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Legal Insight for Start-Up and Established Technology Businesses

This Week’s Starting Lineup Brought to You by the NLRB

Posted in Employment & Personnel Issues

After a disappointing Saturday loss, a college quarterback returns to practice Monday to find his coach ready and willing to revisit the weekend and remind the quarterback that his starting position and scholarship are on the line.  Several days of long and exhausting practices follow and the coach continues to pressure the quarterback.  The quarterback, finally pushed to his limits, takes to Facebook to proclaim his disappointment in the coach’s actions and various intricacies of the football program, and he asks his teammates for their input.

The quarterback and two other scholarship starters exchange posts about having to devote more than fifty hours a week to football related activities, the insufficient amount of time players have with the medial treatment staff, and late night mandatory meetings to discuss game plans.  The coach ultimately gets wind of the online grumblings and cuts the quarterback and his two cohorts for their public chat session. According to a recent decision by the National Labor Relations Board (NLRB), the coach may have violated the National Labor Relations Act (NLRA).

On March 26, 2014, the Regional Director for Region 13 of the NLRB issued a decision in the Northwestern University athletes’ case finding that football players receiving scholarships from the university are “employees” under the NLRA.  In general, the NLRA, among other things, prohibits an employer from discharging or otherwise discriminating against an employee for engaging in protected concerted activities, including discussing wages, hours, or working conditions.  In an earlier decision, Hispanics United of Buffalo, 359 NLRB No. 37 (Dec. 14, 2012), the NLRB ruled that an employer unlawfully terminated five non-union employees based on comments, similar to those above, they posted on Facebook and ordered the employer to reinstate the employees.  Read together, these decisions appear to give the NLRB the authority to fully reinstate the three football players in the above scenario and dictate the coach’s starting lineup.

Northwestern University has until April 9, 2013 to file a request for review with the NLRB, but the university has already indicated its intention to appeal the decision to the Seventh Circuit.  For now, employers, including collegiate sports programs, will have to monitor the situation for future developments.

Early Assignment of your Invention as a Method to Maintain Priority Rights in a European Patent Application

Posted in Biotechnology, Development & Commercialization of Technology, Nanotechnology, Patent Counseling & Strategies

The European Patent Office (EPO) has been a desirable venue for seeking patent protection in Europe.  For instance, a patent application granted by the EPO can provide patent protection in many European countries, such as the United Kingdom, France, and Germany[1].

Many of the patent applications that are filed in the EPO seek the priority filing date of a previously filed patent application.   In many instances, a U.S. provisional patent application may be filed in the United States Patent and Trademark Office.  Within a year, an international patent application may be filed under the Patent Cooperation Treaty (PCT) that claims priority to the U.S. provisional patent application.  Thereafter, the PCT application may enter national stage in the EPO and claim priority back to the U.S. provisional patent application.

In order for claims of priority to be valid in the EPO, various criteria must be satisfied.  For instance, the subject matter disclosed in the European patent application must be fully disclosed in any priority patent applications.

In addition, the priority claim must be made by the identical legal person who filed the earlier priority application[2].  If a different legal person makes the claim to priority, then they must be the successor in title of the priority applicant[3].  An example of this requirement is illustrated below:

  • A priority patent application (e.g., a U.S. provisional patent application) is filed in the name of A (e.g., an inventor); and
  • A subsequent patent application claiming the priority of the U.S. provisional patent application (e.g., a PCT patent application or a European patent application) is filed in the name of B (e.g., the inventor’s employer).

For the priority claim to be valid, an assignment from A to B should have been carried out before the subsequent application was filed.

The position is not as clear in the situation where a U.S. provisional patent application is filed in the name of one or more employee inventors (but no other parties) and the subsequent patent application claiming the priority of the priority application is filed in the name of the inventor’s employer.  It is possible that, because of an obligation to assign to the employer, there might be an ‘equitable’ assignment in place and that the priority claim is valid.

Nonetheless, in view of the above requirements, it is recommended that the rights of a U.S. provisional patent application be assigned prior to the filing of a PCT application or a European patent application.  In addition, it is recommended that any subsequent PCT application (or other patent applications that may enter Europe) be filed in the name of the assignee of the U.S. provisional patent application.


[1] For a complete listing of the countries covered by the EPO, see: http://www.epo.org/about-us/organisation/member-states.html

[2]Article 4(A)(1) of the Paris Convention

[3] Id.

Protection against Business and Legal Risks from the iPhone 5s Security Vulnerabilities

Posted in Employment & Personnel Issues, Technology News & Events

The iPhone 5s debuted with a list of new features designed to enhance its users’ experience.[1]  Among the list is Touch ID, a form of biometric security that allows users to lock and unlock their iPhone with their fingerprint.[2]  It was not long before a crowd-funded competition was initiated with $16,000 in cash and prizes offered to the first person to crack Touch ID.[3]  A few days later, a video was released that demonstrated how to reproduce a user’s fingerprint to bypass Touch ID.[4]

Another vulnerability was also discovered shortly after the release of iOS 7 that allowed users to bypass the lock-screen passcode, similar to a previously identified vulnerability that affected iOS 6 devices.[5]  Apple has since patched the passcode flaws[6], but the point is that it is not uncommon for security vulnerabilities on mobile devices to be discovered.  Companies should be aware that unauthorized access to employees’ mobile devices is a real threat that can result in the theft of trade secrets and other confidential information.  Companies can fortunately implement policies and procedures to help prevent data theft and system intrusions.

For devices using Apple’s Touch ID, such as the iPhone 5s, a traditional passcode is required for access if the device has been locked for more than 48 hours.[7]  However, a phone could obviously become lost or stolen at any moment within that 48-hour timeframe.  Consequently, employees with access to a company’s sensitive information should be prohibited from enabling Touch ID on their iPhone 5s.

Moreover, employees should be required to notify their employers if their mobile device is lost or stolen.  An agreement should be in place such that the employee gives consent to the employer to remotely wipe the data on a compromised device.  Companies should further require that employees’ mobile devices be current with the latest software patches concerning security.

It is important to note that these policies and procedures should be in writing in order to more effectively protect companies against lawsuits alleging inadequate controls for confidential information, and also strengthen compliance with applicable privacy laws.  For more recommendations on how companies can protect sensitive information through employment agreements, refer to Zach Allie’s WinTech post, Bring-Your-Own-Device: Are Employers Opening the Door to Security and Legal Risks?.

The Adam Carolla Show v. Patent Trolls

Posted in E-Commerce (Internet Agreements and Issues), Intellectual Property Litigation, Technology News & Events, Technology Transactions

The Adam Carolla Show was sued last year in the Eastern District of Texas by a company claiming that Carolla’s podcasts violate their patent.  Rather than bend over and settle out of court with the claimant, Adam Carolla has taken a stance against the so-called patent troll.

Earlier this year, Julie Samuels made an appearance on an episode of the Adam Carolla Show.[1]   Samuels is a Senior Staff Attorney for the Electronic Frontier Foundation and holds the “Mark Cuban Chair to Eliminate Stupid Patents.”  In 2011, according to Samuels, Apple and Google for their first time spent more money on matters relating to patents than actually performing Research and Development (R&D).  In fact, Apple claims that it has faced nearly one-hundred patent lawsuits within the last three years from firms demanding royalty payments.  And even though some people do not sympathize with large, profitable companies such as Apple and Google, the costs created by patent trolls can ultimately affect consumers because of the decreased amount of money available for R&D.

Samuels went on to explain that for small businesses such as the Adam Carolla Show, patent trolls can be detrimental because those companies cannot afford to defend their patent lawsuits.  Carolla believes that his lawsuit affects millions of podcasters and listeners, and many of them are passionate about stopping patent trolls.  Accordingly, the Adam Carolla Show is crowdfunding their litigation expenses.

Adam Carolla held a concert last month at the Redondo Beach Performing Arts Center as part of his legal defense crowdfunding campaign on FundAnything.com.[2]   Special guests included Jimmy Kimmel, Marc Maron, KROQ’s Kevin and Bean, Dr. Drew, Doug Benson and Rock and Roll Hall of Fame guitarist Andy Summers (formerly of the Police).  Visitors of the FundAnything website are asked to contribute to the legal defense fund, but Carolla’s fundraiser show is available to download for free.  Supporters may also purchase merchandise, some of which contain a logo and the slogan, “THEY HOLD THE PATENTS—WE HOLD THE POWER.”  As of April 9, Carolla has raised $323,857, according to the FundAnything website.

In addition to the FundAnything campaign, a large banner across the top of the Carolla website is also currently soliciting bitcoin donations for the legal defense fund.[3]   Carolla recently had Adam White, from Coinbase, as a guest-caller on the show to provide an overview of bitcoins.[4]   White also expressed his support for Carolla fighting the patent trolls.

Stay tuned to the WinTech Blog for further developments on Carolla’s crowdfunded battle against patent trolls.


[1] http://adamcarolla.com/julie-samuels-ray-oldhafer-and-deaf-frat-guy/

[2] https://fundanything.com/en/campaigns/patenttroll

[3] http://adamcarolla.com/

[4] http://adamcarolla.com/greg-proops-and-adam-white/

Trade Secrets: What an investor or acquirer will want to know.

Posted in Technology Transactions, Venture Capital, Private Equity and Other Financings

If you are thinking about raising capital or selling your company, one of the most important questions that the investor or acquirer will want to know is whether you own your IP. One critical part of this is protecting your trade secrets. If you haven’t properly protected your trade secrets, it could kill your deal. Here are a few of the steps you should take to be sure your company’s ownership of its trade secrets meets the mark once due diligence begins:

  • Limit access to your company’s trade secrets to employees who have a need to know the information.
  • Be certain that the employees who receive trade secret information understand that it should be maintained as strictly confidential.
  • Retain trade secret information in places that are not easily accessible to people in the company who do not need to have the information.
  • Create physical or visual barriers to prevent unauthorized viewing of proprietary processes.
  • Prominently label all confidential information “Confidential – Do Not Disclose.”
  • Require all employees to sign a proprietary information agreement. (See our October 3, 2013 post on what provisions should be included in a proprietary information agreement.)
  • Adopt a trade secret policy that instructs employees to maintain the confidentiality of trade secrets and outlines the measures that should be taken if a trade secret is inadvertently disclosed. Be sure the employees are trained on the policy.
  • Remind employees who are leaving the company that the trade secret information is still confidential and be sure terminating employees return all trade secret information to the company and that trade secret information is permanently deleted from any personal electronic equipment that is not returned to the company.

This is not a comprehensive list and the bigger your company gets, the more steps you need to take – such as requiring security badges to enter into the building and regularly conducting an audit of your trade secret information. However, if you take reasonable steps to protect your trade secrets, a prospective investor or acquirer will have a level of assurance that your company owns them and that will take one due diligence issue off of the table.

Intellectual Capital Development for Technology Companies, Cost Effective Adjunct to IP

Posted in Biotechnology, Development & Commercialization of Technology, Employment & Personnel Issues, Intellectual Property Litigation, Nanotechnology, Patent Counseling & Strategies, Technology News & Events, Technology Transactions, Venture Capital, Private Equity and Other Financings

 The term Intellectual Capital means different things to different people even in the technology space.  For business planning purposes, intellectual capital should be recognized as more than patents, copyrights, and other forms of intellectual property, extending broadly to employee skills, knowledge, and problem solving abilities.  This is sometimes referred to as a company’s or its employees’ know how, or even know who.  Patents, copyrights and trademarks all require navigating specific federal statutes and administrative proceedings and generally specialized legal counsel are required.  While lawyers, consultants and other business professionals can help in the process of managing a company’s knowledge, there is a lot more that can be done internally without incurring legal fees.

Intellectual capital comprises the knowledge of a company, its human resources, and its information technology.  Review and management of intellectual capital should include a company’s human resources, its structural resources and its external networks.

The human resources component of intellectual capital is evidenced in a business’ ability to develop the best solutions to its customer’s problems from the knowledge of its people.  Individual competence is important, people have ideas, create new products, and have relationships that work, and when they leave more than just one fte (full time equivalent) employee is lost.

The structural resources component would include the company’s routines and structures that support employee efforts.  This extends to systems: processes and outputs, organizational charts and responsibilities; strategy: goals, plans; and culture: the sum of opinions, mindsets, values and norms.  Current appreciation for a company’s structural resources has emphasized how closely linked a firm’s culture and ability to implement strategy are, something that may not be readily apparent.  A lack of fit between a company’s structures and culture can prove to be a big barrier to implementing change and strategies.

A company’s external relationships and customer base can also be considered part of a company’s intellectual capital, especially in the context of reputation, knowledge of market channels, customer and supplier relationships, industry associations, and knowledge of what the customers want.   Customer and supplier loyalty market targets, longevity of relationships and satisfaction are all measurable aspects of intellectual capital.  These external relationships cannot really be controlled, but they should be managed.  Improvements come from attention to developing relationships and trust with customers, suppliers, and connected communities.

One hears constantly that the world is moving to a knowledge based economy.  A company should pay close attention to its own knowledge management.  A management trend appears to be moving from command and control to delegation, empowerment and coaching.  Everyone in the company therefore has a role and responsibility in shaping the way the company works, and with proper management a company can guide and continually improve the applications of a company’s knowledge in ways useful to customers.

Developing intellectual capital is managing knowledge.  Knowledge is more than just information; it is information with an application.  Knowledge management or development of a company’s’ intellectual capital is then a systematic process for creating new competitive advantages.  Managing knowledge to develop intellectual capital begins with identifying and classifying a company’s knowledge assets, securing them, exploiting them properly, and managing them to improve quantity, quality and application.

An initial step toward managing intellectual capital could be an audit of the company’s intellectual capital and creation of a knowledge map of the business.  Other steps would be to formally define the role of knowledge for the business and to assess the competition.  A commonly suggested step is to require development and management evaluation of a similar knowledge map for each employee.  Finally the Annual Report should include an Intellectual Capital Statement summarizing these efforts.

A company’s hard assets such as buildings and equipment depreciate and wear out.  IP assets (trademarks/trade secrets excepted) have finite terms of enforceability.  In contrast a company’s intellectual capital can appreciate.  A systematic effort to identify, document, secure, and refine intellectual capital can facilitate turning knowledge into value, and can accelerate a company’s development of a proprietary edge over its competition.

There are plenty of resources focused on intellectual capital management, if it isn’t a part of the company operations, it should be.  Except in special cases, knowledge management would not be a replacement for building and managing IP portfolios, and securing rights to technology and information developed by employees, and other special areas where counsel should be utilized.  As part of a company’s overall strategy however, it can be a valuable company asset, and can be realized without the legal fees required for developing patents copyrights and trademarks.

The Global Patent Prosecution Highway – Global Protection on a Budget

Posted in Intellectual Property, Patent Counseling & Strategies, Patent Law

Patent prosecution can be a slow and expensive process.  A business or an applicant may wish to accelerate the process of procuring a patent for a number of reasons including, engaging in enforcement activity and reducing investor’s or licensee’s perceived risks.  A decisive factor for businesses and applicants seeking patent protection in key global markets is the cost involved in securing such protection.  The Global Patent Prosecution Highway (GPPH), that came into effect January 6th, 2014, is a new pilot program that offers to both expedite grant and significantly reduce overall global prosecution costs.  Under this program an applicant can request accelerated examination of its application in any of the participating offices on the basis that corresponding claims were found allowable or patentable in another participating office.  This program allows an Examiner in a participating office of later examination to rely on the search and examination carried out by a participating office of earlier examination.  The GPPH seeks to simplify and replace previous bi-lateral agreements executed under the Patent Prosecution Highway (PPH) with a single multilateral agreement between numerous countries.  This means that once a favorable outcome has been achieved in any one of the participating offices, acceleration under the GPPH will be available in any, or all, of the other participating offices, making it immaterial as to where the application was first filed and where it was first examined.  Currently, there are 17 participating patent offices, including the US Patent and Trademark Office (USPTO) and UK Intellectual Property Office (UK IPO).  The European Patent Office (EPO) and the Chinese Patent Office (SIPO) are among the notable omissions from the list of participating offices.  In order to be eligible for an accelerated examination under the GPPH, the applications involved must have the same earliest date, which may be the priority date or the filing date.  Further, the application must include at least one claim that was determined to be patentable or allowable during substantive examination by another participating patent office.  Finally, substantive examination of the application must have been requested, but not yet begun, in the office of later examination.  Both PCT and National applications are eligible for accelerated examination under the GPPH.  Under this program businesses and applicants can hope to see patent prosecution handled more efficiently across global markets, thereby reducing time and costs involved.

 The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Patent Trolls, Defensive Groups, and Pooling

Posted in Intellectual Property, Patent Law

A common topic of patent reform discussions are patent trolls.[1] Patent trolls, who often gather patent portfolios and assert patents against others in an effort to collect licensing fees or patent infringement damages, are often criticized as a flaw in the current patent system that hurts the very innovation that the patent system is intended to encourage. However, the definition of a patent troll is far from settled.

Patent trolls, sometimes referred to as non-practicing entities (NPEs), typically do not provide products or services, which prevents a threatened company from countersuing as a defensive tactic. However, some pundits have recognized that carve outs are necessary to exclude universities and research groups from the definition of patent troll, as many do not provide products or services.

In response to the increasing expense and threat of litigation with patent trolls, some defensive patent groups have arisen. These defensive patent groups often seek third party financing to purchase patents for defensive purposes, such as purchasing patents that patent trolls might otherwise purchase or to allow the counter assertion of such patents in litigation. Typically, companies will pay a fee to purchase a bundle of patent rights from the defensive patent group. Defensive patent groups do not provide products or services and collect fees for patent rights, but how should they be distinguished from patent trolls? While some defensive patent groups have explicitly committed to using patents solely for defensive purposes, others have not ruled out the possibility of using acquired patents offensively.

Patent pooling is a consortium of two or more companies cross-licensing patents related to a particular technology. Various companies may band together to acquire patents in specific technology areas. The members of the consortium may form a new entity, which does not provide any products or services. The purchased patents may be licensed to consortium members, licensed to non-members for a fee, and sold individually or as a whole.  However, the purchased patents can also be utilized offensively in an effort to collect licensing fees or patent infringement damages.

None of the patent acquisition groups discussed above provides products or services.  One might argue that patent trolls are distinguished by their use of patents offensively or solely to collect licensing fees and patent infringement damages. However, defensive patent groups and patent pooling groups collect fees to become a member of the group. Further, some appear to be willing to assert patents offensively to collect patent infringement damages. Are all, some, or none of these groups patent trolls? As these patent collectives continue to evolve and change, it becomes more difficult to identify what is and isn’t a patent troll. This leaves legislators for patent reform in a difficult position attempting to define what continues to evolve.


[1] Patent trolls are referred to by several different names, such as non-practicing entities (NPEs), patent assertion entities (PAEs), patent pirates, patent sharks, and numerous other names.

Anti-Dilution Provisions – A New Twist

Posted in Venture Capital, Private Equity and Other Financings

We are all familiar with the modified ratchet and full ratchet anti-dilution provisions that relate to subsequent down rounds in the financing of start-up and emerging growth companies.  A new twist on anti-dilution provisions is raising its head and, according to the Wall Street Journal, becoming more and more common.  See “Startups Boosting the Risk” published on December 26, 2013.  Some start-ups and emerging growth companies are now providing anti-dilution protection by guaranteeing investors a certain price per share on the initial public offering of the company’s stock.  If the initial public offering price does not reach the designated price, the investor is entitled to additional shares in order to receive the value it would have received if the initial public offering price had reached the designated price.  It seems to me that only companies with little or no leverage would agree to such a provision.   To date, these provisions have, in at least some cases, seemingly been the cause of significant downward pressure on the post-IPO price of the stock of the companies that have agreed to them because the companies were required to issue significant additional shares in the IPO.  Case in point:  Tremor Video guaranteed investors $13.997 dollars a share in its IPO but actually went out at $10 a share.   In its Registration Statement on Form S-1, Tremor disclosed that “The terms of our Series F preferred stock provide that the ratio at which each share of such series automatically converts into shares of our common stock in connection with the offering will increase if the anticipated initial public offering price is below [the designated price].”  Tremor’s stock was down 15% from the IPO price in a single day.  (It has since continued to decline presumably due to its failure to meet revenue expectations.)  Results such as these happened during a bull market.  I can only imagine the results in a bear market.  While investors have touted the provision as a significant way to protect themselves – and in one case as the “only” way to protect themselves – these anti-dilution provisions come at a high price and should be considered carefully before entering into a final agreement.

Adam Carolla Refusing to Feed the Trolls

Posted in Intellectual Property Litigation, Technology News & Events, Uncategorized, Venture Capital, Private Equity and Other Financings

The WinTech blog previously covered a patent infringement lawsuit filed against the “Adam Carolla Show” from ACE Broadcasting Network, LLC.[1]  The plaintiff, Personal Audio, LLC, alleges that the “Adam Carolla Show” is infringing on their patent for a “[s]ystem for disseminating media content representing episodes in a serialized sequence.”[2]  The patent could also be interpreted in broader terms as a system for downloading and organizing digital media information.

On a recent podcast by Carolla,[3] he provides an update on his lawsuit and interviews Neel Chatterjee, an attorney that has represented Mark Zuckerberg on other matters.[4]  Carolla reveals that his legal fees for the month of October were approximately $22,000—most of it spent on requesting a transfer out from the Eastern District of Texas.

Chatterjee explains that a patent troll’s strategy is to sue a high volume of defendants and hope for a quick settlement rather than assume the risk and cost of litigation.  The patent system can be reformed however, as Chatterjee suggests, by creating additional downside risk for the patent trolls.  Many attorneys are already assuming the risk of litigation by taking patent infringement cases on a contingency basis, but Chatterjee believes that additional costs could be created to deter lawsuits from patent trolls, such as a system where “loser pays.”[5]

According to Carolla, another way to level the playing field against patent trolls is to crowdfund the legal fees incurred from defending a patent lawsuit.  Carolla believes that a lot of other people’s interests are at stake, such as all of the podcasters that could be extorted for license fees if Personal Audio prevails on Carolla’s lawsuit.  Carolla believes that creating a slush fund is appropriate because the outcome of his lawsuit would affect podcasters and listeners across the United States.

Carolla might be on to something.  Crowdfunding the cost of patent litigation could decrease the defendant’s potential loss from a trial decision, and accordingly create a greater incentive for defendants to take a stand against patent trolls rather than settle out of court.  But will Carolla’s crowdfunding be sufficient for his case?  Or will this end up as another settlement that continues to feed the trolls?

Stay tuned for updates and developments on this Personal Audio litigation.


[1] See Todd Chen, Patent Actions Targeting Podcast Shows, WinTech (Feb. 10, 2013), http://www.wintechblog.com/2013/02/patent-actions-targeting-podcast-shows/.

[2] U.S. Patent No. 8112504 B2 (filed Mar. 4, 2009), available at http://www.google.com/patents/US8112504?dq=8,112,504&ei=FrkRUc63N8zWigKlt4DABg.

[3] Alex Borstein and Neel Chatterjee, Adam Carolla Show (Nov. 21, 2013), http://adamcarolla.com/alex-borstein-and-neel-chatterjee.

[4] Chatterjee is not involved with Carolla’s currently pending case.

[5] See generally Tony Dutra, House Considers Patent Litigation Reform Bill With Some Agreement But Controversy Likely, Bloomberg BNA (Oct. 30, 2013), http://www.bna.com/house-considers-patent-n17179879682/; Joe Mullin, Peeved politicians want “loser pays” rule for patent trolls”, Ars Technica (Feb. 27, 2013) http://arstechnica.com/tech-policy/2013/02/pissed-off-politicians-want-loser-pays-rule-for-patent-trolls.