, we’ve tapped a couple of legal experts who have extensive hands-on experience working with a variety of companies to help them consider all the implications of these decisions.

First, we spoke with Matthew Monteith, an attorney with the law firm Shipman & Goodwin LLP. The following questions and responses outline some of the advice he offers his clients as they begin to think about choosing a legal entity structure.

CI: Should choosing a legal entity structure be among the first things a startup does?

MM: The short answer is that it depends on your circumstances—whether your business is still in the idea stage or further along, whether you are working alone or with other owners, and the specific nature of your business and its products or services. It makes sense to wait until your business plan is more definitive. However, before you get too far afield, you must decide on the most suitable business structure. It’s not a matter of whether to establish a formal legal entity; it’s a matter of when.

CI: What is the most important factor to consider in the decision whether to incorporate?

MM: The number-one reason to establish a corporation or an LLC is to limit liability. If you plan to sell a product or service that has the potential to cause physical harm or financial loss, you will want to form a legal entity that will provide some protection. If you were to form a sole proprietorship or a general partnership, all of your business and personal assets would be fair game for potential litigants, whereas with a corporation or an LLC, you effectively segregate the assets of the legal entity from your personal assets. It is important to note, however, that merely establishing a corporation or LLC is not enough—your personal assets are only protected to the extent that you follow the legal entity rules. For instance, if you continually access business assets for your personal use, you may invalidate the justification to shield your personal assets. This is what is called “piercing the corporate veil.”

CI: What other issues come into play in the legal entity choice?

Certainly the tax implications are an important factor—beyond the issue of whether your business will be a pass-through or subject to double taxation, there are other tax benefits and rules to consider. Other than that, if you have intellectual property, if you are ready to begin selling your product, if you have multiple founders, if you plan to seek outside investment, if you will be entering into a contract on behalf of your company . . . in all of these situations, you will be well served by the formality and established parameters of a defined legal entity structure.

CI: If raising capital will be vital to a startup, how will this impact the legal entity decision?

MM: From a practical standpoint, your target investors will often drive your decision in terms of legal entity form. Most institutional investors tend to prefer to invest in C corporations, although many are certainly willing to invest in LLCs. Of course, if an initial public offering (IPO) is likely in your future, you’d have to convert your LLC to a C corporation before going public. The other potential downside of the LLC is that some individual and angel investors are not as comfortable with the LLC terminology of members and managers as opposed to the more familiar shareholder role.

ADAPTING TO CHANGE

Even after you have chosen a business structure, that doesn’t mean that nothing will ever change. The factors that make one type of business entity best suited to your company may be impacted by changes in the law. In fact, there have been some major changes to the Connecticut Limited Liability Company Act that just became effective on July 1, 2017.

To explore the significance and impact of these changes, we spoke with Gregg Lallier, an attorney with the law firm Updike Kelly & Spellacy PC.

CI: It has been stated that the new LLC act will create a more “business-friendly” legal environment for LLCs. How so?

GL: One of the chief disadvantages of the prior LLC act in Connecticut was its lack of uniformity as compared with the laws of other states. The new act—the Connecticut Uniform Limited Liability Company Act—is patterned after the Uniform Act that is currently in place in 17 other states in the United States. This is important because we can now look to the legal precedents already established in those other states for guidance as we endeavor to apply the new act to LLCs operating in Connecticut.

CI: Can you point to some of the new law’s more noteworthy aspects of which existing LLCs should be aware?

GL: There are some changes in the new act that redefine the fiduciary duties of members and managers and their related duty of loyalty. Essentially, the new act treats members who are not managers of the LLC more akin to shareholders whose only risk exposure is the extent of their investment in the business. Many would consider this a positive change. There are also certain other stipulations in the new act with regard to the voting requirements to amend the certificate of organization or operating agreement and the votes required to admit new members to the LLC. In these and other matters related to the new act, by and large the law will continue to defer to the existing operating agreement as the final arbiter of operational protocol. It is worth noting, however, that in cases where the operating agreement is silent on a specific issue, the default provisions of the new act will prevail. And in other cases, the operating agreement is prohibited from contradicting the new act.

CI: Should existing LLCs make changes to their operating agreements based on the new act?

GL: You don’t necessarily have to redo your operating agreement. However, due to some of the nuances referenced in the previous question, prudence would dictate that you should have an attorney review your existing LLC operating agreement to determine whether any modifications are called for.

CI: If a new company is considering various legal entity structures, is there anything about the new law that might make choosing an LLC more compelling?

GL: There is nothing specific in the new act that makes an LLC any more or less compelling. Choosing a legal entity structure is really more of an economic than a legal issue. An LLC will always be attractive if you want to take advantage of having income pass through to your personal tax return and have the ability to offset income and losses. But the predominant deciding factor comes down to whether your company will need outside investors. If it will, you may find that investors have a specific preference of entity structure and perhaps a preferred state of incorporation—for example, Delaware.

THE BOTTOM LINE
Determining the most advantageous legal entity structure for your startup is an important decision with far-reaching implications. Therefore, it’s one of the pivotal times when you really should seek out professional tax and legal advice. Although you undoubtedly have a firm grasp on the near-term needs of your business and the future state you are striving for, there is great peace of mind in having experts to guide you through the myriad opportunities, risks and “what-if” scenarios that simply may not occur to you.

Gregg J. Lallier is an attorney and shareholder of Updike Kelly & Spellacy PC. His practice primarily focuses within the high-tech and venture capital industries. Gregg has represented both mature and emerging growth companies in a variety of high-tech enterprises, including software, information technology, e-commerce, clean technology and healthcare services and equipment. He also regularly represents angel, venture capital and other institutional investors.

Matthew Monteith, a former CI employee and an associate with Shipman & Goodwin LLP, practices primarily in the areas of business and finance. He represents commercial banks, venture capital investors, private equity funds and other senior and junior lending institutions, as well as emerging growth companies and other corporate borrowers, in connection with a variety of commercial transactions including term and revolving credit facilities, mezzanine financings, acquisitions and dispositions, preferred equity investments, entity formation, and general corporate and contracting matters.

Patents: Beyond the Basics – Current Risks and Opportunities (Part 2)

[cs_content][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/05/Content-Detail-News.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][cs_text]Patents: Beyond the Basics – Current Risks and Opportunities (Part 2)

The world of patents is constantly changing. Recent developments could have a major effect on your business. It’s important to stay one step ahead to avoid surprises.

That’s why we enlisted the help of attorneys at McCormick, Paulding & Huber. They’ve prepared a four-part Q&A series that will answer questions relating to patent trolls litigation, the new environment since Leahy-Smith America Invests Act (AIA) and more.

This is part two in the series.

[Please note that this patent Q&A series is for general informational purposes only and does not represent legal advice by the authors or McCormick, Paulding & Huber LLP.]

Q: What does the Leahy-Smith America Invents Act (AIA) mean for innovators?

A: The Leahy-Smith America Invents Act (AIA) changed United States patent law in many ways after it was signed into law in 2011. The most striking change was the shift from a first-to-invent patent system (what we had for nearly 200 years) to a first-to-file system. This change was a significant step toward one of the goals of the AIA: to harmonize the United States patent system with most of the global patent systems.

What does the AIA mean for innovators? They should now be racing to file provisional patent applications with the United States Patent and Trademark Office (USPTO) – as soon as they can describe their invention “in such full, clear, concise, and exact terms as to enable any person skilled in the art to which it pertains, or with which it is most nearly connected, to make and use the same.”

First to file is a big departure from our old first-to-invent paradigm, under which American inventors had the benefit of being able to raise capital by promoting their invention for nearly a full year before filing a patent application. Based on the outcome of their capital-raising efforts, small business owners could decide whether or not to move forward with filing for patent protection. Thus, even though it had always been good practice to file an application with the USPTO before embarking on product launches, our old first-to-invent paradigm offered valuable protections. It protected innovators by granting them a one-year “grace period” to file an application after the date their invention first became publicly available and by requiring any competing applicants to prove they had worked on their own version of the invention before the original innovator. Sometimes, evidence of invention could be traced back over years of effort and experiment, diligently recorded in lab notebooks kept by both the inventor and competing inventor. This sort of back-tracing was called an “interference” and was conducted by a special section of the USPTO called the Board of Patent Appeals and Interferences (BPAI). Under an interference proceeding, the later applicants had a burden to prove that they were the earlier inventors.

Our new first-to-file paradigm eliminates interference proceedings. In their place, we have a race to the USPTO. In case some interloper is the first to file an application that claims an original innovator’s invention, the original innovator now must prove in a “derivation proceeding” not only that he or she invented first, but also that the interloper “derived” or copied from the original invention. This is a much tougher standard to meet than simply answering the “Who invented first?” question asked under interference proceedings. The new derivation proceedings are conducted by the Patent Trials and Appeals Board, which has replaced the BPAI.

Additionally, under the first-to-file system, the “grace period” rules have been cut down. Instead of being able to file a patent application up to one year after an invention becomes publicly available, an innovator can only file a valid patent application within one year after he or she personally has made that invention available to the public. This means that if several people independently come up with an invention, the first to disclose has an immediate opportunity to prevent all others from ever obtaining a patent on that invention.

The first-to-file paradigm puts significant pressure on innovators to file patent applications before they have even had an opportunity to evaluate whether an invention is technically feasible or has business potential. This presents a challenge, particularly for cash-strapped startups, which feel pressured to spend more and more money on filings. Larger corporations are impacted as well but tend to have more effective and timely procedures for moving innovative ideas to invention disclosures that can support filings of valid patent applications.

In conclusion, to secure a claim to an invention, an innovator should use provisional patent applications to get in the race. Such applications require the type of disclosure mentioned in our second paragraph – just enough to enable someone to make and use the invention. It acts as a placeholder, reserving a filing date for a later utility patent application. Provisional patent applications are kept hidden in the USPTO until their expiration one year after the filing date. During that time, the filer can choose to file a utility patent application, which can be prosecuted to become a patent. Thus, by filing a provisional patent application, an innovator can establish his or her first-to-file status without publicly disclosing the invention, and then can seek financing, armed with the provisional patent filing.

Special thanks to our Q&A part two contributors from McCormick, Paulding & Huber LLP:

Alan Harrison

Alan Harrison is an associate in the Hartford office of the law firm McCormick, Paulding & Huber LLP, which has focused exclusively on intellectual property law for more than 100 years. Before becoming an attorney, he trained as a mechanical and nuclear engineer. He is experienced in patent and trademark prosecution and enforcement, business startups and intellectual property transactions. You can contact Alan at Harrison@ip-lawyers.com

Justin Durelli

Justin Durelli is a patent prosecution intern at McCormick, Paulding & Huber LLP and a third-year student at Quinnipiac University School of Law, where he is an associate editor of the Quinnipiac Health Law Journal and a member of the Student Bar Association. Previously he worked for General Electric’s Global Patent Operation. Justin earned bachelor’s and master’s degrees in chemical engineering from the University of Connecticut.

Link to PDF[/cs_text][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ class=”cs-ta-left” style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/04/backtocontentlibrary.png” alt=”back to content library” link=”true” href=”http://ctinnovations.com/access-content-library/” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=”” class=”back-image”][/cs_column][/cs_row][/cs_section][/cs_content]

Patents: Beyond the Basics (Part 4)

Answering Your Top 12 Questions on Strategy Part 4

In this four-part Q&A series, six patent attorneys from Dilworth IP answer 12 patent strategy questions posed by Connecticut Innovations portfolio companies. [Please note that this patent Q&A series is for general informational purposes only and does not represent legal advice by the authors or Dilworth IP, LLC.]

Q: How should I protect my software?

A: This is a very broad question. Briefly, patents are the best way to protect your software so that others cannot copy the features and functions of your software. While there has been much press on whether software should be patentable, we still recommend seeking patent protection for software innovations. We also recommend registering the copyrights in your software with the U.S. Copyright Office so that you are in a position to quickly seek federal court consideration of infringements.

In Alice Corp. v. CLS Bank, the U.S. Supreme Court recently left unanswered the question of whether computer-implemented inventions – i.e., software – are not abstract ideas and thus patent eligible. So for now, software is still patent eligible, and companies should seek to protect their software innovations with patents. What changed from Alice is that the focus of patent eligibility shifted to a preemption analysis, and in our view what should be a balanced preemption analysis.

With the Alice decision, the Supreme Court brought a slightly sharper focus to the definition of an “abstract idea.” The court found that software patents do not have a special test. That is, the same test used for all other types of patents also applies to software and business method patents. The Supreme Court gave us a framework in the form of two questions to determine claimed inventions that are to be excluded from patentability and those that may pass to the next stage toward patentability:

Step 1. Are the claims at issue directed to “abstract ideas,” “laws of nature” or “natural phenomena?”

Step 2. Do the claims contain an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent on the ineligible concept itself?

Step 1 does not help in the analysis from a practical point of view. Step 2 comes down to a balanced preemption analysis, where the claims are to be analyzed to determine whether an entire field in the natural, social or business world is preempted. This analysis has to be balanced by a caution against swallowing the whole of patent law. With this balanced view in mind, we would rephrase the question in Step 2 as follows:

Do the claims contain an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than using a broad guiding principle that determines, explains or describes a person’s, culture’s or society’s behavior or activity, or that determines, explains or controls natural behavior or relationships?

When drafting software patent claims, which define the exclusionary rights, inventors and patent practitioners should consider their claim sets through such a lens, make an honest assessment as to the scope of the claims, and draw a conclusion through the balanced preemption analysis whether the claims as drafted result in an abstract idea, a law of nature, or a natural phenomenon.

Also, a word of caution on software strategy: beware open source code. While open source code can be useful in reducing the software development cycle, lower development costs and decrease go-to-market time, you have to understand the licenses under which you are obtaining the open source code and the impact, if any, on any proprietary software.

Q: How does one go about selecting the right patent attorney for one’s business?

A: Many law firms have patent attorneys on staff. Some law firms are general practice firms, while others are “boutique” firms that mainly specialize in patent law. Others have solo practitioners. Depending on the circumstances, any of these options may be desirable.

First, make sure the patent attorney you hire has the right technical training in the science or engineering discipline to which your invention relates. You wouldn’t hire a podiatrist to perform heart surgery. The same is true of patent lawyers. You normally wouldn’t hire a patent attorney with an electrical engineering degree to draft a patent application if your invention is in the field of molecular genetics. Make sure the attorney has the technical competency necessary to draft a sound patent application with claims that will withstand the examination process and later when the granted patent is subjected to scrutiny by a potential licensee or an accused infringer.

Second, confirm that the attorney is admitted to practice before the U.S. Patent and Trademark Office (USPTO). This is a separate requirement from being admitted to practice before the courts of any particular state. A special exam that is administered by the USPTO must be taken and passed before an attorney can file patent applications in the USPTO on a client’s behalf.

Read the attorney’s biography, ask for prior examples of his or her work, and find out what clients he or she has represented in the past.

Many inventors are experts in their chosen field. A patent attorney need not share your level of expertise as the inventor. However, a good patent attorney should be able to comprehend the “vocabulary” of the invention and come to a robust understanding of the invention after spending a reasonable amount of time learning about it with help from the inventor.

A tried-and-true method of selecting the right patent attorney is networking. Ask people you know and trust to recommend a patent attorney with whom they have worked successfully.

Cost is another factor. Find out what the patent attorney’s fees and billing practices are before hiring. Ask for cost estimates up front to reduce the chances of nasty surprises. Because attorney fees can vary widely, shop around before settling on a particular attorney or firm. Patent law is exclusively a matter of federal jurisdiction, so you need not limit your search to patent attorneys that reside in your state.

The firm you hire is important, too. Make sure the firm has appropriate docketing and file management systems in place to properly track your patent estate during its entire life cycle. For example, even after a patent is granted, maintenance fees must be paid on a set time schedule in order to maintain the patent in force. Confirm that the firm has a solid track record of managing patents. Find out how long the firm has been in business, and ask about what software systems it uses to keep track of its clients’ patent assets.

Q: What resources and references would you recommend if I wanted to learn more?

A: The United States Patent and Trademark Office (USPTO) maintains a website (www.uspto.gov) that brims with valuable information about the patent system, patent laws (35 U.S.C.) and implementing regulations (37 C.F.R.), databases of patents and published patent applications, and resources for individual inventors or small businesses. Other resources here include the Manual of Patent Examining Procedure (MPEP) and the Manual of Classification.

In addition to granted patents and published patent applications, the USPTO site allows users to access the prosecution file for any patent application that has already published but may not yet have been granted. This system, known as “Public PAIR” (for “patent application information retrieval” system), gives the public “real-time” information about the status of patent applications, including the arguments and amendments advanced by the patent applicant and the rejections and rationales provided by the patent examiner. Because patent examination often does not commence until after the application has already published, details obtained from PAIR are usually timely. Intelligence gleaned from PAIR can help interested parties decide, among other things, how likely a patent is to be granted based on published claims and whether a post-grant challenge is likely to succeed.

For patent applications filed and published worldwide, Espacenet (www.espacenet.com) and the World Intellectual Property Organization (WIPO) website (www.wipo.int) are valuable resources. WIPO allows users to search for international applications filed under the Patent Cooperation Treaty (PCT). In addition to searching for U.S. or foreign patent applications and granted patents, Espacenet provides access to the European Patent Office (EPO) register, where all documents exchanged in the EPO prosecution prior to grant (search/examination history) and in any opposition proceedings can be downloaded for study.

After perusing these websites, you may enjoy visiting some of the more popular patent law blogs, such as Patently-O (www.patentlyo.com), IP Watchdog (www.ipwatchdog.com) or Patentdocs (www.patentdocs.org), where current issues related to intellectual property law are described, analyzed and discussed.

Need a quick, free PDF copy of a U.S. patent or published U.S. application? Punch the patent or publication number in under Google Patents or www.pat2pdf.org, and you’ll have it in a jiffy.

Law firm websites (e.g., www.dilworthip.com) are another good source of current information, particularly firms that specialize primarily in IP law.

Personal contacts are another resource. For example, do you know someone who may have had firsthand experience working with a patent attorney?

Within the past 15 years, there has been considerable emphasis on locating the Rembrandts, Monets or Renoirs we somehow forgot in our IP attics, and this has led to the rise of many intellectual asset management firms, which can also be useful resources. Such firms can help companies monetize “dormant” patents and get the most from their investment in IP. Among other things, these firms conduct a systematic review and analysis of the strengths and weaknesses of a company’s IP portfolio, sizing up the competition, considering freedom-to-practice issues and identifying opportunities to license, sell, donate (for tax purposes) or prune portions of a patent estate. The main idea: patents are intangible assets often with considerable bottom-line value, although the true value may be hidden or untapped. What’s been underappreciated in the monetization frenzy is that patents often provide substantial value as a deterrent to competition even if they are not licensed or generating income.

However, one note of caution: be wary if you’re approached by a law firm or an asset management company that wants to pigeonhole your business’s facts into that firm’s “proprietary” model. Every business is different, and every business deserves an individually crafted IP strategy, whether it is homegrown or created with the help of a third party.

Finally, the best way to avoid being overwhelmed with all of this is to get in touch with your friendly neighborhood patent attorney. Usually, he or she will be delighted to answer any general questions you might have about developing a patent strategy or other intellectual property topics.

You can access the first three installments of the “Patents Beyond the Basics” series here.

Special thanks to our Q&A Part 4 contributors from Dilworth IP:

Gerard M. Wissing, Esq.

Gerard M. Wissing, Esq., is a registered patent attorney and partner at Dilworth IP. Prior to joining Dilworth, Gerard was general counsel at Beacon Equity Partners LLC and each of its holding companies (Anaqua Inc., Anaqua Services Inc. SGA2 SAS and Exari Systems Inc.). Previously, Gerard held chief IP counsel and IP group COO positions at both Computer Associates and SAP. You can contact Gerard at gwissing@dilworthip.com.

Michael P. Dilworth, Esq.

Michael P. Dilworth, Esq., is the founder and managing partner of Dilworth IP and is a registered patent attorney. Mike’s practice concentrates on patent and trademark prosecution; IP transactions and due diligence; litigation; post grant proceedings; licensing of intellectual property; portfolio management and counseling; and opinions including freedom to operate, infringement and validity opinions. He can be reached at mdilworth@dilworthip.com.

Jonathan L. Schuchardt, Ph.D.

Jonathan L. Schuchardt, Ph.D., is a registered patent attorney and partner at Dilworth IP. Prior to joining the firm in 2011, Jon was a senior patent counsel with LyondellBasell Industries and its predecessor companies. Jon began his career as a research chemist and transitioned to roles as a patent agent and patent attorney. Since 1990, he has drafted and prosecuted hundreds of patent applications and counseled clients on a variety of IP matters. Contact Jon at jschuchardt@dilworthip.com.

Patents: Beyond the Basics (Part 3)

Answering Your Top 12 Questions on Strategy

Part 3

Q: How can I create a practical international filing strategy that doesn’t break the bank?

A: It is possible to adopt an affordable foreign filing strategy. First, a company must decide where to file patent applications. Frequently, this includes any country in which the patentable invention would be manufactured, used or sold. From this list, the company can evaluate whether it would prefer to subtract any jurisdictions where enforceability of patent rights is considered weak. The country list can then be ranked in order of importance using input from business leaders. Once an edited, sorted list of countries is compiled, filing costs can be included. These costs can then be compared with budgeted numbers, and the list can be adjusted as necessary.

Once the filing list for a patent family has been established, it is important to schedule regular review sessions with business and R&D personnel. Each patent family is evaluated to determine whether there is still business and R&D interest in the technology. These sessions should begin after the patent family is filed and should continue until the patents expire or are abandoned. When a patent is no longer of interest in a particular country, then the patent can be abandoned. In some cases, a country might be deleted from the list. Ideally, these sessions are held every quarter or twice a year. If the patent portfolio is large and this frequency is unwieldy, the portfolio can be divided along technology or product lines. The patent portfolio review sessions can also be used as a convenient vehicle for business and R&D to share market intelligence and trends, so as to alert legal to any potentially infringing activity. While it may be tempting to forego in-person meetings in favor of e-mail solicitations, meetings are better at focusing attention and achieving “buy-in” and accountability from business and research personnel. Acting in isolation, some individuals may automatically vote to maintain a patent in a country in order to avoid conflicts with committee members or other decision makers. This dynamic often changes when everyone is in the same room.

Finally, while the periodic “pruning” of the patent family described above can help minimize costs associated with countries for which company interest no longer exists, the costs of prosecution in individual countries can also be reduced by utilizing the “Patent Prosecution Highway” (PPH). This is the name given to agreements entered into by groups of nations whereby the patent prosecution “work product” from one country or patent office (e.g., an indication of allowable subject matter or a favorable Patent Cooperation Treaty [PCT] Written Opinion) is used to expedite prosecution in other countries. The latest versions of the PPH are the “IP5,” which is between the United States, Japan, Europe, Korea and China, and the “Global Patent Prosecution Highway” (GPPH), which includes 17 countries. Indications are that use of the PPH results in higher grant rates, fewer office actions and reduced pendency time, thereby making prosecution both less expensive and more efficient.

Q: What do I need to consider before working with third parties?

A: Be clear about what you need from the third party, what they will need from you, and what the nature of the relationship should be. Confirm that they have the right skills, knowledge, business strengths, experience, resources and reputation to serve your needs.

Ask the other party to sign a confidentiality agreement before you disclose any details about your invention or business. Many people assume that if they learn something from another person, they are free to pass the information on to others, publish it or use it in their own business, unless they have agreed to specific limitations. Much of the time, they will be right! Agreements that prevent these activities go under various names, such as nondisclosure agreements (NDAs) or confidential disclosure agreements (CDAs), etc.

Do you want to provide the other party with a proprietary product or material that your company developed? If so, you can limit what they can do with the material in a way that fosters the commercial opportunity (e.g., allowing tests that will reveal superior performance) without losing hold of important information (e.g., by prohibiting analysis of the material to see what it is made from). This can be accomplished by having them sign a material transfer agreement (MTA), also called a non-analysis agreement (NAA).

Properly drafted confidentiality agreements permit discussions but will prohibit unauthorized use or disclosure of your confidential information. If you don’t use one, you may be putting sensitive information in the hands of a future competitor, jeopardizing a competitive edge, and possibly sabotaging proprietary patent or trade secret rights. This last point can be crucial if you have plans to apply for patent protection on the information you will disclose, because patents are only granted on concepts that are new to public knowledge. If information about an invention becomes public before your patent application is filed, the public disclosure may invalidate the patent (there is a one-year grace period that might save the application under U.S. law, but not in most foreign countries). Simply disclosing the information without restriction can be enough to trigger these consequences.

If the purpose of engaging the outside party is to acquire know-how that is critical to your business, your contract with the outside party should be explicit about who will own the intellectual property in their work product. Hired authors sometimes retain the copyright in works they are commissioned to write; hired inventors sometimes retain patent rights in the technical solutions they create for their clients. These outsiders can be valuable sources of know-how for your firm, but you need to be sure that your company will be legally equipped to fully exploit their work product.

Imagine that you hire a consulting firm to conduct an industry survey and write a report that identifies a need in a particular industry, a number of key customers and the elements of a value proposition for a service or product that your company can provide. After the report is delivered and paid for, your company may wish to make copies to distribute to potential investors or to customers, or even to the public. But if you did not contract with the consultant to acquire the copyright to the report, or at least a license to publish it, you might violate the consultant’s rights if you do these things.

Similar complications may arise for companies that outsource technical expertise for product or process R&D. The contractor may be entitled to claim proprietary rights that could frustrate your company’s plans to commercialize and protect the innovations you paid the consultant to develop. Even in a strategic partnership with another firm for a targeted R&D project, ownership of the results should not be left to fate. The general rule is that jointly developed inventions are jointly owned by the inventors, and any of the inventors can use – or license away – what they own, without necessarily accounting to the other inventor(s). If a patent application is filed, issues arise over who pays the costs versus who is getting a “free ride,” how any of the patent owners can enforce the patent without the cooperation of the other owners, and so on.

Therefore, if you plan to work with third parties, you need to understand clearly what the desired outcome is and be sure that it is fully spelled out in your legal documentation with those parties. If the contractor will not agree to assign to your company the rights in their work, you may be better off hiring someone else. Otherwise, you may be supporting the development of an asset that your company cannot exploit to the fullest benefit or that will ultimately benefit a competitor.

Q: How should I manage my company’s IP position when receiving government grants?

A: Government grants can be a great source of funding for your company. These grants generally do not have the financial “strings” of equity or debt financing. For example, new equity financing can dilute the holdings of existing shareholders, and debt financing eventually has to be repaid. However, there are other consequences for the company to carefully consider before applying for and accepting government grant funding.

Prior to 1980, recipients of federal grants were obligated to assign inventions made using the funds to the federal government. However, the Bayh-Dole Act changed all that by permitting the recipient to elect to pursue ownership of such inventions. See the Patent and Trademark Law Amendments Act (the Bayh-Dole Act), Pub. L. 96-517, December 12, 1980, which is codified at 35 USC § 200-212 and implemented by 37 CFR § 401. Although the Bayh-Dole Act has clarified the IP rights of grant recipients, there are still important points to consider before accepting or even applying for a government grant.

First, to avoid confusion or potential conflicts over ownership of IP, it is preferable to have patent applications relating to your preexisting IP on file before applying for the grant. If this is not possible, you should appropriately document your preexisting IP.

Some grant applications are confidential; in other cases, you can designate portions of the application to be treated confidentially. Either way, there is a risk of purposeful or accidental disclosure. Consequently, the applicant should carefully consider what information is necessary for the application versus the information it need not (or should not) disclose.

Although the Bayh-Dole Act has made it easier for the recipient of a government grant to retain IP rights in work arising out of the grant, the grant documents will likely have provisions (which can often be quite complex) dealing with intellectual property. Remember, these grant documents are legally binding and should be carefully reviewed with an attorney to determine their effect. Furthermore, the grant documents often require the grant recipient to disclose inventions and discoveries to the funding agency. The grant documents may also contain provisions requiring the grant recipient to share all proposed patent applications with the government agency prior to filing, and other provisions relating to forfeiture of the IP in favor of the government should the grant recipient decide not to pursue patent protection of the IP or fail to comply with the provisions of the grant. Furthermore, although beyond the scope of this discussion, it should be kept in mind that the government technically has a right to a paid-up license to the resulting inventions, retains “march-in” rights if the inventions are not diligently commercialized, has the right to file patent applications on the inventions when the grant recipient does not itself file these applications, and has the ability to require the addition of certain clauses to license agreements for the inventions negotiated with the government.

Finally, when a patent application is filed by the grant recipient, the recipient is required to include a statement at the beginning of the patent application (and any patents that may issue therefrom) identifying the grants and granting agency, and indicating that the government has certain rights in the invention.

In summary, even though the Bayh-Dole Act has clarified the patent rights retained by recipients of government grants, it is still an important business decision whether to apply for and ultimately accept a government grant. Additionally, the grant documents governing the funding are legally binding and should be carefully reviewed and considered before they are executed.

Patents got you stumped? @CT_Innovate’s series with the experts at #DilworthIP has the answers: http://bit.ly/1vemucx

Click to tweet.

You can access the rest of the installments of the “Patents Beyond the Basics” series here.

Special thanks to our Q&A Part 3 contributors from Dilworth IP:

William R. Reid, Esq.

William R. Reid, Esq., is a registered patent attorney and partner at Dilworth IP where he helps his clients secure their intellectual property interests through patents, licenses, trade secret protection and trademarks. Prior to joining Dilworth IP, Bill was in-house counsel at LyondellBasell Industries, and prior to that he was a chemical engineer at Exxon and W.R. Grace. Bill brings a practical, business-savvy approach to the intellectual property-related issues that his clients face. You can contact Bill at wreid@dilworthip.com.

Frederick Spaeth, Esq.

Frederick Spaeth, Esq., is a registered patent attorney and partner at Dilworth IP. Fred has been in private practice for more than 20 years helping clients protect and leverage their intellectual property through patent, trademark and copyright registrations, licensing, joint development agreements and a variety of other commercial transactions. Fred can be reached at fspaeth@dilworthip.com.

Anthony Sabatelli, Ph.D.

Anthony Sabatelli, Ph.D., is a registered patent attorney and partner at Dilworth IP. Prior to joining Dilworth, Anthony was vice president and in-house counsel at Rib-X Pharmaceuticals Inc. (now Melinta Therapeutics Inc.) and previously held patent counsel positions at both Merck and Procter & Gamble. He is an adjunct professor at the University of New Haven and an inventor on over a dozen patents. You can contact Anthony at asabatelli@dilworthip.com.

Patents: Beyond the Basics (Part 2)

Part 2

Q: How can/should patents fit into my overall business strategy?

A: Patents are a business tool and should be viewed in that light. Companies should use patents as part of an overall intellectual property (IP) strategy to protect innovation, foster growth, achieve business objectives and improve company valuation. Consider that in today’s knowledge economy most of the value of a company comes in the form of intangible assets, of which patents are a component, and yet that valuation is rarely visible on a corporate balance sheet. The day will come when that paradigm is no longer practical. Then, establishing an overall IP strategy will be required, and its value will be reflected on the balance sheet. There are six basic building blocks for an overall IP strategy:

Corporate IP awareness program
Robust IP portfolio
Robust IP licensing provisions
IP litigation strategy
Focused IP public policy initiatives
Valuation of IP

Corporate IP Awareness Program
All employees have a role in a company’s intellectual property program, from protecting intellectual property to respecting the intellectual property of others. A comprehensive IP training program elevates the awareness of IP throughout the company and its importance to the business.

Robust IP Portfolio
Protecting key product innovations and market differentiators with patents, copyrights and trade secrets provides the foundation for an overall IP strategy and positions your company to defend against allegations that others were first to innovate. Effective and creative branding programs allow you to increase the corporate value and price point of products.

Robust IP Licensing Provisions
Crafting IP licensing provisions in your agreements enables your company to control how others use its intellectual property. Targeted use of IP licensing models (e.g., open source, standards) enables a company to benefit from lower development costs and decrease its go-to-market time.

IP Litigation Strategy
The strategy, which allows your company to protect its opportunities for growth, should have two components: (1) enforcing your contractual IP rights against those who do not adhere to your IP licensing provisions; and (2) enforcing your IP rights against those who want to use your innovations without taking a license.

Focused IP Public Policy Initiatives
Undertaking public policy initiatives that promote the protection of your innovations, improve patent quality and reform the litigation system allow your company to profitably grow its business.

Valuation of IP
After building a patent portfolio of a suitable size, consider building a program to extract value from your IP, mainly patents, to increase shareholder value.

These building blocks may not be for all companies, but when you invest in a patent portfolio, you should consider how it fits within an overall IP strategy.

When setting your patent strategy, you must first understand the rights a patent conveys. Then consider how those rights can maintain or secure market share for your products and how patents can increase the value of your company. Patents convey an exclusive right to prevent others; they do not grant you a right to make. At a high level, your patent strategy should focus on how you can exclude others from making, using, selling or licensing, offering to sell or license, or importing your protected innovations.

We recommend focusing on innovations in products with the largest revenue-generating potential or on innovations that are core to the growth of your business. If budget is less of a concern, you can expand your patent strategy to cover innovations that have less of a direct business impact but add value in other ways. A viable patent strategy (and overall IP strategy) for your company should evolve with current economic conditions and will depend upon many factors – most important, budget.

Q: What are some keys to creative patent and product life-cycle management?

A: Product life-cycle management is familiar to many business people. It is the process of managing the entire life cycle of a product from inception, R&D and commercialization through to its obsolescence. However, a less familiar concept is the management of a patent or patent portfolio over a patent lifetime – that is, “patent life-cycle management.” Because intellectual property is becoming an increasingly valuable asset for many businesses, a sound business strategy must incorporate patent considerations into the overall business plan. Such a business strategy must integrate both patent and product life-cycle management considerations.

Briefly, patent product life-cycle management is the management of a product over its life cycle in view of its patent life. Let’s consider five important areas of patent product life-cycle management for your business strategy:

Understanding the competitive landscape. Concurrently with, or even before, the earliest stages of product R&D, it is important to understand the competitive landscape. A business cannot afford to squander precious resources developing and patenting a product that it might not be able to bring to market because of the existence of third-party patents. Also, the business must not only look at the then-current competitive landscape but should also strive to understand how that landscape will likely evolve. What competitive products may be on the market, or may come to market, when or soon after your product launches?
Defining your invention and patent strategy in view of your business goals. Based on the early R&D work and the competitive landscape analysis, the next step is to define the invention and appropriate filing strategy. This is most effectively done as a team effort involving input from scientists, business managers and financial managers, in conjunction with patent counsel. Considerations should include, among other things, when and where to file patent applications, the number of applications and the scope of filing. The goal here is to come up with a practical and affordable patent filing strategy that aligns with the company’s business goals. Furthermore, considerations should be given to timing – for example, filing early enough or before certain key events (such as a public disclosure at a scientific conference or a meeting with a potential vendor). Furthermore, an additional year of front-end patent term can be obtained by filing a “provisional” patent application, followed by a nonprovisional application a year later.
Managing the patent portfolio in view of product development and commercialization. As the company moves along the product development timeline to commercialization, the patent life cycle will likely move through procurement and toward issuance of the patents. Constant reevaluation of the patent portfolio should be made with the team to determine whether the portfolio is evolving in step with the product development efforts. For example, changes or product improvements should be appropriately protected with follow-on patents. An example of this in the pharmaceutical area might be for a new or improved product form, such as an extended-release drug formulation. Conversely, the patent estate should be pruned to abandon patents or applications that are no longer relevant to avoid unnecessary procurement and maintenance costs.
Extending the franchise. Just as the business team would continue to seek new opportunities to extend the life of the franchise, it is important to also consider and take advantage of all tools for maximizing the value of the patent portfolio. It is appropriate to take advantage of all available patent term extensions. For example, under U.S. law, it is possible to recoup patent term lost due to certain patent office delays during prosecution (see 35 U.S.C. § 154(b) relating to patent term adjustment). For products subject to regulatory review, such as pharmaceuticals, it is possible to recoup part of the patent term that was consumed during the often lengthy investigational and regulatory review periods (see 35 U.S.C. § 156 relating to patent term restoration).
Preparing for challenges. Just as one must begin to assess the competitive landscape at the earliest stages of product development, the savvy business team should prepare for different competitive challenges that arise at the other end of the product life cycle. A successful product will likely have to contend with challenges to the patent portfolio, including potential patent litigation, oppositions, post-grant reviews, and the like. In the pharmaceutical area, there is yet a further complex mechanism by which generic drug manufacturers can seek to bring their products to market during the patent term of the originator’s product. This mechanism, which spans the intersection of patent and regulatory law, is called an Abbreviated New Drug Application (ANDA). Again, preparing for these potential challenges before they occur is key. Further information about ANDAs can be found on the U.S. Food and Drug Administration website and here.

In summary, we’ve touched on some important considerations of patent product life-cycle management. The key takeaway is that a sound business plan must successfully manage both the product and patent life cycles and their often-complex overlay.

Q: How do I decide whether to license my patent or sell it outright?

A: Choosing whether or not to license or sell a patent is complex. It involves not just a relatively straightforward economic analysis, but also a review of how the disposition of the patent rights would affect the ongoing operation of the company. With respect to the economic evaluation, a company’s analysis must recognize that ownership of an enforceable patent for its entire lifetime is not free. Patent coverage is typically maintained internationally, with maintenance fees, typically due annually, required in each country where a patent was granted. Moreover, maintenance costs tend to escalate as patents age, as an incentive to make patented inventions publicly available sooner. In sum, maintenance costs are ignored at a patent owner’s peril.

In addition to economic considerations, non-economic factors specific to the patent and the business must be considered. Is the technology encompassed by the patent claims still of interest to the company? Is the scope of the claims broad or narrow? How easily can the claims be “designed around”? Will industry R&D trends soon render the products and processes covered by the patent obsolete? Answers to these questions will help determine the long-term value of the patent.

Another consideration is whether the company is prepared and willing to defend and/or enforce the patent through litigation. Any related license agreement may require this. If litigation is contemplated, how strong is the patent? These are important considerations because litigation costs can be eye-opening.

Where does the patent fit with respect to the company’s processes and product lines? Does the patent cover a business’s essential process or product? If this is the case, the best path may be to neither license nor sell the patent because these options could create competitors in the marketplace. Are related development activities ongoing within the company or by its customers? Under a licensing arrangement, the rights and obligations of the parties with respect to improvements in the patented invention can be allocated. However, if the patent is sold, even if rights are retained for the company, that company’s customers may have to contend with derivative patents obtained by the purchaser that interfere with their business.

In summary, deciding whether to sell or license a patent is not a simple mathematical exercise. It is insufficient to compare the time value of money for a particular royalty rate to a specific sale value. The analysis must also include an evaluation of the company’s product line vis-à-vis the patent and the market, the company’s present and planned research activities, and the interests of its customers. Consideration of these factors will help to determine which action is best in a particular situation.

Patents can be complicated. The experts at #DilworthIP help you understand in part 2 of @CT_Innovate’s series: http://bit.ly/1C6gk7X

Click to tweet.

You can access the rest of the installments of the “Patents Beyond the Basics” series here.

Special thanks to our Q&A Part 2 contributors from Dilworth IP:

Gerard M. Wissing, Esq.

Gerard M. Wissing Esq., is a registered patent attorney and partner at Dilworth IP. Prior to joining Dilworth, Gerard was general counsel at Beacon Equity Partners LLC and each of its holding companies (Anaqua Inc., Anaqua Services Inc. SGA2 SAS and Exari Systems Inc.). Previously, Gerard held chief IP counsel and IP group COO positions at both Computer Associates and SAP. You can contact Gerard at gwissing@dilworthip.com.

Anthony Sabatelli, Ph.D.

William R. Reid, Esq.

Patents: Beyond the Basics (Part 1)

Part 1

Q: To patent or not to patent… Should I opt for patent or trade secret protection?

A: These modes of protection, and the kinds of information or innovations they can protect, differ from each other in such fundamental ways that while this question is simple in form, and is important to ask, there is no definitive “right” answer. To get to an answer that best serves your company’s needs requires an understanding of how these modes of protection work differently from each other.

Trade secret protection is effective only when outsiders do not know what the trade secret is. Additionally, the owner of the trade secret can only take protective action against those who are connected to the owner in some way. For instance, there may be a direct legal relationship in which there is an obligation to maintain the secret. An owner might also take action against those who wrongfully obtain the information from the owner or from someone who is obliged to the owner to maintain the secret.

To maintain a trade secret, a company must require its employees to protect the secret (i.e., not disclose it to others). If an employee leaves the company to work for a competitor, the company may have rights it can enforce in relation to the employee to prevent disclosure of company secrets to the new employer. The company might also be able to take action against the new employer. However, trade secret protection will offer no protection against a competitor’s use of know-how it developed or acquired independently if a competitor develops the same information independently.

Currently, a company’s ability to protect its trade secrets is a matter of state law, but there is federal legislation in the works that might provide a nationwide enforcement mechanism for businesses to use to protect their trade secrets.

But once the trade secret is out – for example, if the information gets published in a trade journal – it is free for all to use, and the owner of what was previously secret information can only seek compensation from those who breached their obligations to the owner to keep the information secret. If the information was made public from an independent source, the secret is lost and the trade secret owner has no means for redress.

In contrast, a patented invention is never secret; the patent grant itself is a public document and, by law, the applicant must disclose a description of the protected invention in sufficient detail to enable others to use it. Thus, patenting an invention is a way of disclosing the invention to the world – the opposite of keeping it secret. However, in exchange for the disclosure, the patent owner receives the right to stop others from making, using and selling the invention it has revealed for up to 20 years or so, even against those who independently re-created the invention.

So, patent or trade secret? Sometimes, the choice is clear. If the innovation is the design of a mechanical device that will be revealed when the product is sold, the design cannot be held as a trade secret; a patent is the way to go. On the other hand, if the innovation is a manufacturing technique that cannot be reverse-engineered from the product, it might be protected as a trade secret or as a patent. Keep in mind, however, that the patent will reveal the process and it will be hard to know if competitors adopt it; a trade secret might be the better choice. Finally, patent protection is limited to statutory classes of inventions generally encompassing products and processes. Many valuable trade secrets — for instance, lists that identify customers or raw material suppliers — cannot be patented.

Q: When is the right time to file for a patent?

A: For an inventor to obtain an issued patent, his or her invention must be novel, non-obvious and useful. However, even when all of these conditions are met, a patent will not be granted if the patent application on which it was based was filed after the first public disclosure of the invention anywhere in the world. This is what is referred to as an “absolute novelty” requirement. The United States does provide for a one-year “grace period” for filing if the public disclosure had been made by the inventor himself. Nevertheless, because most inventors are also interested in seeking foreign patent protection, a patent application must be filed before the invention is disclosed publicly to avoid forfeiting one’s foreign rights.

A plethora of activities may qualify as a “public disclosure” and thus start the clock running on the inventor’s one-year grace period. Any of the following activities, if performed anywhere in the world, can be considered a public disclosure: publicly using the invention, offering it for sale, or describing it in a printed publication. The law defines “printed publication” broadly; virtually anything that is or was made available to the public by any means can constitute a printed publication. Think of disclosures made on the Internet via various social media channels, slide show presentations, conference posters or trade show displays. Any of these may constitute a public disclosure.

Therefore, before offering an invention for sale; approaching a potential customer, licensee or manufacturer with the invention; publishing an article about the invention; or promoting the invention via the Internet or in a public venue, you should file a U.S. patent application first. Otherwise, you risk losing the right to obtain a patent in the United States if the one-year grace period has elapsed. Moreover, any public disclosure made before filing a patent application may forfeit your ability to obtain patents outside the United States.

As a general rule, it is worthwhile to speak with your patent attorney before making any disclosures about your invention.

When two or more parties file patent applications claiming the same invention, the law awards the patent to the first party to file a patent application. If you are aware of others performing research in your technology area, consider promptly filing a patent application after you have a definite and firm idea of what your invention is as it will be carried out in practice. If another party beats you to the Patent Office, you could be out of luck.

Q: Does a patent give me the right to practice my invention? What is the difference between patentability and freedom-to-market?

A: Patentability relates to whether a claimed invention meets the statutory requirements of patent law (Title 35, U.S.C.) for utility, novelty and non-obviousness.

For some kinds of inventions, utility is practically a given. For others, however, particularly inventions that involve laws of nature, mathematical algorithms or business methods, recent U.S. Supreme Court decisions have made it challenging to determine whether some claims (issued or pending) satisfy the 35 U.S.C. § 101 requirement of statutory subject matter.

Novelty requirements are set forth in 35 U.S.C. § 102 and focus on whether the invention had been available to the public by others prior to the date a patent application was filed, or whether the inventor disclosed the invention more than a year prior to filing a patent application. For any particular invention, it is necessary to consider all of the pertinent facts and to read each part of Section 102 with care to be satisfied that all of the novelty requirements have, in fact, been met.

Claimed subject matter must also be non-obvious. According to 35 U.S.C. § 103, the differences between the claimed invention and the prior art must be such that the claimed invention “as a whole” would not have been obvious before the effective filing date of the claimed invention “to a person of ordinary skill in the art to which the claimed invention pertains.” Unlike novelty, which is generally an objective determination, the non-obviousness standard is rather subjective. During patent prosecution, a patent examiner will usually conclude (at least initially) that your claimed product, process or device would have been “obvious” from one or more cited documents. To be well prepared to respond, inventors will have provided evidence in the patent application as originally filed of unexpected benefits of the claimed invention vis-à-vis the prior art.

Contrary to popular belief, a patent gives its owner no affirmative right to practice the invention claimed in the patent. Instead, a patent gives the owner a right to exclude others – that is, a right to keep others from making, using, selling or offering to sell the claimed subject matter for a limited time. This limited time extends 20 years from the date the earliest patent application for that subject matter is filed.

At times, it seems an insult: “You’re kidding, right? The USPTO just awarded me, after two or three years of hard-fought prosecution, a shiny, new patent for my invention, and now you’re telling me I have no ability to practice it?” Think of a patent as a property deed that gives you the right to post a “No Trespassing” sign on your land.

Depending upon what others have been able to patent, your ability to practice your own patented invention may, in fact, be limited. Generally, if there is an unexpired patent with claims that dominate your claims, you may need a license from the owner of the dominant patent to practice your own improvement on that technology.

Suppose in 2012, Fred Flintstone invents the stone-age wheel and files a patent application. (Assume that wheels were unknown before 2012!) Fred claims: “1. A wheel.” Impressed, the USPTO grants the patent. Now suppose Barney Rubble, in 2013, invents and claims: “1. A ten-speed bicycle wheel with titanium alloy rims and styrene-butadiene rubber tires.” The USPTO grants the patent because Barney’s wheel improves on Fred’s rocky one.

Q: May Fred manufacture stone-age wheels without answering to Barney?
A: Yes, because Barney’s claim requires a ten-speed bicycle wheel.

Q: May Barney manufacture ten-speed bicycle wheels without Fred’s permission?
A: No, because Fred’s claim to “a wheel” covers any wheel, including Barney’s improved wheel; Fred’s patent effectively blocks Barney from making Barney’s own patented wheels.

Q: May Fred manufacture the ten-speed bicycle wheels without Barney’s permission?
A: No, because Barney’s claim covers them.

In the real world, both Fred and Barney may decide that the public will prefer ten-speed bicycle wheels rather than stone-age ones, so they reach a “cross-licensing” agreement under which each obtains rights under the other’s patents, and some money or other consideration is exchanged, if necessary, to balance the deal.

Interested in learning more? Check the Legal category on the Resources page of our website for the rest of the series. We’ll be releasing one installment each week for the next four weeks.

Patents can be complicated. The experts at #DilworthIP help you understand in part 1 of @CT_Innovate’s series: http://bit.ly/11CdYh8

Click to tweet.

You can access the rest of the installments of the “Patents Beyond the Basics” series here.

Special thanks to our Q&A Part 1 contributors from Dilworth IP:

Frederick A. Spaeth

Frederick Spaeth, Esq., is a registered patent attorney and partner at Dilworth IP. Fred has been in private practice for more than 20 years helping clients protect and leverage their intellectual property through patent, trademark and copyright registrations, licensing, joint development agreements and a variety of other commercial transactions. Fred can be reached at fspaeth@dilworthip.com.

Michael P. Dilworth

Michael P. Dilworth, Esq., is the founder and managing partner of Dilworth IP and is a registered patent attorney. Mike’s practice concentrates on patent and trademark prosecution; IP transactions and due diligence; litigation; post grant proceedings; licensing of intellectual property; portfolio management and counseling; and opinions including freedom to operate, infringement and validity opinions. He can be reached at mdilworth@dilworthip.com.

Jonathan L. Schuchardt, PhD

Jonathan L. Schuchardt, Ph.D., is a registered patent attorney and partner at Dilworth IP. Prior to joining the firm in 2011, Jon was a senior patent counsel with LyondellBasell Industries and its predecessor companies. Jon began his career as a research chemist and transitioned to roles as a patent agent and patent attorney. Since 1990, he has drafted and prosecuted hundreds of patent applications and counseled clients on a variety of IP matters. Contact Jon at jschuchardt@dilworthip.com.

Employment Agreements: Who Needs Them? When Should a Startup Company Have Them?

[cs_content][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/05/Content-Detail-News.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][cs_text class=”cs-ta-left”]Startup Employment Agreements: When Should a Company Have Them?

Companies whether long established or just starting up—are not required to offer a written employment agreement to any employee they hire or currently employ. In some cases, however, it may make sense to have a written employment agreement signed by an employee. Below are some general considerations, good and bad, that a company, particularly a startup, should think about before using an employment agreement.

A startup company may find it useful and in its best interests to have an employment agreement in order to exercise a degree of control over an employee’s ability to leave. For example, a company that is spending a significant amount of time and money on recruiting, interviewing, hiring and training a new employee might want to consider an employment agreement. Such an agreement may lock an employee in place for a specific period of time or, at the very least, require the employee to provide a specific amount of notice prior to leaving. Although a company cannot force an employee to remain employed, having an employment agreement may keep the employee from voluntarily walking away, especially if there is a penalty for doing so.

An employment agreement can set performance standards and grounds for termination. With those spelled out, a company may find it easier to hold an employee accountable and terminate an employee should that employee fail to live up to the company’s standards.

A startup may want to take affirmative steps to attract and retain an employee with specialized knowledge or technical skills applicable to critical company functions; particularly since replacing such employees may prove difficult. Rewarding an employee with nonfungible skills by providing secure employment over a certain time period may help ensure that the employee remains with the company, and provide a competitive advantage over rival companies.

“Rewarding an employee with nonfungible skills by providing secure employment over a certain time period may help ensure that the employee remains with the company, and provide a competitive advantage over rival companies.” Click to tweet.

An employment agreement may limit an employee’s ability to disclose proprietary information or seek employment with a competitor through certain confidentiality provisions or restrictive covenants. These may include confidentiality, nondisclosure, noncompetition and nonsolicitation clauses. Since the nature of each position is different, an agreement may not need to include all four clauses, or any of them at all. Each position should be examined separately to determine which covenants are appropriate. To be enforceable, the restrictive covenants must be reasonably limited in time and/or geographic area.

However, a company does not need to have an employment agreement with an employee to limit the employee’s ability to disclose confidential information or compete against the company. A company may require employees to sign confidentiality, nondisclosure, noncompetition and nonsolicitation agreements without having a written agreement for employment in place.

A startup company should bear in mind, however, that an employment agreement will also bind the company to certain obligations and limit its rights with respect to the employee. For example, if the company decides that it needs to close part, or all, of its business, or if it decides that reorganization is required, the company may want to end the terms of an employment agreement early. Generally, such early termination comes with a penalty. Indeed, depending on the terms of the employment agreement, such early termination may be a breach of contract. To avoid such penalty, a company may have to renegotiate an employment agreement, which may result in less-favorable terms for the company.

Similarly, if an employment agreement provides specific benefits to an employee, such as health insurance, life insurance, disability payments, membership to a health club, or retirement benefits, a company cannot unilaterally stop providing such benefits even if the company is facing financial difficulties. In such a case, the company will have to renegotiate with the employee, who may not agree to the reduced benefits.

“…if an employment agreement provides specific benefits to an employee, such as health insurance, life insurance, disability payments, membership to a health club, or retirement benefits, a company cannot unilaterally stop providing such benefits even if the company is facing financial difficulties.” Click to tweet.

Lastly, while having agreement terms that clearly define grounds for terminating an employee may make it easier for the company to hold the employee accountable, such terms may also limit the company’s ability to simply part ways with the employee if the relationship sours or for any other reason. The company likely could terminate the employee without penalty only if he or she engaged in conduct warranting such termination as set forth in the agreement. Any other termination would typically require the company to pay a pre-negotiated severance amount to the employee.

In considering the above recommendations, remember that these are meant as general guidance; each case will present its own unique set of circumstances. Thus, we recommend that you get some input from an employment lawyer prior to drafting and offering a written agreement to an employee.

About the Author

Jarad Lucan is an associate with the law firm Shipman & Goodwin. He practices labor and employment law on behalf of both public- and private-sector clients. Additionally, Jarad advises employers and provides training on a broad range of personnel-related matters, such as disciplinary issues, termination and separation issues, reasonable accommodations, and personnel policies and practices. You can contact Jarad, who is based in Shipman & Goodwin’s Hartford office, at jlucan@goodwin.com.

Link to PDF[/cs_text][/cs_column][/cs_row][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”] [/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ class=”cs-ta-left” style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/04/backtocontentlibrary.png” alt=”back to content library” link=”true” href=”http://ctinnovations.com/access-content-library/” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=”” class=”back-image”][/cs_column][/cs_row][/cs_section][/cs_content]

The Ins and Outs of In-Licensing

[cs_content][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://ctinnovations.com/wp-content/uploads/2017/05/Content-Detail-News.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][cs_text]The Ins and Outs of In-Licensing – What is In-Licensing?

In the research, development and design of new products, an increasing number of startups are turning to “in-licensing” technology from universities and other institutions as a means of getting products to market quicker while reducing both risk and cost in the early stages of development.

Rapid progress in product development also allows for financing opportunities beyond what is possible for most technology startups. An increase in capital, in turn, can help support more aggressive development of novel technologies (both internally and by way of additional in-licensing arrangements).

While in-licensing can result in a successful “marriage” between licensor and licensee, it’s important for the parties to recognize that – just like in any marriage! – they often come to the table with different (and at times conflicting) experiences, incentives and goals. Therefore, a better understanding of key issues involved in structuring and negotiating the in-licensing arrangement will help the parties better establish a clear framework for a mutually beneficial relationship.

Drilling Down

As with any strategic transaction, in-licensing arrangements are typically more successful when both parties enter the relationship well-informed and with eyes wide open. Identifying risks and other “red flags” through the due diligence process – and working together in addressing and trying to resolve those issues – will go a long way in ensuring that the parties start the relationship off on the right foot.

In addition to general business and economic considerations, a licensee will want to drill down on certain technical and legal matters in determining the value of a prospective in-license arrangement, including the following:

What is the track record of the licensor and its development team in supporting successful commercialization of technology?
Have all members of the licensor’s development team and other personnel duly assigned all rights to the technology to the licensor?
Will the licensee have access to key members of the licensor’s development team? Are they willing to provide the licensee with information regarding their development efforts?
Are there any existing research and development, joint venture or other arrangements restricting the licensor’s use or license of the technology? Do any third parties hold patents or other rights that could block the use of the technology the licensee proposes to in-license?
What do the licensor’s patents and patent applications actually cover? Will the licensor (or the licensee, if associated rights are granted) be able to effectively prevent others from competing with the licensee?
Are there any regulatory considerations that should be disclosed? What is the risk the licensee will not get regulatory approval for products containing the technology? Has the technology the licensee intends on in-licensing already been used in an approved product?

Bridging the Value Gap

Generally speaking, the more likely it is that the product containing the technology will be commercially successful, the more favorable the financial terms will be to the licensor. A number of factors need to be considered in assessing the likelihood of success, including existing and prospective competition, expected demand for the product, the need for additional capital/investment and the nature of any required regulatory approvals.

“The more likely it is that the product containing the technology will be commercially successful, the more favorable the financial terms will be to the licensor.” Click to tweet.

The following are among the most common financial features of an in-license arrangement:

Upfront Payment
- Paid to the licensor upon or shortly after signing the definitive license agreement
- Often treated as an advance on royalties
- Typically expected in situations where the technology is well-developed (resulting in less risk to the licensee)
Milestone Payments
- May include payments due upon events such as the licensee obtaining financing, the successful completion of clinical trials, the product receiving regulatory approval and/or some other mutually agreeable milestones
- Allow the licensee to extend payments over the term of the license as the product achieves commercial or other success
Royalty Payments
- Typically expressed as a flat rate per unit sold or a percentage of sales/profits
- Often a difficult point of negotiation
- “Customarily” ranging from 3% to 8% of sales
- Often subject to adjustment over the term of the license upon the occurrence of certain “trigger events” (e.g., an increase in the sale price of the product, an increase in licensee’s costs in supporting the product, the expiration or invalidity of the patent(s) covering the licensed technology, etc.)

It should be noted that licensors and licensees often have different notions of what it means for a product to be a “success” when considering commercial and other milestones. For example, a large pharmaceutical company may establish certain commercial thresholds before advancing a new compound into the final stages of clinical development (e.g., projected annual revenue of at least $200 million). These thresholds may be much higher than those that a startup or emerging company may look to establish in determining “success.”

“Licensors and licensees often have different notions of what it means for a product to be a ‘success’ when considering commercial and other milestones.” Click to tweet.

Furthermore, as the primary focus for an early-stage company is typically enterprise value (rather than revenue), a successful clinical trial (or achievement of some other “non-commercial” milestone) may be of more relative value to the early-stage company than it is to the larger company that is more concerned about its bottom line and share price.

To negotiate successfully, it is important for each party to recognize the other party’s goals and incentives and find a way to “bridge the gap” between the values placed on the technology and the product at the various stages of the in-licensing transaction.

Papering the Deal

The definitive license agreement should accurately reflect the commercial terms as agreed upon by the parties, with appropriate representations, warranties, covenants and conditions to account for the results of due diligence and allocation of risk between the parties.

The scope of the license and the definition of licensed rights and technology are arguably the most “material” provisions of the agreement. The licensee will want to ensure that the license includes all rights it needs – both now and in anticipation of future growth – to produce and sell the products. The licensor will want to ensure that the scope of the license is not overly expansive (potentially resulting in an inadvertent grant of rights to technology or other intellectual property [IP] that is not necessary for the production of the products or violation of the terms of an existing agreement it has in place with a third party).

As the licensor owns and may continue to develop the licensed technology, it is important for the licensee to ensure that the scope of the in-license extends to all new technology/IP that is derived from the original. The licensee may also create new IP based on the licensed technology (i.e., derivative works), and while it is common for the licensee to maintain ownership rights in this new IP, the licensor may be granted rights or a “grant-back” with respect to this technology.

As with other commercial agreements, termination rights will typically arise upon breach of the in-license agreement by either party. In addition, both parties will want the right to terminate the relationship in the event regulatory approval is not obtained or obtainable within a predetermined period or upon the occurrence of any other event that makes the commercialization of the product containing the technology impracticable.

Express Licenses

In an effort to support local entrepreneurs and startups (many of whom lack the time and resources to negotiate the terms of a “customary” in-license), a recent and growing trend among universities is to offer “express licenses” – a predefined template license designed for startups with a rapid and streamlined review process. The associated license fees are typically deferred (or substituted with a convertible note), and while the terms of these licenses are not subject to negotiation, a startup can get access to technology within a relatively short period (often as little as 30 days).

About the Author

David Schaffer is a corporate partner with the law firm of Wiggin and Dana LLP and a member of the firm’s Emerging Companies and Private Equity Practice Group. He counsels foreign and domestic clients in a broad range of corporate and commercial matters, including licensing and distribution arrangements, mergers and acquisitions, debt and equity financings, joint ventures and other strategic transactions. David is based out of Wiggin and Dana’s Stamford and New York offices. You can contact him at dschaffer@wiggin.com.

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