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Volume XLIX No. 2
This two week seminar focuses on advanced topics in U.S. patent law
and includes workshops and problem solving in order to illustrate
the more advanced concepts with regard to prosecution, claim
interpretation, and validity and infringement issues. Participants learn
how to modify and determine the scope of a granted U.S. patent, as
well as how to address significant licensing issues.
les Nouvelles
June 2014
Advancing the Business of Intellectual Property Globally
Where Are We Going in High Tech?
Assessing High Tech: Observations And Patterns — Part Two
Annemarie Meike — Page 82
Clean Tech Trends—Intellectual Property & Transactions
Ron Epperson and Myron Kassaraba — Page 84
Selected Advanced Transportation Trends, Part 1—The Giga-Factory
Michael Craner — Page 96
Observations In The Aerospace And Transportation Industry
William H. Pratt and Annemarie Meike — Page 103
IPRs In Least Developed Countries: A Progress Report
Luc Savage — Page 111
EU State Aid Policy: A Model To Assess Intellectual Property Rights
And Knowledge Dissemination In R&D Cooperation — Part 1
Mario Cisneros — Page 116
Key Amendments To The Chinese Trademark Law
Zhou Zhongqi — Page 124
Superman® And Statutes: The Case For Restructuring The U.S. Legal System
And Awarding Copyrights To Authors Behind Works For Hire
Michael Haviland — Page 126
Australian And United States Court Decisions
To Impact On Business Method Patent Licensing
David Webber — 135
Promotion And Protection Of Investment In South Africa Bill, 2013—A Review
Madelein Kleyn — 138
Recent U.S. Court Decisions And Developments Affecting Licensing
John Paul and Brian Kacedon — Page 141
Infringement Analysis is not an
information mining exercise. It is
a research with Legal, Technical
and Commercial Expertise.
Experience the Meeting That’s
Been 50 Years in the Making!
Explore cutting-edge topics, from strategy to tactics, addressed
by today’s thought leaders, industry experts and dealmakers.
Connect with new ideas from keynote speakers Quentin Hardy,
Deputy Technology Editor for The New York Times and Andrea
Ingraham, Director of the Center for Advancement of Science
Education, the Titans of Licensing panel and LES’s Top 10 Court
Decisions of the Year Affecting Licensing workshop.
Collaborate with a global community of more than 1,000
business development, technology transfer, intellectual
property and licensing professionals.
 Patent Search Services  Technology/Innovation Research
 White Space Analysis  Claim Charting/Infringement Analysis
 Portfolio Analysis
 Patent Licensing Support Services
 Portfolio Management
 Patent Due Diligence
 Landscaping Studies
 Patent Drafting
Reach us
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Register by June 30 at www.lesannual.org for best rates!
Assessing High Tech: Part Two
Assessing High Tech: Observations And Patterns
Part Two
By Annemarie Meike
he modern business world operates on the
widely held notion that by identifying and
predicting patterns in the market, one can
increase one’s ability to surf the waves to market
success. This second of a multi-part series of papers,
loosely arranged around observations and trends in
the various industrial subsectors of the High Tech Sector, continues to examine insights, seek connections
and identify hidden structures that may extend more
globally than the original observations. We invite international contributions to all editions of this series.
Part One of the High Tech Sector Trends series
appeared in the December issue of les Nouvelles.
It reviewed the concept of market stages as applied
to the various High Tech subsectors, recognizing an
Early Stage, an Emerging Market Stage, a Mainstream
Market Stage and a Mature Market Stage. Three
subsectors were highlighted in Part One. First, Semiconductors, arguably the most mature market of the
three, used a historical perspective to forecast future
trends. Second, Software offered a review of patent
eligibility laws, contrasting U.S. and Canada developments, and of software applications on interactive
screens, or “apps” and data privacy—two increasingly
important and mutually intertwined subjects. Third,
Mobile and Consumer Electronics emphasized the
consequence of the convergence of technologies
into a single package of increasingly smaller size.
FRAND, Patent aggregators and defensive strategies
that border on monopoly concerns are big in this
area. A separate article about Samsung and LG took
a historical and government policy view of two major
Korean firms and discussed how several key decisions
made by the government influenced their success.
This Part Two of the High Tech Trends series examines
trends in Aerospace, Transportation and Clean Tech.
• For Clean Tech, an analysis of investments, deals,
IPOs (Initial Public Offerings) and patents gives a
sense of what is hot and what is not. In “Clean Tech
Trends—Intellectual Property & Transactions,” by
Ron Epperson1 and Myron Kassaraba,2 the authors
and contributors predict the areas of interest in
Clean Tech at the convergence of technology,
climate and investment.
• For Aerospace and Transportation, an examination of intellectual property terms in U.S. govern-
ment contracts gives us insight into the complex
world of large government contracts and the
regulations behind them. In “Observations in the
Aerospace and Transportation Industry,” by William H. Pratt,3 and Annemarie Meike,4 the authors
and contributors explore how the laws and regulations that govern the ownership, licensing and use
of IP that is developed
during a U.S. Government contract dif■ Annemarie Meike,
fer significantly from
Lawrence Livermore
those governing comNational Laboratory,
mercial agreements.
Business Development Executive,
• For Transportation
Livermore, CA,
and Clean Tech, a
E-mail: [email protected]
discussion of electric
vehicles exposes the
impact of a small company on an industrial sector with a very high barrier to entry. Consequent
potential changes to energy infrastructure are also
examined. In “Selected Advanced Transportation
Trends—Part I—The Giga-Factory,” by Michael
Craner,5 connections and influences are explored
in a brave new world of electrified transportation.
Clean Tech, Green Tech, or Sustainable Tech as it
can be called, is an odd duck of a category, focused
on the desirable end result of the technology rather
than an industrial sector. Clean Tech can be found in
High Tech, Life Sciences and Chemical Energy and
Materials. The end result is energy efficiency, low
impact power generation and energy storage, low
carbon footprint and water conservation. Now the
Cinderellas of Clean Tech, waste stream management
and pollution control are becoming popular to investors. Vinod Khosla is quoted as using the term “Main
1. Managing Director, Intellectual Energy, and Co-chair LES
HTC Clean Tech Committee, [email protected]
2. Partner, Strategic Advisory & Transactions, Pluritas, LLC, and
Co-chair LES HTC Clean Tech Committee, [email protected]
3. Partner at Finnegan, Henderson, Farabow, Garrett & Dunner,
L.L.P., [email protected]
4. Business Development Executive at Lawrence Livermore
National Laboratory, [email protected]
5. President at MediaComm Innovations, “Strategic Inventing
& Analysis Services.”
June 2014
Assessing High Tech Part Two
Tech”6 for Clean Tech, seemingly from two points of
view. First, he observes that to be investment worthy
a Clean Tech enterprise needs to be viable on its own,
without subsidy. Second, he argues that Clean Tech
is changing the world. In spite of some infamous
failures, Clean Tech is becoming the underpinning
and the backbone of how the world works. It seems
similar to the way the Internet has crept into and
now is fundamental to our lives, notwithstanding the
“dotcom bust.” As observed in Part One, this subsector cross-cuts such a broad range of applications that
three stages of market evolution are represented:
Early Stage, Emerging Markets Stage, and Mainstream
Marketing Stage.
Compared to Clean Tech, at first blush, we think
of Aerospace and Transportation industrial subsector
as a Mature Market. Distinct from many of the other
High Tech subsectors with the exception of Semiconductors, Aerospace and Transportation subsector
primarily consists of industry OEMs. As such it has
much perspective to offer the other sectors. These
large, multinational industries are more sensitive to
issues of antitrust, export control and other government regulations, and issues of international law. In
addition, because of these sensitivities, there may
be a different perception of the balance of risk and
opportunity in any specific scenario. For example,
where an OEM might see risk of disclosing competition sensitive information, a service provider might
see the opportunity for publicity.
If we examine Aerospace alone, the difference in
the observed risk-opportunity balance could be seen
as part of a highly risk adverse aerospace culture,
which may stem from the military associations of
the industry. It also possibly stems from the nature
the products themselves. One member of this group
observed, “A remarkable rendition of these thoughts
is the admonition: ‘You can’t guess. When you guess,
people die.’ The difference in risk perception and
the differences in the [types of] stakeholders leads
to striking differences in topics of interest and how
licensing is conducted.” On the other hand, Aerospace may be able to afford innovation for high value
applications even though it must bear the burden
of regulation.
Upon further scrutiny, the “Transportation” part
6. http://www.forbes.com/sites/toddwoody/2012/11/27/thebig-green-opportunity-transforming-clean-tech-into-main-tech/.
les Nouvelles
of Aerospace and Transportation might be of three
major sections: Ocean, Rail, and Roadway. Roadway,
in turn, might be divided into private vehicles, drayage and heavy equipment. While all of these sections
are controlled by government regulations, the salient
regulations differ, and the tendency for innovation in
each section is moderated by different influences. For
example, arguably Rail is very conservative, driven
by regulation and not perceived as an innovator. Private vehicles markets are seen to be driven by cost.
Drayage seems to be an interesting mix of regulation
drivers and private innovation.
From the perspective of a licensing professional,
younger subsectors such as Nanotech and certain
parts of Clean Tech can learn from the concerns of
more mature industrial sectors such as aerospace
or transportation. But what comes after the Mature
Market Stage? Even mature sectors can learn from
each other as technology and regulations converge in
unique ways. Indeed, the Transportation subsector is
feeling a change in the wind. New blood is entering
the field where old blood has predominated when
barriers to entry were far too high. Now, influenced
by Clean Tech’s entrance into the mainstream, with
electric vehicles on the horizon and the infrastructural shift that it portends, there are new possibilities
and changes afoot. Will we see similar shifts in the
Aerospace and Transportation subsector as drones,
also known as UAVs (unmanned aerial vehicles),
become commercially commonplace?
In the last year and a half, the Aerospace and
Transportation Committee has identified issues of
broad interest, such as: Joint Ownership, EU Patent Unification, Recent and Emerging Changes to
Defense Data Rights Regulations, IP in Bankruptcy:
Addressing Licensor and Licensee Concerns, Defensive Publishing and a Quantum Leap in Prior
Art Access, Virtual Patent Marking, Hybrid Patent
and Trade Secret Licenses. In addition they have
presented topics of interest to large multinational
companies including: Mitigating Risks of IP Theft
and Corruption with Global Supply Chains, Application of Game Theory to Licensing, U.S. International
Tax Considerations in IP Related Transactions, Insurance/Risk Allocation Issues in Licensing. Our hope
is that it stimulates discussion and more publication
on the topics of interest to this important sector. ■
Clean Tech Trends
Clean Tech Trends—Intellectual Property &
By Ron Epperson and Myron Kassaraba
he clean tech market has been going through
some major changes in 2013 and the beginning of 2014. Some of the signs continue to
be negative such as bankruptcies and a soft initial
public offering (IPO) market but there continues to
be positive trends in many areas of this sector. Overall
investment in clean energy continues to be substantial
and the market is re-focusing on addressing the infrastructure deficiencies that are limiting the growth of
certain technologies. Renewables represent the most
significant dollars invested in the clean tech sector.
With the increasing volume of deployment of wind &
solar resources, the need for a more intelligent and
integrated electricity distribution grid has become a
critical path factor. This has also further reinforced the
need for cost-effective grid-scale storage technologies.
Some of the big stories were the commercial
success of electric car company Tesla both in the
consumer and financial markets, Google’s acquisition
of Nest Labs, the continued growth in the domestic
production of oil and affordable and abundant natural
gas and significant progress in the deployment of
renewable wind and solar capacity. The increasing
integration of wireless and sensor intelligence into all
types of devices is creating opportunities in enterprise
tools around big data and analytics.
This article is a collection of data and perspectives
from thought leaders in the clean tech market looking
back at 2013 and forward to what we can expect in
the coming year.
for renewable projects continue to represent significant economic potential for new technologies.
Venture capital funding, though representing a
small percentage of the overall investment dollars
in clean energy, is a leading indicator of innovation
and the development of intellectual property in the
sectors where investments are being made.
■ Ron Epperson,
After peaking in 2008,
VC investments dipped
Intellectual Energy LLC,
significantly with the marManaging Director,
ket decline in 2009 as
Sedona, AZ, USA
shown in Figures 3 and
4 from PitchBook’s 2013
E-mail: [email protected]
Venture Capital Clean
Tech report. The current
■ Myron Kassaraba,
slow-down in the pace of
Pluritas, LLC,
investment can be largely
Partner, Strategic
attributed to a retreat
Advisory & Transactions,
from the clean tech sector by many VC firms.
Cambridge, MA, USA
There was a bit of a “gold
Clean Tech Committee
rush” in the mid-2000s
E-mail: [email protected]
when traditional VC’s
Figure 1: New Investment in Clean
Energy 2004-2013 ($BN)
21% $318
II. Funding & Transactions
Even with the declines since the peak in 2011,
global investment in clean energy continues to be
substantial as shown in the Figure 1 and Figure 2
from Bloomberg New Energy Finance.1 These investment dollars are dominated by project finance
for wind, solar and biofuels. These large markets
17% $195
44% $167
45% $116
46% $80
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1. http://about.bnef.com/fact-packs/global-trends-in-clean-energy-investment-q2-2013-fact-pack/.
2. http://pitchbook.com/2013_Venture_Capital_Cleantech_Report.html.
Note: Total values include estimates for undisclosed deals. Includes
corporate and government R & D, and sending for digital energy and
energy storage projects (not reported in quarterly statistics).
Source: Bloomberg New Energy Finance
June 2014
Clean Tech Trends
Figure 2: New Investment in Clean Energy by Sector Q1 2004­—Q4 2013 ($BN)
8.9 8.8 8.1 9.8
Each bar=1 Fiscal Quarter
Note: Total values include estimates for undisclosed deals. Includes corporate and government R & D, and
sending for digital energy and energy storage projects (not reported in quarterly statistics).
were looking for new categories to make investments.
Clean tech looked like a sector where there was
money to be made. What most investors coming out
of traditional tech investing have found is that the
adoption of clean tech technologies has a longer time
horizon, can have a high level of regulatory complexity and in many cases is much more capital intensive
than traditional high tech. Many were lured by the
availability of government-backed loan guarantees and
co-investment, but as we have seen with the number
of high-profile bankruptcies of clean tech companies,
this was not a guarantee of success.
There continues to exist a committed group of venture capital investors who are comfortable with the
risk profile of investing in this market and are joined
by strategic/corporate investors who are looking to
fuel innovation from external sources. Some VC’s
have narrowed their focus on categories of technology that they better understand, such as software
and energy efficiency or component-level hardware
Source: Bloomberg New Energy Finance
for leading edge research and commercialization.
The ARPAe program, established in 2007 by the
America COMPETES Act passed by Congress, has just
released some details about their progress.3 To date,
22 ARPA-E projects have attracted more than $625
million in private-sector follow-on funding after ARPAE’s investment of approximately $95 million. In addition, at least 24 ARPA-E project teams have formed
new companies to advance their technologies, and
more than 16 ARPA-E projects have partnered with
other government agencies for further development.
Since inception in 2009, ARPA-E has invested over
$900 million across 362 projects through 18 focused
programs and two open funding solicitations (OPEN
2009 and OPEN 2012). In 2013 alone, ARPA-E has
launched focused programs to improve techniques
to manufacture light-weight metals, develop robust
battery chemistries and architectures for electric
vehicles, biologically convert natural gas to liquids,
create innovative semiconductor materials for improved power conversion, and use solar concentration
Government Funding And Programs
Government labs and universities continue to play
an important role in both the development of clean
tech technologies and IP, and as a source of funding
les Nouvelles
3. http://www.energy.gov/articles/arpa-e-projects-attract-more625-million-private-funding.
Clean Tech Trends
Figure 3: VC Clean Tech Deal Flow by Year
fuels and vehicles. The database
contains more than 950 technology
summaries and over 18,000 patents
that are available for license.
Clean Tech IPO Market:
In his article, “What the Strong
Market Means for Clean Tech
Energy Companies”5
Sahir Surmeli, a Partner in the En141
ergy & Clean Technology group at
Mintz Levin, writes:
“The year 2013 was officially
the year with the most active IPO
market in the United States since
2000. There were 222 U.S. IPOs
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
in 2013, with a total of $55 billion
raised.6 The year 2000 (over 350
Capital Invested ($B)
# of Deals Closed
IPOs) was the last year of a 10-year
*Through Nov. 30, 2013
Source: PitchBook
boom in U.S. IPOs had reached its
peak in 1996 (over 650 IPOs). The
year for IPOs since 2000
Figure 4: VC Clean Tech Investment by Sector
was (until now) 2004, with roughly
215 IPOs.
What has that meant for emerging
energy technology and renewables
companies that might be looking to
Energy Services
the capital markets? There was some
activity in 2013—but not much
compared to the broader market or
to the more traditional energy and
oil & gas sector.
For a handful of larger energy
tech companies that are already
Production &
public (e.g., Tesla, First Solar, Jinko
Solar and SunEdison), it has meant
follow-on offerings to bolster cash
for growth. These companies ac2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
cessed the market over the last
*Through Nov. 30, 2013
Source: PitchBook
several months; Tesla (May 2013),
First Solar (June 2013), SunEdison
and Jinko Solar (September 2013).
techniques for hybrid solar converters.
For a couple of energy companies with renewables
The U.S. Department of Energy has taken measures
portfolios, it has meant IPOs for “YieldCos,” vehicles
to assist in the discovery and commercialization of
technologies and intellectual property that have been
4. http://techportal.eere.energy.gov/.
developed in its various labs. One of those measures
5. http://bit.ly/MWUZqa.
is the Energy Efficiency and Renewable Energy (EERE)
6. Please note that there will be some variance in the statis4
Innovation portal. See Figure 5.
tics for IPOs generally. This is because most data sets exclude
extremely small initial public offerings and uniquely structured
The EERE Innovation Portal boasts innovations from
offerings that don’t match up with the more commonly undertwenty seven national laboratories and universities.
stood public offering for operating companies. The data above
Technology summary categories range from advanced
is based on information from http://bear.warrington.ufl.edu/ritter/
materials to building energy efficiency and energy
IPOs2012Statistics.pdf and Renaissance Capital www.renaissancecapital.com.
analysis to energy generation, industrial technology,
June 2014
Clean Tech Trends
recently added some key
people to its board of directors. Opower serves more
than 90 utilities, including
eight of the 10 largest in
the U.S. according to its
Sunrun Inc., headquartered in San Francisco, is a
solar-power installer, and
its business model is power-purchase agreements,
where users pay for the
electricity and lease their
PV panels rather than buying them. In June, Sunrun
announced it had secured
financing for more than
$630 million in residential
solar projects. Its main
competitors are SolarCity and SunPower Corp.
SPWR+2.57 percent.
Bloom Energy of Sunnyvale, Calif., makes solid
oxide fuel cells around which it builds onsite powergeneration systems. Its star-studded customer list
includes Wal-Mart, Google and AT&T, and the firm
in August started a leasing program with Bank of
America Merrill Lynch.
MartketWatch analyst, Claudia Assis further comments that—“In the past couple of years, several
clean-energy companies have filed and then withdrawn IPO applications. Any of them could, however,
toss their hats back in the ring this year. Clean-energy
and related companies that shelved IPO plans in
the past include biofuel makers CosKata Inc. of Illinois, which halted its IPO process twice; Fulcrum
Bioenergy of California; and Smith Electric Corp. of
Massachusetts, a maker of commercial electric trucks
and buses.”
Figure 5: DOE Energy Innovation Portal
that hold energy-generating assets and pay a stream
of dividends, such as NRG Yield (which went public
in July 2013) and Pattern Energy (which went public
in September 2013).” Surmeli says that he expects
to see more of these in the coming years.
The Cleantech Group’s i3 Investment Monitor7
noted that “significant venture exits were also realized through IPOs as 14 VC/PE-backed clean technology companies raised a total of $1.65 billion through
first-time share offerings on public markets during the
year. That dollar total was 19 percent higher than the
$1.4 billion recorded across the 16 VCPE-backed IPOs
of 2012. Notable IPOs by sector in 2013 included Silver Spring Networks (Smart Grid), Control4 (Energy
Efficiency), Marrone Bio Innovations (Agriculture),
Intrexon (Biofuels & Biochemicals), and Evogene
Looking forward, a recent MarketWatch.com article8 highlighted several clean tech companies that
are positioning for possible IPOs in 2014.
Opower Inc., which runs energy-efficiency programs for utilities, announced on February 12th that
they have submitted a confidential filing for an initial
public offering. The Arlington, Va. based company
has been preparing its IPO since at least last year and
7. http://www.cleantech.com/2014/01/08/i3-quarterlyinvestment-monitor-reports-6-8-billion-cleantech-ventureinvestment-2013/.
les Nouvelles
Global M&A And IPO Activity
The big news in clean tech M&A was the $3.2
billion acquisition of Nest by Google9 which we take
a closer look at later in the article. The Cleantech
Group reported that “M&A transactions targeting
venture capital/private equity-backed companies in
clean technology sectors totaled 83 transactions in
8. http://www.marketwatch.com/story/3-cleantech-companiespoised-to-ipo-in-2014-2014-01-08.
9. http://www.bloomberg.com/article/2014-01-13/apgD_JZTevBg.html.
Clean Tech Trends
Figure 6: Global Energy & Environmental Tech M&A
$ Projections*
Disclosed Deals
Total Deals
# Deals
$ Disclosed
Each bar=1 Fiscal Quarter
*Based on average deal size in that year, with other deals removed
Source: CleanTech Group, powered by Data from i3
Figure 7: Global Energy & Environmental Tech Acquisitions
by Company 2012/13
Robert Bosch
Parker- Hannifin
AGC Partners and
Head of their Energy & Environmental
Technologies practice, adds: “From an
Internet of Things
perspective, two
recent transactions
were quite interesting: Google/Nest
highlights the value
which comes from
combining algorithms
and endpoints, and
which combined with
other past acquisitions gives Schneider
very strong automation offerings across
industrial, commercial building, data
center and smart grid
markets.” See Figures
6 and 7.
Many clean tech
companies continued to struggle with
reaching commercial
deployment and/or
revenue levels to
sustain their operations—resulting in
the need for additional funding. As we
have seen previously
in this document, the
pull-back of venture
capital investors from
Source: Capital IQ, CleanTech
this sector made it
very difficult to raise
2013 (up 15 percent compared to 2012), of which
additional equity financing. In some cases, strategic
totals were disclosed for 32 transactions totaling
investors were able to step in and acquire these
$604 billion (down 37 percent).”
companies or their assets in an M&A transaction,
Notable venture exits were realized in the Agriand in other cases the companies were forced to seek
culture (Monsanto’s acquisition of Climate Corporabankruptcy protection.
tion), Energy Efficiency (NovaLED’s acquisition by
High profile bankruptcies included electric car
Samsung), Transportation (Google’s acquisition of
startup Fisker Automotive, thin film solar startup
Waze) and Recycling & Waste (ecoATM’s acquisition
Nanosolar, solar giant Suntech, solar company Soby Outerwall) sectors.”10
lopower, electric car startup Coda Automotive, and
Joe Dews, a Partner at investment banking firm
electric car charging company ECOtality.11
10. http://www.cleantech.com/2014/01/08/i3-quarterlyinvestment-monitor-reports-6-8-billion-cleantech-ventureinvestment-2013/.
11. http://gigaom.com/2013/12/31/13-biggest-moments-incleantech-in-2013/.
June 2014
Clean Tech Trends
Fisker’s assets were recently acquired in a bankruptcy auction by Chinese auto parts giant Wanxiang
for $149 million. Wanxiang also bought up bankrupt
battery maker A123 Systems in late 2012.12 These
bankruptcies along with a growing number of larger
companies making strategic decisions to exit markets,
such as wind (UTC) and solar (BP), are creating a
stockpile of orphaned technologies and IP.
with average time to issue in the U.S. is approximately
40 months, this can be a lagging indicator. See Figure
8 and 9.
IP Checkups’ CleanTech Patent Edge,14 in their
comprehensive 2013 Annual Report, did some further analysis of the patenting activity in the clean
tech sector. Figure 10 provides a summary of which
companies are both getting new patents issued as
III.Intellectual Property
well as filing new applications.
Patenting Activitiy
Though Panasonic is the most active company when
at both U.S., European grants and WO publiThe Clean Energy Patent Growth Index published
Samsung is in the top position in U.S. patent
quarterly by Albany law firm Heslin Rothenberg Farley
application with close to 600 in each. The
& Mesiti P.C., looks at where companies have been
where they have been most active
making investments in filing patents. The Index looks
energy storage. General Electric,
at patents that have been issued in nine different
clean tech patents and
clean energy categories. The overall Index continues
the renewable energy
to show the strength of patents being issued, though
generation and water categories.
Some other findings:
Figure 8: Clean Energy Patent Growth Index By Year
• Over 50 percent of the Top 20
2002 - 2013
Clean Tech assignees produce
consumer electronics
• 20 percent of the Top 20 As3000
signees are auto manufacturers
with various business divisions
and a strong position in Clean
Tech (likely from clean air ini1500
In taking a closer look at the sec1000
tors representing the clean tech
market, Figure 11 shows where
the bulk of the patent activity
has been occurring. Renewable
Energy Generation remained the
© 2014 Heslin Rothenberg Farley & Mesiti P.C.
#1 clean tech sector with the
most patent activity in 2013.
Figure 9: All Sectors Patents By Quarter
During the past 5 years, Trans2002 -2013
portation, Renewable Energy
Generation, Green Materials,
Energy Storage, and Efficiency
related patent activity has risen.
In addition the litigation between Honeywell v. Nest and
BRK Brands v. Nest, which are
Each bar=1 Fiscal Quarter
les Nouvelles
© 2014 Heslin Rothenberg Farley & Mesiti P.C.
13. http://cepgi.typepad.com/.
14. http://www.cleantechpatentedge.com/.
Clean Tech Trends
Gevo-Butamax—The GevoButamax litigation was a major
story of 2012 and 2013, notable
U.S. App
both for its size and as the first
foray of big oil into biofuels patent
U.S. Grant
suits.16 The ongoing patent litigaEuropean
tion between advanced biofuels
company Gevo and BP-DuPont
joint venture Butamax has grown
to encompass at least 17 suits and
14 patents relating to methods of
producing biobutanol.
The lawsuit started in Janu0
ary 2011 with Butamax’s initial
complaint filed in federal court in
Delaware alleging infringement of
U.S. Patent No. 7,851,188 (’188
Patent), later amended to include
Source: CleanTech Group, PatentEdge
U.S. Patent No. 7,993,889 (’889
Patent). Gevo counterclaimed, accusing Butamax of infringing U.S.
Figure 11: Worldwide Patent Documents, 2009-2013
Patent Nos. 8,017,375 (’375 Patent) and 8,017,376 (’376 Patent).
Last year the court handed Gevo
a partial victory when it granted
the company’s motion for summa2009
Renewable Energy Generation
ry judgment of no infringement
of the ’188 and ’889 Patents unRecycling & Waste
der the doctrine of equivalents.
Butamax subsequently notched
Green Materials
a win in a decision granting its
motion for summary judgment
Energy Storage
of non-infringement of the ’375
and ’376 Patents. As these and
Air & Environment
other big decisions start to come
down, this very important battle
is likely to continue. Gevo and
5000 10000 15000 20000 25000 30000 35000
Butamax are the two main play# of Patent Documents
Source: CleanTech Group, PatentEdge
ers in isobutanol, which is a very
good petroleum substitute and
covered elsewhere in this document, there continues
well-suited for both fuels and chemicals.
to be active patent disputes in the various clean tech
Novozymes-Danisco—There has been significant
sectors—though not at the same level as we are seepatent infringement litigation between Danish bioing in smartphones and other technologies.
pharm rivals Novozymes and Danisco (now owned
Eric Lane, the founder and author of Green Patent
by DuPont), which are both active in developing
Blog15 and the Principal at Green Patent Law, a bouenzymes used in the production of biofuels. Novotique law firm dedicated to providing IP services to
zymes has accused Danisco of infringing U.S. Patent
the clean tech industry had provided a summary of
No. 7,713,723 (’723 Patent) by selling alpha amylase
what’s red hot in green patent litigation.
enzymes including Danisco’s GC358 product.
To nic
Sa yot
m a
Ge Mi su
ne thu ng
ra bi
l E sh
lec i
Bo ric
Sie sch
Ho ns
mi Ge Hita SF a
co ne ch SE
nd ra i,
uc l M Lt
En oto .
erg rs
Ni Lab
Du an
To ont
Sh M
Su So
m ny
# of Patent Documents
Figure 10: Worldwide Patent Activity
Burgeoning Biofuels Battles
15. http://www.greenpatentblog.com/.
16. http://www.greenpatentblog.com/2013/08/27/butamaxavoids-infringement-of-two-gevo-patents-on-summary-judgment/.
June 2014
Clean Tech Trends
The ’723 Patent, which claims priority back to an
application filed in 2000, is entitled “Alpha amylase
mutants with altered properties” and relates to variants of certain alpha amylases that exhibit altered
stability under high temperatures, low pH and other
conditions. The patented variants can be used for
starch conversion in ethanol production. The case
has had a number of twists and turns with both sides
using a variety of legal actions.17 After a jury found
in favor of Novozymes, the trial court invalidated the
patent. Novozymes appealed this final decision, and
last year the U.S. Court of Appeals for the Federal
Circuit affirmed that the ’723 Patent is invalid, in all
likelihood ending the case.
Neste-Dynamic Fuels—Neste Oil’s patent infringement suits against competitor Dynamic Fuels
involve biodiesel fuels and production processes. Dynamic Fuels is a joint venture of Syntroleum and Tyson
Foods that operates refineries capable of producing
allegedly infringing synthetic renewable diesel fuels.
The patents in suit are U.S. Patent No. 8,187,344
(’344 Patent), entitled “Fuel composition for a diesel
engine” and U.S. Patent No. 8,212,094 (’094 Patent)
entitled “Process for the manufacture of diesel range
hydrocarbons.” The patent relates to a process for
the manufacture of diesel range hydrocarbons from
a biological feedstock where the feed is hydrotreated
and isomerized. Both patents have been placed into
reexam and the suits have been stayed pending the
GS Cleantech­—In another major biofuels case,
involving corn ethanol production technology, GreenShift and its New York subsidiary, GS Cleantech (GS),
brought a series of patent infringement suits against
a host of ethanol producers across the Midwestern
United States.19 Last year, GS fired off several new
lawsuits involving its patented ethanol production
processes against Aemetis Advanced Fuels, Southwest
Iowa Renewable Energy, Little Sioux Corn Processors
and Homeland Energy Solutions GS, and has been
on an aggressive patent enforcement campaign over
the last several years. Multiple actions were consolidated in the Southern District of Indiana, where the
asserted patents were construed and re-construed.
LED Litigation
LED patent litigation continued to grow in 2013.
17. http://www.greenpatentblog.com/2013/08/23/novozymesdid-not-possess-claimed-biofuels-enzyme-and-is-dispossessed-of18-million/.
18. http://www.greenpatentblog.com/2013/07/29/another-nestebiodiesel-patent-suit-is-stayed-pending-reexam/.
19. http://www.greenpatentblog.com/2013/09/13/clean-tech-incourt-green-patent-complaint-update-19/.
les Nouvelles
Leading the way this past year was the Trustees of
Boston University, which sued dozens of defendants
including AU Optronics, BlackBerry Corporation,
Dell, Fujifilm, HTC, Eastman Kodak, Olympus, Sharp,
and Sony. Boston University launched about 35 new
suits in 2013—they are all very similar and all assert
the same patent. The patent in these suits is U.S. Patent No. 5,686,738, entitled “Highly insulated monocrystalline gallium nitride thin films” and directed to
gallium nitride semiconductor devices and methods
of preparing highly insulating GaN single crystal
films in a molecular beam epitaxial growth chamber.
The accused products include digital cameras, smart
phones, and other personal electronic devices.
Nichia and Philips are perennial players in LED litigation, and both were active in 2013. On September
11, 2013 Nichia sued Everlight Electronics in federal
court in Marshall, Texas for alleged infringement of
U.S. Patent No. 7,432,589 (’589 Patent). The ’589
Patent is directed to a semiconductor device capable
of preventing an adhesive for die bonding from flowing to a wire bonding area.
In another action, Everlight sued Nichia seeking a
declaratory judgment that two LED patents owned
by its Japanese rival are not infringed, invalid, and
unenforceable due to alleged inequitable conduct
by Nichia before the USPTO. In a recent decision,
a Michigan federal court granted Nichia’s motion
to dismiss the inequitable conduct claims. The two
patents at issue relate to high brightness LED technology. They are U.S. Patent No. 5,998,925, entitled
“Light emitting device having a nitride compound
semiconductor and phosphor containing garnet fluorescent material” (’925 Patent), and U.S. Patent No.
7,531,960, entitled “Light emitting device with blue
light LED and phosphor components” (’960 Patent)
Philips sued Altair in federal court in U.S. District
Court for the Western District of Wisconsin requesting a declaratory judgment that U.S. Patent No.
7,049,761 (’761 Patent) is invalid and unenforceable and that Philips’ LED-based replacement tube
products do not infringe the patent. The ’761 Patent
is entitled “Light tube and power supply circuit” and
directed to a light tube for a fluorescent light fixture
having a plurality of light emitting diodes within the
bulb. According to the complaint, Altair has been trying to get Philips to take a license to the ’761 Patent.
The complaint also charges Altair with a Lanham Act
violation for making false or misleading representations that the ’761 is a “foundational” patent and
only companies that have licensed the patent can
make LED-based replacement tubes for fluorescent
Clean Tech Trends
lighting fixtures.
There are other active LED patent litigations involving major players such as Cree, LG, Nichia, Samsung
and Seoul Semiconductor. More details about these
can be found in LEDInside.20
In the wind market, General Electric (GE) and Mitsubishi Heavy Industries settled their long running
patent litigation in December, 2013.21
The latest wind IP litigation takes place over in
Europe with two major companies in wind, Enercon
and Gamesa, regarding whether Enercon’s very early
patent on turbine control technology in high winds
is valid and enforceable.22 GE is also being sued by
an individual inventor over a wind turbine blade
manufacturing patent in a matter GE has tried to
keep very quiet.23
Much of today’s patent licensing falls under the
category of enforcement & litigation. There are several examples of proactive licensing efforts/programs
to patents relevant to clean tech market participants.
Several examples of such programs are:
•ISET—International Solar Electric Technology24
•Paice’s Hybrid Vehicle Patents25
•Philips LED Luminaire and Retrofit Bulb
Licensing Program26 claiming over 300 licensees.
•SIPCO’s Wireless Mesh Patent Portfolio
Licensing Program administered by MPEG-LA27
•Terrabon28 is licensing bio-fuel technology & IP
The energy efficiency market is making increasing
use of wireless communications, sensors and big
data technologies. As a result—there will be growing
relevance of IP controlled by both traditional information technology companies as well as firms focused
20. http://www.ledinside.com/outlook/2014/1/2013_review_
21. http://www.bloomberg.com/news/2013-12-16/mitsubishiheavy-ge-settle-wind-patent-infringement-cases.html.
22. http://www.windpowermonthly.com/article/1280923/
23. http://www.greenpatentblog.com/2013/07/22/trigonometry-plus-non-conventional-steps-equals-eligible-subject-matter-inblade-assembly-patent/.
24. http://www.isetinc.com/product-services/technologylicensing/.
25. http://www.paicehybrid.com/about/our-patents/.
26. http://www.ip.philips.com/licensing/led-based-luminairesand-retrofit-bulbs/.
27. http://www.mpegla.com/main/programs/wirelessmesh/
28. http://www.terrabon.com/.
on IP licensing to product and services in the clean
tech market.
IV. Sector Spotlight—Wind Patents
Totaro & Associates29 closely tracks the wind industry and has produced some very interesting analysis
of the intellectual property landscape in this segment. The Wind Patent Landscape Report published
in 2013 looks not only at the aggregate number of
patents being issued to the major players in wind, it
goes deeper and ranks the individual patents based
on industry relevance. The chart in Figure 12 shows
the leading assignees of wind patents and the color
coding shows their industry relevance.
The assessment of industry relevance is based on
an examination of claim breadth as well as industry
usage of the patent protected technology. Backward
and forward citations that should have been made,
but were overlooked by the inventor(s) and / or the
examiner, are identified from a thorough review of
the 9,300 patent families and over 35,300 global filings in this landscape. This risk score represents the
possibility or likelihood of assertion on behalf of the
patent holder. In many instances, the patent holder
may be unaware that their IP rights are potentially
being infringed, leaving monetization opportunities
to go un-exploited. See Figure 14.
Philip Totaro, Founder & CEO of Totaro & Associates
observes “the industry relevance results indicate that
only 1 percent of issued patents are a high impact
on the entire industry as a whole, with another 7
percent which may become relevant in the future.
The remaining 92 percent of filings are merely providing companies with basic defensive IP protection.
This analysis is unique and very valuable not only for
technology suppliers but also to insurers, project developers and financers who are interested in assessing
their risk of getting swept into litigation because of
the technologies they are deploying.”
General Electric Company (GE) controls not only
the largest number of patent families, but the largest percentage of all wind-related IP with over 17
percent of patent filings. All combined, the top 6
patent holders hold 49.4 percent of patent filings.
Only 60 patent families out of 6,755 catalogued thus
far comprise technology which is broadly applicable
to products and services offered commercially within
the industry worldwide.
Other observations on this segment are that the
general practice has been one of cross-licensing vs.
litigation between the major players. There has been
29. http://www.totaro-associates.com/.
June 2014
Clean Tech Trends
Figure 12: Assignees - All Filings
©2014 Totaro & Associates. All Rights Reserved.
Not For Resale
Ingeteam Energy, S.A.
Acciona Windpower, S.A.
Schaeffler Technologies GmbH & Co. KG
Aerodyn Engineering GmbH
SSB Wind Systems GmbH & Co. KG
NTN Corporation
Northern Power Systems, Inc.
American Superconductor Corporation
Envision Energy
Suzlon Energy GMBH
Wilic S.A.R.L.
Robert Bosch GmbH
Clipper Windpower LLC
Xinjiang Goldwind Science
United Technologies Corporation
Hitachi, Ltd.
LM Windpower
Alsom Wind S.L.U.
REpower Systems SE
Nordex Energy GmbH
Enercon GMBH
Gamesa Corporación Tecnológica
Sinovell Wind Group Co. Ltd.
Vestas Wind Systems A/S
Mitsubishi Heavy Industries, Ltd.
Siemens AG
General Electric Company
Figure 13: Legend for Industry Relevance
Patent / Application
is not relevant to
the pervasive set
of technologies
and products in the
May have been
relevant in the past
or simply not broadly
applicable. Multiple
methods of design
around exist.
Important filings
which the industry
needs to be
cognizant of, but
these can likely be
Critical filings which
has been asserted,
licensed or enforced,
or is otherwise highly
likely to be in the future
due to claim breadth.
Source: Totaro & Associates
Figure 14: Leading Companies’ Portfolios Ranked by Industry Relevance
No. of
& Apps
No. of
& Apps
% of
% of
No. of
& Apps
% of
% of
No. of
& Apps
% of
Entire Industry
% of
No. of
& Apps
% of
Medium High
Top 4 Wind IP Holders
% of GE
% of
les Nouvelles
Source: Totaro & Associates
Clean Tech Trends
an increasing trend of consolidation that has created
some orphan technologies and patents. Assets for sale
include over 230 patent families, with over 800 global
filings, and all relate to technologies for horizontalaxis, utility scale wind. Companies with assets for
sale include United Technologies Corporation, GE,
Gamesa, Clipper Windpower, ChapDrive, Danotek
Motion Technologies, Northstar Towers, CITCEA-UPC
and Princeton Energy Group. As we have seen in the
solar segment—the consolidation in this space had
created more limited opportunities for the transfer/
sale of this orphaned IP.
V. Case Study—Nest Labs, Inc.
Nest’s recent acquisition by Google for $3.2 billion has been getting headlines; but one of the real
stories about Nest has to do with their execution of
a very effective patent strategy. Many start-ups are
reluctant to dedicate significant time or resources
to their intellectual property. Investors want their
money to go for engineers to develop products and
sales & marketing to gain customers and grow revenue. Spending precious money on legal expenses to
rapidly build a patent portfolio or paying millions to
acquire them is typically low on the list of priorities.
Nest’s patent strategy was one that appears to have
been very deliberate and well played. They benefited
from the fact that the founding team came from Apple
where patenting is an established and important part
of the culture. They knew that they would be facing challenges from established incumbents so they
made sure that they raised enough capital to not only
create insanely great thermostats, but also to make
meaningful investments in their intellectual property.
Nest was founded in May 2010 and closed their
A round of venture financing in September of that
year. This is also when they filed their first few patent
applications, which began issuing in late 2012 and
2013. They have continued to file applications at a
steady pace.
In February of 2012, Honeywell, an established
player in the residential thermostat market, filed a
complaint against Nest and retailer Best Buy claiming
the Nest thermostat infringed upon seven Honeywell
patents.30 In July, 2013, Nest responded by filing
an inter partes review (IPR) with the patent office
claiming that the Honeywell patents were invalid and
requesting that they be reexamined by the USPTO.
The original case brought by Honeywell was stayed
pending the outcome of the IPR. The initial office ac30. http://www.reuters.com/article/2012/02/06/
tions in response to the IPR were favorable to Nest
with the PTO finding claims in each of the patents to
be disallowed.31 Honeywell has continued to respond
to these findings. In looking at the status of several of
the reviews they are coming close to a conclusion. It
appears all but certain that the surviving Honeywell
claims, if upheld, will be significantly weaker than
those found in the original granted patents.
In November 2013, BRK Brands, Inc., the makers
of First Alert alarms, filed a complaint against Nest
claiming that Nest’s newly announced CO2 detector infringed upon seven BRK patents.32 Nest is once
again taking an aggressive approach in their defense.
In addition to organic portfolio development, Nest
had taken other strategic actions to bolster their IP
holdings. In September 2013, Nest entered into a
patent agreement with Intellectual Ventures (IV)
that included a non-exclusive license to some of IV’s
patents and the purchase of several patent families. In
looking deeper into those acquired patents, one family originated from an early energy management/home
networking start up called Xanboo and another group
from a defunct start up called World Theatre, Inc. In
November 2013, a large portfolio of over 100 issued
patents and pending applications from an individual
inventor named Lawrence Kates were assigned to
Nest. These patents were assigned from the law firm
Knobbe Martens and had been offered for sale at the
ICAP auctions in 201233 by the Stapleton Group—an
asset recovery firm. This acquisition by Nest did not
make the news but has added some very interesting
patents and applications with priority dates as early as
2000 to their portfolio. Nest has continued to invest
in the prosecution of their acquired patent families.
Based on a recent search (using Thomson Innovation),
their current portfolio is comprised of 92 issued U.S.
utility patents, 21 U.S. design patents, and 160 U.S.
and foreign applications.
The broad market acceptance of the Nest products
and the exceptional team were clearly important factors in Google’s desire to acquire Nest, but the value
of those products and the company were significantly
enhanced by their thoughtful and effective execution
of their IP strategy. Nest recognized the importance of
patents, especially when entering established markets
where there were powerful incumbents. Now the
31. http://www.greenpatentblog.com/2012/11/04/honeywellsmart-thermostat-patents-suffer-seven-setbacks-in-uspto-reexam/.
32. http://www.theverge.com/2013/11/19/5122056/smokedetector-company-sues-nest-over-voice-alerts-and-vents.
33. http://gametimeip.com/2012/03/16/is-a-lawfirm-usingicaps-patent-auction-to-recover-on-unpaid-prosecution-work/.
June 2014
Clean Tech Trends
Nest IP assets will be added to the substantial patent
holdings of their well-endowed new parent Google.
This is a case study that should be required reading
for startup investors and management teams alike
as it illustrates the importance of understanding the
critical role patents play in a venture’s growth and
success in today’s environment.
VI.Opportunities & Conclusions
The clean tech market represents a wide range of
technologies. Some, such as bio-fuels, look at lot like
life sciences, whereas solar and batteries are focused
on materials technologies and the smart grid involves
industrial controls and sophisticated software. There
is massive economic value associated with the markets, such as traditional oil and gas, transportation,
and energy generation and distribution.
Speakers at a recent MIT Energy Conference panel
agreed that one of the limiting factors on the adoption of new technologies, especially renewables, has
to do with integrating these new technologies into
the electricity distribution grid. There is a lot of work
going on surrounding the “integrated grid” both at
groups like EPRI34 and in the organizations such as the
RTO’s and utilities charged with operating the grid. A
recent study35 from Advanced Energy Economy shows
that the category of Enabling Information and Communication Technology continues to represent the
largest share of expenditures in Electricity Delivery
& Management Segment with revenues of close to
$30 billion. The Charging Infrastructure category,
though showing investment of just over $500 million
in 2013, showed the largest growth from 2011-2013
of 278 percent.
This is why technologies such as stand-alone hybrid
drive systems are easier to implement and bring to
market than plug-in electric vehicles (EV). The integration of renewable technologies such as wind and
solar had put much greater pressure on the grid to
be “smarter” and also highlighted the tremendous
need for grid-scale storage solutions, not just for
load balancing and voltage regulation, but also for
storing the energy produced by renewable sources.
This demand for energy storage continues to fuel
investment in various technologies such as advanced
batteries. The utility-scale energy storage market will
exceed U.S. $2.5 billion in revenue by the year 2023,
according to forecasting by Navigant Research,35 the
research arm of consultancy Navigant.36
Even with some of the recent failures in certain
34. http://www.epri.com/integratedgrid.
35. http://info.aee.net/advanced-energy-now-2014-market-report.
36. http://www.navigantresearch.com/research/advancedbatteries-for-utility-scale-energy-storage.
les Nouvelles
markets such as solar cells, the need for more efficient sources of renewable energy generation, a
more intelligent grid and smart devices, homes and
cities will continue to grow. Though the global rate
investment in clean tech has slowed, the patenting
of intellectual property in this sector has continued
to grow as had the interest from entrepreneurs and
inventors. The retreat of many traditional VC’s may
be filled by a growing trend of crowd-funding and
angel groups at the seed stage and strategic investors
looking to supplement their internal R&D.
Major web and software companies such as Google
and IBM are active in developing clean tech products
and technologies, and large diversified multinational
companies such as General Electric, Panasonic and
Samsung lead the investment in new patent applications. Industry consolidation in some sectors such as
wind has created opportunities for acquiring orphan
IP, and new entrants will be wise to consider using
Nest’s playbook to compete against incumbents in
established product categories.
Nest and Tesla are in the headlines, Wall Street
likes solar stock such as First Solar (NASD:FSLR) and
SolarCity(NASD:SCTY), and utilities are dealing with
the challenges an increasing amount of renewable
capacity coming online and needing to be integrated
into the grid. Major opportunities remain in energy
storage, energy efficiency and transportation. Though
not examined in this article, the recent drought crisis
in California highlights the need for progress in more
intelligent use of our water resources and is a sector
that is ripe for innovation. Clean tech will continue
to merit attention from the Members of the Licensing Executives Society as this will continue to be an
important area of focus and investment. ■
A special thanks to those who generously contributed to this article:
Claudia Assis, Analyst at Marketwatch.com
Joe Dews, Partner at AGC Partners
Eric Lane, Principal at Green Patent Law
Annemarie Meike, Business Development Exec. at
Lawrence Livermore National Laboratory
Sahir Surmeli, Partner at Mintz Levin
Philip Totaro, Founder & CEO of Totaro & Associates
Data and charts provided by:
Bloomberg New Energy Finance
Cleantech Group/i3
Heslin Rothenberg Farley & Mesiti P.C.
IP Checkups’ CleanTech Patent Edge
Navigant Research
PitchBook Data
Advanced Transportation Trends
Selected Advanced Transportation Trends
Part 1—The Giga-Factory
By Michael Craner
here are a number of important advances happening in the transportation sector—from connected cars featuring self-driving capability and
collision avoidance, and spawning privacy concerns,
to plug-in hybrid electric / gas /diesel / compressed air
/ hydrogen / fuel-cell / solar and nuclear vehicles, to
roadway-embedded and microwave-beaming charging
systems; not to mention fleet-management logistics
systems, advanced turbo-charging systems, fuel-saving
navigation systems, distributed traffic-monitoring
systems, instrumented self-diagnosing roadways,
energy-recovery devices and mass-transit advances.
Any examination of transportation trends cannot
ignore the significance of the recent reemergence
of the electric vehicle, as championed by a relatively
small start-up company in Silicon Valley only a few
years ago. In fact, it is difficult to write a paper about
electric vehicle trends without mentioning that company—Tesla Motors. Though much has been written
and hyped about the company in recent times, it is
instructive to examine the advanced transportation
landscape by starting with Tesla Motors as the center of a relevance/entity-relationship/concept map
universe as illustrated by Figure 1.
This map was developed by considering press
releases, published licensing documents, patent inferences, blogs, stock tips, and pure hearsay related
to Tesla Motors as a starting point and by building
outward from there. Though an eye chart, it still falls
short of representing the complex relationships that
exist in this space, which would better be represented
using multiple 4D renderings. Unfortunately, such
renderings are beyond the scope of the current paper.
As you can see from the figure, there are direct,
well-known and publicized, and somewhat current
corporate relationships between Tesla Motors, Daimler Benz, Panasonic, Solar City, and Toyota, represented by solid arrows; as well as concept relationships
between Tesla, “the Giga-Factory,” the “supercharger
network,” “distributed power generation/storage,”
“vehicle-to-grid,” “solar energy,” “autonomous
vehicles,” and “the U.S. DOE” represented by the
dotted-line arrows. The dotted line arrows are also
used to indicate less well known or less important,
perhaps, relationships, that are two or three degrees
removed from Tesla Motors, but still of some interest.
Note that without the representation of the 4th
dimension of time, there is no indication of the
relative timeframes of these relationships. For example, the influence of Nikola Tesla on the modern
day Tesla Motors is a
link that spans from the
■ Michael L. Craner,
invention of the 3-phase
MediaComm Innovations,
brushless AC motor by
Nikola in the late 1800s
to its incorporation in the
Chester Springs, PA, USA
Tesla Motors Roadster in
E-mail: [email protected]
2008. Similarly, the figure
paints other events as
potentially contemporaneous that are actually separated in time. Suffice it
to say that most of the relationships represented in
the figure reflect only 10-20 years of history and are
thus relatively current.
While one might view Figure 1 as a Kurt Vonnegut
style Granfalloon,1 it is clear the universe starting
with Tesla Motors is larger than just electric vehicles,
and it is instructive to study some of these relationships in more depth. In truth, the influence of the
small silicon-valley based motorcar company can’t be
underestimated. The USPTO lists over 1,400 patent
publications that include the keyword “Tesla Motors.”
And in 2010, over one-quarter of all “electric vehicle”
patents filed were filed by Tesla Motors. Yet, Tesla
operates in a densely populated technology territory,
with Toyota, General Motors, Ford, Honda, Hyundai
and others together owning over 11,000 patents in
this space.
Part 1—The Giga-Factory
The biggest news on the Tesla Motor’s front, aside
from discussions of a potential global domination of
the world electric vehicle market, is the news of the
construction of a Giga-Factory for the production of
lithium-ion battery cells, primarily for plug-in/hybrid/
electric-vehicle (P/H/EV) use. Many other topics re1. Kurt Vonnegut (1963), Cat’s Cradle, Holt, Rinehart and
Winston, 304 pp.
June 2014
Advanced Transportation Trends
Figure 1: The Tesla Motor’s Universe
lated to Tesla are getting a lot of attention, such as the
recent “non-safety-recall,” featuring titanium underbody reinforcement of an already “safer than any car
in history” vehicle, and Elon Musk’s redefinition of
the buyer-to-vehicle relationship with the bypassing
of the entrenched dealership network model. How97
les Nouvelles
ever, this part-one article will focus on what is likely
the most significant transportation trend associated
with Tesla Motors, for its sheer potential for changing
the vehicle and energy landscape, the Giga-Factory.
In early 2013, Navigant Research ranked lithium ion
battery suppliers based on their strategy and execu-
Advanced Transportation Trends
In 2009 Tesla Motors signed a yearly
renewable Li-Ion battery supply deal
with Panasonic. There were discussions
with multiple alternative or additional
potential suppliers recently, notably
Samsung and LG. However, in October
LG Chem
of 2013, Tesla signed an estimated $7B
update to the Panasonic supply deal
arranging for two billion cells to be supPanasonic
plied to Tesla over the next four years for
SK Continental
use by the Tesla Model S and upcoming
Model X crossover (now scheduled for
Samsung SDI
production in early 2015).
GS Yuasa
The deal cemented Panasonic as the
largest supplier in the world of EV
Panasonic is also one of the anA123 Systems
nounced partners for Tesla Motor’s
planned Giga-Factory, a plant expected
to employ over 6,500, be located
somewhere in the Southwest U.S., be
powered primarily by local renewable
energy sources, and by the year 2020,
exceed the current global production
of lithium ion battery cells, supplying
tion. As shown in Figure 2, AESC (who supplies the
packs to build around 500,000 EVs
Nissan Leaf), LG Chem (who won the Chevy Volt supply
estimated to be about 50 GWh
award) and Johnson Controls (supplier to BMW and
(See Figure 3).
Mercedes-Benz) are identified as the leaders.
The cost of the factory is expected to be around
$5B, part of which will be supplied by Tesla through
2. Source: Navigant Research.
Figure 2: EV Battery Supply Leaders
By Strategy And Execution 2
• ••
Figure 3: The Giga-Factory
June 2014
Advanced Transportation Trends
Figure 4: Tesla Growth Roadmap
From 2013 Annual Report
60 kWh
EU Version
APAC Version
Model X
Right Hand Drive
All Wheel Drive
EU & Asia
Right Hand Drive Countries
Second Tier Cities
Store, Service Center, and Supercharger Network Expansion
21,000 deliveries
Market Share Gains &
Product Extensions
Higher Volume at
Lower Price Point
Figure 5: Gen III Sales Predictions As
A Component Of Tesla’s Present Valuation
Model S
Model X
Electric Powertrain Sales
Development Services
Cash (Net of Debt)
Trefis Analysts estimate a price of $150 for Tesla Motors’ stock, about
29% lower than the current market price. Model S constitutes 59% of the
Trefis price estimate for Tesla Motors’ stock.
a public offering worth about $2B, and the rest to
be supplied by partners, notably Panasonic, who has
committed $1B.
So why is this important? For one thing, it lays
the groundwork for economies of scale that should
bring us to the sub-$30k GEN III Model E Tesla with
a 200-mile range. (See Figure 4) While many would
argue that the current generation of all-electric 100mile range vehicles are more than adequate for a U.S.
population that drives an average of 30 miles a day,
few will argue that a 200-mile range vehicle for less
les Nouvelles
than $30k is not. Thus the Giga-Factory
tangibly predicts the practical end to
internal-combustion, dinosaur-fueled
vehicles—an important inflection point
in technology.
Tesla’s stock price already reflects this
future, as can be seen from the Trefis
analysis of Figure 5.
With the Giga-Factory driving prices
lower on Li-Ion, and the Model E defining
a new market for electric vehicles, the
result will be an enormous influx of capital by competitors and innovators eager
to gain a chunk of this burgeoning new
market. This has already happened with
just the introduction of the Roadster,
but it can be expected to significantly
increase once the price points hit mass
Tesla Motors themselves will continue
to innovate to break their own price/
performance targets, in anticipation of
this outside innovation. See, for example
the gull-wing design applied to a minivan
Model X in Figure 6. See also Figure 7
illustrating a hybrid metal-air/non-metalair battery architecture of Tesla Motor’s
patent U.S. 8,647,763, the latter with
the potential to enable a low-cost 500
mile plus range vehicle via a combination
of dynamics-responsive Li-Ion in combination with lower cost per kWh metal-air
chemistry. Outside spurring innovation
in batteries, like a good space race, the
Giga-Factory also has the potential for
many other interesting collateral effects
outside its core focus area, for example
in distributed storage and smart-grid and
renewable energy enabling technology
More Battery Trends
The history of battery technology is
ripe with licensing deals and tragic fails including
the claimed government-blundered investment in
A123 battery company, the licensing and shelving
of nickle-metal hydrid technology by oil interests
and its subsequent non-pluggable use in the world’s
most successful consumer electric hybrid vehicle,
the Toyota Prius, and mergers and acquisitions and
sell-offs a plenty.
One curious licensing tale in this space is portrayed
in the movie “Who Killed the Electric Car” (Sony
Advanced Transportation Trends
Figure 6: Gull Wings On A Minivan—
Tesla Model X-Q4 2014
Figure 7: US Pat # 8,647,763 From Tesla Motors
Pictures 2006) regarding the nickelmetal hydride battery patents developed by Stanford and Iris Ovshinski,
the owners of Energy Conversion
Devices and Ovionics Battery Corp.
Without going into the controversial
history of this portfolio in depth (e.g.,
the complex ownership changes over
the years and the encumbrances imposed by various owners, the tie-in
with Toyota, the Prius and related),
it is interesting to note the potential
for the reemergence of the NiMH
battery (or at least a descendant) as a
plausible competitor to today’s Li-Ion
players (e.g., the Giga-Factory) in the
P/H/EV market, given the relatively
recent purchase of the ECD/Ovionics
NiMH technology rights by the large
battery manufacturer BASF.
Looking a little deeper, BASF is
actually positioning itself for a longterm dominance in the P/H/EV market
using higher density and lower cost
products beyond Li-Ion. A significant
factor in the success of the GigaFactory is in fact the assumption that
Li-Ion is the long-term winner in this
technology space. Whether right or
wrong, it is likely that the concentrated focus and sheer volume behind
that technology may result in Li-Ion
being the practical winner in terms
of availability and low-cost.
But as highlighted in BASF’s 2013
3. http://www.factbook.basf.com/pdfs/
Figure 8: BASF Emerging Battery Materials Portfolio
Putting all the pieces in place
Acquisition of
Ovonic Battery
•Acquisition of electrolyte
activities of Merck
•Acquisition of Novolyte
•Vinylene Carbonate
license from Mitsubishi
Chemical Corp
•Nickel Cobalt
Manganese (NCM)
production plant starts
up in Elyria, Ohio
•Lithium Iron Phosphate
(LFP) license from
LiFePO4+C Licensing AG
Post Li-ion
Investment in
Sion Power
June 2014
Advanced Transportation Trends
Figure 9: Envia System Intellectual
Property Overview
Core Patents
Application Patents
• Cathode
- Composition
- Synthesis Methods
- Morphology
- Nano-coating
- Si-C Composite
- Si-C Anode Formulations
- Synthesis Methods
• High Voltage Electrolyte
• Formation protocol
• Optimized voltage
• Cell Design
Packs & System
• 1 P battery
• 7 approved and 40+ pending US patents
• Envia patent claims spans from materials to battery system
Patent Title
1. High energy lithium ion secondary batteries
2. High energy lithium ion batteries with particular negative
electrode compositions
3. Positive electrode materials for lithium ion batteries having a high
specific discharge capacity and processes for the
synthesis of these materials
4. Layer-layer lithium rich complex metal oxides with high specific
capacity and excellent cycling
5. Positive electrode materials for high discharge capacity lithium
ion batteries
6. Lithium doped cathode material
7. Metal oxide coated positive electrode materials for
lithium-based batteries
Figure 10: Electric Vehicle Station
Equipment For Grid-Integrated Vehicles
BASF’s batter y strategy is
summarized in the illustration
of Figure 8.
BASF expects NiMH to be
used in hybrid cars today but
is looking to its investment in
Sion4 power to help it leapfrog
current Li-Ion technology with
Lithium-Sulfur technology that
has a theoretical specific energy
> 2500 Wh/kg. In contrast, a
Chevy Volt has a 140 Wh/kg
specific energy in its current LG
chem based T-shaped battery
pack, while Tesla’s Panasonic
cells are rated at about 240
GM, Envia and the
While apparently GM gets
its current battery packs from
LG Chem, it was not standing
still in the capacity race when
it claimed its next generation
technology will be coming from
Envia. A quick look at Envia
(see Figure 9) shows they have
a small portfolio in the Li-Ion
space and lay claim to a specific
energy in the 400 Wh/kg realm.
This does not match the BASFSion play but it is in a more
traditional chemistry.
A $17M dollar investment
from GM followed along with
over $4M in government
grants. Unfortunately in late
2013 a suit for intellectual
property theft and a failure
to produce promised results
resulted in a cancellation of
the GM deal.
The Grid Tie-in
In addition to supplying
packs for its own automobiles,
Tesla currently is working in
conjunction with Solar City
and UC Berkeley on behalf of
4. http://www.sionpower.com/technology.html.
les Nouvelles
Advanced Transportation Trends
quick search of the U.S. patent
database through ktMINE yields
nearly 60 patents referencing
“vehicle to grid” V2G technology
from expected EV charging infrastructure players like Coulomb
and Chargepoint technologies
as well as some unexpected
wildcards like Alcatel-Lucent.
There are also expected players
like Cisco and Siemens involved.
The latter companies are known
for their software solutions for
management in smart grid and
micro-grid/charging system applications, respectively, but have
obvious tie-in via their work
in the “Internet of things” and
distributed energy management
Figure 11 shows the filings by date for V2G-related
U.S. patents indicating a peak of activity in 2010
Patent Filings
the California Public Utilities Commission to develop
distributed PV and storage solutions. If this project is
successful, the Giga-Factory could also be supplying
the distributed generation/storage market. The commercial product, in a pilot in California, Connecticut
and Massachusetts, is called DemandLogic®, and
provides grid “load leveling” services, helping smooth
out peak demands. Similar plays are developing across
the energy sector.
Similar logic to that between a stand-alone battery
and the grid is available between the battery within
a vehicle and the grid. Known as “vehicle-to-grid”
(V2G), it is being developed by many organizations,
including the University of Delaware. U-Del first licensed its V2G technology to Autoport for application
to fleet vehicles back in 2010. The idea is to tap into
the distributed excess storage used by EVs in fleet
operation and make that storage part of a massivedistributed demand-response network. Figure 10 is
an excerpt from a recent University of Delaware patent application (US 20110202418) which illustrates
V2G functionality.
Autoport Inc. (Wilmington, DE) has been working with BMW and AC propulsion and using 100
BMW mini-E EVs for trials with V2G software. A
Quick Analytics - Activity by Date
Figure 11: Patent Filing Activity By Date
Related To “Vehicle To Grid” Technology 5
There are certainly numerous new trends in the
transportation sector—far too many to cover in one
reasonably-sized article. The Giga-Factory, proposed
by Elon Musk and therefore all but guaranteed to be
built one way or another, portends a future of lowcost, clean electric vehicles from Tesla Motors and
competitors. It also guarantees a healthy, dynamic
landscape of innovation and licensing deals amongst
the incumbent traditional internal combustion vehicle manufacturers, as well as a host of start-ups
with straightforward business models in advanced
transportation as well as complex energy plays. Either
way, the future looks so bright; it is time to invest in
a good pair of shades.
The author, Michael Craner, is co-chair of the Communications, Cloud and Computing Crossroads (3CX)
committee under the High-Technology Sector of the
Licensing Executive Society on loan to the renewable
energy committee. He is also an electric-vehicle and
sustainable-energy enthusiast. He has a long Tesla
Motors position. ■
5. Source: ktMINE IP, www.ktmine.com.
June 2014
Aerospace And Transportation Industry
Observations In The Aerospace And
Transportation Industry
By William H. Pratt and Annemarie Meike
he Aerospace and Transportation industrial
subsector differs from many of the other High
Tech industry subsectors in its composition:
primarily industry OEMs (Original Equipment Manufacturers), and predominantly mature multinational
industries. The concerns of these industry OEMs are
different than smaller companies, centering around
antitrust, export control and other government
regulations, and issues of international law. The
stakeholders involved in these processes have different requirements than those of less mature market
sectors. However, sometimes the resultant solutions,
though inspired by these specific circumstances, are
applicable beyond them. This article examines two
topics: How Intellectual Property is Handled Under
U.S. Government Contracts & Licensing Agreements,
and U.S. Industry and U.S. Manufacturing Requirement Preference Concepts of U.S. Government
Patent Policy.
Insight into How Intellectual Property is
Handled Under U.S. Government Contracts
and Licensing Agreements
Various laws and regulations govern the ownership,
use and licensing of intellectual property that is developed during or related to performance of a U.S.
government contract or grant. These laws and regulations can differ significantly from the way similar
issues are addressed in commercial agreements. The
Aerospace and Transportation Committee assembled
a panel for the LES (USA & Canada) Mid-Year Meeting in NYC to discuss laws and regulations governing
how intellectual property is handled under U.S. government contracts. The panelists, Bill Elkington, Sr.
Director, Intellectual Property Management, Rockwell
Collins; Darin Bartholomew, Expert Attorney, Deere
& Co.; Harry Lupuloff, Corporate Counsel, Northrop
Grumman Corporation; and Louis (Vic) Victorino,
Partner, Sheppard, Mullin, Richter & Hampton LLP;
have decades of expertise in the area of government
contracts. Given the heavy representation of large
aerospace corporations in the LES (USA & Canada)
Aerospace and Transportation committee, the panel
les Nouvelles
emphasized procurement contracts. The Industry
Government University Interface Sector, on the other
hand would focus more on the collaboration contracts called Cooperative Research and Development
Agreements (CRADAs). The notes below incorporate
that panel’s discussion of United States Technology
Transfer Legislation and Procurement Legislation as it
affects intellectual property ownership and use with
some additional background information. Although
U.S. Federal regulations regarding intellectual property may be of only minor interest to some segments
of the LESI membership, the recommendations section in this strongly regulated environment where
the value and use of intellectual property is viewed in
substantially different ways, has applications beyond
that specific scenario, and is well worth a look.
An Overview of Technology Transfer Legislation
Over a period of roughly a decade, federal technology transfer legislation made key changes in ownership of inventions made with federal funding intended
to provide various means for nonfederal entities to
access federal laboratory developments. Some detail
is presented here to show that the legislation has
been evolving over time, and that all aspects of the
current modus operandi did not fall neatly into place
in 1980 with the Stevenson-Wydler and Bayh-Dole
Act. The rationale behind the legislation is that recipients of federal funding and grants should be able to
elect title to inventions they have produced through
government funding in order to commercialize the
inventions. Before 1980, federal research funding
contracts and grants obligated inventors (wherever
they worked) to assign inventions they made using
federal funding to the federal government. Although
they overlap, these legislative acts have a different
history and evolution than the legislation governing
government procurements, and are often handled by
different offices within a government organization
The Stevenson-Wydler Technology Innovation
Act of 1980 (P.L. 96-480), specified in 15 U.S.C.
3710, deals with the dissemination of information
from federal government institutions. It required
laboratories to take an active role in technical coopera-
Aerospace And Transportation Industry
tion by mandating that a percentage of the laboratory
budget be used specifically for technology transfer
activities and establishing an Office of Research and
Technology Applications (ORTA) within each laboratory to carry out the technology transfer function.
The Bayh-Dole Act of 1980 (P.L. 96-517), codified
at 94 Stat. 3015, and in 35 U.S.C. § 200-212 together
with the Patent and Trademark Clarification Act
of 1984 (P.L. 98-620), allowed small businesses,
universities, and not-for-profit organizations to obtain
title to inventions developed with federal funds. In
addition, government-owned and government-operated (GOGO) laboratories were permitted to grant
exclusive patent licenses to commercial organizations,
without a term limit. 35 U.S.C. 202(c), provides the
agreement between federal government and the
entity receiving federal funds “shall require: (1) disclosure of subject inventions to government within a
reasonable time after it becomes known to contractor personnel responsible for the administration of
patent matters, and (2) that the government may
receive title to any subject invention not disclosed
to it within such time.”
Federal Technology Transfer Act of 1986 (P.L.
99-502) made technology transfer an individual responsibility, stipulating that technology transfer activities are to be considered in employee performance
evaluations. Among other incentives for inventors, it
provided for government-employed inventors to share
in royalties from patent licenses, and permission for
current and former federal employees to participate
in commercial development, to the extent that there
is no conflict of interest. In addition, the law enabled
GOGO laboratories to a) enter into CRADAs, b) exchange personnel, services, and equipment, c) grant
or waive rights to laboratory inventions and intellectual property and d) negotiate licensing arrangements
for patented inventions made at the laboratories
among laboratories and nonfederal partners.
In 1987 (52 FR 8552), the relevant provisions to
that date were consolidated and published by the
Department of Commerce, appearing at 37 CRF Part
401. Legislation continues to modify some of the contours of these basic regulations, but the fundamental
principles remain intact and extend specifically to
government owned contractor operated (GOCO)
facilities as well.
Key Concepts in Rights in Patents Developed
Under Government Contracts
Intertwined in these regulations are several concepts that are key not only to the way that the laws are
carried out, but also ultimately to the assignment of
intellectual property. Important elements include the
scope of government use rights, the first conceived
or reduced to practice trigger for Subject Inventions
of a contract, and the requirement to notify government of an invention and the risk/penalty for failure
to notify.
The intellectual property that results from a federally funded contract is called “Subject Invention.”
Subject Invention is defined as “any invention of the
contractor conceived or first actually reduced
to practice in the performance of work under a
funding agreement.” 1
“Conceived” can mean
■ William H. Pratt,
written description or
Henderson, Farabow,
evidence of the inventor ’s invention. This
Garrett & Dunner, LLC,
can be an invention
disclosure form or an
Washington, DC, USA
inventor’s notes that
E-mail: [email protected]
are witnessed by coworkers. “Reduced to
■ Annemarie Meike,
Practice” means that a
Lawrence Livermore Laboratory,
working embodiment
Business Development Executive,
of the invention or
Livermore, CA, USA
process was carried out
E-mail: [email protected]
for the first time under
the contract.
Government contracts often allow the contractor
to own (elect title to) any patent rights in the Subject
Inventions, subject to the government’s royalty-free
worldwide license to any patent rights. However,
those rights are easy to lose if all of the disclosure
requirements are not met. Invention reporting (disclosure) requirements apply to government grants,
procurement contracts involving research and development activities, Cooperative Agreements), and
other government funded agreements.
Although the regulations vary in detail, Federal
Acquisition Rule (FAR) 52.227-11: Patent Rights,
Ownership by the Contractor, is representative of
the typical patent disclosure requirements. Under
FAR 52.227-11 a contractor must disclose a Subject
Invention within two months after the inventor
identifies it in writing to “personnel responsible for
patent matters.” Furthermore, the disclosure must
be in the form of a written report to government
with sufficient technical detail to understand nature,
purpose, operation, and the physical, chemical, biological or electrical characteristics of any invention.
It must identify the contract under which invention
is made, list inventors, identify any public disclosure
1. 35. U.S.C. 201(e)
June 2014
Aerospace And Transportation Industry
or on sale event related to these “Subject Inventions,”
and describe submissions (if any) for publication of
information related to the subject invention. If the
contractor fails to disclose the Subject Invention to
the government on a timely basis, the government
may obtain title to the invention in which case the
contractor forfeits all rights in the Subject Invention.
37 CFR 401.14(c)(1). In addition, an annual list of
subject inventions made during that 12 month period
of the contract must be submitted with a statement
that all Subject Inventions have been disclosed to
government. If there are no Subject Inventions during
the 12 month period, this must be stated in writing.
Deadlines can differ from agency to agency, but in
almost all cases, a written final report to government
is required for almost all contracts. In this final report,
contractor must list subject inventions made during
the entire period of the contract; If there are no subject inventions during the entire contract period, this
must be stated in writing. In DFARS 252.227-7039
Patents Reporting, the deadline is within 3 months
from date of completion of work under the contract.
DOE Patent Rights Waiver 10 CFR 784.12 has different deadlines, for example, a six month disclosure
after reduction of practice can apply.
Other deadlines apply for the election of title and
for the filing of a patent application. The contractor
may elect title to the invention up to two years after
disclosure of the invention, or any lesser period applicable no more than 60 days prior to the expiration
of the one year grace period after a public disclosure
or offer for sale, and must file a patent application no
more than one year after election of title, or prior to
any expiration of the one year grace period. As in the
case of the disclosure requirements, failure to meet
these deadlines can result in the loss of title, but in
these instances the contractor retains a license to
practice the invention.
Law and Regulations Related to Technical
Data and Computer Software in Federal
This section switches focus to federal acquisition
(procurements) giving an overview of regulations
as they apply to different types of data for which
government obtains license rights, and specifies
marking requirements and risk/penalty for not marking properly vary. The statutes of note in the area of
Technical Data for procurements are : 10 USC 2320.
Rights in Technical Data, and 41 USC 2302. Rights
in Technical Data. The appropriate regulations for
federal acquisitions fall into one of two camps, depending on the type of federal agency that is making
les Nouvelles
the procurement. Civilian Agencies use the Federal
Acquisition Regulation (FAR)2 to acquire goods and
services. The Department of Defense uses the FAR
in conjunction with the Defense FAR Supplement
(DFARS)3 for its acquisitions of goods and services.
Subtle differences between regulations applying
to different government agencies lead to important
distinctions in the assignment of intellectual property. Listed below are some important examples:
Technical Data: Under FAR, “Technical Data” is
defined as recorded information (regardless of the
form or method of the recording) of a scientific or
technical nature (including computer databases
and computer software documentation). This term
does not include computer software or financial,
administrative, cost or pricing, or management data
or other information incidental to contract administration. The term includes recorded information
of a scientific or technical nature that is included in
computer databases. Under DFARS, “Technical Data”
is defined as recorded information, regardless of
the form or method of the recording, of a scientific
or technical nature (including computer software
documentation). Databases are not expressly mentioned in this definition. In addition, the term does
not include computer software or data incidental
to contract administration, such as financial and/or
management information.
Computer Software: Under FAR, “Computer Software” is defined as computer programs that comprise
a series of instructions, rules, routines, or statements, regardless of the media in which recorded,
that allow or cause a computer to perform a specific
operation or series of operations. It includes recorded information comprising source code listings,
design details, algorithms, processes, flow charts,
formulas, and related material that would enable
the computer program to be produced, created, or
compiled. This definition excludes computer databases or computer software documentation, which is
defined as Technical Data. Under DFARS, “Computer
Software” is defined as computer programs, source
2. With respect to Data Rights Regulations the appropriate FAR references are: 48 CFR 52.227-14 Rights in Data—
General, and 48 CFR 52.227-19 Commercial Computer
Software License.
3. The appropriate DFARS references are: 48 CFR
227.7202-1 (Policy on Commercial Computer Software); 48
CFR 252.227-7013 (Rights in Technical Data—Noncommercial Items); and 48 CFR 252.227-7014 (Rights in Noncommercial Computer Software and Noncommercial Software
Aerospace And Transportation Industry
code, source code listings, object code listings, design
details, algorithms, processes, flow charts, formulae,
and related material that would enable the software to
be reproduced, recreated, or recompiled. “Computer
software” does not include computer databases or
computer software documentation.
Developed: Under (DFARS), “Developed” has
subtly different meanings depending on context.
For Technical Data, “Developed” means that an item,
component, or process exists and is workable. It need
not be at the stage where it could be offered for sale
or sold on the commercial market. Workability can
be established, if tests or analysis can demonstrate
to reasonable people skilled in the applicable art
that there is a high probability that it will operate
as intended. For Computer Software, “Developed”
means that a computer program has been successfully operated in a computer and tested to the extent
sufficient to demonstrate to reasonable persons
skilled in the art that the program can reasonably be
expected to perform its intended purpose; or that
Computer Software, other than computer programs,
has been tested or analyzed to the extent sufficient
to demonstrate to reasonable persons skilled in the
art that the software can reasonably be expected to
perform its intended purpose.
Another relevant term under DFARS is “Developed
Exclusively at Private Expense,” meaning that
Development was accomplished entirely with costs
charged to indirect cost pools (i.e., IRAD and Bid
and Proposal), costs not allocated to a government
contract (i.e., a commercial contract), or any combination thereof. Profit is not considered a cost. Private
expense determinations should be made at the lowest
practicable level, i.e. component or process.
Types of License Rights: Under FAR, license
rights granted to the government are royalty-free,
worldwide, nonexclusive, and irrevocable. The government is allocated unlimited rights, limited rights
to Technical Data and restricted rights in Computer
Software depending on listed criteria. The contractor
retains title and the rights to use, reproduce, prepare
derivative works, disclose and publish and other
rights. It may be necessary to obtain Contracting Officer permission in order to assert copyright.
Under DFARS, license rights granted to the government are royalty-free, worldwide, nonexclusive, and
irrevocable. As with FAR, under DFARS the government can be allocated an unlimited rights license in
technical data or software, a limited rights license
to Technical Data or a restricted rights license in
Computer Software depending on listed criteria.
However, under the DFARS, the government can also
be allocated a Government Purpose Rights license
in either technical data or software. In addition the
parties can agree, in all instances, to Specifically
Negotiated Rights license, to modify the standard
rights according to the needs of government and
the contractor’s interest in acquiring more or fewer
rights. All rights not granted to the government are
retained by the contractor.
For technical data and software created prior to
a contract, rights to Technical Data and Computer
Software must be asserted at the time of contract
formation and a listing is “attached” to the contract.
Deliverable items of technical data and computer
software must be marked in accordance with the
regulations. Failure to assert and correctly mark can
result in the loss of rights.
Government Ability to Authorize Contractors
to Use Third Party Patents in Performance of
a Government Contract: Authorization and
Consent Clause
Note that the government authorization of contractors to use third party patents in performance
of a contract is a general authorization. It does not
authorize the use of a patent specifically. Under FAR
52.227-1 Authorization and Consent:
(a) The government authorizes and consents to all
use and manufacture, in performing this contract
or any subcontract at any tier, of any invention described in and covered by a United States patent—
(1) Embodied in the structure or composition of
any article the delivery of which is accepted by
the government under this contract; or
(2) Used in machinery, tools, or methods whose
use necessarily results from compliance by the
contractor or a subcontractor with (i) specifications or written provisions forming a part of this
contract or (ii) specific written instructions given
by the contracting officer directing the manner of
For those entertaining a license clause that terminates the license if intellectual property is misused,
it is important to understand the Contract Disputes
Act and requirement for continued performance during dispute. That is, injunctive relief is not available.
If unauthorized use is detected, the remedies
available to the contractor are outlined in 28 USC §
1498—Patent and Copyright Cases:
(a) Whenever an invention described in and covered by a patent of the United States is used or
manufactured by or for the United States without
June 2014
Aerospace And Transportation Industry
license of the owner thereof or lawful right to use
or manufacture the same, the owner’s remedy
shall be by action against the United States in the
United States Court of Federal Claims for the recovery of his reasonable and entire compensation
for such use and manufacture…
For the purposes of this section, the use or manufacture of an invention described in and covered
by a patent of the United States by a contractor, a
subcontractor, or any person, firm, or corporation
for the government and with the authorization or
consent of the government, shall be construed as
use or manufacture for the United States.
(b) Hereafter, whenever the copyright in any work
protected under the copyright laws of the United
States shall be infringed by the United States, by
a corporation owned or controlled by the United
States, or by a contractor, subcontractor, or any
person, firm, or corporation acting for the government and with the authorization or consent of the
government, the exclusive action which may be
brought for such infringement shall be an action by
the copyright owner against the United States in
the Court of Federal Claims for the recovery of his
reasonable and entire compensation as damages
for such infringement, including the minimum
statutory damages as set forth in section 504 (c)
of title 17, United States Code…
(c) The provisions of this section shall not apply to
any claim arising in a foreign country.
In other words, the remedies for infringements of
patents and copyrighted material are available only
under an action against the United States in the Court
of Federal Claims for the recovery monetary damages.
Recommendations Relating to Preserving
Rights in Intellectual Property
Given the federal regulatory environment described
above, then, what are the most important things a
contractor can do to retain its intellectual property
rights developed under a government procurement
contract and the competitive advantage the intellectual property provides? One idea is to consider
using internal investment rather than contract funds
to develop commercially critical intellectual property,
and not include prior developed intellectual property
on the contract deliverables. However, sometimes it
is not practical to develop using internal investment,
and/or exclude from the contract deliverables. In that
case it is important to obtain the proper classification
of intellectual property, and document it appropriately
in the contract and at delivery. It is also important to
keep in mind that the Government is allocated sig107
les Nouvelles
nificant license rights in all technical data or software
developed with government funds under a contract,
in light of the common misunderstanding that government isn’t allocated rights if the technical data or
software is not a deliverable under the contract. In
addition, the government has license rights in any
invention of the contractor conceived or first actually
reduced to practice in the performance of work under
a funding agreement. Finally, it is most important
to be aware that a contractor may forfeit its patent
rights (to Subject Inventions) to the government if
the invention reporting requirements are not met.4
Several best practices of note are applicable beyond
the confines of government contracts. The first is a
valuable teaching adopted from high tech companies
who license subcontractors for specific project stages
and purposes (e.g. bidding proposal, development,
production, etc.). Choosing to license technology
rather than execute a nondisclosure agreement to
subcontractors requiring access can be useful because
a license can address more issues, and in a more precise manner, than a typical nondisclosure agreement,
like the potential for collaboration, or the controlled
timing of license rights to intellectual property.
The consensus is that once intellectual property
is delivered to the government there is not much an
intellectual property owner can do to help prevent
misuse. However there are effective means available for monitoring misuse of intellectual property.
For example it is possible to monitor FedBizOpps
for solicitations/RFIs that might disclose procurements that would necessarily involve company
intellectual property.
Negotiation of intellectual property terms in government procurement contracts is a complicated
issue with subtle variation in statutory requirements
and interpretation depending on the government
agency. For example, it is important to take heed of
the importance of negotiating the classification of
intellectual property as “commercial” when possible.
Similarly, with respect to government rights in data
and software deliverables, contracting officers may
attempt to require government purpose rights (GPR)
or unlimited rights in inappropriate situations. A
current trend involves the government making a contractor’s willingness to surrender rights in technical
data or software voluntarily as evaluation factor in the
competitive award of a contract. Understanding the
government’s needs for minimum required rights is
4. See Campbell Plastics Engineering v. Brownlee, Acting
Secretary of U.S. Army, 389 F.3d 1243 (Fed. Cir. 2004).
Aerospace And Transportation Industry
critical to maximizing the intellectual property rights
to technical data and software for the contractor.
Government is often looking for freedom to operate,
or usage of rights for a specific purpose and may be
willing to settle for a smaller set of rights that still
meets the needs. Sometimes it is useful to quote
policy, such as “DOD policy is to acquire only that
technical data and computer software, and the rights
thereto necessary to satisfy agency needs and that
is consistent with Federal procurement law,”5 as a
reminder to the contracting officer. It is important to
keep in mind that contracting officers may not have
good understanding of what intellectual property they
need to acquire. A possible tactic is to bring in the
government agency’s technology transfer group for
guidance. Note however, that all negotiated terms
must of course remain within the relevant statutes.
Situations have occurred where a contractor has
negotiated favorable intellectual property rights that
have subsequently been determined to be invalid
based on superseding mandatory requirements set
forth in statutes and regulations.
With respect to valuation of commercial intellectual
property deliverables in a government proposal or
contract, typical commercial valuation approaches like
profit split or relief from royalty are less common than
a cost approach. There is a strong preference among
contracting officers for the cost approach in the absence of commercial license comparables, possibly because procurement contracting officers often do not
have the intellectual property background. However
experience has suggested that contracting officers are
open to learn other valuation methods Once again, it
may be useful to bring in the government agency’s
technology transfer group for assistance.
U.S. Industry and U.S. Manufacturing
Requirement Preference: Undefined
Concepts of U.S. Government Patent Policy
This section examines the application of the Preference for U.S. Industry and the U.S. Manufacturing
requirements and the absence of a definition of
“substantially manufacture,” a key term used in both
requirements. Of note is the flexible approach taken
by the U.S. Department of Energy (“DOE”) in helping
industry to address these requirements in a manner
that benefits both the private and public sectors.
As technological challenges continue to become
5. “Acquiring and Enforcing the Government’s Rights in
Technical Data and Computer Software Under Department
of Defense Contracts: A Practical Handbook for Acquisition
Professionals,” Third Edition, January 2011 at p. 8.
more complex, we appear to depend increasingly on
the pooled intellectual resources of governmental,
non-profit, and for-profit entities. Over the last 34
years, there has been a tremendous rise in collaborative research efforts, especially with respect to
research projects between government entities,
non-profit entities, and for-profit corporations (both
large and small). Public Law 96-517, Amendments
to the Patent and Trademark Act of 1980 (commonly
referred to as the Bayh-Dole Act (“BDA”)) is largely
responsible for the extent of today’s collaborative
research efforts.6
In the late 1970s and early 1980s, America stood
in the throes of stagflation, high unemployment, and
a general perception that America was losing its edge
in technology innovation. Although there were many
reasons for this state of affairs, part of the perceived
problem was that, despite the government’s sizable
investment in technology, inventions created with
federal funding and owned by the U.S. Government
were not being commercialized. Prior to the enactment of BDA, experts estimated that “only 5 percent
of government-owned patents were ever used in the
private sector, although a portion of the intellectual
property portfolio had potential for further development, application, and marketing.”7 Out of such
concerns, the BDA was passed, enabling universities, non-profits, and small businesses to retain title
to any inventions that it conceived or first actually
reduced to practice under federal funding (“Subject
Inventions”). Eventually, via Executive Orders, this
was extended, for the most part, to large for-profit
companies.8 All such entities were permitted to obtain patents on their Subject Inventions and could
commercialize the inventions themselves or assign/
license (including exclusively) the inventions to others. Although the BDA was successful and remains a
valuable piece of legislation, the BDA’s “Preference
for U.S. Industry” and the “U.S. Manufacturing”
requirements (35 U.S.C. §§ 204, 209) seem problematic in today’s global business environment.
It should be noted that various government entities implement the Preference for U.S. Industry and
6. William H. Pratt, “The Collaborative Research House that
Bayh-Dole Built: Perfectly Constructed or in Need of Repairs?”
les Nouvelles, December 2010, p. 195.
7. Wendy H. Schacht, “The Bayh-Dole Act: Selected Issues
in Patent Policy and the Commercialization of Technology,”
Congressional Research Service Report to Congress, February
3, 2009, p. 2.
8. The provisions of BDA were extended to large companies
under President Reagan’s 1983 Memorandum on Government
Patent Policy.
June 2014
Aerospace And Transportation Industry
the U.S. Manufacturing requirements and address
issues arising from such implementation differently.
The DOE and its National Laboratories are a focus
of this section because the DOE is a title agency9 involved in an extensive array of collaborative research
projects, and has, in our opinion, taken a positive,
flexible approach when addressing issues raised by
these requirements.
Application of U.S. Industry Preference and
U.S. Manufacturing Requirements. The BDA’s
Preference for U.S. Industry and U.S. Manufacturing requirements are codified in 35 U.S.C. §204 and
§209, respectively. These two requirements appear to
have been imposed as part of a quid pro quo for allowing non-profit organizations and the private sector to
retain ownership of or licenses of Subject Inventions
made, in whole or in part, with federal assistance. In
essence, these requirements are aimed at protecting
the public interest in inventions funded in whole or
in part by U.S. taxpayers.
The Preference for U.S. Industry requirement applies to Subject Inventions and states:
“[N]o …organization, which receives title to any
subject invention and no assignee of any such …
organization shall grant to any person the exclusive
right to use or sell any subject inventions in the
United States unless such persons agrees that any
products embodying in the subject invention or
produced through the use of the subject invention
will be manufactured substantially in the United
Section 204 is implemented in various government
contracting clauses relating to the ownership of
Subject Inventions created in whole or in part with
federal funding (e.g., 48 C.F.R. § 52.227-11, 252.2277038, 37 C.F.R. §401.14). Such language can also
be found in Cooperative Research and Development
Agreements (“CRADAs”) with various government
organizations, such as CRADAs with DOE National
Laboratories, under which no government funding
is provided.
The preference for U.S. Industry requirement can
have far reaching implications. For example, suppose
a company enters into a CRADA with a DOE National
Laboratory, under which the company funds the
research project 100 percent. Further assume that
9. Under the Atomic Energy Act and Federal Nonnuclear
Energy Research and Development Act of 1974, the DOE has
the ability to retain title to inventions conceived or first actually reduced to practice by a large business in the performance
of a project funded, in whole or in part, by the government,
unless title to that invention has been expressly waived. Such
waivers are commonly granted.
les Nouvelles
one of its employees solely creates an invention or
reduces an existing invention to practice for the first
time, in the performance of that CRADA. Despite
the fact that the company has funded 100 percent
of the actual project and that its own employee was
the sole inventor, any subsequent assignment or
exclusive licensing of that invention is subject to the
“substantially manufactured” obligation set forth in
35 U.S.C. §204.
Such a requirement could not only substantially
affect the value of that patent, but in today’s global
business environment, it could also negatively affect
the company’s business plans as well. Indeed, such
a requirement serves as a disincentive to private
company participation in such research programs.
The U.S. Manufacturing requirement set forth in
Section 209, which applies to licensing of any invention owned by the U.S. Government, states,
“A Federal agency shall normally grant a license
… to use or sell any federally owned invention in
the United States only to a licensee who agrees
that any products embodying the invention or
produced through the use of the invention will be
manufactured substantially in the United States.”
Unlike Section 204, the U.S. Manufacturing requirement set forth in 35 U.S.C. §209 encompasses
both non-exclusive as well as exclusive licenses.
As previously noted, when contracting with a
title agency (e.g., DOE), the agency automatically
retains ownership in any invention a large business
conceives or first actually reduced to practice in the
performance of that contract, unless the agency
grants a patent rights waiver. The title agency retains such ownership even if the large business is
partially or completely funding its participation in the
government-sponsored research project.
This commonly occurs with DOE Cooperative
Agreements in which the recipient of the DOE funding teams up with a third party (Research Partner) that
funds all or part of its own participation in the project, unless a waiver is granted. Patent rights waivers
typically granted by DOE will contain the following
provisions which are quite similar to Section 209:
“The Contractor agrees that any products embodying any waived invention or produced through
the use of any waived invention will be manufactured substantially in the United States unless the
Contractor can show to the satisfaction of the DOE
that it is not commercially feasible to do so. In the
event the DOE agrees to foreign manufacture,
there will be a requirement that the Government’s
support of the technology be recognized in some
appropriate manner, e.g., recoupment of the
Aerospace And Transportation Industry
Government’s investment, etc. The Contractor
agrees that it will not license, assign or otherwise
transfer any waived invention to any entity unless
that entity agrees to these same requirements …”
Although aimed at protecting U.S. jobs, in a world
where companies operate globally, the aforementioned
requirements can be counterproductive to commercializing new innovations aimed at addressing many
of America’s policy concerns (e.g., energy conservation). And they serve as a disincentive to broad-based
participation in government research programs.
What exactly does “Manufactured Substantially” mean? The touchstone of both the U.S. Industry
Preference and U.S. Manufacturing requirements is
“manufactured substantially” in the United States.
Given the scope of these requirements, how this term
is interpreted is extremely important. For example,
does this term extend to just the article encompassed
by the invention or does it also take into account
all materials and components? Does one measure
“manufactured substantially” in terms of percentage
of parts or is it the value of such parts?
Surprisingly, the BDA does not define “Manufacture” or “Substantially” or, for that matter, provide
any guidance on how to interpret such terms. Nor
do the vast majority of government agencies, to my
knowledge, provide any guidance as to what meets
these undefined criteria.
National Aeronautic and Space Administration
(NASA)’s regulations covering cooperative agreements state that “manufactured substantially in the
United States” means the product must have over
50 percent of its components manufactured in the
United States. This requirement is met if the cost to
the recipient of the components mined, produced,
or manufactured in the United States exceeds 50
percent of the cost of all components required to
make the product. 14 C.F. R. §1274.9111(9). But
can an exclusive licensee rely on this interpretation,
if the Subject Invention was funded by an agency
other than NASA? The answer is that such a definition
has been shown to be used successfully. However,
not all commercial entities that might recognizably
have “substantial U.S. manufacture” would be able
to support that definition or any specific definition
for that matter. Some take the position that the lack
of definition allows the entities to work out a plan
suitable to the business and the government.
The DOE has taken an approach in addressing the
concerns raised by U.S. Industry Preference and
U.S. Manufacturing requirements in a manner that
benefits both the private and public sectors. Although
the preferred benefit to the U.S. economy, from the
DOE’s perception, is creating and maintaining U.S.
jobs, DOE has expressed a willingness to accept
some other substantial economic benefit to the U.S.
economy in lieu of the U.S. Industry Preference and
U.S. Manufacturing requirements. Such benefits
must, however, be expressly identified in a Net Benefit Statement approved by DOE.
The DOE appears willing to grant such exceptions
if the Net Benefit Statement contains a description
of specific economic or other benefits to the U.S.
economy which are related to the commercial use
by participant(s) of the technology being funded
under an agreement (e.g., CRADA) and which are
commensurate with the government’s contribution to
the proposed work. The content of such a statement
is, of course, fact specific to the individual company
seeking the exception.
Although obtaining a Net Benefit Statement may be
time consuming, the DOE has been tough but fair in
its approach to negotiating a Net Benefit Statement.
In the past, a single Net Benefit Statement can apply,
under the terms of a Memorandum of Understanding
with the DOE, to all future agreements with DOE and
its national laboratories.
Given the potentially restrictive nature of the
Industry Preference and U.S. Manufacturing requirements, large businesses interested in pursuing
research projects with DOE or its national laboratories may want to consider the Net Benefit Statement
alternative during the initial discussions with DOE
or a National Laboratory.
This article has explored several topics of interest
to large corporations doing business internationally
and within the regulatory environment of United
States government contracts. The government
contract and intellectual property ownership section addressed laws and regulations that govern
the ownership, use and licensing of intellectual
property that is developed during a government
contract and how that can differ significantly from
those governing commercial agreements. The final
section dealt with a requirement of intellectual
property often encountered in U.S. government
contracts, the “U.S. preference” provision. From
a more global perspective, this article emphasizes
what we know to be true. Small differences, even
in the definition of a single term can have big implications. In addition, it emphasizes the changing
regulatory framework that we live in as the actual
text of regulations change through legislation, or
the legal interpretation of the text may be clarified
based on court decisions. ■
June 2014
IPRs In Least Developed Countries
IPRs In Least Developed Countries:
A Progress Report
By Luc Savage
n 2014 we are celebrating 20 years of the TRIPS1
agreements aimed at harmonizing the treatment
of intellectual property rights in global economic
trade. The Doha agreements in 2001 gave the least
developed countries (LDCs) extra time for adopting
the TRIPS agreements. As the agreed deadline for
this implementation was extended to 31 December
2015 in November 2013, what is the future for the
development of intellectual property rights in the
least developed countries?
It was with the aim of contributing to this discussion that economic players with experience in intellectual property management in the least developed
countries met in Paris last October. This meeting
organized by LES2 France and the INPI3 placed the
emphasis on positive initiatives which could help to
overcome the persistent challenges in order to use
intellectual property rights for promoting sustainable development. The originality of the approach
consisted in the points of view of players from the
world of intellectual property being exchanged with
those from the world of sustainable development
represented by the AFD4 and the C3D.5
The subject is certainly not new. Fake medicines
and the infringement of molecule patents have long
been a concern for the pharmaceutical laboratories
which contributed to the signing of the TRIPS agreements in 1994. The decisions regarding compulsory
licences which followed one another in 2013, some1. Trade Related Aspects of Intellectual Property Rights is a
multilateral agreement signed in 1994 with the aim of integrating intellectual property rights in the system of the World Trade
Organization, anticipating in particular the authorization of
compulsory licences in the case of public health emergencies.
2. Licensing Executive Society, an association of professionals
operating in the field of intellectual property and its development in the form of licensing or transfer of technology.
3. Institut National de la Propriété Industrielle [National Industrial Property Institute].
4. Agence Française de Développement [French Development Agency].
5. Collège des Directeurs du Développement Durable [College of Sustainable Development Directors].
les Nouvelles
times in different directions, in certain countries
such as India, show that the debate is ongoing in the
pharmaceutical industry. However, in 2013, certain
pharmaceutical companies signed licence agreements
with Medicines Patent Pool in order to lower the cost
of HIV treatments in around a hundred developing
countries. The pharmaceutical industry therefore
seems to demonstrate that new original routes are
opening up to avoid conflict between respect for the
rights of the patentee and sustainable development.
These examples might inspire the negotiations aimed
at achieving a universal climate agreement which will
bring together developing and developed countries
in Paris in 2015.
The exchanges throughout that day identified some
lessons about the positive initiatives of the past and
ideas for discussion on future initiatives which we
will share in this article.
A Focus on the Least Developed Countries
With Regard to Intellectual Property
The field of sustainable development is wide if we
use Brundtland’s6 definition: “development which
meets the needs of the present without compromising the ability of future generations to meet their
own needs.” Our discussions focussed on developing
countries, using examples covering the three pillars7
of sustainable development: environmental sustainability, social fairness and economic effectiveness.
The developing countries with regard to intellectual
property do not correspond to any precise economic
definition, but they may, as suggested by Julio Raffo,8
group together the countries outside of China, the
EPO, Japan, South Korea, and the United States,
which represent less than 21 percent of the patents
6. Mrs. Gro Harlem Brundtland, Norwegian Prime Minister
in 1987.
7. The Rio Earth Summit in 1992 under the aegis of the
United Nations made official the notion of sustainable development and that of the three environmental, social and economic
8. Julio Raffo, Senior Economic Officer, Economics and Statistics Division—World Intellectual Property Organization (WIPO).
IPRs In Least Developed Countries
filed in the world.9 Africa, which contains the majority of the less developed countries,10 provides many
important examples on the subject. Countries such as
Brazil, Russia and India, through their maturity with
regard to intellectual property, constitute examples,
for the developing countries, of economies which
are in the course of integrating intellectual property
rights. Our discussions focussed on the countries
which have not yet reached that level of development of their intellectual property system, and group
together the countries which certainly represent less
than 10 percent of the patents filed in the world.
Intellectual Property, a Reality in the
Economic Development of LDCs
Intellectual property is an important issue in the
financing of projects in developing countries, as
shown by the Agence Française du Développement.
This specialist financial institution contributes to the
financing of innovative projects in developing countries, with the aim of creating jobs in the beneficiary
countries. Jean-Yves Grosclaude11 summarizes the
issue of intellectual property as follows: can it help
to create employment in developing countries? This
is the question posed by its Proparco subsidiary,
which specializes in the financing of operations in the
private sector, for the majority of the new financing
projects which are submitted to it. One of the companies supported by the AFD shows the importance
of intellectual property tools in a company centered
on developing countries. Nutriset is a company which
was created over 25 years ago and has more than 100
staff members. In 1996, it developed a ready-to-use
therapeutic food, Plumpy’Nut®, which considerably
improved the treatment of malnutrition. It protected
its innovations through trade marks and patents. It
was therefore able to protect its research efforts from
other players in developed countries, and was able to
create a network of producers to which it transferred
its know-how in developing countries, contributing
to sustainable economic development. This company
is not alone. The IRD,12 which brings together more
than 800 researchers, is increasing the development
9. WIPO source 2011.
10. The Least Developed Countries are a category of countries defined by the UNO, grouping together 49 countries since
2011, with a GDP per capita usually below US$ 900.
11. Former Operations Director - Agence Française de Développement (AFD).
12. Institut de Recherche pour le Développement [Institute
of Research for Development] has conducted scientific programmes for 60 years to contribute to the sustainable development of developing countries.
contracts and agreements for its work with developing countries. FBIOLAK is a Moroccan start-up created in 2013 which produces bio-pesticides based
on fungal spores and develops local agro-industrial
by products. It belongs to a group of partners which
use a technology developed in joint ownership with
the IRD. The licences at the start-up’s disposal for
this valuable intellectual property have helped to
make it stand out to potential investors. It therefore
received one of the 5 prizes awarded in 2012 by
the Maghreb Start-up
Initiative out of 325
■ Luc Savage,
start-up candidates.
Other examples proOrange Group,
mote intellectual propVP Intellectual Property and
erty which is produced
Licensing and LES France Board,
completely locally and
Paris, France
has its value increased
in developed countries.
E-mail: [email protected]
This is the case with
Light Years IP, an English company which has been working with the
Ethiopian government since 2004 in order to set
up a trade mark licence and protection programme
for Ethiopian coffee, which is known for its quality
and unique taste. The intellectual property rights
acquired around the trade marks Yirgacheff, Harar
and Sidamo have allowed Ethiopian coffees to escape
the situation of a commodity market under the pressure of the purchasers. This programme transferred
the choice from the client for the trade mark to the
sale negotiations centre. It has allowed the value of
coffee exports from Ethiopia to grow by U.S.$ 200
million in 8 years, increasing jobs in the local coffee
industry. These success stories demonstrate some
collaboration principles which call into question
preconceived ideas.
Fairness, the Key to Sustainable
Development, is Encouraged in
Intellectual Property Licences
The traditional approach of supporting purely philanthropic development does not seem to be sustainable in a context of economic and budgetary crisis,
particularly in Europe. In this regard, the patent funds
offering free exploitation do not seem to represent a
sustainable business model. Emmanuel Faber, head
of a large company with a long-term commitment to
social innovation, and put in charge of the “Innovation
and Development” project by the Deputy Minister
for Development in France, promotes fairness, rather
than charity, as the main theme of development
policies. The link with intellectual property appears
obvious. He quotes the works of Hernando de Soto
June 2014
IPRs In Least Developed Countries
Polar13 which conclude that developing countries
cannot increase their wealth due to the lack of an
effective system of respect for property rights. He
suggests finding ways of developing intellectual
property based on fairness. The “copy left” model of
sharing ownership in Open Source software is a route
to be considered if it is compatible with sustainable
financing. The FRAND (Fair Reasonable and Non
Discriminatory) patent licences required by certain
standardization bodies for accepting the contributions
of their members seem to make sense for promoting fair use of intellectual property in developing
countries. However, Emmanuel Faber warns that
the principle of fairness is not easy to implement: it
requires the mobilization of innovators, particularly
those in the world of agriculture and energy which
constitute pillars of the economies of developing
countries. How is it possible to collectively mobilize
economic players in favour of this approach?
IPXI14 in the USA responded by creating a market of
intellectual property rights based on an exchangeable
title: the ULR (Unit License Right). It uses the rules
of free exchange to establish this fair and reasonable price for the intellectual property needed for
the exploitation of a technology in a product. The
price has to be quite low in order to deter infringers
from exposing themselves to the risks of litigation,
anywhere in the world. This mechanism, which
makes it possible to resell unused ULRs and establish
a price reflecting the interest of the market in this
technology, would facilitate access to technologies
and development of innovations throughout the
world, including in developing countries in the long
term. It was on this model that Philips chose, in 2013,
to make available its OLED technology for displays.
In the same spirit, Philips is offering, via an open
licensing program, its technologies related to LED
based luminaires and retrofit bulbs, in order to foster
growth of the LED market and a faster adoption of
this technology which has a great potential to reduce
the global energy consumption.
The IRD in France is adopting a different approach.
In finding that the development of technologies in
LDCs required particular skills, it created, in the
scope of the Investissements d’Avenir [investments
13. Hernando de Soto is a Peruvian economist who published
“The Mystery of Capital: Why Capitalism Triumphs in the West
and Fails Everywhere Else” in 2000.
14. IPXI, created in Chicago in 2012, is the first financial
exchange for licensing and trading intellectual property rights.
les Nouvelles
for the future] supported by the French government,
a Consortium de Valorisation Thématique Sud [LDC
development consortium]. It is making its network
of partners from developing countries available to all
the Sociétés d’Accélération de Transfert de Technologies [technology transfer acceleration companies]
which develop public research in France. It is promoting a development of socio-responsible research. This
is achieved through respect for the joint ownership
of the patents with the partners in developing countries, but also respect for “bio-fairness” as defined in
the Nagoya protocol. The aim is to achieve a rate of
transfer of 20 percent of its portfolio of 800 patents.
Medicines Patent Pool (MPP) finally created in
Switzerland a structure for negotiating licences for
medicine patents. This “alliance” was created at the
request of the international community in 2010, with
the support of the World Health Organization and
UNITAID funds, an innovative financing mechanism.
It aims to facilitate access to the best HIV treatments
at affordable prices which at the same time make it
possible to continue financing of research for new
treatments. Totalling more than 6 agreements signed
with laboratories supplying quality treatments, MPP
demonstrated the effectiveness of the approach and
defined a new standard for “voluntary licences” for
medicines. It presents itself as a unique point of contact between the multiple proprietors of patents for
medicines and the producers of generic medicines.
The resulting fluidity encourages all parties to agree
on fair terms with complete transparency. All of the
licences are made public on MPP’s website. Fairness
goes together with simplicity here.
For the economist Hernando de Soto, the simplicity of the forms of ownership is a condition of development: investment is stimulated by the promotion
of private ownership through simplification of the
procedures for transferring this ownership and the
reduction of the associated costs. This appears just
as necessary with regard to intellectual property, and
not just at the development stage.
Practices in Search of Simplification and
HYSTRA15 underlines that the complexity of understanding the subject is one of the main causes which
lead social entrepreneurs to regard intellectual property as a problem… and only sometimes as an opportunity. Basil Kransdorff is the founder of “e-Pap,”
15. HYSTRA is a sustainable development strategy consultancy firm.
IPRs In Least Developed Countries
a solution for combating the effects of malnutrition in
people with HIV. He refuses to protect his invention
with patents, thinking that he will not have the means
to defend himself. However, if he could develop the
intellectual property of his inventions, he might find
funds to launch new social initiatives. Intellectual
property professionals sometimes offer their services
to developing countries to help their entrepreneurs
understand this complexity. Pedro Garcia in Peru,
Diana Pombo in Colombia and Harry Jonas in South
Africa are examples of these experts who train the
local population in intellectual property law in order
to make it more accessible if not more simple.
Simplify the procedures: this is also one of the
key objectives of the OMPIC16 in its strategic vision
for 2015. To this end, the Office has undertaken
to reform the Moroccan law in order to allow the
proprietors of a patent application at the EPO17 to
extend that application to Morocco when designating the countries outside the European procedure.
The Moroccan examiners can therefore concentrate
their resources on national patent applications and
the development of the services for the clients. That
takes place through training in companies and the
computerization of the processing of the applications
thanks to e-OMPIC. Will these initiatives inspire the
countries of the African continent which has multiple
national intellectual property systems and even two
regional systems (OAPI, ARIPO)?
In the same spirit of simplification of grants, the
“Patents for Humanity” programme of the USPTO
reserved accelerated processing in 2013 for patents
selected according to criteria of contribution to sustainable development. The symbol is powerful: this
gain in time must allow more rapid transfer of these
technologies from research through to marketing. By
presenting the winners with a “rapid grant” certificate, the USPTO intends to help entrepreneurs find
financing for their “green technologies.” However, the
acceleration of the grant periods is not only important
for patents connected to sustainable development.
Furthermore, there is uncertainty as to whether the
“exception” of processing in favour of patents for
humanity in the USA will be maintained. The editor
of “waybetterpatents.com” underlines this: the future
of the programme is unknown as its effectiveness regarding the acceleration of the transfer of technology
16. OMPIC: Office Marocain de la Propriété Industrielle et Commerciale [Moroccan Industrial and Commercial
Property Office].
17. EPO: European Patent Office.
is not unanimously agreed on. However, the entire
world agrees on the importance of the development
of absorption capacities in developing countries.
Spreading Innovation Depends on “Local
Absorption Capacity”
Analysis of patent filing practices shows the positive impact of innovative scientific work being carried
out in developing countries. In fact, although the
number of filings is certainly much lower in the least
developed countries, it is in reality proportional to
the investments in R&D. In 2009,18 the high income
countries (excluding China) represented 77 percent
of the global expenditure in R&D, and in 201119 the
six main patent offices (including China) represented
79 percent of the global patent applications. These
figures confirm the finding of several contributors:
when the research work is carried out in developing
countries, the patents are also filed in those countries.
Yann Ménière20 confirms the trend for Low Carbon
Technologies: patents promote the circulation of information if the “local absorption capacity” and the
local demand are sufficiently high. In other words,
the companies which benefit most from technologies patented by others are companies which carry
out R&D themselves and see a local market for the
technologies developed.
Numerous examples of initiatives, particularly in
Africa, for encouraging the spread of innovation were
shared, including:
• AMAPIC , the centre for training in intellec tual and commercial property of the OMPIC
• Africa Techno, the forum for the exploitation
of research results, with the OAPI
• INNODEV, the business incubator for food technologies in Senegal
• PACEIM, which supports the creation of
businesses by scientific diaspora in the
Mediterranean region
• African Social Entrepreneur Prize in the tele-
communications sector.
For the leaders of these initiatives, the great success that they encounter underlines the interest and
the need for continuing investment in education and
research in these countries. Sustainable development does not just amount to the granting of patent
licences under fair conditions. It must be accompanied by the transfer of know-how to a trained local
18. WIPO estimates of September 2011.
19. WIPO statistical database.
20. Lecturer at Mines Paris Tech.
June 2014
IPRs In Least Developed Countries
population in order to create new innovations in a
sustainable manner.
Conclusion: Go Beyond Preconceived Ideas
and Focus Efforts on Promising Initiatives
This day of discussions developed the understanding of the path that remains to be taken in order for
intellectual property to come of age in developing
countries. Intellectual property rights are often
wrongly cited as an obstacle to sustainable development. Evidence has shown that solutions exist for
intellectual property rights to be used to promote
sustainable development, when the parties agree on
the basis of their collaboration. The work of Mines
Paris Tech therefore shows that intellectual property rights for low carbon technologies (LCT) do not
constitute a barrier to their adoption by developing
countries. These technologies are not patented more
than others on average, and there is not an abundance
of patents as in the field of information technologies,
which would tend to create monopolies. The prospect
of making a sustainable contribution to the econo-
les Nouvelles
mies of developing countries, as shown, encourages
accompanying the intellectual property system of
emerging countries as it comes of age, by following
in particular three paths towards change cited during
the discussions:
1. Recognizing the value of local intellectual
property by encouraging its development through
investment in research and education centres in
developing countries.
2. Simplifying access to intellectual property protection procedures in developing countries and
promoting the quality of the titles granted.
3. Supporting the intellectual property development structures under fair licensing conditions
between developed and developing countries.
These avenues will be studied and explained in
detail in an official report which will be produced in
the next few months by the “Intellectual Property
and Sustainable Development” Working Group of
LES France and the INPI with the help of the AFD
and the C3D. ■
EU State Aid Policy
EU State Aid Policy: A Model To Assess
Intellectual Property Rights And Knowledge
Dissemination In R&D Cooperation
Part 1
By Mario Cisneros
ooperation between research organizations
(ROs) and industrial organizations facilitates
the flow and use of scientific and technological
knowledge. Competitiveness of the industry and the
rise in the welfare of societies is increasingly connected to the incorporation of innovative technology
in products and services.1 An important objective of
the European Union (EU) innovation system is to convert knowledge into technology, to link technological
and scientific knowledge generators with users and
to generate social and economic benefits from the
public investment in Research & Development (R&D).
Research organizations2 play a fundamental role in this
process as most of the public investments in R&D are
directed to these institutions and, in most cases, the
transfer of technology that was created with the use
of public funds takes place through them. Increasing
demand is directed to research institutions on the
need to disseminate and put in use publicly funded
research results to convert them into new products
and services.3 In addition to guaranteeing the financial resources needed to increase the cooperation
between research institutions and the industry, the
EU has the responsibility to develop a legal framework
that assures efficiency in collaborative research.4
1. For a discussion on the importance of technological and scientific development in the EU see, “A more research-intensive
and integrated European Research Area, Science, Technology and
Competitiveness,” key figures report 2008/2009, European Communities, 2008.
2. The term research organization is used herein with the same
meaning as the term PRO. The definition of undertaking within
the meaning of Article 107 TFEU is independent from the public
or private nature of a research entity.
3. “Improving knowledge transfer between research institutions and industry across Europe,” Communication from the
Commission, European Communities, 2007.
4. FP7 allocates EUR 32,413 million to the Cooperation program,
a budget devoted to support cooperation between universities, industry, research centers and public authorities throughout the EU.
Amended proposal for a European Parliament and Council Decision
concerning the 7th Framework Programme of the European Community for research, technological development and demonstration
activities (2007-2013), COM(2006) 364 final, 2006.
While a good management of intellectual property
rights (IPRs), knowledge protection and other intellectual property (IP) related issues are frequently
indicated as a key aspect in the relationship between
research organizations
and industr y, the legal
■ Mario Cisneros,
framework that regulates
Austral University/
the subject is still under
development.5 The active
Maastricht University,
engagement of ROs in IP
Buenos Aires, Argentina
management and knowlE-mail: [email protected]
edge transfer is essential
in order to generate the
expected socio-economic
benefits of public investment in R&D activities. Because of this, the EU has
taken initiatives to facilitate knowledge transfer at
national and community levels. Nevertheless, discrepancies between national frameworks, policies
and practices in the industry can still be observed.6
Inconsistent practices in the management of IPRs
within research organizations prevent the effective
utilization of public resources and State aid measures
in generating benefits from the resulted technology
and their transfer to the industry and users.
In this paper, a description of the economic foundations of State aid law for R&D activities, with
special focus on the assessment of the benefits and
disadvantages of State aid measures and IPRs issues
in the context of R&D cooperating agreements is
explored. In doing this, we address the effect of IPRs
resulting from State aided R&D cooperation activities
on trade between member States and competition in
the internal market.
5. Latest efforts in defining a harmonized set of rules on
the management of IPRs and technology transfer in European
universities are limited to not binding guidelines such as Commission Recommendation on the management of intellectual
property in knowledge transfer activities and Code of Practice for universities and other public research organizations,
C(2008)1329, 2008.
6. Id.
June 2014
EU State Aid Policy
The current Framework for State aid for R&D10 is
almost silent on how contractual agreements and
IPRs issues between cooperating parties should be
evaluated. While it provides a description of the basic
elements that should be considered in assessing State
aid measures, there is no specific description on how
clauses on IPRs concern that assessment. This paper
intends to fill that gap, by providing elements to
evaluate how IPRs ownership allocation, knowledge
disclosure, confidentiality issues and licenses may be
interpreted from the perspective of the objectives of
State aid law, including Article 107 TFEU11 and the
related frameworks. A second objective of this paper
is to explore the different available IPRs ownership,
disclosure and use schemes and to show how they
may affect competition in the internal market under
the State aid compatibility assessment elements.12 In
this regard, an analysis of the way IPRs schemes lead
to a distortion of the market, particularly a distortion
of competition or reduction in efficiency, is provided.
More specifically, the alternative schemes of exclusive
vs. non-exclusive use of the resulting technology, free
publication vs. secrecy, public vs. private ownership
and intermediate IPRs options is reviewed from the
perspective of State aid law and its economic foundations. Ultimately, the study intends to provide inputs
to the new revision of the Framework for State aid
for R&D&I in the context of the State Aid Modernization initiative.
The paper is structured in two parts. Part 1 includes, firstly, a discussion of dynamic efficiency
and economic theories on distortion of competition.
Secondly, the evaluation of different IPRs ownership choices, including shared ownership, property
allocated to the research organization or property allocated to the industrial partner in the perspective of
the likelihood to distort competition, including public
goods associated failures, the generation of market
power, the distortion of dynamic incentives and the
maintenance of inefficient market structures. A further analysis of the concept of selective advantage
10. “Community Framework for State Aid for Research and
Development and Innovation,” OJ, 2006/C, 323/01. Referred
herein as the Framework. A new revision of the Framework is
expected to be published by the EC during the second part of
11. “Consolidated Version of the Treaty on European Union,”
Chapter 1 “Rules on Competition,” 2008, O.J. C, 115/47.
12. The term IPRs scheme is used herein to refer to the
chosen allocation of ownership of intellectual property rights,
including patents and other available protection mechanisms,
know-how, disclosure, trade secrets, use, exploitation and licenses related to the technology generated in the course of an
R&D cooperation project.
les Nouvelles
and the allocation of IPRs ownership is also provided.
In Part 2 the alternatives for the rules on knowledge
dissemination are evaluated from the perspective of
the benefits generated by knowledge spillovers, the
problem of asymmetric information and coordination
and network failures. Besides, the different rules to
define how parties can make use of the resulting
knowledge and technology are evaluated, focusing on
potential effects on the market by limiting dynamic
incentives and distorting competition through the
enforcement of IPRs.
1. Dynamic Efficiency and Systemic Failures
The European Commission (EC) paradigm of market functioning establishes that economic processes
should remain free. However, it also considers that
a legal framework is necessary to protect such freedom not only from governmental interference but
also against private economic power.13 The approach
encompasses several theoretical insights, among the
most relevant, the Freiburg School of Economics and
many of the original German competition law rules,
where limitations of business freedom are held as
virtual restrictions of competition.14 Despite this view,
State aid has not been seen as a tool of industrial
policy, but as a second best solution to solve failures
where the free and rational decision of commercial
firms should prevail.15 Under this perspective, market
intervention in connection to R&D&I has been only
deemed as necessary if certain conditions are found:
(1) the identification of areas of the economy where
the output of innovation activities is unsatisfactory,
(2) the identification of a defect in market forces that
produces a constrain in the quantity or quality of innovation and (3) the intervention produces a benefit
that is higher than the cost of it.16
The idea that market forces produce results superior to government intervention has always relied on
the assumption that rational choice theory explains
the behaviour of economic actors, suggesting that
markets self-correct and that rational behaviour of
undertakings produces the most desirable outcomes
in terms of efficiency. In the United States, the Chi13. Bishop S. and Walker M., “The Economics of EC Competition Law: Concepts, Application and Measurement,” Sweet &
Maxwell, 2010, p. 49.
14. Van den Bergh R.J. and Camesasca P.D., “European Competition Law and Economics: A Comparative Perspective,”
Sweet & Maxwell, London, 2006, p. 65-67.
15. Devlin A., “Antitrust in an Era of Market Failure,” Harvard Journal of Law & Public Policy, Vol. 33, 2010, pp. 557-606.
16. Edquist C., “The Systems of Innovation Approach and
Innovation Policy: An account of the state of the art,” DRUID
Conference, Aalborg, 2001, pp. 1–29.
EU State Aid Policy
cago and post-Chicago Schools of thought have placed
price theory at the heart of substantive competition
policy.17 Contrary to this view, the so called Harvard
School of thought had until that time rejected the application of price theory and developed the idea that
the performance of specific industries is dependent
on the conduct of firms and the market structure
of the industry under investigation.18 Contrary to
the liberalization paradigm of the Chicago School,
the Harvard School proposed that the government
has an important role to play in order to actively
stabilize economy processes.19 Both schools have
long maintained a fundamental economic debate.
EU competition law has not followed the U.S. move
in the implementation of Chicago School thoughts.
Instead, many of the Harvard School paradigms can
be found in EU competition law, though the recent
emphasis for a more economic approach in the design
and implementation of competition rules may be
changing this tradition to a pure efficiency standard.20
Static competition models, as the ones described
above, are not adequate to illustrate competition
where the range of products available and the methods of producing them are variable and defined by
R&D actions carried out by market participants.
Instead, a dynamic conception of competition where
market players compete not only in prices, but also on
innovation, becomes necessary as a theoretical model
to evaluate the impact of State aid measures in a free
market. In many of these dynamic markets, players
compete by innovating to generate new products
and not only in the market for the existing products,
which requires to take into account the impact of
aid measures before a market for such product still
exists.21 For example, under a dynamic conception
of competition, monopoly power generated by the
commercialization of an innovative product may represent a positive and necessary element in the market
17. Posner R., “The Chicago School of Antitrust Analysis,”
127 U. PA. L. REV. 925, 1979.
18. Van den Bergh R.J. and Camesasca P.D., “European Competition Law and Economics: A Comparative Perspective,”
Sweet & Maxwell, London, 2006, p. 67-68.
19. Kovacic W., “The Intellectual DNA of Modern U.S. Competition Law for Dominant Firm Conduct: The Chicago/Harvard
Double Helix,” Columbia Business Law Review, 1-80, 2007.
20. Devlin A., “Antitrust in an Era of Market Failure,” Harvard
Journal of Law & Public Policy, Vol. 33, 2010, pp. 557-606, pp.
21. Bishop S. and Walker M., “The Economics of EC Competition Law: Concepts, Application and Measurement,” Sweet &
Maxwell, 2010, pp. 45-48.
structure, to ensure that consumers can benefit from
firms investing in innovative activities. Thus, the possibility that market players are able to appropriate
for a certain time the benefits of investment in R&D
activities is necessary to be included in the competition models to contemplate the generation of benefits
from the investment in R&D activities.22
Thus, a more evolutionary perspective of innovation could be incorporated into the new framework
by taking into account the dynamic nature of the
economic system in terms of ongoing variation and
selection, the association and dependency of actions
in the R&D process, the heterogeneity of actors in
the system and their interactions.23 By taking into
account this theoretical approach, the framework
would be benefited by broadening the scope of the
concept of market failure, incorporating the notion
of infrastructural failures, institutional failures, actors
interaction failures, structural inertia and earning
capability failures. Taking into account these other
dimensions in explaining a sub-optimal output of innovation activities, and defining industrial policy as a
deliberate action by the State to shift the structure of
the economy away from its static comparative advantage to a structure offering more dynamic potential,
State intervention acquires new relevance.
The market failure theory, as used in the current
framework and derived from the static competition
models, could better integrate dynamic competition
by combining the functioning problems assigned to
the public nature of R&D results with failures assigned
to the system where the innovation takes place.24
Under this perspective, justifications for public intervention could be complemented by an evolutionary
and organizational notion of innovation by focusing
on systemic failures.25
22. Geroski P., “Innovation and Competitive Advantage,”
OECD Economics Department Working Papers, 159, OECD
Publishing, 1995.
23. Diekmann J., Som O., et al., “Analysis of Innovation Drivers and Barriers in Support of Better Policies Economic and
Market Intelligence on Innovation, Organisational and Marketing Innovation—Promises and Pitfalls,” Final Report, European
Commission, 2012.
24. For a description of the innovation system concept see,
Lundvall, B., “Innovation as an interactive process: From userproducer interaction to the National Innovation Systems,” in
Dosi, G., Freeman, C., Nelson, R.R., Silverberg, G. and Soete,
L., (eds.), Technology and economic theory, London, Pinter Publishers, 1988; and Lundvall, B. (ed.), National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning,
London: Pinter Publishers, 1992.
25. Id. See also, Edquist C., “The Systems of Innovation Approach and Innovation Policy: An account of the state of the
art,” DRUID Conference, Aalborg, 2001.
June 2014
EU State Aid Policy
Under this approach, the innovation system
concept, companies do not innovate alone. On the
contrary, they are part of a network of institutions
that interconnects with the aim to innovate. This network is formed by companies, research institutions,
universities, governmental agencies and other social
actors. By having the possibility to interact, these
entities intentionally use the external resources and
collaborate to reach technological or scientific objectives.26 In this systemic approach, much emphasis is
given to the learning capacity of R&D actors and to
the barriers they may face to cooperate. Thus, IPRs
and knowledge dissemination rules agreed by the
cooperating parties should be seen as a key factor
defining the relationship between the actors, shaping the functioning of many aspects in a innovation
system, particularly on the difficulty of access to
learning capabilities and R&D resources.
The current R&D&I framework does not clarify
which competition model is used as the theoretical
background to sustain the proposed rules, but follows
the mainstream reasoning in explaining the justifications for the State aid intervention in the R&D&I field.
Thus, under the mainstream thought, market failures
in the area of R&D are mostly related to externalities, public goods problems and uncertainty due to
lack of information. These failures are all assigned
to the characteristics of the generated goods, i.e.,
the created scientific and technological knowledge.
Policy actions departing from this perspective target
the results of R&D activities, for example by creating
property rights on the above mentioned intangibles.
Besides, under this model, technological development
creates the same marginal value no matter where the
knowledge is created or by whom. No special factors
as locations and actors are valued and, once created,
it is assumed that the technology will be transferred
and immediately used by the entity that can create
most value out of it. In most cases, this view may not
be adequate to model reality.
In the next section, the role of IPRs in R&D cooperation and the impact that certain agreements may
have on dynamic efficiency and other relevant policy
determinants are discussed.
2. Ownership of Intellectual Property Rights
IPRs ownership in the context of R&D cooperation refers to the manner in which parties decide
on the protection and allocation of rights over the
knowledge resulting from a cooperation project.
Such knowledge, in most of cases related to scientific
26. Id.
les Nouvelles
and technological information, can be protected by
different means, depending on the chosen strategy
and the nature of the knowledge. In most of cases,
knowledge related to inventions is protected through
patents, while other knowledge may be protected
by secrecy, copyrights, know-how or any means that
assures rights or control over the related technology.
In many cases, either because the knowledge is not
relevant for the interests of the parties or because
there is no available protection scheme, parties decide
to make the information available as public knowledge. The selected scheme to protect the results of
the project and the allocation of ownership depends
on the negotiation between the different parties, its
negotiation power, objectives and interests.
The allocation of IPRs can lead to an aid measure
to fall under the definition of State aid. Within the
meaning of Article 107(1) TFEU, indirect State aid
to undertakings through publicly funded research
organizations does not exists if ownership of IPRs is
fully allocated to the research organization.27 When
a research organization enters into a contract for
collaborative research with an industrial undertaking,
the Commission, without a notification requirement,
considers that no indirect State aid is granted to the
industrial partner through the research organization if
the conditions set out in the Framework are fulfilled.28
In case that the results which do not give rise to intellectual property rights may be widely disseminated
and any IPRs resulting from the activity of the research
organization are owned by the research organization,
the Commission considers that no indirect State
aid is granted to the industrial partner through the
research organization.29 Besides, allocation of IPRs
in the contractual agreement between cooperating
parties may lead to the conclusion that no State aid
exists if any IPRs to the R&D results are allocated to
the different partners of the collaboration adequately
reflecting their respective interests, work packages,
financial and other contributions to the project.30
Ownership of IPRs may also operate as a variable
for the assessment of compatibility of State Aid with
Article 107 TFEU. While no explicit reference is made
27. Ch. 3.2.2., The Framework. “[A]ny intellectual property
rights to the R&D&I results which result from the activity of the
research organisation are fully allocated to the research organisation.” “‘Full allocation’ means that the research organization
enjoys the full economic benefit of those rights by retaining full
disposal of them, notably the right of ownership and the right
to license” fn. 28.
28. Id., Ch. 3.2.1 and 3.2.2.
29. Id.
30. Ch. 3.2.2., para. 6, The Framework.
EU State Aid Policy
in the current Framework on how ownership of IPRs
should be used to evaluate distortions in trade or
competition, other provisions provide the basis under
which the Commission could assess aid proposals. By
considering these elements, the mechanism through
which IPRs ownership schemes selected by the parties can distort competition and affect trade between
Member States can be asserted.
2.1The Leipzig Halle Case
The European Court of Justice (ECJ) has recently
confirmed the longstanding Commission’s approach
on State aid measures for the construction of infrastructure.31 While the case is not directly related to
R&D, some of the rulings developed by the Court
together with the original decision of the Commission
may be extrapolated to the questions discussed here.
In 2006 the German authorities notified the Commission on the establishment of the European hub
of DHL Group at Leipzig-Halle Airport with a capital
contribution of about 350 million EUR to the Leipzig
Airport for the financing of the construction of a new
southern runway and the signature of a framework
agreement between the Airport and DHL, which
grants continuous access of the runway facilities to
the company, and a series of guarantees in the case
that DHL will no longer be able to operate at the airport. In 2008, the Commission declared the capital
injection to be compatible with the internal market.
Even though the Commission declared the aid to
be compatible, the airport and the German Länder
Sachsen and Sachsen-Anhalt are contesting the Commission’s finding that the measure constituted State
aid. In their view, the construction of infrastructure
is not economically viable and cannot, therefore, be
regarded as an economic activity in the meaning of
EU State aid rules. At the same time, the Commission
decided that the framework agreement signed by the
Airport and DHL constituted State aid, and that aid
was found incompatible with the internal market.
In 2011 the ECJ confirmed that the construction
of airport infrastructure is part of the economic activity of operating an airport, and that public funding
of infrastructure necessary for the operation of the
airport alleviates the costs that the airport operator
would normally have to bear, and therefore constitutes State aid.32 The Commission indicated that if an
agreement grants a selective advantage, this is liable
to distort competition and trade between Member
31. Commission Decision C48/06 (ex N 227/06), 2008/948/EC.
32. T-443/08 Mitteldeutsche Flughafen AG and Flughafen
Leipzig-Halle GmbH v European Commission, ECR II-01311,
2011 and T-455/08.
States. To the extent that such economic advantage
is not financially repaid by the signing counterpart,
there is unlawful State aid.
Providing access to an infrastructure constitutes
as such an economic activity, the public funding of
which constitutes state aid.33 Consequently, charging
infrastructure costs to private users seems insufficient to avoid considering providing access to an
infrastructure as an economic activity. The question
arises whether IPR licensing is subject to the same
uncertainty, i.e., if licensing IPRs by an RO can be
considered an economic activity, even when it charges
market prices to avoid that State aid is passed on to
the enterprise?
The signature of an agreement where benefits are
granted to a third party, which would had not been
possible except for the use of public funding, may
constitute State aid. The same ground may arise
from RO-industry collaboration: the usual signature
of a confidentiality agreement, providing the industrial partner the guarantee that no information will
be disclosed by the RO and the consequent benefit
for an exclusive exploitation of the technology by
the industrial partner. In this context, the question
arises whether the granting of a selective benefit by
a license, secrecy or technology transfer contract
signed in the context of public-private R&D cooperation is exposed to the same uncertainty?
2.2Distortion of Competition and IPRs Ownership
Ownership of IPRs can distort competition in
different ways. IPRs, particularly patents, are in essence anti-competitive as they grant the owner the
possibility to exclude third parties from using the
protected technology or an equivalent one.34 Despite
this, the overall balance of establishing a patent
system may lead to the development of technologies
that otherwise would not be generated, even when
taking into account the allocative inefficiencies that
providing a temporary monopoly to an inventor can
produce.35 The patent system relies on the concept
that by providing a limited monopoly on an invention
33. Id.
34. While the European Patent Convention (EPC) represents
a unified application and examination system, there is no unified patent system at EU level. Nevertheless, patent law from
Member States usually establishes the same patent rights, as
the right to exclude third parties from producing, offering, putting into circulation or using a product or process constituting
the subject matter of the patent. See, Mulder 2011.
35. See, Landes William M. and Posner Richard A., “The
Economic Structure of Intellectual Property Law,” Cambridge,
Mass: Belknap Press of Harvard University Press, 2003; or
Leveque F. and Ménière, Y., “The Economics of Patents and
Copyright,” Berkeley Electronic Press, July 2004.
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EU State Aid Policy
to reward the inventor for solving a technical problem
the public goods problems associated to technological knowledge and intangible assets can be removed
and an incentive to invest in the development of new
technical inventions can be generated.36 In a certain
way, the patent system and State aid measures are
tools that pursue the same aim.37 The creation of
patent rights represents an intention to solve market
failures associated with public goods.38 In this way, the
objectives of State aid measures for R&D and patent
law are similar in their motivations. Both, patent law
and public financing serve to generate an incentive to
invest in technological developments that otherwise
would not be pursued.
In the following section, a description of how IPRs
may lead to distortions in the market, which would
be contrary in essence to the objectives of compatible State aid measures and against Article 107(1)
TFEU, is provided.
2.2.1Generation of Market Power and
IPRs Ownership
IPRs confer the possibility to control, with certain
limitations, the commercialization and use of the
protected technology. By the enforcement of such
rights, depending on the characteristics of the market and the nature of the technology, the IPR owner
can exclude competitors and maintain control over
a certain market. Such control, in case that the technology has no substitutes, can lead to the exercise of
market power. Given the fact that State aid measures
are assessed before the start of the project, and in
many cases, even before having a preliminary notion
about the potential results that can be generated
by the R&D activities, it seems difficult to consider
that the Commission or the grantor State is able to
evaluate in detail a potential problem associated to
the allocation of ownership rights. Besides, in many
cases there is no market for the technology involved
in the project, and no definite assessment can be
made on how IPRs will influence the, yet inexistent,
market.39 Other areas of EU competition law, namely
the rules related to Article 101 TFEU, appear more
useful in evaluating the effects caused on the market
by IPRs ownership generated in R&D cooperation.
Patent owners have the right to exclude third
parties from making use of the technology and to
profit from the exclusive exploitation of it. Even
when third parties may be interested to pay for the
use of the patented technology, the right owner may
trace its own business strategy and decide not to
license or transfer the rights. While the industrial
partner is expected to make such strategic use
of IPRs over competitors, IPRs ownership by the
research institution would in principle not lead to
the creation of market power in the product market.
Universities and research institutions do not usually
compete in product markets, but they compete in
innovation markets. By definition, allocation of IPRs
in universities and research institutions may lead to
the creation of market power in innovation markets.
2.2.2Distortion of Dynamic Incentives and
IPRs Ownership
Allocation of IPRs may distort dynamic incentives
on further innovation and technological development. In particular, in case that cooperating parties
agree on clauses that assign ownership of future
improvements, the possibility to further develop
improvements or alternative solutions, alone or
in cooperation with third parties, may be limited.
These kinds of limitations may generate negative
consequences for future competition in innovation, as the future investments would only take
place in case the benefits generated can be at least
partially appropriated by the innovator. Parties may
decide that ownership of any future development
on the foreground technology40 will be allocated to
one of the parties. An agreement of this kind will
probably produce a disincentive to invest in future
developments to the party that will not be able to
appropriate the IPRs generated, which would be
contrary to the incentive requirement established
for State aid measures.
In this way, the potential benefit of having two
alternative parties working on improvements of
36. Id.
37. An important difference between the two systems, besides that one provides the possibility to reward the incentive
ex ante and the other reward the inventor ex post, is that while
patent law target technological innovations with industrial applicability, State aid measures can also target the development
of basic scientific knowledge without a direct industrial use.
38. A counterargument to the established anti-competitive
nature of the patent system indicates that by granting a limited
monopoly on inventions, the State is incentivizing competition
in innovation between market players by providing the tool to
recover investments to develop alternative technologies.
39. In these cases, focus on competition in innovation and
the distortion of dynamic innovation incentives should prevail.
40. Foreground technology is defined as “the results, including information, whether or not they can be protected, which
are generated by the indirect action concerned. Such results
include rights related to copyright; design rights; patent rights;
plant variety rights; or similar forms of protection,” Council Regulation (Euratom) No 1908/2006 of 19 December 2006 laying
down the rules for the participation of undertakings, research
centres and universities in action under the Seventh Framework
Programme of the European Atomic Energy Community and for
the dissemination of research results (2007 to 2011).
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the existing technology will be lost. Of course, the
benefits and disadvantages based on improvements
of dynamic incentives are mostly speculative and the
impact of this kind of agreements seems difficult to
assess and regulatory intervention on the freedom
to agree on IPRs ownership does not seem appropriate. Nevertheless, State aid law does not require
certainty on market distortions to consider an aid
measure as incompatible, but only the possibility that
the measure may cause any threat in the distortion
of competition. In this perspective,41 State aid law
may declare certain practices as explicitly prohibited
under the course of R&D cooperation, in the same
way some clauses related to IPRs are prohibited under
other areas of competition law.
2.2.3Maintaining inefficient market structures
and allocation of IPRs
In an idealized market where an efficient allocation
of resources is achieved, cooperating parties would
have access to full information in order to make the
most efficient allocation of IPRs.42 Even in case that
the initial allocation of IPRs ownership does not lead
to the best outcome in terms of efficiency, after some
time IPRs would be transferred and allocated to the
market player that can extract the most value from
them.43 Nevertheless, parties usually negotiate IPRs
ownership in an scenario of uncertainty and limited
information, without certainty on the value of the
generated technology and the capacity by each party
to generate profits from it. Under those circumstances, ownership of IPRs is determined by factors
that may lead to inefficient allocation of IPRs and, as a
consequence, to the generation of inefficient market
structures. For example, improvement of technology
that is still at an embryonic stage may be much better
controlled by a research organization instead of by
the industrial partner, as it is expected that further
development at a level of basic research needs to
be performed before the technology is ready to be
industrialized and commercialized in the market. In
such case, granting ownership of related IPRs to the
research organization may facilitate a more efficient
development of the technology until market commercialization is ready. On the other hand, technologies
that are fully developed and ready to be implemented
in market products could be most efficiently allocated
to the industrial partner, who is more knowledgeable
41. Aid that generates a distortion or that threatens to distort
42. See, Arrow K., “Economic Welfare and the Allocation of
Resources for Inventions,” The Rate and Direction of Inventive
Activity: Economic and Social Factors, R.R. Nelson (ed.). Princeton, NJ, 1962, pp. 609—626.
43. Id.
on the most efficient strategy at this stage. In real
circumstances, allocation of IPRs is defined by the
individual interest and negotiation power of each
party instead of by market efficiency considerations.
Inefficient market structures are an example of
distorted competition and may affect trade between
Member States. As such, State aid for R&D projects
that lead to inefficient and distortive allocation of
IPRs among cooperating parties can be found incompatible with the internal market and, as such,
prohibited. Nevertheless, intervention on this point
would be only reasonable in case that the regulatory
authority holds better information on the most efficient allocation of IPRs ownership and the resulting
market structure. State aid measures being a tool to
correct market imperfections, a better addressing of
public investment should consider the possibility to
directly allocate IPRs to the most efficient scheme
in cases where there is a clear social interest for the
related technology.
2.3 Selective Advantage and IPRs Ownership
To be considered State aid a measure must be specific or selective and favour only certain undertakings
or the production of certain goods. The advantage
must result from State resources.44 How close this
link needs to be is a question that has not yet been
fully clarified. There is no identity in the meaning of
a matching symmetry between the advantage and the
resources employed in case of indirect aid.
The transfer of IPRs from a public research organization to an industrial cooperating partner during the
course of a collaborating R&D project may represent a
transfer of resources. IPRs can benefit the right holder
by providing the capacity to exclude competition from
making use of the protected technology. Such exclusion grants the IPR holder the possibility to fix prices
and to define outputs according to its own interest
for profit maximization. In economic literature this
is referred as the monopolistic maximizing profit, by
setting marginal return equal to marginal cost, which
result in lower quantities being offered on the market
against a higher price.45 The IPR owner can thus be
clearly benefited through a transfer from the RO.
Nevertheless, even when the industrial partner can
be benefited by the transfer this is not sufficient to
define it as a selective advantage. The Commission
and Community Courts have given an extremely
wide interpretation to the requirement of selectivity
44. Joined cases C-399/10 P and C-401/10, Bouygues and
Bouygues Télécom v Commission and Others, Judgment of the
Court (Grand Chamber), 2013.
45. See e.g. Krugman P., Wells R., “Microeconomics,” Worth
Publishers; Third Edition edition, 2012.; Chapter 14.
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EU State Aid Policy
although the ECJ has ruled that a measure to be classified as selective has to be designed in accordance
with a certain regulatory technique. 46Thus, except
when the State aid measure includes a requirement
that IPRs need to be transferred to the industrial
partner under certain predefined conditions, the
selective advantage could not be proved to the extent
to make the measure incompatible with the internal
market. In any case, the transfer of IPRs would still
be an element to consider in evaluating the direct
or indirect transfer of resources from the State to
an undertaking.
2.4 Adverse Effects on Trade and Allocation
of IPRs
The incompatibility prerequisite that the State aid
measure affects trade between member states has
the objective to define a limit between the scope of
national and EU law. State aid measures for collaborative R&D must observe EU law requirements only if
the measure produces an effect outside the granting
State. In this context, it is particularly important to
determine whether the agreements on IPRs ownership allocation between collaborating parties can
constitute a real or potential, direct or indirect threat,
to the intra community trade.47
In principle, any IPRs to the resulted technology
will limit access to third parties in other member
states. For technologies where substitutes exist,
limitation to access improved processes may represent an increase in the relative manufacturing costs
and a diminished relative competitiveness. For the
cases were no substitute exists, protection of the
resulted technology would totally exclude competing
undertakings from the possibility to commercialize
or make use of the protected knowledge, product or
processes at EU level. Any of these situations will visibly affect trade between member states in the case
that the competing undertakings are located in different Member States. Nevertheless, the limitations
in trade associated with the existing IPRs owned by
the aided undertaking may still be counterbalanced by
the benefits of the existence of the new technology in
terms of improvements of productivity and availability
of new and better products and processes, facts that
should be accordingly weighted.
The assessment of any negative effect in trade as
a consequence of a particular scheme used by the
46. Joined cases C-106/09 P and C-107/09, Commission and
Spain v Government of Gibraltar and the United Kingdom, 2009.
See also Luja R., “Taxation of Intra-Group Interest, State Aid and
De Facto Selectivity,” Electronic Paper, June 19, 2009.
47. C-22/78, Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission, ECR 01869, 1979.
les Nouvelles
parties in the allocation of IPRs ownership seems to
a certain extent speculative. While State aid law has
interpreted the requirement rather broadly and the
effect on trade does not need to be real but merely
potential, the implementation of special requirements
on IPRs ownership based on potential negative effects
on trade does not seem to be reasonable. Besides, as
State aid measures can rarely have the explicit aim
to distort competition, it is not the objective but the
effects that should be evaluated.48
In assessing distortion of competition in agreements between undertakings, the ECJ has proposed
the use of a counter-factual test by comparing the
distortion produced in competition compared to the
level of competition without the existence of the
agreement under evaluation.49 In applying the test, it
is necessary to consider that cooperating parties are
not obliged by receiving State aid to implement IPRs
allocation that distorts competition. Nevertheless,
taking into account the common practices between
research organizations and industrial undertakings,
the implementation of State aid measures without defining accompanying rules restricting these practices,
may be considered as indirectly responsible for not
adopting the property measures that impede market
distortions. It has to be considered that R&D projects
often entail substantial investment and dynamic competition may be reduced if parties are not allowed to
assign ownership of IPRs in a manner beneficial for
them.50 Nevertheless, provided that the aid measure
already guarantees the incentives to enter into the
R&D project, other incentives related to the possibility of specific allocation of IPRs are not as relevant
as in cases where the project is fully supported by
means of private funds. ■
48. In connection to the assessment of anti-competitive practices between undertakings, the ECJ has indicated that “In the
absence of an anticompetitive object, an agreement may be objected to only on the grounds of its effects. In that case, any
anticompetitive effects must be assessed with regard to competition within the actual context in which it would occur in the
absence of the agreement in dispute.” C-7/95, John Deere Ltd v
Commission of the ECR I-03111, 1998. From an economic perspective, focusing on restrictions targeted to the object rather
than to the effect can be inefficient. See, Bishop S. and Walker
M., “The Economics of EC Competition Law: Concepts, Application and Measurement,” Sweet & Maxwell, 2010, and Van
den Bergh R.J. and Camesasca P.D., “European Competition Law
and Economics: A Comparative Perspective,” Sweet & Maxwell,
London, 2006.
49. See C-22/71, Béguelin Import Co. v S.A.G.L. Import Export, ECR [1971] p. 00949, C-328/03, O2 GmbH & Co. OHG v.
Commission, 2003.
50. C-258/78, L.C. Nungesser KG and Kurt Eisele v Commission, ECR [02015], 1982.
Chinese Trademark Law
Key Amendments To The Chinese Trademark Law
By Zhou Zhongqi
he draft for the amendment of the Chinese
Trademark Law was adopted at the 4th Session of the Standing Committee of the 12th
National People’s Congress on August 30, 2013. The
amended law will be implemented as of May 1, 2014.
The key amendments to the Chinese Trademark
Law are summarized below:
knows the mark through contractual, transactional or
other relationships with the prior user, if the prior
user raises an opposition.
A new clause is added to Article 7: Filing application for registration and use of a trademark shall
comply with the principle of honesty and credibility.
1. Sound Mark Registrable
Current: Any person
may take opposition ac■ Zhou Zhongqi,
tion against a published
trademark application on
CCPIT Patent & Trademark
any ground. And any party
Law Office,
may appeal the opposiVice President,
tion decision made by the
Beijing, China
Trademark Office to the
TRAB and initiate legal
E-mail: [email protected]
proceedings in Courts
of law.
Amended: Owner of
prior right or interested party may take opposition
action against a published trademark application on
relative ground and any person may take opposition
action on absolute ground.
Current: Any visually perceptible sign, including
words, devices, letters, numerals, three-dimensional
signs, combination of colours as well as the combination of such signs are registrable.
Amended: Subjects of trademark protection are
extended to include sound.
2. Multi-Class Applications
Current: One application is for one mark in one class.
Amended: Multi-class applications are acceptable.
3. Office Actions
6. Re-Construction of Opposition Procedure
Current: Office actions are available only when
designated goods or services are not in compliance
with the classification requirement.
Amended: Upon examination, the examiner may
issue an office action addressing
formality or substantive issues. The
applicant may present his argument
or amend his application.
4. Statutory Time-Limit For
Trademark Application
The amended law provides statutory time limits for the Trademark Office and the TRAB to make decisions
on procedures such as trademark
registrations, reviews, oppositions,
invalidations, and cancellations.
Review On Rejection
Review On Opposition
Invalidation On Absolute
Review On Invalidation On
Absolute Ground
Invalidation On Relative
Review On Cancellation
5. Tackling Bad-Faith
Two clauses are added to provide
more means to tackle bad-faith applications.
According to newly added Paragraph 2 of Article 15, a trademark
shall not be registered on identical or
similar goods/services if the mark has
been used by others and the applicant
June 2014
Chinese Trademark Law
If the Trademark Office makes a decision on opposition in favor of the opponent, the trademark applicant
may appeal the decision to the TRAB and may initiate
legal proceedings in courts. However, if a decision is
made against the opponent, the opponent could not
appeal the decision. The opponent may take invalidation action with the TRAB after the concerned mark
is registered.
7. Well-Known Mark
1. Recognition and protection of well-known mark
should follow the principles of passive protection,
necessity check and case-by-case recognition:
only when a dispute over registration or use of
a mark occurs, does the mark owner request the
Trademark Office, the TRAB or Courts of law to
recognize his mark as a well-known mark. The
recognized mark is not necessarily protected as a
well-known mark in other disputes wherein the
same mark is involved.
2. The term “well-known mark” should not be
used on goods, packages or containers of goods,
or in advertising, exhibition or any other business
3. Violation of the stipulation of the non-publicity
clause is subject to injunction and monetary
8. Right of Prior Use
The concept of right of prior use is introduced:
A person may continue to use his mark even after
an identical or similar mark has been registered in
identical or similar goods/services if he uses the mark
before the application for registration of the mark is
filed and that a reputation is obtained by prior use.
However, the use is limited to the original scope, and
the trademark registrant may ask the prior user to attach additional sign to differ goods/services provided
by the two.
9. Dilution
In case a registered mark has become a generic
name of the designated goods or services, the mark
is vulnerable to cancellation.
les Nouvelles
10. Renewal
Current: An application for renewal of a registration shall be made within 6 months before the
Amended: An application for renewal of a registration shall be made within 12 months before the
11. Co-infringer
A person who intentionally provides assistance to
infringer to implement infringement should be liable
for infringement.
12. Repeat Infringer
Infringer who implements infringement repeatedly
within 5 years should receive a heavier punishment.
13. Misuse of Trademark
If a registered mark, or an unregistered but wellknown mark, is used as a trade name and such use
misleads the public, the Anti-unfair Competition Law
can be applied.
14. Increased Damages
Current: Damages for trademark infringement are
assessed based on the losses suffered by the trademark owner or the profits gained by the infringer
arising from infringement. If neither the losses nor
the profits can be assessed, damages can be assessed
with reference to the royalty of a license, if there is a
license that can be referred to. If the three methods
do not work, statutory damages up to RMB 0.5 million (approximately USD 82,000) can be awarded.
Amended: Punitive damages up to three times the
damages assessed in accordance with the methods
mentioned above are possible in case the infringement is intentional and causes serious consequence.
The statutory damages are increased from RMB 0.5
million to 3 million.
When damages are claimed, evidence proving use in
the past 3 years should be submitted if a defense of
non use is presented. No damages should be awarded
if the trademark registrant fails to submit such evidence, nor to prove any other losses. ■
Superman And Statutes
Superman And Statutes: The Case For Restructuring
The U.S. Legal System And Awarding Copyrights To
Authors Behind Works For Hire
By Michael Haviland
I. Introduction
n the early 1800s, an author was understood
as “[o]ne who produces, creates, or brings into
being; as, God is the author of the universe.”1
This antiquated definition heavily emphasized an
author’s creation power and remains critical when
understanding the original purpose of the copyright
clause.2 Early American case law and copyright statutes heavily focused on a work’s creation when determining copyright assignment, even when authors
created what came to be known as works for hire.3
As Congress began passing statutes attempting to
clarify what was copyrightable and who was entitled
to copyrights, however, a shift began away from the
original interpretation, which favored authors, and
towards supporting hiring parties instead.4
From around the beginnings of the twentieth
century lasting until the 1976 Copyright Act (the
“1976 Act”), the copyright pendulum swung almost
completely away from authors; hiring parties were
frequently assigned work for hire copyrights on the
presumption that copyright remained with the party
commissioning the work, regardless of the hiring party’s actual involvement in the work’s creation.5 Recognizing authors’ unequal bargaining position due to
the inability to initially determine a work’s true value,
1. Author, 1828 Webster’s Dictionary, http://1828.mshaffer.
com/d/word/author (last visited Dec. 15, 2013)(stating author’s
1828 definition).
2. For a further discussion of the original interpretation of the
copyright clause, see infra notes 10-13.
3. See, e.g., Binns v. Woodruff, 3 F. Cas. 421, 423 (C.C. Pa.
1821) (reiterating copyrights meant for individual creating work).
4. See, e.g., The 1909 Copyright Act, 35 Stat. 1075 (1909)
(hereinafter “1909 Act”)(revised to 17 U.S.C. §§101-1332)(introducing work for hire).
5. Julie Katzman, Note, Joint Authorship of Commissioned
Works, 89 Colum. L. Rev. 867, 867 (1989) (presuming copyright
remained with hiring party under 1909 Act).
6. See Termination of transfers and licenses granted by the author, 17 U.S.C. §203 (2002)(outlining termination framework for
post 1976 works); see also Duration of copyright: Subsisting copyrights, 17 U.S.C. §304(C)(2002)(outlining termination procedure
for pre 1976 works).
Congress created termination rights in the 1976 Act.6
While professing to protect the underpowered author,
however, Congress expanded the work for hire provision in the 1976 Act, effectively undermining and
disenfranchising the very
authors Congress claimed
■ Michael Haviland,
to protect.7
Law Student,
This article argues for
Villanova University
restructuring the terSchool of Law,
mination and work for
hire frameworks to award
Philadelphia, PA, USA
copyrights to authors
E-mail: [email protected]
of works for hire while
granting an automatic
fifty-six year exclusive
copyright assignment to the hiring party following the
work’s creation.8 This can be justified through both
a historical and moral rights perspective, which this
article argues has been both explicitly and implicitly
recognized by American courts and Congress since
America’s founding.9
II. History of the Works for Hire Doctrine
a. Works for Hire and Early America
The Constitution grants Congress the power to
grant copyrights “[t]o promote the Progress of Science and useful Arts, by securing for limited Times
to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries” (the “copyright
clause”).10 Perhaps recognizing the substantive vagueness of the copyright clause, Congress passed its first
copyright act in 1790 and explicitly defined what
works were afforded copyright protection.11 Although
7. Definitions, 17 U.S.C. §101 (2010)(defining work for hire).
8. For a further discussion of this article’s posited work for
hire framework, see infra notes 131-148 and accompanying text.
9. For a further discussion of the historical and moral rights arguments justifying this article’s posited work for hire framework,
see supra notes 101-126.
10. U.S. Const. art I, § 8, cl. 8.
11. Copyright Act of 1790, 1 Statutes at Large, 124 (1790)
(hereinafter “1790 Act”)(appealed and revised to 17 U.S.C. §§1011332)(qualifying substantive and procedural copyright law).
June 2014
Superman And Statutes
the Copyright Act of 1790 (the “1790 Act”) provided
some substantive guidance, it was extremely limited
in scope, as it only explicitly protected maps, charts,
and books.12 Furthermore, the 1790 Act did not
define who or what constituted an author and did
not mention who ought to control the copyright for
works for hire.13
When examining early case law interpreting the
copyright clause and the 1790 Act in the context of
works for hire, early courts often emphasized the
insufficiency of assigning a hiring party the copyright
merely for employing an author, such as in the case
Binns v. Woodruff. Woodruff was decided in 1821 and
involved a plaintiff paying several artists a flat fee to
create and sell prints of the Declaration of Independence.15 Upon completing the work, the plaintiff deposited a copy and filed for a copyright.16 The plaintiff
later sued the defendant for copyright infringement,
alleging that the defendant copied the plaintiff’s
work, and violated the plaintiff’s copyright.17
The Woodruff court’s threshold issue was whether
the plaintiff created the print and deserved copyright
protection, as Congress had intended under the 1790
Act.18 The Woodruff court analyzed the 1790 Act and
[t]he person then who is intended and described
as a proprietor of a copyright, is one who shall
not only invent and design, but who shall also
engrave, etch, or work the print to which the
right is claimed; or who, from his own works and
inventions, shall cause the print to be designed
and engrave, etched, or worked.19
The Woodruff court determined that the plaintiff
was not entitled to a copyright, stating “the plaintiff
did not design and invent, nor did he, from his own
work and inventions, cause this print to be designed
and engraved.”20 The Woodruff court’s emphasis on
using copyright to protect the actual author creating
12. 1790 Act, 1 Statutes at Large, 124 §1 (limiting copyright
coverage to only maps, charts, and books).
13. Id. (omitting mention of works for hire and employers for
assigning copyrights).
14. See Binns v. Woodruff, 3 F. Cas. 421, 424 (C.C. Pa. 1821)
(prohibiting copyright assignment to hiring party).
15. Id. at 422-23 (employing artists to create work for hire).
16. Id. at 423 (depositing work for copyright protection).
17. Id. (suing defendant for alleged copyright infringement).
18. Id. (reviewing whether plaintiff was entitled to copyright).
19. Woodruff, 3 F. Cas. at 423 (determining copyright’s intended for author).
20. Id. (finding for defendants because plaintiff himself did not
create work).
les Nouvelles
the work demonstrated a more widely recognized
American vision of authorship within the nineteenth
century, which heavily valued an author’s individuality and creativity.21
Early courts recognized exceptions to assigning
authors copyrights in their created works, however,
as shown in Wheaton v. Peters.22 In Wheaton, the
plaintiff was a court reporter who compiled twelve
books of Supreme Court decisions ranging from
1816 until 1827.23 The plaintiff sold the copyright
to a publisher before the first reporter was compiled
and the publisher subsequently filed for copyright.24
The Wheaton defendants published their own volume
containing all of the Supreme Court’s decisions from
its inception up until 1827 and incorporated the first
volume of the plaintiff’s reports.25 The plaintiff sued,
alleging that the defendant infringed on the plaintiff’s
The Wheaton court did not address whether the
plaintiff had created a work for hire, but instead focused on what the enacted copyright laws were meant
to actually protect.27 The Wheaton court concluded
the plaintiff did not initially have a copyright to sell, as
a copyright was only created after satisfying the filing
requirements, which included giving public notice
and depositing a copy of the work.28 Therefore, the
plaintiff could not sell the copyright before the work
was actually created and the filing requirements were
followed.29 The Wheaton court went a step further,
concluding that “[n]o reporter of the decisions of the
[S]upreme [C]ourt has, nor can he have any copyright
in the written opinions delivered by the court: and
the judges of the court cannot confer on any reporter
any such right.”30 This reflection emphasized both
21. Catherine L. Fisk, Authors at Work: The Origins of the
Work-for-Hire Doctrine, 15 Yale J.L. & Human. 1, 14 (2003)(justifying copyright protection for authors over hiring party because
of author’s work and imagination).
22. Wheaton v. Peters, 33 U.S. 591, 593 (1834)(denying copyright for collected court reports).
23. Id. at 591 (compiling volumes of court reports by plaintiff).
24. Id. (selling copyright prior to compilation completion).
25. Id. at 595 (publishing by defendants of reporter including
plaintiff’s reports).
26. Id. (filing suit over alleged copyright infringement).
27. Wheaton, 33 U.S. at 592 (determining copyright protects
author’s property within the work).
28. Id. at 592 (acknowledging filing requirement for copyright).
29. Id. at 592-93 (declaring plaintiff’s copyright invalid for filing requirement violation).
30. Id. (declaring copyrights unavailable for Supreme Court
Superman And Statutes
preventing others from copyrighting judges’ original
written decisions, a similar justification behind the
Woodruff opinion, and also demonstrated a willingness to prevent authors from acquiring copyright
protection in certain circumstances.31
Despite an early emphasis on assigning original
authors copyrights, authors could transfer their copyrights through contract, as demonstrated by Pierpont
v. Fowler.32 In Fowler, a dispute arose over whether an
author assigned the renewal period when assigning
the initial copyright.33 The Fowler court concluded
the author had not assigned away the renewal period,
[i]t was the genius which conceived and the toil
which compiled the book that is to be rewarded by
even the first copyright, and no one ever dreamed
that an assignee could alone take out the second
or extended term, unless he has paid for it, clearly
contracted for it, and in equity, rather than by any
technical law, is to be protected in it.34
Determining that hiring parties were not entitled to
the copyright of works by authors without an express
agreement was a trend that lasted until the end of the
Civil War.35 Near the end of the nineteenth century,
courts began recognizing the employment relationship as a form of contract.36 This coincided with the
rise of corporations as both employers and hiring
parties, to whom courts began assigning copyrights.37
b. Works for Hire and the Copyright Act of 1909
By the early twentieth century, the first piece of
federal copyright legislation to expressly mention
works for hire was enacted: the Copyright Act of
1909 (the “1909 Act”).38 The 1909 Act stated “the
word ‘author’ shall include an employer in the case
31. For a further discussion of early American emphasis on protecting original work, see supra note 21 and accompanying text.
32. Pierpont v. Fowler, 19 F. Cas. 652, 658 (C.C. Mass. 1846)
(acknowledging potential copyright assignment through contract).
33. Id. at 658-59 (reviewing whether contract contained additional copyright term assignment).
34. Id. at 659-60 (concluding author had not contracted away
second copyright assignment term).
35. See Catherine L. Fisk, Authors at Work: The Origins of the
Work-for-Hire Doctrine, 15 Yale J.L. & Human. 1, 32 (2003)(writing no court prior to Civil War awarded employers copyrights of
employees only due to employment).
36. Id. (describing evolving interpretation of employment relationship).
37. Id. (detailing rise of corporations as employers).
38. 1909 Act, 35 Stat. §23 (1909)(revised to 17 U.S.C. §§1011332)(awarding copyrights to employers in works made for hire).
of works made for hire.”39 Despite expanding the
definition of author to incorporate hiring parties, the
1909 Act never explicitly defined what works for hire
or employers were.40
Three justifications emerged under the 1909 Act
for awarding copyrights to hiring parties for works
for hire: “(1) The work is produced on behalf of the
employer and under his direction; (2) the employee is
paid for the work; and (3) the employer, since he pays
all the costs and bears all the risks of the loss, should
reap any gain.”41 The first and second justifications
encapsulated the two-pronged instance and expense
test, which determined whether an author’s creation
was a work for hire under the 1909 Act.42
Under the instance and expense test, a hiring party
was entitled to an author’s copyright when “the
employer induces the creation of the work and has
the right to supervise the manner in which the work
is carried out.”43 Instance was defined as how much
power the hiring party had to supervise the author’s
work.44 A hiring party’s actual creative contributions
to or oversight of the work strongly indicated that the
piece fell into the work for hire category.45
Satisfying the instance prong without also satisfying
the expense prong was insufficient to deem the piece
a work for hire.46 Under the 1909 Act, expense was
regarded as the resources a hiring party invested into
creating the work.47 The expense prong considered a
number of factors including payment, providing tools,
and providing overhead.48 Courts often focused on
the payment structure for the work, with royalties
39. 1909 Act, 35 Stat. §62 (1909)(revised to 17 U.S.C. §§1011332)(extending copyright assignment to employers).
40. Id. (omitting definitions of work for hire and employer).
41. Register of Copyrights, U.S. Copyright Office, Rep., Register’s Report on the General Revision of the U.S. Copyright Law
52 (1961)(justifying work for hire doctrine).
42. For a further discussion of the instance and expense test,
see supra notes 43-51 and accompanying text.
43. Martha Graham School and Dance Foundation. v. Martha
Graham Center of Contemporary Dance, 380 F.3d 624, 635 (2d
Cir. 2004)(outlining instance and expense test parameters).
44. Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 139 (2d Cir.
2013)(interpreting instance prong of instance and expense test).
45. Id. (emphasizing hiring party’s involvement as weighing
towards work for hire).
46. Id. (requiring both prongs of instance and expense test be
satisfied for work for hire).
47. Id. at 139-40 (clarifying expense prong of instance and
expense test).
48. Id. at 140 (listing relevant factors for expense prong).
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Superman And Statutes
weighing against work for hire and a flat fee weighing
for a work for hire.49 If a hiring party satisfied both
the instance and expense prongs, the hiring party was
presumed to be the work’s author and the copyright
remained with the hiring party.50 The only way an
author could overcome this presumption was through
a formalized agreement to the contrary.51 This shift
away from traditionally emphasizing an author’s copyright in the work highlighted an implicit presumption
under the 1909 Act that copyrights vested with the
commissioning party.52
One case that applied the instance and expense
test was Siegel v. National Periodical Publications
(hereinafter “Siegel I”).53 The Siegel I plaintiffs developed Superman® in 1933 and sold the rights in
1938 to the defendant.54 The plaintiffs entered into
a written agreement with the defendant transferring
all rights and goodwill attached to Superman®.55 A
supplemental agreement was entered into between
the plaintiffs and defendants in 1939, stating the
defendant had “all right of copyright and all rights to
secure copyright registration in respect to all such
forms of reproduction …”56 The plaintiffs later sued
to annul the contracts and the court applied the
instance and expense test to determine whether
Superman® was a work for hire.57 The court emphasized looking at whether the motivating factor in
creating the work was the hiring party.58 The court
concluded Superman® could not have been created
at the instance and expense of the employer, as Superman® was developed years before there was ever
a relationship between the plaintiffs and defendant,
49. Marvel Characters, 726 F.3d at 140 (highlighting payment
method for work for hire determination).
50. Id. (awarding copyright to hiring party for satisfying instance and expense test).
51. Id. (demanding contract to contrary if hiring party satisfied
instance and expense test).
52. Julie Katzman, Note, Joint Authorship of Commissioned
Works, 89 Colum. L. Rev. 867, 867 (1989)(identifying presumption copyright remained with hiring party).
53. Siegel v. National Periodical Publications, 508 F.2d 909,
914 (2d Cir. 1974)(hereinafter Siegel I)(applying instance and
expense test to Superman® copyright).
54. Id. at 911 (retelling Superman®’s inception).
55. Id. (contracting to release all Superman®’s rights to defendant).
56. Id. (amending initial contract and again releasing Superman® copyright to defendant).
57. Id. at 911, 914 (suing to annul contract and ensure Superman® not work for hire).
58. Siegel I, 508 F.2d at 914 (analyzing hiring party’s involvement in Superman® creation).
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and therefore Superman® was not a work for hire.59
c. Works for Hire and the Copyright Act of 1976
Although Siegel I demonstrated an example where
original authors recaptured the copyright for an
alleged work for hire, the vast majority of authors
creating works for hire within this time period were
not as fortunate.60 In part due to recognizing the
complexities of copyright and works for hire, Congress passed the 1976 Act.61 The 1976 Act was the
first time Congress defined works for hire and also
introduced several new tools for shifting copyright
power back towards original authors and away from
hiring parties.62 Under the 1976 Act, a work for hire
was defined as a
(1) work prepared by an employee within the
scope of his or her employment; or (2) a work
specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion
picture or other audiovisual work, as a translation,
as a supplementary work, as a compilation, as an
instructional text, as a test, as answer material for
a test, or as an atlas, if the parties expressly agree
in a written instrument signed by them that the
work shall be considered a work made for hire.63
Congress further recognized the difficultly in authors effectively valuing the work to be created, putting authors in an unenviable position of negotiating
over the speculative value of a work.64 As an attempt
to remedy this unequal bargaining position, Congress
included termination rights for authors.65 Termination
rights enabled authors to reclaim their copyrights at
certain points in time if their copyright was signed
away to a hiring party or other individual.66 Congress
stressed that termination rights were needed “be-
59. Id. (determining Superman® not created at hiring party’s
instance and expense).
60. For a further explanation of Siegel I, see supra notes 53-59
and accompanying text.
61. For a further discussion of the 1976 Act, see infra notes
62-69 and accompanying text.
62. See 1976 Act, 17 U.S.C. §101 (2010) (defining work
made for hire).
63. Id. (stating Congress’s work made for hire definition).
64. H.R. Rep. No. 94-1476.94th Cong. § 203 reprinted in
1976 U.S.C.C.A.N. 5659, 5740 (explaining reasoning behind
including termination rights in 1976 Act).
65. For a further discussion of termination rights, see infra
notes 66-69 and accompanying text.
66. See 1976 Act, 17 U.S.C. §304(c) (applying termination
rights for eligible pre 1976 Act works); see also 1976 Act, 17
U.S.C. §203 (granting termination rights for post 1976 Act works).
Superman And Statutes
cause of the unequal bargaining position of authors,
resulting in part from the impossibility of determining
a work’s value until it has been exploited.”67 Notably,
Congress retroactively applied termination rights,
enabling authors to reclaim their copyrights for works
created prior to the 1976 Act.68 Termination rights
were not available to all authors, however; a copyright
could not be reclaimed if the work was in the public
domain or a work for hire.69
Despite Congress’ best efforts defining work for
hire, difficulties arose when courts attempted to
determine which authors were employees, as Congress never explicitly defined employee in the 1976
Act.70 The Supreme Court set factors for determining
whether an author was an employee, and thus creating a work for hire, in Community for Non-Violence
v. Reid.71 In Community for Non-Violence, a sculptor
created a piece for a hiring party.72 The hiring party
argued that the piece was a work for hire and that the
hiring party was therefore entitled to the copyright
on the work.73 The artist and hiring party both filed
competing copyright claims over the piece, which lead
to a lawsuit and the Supreme Court opining factors
for employee and work for hire status.74 The Supreme
Court weighed its factors and found that the Community for Non-Violence artist was an independent
contractor and therefore had not created a work for
hire.75 The Community for Non-Violence factors were
the hiring party’s right to control the manner and
means by which the product is accomplished… the
source of the instrumentalities and tools; the location of the work; the duration of the relationship
between the parties; whether the hiring party has
the right to assign additional projects to the hired
party; the extent of the hired party’s discretion
over when and how long to work; the method of
payment; the hired party’s role in hiring and paying
assistants; whether the work is part of the regular
business of the hiring party; whether the hiring
party is in business; the provision of employee
benefits; and the tax treatment of the hired party.76
Interestingly, the Community for Non-Violence factors bore a striking similarity to both prongs of the
1909 Act’s instance and expense test.77
The emergence of termination rights and the Community for Non-Violence factors created a wave of
authors trying to terminate and reclaim copyrights.78
For example, in 2008 the Siegel estate sought to terminate the Superman® copyright, which lead to the
case Siegel v. Warner Bros. Entertainment, Inc. (hereinafter “Siegel II”).79 The Siegel II court was faced with
a difficult problem, however: Superman® had evolved
and changed since his initial debut in 1938; an entire
universe surrounding Superman® had been created
within the past seventy years which expanded well
beyond the initial Superman® copyright.80
Warner Brothers attempted to re-argue that Superman® was a work for hire but the court quickly
dismissed the claim, stating the work for hire dispute
was settled by Siegel I.81 The court did not formally
apply the instance and expense test, which would
have been appropriate because the contested works
were created prior to the 1976 Act.82 Additionally,
the Siegel II court did not apply the Community for
Non-Violence factors either.83 After sorting through
various Superman® related works, the Siegel II court
permitted the Siegel estate to terminate the Superman® copyright but limited the termination to only
the contents of the first Superman® publication.84
Siegel II was not the only example where a work was
67. H.R. Rep. No. 94-1476.94th Cong. § 203 reprinted in 1976
U.S.C.C.A.N. 5659, 5740 (justifying termination rights inclusion)
68. 1976 Act, 17 U.S.C. §304(c)(permitting authors of pre
1976 Act works to exercise termination rights).
69. See 1976 Act, 17 U.S.C. §304(c) (prohibiting termination
in works for hire and public domain works); see also 1976 Act,
17 U.S.C. §203 (preventing termination rights for work for hire).
70. 1976 Act, 17 U.S.C. §203 (omitting definition of employer).
71. Community for Creative Non-Violence v. Reid, 109 S.Ct.
2166, 2178-79 (1989)(prescribing employment and work for hire
72. Id. at 2167 (describing background circumstances of lawsuit).
73. Id. (arguing by plaintiff for copyright assignment because
piece was work for hire).
74. Id. (outlining procedure of case prior to Supreme Court).
75. Id. at 2179 (finding for artist after weighing factors).
76. Community for Non-Violence, 109 S.Ct. at 2178-79 (listing work for hire factors).
77. For a further discussion of the instance and expense test
prongs, see supra notes 47-49 and accompanying text.
78. See, e.g., Siegel v. Warner Bros. Entertainment Inc., 542
F.Supp.2d 1098, 1102 (C.D. Cal. 2008)(hereinafter Siegel II)(exerting termination rights over Superman® copyright).
79. Id. (seeking declaration for legitimate termination over
Superman® grant).
80. Id. at 1110 (elaborating Superman® universe’s evolution).
81. Id. at 1127 (rearguing for Superman® work for hire status).
82. Id. at 1127-30 (omitting application of instance and expense test).
83. Siegel II, 542 F.Supp.2d at 1127-30 (overlooking Community for Non Violence factors).
84. Id. at 1130 (limiting termination to material in first Superman® issue).
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Superman And Statutes
created before the 1976 Act, subjected to termination
rights, and lead to a work for hire dispute.85 The estate
of noted comic book artist Jack Kirby (“Kirby”) sought
termination for copyrights to a series of drawings and
characters in the case Marvel Characters v. Kirby.86
In Marvel Characters, the plaintiffs were the children of the late comic book artist Kirby.87 Kirby was
a freelancer who produced drawings and characters
for the defendant, the comic book publisher Marvel
Entertainment, and worked on such notable such
comic book series as The Incredible Hulk®, The XMen®, and Spider-Man®.88 The plaintiffs argued that
Kirby’s creations were not works for hire and thus
subject to termination, permitting the plaintiffs to
recapture Kirby’s copyrights.89 The court applied
the instance and expense test, as Kirby’s contested
works were created before the 1976 Act.90 The court
analyzed the instance prong and recognized that
although Kirby was a freelancer, his working relationship with the defendant was “close and continuous”
when he developed the works in question.91 The court
continued, stating that the defendant had the ability
to reject or require alterations to Kirby’s work and
that the defendant actively collaborated with Kirby
in creating some of the contested works.92 The court
next analyzed the expense prong, detailing how the
defendant paid Kirby a flat rate for his work, which
weighed in favor of a work for hire finding.93
The Marvel Characters plaintiffs argued that although Kirby was paid a flat fee, Kirby undertook
substantial personal risk through supplying his own
time, tools, and overhead for each of the projects
without a guarantee of compensation.94 The court
acknowledged Kirby’s personal and financial risk but
recognized Kirby’s work “built on preexisting titles
and themes that Marvel had expended resources to
85. See, e.g., Marvel Characters, Inc. v. Kirby, 726 F.3d 119,
127 (2d Cir. 2013)(claiming termination rights for pre 1976
86. Id. at 124 (describing contested works).
87. Id. (elaborating on plaintiffs’ relationship to Kirby).
88. Id. at 125 (acknowledging by court of Kirby’s freelancer
89. Id. at 127 (outlining plaintiffs’ justification for termination)
90. Marvel Characters, 726 F.3d at 127 (chronicling Kirby’s
91. Marvel Characters, Inc., 726 F.3d at 141 (applying instance
element of instance and expense test).
92. Id. (describing Kirby’s work relationship to defendant).
93. Id. at 142 (analyzing expense element).
94. Id. (elaborating Kirby’s risk and freelancer status).
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establish—and in which Marvel held rights—and
they required both creative contributions and production work that Marvel supplied.”95 The court
ruled that Kirby’s pieces were likely works for hire
and, with no agreement to the contrary, found for
the defendant.96
a. Integrating Termination Rights Into
Work for Hire
When viewing Community for Non-Violence,
Siegel II, and Marvel Characters together, it quickly
becomes apparent that despite including termination rights to benefit authors, a great deal of confusion still exists when determining whether authors
are actually entitled to termination rights.97 Simply
put, authors are forced to repeatedly demonstrate
that their creations were not works for hire when
attempting to exercise termination rights and risk
losing any copyright protection should the court
decree the pieces works for hire.98 Additionally,
refusing to grant copyrights for works for hire to
original authors further reinforces an author’s
unequal bargaining position and circumvents the
purpose behind initially inserting termination rights
in the 1976 Act.99
One long-term solution to these problems is
restructuring the current copyright system by granting copyrights to the original authors of works for
hire with an automatic assignment period to the
hiring party for a flat term, which can be justified
through both a historical and moral rights perspective.100 Doing so will ensure authors are adequately
compensated for their work through copyright pro95. Id. at 143 (stressing defendant’s investment).
96. Marvel Characters, 726 F.3d at 143 (concluding Kirby’s
pieces were works for hire).
97. For a further discussion of Community for Non-Violence,
see supra notes 71-76 and accompanying text. For a further discussion of Siegel II, see supra notes 79-84 and accompanying
text. For a further discussion of Marvel Characters, see supra
notes 86-96 and accompanying text.
98. See, e.g., Siegel II, 542 F.Supp.2d at 1127 (rearguing
Superman®’s work for hire status). See also, e.g., Marvel Characters, 726 F.3d at 143 (concluding author’s pieces works for hire
despite freelancer status).
99. H.R. Rep. No. 94-1476.94th Cong. § 203 reprinted in
1976 U.S.C.C.A.N. 5659, 5740 (acknowledging authors’ unequal bargaining position).
100. For a further discussion of the historical justification for
awarding authors of works for hire copyrights, see infra notes
101-109 and accompanying text. For a further discussion of the
moral rights justification for awarding authors of works for hire
copyrights, see infra notes 110-126 and accompanying text.
Superman And Statutes
tection, hiring parties can utilize the work to reclaim
both invested resources and profits, and the original
copyright clause interpretation will be served.
b. Historical Justification for Awarding Copyrights
to Authors in Works for Hire
As previously stated, America’s founding fathers
empowered Congress to confer copyrights “[t]o
promote the Progress of Science and useful Arts, by
securing for limited Times to Authors and Inventors
the exclusive Right to their respective Writings and
Discoveries” (emphasis added).101 This early weight on
awarding copyright to the original author was further
emphasized when looking at the 1790 Act and early
case law.102
Under the 1790 Act, American copyright law expanded to afford protection for works including maps,
charts, and books.103 The first Congress recognized
the importance of rewarding authors for their work
and opted to omit any explicit mention of awarding
copyright to a hiring party through either passing a
statute or amending the copyright clause.104 Early
courts further reinforced this trend of awarding original authors copyrights over hiring parties, even if the
work was explicitly a work for hire, as demonstrated
by Woodruff.105 Protecting original authors over hiring
parties was continually demonstrated in cases like
Wheaton and Fowler until the end of the nineteenth
Recognizing the importance of protecting authors
through awarding the original author copyright for
his or her original work was a trend lasting for over a
century after America’s founding.107 Favoring hiring
parties over authors was a recent change in American
copyright law lasting until the 1976 Act, which sought
to re-balance the realities of an author’s unequal bargaining position and the hiring party’s financial risk in
101. U.S. Const. art I, § 8, cl. 8.
102. For a further discussion of the 1790 Act and early case
law supporting awarding original authors copyrights, see supra
notes 10-37 and accompanying text.
103. 1909 Act, 35 Stat. 1075 (1909) (revised to 17 U.S.C.
§§101-1332)(limiting copyrights to only authors of books, charts,
and maps).
104. Id. (omitting works for hire provision). See also U.S.
Const. art I, § 8, cl. 8 (affording copyrights only to authors).
105. For a further discussion of Woodruff, see supra notes 1821 and accompanying text.
106. See Catherine L. Fisk, Authors at Work: The Origins of
the Work-for-Hire Doctrine, 15 Yale J.L. & Human. 1, 32 (2003)
(chronicling change in copyright emphasis).
107. See generally id. (detailing early copyright protection).
employing authors.108 Despite the heavy fixation on
the financial incentives in determining copyrights in
works for hire, Congress and courts have recognized
that financial success is not the only justification for
awarding authors copyrights over the hiring party.109
c. Moral Rights Justification for Awarding Copyrights to Authors in Works for Hire
In addition to justifying copyright assignment
through a monetary angle, a strong argument can
be made for awarding authors copyrights in works
for hire over hiring parties through a moral rights
perspective.110 Moral rights are defined as
the right of the author to create, or not to create,
to present the creation to the public in a form of
his choice, or to withhold it, to dispose of this
form as he alone desires, and to demand that his
personality be respected in so far as it relates to
his status as an author.111
Recognizing that an author maintains rights over
a work after its sale or grant seems to conflict with
traditional American copyright law, which tends to follow the belief that “the pecuniary or property rights
flow from a created work.”112 However, American case
law and legislation have implicitly and explicitly recognized the validity of moral rights claims, one example
being Gilliam v. American Broadcasting Companies.113
The Gilliam plaintiffs were a comedy troupe
known as Monty Python® that produced television
episodes.114 The plaintiffs signed an agreement allowing the defendant to air the plaintiffs’ television
episodes.115 Each episode was originally filmed as a
thirty-minute segments with multiple episodes to
be shown in ninety-minute programs, however the
defendant shortened the ninety-minute programs by
108. See Register of Copyrights, U.S. Copyright Office, Rep.,
Register’s Report on the General Revision of the U.S. Copyright
Law 52 (1961)(justifying work for hire under prior 1909 Act).
109. For a further discussion of moral rights, see infra notes
110-126 and accompanying text.
110. For a further discussion on the definition of moral rights,
see infra note 111 and accompanying text.
111. Brian T. McCartney, Creepings and Glimmers of the Moral Rights of Artists in American Copyright Law, 6 UCLA Ent. L.
Rev. 35, 37 (Fall 1998)(citing translation from Arthur S. Katz, The
Doctrine of Moral Right and American Copyright Law-A Proposal,
24 S. Cal. L. Rev. 375-376 (1951)).
112. Ilhyung Lee, Toward an American Moral Rights in Copyright, 58 Wash. & Lee L. Rev. 795, 798 (Summer 2001)(describing traditional relation of property rights to work).
113. Gilliam v. American Broadcasting Companies, 538 F.2d
14, 25 (2d Cir. 1976)(concluding alterations impaired the work
and author’s integrity).
114. Id. at 17 (detailing plaintiffs’ work).
115. Id. (recounting plaintiffs’ work).
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Superman And Statutes
twenty-four minutes.116 The plaintiffs sued, alleging
that the defendant impaired the integrity of their
work.117 The Gilliam court found for the plaintiffs,
stating “that the edited version broadcast by [the
defendant] impaired the integrity of [the plaintiffs’]
work and represented to the public as the product of
[the plaintiffs] what was actually a mere caricature of
their talents.”118 The Gilliam court heavily emphasized
the need to protect authors submitting work to the
public and acknowledged that the edited broadcasts
significantly injured the plaintiffs’ reputation and
therefore their production success.119
Furthermore, Congress recognized the existence
of authors’ moral rights claims in limited instances
through passing the Visual Artists Rights Act in 1990
(“VARA”).120 Under VARA, authors of visual works
have both the exclusive rights afforded to copyrighted
works and additional reputational based rights.121
Specifically, VARA allows authors of visual works
to claim authorship of the work and restrict using
the author’s name in pieces that the author did not
create.122 Furthermore, authors of visual art can prohibit using his or her name if their work is distorted,
mutilated, or modified in a way that would harm
the author’s reputation.123 Finally, VARA empowers
authors of especially notable visual works to prevent
any intentional or grossly negligent destruction to the
work.124 These additional VARA rights subsist for the
duration of the author’s lifetime and exclude typical
damage caused through the passage of time.125 When
reviewing VARA and recognizing that Congress permitted moral rights claims, if the author’s work falls
within the definition of visual art, a Congressional
acknowledgement manifests that authors have more
than a financial interest in a piece remaining long
after a work is sold.126
d. Posited Works for Hire Framework
As demonstrated through the growth of American
copyright statutes, case law, and VARA legislation,
America has a complicated relationship with affording copyright protection to authors.127 However, three
themes emerge when considering these different
components: authors deserve some sort of copyright
protection, authors are in an unequal bargaining position, and authors have more than a simple financial
interest in a work lasting beyond a work’s sale.128 Congress has effectively circumvented its own solution to
these themes, i.e. termination rights, by permitting
hiring parties to commission works for hire, which
takes away any rights an author may have to his or her
work through assigning the copyright to the hiring
party.129 As this only further worsens authors’ already
unequal bargaining positions, authors of works for
hire ought to be afforded some sort of copyright
protection for their works while also balancing the
need to protect a hiring party’s investment.130
One solution is having the copyright of works for
hire belong to the author but automatically and exclusively licensed with the hiring party for an extended
flat period of time upon the work’s creation, such as
a fifty-six year term as modeled after the two term
grant under the 1909 Act.131 During this fifty-six year
period, the hiring party would have exclusive use of
the copyright, free from fear of the author unexpectedly exercising termination rights as shown in Marvel
Characters.132 This alleviates the concern of a hiring
party investing costs and taking on risk without the
potential reward and profit, as the hiring party can
reclaim both the initial costs and potential profit over
the fifty-six year period.133
116. Id. at 17-18 (emphasizing impairment to original work).
117. Id. at 18 (suing by plaintiff for mutilating work).
118. Gilliam, 538 F.2d at 25 (elaborating work’s alteration
caused substantial injury to reputation).
119. Id. at 19 (clarifying copyright law’s purpose for protecting
120. Rights of certain authors to attribution and integrity, 17
U.S.C. §106(a) (2013) (hereinafter “VARA”)(proscribing moral
rights claims for visual works).
121. Id. (complementing copyright claims with additional moral rights claims).
122. Id. (permitting claims over author’s name usage).
123. Id. (preventing name attribution for mutilated pieces).
124. Id. (protecting works of high regard from destruction).
125. VARA, 17 U.S.C. §106(a) (attaching moral rights for duration of author’s life).
126. For a further discussion of VARA, see supra notes 120125 and accompanying text.
127. For a further discussion of the evolution of American
copyright statutes, case law, and VARA, see supra notes 101-125
and accompanying text.
128. For a further discussion of the sources behind these three
themes, see supra notes 101-125 and accompanying text.
129. See H.R. Rep. No. 94-1476.94th Cong. § 203 reprinted in
1976 U.S.C.C.A.N. 5659, 5740 (explaining Congress’s termination rights rationale).
130. For a further discussion of the posited plan see infra notes
131-148 and accompanying text.
131. 1909 Act, 35 Stat. §23 (1909)(revised to 17 U.S.C.
§§101-1332)(bestowing copyright for initial twenty-eight year
grant and twenty-eight year renewal).
132. For a further discussion of Marvel Characters, see supra
notes 87-96 and accompanying text.
133. See H.R. Rep. No. 94-1476.94th Cong. § 203 reprinted in
1976 U.S.C.C.A.N. 5659, 5740 (raising concern regarding hiring
party recapping investment and profit in works for hire).
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Superman And Statutes
Beginning at the end of the fifty-six year grant,
authors or their respective estates would have a fiveyear window to affirmatively recapture the copyright,
following the model of the termination requirement
under the 1976 Act.134 This puts the burden on
authors to make an active effort to reclaim their
copyrights, as is already the case under the 1976
Act.135 Should a work for hire author not reclaim
their copyright within the five-year window after the
fifty-six year time period has elapsed, the copyright
would remain with the hiring party for the remainder
of the copyright’s duration.136
This posited work for hire structure benefits
authors because it permits enough time to pass to
determine what the true value of a work actually is, a
motivation behind including termination rights under
the 1976 Act.137 At the end of the fifty-six year period,
authors or their representatives would be empowered
to renegotiate the terms of leasing the copyright if the
work for hire copyright has substantially increased in
value, as was the case in Marvel Characters.138
Understandably, some companies may oppose this
paper’s posited work for hire restructuring, arguing
that hiring parties assume large amounts of financial
risk by acquiring authors’ creations and therefore
ought to be rewarded with copyright ownershipsimply put, every author will not create a financial
blockbuster like Superman®.139 From a basic level of
fairness, however, why should a hiring party be permitted to exploit thousands of mediocre works for
hire and one groundbreaking work for hire without
fairly compensating the blockbuster author for the
work’s true value?140 Although a hiring party accepts
risk in exploiting works for hire, an author arguably
accepts more risk in its creation through providing
resources without any guarantee of compensation,
as acknowledged by the Marvel Characters court.141
134. See 1976 Act, 17 U.S.C. §203(a)(3) (2010)(requiring termination provisions be brought within five year window).
135. See 1976 Act, 17 U.S.C. §203(a)(1)-(2) (obligating author
or estate to request termination rights).
136. For a further discussion of the basis of the fifty-six year
flat year period, see supra notes 131-133 and accompanying text.
137. See H.R. Rep. No. 94-1476.94th Cong. § 203 reprinted
in 1976 U.S.C.C.A.N. 5659, 5740 (recognizing authors unequal
bargaining position due to inability to value work).
138. For a further discussion of Marvel Characters, see supra
notes 87-96 and accompanying text.
139. For a further discussion of Superman®’s creation, see supra notes 53-59 and accompanying text.
140. For a further discussion justifying renegotiation with work
for hire authors, see infra notes 141-145 and accompanying text.
141. For a further discussion of Marvel Characters, see supra
notes 87-96 and accompanying text.
This paper’s posited framework enables hiring
parties to still recapture costs sunk on thousands
of mediocre works for hire and profit off the outlier
blockbuster work by granting a flat fifty-six year
exclusive license to the hiring party.142 When renegotiating with the author or estate of the blockbuster
work, it seems likely that the hiring party has already
recaptured costs and substantially profited off the
blockbuster work, otherwise a hiring party would
not renegotiate for the work’s copyright.143
Although this posited structure tilts the balance of
renegotiating power back to the work for hire author,
this should be the case in the event of an author
creating a one in a thousand blockbuster, due to the
inability to initially compensate the author based on
a work’s true value, which is only determined over
time.144 Through this framework, a hiring party will
have fifty-six years to recapture costs and profit from
an exclusive license for the work for hire, which was
likely originally negotiated in terms strongly favoring
the hiring party due to the inability to determine the
work’s true value.145
Furthermore, this posited work for hire structure
seamlessly integrates with the original interpretation of the copyright clause, the purpose behind
including termination rights under the 1976 Act,
and the rationale behind affording moral rights under
VARA.146 VARA, however, is constrained to affording
moral rights claims only to authors of visual works,
omitting a large portion of other potentially relevant
original works of authorship.147 As such, VARA ought
to be expanded to afford moral rights claims to other
works already afforded copyright protection under
law to further keep with the original understanding
of the copyright clause.148 Through affording a new
copyright framework for works for hires and expanding moral rights protection provided through VARA,
the American copyright system would return to the
original spirit of the copyright clause while protecting
both authors and hiring parties. ■
142. For a further discussion of this paper’s posited work for
hire structure, see supra notes 131-136.
143. See, e.g., Siegel II, 542 F.Supp.2d at 1112-14 (continuing
to assign Superman® copyright to same publisher despite complications).
144. See id. at 1110 (acknowledging Superman®’s success).
145. For a further discussion of the fifty-six year framework,
see supra notes 131-136.
146. For a further discussion of early copyright law, see supra
notes 10-37 and accompanying text.
147. VARA, 17 U.S.C. §106(a) (constraining moral rights
claims to visual art).
148. For a further discussion of VARA, see supra notes 120126 and accompanying text.
June 2014
Australian And U.S. Court Decisions
Australian And United States Court Decisions
To Impact On Business Method Patent Licensing
By David Webber
t is somewhat simplistic to say that licensing as
a form of technology transfer relies heavily on
intellectual property rights. When the validity of
those rights is brought into question, the value of
those rights as a licensable proposition diminishes.
At the present time in the United States and in
Australia the patentability of certain types of software patents, in particular broadly claimed business
method patents, is being questioned. Although the
legal basis for software patents in Australia is different
from the USA, if the Courts in each jurisdiction take
a restrictive view of patent eligibility, there will be
consequences for existing licences involving software
patents and licensing activity generally.
The U.S. Supreme Court has agreed to revisit the
issue in Alice Corporation Pty. Ltd. v. CLS Bank International. Interestingly, at least so far as the authors
are concerned, Alice Corporation is an Australian
The U.S. Supreme Court will ultimately review a
divided and inconclusive decision from the Court
of Appeals for the Federal Circuit on when a patent
based on software is directed to patent-eligible subject matter under U.S. law.
The patent, owned by Alice Corporation, relates
to a data processing system for mitigating the risk of
foreign exchange settlement. CLS Bank is alleged to
operate systems for doing this, and is attempting to
have the patent invalidated. The market is financially
enormous: foreign exchange settlements submitted
to CLS Bank in October 2013 averaged about U.S.
$5 trillion per day.
The system which the Alice Corporation patent
protects is one which establishes a settlement program for an exchange of financial instruments that
eliminates the possibility that one party will renege
on the agreements irrespective of when the arrangement is completed.
to the Supreme Court:
“ Unfortunately, far from providing clearer guidance, the Federal Circuit issued six separate opinions spanning more than 125 pages, none of which
reflected an approach endorsed by a majority. The
court split 5-5 with respect to Alice’s claims to
computer system inventions, leaving in place the
district court’s original summary judgment ruling
holding them non-patentable. Alice’s remaining
claims were held non-patentable, although for
different, and inconsistent, reasons. As a result,
the legal standards that govern whether computer
implemented inventions are eligible for patent protection under section 101 remain entirely unclear
and utterly panel dependent. As Judge Newman
put it in her separate opinion, the court below:
propounded at least three incompatible standards, devoid of consensus, serving simply to
add to the unreliability and cost of the system of
patents as an incentive for innovation…Today’s
irresolution concerning section 101 affects not
only this court and the trial courts, but also the
PTO examiners and agency tribunals, and all who
invent and invest in new technology.”
Pet. App. 100a.
The Court of Appeals Decision
Software patents have been available in Australia
for over 20 years, but recently the Australian Patent
Office has adopted a negative practice towards certain
types of computer implemented inventions, such as
financial systems or gaming systems. The negative
practice is founded on a belief that schemes or business methods do not become patent eligible subject
matter just by implementing them in a computer. The
practice has been the subject of two Federal Court
decisions which are now both on appeal to the Full
Federal Court.
In the latest decision, RPL Central,1 the Federal
Court reaffirmed once again that software patents
are available in Australia, and that the Patent Office’s
The Court of Appeals decision has been widely criticised because it consists of a number of irreconcilable
judgments. As Alice Corporation said in its Petition
1. RPL Central Pty Ltd v Commissioner of Patents [2013] FCA
871 , 30 August 2013.
les Nouvelles
Australian And U.S. Court Decisions
negative practice was incorrect and did not have
a sound basis in Australian law. The Court found
that an automated process for gathering evidence
to assess competency did constitute patent eligible
subject matter.
Background to Patent Eligibility
Patent eligible or patentable subject matter in
Australia is inexorably linked to the High Court’s
celebrated judgement in NRDC2 which has been described as a watershed.3 In RPL Central, the Federal
Court confirmed NRDC made it clear any attempt
to set forth prescriptive requirements is impermissible as it is necessary to be flexible to allow for
excitingly unpredictable and emerging inventions to
be patentable.4 NRDC considered an exact formula
was not to be used, as patentable subject matter is
a mere threshold consideration, particularly when
any validity inquiry remains to be determined quite
separately, and on different criteria,5 e.g. novelty and
inventive step.
RPL Central’s Invention
The invention under consideration facilitated improvements in existing recognition of prior learning
processes by enabling the automatic generation of a
user interface to gather evidence from a prospective
candidate, relevant to credit or exemption towards
any qualification or unit offered across a wide range
of training organisations. The evidence facilitated
the assessment of the competency of the candidate.6
The Australian Federal Court’s Decision in
Favour of RPL Central
The Court considered and rejected all of the
Commissioner of Patents’ submissions. In applying
the principles of NRDC, the Court found that the
invention did belong to the useful arts rather than
the fine arts, and that it did have utility in practical
affairs and solved a problem in the field of economic
endeavour.7 The Court also made clear that there was
no binding Australian authority that provides a different test for a method claim8 as opposed to a method
and device claim.
Significantly, the Court found that each of the
2. National Research Development Corporation v. Commissioner of Patents (1959) 102 CLR 252.
3. Supra n1, Para 64.
4. Ibid, Paras 106 and 107.
5. Ibid, Paras 108 and 109.
6. Ibid, Para 44.
7. Ibid, Para 128.
8. Ibid, Para 136.
computer-effected steps of the claimed invention
constituted or gave rise to a change in the state or
information in a part of a machine, and therefore
produced a physical effect in the sense of a concrete
effect or phenomenon or manifestation or transformation, as required by the Court’s decision in Grant.9
The Court considered the statement in Grant to be a
useful précis of the way in which the artificial state of
affairs requirement may apply to computer programs,
in accordance with the principles set out in NRDC.10
Further more, the
Court emphatically re■ David Webber,
jected the Commissioner’s arguments that the
Davies Collision Cave,
physical effect required
Patent and Trade
must be significant or
Mark Attorneys,
central to the purpose
or operation of the
Melbourne, Victoria, Australia
claimed process. The
E-mail: [email protected]
Commissioner felt that
this requirement was
supported by earlier
decisions. In fact the Commissioner has been applying the requirement to reject a number of patent
applications for computer implemented inventions
relating to financial systems or gaming systems. The
Court made it clear that none of the earlier decisions articulated a separate or new requirement of
substantiality of physical effect.11
The Court noted the Commissioner submitted that
without this, or some other limiting principle, then
any method operated on a computer would fulfil the
artificial state of affairs requirement.12 However the
Court indicated that fear is not a valid objection.13
The Commissioner also submitted that the invention
could be performed without the use of a computer,
and if one was to strip away the computer aspects
of the claims, one would only be left with a method
for performing an aspect of a business. In response
the Court said one should not subtract from the
invention any aspect of computer implementation,
and then determine whether what remains is proper
subject matter.14 The computer is an essential part
of the invention claimed, as it enables the method
to be performed.15
9. Ibid, Para 143.
10. Ibid, Para 144.
11. Ibid, Para 147.
12. Ibid, Para 148.
13. Ibid, Para 149.
14. Ibid, Para 157.
15. Ibid, Para 158.
June 2014
Australian And U.S. Court Decisions
Another argument advanced by the Commissioner,
that the steps did not involve anything that is foreign
to the normal use of computers, was also rejected
by the Court as a requirement not imposed by any
of the binding authorities.16 This is to be considered
under the separate requirements of novelty and
inventive step.
The Court also distinguished its earlier decision
in Research Affiliates17 on the basis that the patent
applicant had accepted the only physical result generated by the method of the claimed invention was
a computer file containing a generated index, and
that the specification and the relevant claims did
not disclose how to produce the index in question.18
In contrast, the specification and claims in issue in
16. Ibid, Para 159.
17. Research Affiliates LLC v Commissioner of Patents [2013]
FCA 71.
18. Supra n1, Paras 169-171.
les Nouvelles
this case provided significant information about
how the invention is to be implemented by means
of a computer and the computer was integral to the
invention as claimed.19
Practitioners are now eagerly awaiting the appeal
decisions of the U.S. Supreme Court and the Australian Full Federal Court. It is hoped that the courts
will finally provide some clarity as to where the line
should drawn on patent eligible subject matter for
computer implemented inventions.
The danger is the line may be drawn across a swath
of already licensed patents, and render a number of
agreements moot. ■
19. Ibid, Para.
Investment Bill, 2013
Promotion And Protection Of Investment In
South Africa Bill, 2013 ­— A Review
By Dr. Madelein Kleyn
n 1 November 2013, the South African Department of Trade and Industry published the
draft “Promotion and Protection of Investment Bill” (the “Draft Bill”) for comments.
The Draft Bill comes shortly after South Africa
decided to unilaterally terminate its bilateral investment treaties (“BITs”) with certain European states,
specifically Belgium, the Netherlands, Luxemburg,
Germany, Spain and Switzerland.
It is argued that the Draft Bill is intended to
promote investment by modernizing the current
investment regime and getting investors, whether
foreign or local, to achieve a balance of rights and
obligations that apply to all investors when investing
in South Africa.
The Government has emphasised that the draft
Promotion and Protection of Investment Bill contains
“more than enough clarity, transparency and certainty
around the domestic investment regime,” and that it
provides “adequate protection to all investors, including foreign investors.”
It is clear from the contents of the Bill, however,
that the Bill does not provide the same standard of
protection for foreign investors as provided under
South Africa’s various BITs. The Bill includes provisions that are no longer in line with international best
practice. It specifically includes certain provisions that
are outright expropriation of property without compensation, or adequate compensation. For example:
• In the event of destruction or loss of
property resulting from requisition by forces or authorities of the republic, investors must
be accorded restitution or appropriate
compensation (s7 (3) of the bill)
• In case of expropriation, investors are no longer
assured of compensation at full market value,
but in line with the constitution, which says compensation must be “fair and equitable”
(S8 (1) of the bill).
In both instances the appropriate compensation
must consider market value and a range of public
interest concerns, such as redress for the past.
The Bill further defines that certain acts are not
considered to amount to acts of expropriation:
a) A measure or series of measures taken by the
government of the Republic that have an incidental
or indirect adverse impact on the economic value
of an investment;
b)A measure aimed at protecting or enhancing
legitimate public welfare objectives, such as public
health or safety, environmental protection
■ Dr. Madelein Kleyn,
or state security;
Oro Agri (Pty) Ltd and the
c)The issuance of
University of Stellenbosch,
compulsory licences
Manager, (Oro) and Associate
granted in relation to
intellectual property
and Fellow for the Chair of IP
rights, or to the revo(Stellenbosch),
cation, limitation or
Somerset West, Western Cape,
creation of intellectual
South Africa,
property rights, to the
E-mail: [email protected]
extent that such issuance, revocation,
limitation or creation is consistent with applicable international agreements on intellectual
property; and
d)Any measure which results in the deprivation
of property, but where the State does not acquire
ownership of such property provided that—
i. There is no permanent destruction of the
economic value of the investment; or
ii. The investor’s ability to manage, use or control his or her investment in a meaningful way
is not unduly impeded.
The effect is that investors (both local and foreign)
will not be entitled to compensation for expropriation of rights or property under the Bill if these
exclusions apply.
In addition, the Bill removes the obligation on the
government to enter into international arbitration in
the event of a dispute. Investors can ask the Department of Trade and Industry to facilitate mediation or
can approach the courts for relief. Further regulations
on the settlement of disputes will be drafted by the
trade and industry minister.
The Bill removes the provision contained in most
bilateral investment treaties, namely that investors
are entitled to “fair and equitable treatment.” This is
June 2014
Investment Bill, 2013
commonly used to provide investors with an avenue
to contest new legislation or regulation that alters, in
a prejudicial way, the conditions under which investments are made.
With specific reference to intellectual property
protection, the inclusion of S8(2) in the bill appears
to be a form of implementation of a catch-all for some
components of the recently published South African
National Intellectual Property Policy, wherein the DTI
specifically addressed the introduction of compulsory
licensing in the interest of public health. On the face
of it S8 (2) appears to be unconstitutional.
Protection of foreign investment is set out in
Section 7 of the Act. The Bill specifically provides
for compensation or restitution for loss or damage
of property (including intellectual property) under
certain circumstances and includes the provision
that an investment may not be expropriated except
in accordance with the Constitution and in terms of
a law of general application for public purposes or in
the public interest against equitable compensation
in a timely manner (S8 (1)).
The Bill continues into S8 (2) wherein certain acts
(and there may be others as the list is non-limiting)
do not amount to expropriation and as such no “just
and equitable compensation” is due as these defined
acts do not amount to expropriation.
S8(2)(c) provides specifically that the “issuance of
compulsory licences granted in relation to intellectual
property rights, or to the revocation, limitation or
creation of intellectual property rights, to the extent
that such issuance, revocation, limitation or creation
is consistent with applicable international agreements
on intellectual property; and (d) any measure which
results in the deprivation of property but where the
State does not acquire ownership of such property
provided that (i) there is no permanent destruction
of the economic value of the investment; or (ii) the
investor’s ability to manage, use or control his or her
investment in a meaningful way that is not unduly
“The revocation, limitation or creation of intellectual property rights,” in itself is the deprivation of
property, whether the state acquires ownership or
not and as such “just and equitable compensation”
should be paid to its rightful owners.
To place this in context it is necessary to discuss a
few fundamental aspects of the South African law and
the flexibilities of The Agreement on Trade Related
Aspects of Intellectual Property Rights (“TRIPS”).
Intellectual Property Rights
The rights for the different forms of intellectual
les Nouvelles
property are defined in the national laws of each
country and for members of the WTO incorporating
aspects of TRIPS into national legislation.
In the case of a patent, a valid right can be obtained
if the invention meets the requirements of novelty,
inventive step and industrial applicability (in the case
of a South African patent S25 of the Patents Act). In
order to be registrable, aesthetic designs must be new
and original (section 14(1) (a) of the Designs Act of
South Africa) and Functional designs must be new
and not commonplace in the art in question (section
14(1) (b) of the Designs Act of South Africa).
A patent (or design) can only be revoked if by means
of application of revocation in terms of S61 (Article
31 in the Designs Act) or as a counter claim in an
infringement action in terms of S65 (4) (S35 (5) of
the Designs Act).
With reference to the “applicable international
agreements,” Article 32 of TRIPS provides that for
any revocation/forfeiture of a patent, an opportunity
for judicial review of any decision to revoke or forfeit
a patent shall be available, and in Article 33 that the
term of protection available shall not end before the
expiration of a period of twenty years counted from
the filing date.
As such, it is submitted that the revocation (or
invalidation), or limiting of an intellectual property
right without legal basis as such is a deprivation
and/or expropriation of property and requires to be
protected by the fundamental rights as set out in the
Constitution of South Africa, and the International
Agreements on Intellectual property.
Compulsory Licensing
Compulsory licensing is the granting of a license by
a government, or other jurisdictional body, by forcing
the holder of a patent, copyright, or other exclusive
right to grant use to the state or others. Usually, the
holder does receive some royalties, either set by law
or determined through some form of arbitration.
TRIPS allows certain flexibilities with respect to
compulsory licensing and in Article 31 of the TRIPS
agreement it is stated that where WTO member states
provide in their patent legislation for compulsory
licences the following provisions must be made:
• Each case must be decided on its own merits;
• The applicant for the compulsory licence must have made efforts to take a licence from the patentee on reasonable commercial terms;
• The scope and duration of the compulsory
licence must be limited to the purpose for
which it was granted, such that it may be
Investment Bill, 2013
terminated or amended if the circumstances which led to the grant of the compulsory
licence change or cease to exist; in the
business unit that enjoys the compulsory
• The patentee must be paid adequate
remuneration for use under the compulsory licence;
• The decision to grant a compulsory licence
and the determination of what is adequate
remuneration shall be subject to judicial review;
• Where a compulsory licence is granted in order to enable a second patent to be exploited,
the invention claimed in the second patent
must involve an important technical advance
of considerable economic significance in
relation to the invention claimed in the first
patent and the patentee of the first patent
must be entitled (on reasonable terms) to a
cross-licence in respect of the second patent.
In terms of South African law, we find the provisions for compulsory licensing in S21 Act No. 195
of 1993 (the Designs Act of 1993) in the event of
abuse of rights, and in S56 of the Patents Act of 1978
as amended.
These Acts provide that in the case of abuse of
rights by the right holder, any person may apply to
the court in the prescribed manner for the granting
of a compulsory licence in respect of the registered
design and/or patent. In determining the conditions
on which any licence is granted, the court shall have
regard to all relevant facts, including the risks to be
undertaken by the licensee, the research and development undertaken by the registered proprietor or his
predecessor, and the terms and conditions usually
stipulated in similar licence agreements in respect
of registered designs/patents between persons who
voluntarily enter into such agreements.
An abuse of rights is defined in the Act and in
essence can be summarised as follows: The patent
holder is abusing his/her right when the patent holder
is preventing the invention from being exploited by
a third party and such exploitation:
• Is necessary to meet national market
demands; and
• Is particularly dictated by public interest
considerations; and
• Consumers are supplied with the product
(subject of the patent) in insufficient quantity
or of inadequate quality, or at excessively
high prices.
S8(2)(c)of the Promotion and Protection bill has
the effect that the current Patents and Designs Act
provisions with respect to compulsory licenses will
be ignored, i.e. the process to follow as well as the
form of application and the provision for compensation. It further has the direct effect of depriving the
intellectual property owner of the constitutional right
with respect to enjoyment of the unfettered right of
property, to its creation and rightful protection is at
risk of being expropriated at the choice of government.
The Bill is a concern and foreign investors may
be faced with not receiving any compensation at all
should the deprivation of property fall within the
exclusions set in Section 8 of the Bill. ■
June 2014
Recent U.S. Decisions
Recent U.S. Court Decisions And Developments
Affecting Licensing
By John Paul and Brian Kacedon
LifeScan Scotland, Ltd. v. Shasta
Giving Away Products Embodying an
Invention Triggers Patent Exhaustion
and Can Prevent Patent Owners from
Collecting Royalties on Those Products
The doctrine of patent exhaustion limits patent
owners to a single compensation for their patented
products or methods by preventing them from charging additional royalties on a patented item once an
authorized sale of the item occurs. In a recent case,
LifeScan Scotland, Ltd. v. Shasta Technologies, No.
2013-1271 (Fed. Cir. Nov. 4, 2013), the Federal
Circuit held that a patent owner’s ability to collect
royalties is exhausted even when it gives away that
item, if the item substantially embodies the inventive
aspect of the claims. The court reversed an order
granting a preliminary injunction blocking sales of
consumable test strips for use in LifeScan’s meters
because its distribution of meters for free likely exhausted its patent rights. We reported on the district
court’s order here: http://lesusacanada.org/featuredarticles/2013/lifescan.
LifeScan’s U.S. Patent No. 7,250,105 (“the ’105
patent”) describes and claims an improved method
of testing blood glucose embodied in LifeScan’s meters and associated test strips for use in the meters.
LifeScan provided 60 percent of its meters through
distributors that gave them away and sold the remaining 40 percent at below cost. LifeScan sold test
strips for use in the meters, however, and sought a
preliminary injunction to exclude the manufacture
and sale of the competing GenStrip.
The district court considered arguments by the
defendants asserting the doctrine of patent exhaustion. This doctrine holds that patent owners can
profit from their patents only once. The question
raised—particularly for the 60 percent of meters
LifeScan distributed for free with an expectation to
sell a compatible test strip—was whether it profited
such that patent exhaustion applied. The district court
decided that patent exhaustion did not apply because
the doctrine applied only to a “sale” where the patent
owner required “consideration” in exchange for the
product. Because the district court held that the transfer of meters at no cost did not exhaust the patent
les Nouvelles
owner’s rights, patent exhaustion was not available
as a defense and it issued a preliminary injunction
in favor of LifeScan.
The Federal Circuit Decision
In its decision, the Federal Circuit recognized that it
had to address as a matter of first impression the question of whether patent exhaustion applies to a product
distributed for free. It saw the issue differently—“in
the case of an authorized and unconditional transfer
of title, the absence of consideration is no barrier to
the application of patent exhaustion principles.” LifeScan had relied on Supreme Court exhaustion cases
describing “receipt of ‘consideration’ or ‘reward’ …
as supporting exhaustion.” The court, however, explained that the Supreme Court has never confined
exhaustion to that context. Thus, the Federal Circuit
concluded that a patent owner may choose to secure
its reward either by demanding a price or by giving the
product away, with the hope of a future benefit. And
where LifeScan chose to give meters away without
charge in order to increase sales of its test strips, it
should not be allowed to avoid patent exhaustion.
The court further addressed the nature of the transfer of meters as an unconditional transfer, providing
some suggestion how patent owners might avoid
patent exhaustion. LifeScan’s meters were packaged
with a notice that purportedly required customers to
use LifeScan’s test strips and LifeScan argued it had
granted only a conditional license. But LifeScan’s
reliance on the notice fell short in this case because
the court refused to consider such notices unless “in
the form of a contractual agreement.”
LifeScan raised a number of other arguments why
patent exhaustion did not apply, and the court addressed and rejected each one in turn.
LifeScan argued that distribution of its meters,
whether by sale or gift, did not trigger exhaustion
because the meters did not substantially embody
the claims of the ’105 patent. The asserted claims
were method claims and the issue is governed by
the Supreme Court’s decision in Quanta Computer
v. LG Electronics, which clarified the applicable test.
In short, the item sold must substantially embody
the patent, regardless of whether any additional
steps needed to complete the invention are them-
Recent U.S. Decisions
selves inventive or noninventive. One approach to
this inquiry asks whether there are reasonable and
intended noninfringing uses, and here, the Federal
Circuit held that LifeScan admitted it distributed the
meters with the expectation and intent that they be
used with its test strips. Although alternative uses
might not infringe, because LifeScan did not intend
those uses, the court viewed them as irrelevant to
the issue of patent exhaustion.
LifeScan also argued that exhaustion did not apply
because the meters did not embody essential features
of the ’105 patent. To identify those features, the
court focused on what was inventive—what distinguished the patent claims from the prior art. And
by considering the prosecution history, the court
determined that the inventive nature came from the
meter’s comparing function, not the particular strip
configuration. So it held that the meters embodied
essential features of the ’105 patent.
The court noted LifeScan’s argument that the
strips themselves were separately patentable. Rather
than determine whether the strips would have been
separately patentable, however, the court considered
whether the strips embodied “the inventive features
of the claims that were actually allowed by the examiner.” The examiner did allow claims directed to the
strips themselves and, as discussed above, the court
determined that the meter embodied the inventive
aspects of the claims. While noting that the analysis
would differ if a patent had actually issued on the
strips, the court rejected LifeScan’s argument that
exhaustion could not apply unless the strips were
“standard” parts.
Finally, the court noted a problem that would be
created if the ’105 patent were not exhausted: LifeScan would be able to eliminate competition in the sale
of strips even though the strips do not embody the
claimed invention and are not themselves patentable.
According to the Federal Circuit, such extension of
the exclusionary right would improperly extend the
patent monopoly.
Strategy and Conclusions
This case demonstrates that patents can be
exhausted by a patent owner who authorizes the
distribution of products that substantially embody
the patent claims at issue even if they do not receive
direct compensation for the sale of those products.
As illustrated by the court’s analysis and conclusion,
the issue of patent exhaustion can be complex and difficult to predict because a variety of legal and factual
issues can possibly impact whether a patent owner’s
rights are exhausted, including (1) the reward the
patent owners expect to receive when they distribute
or authorize the distribution of products; (2) the manner in which the patent owners intend the item they
distribute to be used and whether this use involves
additional items that did not come from an authorized
sale or distribution; (3) the nature of legal rights and
obligations arising from accompanying documents
or understandings such as conditional licenses or
binding agreements; (4) whether the products have
certain functions in the
market such as whether
■ John C. Paul,
they are standard parts
Finnegan, Henderson, Farabow,
or essential features;
Garrett & Dunner, LLP,
and (5) patent protecAttorney,
tion and prosecution
Washington, D.C., USA
history—whether the
E-mail: [email protected]
products have or could
■ D. Brian Kacedon,
have patent protection,
Finnegan, Henderson, Farabow,
separately patented or
Garrett & Dunner, LLP,
separately patentable,
whether the inventive
Washington, D.C., USA
features of the claims
E-mail: [email protected]
were actually allowed
by the examiner, or
whether the product
embodied the inventive aspects of the claims.
Further Information
The Federal Circuit’s LifeScan Scotland v.
Shasta Technologies decision may be found at
www.finnegan.com under the publications tab.
Atlantic Marine Construction Co. v. U.S.
District Court for the Western District
of Texas
The Supreme Court Makes Forum-Selection
Clauses Easier to Enforce
The Supreme Court recently rendered a decision
that should make it easier to enforce clauses in a
contract specifying in what court future contract
disputes will be heard. In Atlantic Marine Construction Co. v. U.S. District Court for the Western District
of Texas, it held that in deciding whether to permit
a court to hear a case in a forum other than the parties’ chosen venue, the courts should consider only
factors of public interest rather than reconsider the
interests of the parties. Additionally, the court placed
the burden of proof on the party seeking to keep a
case in the forum where filed as opposed to the forum
specified in the contract. The court also noted that
the same considerations apply regardless of whether
June 2014
Recent U.S. Decisions
a defendant seeks transfer to another federal court
under the federal transfer statute or to a state court
under the inconvenient forum doctrine—forum non
The Atlantic Marine Decision
The dispute between Atlantic Marine and J-Crew
Management began over a construction contract in
Texas. While the contract specified that disputes “shall
be litigated” in the Eastern District of Virginia, J-Crew
instead sued Atlantic Marine in the Western District
of Texas. Atlantic Marine moved to dismiss the case
under two rules that allow dismissal for “wrong” or
“improper” venue, Federal Rule of Civil Procedure
12(b)(3) and 28 U.S.C. §1406(a). It alternatively
moved to transfer the case under the change of venue
statute, 28 U.S.C. § 1404.
The district court denied both motions. The court
explained that under the venue transfer statute, it
must analyze both private and public factors, and that
a forum-selection clause was only one factor among
several. It also noted that the majority of plaintiffs’
witnesses would not be subject to compulsory processes in Virginia. The court held that Atlantic Marine
had not met its burden to prove transfer “would be
in the interest of justice or increase the convenience
to the parties and their witnesses.” Atlantic Marine
petitioned the appellate court to allow the transfer,
and that court also denied relief. The Supreme Court,
however, granted review and reversed the district
court. Justice Alito, writing for a unanimous court,
examined the motion to transfer under § 1404 and
enforcement of forum-selection clauses under several
alternative theories.
A Motion to Transfer Under the Change of
Venue Statute
The court reasoned that the change of venue statute
was the most appropriate mechanism to enforce Atlantic Marine’s forum-selection clause. Traditionally,
courts analyze a motion to transfer under the statute
by considering the “convenience of the parties and the
various public-interest factors.” These factors control
the decision to transfer a case from one federal court
to another. But the court noted that where a contract
includes a valid forum-selection clause, “[t]he calculus
changes” because the clause has “controlling weight.”
In particular, the court explained, such a clause eliminates the need to consider private-interest factors.
If the contract represents the parties’ bargained-for
interests, the plaintiff’s subsequent choice of forum
carries no weight. Thus, the court concluded that
district courts should consider only the public-interest
factors when considering a motion for transfer that
seeks to enforce a valid forum-selection clause. Un143
les Nouvelles
der this rule, the District Court in Texas had erred
by considering J-Crew’s private concerns, including
its choice of where to file the case and the location
of its witnesses.
The court examined two more doctrines related
to the change of venue statute. First, it addressed
choice-of-law rules. Normally, a transferred case
would continue to fall under the law of the original
forum. For example, Atlantic Marine would have
been bound by Texas law even if it had successfully
transferred the case back to the contracted forum in
Virginia. But the court carved out an exception for
enforcing a forum selection clause. Now, the law of
the target forum will apply—the law of the forum
selected by contract. So if Atlantic Marine transfers,
they should be in Virginia, bound by Virginia law.
Second, the court held that a forum-selection
clause establishes burdens for a transfer motion.
The District Court had placed the burden on Atlantic
Marine to prove its transfer motion appropriate. Justice Alito explained that, to the contrary, a plaintiff
“acting in violation of [a] forum-selection clause…
must bear the burden of showing that public-interest
factors overwhelmingly disfavor a transfer.” In other
words, the party challenging the contractual forum
selection bears the burden.
Applying these rules, the Supreme Court reversed
the Court of Appeals and remanded the case for the
District Court to consider public-interest factors.
Other Possibilities for Enforcing ForumSelection Clauses
Justice Alito considered two ways to enforce a
forum-selection clause in addition to the change of
venue statute. First, the court asked whether two
mechanisms for dismissal, Federal Rule of Civil Procedure 12(b)(3) or § 1406(a), could dismiss J-Crew’s
case for being brought in an improper venue. Second,
it examined venue transfer where the contracted
forum is a state or international court.
The court rejected Atlantic Marine’s argument that
it should be able to dismiss its case to enforce a forumselection clause. The mechanisms for dismissal apply
only when venue is “wrong” or “improper” under
federal venue laws. But Atlantic Marine’s venue was
proper, even though the forum violated the selection
clause. Thus, because venue was proper, dismissal
under these mechanisms was unwarranted, regardless
of the violation of the contracted clause.
The court also discussed transfer where the contracted forum is a state or international court. The
change of venue statute cannot move a case to state
or international courts because it transfers cases only
Recent U.S. Decisions
between federal courts. The court advised litigants
seeking transfer to a nonfederal forum to invoke the
“inconvenient forum” doctrine—forum non conveniens. As the court explained, because the change of
venue statute and forum non conveniens doctrine derive from the same standard, “courts should evaluate a
forum-selection clause pointing to a nonfederal forum
in the same way that they evaluate a forum-selection
clause pointing to a federal forum.” Thus, it appears
Atlantic Marine’s holding extends beyond the scope
of the statute and covers transfers generally, including
those under the doctrine of forum non conveniens.
Strategy and Conclusion
The Supreme Court’s decision makes it easier to
enforce forum-selection clauses by placing the burden
of proof in a forum dispute on the party seeking to
stray from the contract, limiting factors that might
cut against transfer, allowing parties to rely on the law
relating to the forum chosen in the contract rather
than the law of other forums, and ending complex
choice-of-law issues. Thus, in light of this case, parties drafting licenses and contracts should now find
that the chosen forum will more likely control where
disputes will be heard, regardless of where suit is
first filed.
Further Information
The Atlantic Marine decision can be found here:
Supreme Court in In Medtronic, Inc. v.
Mirowski Family Ventures, LLC
Supreme Court Rules that Patent Owners Bear
the Burden of Proving Patent Infringement
Even When Licensees File a Litigation Asking
the Court to Declare that the Licensees Do Not
Infringe the Patent
In a recent decision, a unanimous Supreme Court
held that a patent owner bears the burden of proving
infringement in a declaratory-judgment action brought
by a licensee alleging noninfringement. Reversing the
Federal Circuit’s decision holding that the licensee
bears the burden of proof for noninfringement in a
declaratory-judgment action under the continued existence of a license, the Supreme Court in Medtronic,
Inc. v. Mirowski Family Ventures, LLC, explained that
the burden of proof on a substantive aspect of a claim
generally rests with the patent owner and that the
Declaratory Judgment Act does not affect the parties’
substantive rights. This decision may affect future ne-
gotiations of license provisions outlining how licensees
can challenge the licensed patents.
In 1991, Mirowski Family Ventures LLC, which
owns patents on implantable heart stimulators, entered into a license agreement with Eli Lilly & Co.
As permitted under the agreement, Eli Lilly then
sublicensed the patents to Medtronic, Inc., which
designs, makes, and sells medical devices. The 1991
Agreement permitted Medtronic to practice certain
Mirowski patents in exchange for royalty payments.
If Mirowski provided notice to Medtronic that a
new Medtronic device infringed a licensed patent,
Medtronic could either (1) cure the nonpayment, (2)
simultaneously pay royalties and challenge the validity
or infringement of the patent through a declaratoryjudgment action, or (3) simply ignore the agreement
and not pay royalties, whereby Mirowski could terminate the license and bring an infringement action.
In 2006, the parties modified the 1991 Agreement
to provide that, if Medtronic brought a declaratoryjudgment action challenging infringement, it must
deposit any disputed royalties in an escrow account
pending resolution of the action.
In 2007, Mirowski notified Medtronic that it
believed certain new Medtronic devices infringed
several claims of two licensed patents. Medtronic
disagreed and brought a declaratory-judgment action
in district court seeking a judgment that its products
did not infringe the patents and that the patents
were invalid. The district court determined that
Mirowski—the party asserting infringement—bore
the burden of proof, and that it had not met that
burden. On appeal, the Federal Circuit determined
that Medtronic—the licensee and declarator yjudgment plaintiff—bore the burden. The Federal
Circuit—despite acknowledging that the patentee
usually bears the burden of proof and that this burden
normally does not shift even where the patentee is a
counterclaiming defendant in a declaratory-judgment
action—believed that the “continued existence of a
license” dictated a different result.
The Supreme Court’s Decision
In reviewing the Federal Circuit’s ruling, a unanimous Supreme Court held that the burden of proving
infringement remains with the patent owner when a
licensee seeks a declaratory judgment against the patent owner. Before turning to the merits, the court addressed a jurisdictional issue, finding that the Federal
Circuit did not lack subject-matter jurisdiction over
the dispute. According to an amicus, in the absence of
a declaratory judgment, Mirowski—the declaratoryJune 2014
Recent U.S. Decisions
judgment defendant—would have brought an action
for damages for breach of contract rather than a
patent-infringement action. Under this argument,
Mirowski’s action would not be a “civil action arising under” an “Act of Congress relating to patents”
as required by the statute conveying jurisdiction to
federal courts. The Supreme Court disagreed. While
the court agreed that federal courts, when determining declaratory-judgment jurisdiction, often look to
the “character of the threatened action,” it disagreed
with the characterization of the “threatened” action
here. The court explained that if Medtronic acted on
its belief about noninfringement by not paying royalties and not bringing a declaratory-judgment action,
Mirowski could terminate the license agreement and
sue Medtronic for infringement. Thus, according to
the court, Medtronic’s declaratory-judgment action,
which avoided Mirowski’s threatened patent action,
“arose under” federal patent law.
Turning to the merits of the case, the Supreme
Court identified three legal principles and related
practical considerations supporting its conclusion that
the burden remained with the patentee.
First, the court highlighted established case law holding that the burden of proving infringement generally
rests on the patentee. Second, the court noted that
the Declaratory Judgment Act’s operation is solely
procedural and does not change the parties’ substantive
rights. Third, the court identified the burden of proof
as a substantive aspect of a claim. Taken together, the
court explained, these three principles indicate that the
patent owner carries the burden of proof in a licensee’s
declaratory-judgment action.
The Supreme Court supported its holding with several practical considerations. First, shifting the burden
to the licensee could create postlitigation uncertainty
about the scope of the patent. The court illustrated
the burden-shifting problem with an example. If an
alleged infringer lost a declaratory-judgment action
because it failed to prove noninfringement because
of inconclusive evidence, a patentee might then
lose its subsequent action for infringement (where
it would carry the burden) because of inconclusive
evidence. Thus, both sides could lose on the issue
of infringement, leaving the scope of the patent
uncertain. The court explained that, because issue
preclusion would not apply in a later suit where the
burden of persuasion had shifted, this scenario could
occur, thereby frustrating the purpose of the Declaratory Judgment Act. Next, shifting the burden could
create unnecessary complexity because the licensee
could find it difficult to identify the patentee’s theory.
Because the patentee can more easily assert how and
les Nouvelles
why a product or process allegedly infringes, the
patentee should shoulder the burden. Finally, shifting the burden to the licensee conflicts with a basic
purpose of the Declaratory Judgment Act in these
situations—to ameliorate the dilemma faced by the
licensee challenging the patent of choosing between
either abandoning its right to challenge the scope of
the licensed patent or ceasing royalty payments and
risking an infringement suit.
The Supreme Court then dismissed several arguments contrary to its decision. First, the court
distinguished one of the primary decisions relied on
by the Federal Circuit because that decision did not
involve a declaratory-judgment action. Second, the
court noted that merely because the Federal Circuit
emphasized that its holding narrowly applied only
where a continuous license existed, this did not, by
itself, justify the rule. In fact, the court explained, this
situation is often present when a licensee disputes
a claim of infringement. Third, the court addressed
concerns that its holding would give licensees sole
discretion on whether to institute an infringement
action. Citing MedImmune, Inc. v. Genentech, Inc.,
549 U.S. 118, 127 (2007), the court explained that a
genuine dispute “of sufficient immediacy and reality”
about the patent’s validity or application must exist
before litigation can occur. Further, the court noted,
Mirowski—not the licensee—initiated the dispute
by accusing Medtronic of infringement.
Finally, the Supreme Court considered the public
interest in maintaining a stable patent system. Noting
the public’s interest in challenging patent rights, the
court explained that licensees are often the only individuals with enough economic incentive to make such
challenges. Thus, the court found, considerations of
the general public interest balanced with the ordinary
rule imposing the burden of proving infringement on
the patent owner regardless of whether the patent
owner or the licensee initiated the litigation.
Further Information
The opinion can be found here: http://
A.C. Aukerman Co. v. R.L. Chaides
Conscious Copying by an Infringer Can
Undermine a Laches Defense
An equitable defense, laches, bars the recovery of
damages for patent infringement occurring before the
date of the complaint or counterclaim. The defense
is based on the principle that courts should not assist
Recent U.S. Decisions
patentees who have “slept” on their rights by delaying
the filing of a lawsuit and, in doing so, prejudiced the
accused infringer. Under the Federal Circuit’s en banc
decision in A.C. Aukerman Co. v. R.L. Chaides Construction, an infringer can establish laches by proving
(1) that a patentee unreasonably delayed in bringing
suit and (2) that the infringer suffered economic or
evidentiary prejudice as a result. If, however, the
period of delay from when the patentee knew or
should have known about potential infringement to
the date of filing exceeds six years, the requirements
for proving laches are presumed (i.e., courts assume
a six-year delay is unreasonable and results in some
prejudice), thereby placing on the patentee the burden of disproving laches. Because laches is equitable
in nature, courts deciding whether to apply it must
consider not only unreasonable delay and prejudice,
but also all the relevant facts and circumstances.
In a recent decision, Carnegie Mellon University v.
Marvell Technology Group, a district court found the
two prongs of laches satisfied, but determined that,
based on the equities, laches should not apply to limit
the damages award because the infringer consciously
copied the patent owner’s technology.
Carnegie Mellon University (CMU) owns two patents covering a method of detecting and addressing
media-noise problems in magnetic recordings. The
method was codeveloped at CMU by a professor of
electrical engineering, Dr. Jose Moura, and a thendoctoral candidate, Aleksandar Kavcic. They disclosed
the invention to CMU in March 1997 and filed a
provisional patent application in May 1997. In the
early 2000s, semiconductor chip manufacturer Marvell Semiconductor (Marvell) started developing its
own media-noise detector, which Marvell engineers
described as based on the “Kavcic model.” Marvell
integrated this technology into its new semiconductor chips, which it began shipping in August 2002. In
August 2003, CMU sent a letter to Marvell, asking it
to take a license on the Kavcic patents; Marvell never
responded. On March 6, 2009, almost six years after
sending the letter, CMU filed suit against Marvell.
After a four-week jury trial in December 2012, the
jury rendered a verdict against Marvell on infringement, validity, and willfulness, and awarded CMU
over $1 billion in damages. While the Court declined
Marvell’s request to allow the jury to consider Marvell’s laches defense during trial, it ordered post-trial
briefing on the issue.
The Carnegie Mellon University Decision
In a lengthy decision, the court ruled that, even
though Marvell proved an unreasonable delay and
material prejudice by a preponderance of the evidence, the equities demanded that laches not apply.
The laches analysis began with a determination on
the presumption of laches. According to Marvell, CMU
waited more than six years from the time it learned
about Marvell’s potential infringement, and laches
should therefore be presumed. Marvell did not argue
that CMU had actual knowledge of infringement before March 6, 2003, but that it had constructive knowledge based on emails and notes showing that CMU
knew that Marvell was developing its own method of
detecting media noise. Because that evidence did not
indicate an awareness of infringement and was, in fact,
created before Marvell began shipping any infringing
products, the court found that the presumption did not
apply. Thus, Marvell had to prove that CMU’s delay
was both unreasonable and prejudicial.
By April 5, 2003, Kavcic had enough information to
send Moura an email stating that he had “two more
independent confirmations” that Marvell and other
chip manufacturers were using the patented method.
At that point, because CMU “should have known”
of infringement, regardless of its failure to inquire
further at that time, CMU had a duty to investigate
that triggered the laches “clock.” Despite receiving
additional information about Marvell’s infringement
over the next five years and eleven months, CMU did
not conduct an infringement analysis until just before
filing suit. The court found that CMU was aware of
the core facts establishing its willful-infringement
allegation before July 2004. And, notwithstanding
the extreme complexity of Marvell’s chips and the
difficulty of detecting infringement, the court found
CMU’s delay unreasonable and not excused.
The analysis then turned to whether Marvell
had proved that it suffered material evidentiary or
economic prejudice. Here, Marvell pointed to specific evidence that was lost as a result of the delay;
lab notebooks were missing, emails from previous,
inactive accounts were discarded over time, and
witnesses’ memories had faded. Notably, the court
held it against CMU, a not-for-profit institution, that
it failed to take any steps to preserve evidence from
between 1996 and 2000, when the technology was
being developed. The court concluded that litigation was reasonably foreseeable and that CMU had
a responsibility to preserve invention-related documents that may have pertained to Marvell’s invalidity
defenses. Thus, the court held that Marvel proved
evidentiary prejudice.
Also according to Marvell, it would not have invested so heavily in its noise-detector technology had
it been sued earlier. The court, however, determined
that Marvell failed to establish a nexus between its
June 2014
Recent U.S. Decisions
capital expenditures in noise detection and CMU’s
delay. Marvell did not prove that its investments
resulted from the delay, as required under Federal
Circuit precedent. Instead, Marvell made its investments despite knowledge of the patents and despite
an internal report stating that its detector “turn[ed]
out to be the structure that Kavcic proposed in his
paper [and ensuing patents].” This evidence contradicted affidavits asserting that Marvell would not have
invested in the technology had it been sued earlier.
Indeed, Marvell continued to sell the infringing products and decided not to implement a design-around,
even after CMU filed suit. While lacking the nexus
necessary to show economic prejudice, Marvell still
established laches based on CMU’s unreasonable
delay and the evidentiary prejudice. Had the court’s
analysis ended here, CMU would likely have lost a
significant portion of its jury award.
But, having completed its analysis of the laches
requirements and finding them satisfied, the court
then took the final step of weighing the equities
to determine whether it should strip CMU of its
damages award based on laches. In a relatively short
discussion, the court found that “the equities clearly
favor CMU.” Marvell’s conscious copying of the
“Kavcic method,” as well as the evidence that its
detector “turn[ed] out to be the structure that Kavcic
proposed in his paper,” influenced the court to find
that Marvell had “unclean hands” and engaged in
“egregious misconduct.” Describing CMU as “timid”
and “gun shy,” it found that CMU did not lie in wait
or sit on its rights. Rather, it found that, as the bad
actor, “Marvell should bear the risk of loss for egregious and illegal behavior.”
Strategy and Conclusion
The CMU decision illustrates important lessons
about the policing of patent rights. Because the laches
clock starts running from when an objective, reasonable patent owner knew or should have known of
the infringement, a patent owner should not turn a
blind eye to potential infringement. A patent owner
should further recognize that once it makes an assertion against a potential infringer, it may forfeit its
rights if it takes no further action for an extended
period of time. Finally, given the equitable nature
of the doctrine, a patent owner facing a potential
laches defense should consider seeking evidence of
conscious copying, which, if established, may tip the
balance in the laches analysis.
Further Information
The CMU decision may be found here: http://
les Nouvelles
Single Touch Interactive, Inc. v. Zoove Corp.
A Settlement Agreement Between Patent
Litigants May Not Justify Vacating a ClaimConstruction Order Previously Issued By
the Court
Often times, a claim-construction decision in a
patent-infringement case can significantly impact the
parties’ settlement positions. For example, after an
unfavorable decision, a patent owner may settle and
seek to have the claim-construction decision vacated
so as to mitigate or eliminate the effects of that decision in future disputes. A recent decision from the
United States District Court for the Northern District
of California, however, illustrates the potential dangers of waiting until after a court has construed the
claims of an asserted patent to settle litigation, as
the court may not be inclined to vacate its decisions
based on a private settlement between the parties.
The court in Single Touch Interactive, Inc. v. Zoove
Corp., held that the public’s interest in decisions of
the judiciary and in conservation of judicial resources
outweighed the parties’ individual interests and expectations in having the order vacated.
A few months after the court issued its claimconstruction order in, the parties settled their dispute
and filed a joint motion to vacate the court’s order.
In support of the motion, the parties argued that
the settlement agreement “resolved all claims and
counterclaims without the necessity for further proceedings” or the possibility of requests for additional
review and reconsideration. In other words, the parties asserted that the claim-construction order was
no longer necessary because no controversy existed
between them. In addition, they asserted that vacatur
would not affect the public interest because public
policy favors settlement and claim-construction orders
are interlocutory (i.e., nonfinal). Further, the parties
asserted that public policy favoring settlement would
be served by vacating the claim-construction order
because the proposed vacatur was a “significant factor” in the resolution of the litigation.
The Single Touch Decision
Citing Supreme Court precedent, the district court
denied the motion, noting that “[j]udicial precedents
are presumptively correct and… and should stand
unless a court concludes that the public interest
would be served by a vacatur.” (Quoting U.S. Bancorp
Mortgage Co. v. Bonner Mall Partnership, 513 U.S.
18, 29 (1994)). Although denying the motion might
frustrate the parties’ individual settlement expectations in this particular situation, the court stated, in
Recent U.S. Decisions
general, “permitting parties to vacate interlocutory
decisions may discourage earlier settlement and
instead incentivize parties to take cases through the
entire Markman process, or other non-dispositive
rulings, in order to test their positions, knowing
they could effectively ‘erase’ that decision through
settlement later.”
Relying on the reasoning in Bonner Mall, the court
also concluded that “judicial decisions are not the
property of the private litigants, but are ‘valuable to
the legal community as a whole.’” In particular, the
court observed, even if the claim-construction order
were not final, “other courts may consider it for its
persuasive value, particularly when construing the
terms of the patents at issue…”
Finally, the court stated that the value of the “substantial [judicial] resources” required to reach the
decisions in the claim-construction order would be
diminished if the order were vacated, “increasing the
possibility that other courts would be called upon to
expend their resources to construe the[] same terms
in the future.”
In sum, the court held that the public’s interest in
decisions of the judiciary and in conservation of judicial resources outweighed the parties’ individual interests and expectations in having the order vacated.
Consequently, the court denied the parties’ motion.
Strategy and Conclusion
This case demonstrates that parties and, in particular, patent owners should not expect to erase
unfavorable claim-construction orders through
later settlement and a joint motion for vacating the
order. Although a court’s refusal to vacate a claimconstruction order may not affect settling defendants,
patent onwers should thoroughly evaluate settlement
options before receiving a claim-construction order to
avoid the possibility of a previous order being used as
persuasive authority on the construction of a previously asserted patent.
Further Information
The Single Touch decision can be found here: http://
Wi-LAN v. Alcatel-Lucent USA Inc.
A Licensing Entity’s Business Model of
Litigating to Secure Patent Licenses Does Not,
by Itself, Support an Award of Attorneys’ Fees
Under § 285 of the Patent Act, courts may award
reasonable attorneys’ fees to the prevailing party in
“exceptional cases.” As a threshold matter, the pre-
vailing party must show, by clear and convincing evidence, that the case is exceptional. Certain conduct
by the losing party may alone satisfy this requirement:
willful infringement, fraud or inequitable conduct
in procuring the patent, litigation misconduct, vexatious or unjustified litigation, or conduct that violates
Fed. R. Civ. P. 11. Under current precedent, absent
such conduct, a case may be considered exceptional
only if the prevailing party proves that the litigation
(1) was brought in subjective bad faith, and (2) was
objectively baseless.
A Texas court recently found that a patent assertion entity’s policy of repeatedly using litigation to
secure patent licenses did not constitute clear and
convincing evidence of vexatious litigation conduct.
Wi-LAN v. Alcatel-Lucent USA Inc., the Eastern District
of Texas denied the defendants’ posttrial motion for
attorney’s fees because they could not show that,
in this instance, the plaintiff had vexatiously sought
licenses of its patented technology. While additional
legislation directed at patent assertion entities continues to be introduced at both the state and federal
levels, this decision illustrates the burden of proof
imposed by one district court on an accused infringer
who attempts to show they are entitled to have their
attorney fees paid by a patent assertion entity that
uses litigation as a business model to obtain licenses
and royalties.
In October 2010, Wi-LAN, Inc. sued multiple defendants, alleging infringement of four patents generally related to wireless telecommunications systems.
Several defendants were dismissed before trial. After
trial, the jury found that the remaining defendants
did not infringe any asserted claims. Further, it found
that several asserted claims were invalid due to obviousness and anticipation. Later, several additional
defendants were dismissed and did not participate in
post-trial motions. The remaining defendants asked
the court to declare the case exceptional and award
attorneys’ fees because, according to them, Wi-LAN
unfairly engaged in serial litigation intended to force
settlements and extract licensing fees.
The Wi-LAN Decision
In its decision, the court denied the motion for attorneys’ fees. In the defendants’ view, the case was
exceptional because of Wi-LAN’s vexatious litigation
conduct, and because Wi-LAN brought the action in
subjective bad faith and its claims were objectively
First, the defendants asserted, “[that] Wi-LAN’s
business model is based on serial litigation intended
June 2014
Recent U.S. Decisions
to extract licensing fees below the cost of defending
litigation, that Wi-LAN’s trial strategy relied on the
flawed testimony of noncredible expert witnesses,
and that Wi-LAN unnecessarily increased the costs
of defending” litigation. Wi-LAN responded that the
defendants misrepresented its business model and
that generating revenue by licensing intellectual
property sometimes required litigation. The court
explained that although the defendants may have
disagreed with Wi-LAN’s alleged licensing framework, they did not “show that it had been used
vexatiously against” them. According to the court,
“sound business practice counsels considering litigation costs during [license] negotiations, whether
explicitly or implicitly.” Regarding Wi-LAN’s experts,
the court noted, the defendants had successfully
used more appropriate tools than a motion for attorneys’ fees, such as successfully challenging part
of one expert’s opinion with a Daubert motion as
well as effectively using cross-examination and
rebuttal evidence. Moreover, mere disagreement
with an expert opinion did not render the expert
so unreliable as to constitute litigation misconduct.
Accordingly, the defendants failed to provide clear
and convincing evidence that Wi-LAN engaged in
litigation misconduct, which would justify an award
of attorneys’ fees.
Second, the defendants asserted that Wi-LAN
brought the action in subjective bad faith because
of its policy of serial litigation to force settlements
and licensing fees. Further, Wi-LAN’s claims were
les Nouvelles
objectively baseless because it read out certain limitations in the asserted claims. Although the court warily
acknowledged “troubling evidence that Wi-LAN had
a policy of using repeated and vexatious litigation
to secure patent licenses,” it held that the defendants could not demonstrate that “Wi-LAN acted in
subjective bad faith by actually implementing that
policy” against them. Further, the court rejected the
defendants’ assertions that Wi-LAN’s claims were
objectively baseless. Rather, the court explained, both
sides accused the other of misinterpreting the claims
and distorting the claim elements, and, notably, the
supposedly baseless claims all survived to reach trial
and a jury verdict. Thus, the court held, Wi-LAN
did not institute an objectively baseless litigation in
subjective bad faith.
Strategy and Conclusion
This court decision illustrates the high burden of
proof imposed on an accused infringer who seeks to
have its attorney’s fees paid after being unsuccessfully
sued by a patent owner. Although patent-assertion
entities continue to attract attention in Congress
and elsewhere, this court decision demonstrates that
having a business model of using litigation repeatedly
to obtain licenses and royalties may not, on its own,
warrant awarding attorney fees.
Further Information
The Wi-LAN decision can be found here: http://
e/6:2010cv00521/125700/529/0.pdf?1390989438. ■
June 2014
LES International
® Vice-President
Yvonne Chua
Arnaud Michel
Kevin Nachtrab
Mark Horsburgh
Kenneth McKay
Fiona Nicolson
Christian Osterrieth
François Painchaud
Jim Sobieraj
Michael Lechter
Audrey Yap
les Nouvelles Editorial Review Board
Chair: Rodney DeBoos, Melbourne, Australia
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10580 Northgreen Dr., Wellington, FL 33449
Tel: +1-561-432-8814 E-mail: [email protected]
Carla J. Blackman, Design Interface Inc.
Design & Production
les Nouvelles
Volume XLIX Number 2
(ISSN 0270-174X)
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les Nouvelles
Andean Community
Jose Luis Barzallo
Ingo Bruckner
Esteban Riofrio
Heinz Goddar
Arab Countries Peter Hess
Mohammed Al-Ansari
Gunter Isenbruck
Nabil Salame Jochen Schäfer
Guido von Scheffer
Gustavo Giay
Fernando Noetinger
Michael Lantos
Australia & New Zealand
Katalin Szamosi
Albert Ferraloro
Mark Horsburgh
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Philip Heuzenroeder
Vishwanathan Sheshan
Tim Jones
Dalit Sagiv
Thomas Bereuter
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Rainer Kraft
Achim Krebs
Giovanni Grippiotti
Jean Christophe Troussel
Luigi Saglietti
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June 2014
les Nouvelles
Infringement Analysis is not an
information mining exercise. It is
a research with Legal, Technical
and Commercial Expertise.
Experience the Meeting That’s
Been 50 Years in the Making!
Explore cutting-edge topics, from strategy to tactics, addressed
by today’s thought leaders, industry experts and dealmakers.
Connect with new ideas from keynote speakers Quentin Hardy,
Deputy Technology Editor for The New York Times and Andrea
Ingraham, Director of the Center for Advancement of Science
Education, the Titans of Licensing panel and LES’s Top 10 Court
Decisions of the Year Affecting Licensing workshop.
Collaborate with a global community of more than 1,000
business development, technology transfer, intellectual
property and licensing professionals.
 Patent Search Services  Technology/Innovation Research
 White Space Analysis  Claim Charting/Infringement Analysis
 Portfolio Analysis
 Patent Licensing Support Services
 Portfolio Management
 Patent Due Diligence
 Landscaping Studies
 Patent Drafting
Reach us
USA: 1-888-247-1618
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[email protected]
Register by June 30 at www.lesannual.org for best rates!
JUNE 2014
LiCENsiNg sEmiNAr
sEP. 29-OCT. 10, 2014
Visit bskb.com for further seminar details.
All seminars are held at BSKB’s offices in
Metropolitan Washington, DC.
[email protected]
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Volume XLIX No. 2
This two week seminar focuses on advanced topics in U.S. patent law
and includes workshops and problem solving in order to illustrate
the more advanced concepts with regard to prosecution, claim
interpretation, and validity and infringement issues. Participants learn
how to modify and determine the scope of a granted U.S. patent, as
well as how to address significant licensing issues.
les Nouvelles
June 2014
Advancing the Business of Intellectual Property Globally
Where Are We Going in High Tech?
Assessing High Tech: Observations And Patterns — Part Two
Annemarie Meike — Page 82
Clean Tech Trends—Intellectual Property & Transactions
Ron Epperson and Myron Kassaraba — Page 84
Selected Advanced Transportation Trends, Part 1—The Giga-Factory
Michael Craner — Page 96
Observations In The Aerospace And Transportation Industry
William H. Pratt and Annemarie Meike — Page 103
IPRs In Least Developed Countries: A Progress Report
Luc Savage — Page 111
EU State Aid Policy: A Model To Assess Intellectual Property Rights
And Knowledge Dissemination In R&D Cooperation — Part 1
Mario Cisneros — Page 116
Key Amendments To The Chinese Trademark Law
Zhou Zhongqi — Page 124
Superman® And Statutes: The Case For Restructuring The U.S. Legal System
And Awarding Copyrights To Authors Behind Works For Hire
Michael Haviland — Page 126
Australian And United States Court Decisions
To Impact On Business Method Patent Licensing
David Webber — 135
Promotion And Protection Of Investment In South Africa Bill, 2013—A Review
Madelein Kleyn — 138
Recent U.S. Court Decisions And Developments Affecting Licensing
John Paul and Brian Kacedon — Page 141