Monday, August 24, 2009

Did You Inadvertently Allow Your Licensee To Sell Your Valuable Intellectual Property?

If your company licenses software, music, movies, or similar intellectual property, two recent federal court decisions may leave you scratching your head as to whether your license is, in reality, a “sale,” allowing your licensee freely to transfer or sell the licensed copy of your intellectual property to others. In light of these decisions, it may be prudent to include license termination provisions triggered by the licensee’s end of use of the licensed work or based on a future date.

The Lawsuits

Traditionally, under copyright law, a license is treated differently from a sale in one crucial respect. A licensee does not have the right to transfer or sell the licensed copy of the copyrighted work. A purchaser of a copy of the copyrighted work, however, is free to further transfer or sell the purchased copy of the work to others under the First Sale Doctrine. Note that neither a licensee nor a purchaser has the right to make additional copies of a copyrighted work; that right remains with the copyright holder unless otherwise assigned.

In Vernor v. Autodesk, a lawsuit filed in a federal court in Washington, and UMG Recordings, Inc. v. Augusto, a lawsuit filed in a federal court in California, this traditional principle was given a fresh look, and the courts came to a very surprising conclusion.

In the Vernor case, the plaintiff sought a declaratory judgment that the used copies of Autodesk software purchased and sold by him on eBay were lawful pursuant to the First Sale Doctrine. Autodesk, of course, disputed this contention because it claimed that its software was “licensed” and that the license agreement allowed only for nonexclusive use of the software, prohibiting the further sale, rent, lease, or transfer of the software.

Similarly, in the Augusto case, the plaintiff music recording company brought a copyright infringement suit against an individual who was selling promotional music CDs. The company claimed that the promotional CDs had been provided to a limited number of industry insiders and had been stamped “not for resale,” creating a license only to use the CD. The defendant claimed that he was allowed to sell the CDs under the First Sale Doctrine.

Both courts ruled that the sellers were “owners” for purposes of the First Sale Doctrine, and that their sales of the copyrighted works were lawful. The courts paid short shrift to the license agreement in Vernon and the CD stamped not for resale in Augusto. Rather, considering the totality of circumstances, the courts found it important that the person to whom the software or music was originally transferred had been allowed to keep the software or music perpetually. The courts found it crucial that the transferees were not required to return the software or music to the licensor. The courts found that the licensee’s right perpetually to possess and use the copyrighted work evidenced a sale, and not a license, thus allowing further transfer of the copyrighted work under the First Sale Doctrine.

What This Means For You

The law of intellectual property is constantly changing. While these decisions do not presently constitute the majority view, they may in the future. To safeguard your intellectual property rights, it may make sense to review your licenses and determine whether the operative language gives your licensee the right perpetually to possess the licensed intellectual property. If so, you may want to revise your licensing agreements to include a provision whereby the licensed work must be returned to your company after the licensee terminates its use of that work. Optionally, you may want to include a specific end date by which the licensed work must be returned. While this date may be several years out, this provision could help negate the argument that the licensee has the right perpetually to possess a copy of your intellectual property.

-- Anuj Desai, Esq.

Not If, but How

Arnall Golden Gregory LLP has significant experience in the area of drafting licensing agreements for a variety of works, including software, music, motion picture, publications, and more. We serve the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen.

Please visit our website for more information, http://www.agg.com/.

Data Exclusivity - Lines are Drawn in the Battle for Biosimilars

The fight over biotechnology drugs has boiled down to a single number: the years the producers of those drugs should be exempt from generic competition. Over the last six weeks, some of the most influential politicians, government agencies, and lobbyists have drawn lines in the sand over what they feel is an appropriate time period to protect branded biotechnology medicines from cheaper generic rivals. Although the “Battle for Biosimilars” in unlikely to generate the dramatic protests that have plagued town hall Healthcare Reform Meetings across the country, the result of this battle will be crucial for both maintaining incentives for innovation and reducing health-care costs.

In March, Congress began to develop two different pieces of legislation for bringing follow-on biologics to market. In the “Promoting Innovation and Access to Life-Saving Medicine Act” (H.R. 1427) (the “LSMA”), the period for market exclusivity is 5 years. In the “Pathway of Biosimilars Act” (H.R.1548) (the “PBA”), the exclusivity period is 12 years. As of July the “12 Year” bill had well over 100 sponsors in Congress, while the “5 Year” bill only had about a dozen sponsors.

After a brief pause in the action, the last months have seen another flurry of activity as lobbyists, the White House, government agencies, and influential members of the Senate have weighed in on the biosimilar data exclusivity period.

The first developments clearly favored the branded biologics industry. In early June, the Federal Trade Commission (FTC) issued a detailed report on follow-on biologics questioning the need for a 12-year data exclusivity period. This sentiment was echoed in the second half of June by a letter from the White House stating that a follow-on biologics regulatory pathway providing a 7-year data exclusivity period would strike the appropriate balance between innovation and competition.

In July, members of the Senate countered with very different recommendations. First, Senator Ted Kennedy (D-MA) broke ranks with the White House, proposing on July 8 that any follow-up biologics legislation considered by Congress should give innovator biologic drugmakers up to 13.5 years of exclusivity. A mere five days later, the Senate Health, Education, Labor, and Pensions (“HELP”) Committee voted in favor of a pathway that provides 12 years of exclusivity, handing a major victory to the branded biotechnology industry.

The reaction to these new developments has been swift and strong. Jim Greenwood, the President of the Biotechnology Industrial Organization (BIO), expressed his disapproval that the White House derived its policy from the FTC report, which he argued “was based upon highly selective assumptions and has been rejected by many members of Congress as fundamentally flawed.” In contrast, the AARP has written Congress to urge support for the LSMA 5 year exclusivity, stating in a letter to house members that “it is critical that Congress pursues a legislative option that does not delay consumer access to less expensive generic versions of these life-saving medicines,” and in a letter to Senate members that no bill at all is better than a bill that gives brand-name pharmaceutical companies 12 years of protection.

The pharmaceutical industry has eagerly awaited news about where the most influential politicians and groups would come down on the length of time for market and data exclusivity. Now that the lines are clearly drawn, the battle can begin in earnest between those supporting the generic biologics industry, and those supporting the branded biologics industry.

Arnall Golden Gregory LLP serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.

Monday, August 17, 2009

Arbitration Fairness Act May Push More Competitive Conflicts Into Court


Once favored as a litigation cost-and time-reduction panacea, arbitration as an institution may be falling out of favor, and a current legislative response to this climate of disfavor could eliminate arbitration as a forum for most non-competition and non-solicitation legislation. The Arbitration Fairness Act of 2009 is a pending bill that would, among other things, invalidate binding arbitration clauses in employment agreements. As drafted, the AFA would take effect for disputes “arising on or after” the date of enactment – in other words, it would apply retroactively to employment agreements, many of which include not only business non-competes and non-solicits, but mandatory arbitration provisions as well.

The result will be a trip to court for the business that may have contracted to avoid it. Suppose your business has key manager who leaves to work for a competitor. His non-compete should restrict that move, but the manager claims it is unenforceable. Assuming no challenge to the bargaining process or fundamental fairness of the agreement exists, your company might ordinarily invoke the arbitration clause. In arbitration, you have the opportunity to present arguments about the enforceability of the clause in a confidential setting, and a ruling against your company is not one that will set precedent that might impact your company’s other agreements.

With the AFA in effect, your company would need to head to Court, or, as is often the case, the manager might preempt that move by filing his own declaratory judgment action to declare your agreement unenforceable. In that forum, a negative ruling – especially one that is appealed unsuccessfully – could work to establish the invalidity of other, like agreements within the company. The litigation will be a very public undertaking, and the results accessible to anyone who chooses to view the docket.

If the AFA’s passage appears imminent, contingency planning may be in order. Here’s the text: http://tinyurl.com/bnjhk8. In committee now, the AFA stands a fair chance of passage by a Democratic Congress. We’ll keep you apprised of the bill’s progress, and in the meanwhile, it may be worth evaluating existing agreements and having in place a forward-looking response strategy that accounts for the AFA or similar legislation.

As an aside, your author is not so certain that arbitration is the necessarily the best forum to litigate these competitive provisions in every setting. For example, even if prevailing law favors your position, a negative arbitration result is virtually unappealable. The key is flexibility, and planning to account for your business’ particular competitive needs: there is no “one size fits all” solution.

--Andrew Flake

Andrew B. Flake is a partner in the Litigation Group at Arnall Golden Gregory LLP (andrew.flake@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, www.agg.com.



Friday, August 7, 2009

They Are From The Government and Are Here To Help You. Really.

Intellectual property owners should not overlook a valuable tool in protecting their assets from infringement from abroad – the U.S. Customs and Border Protection (“Customs and Border Protection”) division of the Department of Homeland Security. This agency offers a very cost effective opportunity for companies to exclude counterfeit, confusingly similar, and/or inferior goods into the U.S.. Depending on the nature of what is being imported, Customs and Border Protection can exclude, detain, seize or cause the forfeiture goods imported, introduced or shipped in or through the United States.

In order to take advantage of the services of Customs and Border Protection, an owner of a registered trademark, trade name or copyright should record its mark or copyright with Customs and Border Protection to prevent the entry, or attempted entry, of infringing products into the U.S.. One should use the electronic recordation program provided by Customs and Border Protection. The cost is $190 per application and it is much less cumbersome than filing a paper form. See, http://www.attts/apps.cdp.gov/e-recordation/.

After registration, the IP owner should open an ongoing dialog with Customs and Border Protection concerning unique characteristics of the protected products as well as guidance on identifying suspected counterfeit or infringing products. Under this “application process,” owners of registered and recorded trademarks may, and should, provide updated information designed to assist U.S. Custom Inspectors in intercepting illegal imports. Ideally, an IP owner should submit sufficient information to support a “Trade Alert,” which will be directed to all ports of entry throughout the country. The more information an IP owner can provide to an inspector to make a decision as to what is real, and what is counterfeit or infringing, the better. Of course, the IP owner should update this information regularly.

In summary, significant protection is available from the federal government for IP owners at a low cost. Surprising? Maybe. Worthwhile? Absolutely.

Steve Dorvee is a partner and member of the Litigation Group and Intellectual Property Team at Arnall Golden Gregory LLP (stephen.dorvee@agg.com). Our firm serves the business needs of growing public and private companies, helping clients turn legal challenges into business opportunities. We don't just tell you if something is possible, we show you how to make it happen. Please visit our website for more information, http://www.agg.com/.