Wednesday, March 9, 2011

Intellectual Property - Remedies for Improper Use of a Company’s rights

Once you have established the property right in the item by patent, copyright, trademarks or service mark, you effectively have the exclusive use of such item for the applicable term. For another party to use it legally they would need a license from you allowing such use. Any improper use is a violation of your property rights and referred to as an “infringement” of the owner’s rights. Even though the infringement may be accidental, the party infringing  would be responsible and the law would provide the owner with certain remedies such as:

Injunctions are an order issued by a court ordering someone to do something or prohibiting some act after a court hearing. In this case the property owners would demonstrate that they have been or are in danger of being harmed, and they need some help (relief) or from the courts. In an injunction the affected party would petition for the injunction to protect their rights and get an "order to show cause" from the judge telling the other party to show why the injunction should not be issued. The show cause order would be served on the infringing party. Then a hearing would be held in which both sides attempt to convince the judge why the injunction should or should not be granted.
If there is danger of immediate irreparable harm at the time the petition is filed, a judge may issue a temporary injunction which goes into effect upon it being served to the other party. Temporary injunctions stay in force until the hearing or sometimes until the outcome of a lawsuit is decided. A final and continuing injunction is called a permanent injunction.

For trade secrets, if there is unauthorized use by a third party, owner of the secret information would need to do one of two things. If the user of the information is one that had access to it under contract (such as an employee who received it under its employment and would have been restricted from using it by the employment contract or a non-compete agreement), they would have the ability to claim breach of that contract for damages. If the information was being used by a third party who it was provided to under a confidentiality or non-disclosure agreement, their rights would be determined by the terms of that agreement. If there was no agreement in place between the owner and the party using it, and they believe that it was wrongfully acquired by the third party, they could potentially seek an injunction in equity claiming that there was a “misappropriation” of their trade secret.

Third parties would not be liable for misappropriation or be prevented from using information that 
(i)             They rightfully had in their possession without a nondisclosure or non-use obligation;
(ii)            was developed independently by the Recipient;
(iii)           Is publicly available knowledge
(iv)          Was provided by the discloser without a requirement to maintain its confidentiality or restricted its use

For example, many Confidentiality Agreements may be written in a manner that while the recipient if restricted from further disclosure of the information, they would still be allowed to use the information for any purpose. This is done to avoid potential claims for misappropriation where an employees may learn something in one program with the discloser, and the knowledge that is retained in their mind may wind up beign used in another program.

With Trade Secrets the burden of proof is one the claimant to prove that they both managed the information as a trade secret and that there was a wrongful taking by the other party. If the other party did nothing wrong and independently developed the information on their own, there is no protection on that information under trade secrets

What does this all mean from a contract negotiation perspective?

If your are the Buyer, your company could be liable if the product you purchase infringes upon the rights of a third party and an injunction could be issued against the supplier from producing, or for your selling or importing any infringing product.

To partially protect against this there are two types of clauses that would be used.

The first in your warranty section you may require a warranty that the Product or Service that you are buying does not infringe the intellectual property rights of another. The second is you would ask for an intellectual property indemnification, where if a third party claims infringement, the Supplier would be required to both defend any claim and indemnify you against all expenses, including attorney’s fees associated with the claim. It would also create and obligation on the Supplier to provide you with a solution that does not significantly interrupt your deliveries by doing things such as getting a license to use it, by change their product or services so that is non-infringing,

The breach of the warranty would allow you to collect any damages sustained. As the cost of such a problem can be substantial, any IP Infringement Indemnity needs to be closely negotiated with the limitation of liability provision. Suppliers like to place dollar caps on their potential liability and in the areas of IP Infringement, all a dollar caps does is transfer any risk over and above that cap to the Buyer. It is a risk that the Supplier has the greatest ability to manage by how they manage their own Intellectual Property. If a Supplier wants to offer you to little protection it may be a sign that there could be potential problems that they may be aware of. 

Under U.S. patent law if a Court determines that infringement of a Patent was willful, they may award special damages for up to 3 times the amount claimed to deter willful infringements. Based upon that you always need to ensure that your Intellectual Property Indemnity provision is always carved out  from the limitation of liability where types of damages that may be claimed are limited. If you don't,

the party whose Intellectual Property rights could recover the special damages from your company and you could only collect direct damages from the Supplier.

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