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Oops - Common Mistakes by Practitioners Involving IP Law

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oNE hoUR cLE cREDit
ooPs –
mistAKEs BY PRActitioNERs iNVoLViNg
BY michAEL J. mccUE, EsQ.
Attorneys in nearly every area of legal practice deal with intellectual property issues from time to time. However, attorneys who are not well-versed in intellectual property may neglect to spot issues that directly affect their client’s intellectual property rights or potential liabilities. They may fail to advise the client regarding action necessary to ensure that the client’s intellectual property is protected and action to avoid conduct that leads to time-consuming and expensive litigation, as well as potential liability for infringement of intellectual property rights. This article discusses some of the most common mistakes that attorneys make regarding intellectual property.
or county government. However, if the client intends to use the business entity name in commerce to identify the source of goods or services or in connection with other commercial activities, the client’s use of the entity name could potentially result in liability for trademark infringement or dilution. Most courts hold that a state’s registration of a name as a corporate name does not provide a defense to trademark infringement (see J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 9:8). Thus, prior to forming a business entity for a client, attorneys should advise their clients about the potential need to conduct a trademark search and assess the risk of liability arising from use of a particular business name.
failing to Protect trademark Rights in Business formation
If a client intends to use a business entity name as a trademark in connection with the sale of goods or services, attorneys should discuss with the client the potential benefits of state or federal trademark registration and the risk of not seeking registration. While trademark rights are generally acquired based on use of a mark, rather than through registration, the rights are limited to the geographic market in which the client uses the mark and where the mark has acquired a reputation. While a client can rely on common law rights arising from such use, state registration of the mark provides several benefits including the potential ability to obtain attorneys’ fees based on infringement of the mark (see N.R.S. § 600.430). Federal registration establishes prima facie evidence of the ownership and validity of the mark and the trademark owner’s exclusive right to use the mark for the same or similar goods and services in the United States (15 U.S.C. § 1057(b)). Thus, if an attorney knows that the client intends to use a mark outside of Nevada, or wants to preserve the opportunity to do so, the attorney
failing to clear trademark Rights in Business formation
When an attorney forms a business entity for a client, the attorney will determine whether the business entity name is available for registration from the secretary of state in the state of formation and available for registration as a fictitious name with the local city
Nevada Lawyer
November 2011
should advise the client to consider seeking a federal trademark registration. If the client fails to secure a federal trademark registration, the client may be precluded from geographically expanding in the future under the same mark, because third parties may develop rights in the mark in other geographic markets and preempt the client from expanding into other markets.
ignoring iP Due Diligence in Business transactions
Business transactions often require extensive due diligence involving intellectual property rights, yet some attorneys rely solely on representations and warranties. In any transaction involving the acquisition of a business, the buyer should confirm through a chain of title analysis that the seller actually owns the rights to the intellectual property that the buyer will acquire. In addition, the buyer must ensure that the seller has registered, maintained and/or enforced the seller’s intellectual property rights. If the seller has failed to do so, the rights may be lost, unenforceable or less valuable. The sale of trademark rights without the associated goodwill symbolized by the marks could result in a “naked transfer” of the trademark rights, destroying their value. Similarly, the licensing of trademark rights without adequate quality control can constitute a “naked license” that destroys the trademark rights (see Barcamerica Intern. USA Trust v. Tyfield Importers, Inc., 289 F.3d 589, 62 U.S.P.Q.2d 1673 (9th Cir. 2002)). Similarly, the assignment of an intentto-use trademark application prior to filing a statement of use is invalid, unless the assignment is to a successor to the applicant’s business or the portion of the business to which the mark pertains, if that business is ongoing and existing (see Lanham Act, 15 U.S.C. § 1060). In addition, the buyer should ensure that the intellectual property rights acquired are not subject to any infringement claims or existing third-party rights (see Jay Group, Ltd. v. Glasgow, 534 S.E.2d 233 (N.C. 2000) (client sued former counsel in acquisition of a business for failing to discover that acquired business’ trademark applications had been denied based on similarity of marks to a third-party’s marks)).
certain types of specially commissioned works), in which case the employer or commissioning party owns the copyrights (17 U.S.C. § 201(a)-(b)). The ownership of the material object is distinct from the ownership of the copyrights therein (17 U.S.C. § 202). The company who paid for the work merely acquires an implied license to use the work. The contractor can then license or sell the work or the copyrights therein to others, including the company’s competitors. To ensure that the company owns the copyrights in the work, the contract should expressly provide that it is a work made for hire or, alternatively, provide that the copyrights are assigned to the client. Failure to address ownership of copyrights can be a costly mistake, particularly if the client wants to modify the work, sell or license it to others, or prevent the contractor from doing so.
ignoring issues of Joint ownership in intellectual Property
Joint ownership of intellectual property may arise by law and by agreement. While joint ownership sounds conceptually fair in many circumstances, it creates broad and often significant ramifications for the owners. For example, absent an agreement to the contrary, joint owners of a patent may each practice the patent and exploit the patent with no duty to share the proceeds with the other joint owner. In contrast, joint owners of copyrights may exploit the copyrights and license them without the consent of the other owner, but must share the proceeds. The rules become more complicated when dealing with intellectual property rights outside the United States. Thus, when handling any transactions involving joint development or ownership of intellectual property, attorneys must understand and address the default rules applicable to joint ownership.
Losing Potential Patent Protection
If an attorney handles a transaction for a client that involves a potentially patentable invention (such as a business method, process or machine), failure to advise the client of the potential loss of patent rights can be a serious error. If the invention was publicly disclosed or on sale more than one year prior to filing a patent application in the United States, patent rights are lost (see 35 U.S.C. 102(b)). Public sale of the invention even one day prior to filing a patent application will destroy patentability in most foreign countries. If an attorney knows about the potential sale or disclosure of the patentable invention or drafts documents relating to the invention without recognizing this issue, the client may lose potentially valuable patent rights. The Leahy-Smith America Invents Act, which was passed by the House in June 2011 and by the Senate in September 2011, may create further risks for practitioners by moving the patent system closer to a first-to-file, rather than a first-to-invent, system. Thus, practitioners who are not familiar with this legislation may fail to advise clients of the need to promptly seek patent counsel.
ignoring copyrights When Drafting services Agreements
There is a common, but erroneous, belief that if a company hires a contractor to supply a good or perform a service that the company owns any copyrights in that good or the products of that service. For example, if a company hires an independent contractor to write a software program or create an advertising campaign, absent a written agreement to the contrary and with only limited exceptions, the contractor who created the work owns the copyrights in the work. Generally, the author of a work owns the copyrights in the work, unless the work qualifies as a work made for hire (which is a work created by an employee in the scope and course of employment or is among
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slogan arising from advertising activities. The standard language was changed in 1998 to cover infringement of another’s copyright, trade dress or slogan in an advertisement; a clarifying exclusion was added in 2001.
failure to Properly handle intellectual Property Litigation
Litigators who are not well-versed in intellectual property law can easily make missteps that cause substantial prejudice to the client, including failing to seek appropriate remedies (or, on the defense side, failing to properly value cases), failing to pursue secondary liability claims (such as for contributory and vicarious infringement) and asserting or defending claims that are preempted by federal law. For example, the measure of damages for certain intellectual property claims is the owner’s actual damages plus the infringer’s profits attributable to the infringement, but statutory damages may be obtained in some cases (see, e.g., Copyright Act, 17 U.S.C. § 504 (statutory damages for infringement); Lanham Act, 15 U.S.C. § 1117(c) (statutory damages for cybersquatting and counterfeiting)). While election of statutory damages is generally known to preclude recovery of actual damages, it may also affect the ability to recover attorneys’ fees. In addition, in some cases, the court may award double or treble damages, which, if not properly assessed by counsel, can dramatically change the value of a case (see N.R.S. § 600A.050 (double damages for willful misappropriation of trade secrets); Lanham Act, 15 U.S.C. § 1117(b) (treble damages for trademark infringement); Patent Act, 35 U.S.C. § 284 (treble damages for patent infringement)). Some statutes allow for the recovery of attorneys’ fees under certain circumstances, but the right is not always bilateral and the right may be affected by other choices of remedies (see, e.g., Copyright Act, 17 U.S.C. § 505 (attorneys’ fees may be awarded to the prevailing party in the court’s discretion subject to certain limitations); Lanham Act, 15 U.S.C. § 1117(b) (attorneys’ fees may be awarded in exceptional cases); Patent Act, 35 U.S.C. § 285 (same)). Remedies are just one area in the minefield of intellectual property litigation for general litigators.
sending cease and Desist Letters that trigger Declaratory Relief Actions
Many attorneys fail to recognize the risk of sending cease and desist letters relating to intellectual property. Sending a cease and desist letter may create an actual case or controversy sufficient to support a declaratory relief action by the recipient of the letter, even if the letter does not include an overt threat of litigation (see, e.g., Express Scripts, Inc. v. Intel Corp., Case No. 4:09CV00796 (E.D. Mo. Mar. 3, 2010) (cease and desist letter was sufficient to support a declaratory relief action)). Thus, by sending a cease and desist letter, an attorney may unwittingly trigger a lawsuit by the recipient in a forum that is inconvenient or otherwise unfavorable for the client. Yet, many attorneys send such letters without advising the client of the risk of doing so and without discussing other options.
sending cease and Desist Letters that Result in Liability
Sending a cease and desist letter without conducting an investigation to determine whether the client has superior rights in the trademark or other intellectual property at issue is a common error. There have been cases in which attorneys for purported trademark owners sent cease and desist letters to alleged infringers, only to find that the recipients of the letters had superior rights. The outcome could be a dispute that would not have otherwise occurred and potential liability for the client. Thus, what starts as an effort to protect a client’s purported intellectual property rights can result in an injunction and damages against the client.
In any transaction or litigation involving intellectual property, attorneys who are not familiar with intellectual property law should ensure that they seek appropriate help from competent and experienced intellectual property counsel that will help them identify and address intellectual property issues in order to avoid potentially costly and sometimes irreversible mistakes.
failing to Advise the client of Potential insurance coverage for intellectual Property claims
Some attorneys fail to advise clients sued for trademark infringement, copyright infringement or unfair competition, that they may have insurance coverage for the claims. Failure to advise the client of potential coverage could result in a malpractice claim (see, e.g., Darby & Darby, P.C. v. VSI Intern., Inc., 268 A.D.2d 270, 701 N.Y.S.2d 50 N.Y.A.D. 1 Dept. (2000) (client sued counsel for failing to advise client of potential insurance coverage for trademark infringement claim)). Most businesses have general comprehensive liability insurance that provides coverage for “advertising injury.” Policies issued prior to 1998 utilizing standard Insurance Services Office language covered claims for infringement of copyright, title or
Michael Mccue is the head of the intellectual property practice at Lewis and Roca. He has litigated hundreds of intellectual property cases in federal courts throughout the United States. McCue also handles intellectual property transactions, counseling and enforcement. His clients include Visa, MGM Resorts, NBC Universal, Electronic Arts and Nike.
Nevada Lawyer
November 2011
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