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Legal Insight for Start-Up and Established Technology Businesses

Patent Issues Arising from Consulting Agreements (TriReme Med., LLC v. Angioscore, Inc., No. 15-1504 (Fed. Cir. 2016))

Posted in Consulting Agreements, Intellectual Property Litigation, Patent Counseling & Strategies

In a recent dispute between two medical device companies, a consultant’s alleged contributions to Angioscore patents became a central issue (TriReme Med., LLC v. Angioscore, Inc., No. 15-1504 (Fed. Cir. 2016)). The dispute underscores several patent issues that can arise from consulting agreements. A brief summary is provided below:

  • The consultant Dr. Lotan claimed an inventive contribution arose from his work in connection with the development of the AngioSculpt catheters in 2003, which was allegedly reflected in the AngioScore patents.
  • In particular, before the May 1, 2003, effective date, Dr. Lotan performed a single-day study testing AngioSculpt prototypes.
  • Lotan also provided a memorandum highlighting the retraction issue and providing recommendations, as well as conducted two follow-up meetings with AngioScore where he provided design recommendations to address the retraction issue.
  • Several years later in 2014, Dr. Lotan granted TriReme, a competitor of Angioscore, an exclusive license to “any and all legal and equitable rights” he held in the AngioScore patents.
  • In response, AngioScore asserted that it had acquired rights to all inventive work completed by Dr. Lotan under a Consulting Agreement effective May 1, 2003, particularly § 9(a) and § 9(b).

§ 9(a) stated – If, in the course of providing the Services, Consultant incorporates into a Company product, process or machine or into any Invention (as defined below), a Prior Invention owned by Consultant or in which Consultant has an interest, the Company is hereby granted and shall have a non-exclusive license…

§ 9(b) stated – Consultant agrees to promptly disclose to the Company and hereby assigns to the Company, or its designee, all right, title and interest in and to all inventions, original works of authorship, developments, concepts, know-how, improvements or trade secrets …

  • The Court stated – at most, § 9(a) of the Consulting Agreement grants AngioScore a nonexclusive license in the event that the consultant incorporates a prior invention into an AngioScore product during the term of the Consulting Agreement.
  • The Court remand to the district court to consider whether Dr. Lotan’s continued work on and after May 1, 2003 would constitute the type of work listed in § 9(b) of the Consulting Agreement that Dr. Lotan was obligated to assign.



Still Alice: Not all software patents are being invalidated under Alice Corp. v. CLS Bank Int’l

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

On June 19, 2014, the U.S. Supreme Court issued a unanimous decision in Alice Corp. v. CLS Bank Int’l (Alice)[1].  In Alice, the Court held that several patents that pertained to a computerized platform for eliminating risk in conducting financial transactions between two parties were ineligible for patenting under 35 U.S.C. §101[2].  The Court reasoned that the patents were merely drawn to an abstract idea of intermediated settlement that utilized a “generic computer implementation.”

Since the issuance of Alice, many lower court decisions have relied on Alice to invalidate numerous patents directed to computer-implemented inventions.  Examples of these court decisions were summarized in a prior blog post[3].

However, not all patents directed to computer-implemented inventions have been affected by Alice.  For instance, in recent court decisions, many software-related patents were held to be patent-eligible in view of Alice. Examples of some of these decisions are summarized below:

  • DDR Holdings v. Hotels.com, 773 F.3d 1245 (Fed. Cir. 2014). Invention directed towards generating a composite web page that combined certain aspects of a host website with information from a third-party merchant was eligible for patenting because the invention addressed an important business challenge (i.e., retaining website visitors through the use of computer technology).
  • Inst. of Tech. v. Hughes Communs., Inc., Case No. 2:13-cv-07245-MRP-JEM (C. D. Cal., 2014). Invention directed to a data error correction code through encoding and decoding data was held to be patent-eligible because the utilized algorithm represented an inventive application of the underlying abstract ideas.
  • Helios Software LLC et al v. SpectorSoft Corporation, Case No. 12-081-LPS (Del., 2014). Invention directed to the remote monitoring of computer network sessions and network access was held to be eligible for patenting because it utilized a computer to play a significant and specific role in the monitoring process.
  • AutoForm Engineering GmbH v. Engineering Technology Associates, Inc., Case No. 2:2010cv14141, (E.D. Mich., 2014). Invention directed to a method of designing surfaces for tools used in sheet metal formation was held to be eligible for patenting because the process was described through numerous limitations that narrowed the scope of the patent.
  • McRO, Inc., v. Activision Publishing, Inc case, Case No. 2:14-cv-00336 (C.D. Cal., 2014). Invention directed towards configuring animated lips based on timed phonemes were held to be eligible for patenting because it addressed a technical process of automated three-dimensional computer animation.
  • Smartflash LLC et al v. Apple Inc, et al., Case No. 6:13cv447-JRG-KNM (E.D. Tex. 2015). Invention relating to data storage and controlled access systems for paying for and downloading digital content was held to be eligible for patenting because it aimed to prevent piracy while allowing instantaneous access.

The aforementioned court decisions suggest that software inventions that improve the functioning of a computer may remain eligible for patent protection in some instances.  The aforementioned court decisions also suggest that software inventions that improve a technical field may remain eligible for patent protection. Nonetheless, the full effect of Alice remains to be determined.

[1] Alice Corporation Pty. Ltd. v. CLS Bank International, et al., 573 U.S. ___, No. 13-298 (June 19, 2014).
[2] 35 U.S.C. §101 states that, “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”  Judicial exceptions to what constitutes patent eligible subject matter have included “abstract ideas,” “laws of nature,” and “natural phenomena.”
[3] See http://www.wintechblog.com/2014/10/alice-in-wonderland-the-ongoing-impact-of-alice-corp-v-cls-bank-intl-on-computer-implemented-inventions/


Two Hundred and Twenty Fifth Anniversary of U.S. Patent X000001

Posted in Development & Commercialization of Technology, IP Counseling and Strategies, Technology Transactions

U.S. Patent X000001 was granted on July 31, 1790 to Samuel Hopkins. The original document went missing for many years, only resurfacing in 1956.

The inventor named is Samuel Hopkins, but which Samuel Hopkins was much in dispute until fairly recently. For many years a small town in Vermont celebrated their local resident as the inventor of U.S. Patent X000001, marking the location with a historical marker on the Pittsville, Vermont village green. The marker stood, from 1956 until just a couple of years ago, even in the face of documentation first published in 1998 by a lawyer historian in Philadelphia, David Maxey. Maxey’s generally accepted research shows the patent was issued to an inventor Samuel Hopkins of Philadelphia.

The entirety of the patent is reproduced below. It is signed by President George Washington, Secretary of State Thomas Jefferson, and Attorney General Edmund Randolph.

U.S. Patent X000001

U.S. Patent X000001

Demonstrating a serial entrepreneur’s bent, Hopkins took out two later patents in addition to his first patent. And less than a year after the potash patent was granted in the United States, the Quebec Parliament passed an ordinance to “reward” him for his discovery. Legal experts now consider this Canada’s first patent.

The invention is for a potash refining process, today an obscure and seemingly low tech process in light of today’s technologies, but closer review highlights this as a worthy predecessor for all of the technology to follow. As is well described in Henry M. Paynter’s INVENTION & TECHNOLOGY article (paraphrased hereafter), Patent X000001 was not only the first of its kind but also vitally linked the nation’s early economy. In fact, potash was America’s first industrial chemical. Potash was essential for making soap and glass, dyeing fabrics, baking, and making saltpeter for gunpowder.

During the fourteen-year term of Hopkins’s patent, potash sold at from two hundred to three hundred dollars a ton, and over this period more than ninety thousand tons, worth at least twenty million dollars, were exported from the United States. If were anywhere near Hopkins’s estimates, this arrangement was a bargain for the asheries as well.

The forest-based potash industry of the colonial days, with abundant hardwood forests, is now long gone, but it was essential in the early years of the nation, and Samuel Hopkins’ patent permitted it to thrive. Potassium salts continue to be invaluable industrial and agricultural chemicals, and a stream of important patents concerning them has followed Samuel Hopkins’s down to this day. Moreover, his disclosure, marketing plan, and license agreements, set worthy precedents for subsequent inventors.
1. Paynter article from INVENTION & TECHNOLOGY, Fall 1990;
2. Maxey’s articles from The PENNSYLVANIA MAGAZINE of HISTORY & BIOGRAPHY, Jan/Apr 1998

The Impact of Ariosa Diagnostics v. Sequenom on the Patent Eligibility of Biomarker Detection Methods

Posted in Development & Commercialization of Technology, Intellectual Property, Patent Counseling & Strategies, Patent Law, Patent Prosecution

Under the Patent Act, one can patent “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”[1] Common exceptions to what can be patented include laws of nature, natural phenomena, and abstract ideas[2]. In a recent decision in Ariosa Diagnostics v. Sequenom (Sequenom), The United States Court of Appeals for the Federal Circuit held that a patent covering methods of detecting cell-free fetal DNA is not eligible for patenting because it pertains to nothing more than a natural phenomenon[3]. Unless this decision is reversed by the Supreme Court, it could adversely affect the patentability of some biomarker detection methods.

The patent at issue in Sequenom pertained to a method of detecting cell-free fetal DNA (cffDNA), a non-cellular DNA that floats freely in the blood stream of pregnant women[4]. The detection methods involved amplifying segments of the cffDNA by various methods, such as the polymerase chain reaction[5].

In reaching its decision, the Court reasoned that the patent at issue is not eligible for patenting because it “starts and ends with a naturally occurring phenomenon” (i.e., cffDNA)[6]. Moreover, the Court reasoned that the cffDNA amplification step did not make the invention eligible subject matter because the amplification methods were “conventional, routine and well understood applications in the art.”[7] In particular, the Court indicated that, “[b]ecause the method steps were well-understood, conventional and routine, the method of detecting …cffDNA is not new and useful.”[8] The Court also stated that “appending routine, conventional steps to a natural phenomenon, specified at a high level of generality, is not enough to supply an inventive concept.”[9]

The full impact of Sequenom remains to be determined. It is doubtful that the ruling in Sequenom will affect the patentability of all biomarker detection methods. For instance, biomarker detection methods that utilize “unconventional” detection methods may still be eligible for patenting in view of Sequenom. However, the ruling in Sequenom may affect the patentability of diagnostic methods that rely on the amplification of naturally occurring biomarkers through “conventional” and “routine” techniques. Furthermore, terms such as “unconventional”, “conventional” and “routine” may become subject to different interpretations.

[1] 35 U.S.C. § 101

[2] Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347, 2354 (2014)

[3] Ariosa Diagnostics, Inc. v. Sequenom, Inc., 2014-1139, 2014-1144, (Fed. Cir. 2015)

[4] Id. at page 3

[5] Id.

[6] Id. at page 13

[7] Id.

[8] Id. at page 11

[9] Id. at page 13

International Protection of Industrial Designs under the Hague System

Posted in Development & Commercialization of Technology, Intellectual Property, Patent Counseling & Strategies, Patent Law, Patent Prosecution

An industrial design generally constitutes the ornamental or aesthetic aspects of various articles, such as the three dimensional features (e.g., shapes) or two dimensional features (e.g., patterns, lines or colors) of packages, containers, furniture, household goods, lighting equipment, jewelry, electronic devices, and textiles. Industrial designs can be protected in many countries by a design patent. For instance, an owner of a design patent can have the right to prevent others from making, selling, using or importing articles that resemble the protected design.

Since many commercial articles are sold or manufactured internationally, the procurement of design patents in multiple countries is usually desirable. However, such procurement can become costly and complex. The Hague System for the International Registration of Industrial Designs (Hague System) can provide a more cost effective and simple approach for the attainment of design patents in multiple countries[1].

In general, the Hague System provides the owner of an industrial design a means of obtaining protection in several countries through the filing of a single application in one language, and with one set of fees in one currency[2]. The international design application can either be filed with the International Bureau of the World Intellectual Property Organization (WIPO) or the patent office of a designated country[3]. The application must contain a reproduction of the industrial design(s) to be protected[4]. The application must also designate the countries where protection is sought[5]. Thereafter, each of the designated countries will examine the design application in accordance with the laws of that country[6].

As such, the Hague System enables industrial design owners to obtain protection for their designs while minimizing formalities and expense. For instance, applicants will not be required to file separate national applications in each of the countries where they would like to seek protection.

Applicants from multiple countries can take advantage of the Hague System. Currently, over 60 countries and territories are participating in the Hague System[7]. Beginning May 13, 2015, U.S. applicants will also be able to file international design applications through the Hague System.

[1] The Hague Agreement Concerning the International Registration of Industrial Designs:Main Features and Advantages. 2012. World Intellectual Property Organization. Page 4. http://www.wipo.int/edocs/pubdocs/en/designs/911/wipo_pub_911.pdf

[2]  http://www.wipo.int/hague/en/

[3] Id.

[4] The Hague Agreement Concerning the International Registration of Industrial Designs:Main Features and Advantages. 2012. World Intellectual Property Organization. Pages 7-8.

[5] Id.

[6] Id. at page 9.

[7] The contracting parties to the Hague System are included at: http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=9

Standard of Review for Claim Construction on Appeal

Posted in Intellectual Property Litigation, Patent Counseling & Strategies

On January 20, 2015, the Supreme Court provided guidance on the standard of review for claim construction on appeal in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., No. 12-854. The Court held “[w]hen reviewing a district court’s resolution of subsidiary factual matters made in the course of its construction of a patent claim, the Federal Circuit must apply a ‘clear error,’ not a de novo, standard of review.”

The Court stated:

[W]hen the district court reviews only evidence intrinsic to the patent (the patent claims and specifications, along with the patent’s prosecution history), the judge’s determination will amount solely to a determination of law, and the Court of Appeals will review that construction de novo.

In some cases, however, the district court will need to look beyond the patent’s intrinsic evidence and to consult extrinsic evidence in order to understand, for example, the background science or the meaning of a term in the relevant art during the relevant time period … In cases where those subsidiary facts are in dispute, courts will need to make subsidiary factual findings about that extrinsic evidence. These are the “evidentiary underpinnings” of claim construction that we discussed in Mark-man, and this subsidiary fact finding must be reviewed for clear error on appeal.

Selling Your Company: The Letter of Intent

Posted in Technology Transactions

One of the first steps in the sale of your company will be entering into a Letter of Intent. In order to avoid drafting lengthy documents and spending time and money on attorneys unnecessarily, you should be certain that the primary terms of the sale are documented in a letter of intent. It is during the negotiation of the letter of intent that your company will have the most negotiating power. In addition, at this stage, it is critical to involve a tax consultant to be sure the transaction is structured in the most tax-efficient manner. Even though most of the terms of the letter of intent are non-binding, they will serve as a guide to the transaction and will be referred to often by the parties.

One of the binding terms in the letter of intent is likely to be a “deal protection provision,” which may be a “no shop,” a “window shop” or a “go shop.” These provisions protect an acquirer who, because it is spending substantial time and money evaluating and negotiating the acquisition, does not want the seller to seek a different purchaser following the signing of the letter of intent. The most common deal protection provision is a “no shop.” This provision precludes the selling company from talking to other prospective purchasers unless the board must do so in order to satisfy its fiduciary obligations to shareholders. A “go-shop” allows a selling company to seek a buyer at a higher price for a designated period of time after the letter of intent or purchase agreement is signed. This provision is useful when a buyer wants to enter into a letter of intent or purchase agreement quickly before the seller has had an adequate opportunity to seek the best price for the company. A “window shop” is not used as often as a “no shop” or a “go shop.” It allows a selling company to talk to prospective buyers that contact it but not to actively seek buyers.

Don’t Focus Solely on Price. Once you decide to sell your company, you have a fiduciary duty to your shareholders to get the best price possible and you may be subject to lawsuits from other shareholders who claim you could have gotten a higher price. However, the price stated by the buyer in the letter of intent may not be the price you actually receive for your company. It is important to assess how the purchase price will be paid. If it is to be paid in stock, the stock may not be transferable. Even if you acquire stock in a public company, you may not be able to sell the stock until you have met certain holding periods. By the time you are able to sell the stock, it may have declined in value. In addition, the purchase price may include an “earn-out” – a deferred payment based on a designated financial metric such as EBITDA or net income in future years. These are often the cause for disputes when the time comes to calculate the earn-out. They are also tricky because, once your company is sold, you lose control over how it is operated and the earn-out may be less than it would have been if you were in charge. Finally, a portion of the purchase price might be subject to a holdback or an escrow – an amount of money available to a purchaser if there is a breach in the representations and warranties or in the covenants. Thus, it is important to look at the stated components of the purchase price and assess how realistic it is that you will actually receive the full amount.


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

One of your first tasks in financing your technology company is likely to be completing your initial equity financing with outside investors. Typically, these financings are done with a venture capital firm (“VC”), angel investors or “friends and family” and the company will sell Series A Preferred Stock. Some of the primary negotiating points in the Series A Preferred Stock financing term sheet are the following:

     A. Valuation. This is a very difficult matter to ascertain, and, in truth, there is no way to determine a closely held company’s value with any precision. A company is well advised to seek non-legal assistance in determining its starting point for negotiation of valuation in order to be able to negotiate this point effectively.

     B. Dividends. The term sheet will typically provide that dividends will be paid on the Series A Preferred Stock “when, as and if” declared by the Board. In truth, dividends are rarely paid.

     C. Liquidation Preference. The term sheet will almost always provide that if the company is liquidated, after all the debts have been paid, the holders of the Series A Preferred Stock will get the amount that they invested back (together with accrued but unpaid dividends) before any payments are made to the holders of the Common Stock.

     D. Conversion Rights. In certain instances, the investors will want to convert their preferred stock to common stock (such as on a sale of the company). The Series A Preferred Stock is typically convertible initially on a 1:1 basis, subject to anti-dilution protection if the company later issues shares at a lower valuation.

     E. Registration Rights. The term sheet will almost always provide for “registration rights” – the right to participate in or demand registration of the shares with the Securities and Exchange Commission.

     F. Right of First Offer; Preemptive Rights. The term sheet often gives the investors the right to invest in the company’s future financings in preference to other investors the company may want to bring in as shareholders (a “Right of First Offer’). The investor will also want the right (called a “Preemptive Right”), if shares are issued in an investment, and the Right of First Offer is not exercised, to acquire the number of shares necessary to maintain its percentage ownership in the company, at the same price as the new investor is paying.

     G. Voting Rights of Series A Preferred. Typically, the Series A Preferred Stock will carry a number of votes equal to the number of shares of Common Stock issuable on conversion, and the Series A Preferred Stock and Common Stock will vote together as a class (except in certain instances described under “Protective Provisions”).

     H. Protective Provisions. There are certain instances in which the consent of the Series A Shareholders is required before the company may take a particular action, including a sale of all or substantially all of the company’s assets, an increase in the size of the board of directors, or a change in the terms of the company’s charter or bylaws. The investors will also want to approve increases in executive salaries, annual budgets, and other major matters relating to the business of the company.

     I. Rights Relating to the Founders. The term sheet will often require that the founders agree to have their shares vest over some period of time, and that the founders agree to sign non-competition agreements which will extend for one to two years following the term of their employment with the company.

     J. Anti-Dilution Protection. Investors will want protection if the company issues shares at a lower price per share than the investors are paying. These provisions are built into the rate at which the Preferred Stock is convertible into Common Stock.

     K. Board Seats. The investors will typically want at least one seat (often two seats) on the board of directors, and want to add at least one independent director to the board.

     L. Payment of Fees. The term sheet will require that the company pay the investor’s legal fees. The company should be able to negotiate a cap on this amount.

     M. No Shop. The term sheet will usually require that the company agree not to discuss alternative investments with any other investor for a period of about 30-60 days after the term sheet is signed.

Non-Competition Agreements

Posted in Technology Transactions

Take care when entering into non-competition agreements.

This post deals with non-competition agreements in Texas. These rules vary from state to state so if you are not in Texas, you should consult with an attorney in your state.

For many years, non-competition agreements have been notoriously difficult to enforce in Texas but Texas courts in recent years have taken steps to make it more likely that they will be enforced. By statute, the non-competition agreement has to be “ancillary to or part of” another enforceable agreement and it has to be reasonable as to time, the geographic area covered and the scope of activity that is limited.

For many years, the only “otherwise enforceable agreement” that courts held would satisfy the statute was an agreement at the inception of employment to immediately provide confidential information or training of a unique value. Recent Texas cases have provided a much broader view of an “otherwise enforceable agreement.” One case has held that the “otherwise enforceable agreement” can include a promise of confidential information as long as the confidential information is given at any time during the term of the agreement. Another case has held that the grant of stock options is an “otherwise enforceable agreement.” As a result of these cases, we recommend that companies get a non-competition agreement with their employees as part of a proprietary information agreement (discussed below) on the first day of employment and, if that is not possible, to grant some consideration at the time the employee is entering into the non-competition agreement. At the time of this writing, the only consideration that the courts have held is sufficient is stock options so it is not clear what other consideration might suffice.

Non-competition agreements must also be reasonable as to the territory covered in order to be enforceable. The territory where the employee worked will generally be deemed to be a reasonable territory. In the case of a software company that does business nationwide, the territory can be nationwide. In the case of a consulting company that does business only in one city, the territory should be limited to that city or that metropolitan area. An alternative way to define a “territory” is to limit the employee’s ability to do business with customers he or she did business with on behalf of the employer.

The non-competition agreement must also be reasonable as to time. Texas courts have held one-year restrictions to be reasonable as a matter of law and two-year restrictions are often enforced.

Finally, the non-competition agreement must be reasonable as to the activities that the employee is prohibited from engaging in. The restriction should be similar to the activities the employee performed for the company and may also include activities that would allow the employee to use the employer’s confidential information on behalf of his new employer.

Advisory Board Members

Posted in Technology Transactions

Often a young technology company will seek assistance from more experienced individuals, giving them the position of “Advisory Board Member” and giving equity to a person who agrees to serve in that capacity. This designation should not be taken lightly. There is no question that a young company can get tremendous benefit from having an Advisory Board, but it is important that the company and the Advisory Board Member have a contract setting out the rights and responsibilities of each. Matters that should be included are:

  • Meeting attendance or other expectations, such as a particular number of hours of consultation per month or per quarter.
  • Fees. In a start-up or other young company, this is typically equity and it should vest over the term of the agreement so that if, for some reason, the Advisory Board Member ceases to act in that capacity, he or she has not acquired 100% of the equity. Because there are tax consequences to issuing restricted stock, the Advisory Board Member often receives non-qualified stock options.
  • Reimbursement of out-of-pocket expenses.
  • The term of the agreement. Usually, either party can terminate the agreement with or without cause at any time.
  • Ownership of any written materials, suggested product improvements or other intellectual property relating to your business.
  • Confidentiality provisions, including an obligation to return all confidential material on termination of the agreement.
  • Non-solicitation of employees.
  • Mutual non-disparagement.


A provision clarifying that the company and the Advisory Board Member are not partners and that the Advisory Board Member is not an employee.