Patent / Trade Secrets
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Trade Secret Legal Issues

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Intellectual property is a work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and which may be considered a patent, copyright, trademark, trade secret, etc.

Companies doing business on the Internet that develop new business models or technology have an interest in protecting those assets. If the invention involves software, the written code may be protected under copyright law. Copyright only protects tangible expression of ideas and not the idea itself. Two forms of protecting ideas are patents and trade secrets.

Patent rights are created by federal law exclusively. A patent is a federal grant pursuant to the US Constitution and the Patent Act of 1952 of exclusive rights to an inventor for a limited number of years covering the right to use, manufacture, license and sell an invention. A patent owner has the right to exclude others from using their property.

Trade secrets, sometimes known as proprietary information, are any information including but not limited to a formula, pattern, a recipe, etc., that can be used in the operation of a business or enterprise that is sufficiently valuable and secret to afford an actual or potential economic advantage. Examples of trade secrets include the Coca-Cola formula and the Kentucky Fried Chicken recipe.

The significant difference between a patent and a trade secret / proprietary information is that a trade secret is not protectable once it is generally known. So typically trade secrets are protected though non-disclosure agreements and confidentially agreements, while patents are protected through licensing.

Non-Disclosure Agreement

A non-disclosure agreement (NDA) is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. There are various types of non-disclosure agreements. There is no one agreement that fits all, so it may be necessary to retain a lawyer to assist you with a non-disclosure agreement.

Confidentiality Agreement

A confidentiality agreement is known as a non-disclosure agreement (NDA), and is simply a contract between two or more parties where the subject of the agreement is a promise that information conveyed will be maintained in secrecy. As mentioned previously, an NDA / non-disclosure agreement / confidentiality agreement is not a one size fits all agreement, so a consultation with a Los Angeles e-Commerce attorney may be extremely valuable in your situation.

For patents and trade secrets, a licensing agreement is important. A licensing agreement is a collaboration between a patent rights owner (licensor) and another who is authorized by the licensor to use such rights (licensee) in exchange for a royalty (fee or agreed upon payment).

Components of a Patent / Trade Secret License?

A typical patent license will specify the rights granted, the term of the agreement, the royalty, the specific market, field of use, representations, indemnities and warranties regarding the patent, infringement issues, tort liability for products or services covered by the license, and other factors. Wex Law attorneys can assist with your representation in drafting a license.

Patent Grant Clause

The grant clause sets forth what patent rights are being conveyed. The grant can be exclusive (i.e., only the licensee has the right to exploit the patent rights) or non-exclusive (i.e., the licensor can grant similar rights to other parties). The grant can be limited by geography (such as U.S., worldwide), and field of use (such as for cellphones but not laptops). You can discuss this further with a Wex Law attorney in our Los Angeles office.

Patent Improvements

A patent license can also define each party’s rights to improvements of the patent technology. Depending on the negotiation, improvements might be solely owned by the licensor, licensee, or jointly owned by both through a strategic alliance or joint venture. To discuss this further, Wex Law offers free 30 minute consultation with an attorney.

Patent / Trade Secret Consideration

Payment of consideration can be structured in many ways. The license agreement typically requires a licensee to pay royalties based upon sales or on a per-unit basis. The license can also require minimum annual royalties or minimum annual sales to be sure the licensee is diligently marketing the products or services covered in the patent. The license agreement can also require that the licensee provide reports to the licensor, e.g., of sales or revenue, to ensure accurate royalty payments. It is important to have a minimum annual sales amount to ensure that your license wasn’t purchased with the intent to block you out of the market. Speak to a Wex Law attorney in our Los Angeles office to discuss further.

Patent Infringement

A patent license can indenture each party’s responsibilities for enforcing the patent rights along with assigning liability if the licensee is involved in an infringement lawsuit. Typically, the parties desire to have control of any infringement litigation, but they also want to avoid costs being required to defend or indemnify the other party. A Wex Law attorney can further discuss the infringement clause.

Due Diligence

An attorney should assist with due diligence. License agreements can require due diligence by the licensee to develop and/or commercialize the patent / trade secret. Such terms are typical in license agreements to ensure that the patent is used and not just put on the shelf. For example, the licensee can be required to use reasonable efforts to develop and commercialize products covered by the license. License agreements will also typically include milestones that must be met in order for the licensee to maintain the license. The license can also require submission of periodic reports regarding the licensee's activities related to the development and testing of the products covered by the licensed patent.

Patents - Indemnities and Product Liability

It is important to have an attorney sit with you before drafting indemnities and product liability clauses. Licensors and licensees can provide various indemnifications to each other in a license agreement. The license can include representations, indemnities and warranties concerning the patent and can require indemnification against any inaccuracy or loss arising from those representations and warranties. The licensor can require the licensee’s compliance with applicable laws, such as export controls, tax codes, etc. The license may include representations by the licensor that they own clear title to the patent and/or that the patent is valid and enforceable, and/or that none of the products produced under the patent are known to infringe other patent held by third parties.

Patent Dispute Resolution

License agreements can require the parties to provide notice of any breach of the agreement and can specify periods during which any such breach can be cured. The license agreement can also be drafted so as to refers to one of several different processes used to resolve disputes between parties, including negotiation, mediation, arbitration, collaborative law, and litigation.

Patent Transferability

License agreements can provide the licensee a right to sub-license or re-assign the patent. The owner of the license can require approval of any such agreement because the licensor may wish to prevent a competitor from obtaining license to the patent.

Patent Termination

License agreements can include negotiated provisions that can detail how the agreement can be terminated. It is possible for the agreement to specifically provide for termination upon breach of certain terms of the agreement.

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