University Licensing Gets a Jolt – Exclusivity Is Not Patently Obvious

This post was written by Craig P. Opperman.

The United States Court of Appeals for the Federal Circuit has just overturned a lower court’s decision to throw out a patent infringement action brought by AsymmetRx against Biocare Medical. Why, you ask? The Appeals Court concluded in AsymmetRx, Inc. v. Biocare Medical LLC that the patent owner, Harvard, should have been included in the lawsuit. Why should you care? Bear with me, especially if you are involved in any way in licensing, exploiting or otherwise commercializing technology, inventions or other intellectual property related to colleges and universities – or in litigating related licensing disputes.

Harvard gave AsymmetRx an exclusive license (including the right to enforce its rights) under a fairly standard and typical “university” licensing agreement. AsymmetRx sued Biocare and won. So far, all is right and ‘normal’ with the world. BUT, not so fast. Biocare appealed the decision and – are you ready?- The Appeals Court for the Federal Circuit sent the case right back to the District Court saying, exclusive? Not really. Harvard should have been joined in the infringement action. What, you say? How can this be? Read on.

The appellate court ruled that reading all the terms and conditions of the standard university license altogether, AsymmetRx didn’t really have the equivalent of full ownership of the patent or the subject matter – exclusive license notwithstanding. So Harvard, the owner, must be a party to the action for any determination on the merits. Specifically, the Court stated: “When viewing the retention of the right to sue in conjunction with all of the other rights retained by Harvard, it is clear that Harvard conveyed less than all substantial rights under the patents. While any of these restrictions alone might not have been destructive of the transfer of all substantial rights, their totality is sufficient to do so.”

In other words, since Harvard, under the terms of its license, still kept a significant amount of control over the patent rights, AsymmetRx as a licensee did not have enough of an interest in the patents to sue without joining Harvard – even though the license terms purported to give AsymmetRx the right to do so. Hmmmm.

Who cares? First of all, universities may now end up having to be joined in every intellectual property infringement action or disputes over intellectual property rights – even though it/they may have given an exclusive license, including the right to bring an action in its own name, to someone else. Are the litigators seeing dollar signs, and are university officials seeing legal costs and additional expenses, in the licensing process?

Just as significantly, if you are a transactional or intellectual property lawyer (or if you are involved in the licensing process from a transactional, contractual or licensing point of view), it gets more complicated. Universities have crafted standard licensing terms which, with rare exceptions, are used in virtually all of their licensing arrangements. So do you change the terms and conditions of these license agreements, relinquishing a greater degree of control – in which case the contract might look more like an ‘assignment’ than a ‘license’ – OR do colleges and universities start gearing up for being involved in more and more intellectual property infringement and rights disputes and lawsuits? If so, does the license agreement specifically need to state that the university is willing or amenable to being joined in the action? What if it’s not? What if it wants to decide on a case-by-case basis? What if the Court decides the university must be joined anyway? What if . . .?

So, are you a licensee? An investor? A university? A rights holder? Doing due diligence? Negotiating licensing agreements? Representing any of these folks? You can do nothing and hope for the best, or you can contact Rimon’s Craig P. Opperman. In uncertain times, no one may have all the answers, but at least you will have an informed basis to make some decisions from lawyers who know.

Did You Miss Our Seminar: “Facebook Personalized URLs: Titanic Brand Opportunity or Tip of an Iceberg?”

As we reported previously, Facebook announced the availability of a personalized Facebook URLs, raising serious issues — yet another example of technology colliding with traditional intellectual property laws. In this case, laws intended to protect trademarks and brand names. If you followed the news, the promotional momentum created by Facebook’s offer has made every astute brand owner ponder the implications! While you, of course, should look at my previous Legal Bytes post on Personalized URLs, if you missed the informative one-hour seminar on the subject presented by Douglas J. Wood and myself, Co-Chairs of the Rimon Advertising Technology & Media Law Group, you can find it here: “Facebook Personalized URLs: Titanic Brand Opportunity or Tip of an Iceberg?

WWW.IMaySoonBeLegal BytesWithoutAnyDotCom

Move over “Dot Com” and other “dots” you have come to know and adore. Soon you may be able to purchase a top-level domain corresponding to almost any word or phrase, including your name or brand. ICANN, which administers domain names, is accepting comments on its new Draft Applicant Guidebook; but if you really want expert guidance and advice on what this means to you and why you should prepare yourself for the changes, read our bulletin Branded Dot Com Internet Domain Names, and then contact John Hines, our resident authority Advertising Technology & Media Law partner. Dot’s nice!

The Doors of Perception Can Sometimes Lead to Harsh Reality

Although the California Appellate Court, Second Appellate District, has designated the actual opinion as NOT FOR PUBLICATION (this means you must consult the rules of the court before you cite this case), this past May, two former members of the famed rock band The Doors were held to have engaged in false advertising under California law by advertising a concert band using that name. Although a jury found the band members not guilty of trademark infringement or unfair competition, the appeals court agreed with the trial court that “false advertising” claims are not the same, and upheld a permanent injunction against the individuals using the name “The Doors,” or any name containing that name. The court’s ruling also precludes the use of the name, voice or likeness of deceased band member Jim Morrison, in promoting concert ticket sales, citing prohibitions under the California statute regarding rights of publicity. Rimon knows publicity and privacy, in California—and throughout the United States and the world. Always know before you show. Call us, we can help.

Just When You Thought File Sharers Would Know Better

So you think it’s nice to share? A Federal District Court has ruled in favor of Universal and Paramount Studios, holding that willful copyright infringement is committed when digital movies are downloaded from KaZaA, a peer-to-peer file-sharing service, and stored in a directory of shared files capable of being downloaded by other KaZaA users.

Damages Raise the Ante in Patent Infringement Suits

Just about a year ago, the Supreme Court in Grokster modified a decades-old ruling in the “Sony Betamax” case to remove the insulation automatically given to Internet service providers and hosting services when it can be shown that even with a substantial non-infringing use, a service condoned and encouraged (and made money) through illegal sharing of copyrighted materials. This month, a unanimous U.S. Supreme Court decided a case in favor of eBay which overturns decades of legal precedent favoring the issuance of injunctions as an automatic right granted to plaintiffs for patent infringement. The case involved eBay’s “buy-it-now” feature that permitted customers to buy items “now” without being involved in the auction process. Although the Supreme Court sent the case back to the lower court to ultimately determine if an injunction was or was not appropriate, the significance of the decision cannot be underestimated.

By way of background, when a lower court first held that eBay’s “buy-it-now” feature infringed two patents owned by Tom Woolston (founder of MercExchange), the court ordered eBay to pay damages (approximately $25 million), but did not issue an injunction. That court reasoned that since MercExchange was apparently willing to license its patents, an injunction was neither necessary nor appropriate. Unfortunately, the next court on the ladder upwards, the U.S. Appeals Court for the Federal Circuit, reversed that decision stating the “general rule” that injunctions must follow all infringement findings unless “exceptional circumstances” exist. Since an appeal was pending to the Supreme Court, the court held the injunction in abeyance awaiting the Supreme Court’s decision.

The Supreme Court, in a unanimous decision, held the lower courts did not properly evaluate the case under federal requirements. More importantly, language in the concurring opinion written by Justice Kennedy and signed by Justices Stevens, Souter and Breyer noted that courts must consider the broader implications of using injunctions because an “industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees,” and in those instances, “legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest.”

This language in the Supreme Court’s decision could deal a serious blow to companies that exist solely to engage in patent infringement litigation (so-called “patent trolls”) and who use the U.S. patent system to coerce lucrative settlements from companies who previously faced injunctions that threatened to shut down entire businesses. Hearken back to the RIM “Blackberry” litigation which recently settled. If the schedule had been a few months earlier, RIM could certainly have been much better positioned before choosing to settle for more than $600 million rather than face the possibility of an injunction shutting down (or certainly making life exceedingly difficult with work-arounds) an entire business.

The Supreme Court’s decision in the eBay case could lead to a higher threshold for injunctions, now that money damages are not automatically precluded (nor injunctions automatically issued) in adjudicating patent infringement cases. Some critics complain that the ruling creates the possibility that courts can become the arbiters of a damage-based compulsory licensing system, while advocates say the ruling will prevent companies from buying up patents and exploiting their litigation value, rather than the underlying invention itself—the basis for patent protection in the first place. Most analysts, however, agree on one thing—the likelihood that products subject to patent infringement actions will be threatened with automatic shut downs will start to decrease, increasing the leverage defendants have in any patent infringement suit to settle cases.

Got Indemnification!

In a world increasingly dependent on information, technology and intellectual property rights, contract indemnities—especially if you are an innocent third party—can be critical. “Innocent” means you are a licensee or user of technology (e.g., software, database information) from a provider or licensor and a third party claims that your provider or licensor has wrongfully furnished you with intellectual property that belongs to them. While space doesn’t allow us to go into the finer points of contributory infringement, third-party claims and the distinctions between insurance, breach of representation, and warranty or contract claims and an indemnity, there is enough space to alert you to the fact that a third-party indemnity claim—even if you, the user/licensee, have not knowingly done anything wrong—is disruptive and unnerving at best and at worst can lead to damage claims. For example, the third-party, if successful, will require a new license agreement with you and new license fees (remember those license fees you already paid your current licensor/provider?). Caveat emptor (or, in this case, caveat licensor)!