The High-touch Legal Services® Blog • For Startup Companies » Intellectual Property

I’m One of Several Inventors – Who Owns the Patent?

Dana — Mon, 05 Dec 2011 23:18:18 +0000

A recently-acquired client is one of three inventors of a device that received a U.S. patent. She asked me whether she can freely license to an LLC owned by two of the inventors the right to manufacture products covered by the license. I replied “yes” – here’s why.

35 U.S.C. Section 262 says:

In the absence of any agreement to the contrary, each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention within the United States, or import the patented invention into the United States, without the consent of and without accounting to the other owners.

In other words, each of the co-inventors, who jointly own the patent, can exploit the patent as she sees fit - and she need not share any profits with the other patent owners.

Furthermore, each inventor can assign or license to third parties her right to exploit the patent, thus my client can grant to her LLC a license to manufacture products covered by the patent without financial obligation to the other inventors.

Please note that this is different from situations involving jointly-owned copyrights, where profits earned by one owner must be shared with the others (see I’m One of Several Authors – Who Owns the Copyright?).

Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Corporate Officer Can Be Personally Liable for Copyright Infringement

Dana — Mon, 22 Aug 2011 21:08:41 +0000

In Blue Nile v. Ideal Diamond Solutions, the U.S. District Court for the Western District of Washington held that co-defendant Larry Chasin, founder and an officer of defendant IDS, was personally liable for infringement of plaintiff Blue Nile’s copyrighted images, even though Chasin claimed he had no role in putting infringing images on websites and he did not know the images were infringing.

Blue Nile is an online jewelry and diamond retailer. Chasin founded and operated IDS to create websites for brick-and-mortar jewelers to help them compete online. The websites included some of Blue Nile’s copyrighted images.

The court held that Chasin was personally liable for copyright infringement because:

Copyright infringement is a strict liability tort – there is no corporate protection, there is no need to prove knowledge or intent, and all individuals who participate are jointly and severally liable.
Alternatively, Chasin was vicariously liable because he controlled IDS and the websites and benefited financially from the infringing activity.

Bottom line: Don’t assume that forming a corporation will protect you against al personal liability.

Check out all posts about copyright infringement.

Non-compete Enforced to Protect Trade Secrets

Dana — Thu, 04 Aug 2011 17:53:08 +0000

California is well-known for enforcing non-compete provisions only under narrowly-defined circumstances. A recent case in the United States District Court for the Northern District of California (Richmond Technologies v. Aumtech Business Solutions) illustrates that protection of trade secrets can be one of those circumstances.

Jennifer Polito, a former employee of plaintiff Richmond Technologies (which does business as ePayware), started working for defendant Aumtech. ePayware brought suit, alleging that Ms. Polito misappropriated ePayware’s source code, license keys and customer list to help Aumtech compete against ePayware.

Previously, ePayware and Aumtech had entered into a Confidentiality and Non-Disclosure Agreement that contained a provision by which Aumtech agreed not to compete with ePayware “with similar product and or Service using its technology” for a period of one year.

The court noted that, in various cases, California courts have held that trade secret protection may be seen either as an exception permitting enforcement of a non-compete provision or, alternatively, as the basis for an action based on tort or unfair competition law.

Accordingly, the court held that the NDA clause prohibiting use of confidential information is likely enforceable to the extent that the claimed confidential information is protectable as a trade secret. Furthermore, the court found that plaintiff likely would suffer irreparable harm in the absence of a temporary restraining order (TRO).

As a result, the court ordered the following narrowly-defined TRO:, which illustrates the enforceable boundaries of a trade secret-base non-compete provision:

(1) After Plaintiff deposits $20,000 with the Court as bond, Defendants shall turn over all of the current source code and license keys developed for ePayware clients that have not yet been released to Plaintiff.

(2) Defendants are temporarily enjoined from listing current ePayware customers on the Aumtech America website in a manner that suggests those customers are Aumtech America customers.

(3) Defendants are temporarily enjoined from initiating contact with current ePayware customers or clients regarding Aumtech America’s enterprise resource planning software, unless none of the Defendants had knowledge of or contact with those customers during their terms of employment with ePayware. However, Defendants may engage in marketing efforts directed at the merchant services market as a whole, such as attending trade shows.

(4) Defendants are temporarily enjoined from using ePayware’s information about its customers’ technical and business requirements, or other confidential client information, to solicit or obtain agreements with those customers. However, Defendants may enter into agreements with ePayware’s customers if the customer initiates the contact and none of ePayware’s confidential information will be used in negotiating, executing, or performing the agreement.

(5) Defendants are temporarily enjoined from using any of ePayware’s source codes, software, methods, techniques, or other trade secret information in Aumtech America’s products or services. However, Defendants may provide and market similar, competing products and services, so long as none of ePayware’s trade secrets are used in those products or services.

Sometimes You Shouldn’t Assign All Rights

Dana — Wed, 18 May 2011 18:16:43 +0000

I have written, on several occasions, about the importance of assigning copyrights (and other intellectual property rights) when work is done by an independent contractor. (See, e.g., Independent Contractors: How to Assign Copyrights.) Sometimes, however – as suggested in a comment to What is a Derivative Work, and Why should I Care? – it is appropriate not to assign all rights.

This situation arises frequently in the case of custom software development. The reason: Over time, developers collect portions of code that they can re-use on other projects, saving their customers development time and money. This approach works, though, only to the extent that the developer retains ownership of the code; the customer, then, must be granted a license permitting use of (and perhaps other rights to) developer-owned code. The following is a typical provision for this type of situation adapted from an Independent Contractor Agreement:

“Contractor Intellectual Property” means inventions, designs, mask works, processes, methodologies, literary works and works of authorship that: are so identified in the applicable SOW; and Contractor developed or acquired from a third party, but in neither case at Customer’s expense, before providing Services under the applicable SOW; and are used or delivered in connection with Contractor’s performance under the SOW; and are not Customer Intellectual Property, Customer’s Confidential Information or Deliverables.

Contractor will not incorporate any Contractor Intellectual Property into any Deliverable except as may be expressly specified in the applicable SOW. Contractor hereby grants to Customer a perpetual, irrevocable, worldwide, nonexclusive, nontransferable, royalty-free license to use, operate, maintain, copy, modify and create derivative works of, and to grant to third parties the right to use, operate, maintain, copy, modify and create derivative works of, Contractor Intellectual Property contained in any Deliverable for the purposes of the applicable SOW.

Photo credit: iStockphoto

Don’t Use Social Media if You Have Something to Hide

Dana — Mon, 02 May 2011 19:34:53 +0000

A client sells high-quality collectibles manufactured from authentic sports-related materials (game-used balls, uniforms, arena flooring, stadium seats, etc.). The company ensures that all materials are licensed by the applicable university or professional sports organizations so it can use the organizations’ names and trademarks in promotional activities. Some competitors do not pay for the required licenses, however – and one of these recently was caught as the result of a Groupon promotion.

A friend of the client’s CEO received a Groupon promotion offering a huge discount on items that, the friend knew, competed with those offered by my client. At the client’s request, I contacted the licensing organization’s in-house lawyer to let him know that the competitor was using trademarks (apparently) without a license to do so.

I was pleasantly surprised, and somewhat amazed, when the lawyer immediately replied that he was already working on a cease-and-desist letter. The reason: Over the same weekend, he had received an e-mail for the same Groupon promotion!

Moral: It’s inappropriate to use others’ trademarks without required licenses, and it’s dangerous to advertise such use on a website, but it’s foolish, at best, to promote such use via social media.

What is Copyright Infringement?

Dana — Tue, 12 Apr 2011 16:15:41 +0000

I recently realized that I have referred to copyright infringement in quite a few posts, but I neglected to define that term. It is time to correct that oversight.

Generally, copyright infringement occurs when a copyrighted work is reproduced, distributed, performed, publicly displayed, or made into a derivative work without the permission of the copyright owner – i.e., in violation of the copyright owner’s exclusive rights.

Chapter 5 of Title 17 of the United States Code addresses copyright infringement and remedies for infringement. Depending on the circumstances, remedies might include:

A temporary or final injunction
Impounding of infringing goods
Actual damages and the infringer’s profits
Statutory damages
Costs and attorney’s fees

Furthermore, under certain circumstances willful infringement can result in criminal liability.

ICANN to Help Trademark Owners Prevent Cybersquatting

Dana — Tue, 15 Mar 2011 01:51:04 +0000

In an interview in today’s San Francisco Chronicle (“Rod Beckstrom, CEO of ICANN, talks about new domain names“), the CEO of the Internet Corporation for Assigned Names and Numbers stated that ICANN will create a global marks database to help protect trademark owners against cybersquatting.

The database will be developed in conjunction with ICANN’s forthcoming implementation new generic top-level domains (gTLDs). ICANN CEO Rod Beckstrom is quoted in the Chron article as saying (emphasis added):

We have agreed to create a global marks database. By marks we mean trademarks and service marks. … If you get a document to show that you own the trademark or service mark, you get to put it into a global database. Once it’s in the system, you will be notified if anyone tries to register your name. That’s the first time in human history that a global marks database has been created to notify owners of events that could affect them.

This is great news for trademark owners. Historically, ICANN’s protection has resided in its Uniform Domain-Name Dispute-Resolution Policy, which allows trademark owners to recover domain names from those who have registered them abusively, such as cybersquatters.

With the new database, trademark owners will be notified when a cybersquatter tries to register the domain – offering the owner of a mark an opportunity to prevent an infringement-related domain registration rather than pay to fix it after the fact.

What is a Derivative Work, and Why should I Care?

Dana — Mon, 21 Feb 2011 20:23:25 +0000

Marcel Duchamp's derivative work of Leonardo's Mona Lisa

On occasion I am asked about the extent to which a new work can incorporate elements of a pre-existing work without infringing the pre-existing work’s copyright. To answer such a question, one must understand derivative works.

17 U.S.C. Section 101 says (emphasis added):

A “derivative work” is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications which, as a whole, represent an original work of authorship, is a “derivative work”.

Put simply (and tautologically), one can think of a derivative work as one that is derived from another work.

As discussed in Copyright Protection in Once Easy Lesson, one of the exclusive rights of a copyright owner is to make derivative works (17 U.S.C. Section 106).

However, a derivative work prepared by someone other than the copyright holder will infringe the copyright only if the derivative work includes a substantial enough portion of the pre-existing work such that the works are “substantially similar“. This determination is highly fact-dependent and cannot be made in the abstract or as a generalization. (A case involving substantial similarity of two songs is discussed in “Copyright Infringement: Public Announcement was Barking up the Wrong Tree“.)

Depending on facts, the “fair use” defense to an allegation of copyright infringement by a derivative work may be available.

Bottom line: You should care about derivative works because if you use elements of someone else’s copyrighted work, you may be committing copyright infringement.

Check out all posts about copyright.

Photo credit: Wikipedia

Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

How to Defeat a Cybersquatter, Part 2: Going to Court

Dana — Wed, 16 Feb 2011 04:26:06 +0000

In How to Defeat a Cybersquatter, I wrote about ICANN’s Uniform Domain Name Dispute Resolution Policy. The UDRP provides a quick, inexpensive way to recover a domain name from a cybersquatter (someone who has obtained a domain name that is the same as, or confusingly similar to, a trademark or service mark that you own). However, if you want to recover money, you will have to go to court.

Before proceeding further, let me be clear: I think lawsuits should be avoided whenever possible. As a trial lawyer told me many years ago, “Litigation is a terrible way to run a business.” Unfortunately, litigation sometimes is necessary.

The Anticybersquatting Consumer Protection Act (15 U.S.C. § 1125(d)) was enacted in 1999. Simplifying a bit, ACPA allows the owner of a mark to bring a civil action against an individual or entity that (i) has a bad faith intent to profit from that mark and (ii) registers, traffics in, or uses a domain name that is identical or confusingly similar to that mark.

ACPA then goes on to provide a non-exclusive list of factors that can be considered in determining bad faith intent. These include, for example intellectual property rights of the alleged cybersquatter; any prior bona fide use of the domain name; intent to divert consumers in a manner that could harm the goodwill represented by the mark; and an offer to assign the domain name for financial gain without bona fide use of the domain name.

Another benefit of ACPA recently was established by the U.S. District Court for the Western District of Washington in Microsoft v. Shah, et al.: Those who help the cybersquatter (“contributory cybersquatters”) can be sued, as well.

Check out all posts about cybersquatting.

Photo credit: Robert Linder via stock.xchng

Three Ways to Protect Yourself when Developing Software Offshore

Dana — Tue, 04 Jan 2011 03:37:54 +0000

Many startups have software developed offshore to save money. There is good reason to be concerned, however, about loss of money or, even worse, loss of intellectual property when a developer is located half-way around the world. This post discusses ways to minimize those concerns.

I recommend the following:

Ensure that the agreement with your overseas developer assigns all rights to the software (including all intellectual property rights) to you.
Don’t send your “family jewels” offshore. For any portion of the development that requires disclosure of your most important trade secrets, use a local developer.
Time deliverables and payments such that you never will be too severely financially exposed. If your relationship with the developer sours, you can go somewhere else without a catastrophic financial loss.

If you take care of these three points properly, everything else should be pretty routine.

Photo credit: Rajesh Sundaram via stock.xchng