Intellectual Property - Overview

An intellectual property rights of an individual or company may be protected in several ways. The most common of these are:

• A Patent protects an idea and provides a right to exclude others from making, using, selling, or importing the idea for a specified period from the filing date. Patents are issued in different countries and apply only to that country.  A U.S, patent is the grant of a property right to the inventor. In the U.S, the term of a new patent is generally 20 years from the date on which the application for the patent was filed. The patent grant provides the right to exclude others from “making, using, offering for sale, selling or importing the invention in the United States.  In Procurement, if you purchase a product that infringes the patent rights of the owner of the Patent, your company could be liable to the original patent owner for that infringement and the original patent owner could seek injunctions against your use of the infringing product.

• A Copyright protects a particular expression of an idea from copying. Copyrights are similar to patents in that copyrights may be issued in multiple countries. A copyright is the exclusive right of the author or creator to print, copy, sell, license, distribute, transform to another medium, translate, record or perform or use. For distributed or published works, a copyright notice should be affixed stating the word copyright, copy or ©, with the name of the creator and the date of copyright (the year of first publication).. While authors normally have the copyright to their works there is an exception. That is when the work is made "for hire". In that situation the author does not own the copyright, the copyright will owned by the party that commissioned the work. In certain countries authors of copyrighted works may also have what’s called “moral rights” in their works. Moral rights include the right of attribution and the right to maintain integrity of their work from anything that may detract from the author or artist’s relationship with the work. In Procurement if you are having something created by a Supplier, you want to own the copyright so if you need to make changes, additions or event translations, you don’t need to hire the Supplier to do them. See the Intellectual Property - Work for Hire blog that deals with copyrights.

• Trademarks identify the source of a good or service and are used to eliminate consumer confusion. For example a Company’s name, and a product’s brand name will usually be trademarked. A trademark is a word, name, symbol, or other device that is used in trade with goods to indicate the source of the goods and to distinguish them from the goods of others. A servicemark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product. The terms “trademark” and “mark” are commonly used to refer to both trademarks and servicemarks. Trademarks or Servicemarks are commonly used by companies in their “branding: of their products. General Motors, and Chevrolet would be branded as a trademark Their individual lines may also be branded as a trademark. Whereas, “Mr Goodwrench®” would be a service mark. Trademark and Servicemark rights may be used to prevent others from using a confusingly similar mark or name. It doesn’t prevent others from making the same goods or from selling the same goods or services under a clearly different mark In procurement you seldom deal with trademark issues. The exception may be when using a Supplier’s trademark will provide value to the Buyer’s product. For example PC makers that have “Intel Inside” stickers on their product needed to have a trademark license from Intel to use their trademark.  

Patents and Trademarks or Services Marks require governmental filings. Copyright may include governmental filings but filings are not required unless the law of the jurisdiction requires them.
Trade secrets only require management of the information as secret.

• A Trade Secret protects an idea in perpetuity until it has been disclosed by the company without being protected. For example, information about an unannounced product would be protected as a trade secret. Once that product is being sold, a competitor could purchase and tear it down to see how it was made and the use of that information would not be protected.  For something to remain a trade secret the owner must take actions to manage the secret nature of it such as by using confidentiality or non-disclosure agreements if it will be disclosed to a outside party. Trade Secrets include a number of things such as formula, practice, process, design, etc. used by a business to obtain an advantage over competitors. Trade Secret information when disclosed is referred to as "confidential information". Companies protect their confidential information disclosed to their employees through non-compete and non-disclosure provisions of their employment contracts. For third parties that need or want to have access to the information, companies require the execution of Confidentiality or Non-disclosure agreements.

There are three factors to trade secret information:

1.     It is not generally known to the relevant portion of the public;

2.     It provides an economic benefit to its holder from it not being generally known

3.     Reasonable efforts are used to maintain its secrecy.

Trade Secret information does not give intellectual property rights in the information or afford

protection against another party using it. Unlike a patent, trade secret information is

susceptible to independent development or reverse engineering. Protection also ceases when 

it is introduced into the public domain.  Claims related to Trade Secret information would be 

based in law under breach of contract requirements in any confidentiality or non-disclosure 

agreement or in equity in a claim for misappropriation (wrongful taking) of the trade secret 

information.

Intellectual Property - Work Made for Hire

Most of the time if you are paying for work to be done, you want to own the product of that effort.  For example if you hired someone to write copy for you and you failed to own that, each time you wanted to use or modify that you would need to go back to the creator to get their approval to change it. If you hired a photographer to take pictures or film a meeting, unless you had ownership of the product, each time you wanted to make copies, use it, or make changes you would need to go back to the original Supplier. As the originator of the work, they would have the Copyright.

The simplest way to get ownership is to include in your Contract a “work made for hire” provision such as:

"All Deliverables belong exclusively to Buyer and are works made for hire.  If any Deliverables are not considered works made for hire owned by operation of law, Supplier assigns the ownership of copyrights in such works to Buyer. 

If the Deliverables included some of the suppliers pre-existing materials or tools, the Supplier might want to exclude this and may do so in the definition of Deliverables such as: 

”Deliverables” means all items developed in the performance of this Contract but does not include any preexisting materials, or tools of Supplier, or items specifically excluded".

If you need to be able to use pre-existing materials or tools to be able to maintain, support or modify the item the Supplier delivered, in conjunction with the work for hire language you would also want a license grant to use those materials or tools for those purposes.

From a negotiation perspective the main impact of this is on the life cycle cost of what you purchased. If you don't have the rights to make changes, additions, improvements and be able to support and maintain what you purchased without having to go back to the original Supplier all the time, it limits the value of the purchase. It also leaves you in the undesirable position of having to negotiate with the original supplier with no competitive leverage available. 

If a Supplier won't give you ownership and license rights to do what you need to do, make sure that you negotiate what the costs will be for every type of scenario and include those in the contract so you control what the cost will be if you need to purchase them.    

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:

• An injunction which is an order from the court that prohibits further use
• An accounting of the profits and an award of damages

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.

Intellectual Property – Differences between Tangible Property and Intellectual Property

To further understand Intellectual Property here’s a simple comparison between tangible property and intellectual property:

Tangible Property	Intellectual Property
If you want to permanently transfer tangible property, you sell that property.	If you want to permanently transfer intellectual property, you assign rights in that property
If you want to acquire temporary rights to tangible property such as a house or car, you rent or lease them from someone.	If you want temporary rights to someone else’s intellectual property, you license those rights.
To relinquish your rights to tangible property without receiving any compensation, you give away the property.	To do the same thing with intellectual property rights, you would waive those rights.
If someone takes your tangible property without your consent, that property is considered stolen.	If someone uses your about patents, copyrights, or trademarks without your permission, those rights are considered to be infringed If someone uses your trade secrets without permission they are misappropriated.
When any property, tangible or intangible, is sold or assigned, the new owner has full control over that property and can resell it, change it, destroy it, or give it away without the consent of the former owner.	When intellectual property is licensed, the licensor may impose restrictions on what the licensee can and cannot do with the licensed material. Those uses and restrictions would be included in the license grant.
Items that are sold usually have minimal restrictions and can be resold or transferred	Intellectual Property usually includes restrictions such as how long the licensee can continue to use the intellectual property, whether the licensee can copy the Intellectual Property, and whether the licensee can disclose the intellectual property to others.
Hardware is sold	Software is licensed
The purchaser has full ownership subject to any liens or encumberances	The licensee has a right to use the licensed materials subject to the terms and conditions imposed by the licensor in the license grant .