◊ VRP Law-The Intellectual Property and Employment Law Blog.
Provided by Vihar R. Patel and Sponsored by Enterprise Law Group, LLPArchive for Copyright Updates
Buying and Selling a business (Mergers and Acquisitions)
Properly negotiating and structuring a purchase or sale of a business can be a challenging endeavor. Having a good team of accountants, legal advisers, valuation experts, tax advisers, lenders or investors is crucial to successfully buying or selling a business. There are a variety of considerations in buying or selling a business, but there are two major ways to structure a deal: an asset purchase or a stock purchase.
An advantage of an asset purchase is that it allows the buyer to be selective in terms of the assets that it wants to acquire from the target company. Also, the buyer is generally not liable for the seller’s liabilities, unless the asset purchase agreement has such language. Some disadvantages of an asset purchase are that the bill of sale must be comprehensive enough to ensure that no key assets are overlooked and third party consents will likely be required.
Some advantages of a stock purchase are that the business identity, licenses, permits can be preserved, and continuity of the business may be maintained. However, the buyer may be liable for unknown or contingent liabilities, and may be forced to contend with the seller’s minority shareholders.
Also, there are variety of employment and intellectual property law considerations that go into structuring a proper purchase or sale of a business. Such as the following:
a) negotiating key employee agreements and non-competition restrictions;
b) contending with collective bargaining agreements;
c) resolving anticipated or outstanding claims by employees;
d) acquiring the desired intellectual property (business name or marks, copyrights, patents or trade secrets);
e) restricting the other party from using the intellectual property (business name or marks, copyrights, patents or trade secrets); and
f) recording assignments or transfers of intellectual property (business name or marks, copyrights, patents or trade secrets).
Properly, structuring a purchase or sale of a business can often mean the success or failure of the venture. If you have any concerns or questions regarding the purchase or sale of a business, then please feel free to contact us.
Failure to contest arbitration properly, can waive access to courts!
Plaintiff was acquired by a new company and sued the defendant on a breach of contract theory in an American Arbitration Association (“AAA”) Complaint. The AAA Complaint alleged breach of a written agreement; however, Defendant counterclaimed requesting reformation or rescission of the contract from the arbitrator. The Defendant asserted a mutual mistake of fact as the basis for seeking a reformation remedy, and alternatively sought rescission of the contract.
In the arbitration proceeding, the Plaintiff asserted that reformation was not necessary as there was no mutual mistake of fact and no scrivener’s error. However, Plaintiff did not argue that an arbitrator could not reform a contract. Subsequently, Plaintiff filed a motion with the trial court to vacate the arbitration award asserting that the arbitrator lacked the authority to reform the 2004 written contract.
The trial court held that Plaintiff’s failure to assert at arbitration that the Arbitrator lacked the authority to reform the contract was a waiver of the argument. The trial court held that to object to arbitration, a party must object to the arbitration proceeding in a timely manner. The appellate court affirmed and stated that there is a mandate by the Illinois Supreme Court that arbitration awards should be construed as to uphold their validity whenever possible.
The presumption is that an arbitrator did not exceed his or her authority, and grant a petition to vacate an arbitration award only in extraordinary circumstances. Judicial review of an arbitration award is extremely limited. Consequently, litigators must be more cognizant and advise their clients of the need to assert all claims and arguments in arbitration proceedings.
See: First Health Group v. Ruddick, N0 1-083236; 2009 WL 1940702 (1st Dist). First Health Group Corp_Arbitration.
The Antitrust side of IP Litigation
Antitrust counterclaims are once again viable options for defendants involved in Intellectual Property (IP) litigation. Often a Plaintiff is utilizing a patent infringement suit as a method of interfering with the business relationship of a competitor.
However, if the patent was obtained by knowing and willful fraud or the lawsuit is a sham for interfering with competitors’ business relationships, then the patent may be invalid and subject the Plaintiff to an antitrust violation. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177 (1975); In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322, 1326 (Fed. Cir. 2000); and Hazelquist v. Guchi Moochie Tackle Co., 2004 U.S. Dist. Lexis 13991 (W.D. Wash. May 12, 2004).
The risk of an antitrust violation and counterclaim is not limited to sham patent litigation. Plaintiffs attempting to utilize trademark infringement suits to maintain a monopoly (price control) or restrict competition face a similar risk of an antitrust violation. In Marketing Displays, Inc. v. TrafFix Devices, Inc., 200 F.3d 929, (6th Cir. 1999), the court permitted an antitrust counterclaim against a plaintiff asserting trade dress infringement after the expiration of patent.
If the litigation is objectively baseless in the sense that no reasonable litigant could expect success on the merits, then it may be the basis for a antitrust violation. Professional Real Estate Investments, Inc. , v. Columbia Pictures Industries, Inc. , 508 U.S. 49, 60 (1993). However, this does not mean that a product’s different qualities cannot be protected simultaneously, or successively by more than one statutory means for protection of intellectual property. Kohler Co. v. Moen, Inc. , 12 F.2d 632, 638-39, (7th Cir. 1993).
Understanding the nuances of the scope of intellectual property protection that can be obtained for a product is crucial to your ability to protect your market and your investments.
Tricky Settlement Agreements in Seventh Circuit…
If you are a litigator in Illinois, the Seventh Circuit decisions in Lynch, Shapo, and Blue Cross have just made your job a lot more difficult. Especially, if your practice involves business, employment or intellectual property matters, where settlement agreements often contain a payment plan for royalties, profits, backpay or future earnings.
It used to be that based on Kokkonen you could simply enter a dismissal order with prejudice that allowed the court to retain jurisdiction to enforce the settlement agreement. However, based on the 7th Circuit’s recent rulings in Lynch, Shapo, and Blue Cross entering such an order will deprive the court of jurisdiction to enforce the settlement agreement.
In which case, your client may be standing outside the courtroom trying to find a way back in by filing a new lawsuit for a breach of contract. The other common alternative is to enter a dismissal order without prejudice to allow the court to retain jurisdiction to enforce the settlement agreement.
Unfortunately, entering such an order may deprive your client of the res judicata effect of a dismissal order that is with prejudice. In this scenario, your client will be back in the courtroom defending against claims that it believed were resolved, and may have helped fund its opponent’s lawsuit.
Understanding how the drafting of settlement agreements has changed in light of the US Supreme Court’s decision in Kokkonen and the Seventh Circuit’s decisions in Lynch, Shapo, and Blue Cross is crucial to properly representing your client’s interests.
Collaborators, Joint Authors and Copyright Infringement!
Generally, joint authors own an undivided interest despite any differences in the authors contributions. Erickson v. Trinity Theatre Inc., 13 F.3d 1061, 1071 (7th Cir. 1994). A movie, song, book, computer program, picture will qualify as a joint work if two or more authors collaborated and/or contributed interdependent parts with the intention to a create a unitary whole. 17 USC 101.
Traditionally, this requires the following: 1) the intent to create a joint work; and 2) contribution of independently copyrightable work. Erickson, at 1068. The intent requirement only requires that the parties wanted to work together to create a single product, nothing more. Janky v. Lake County Convention and Visitors Bureau, 07-2350 (7th Cir. 2008) (see attached). In performing this analysis the court must look to the parties intent at the time that the work was created. Id.
Moreover, crediting another person as a co-author is strong evidence of the intent to create a joint work. Id. The second element requires that the contribution is something that is more than general ideas or suggestions, but concrete expressions meriting copyright protection. Id. The Seventh Circuit’s refinement and restatement of the joint author analysis heightens the need for collaborators to clearly define their roles and rights to intellectual property ownership.
Whether you are working with an other individual, consultant, company, independent contractor or a employee, if you fail to clearly define the roles and rights between the collaborators, then you take the risk of allowing another to own your intellectual property.
See: Janky v. Lake County
The Safe Harbor for ISPs. What is it?
The safe harbor is not a tranquil body of water, but a section in the Digital Millennium Copyright Act (DMCA) that protects Internet Service Providers (ISPs). The ISP is an entity offering transmission, routing or providing connections for digital online communications, between or among points specified by a user, of material of the user’s choosing, without modification to the content of the material as sent or received. 512 (A)
Or, an ISP is a provider of online services or network access or the operator of such facilities. 512 (B). The ISP is immune from liability for monetary, injunctive or equitable relief for copyright infringement for storage of such material at direction of user on its systems. 512 (c). However, the ISP must meet the following elements to acquire such immunity:
1) not have actual knowledge that the material or an activity using the material on the network is infringing;
2) is not aware of circumstances or facts from which the infringing activity is apparent; or
3) upon acquiring such knowledge or awareness, removes or disables access to the material;
4) does not receive a financial benefit directly attributable to the infringing activity, where the ISP has the right and ability to control such activity; and
5) upon notice of claimed infringement responds expeditiously to remove or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.
Website Immunity for Defamation under the CDA!
The Communications Decency Act (CDA) of 1996, is still alive and protects many internet service providers (ISPs) and website hosts from liability for statements and actions made by others using their services. The goal is to promote the free exchange of information and ideas over the internet.
Many individuals have received information or posts from individuals that defame or paint them in a bad light. Sometimes there is false or misleading information that is posted on a website are the basis of tort, contract and intellectual property claims against the ISP or website host.
The CDA shields these individuals from liability, because they are not considered the speaker. Moreover, they are shielded from liability if they act in good faith and restrict access to false or misleading information. Most of the cases dealing with these issues have been in the defamation context, but there is some crossover with contract and intellectual property matters.
The ISP and the website host is immune as long as they are not the author or creator of the post or statement. In other words, they are just a means of commnication. It remains to be seen how the CDA, particularly, section 230, will be interpreted in the context of an breach of contract or violation of intellectual property rights claims.
Back to the Basics: What is a Copyright?
A copyright is an often overlooked area of intellectual property law. Most business owners, individuals, entrepreneurs and small/mid-size companies know that patents and trademark can help increase their number of assets, develop licensing royalties, increase market share, block competitors and a variety of similar business objectives.
However, most business owners, individuals and small/mid-size companies fail to realize that a copyright can help in many of the same ways. Under 35 USC 106, a copyright grants the author or owner the following: a) the right to reproduce; b) prepare derivative works; c) the right to distribute works; d) the right to perform the work publicly; and d) the right to publicly display the work.
Moreover, owning a copyright is distinct from having a tangible copy of the work. A copyright can be licensed or transferred in a similar manner to patents or trademark. A individual, business owner, entrepreneur, small or mid-size company can acquire and register a copyright in a book, song, video, a play, business process manual, a photograph, a logo, a website, computer software, a movie and a variety of other similar works of authorship.
Upon registering a copyright, you can sue for copyright infringement in federal court, get statutory damages and get attorneys fees for the lawsuit. To learn more about how copyright law can help you achieve your business objectives please feel free to contact our office.
Registration of Music with the U.S. Copyright Office.
Musical compositions or songs can be registered with the U.S. Copyright Office. Under 35 U.S.C. 102 (a) (2) musical works, including accompanying works may be registered for copyright protection. However, as soon as the work is fixed (sheet music, written lyrics, video, cd or dvd format) the work is entitled to copyright protection.
Registering provides the following: 1) benefit of notice to others of your registration; 2) the right to sue in Federal Court under the U.S. Copyright Act; 3) statutory damages; and 4) attorney’s fees for an infringement law suit. The key to properly registering a musical work is to comply with the deposit requirement. The U.S. Copyright Office will utilize the “best edition” of the musical composition for registration purposes.
The “best edition” for printed copies is determined based on the following: 1) fullness of score ( including vocal music, orchestral accompaniment, instrumental music, etc…); 2) printing and paper; and 3) binding and packaging (special editions, bound rather than unbound, protective folders, etc…).
The “best edition” for phonorecords is determined based on the following: 1) cd rather than vinyl; 2) vinyl rather than tape; 3) special enclosures; 4) open reel rather than cartridge; 4) cartridge rather than cassette; etc… The deposit requirement is key to determining the copyrighted material and the scope of the registered copyright.
See Attached Publication from the U.S. Copyright Office: Musical Works Brochure
If you have any questions relating to registering your musical works, then please feel free to contact us.
Copyright Law, Open Source Licenses and Covenants or Conditions?
Many individuals or entities will provide copyrighted material to the public and attempt to restrict the public’s ability to use the copyrighted materials for personal gain. A common example is the software industry’s use of open source materials.
Many software developers or programmers will provide their code to the public, but attempt to limit another’s ability to copyright anything that is created from their software code. In a recent case, Jacobsen v. Katzer and Kamind Associates Inc., the Federal Circuit upheld the ability of a copyright owner to publicly disseminate its code, grant a non-exclusive license, and still sue for copyright infringement.
How? Well, a Copyright Owner can put conditions on the non-exclusive license that restrict the public’s use of the software code. If the conditions are violated, then the copyright owner can sue for both copyright infringement and breach of contract for violating the covenants in the license agreement.
The Federal Circuit’s reasoning and ruling raises concerns for individuals and employers who may believe that use of open source materials or items in the public domain are free from copyright infringement claims. Having a good policy and practice of reviewing the conditions of use for any open source or publicly available materials is now a crucial business practice for any technology driven company.
To find out more about the opinion see: Jacobsen v. Katzer and Kamind Associates, Inc. open-source-license-agreements1
