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Five Attorneys Decipher Intellectual Property Law

What the latest developments in patent and trademark law mean for Minnesota businesses.

Five Attorneys Decipher Intellectual Property Law

At a time when the United States is fighting with China over intellectual property disputes, it’s tough to keep pace with every major development in the field of patent and trademark law. Twin Cities Business asked five intellectual property attorneys to illuminate some of the challenges companies face in navigating IP laws.

They also explained the ramifications of some landmark court cases affecting patents and trademarks. All of the attorneys who shared their insights have extensive experience in IP law, and they all work for large, well-regarded firms with offices in the Twin Cities.


Safeguarding Trade Secrets

Kerry Bundy

Partner
Faegre Baker Daniels LLP

Based on your experience in trade-secret litigation, what are the most important actions businesses should be taking to safeguard their intellectual property? Many Minnesota companies operate in global markets and have facilities in multiple countries. How does that reality complicate the ability to protect trade secrets?

What differentiates trade secrets from other types of intellectual property is that their economic value is derived from being kept secret. Potential threats to a company’s trade secrets are everywhere, including employees, suppliers, competitors, and foreign governments. Companies wanting to safeguard their trade secrets should consider several avenues of protection, including: limiting access to the trade secrets to those with a need-to-know; implementing physical and electronic security measures; creating agreements and policies that bind those with access to a duty of confidentiality; and following those policies and enforcing the company’s rights.

A company should scrutinize with whom it shares its trade secrets. The first question to ask before giving access to trade secrets is whether the recipient really needs access. Does the entire operations team need access to the secret manufacturing process? Does the ingredient supplier need to see the secret recipe? The fewer people who know the secret, the fewer people there are to disclose it. This is particularly relevant when dealing with global partners, where a company’s practical ability to control the subsequent dissemination of its trade secrets may be hampered.

If a company provides access to its trade secrets, it should do so only after the recipient has agreed to keep the information confidential. The easiest way to accomplish this is through nondisclosure agreements. Companies also may implement confidentiality policies/codes of conduct with their employees, and provide confidentiality training. The key to success is ensuring that the programs implemented are adhered to and enforced. When employees understand that the company’s competitive advantage (and their job security) depends on protecting trade secrets, they are generally incentivized to protect the information.

Finally, implementing reasonable physical and electronic security measures is critical. Locked doors, password-protected drives, security guards or cameras, key-card access, disabled copy and export functions, and log-monitoring software are just a few common options. What measures are used will involve balancing the need to protect the information against the need to access it. Also, security measures must be assessed regularly, so they evolve with technology.
 

IP law is continually evolving. Is there a particular legal case outcome or dispute-resolution change that’s occurred recently that will have a major effect upon businesses? What is that development and what are the ramifications for Minnesota businesses?

In 2016, Congress passed the Defend Trade Secrets Act (DTSA) which makes it easier for Minnesota companies to protect against and remedy theft of their trade secrets. The DTSA created a federal cause of action for trade secret misappropriation. Before the DTSA passed, trade secrets were regulated by state law. There were some geographic differences and jurisdictional challenges among the state laws. Now, with a federal cause of action, a more consistent body of trade secret law and procedures is being developed. Also, now, with a federal forum, trade secret owners also have nationwide service of process available to them, which is a significant benefit in cases that require swift action to address misappropriation.

The DTSA also created a powerful tool to stop trade secret theft, the ex parte seizure. The DTSA authorizes courts, in certain extraordinary circumstances, to issue an order—without notifying the defendant—allowing law enforcement to seize the stolen trade secrets. This relief, which was intended to address the risk that trade secret thieves will flee the country or disseminate trade secrets when they learn of a court action, has been infrequently sought and rarely granted since the DTSA was enacted. But trade secret owners should be assured that if they face a worst-case misappropriation scenario, they have a vital remedy at hand.


Recovering Lost Profits

Ronald Schutz

Executive Board Member
Managing Partner, New York Office
Robins Kaplan LLP

The U.S. Supreme Court has had a major effect on intellectual property law in recent years. Under current law and recent court rulings, in patent infringement cases what is the ability of a patent owner to recover worldwide lost profits?

U.S. patent law, like almost all U.S. laws, does not generally apply to extraterritorial activity. In other words, if someone has a U.S. patent they cannot sue someone for infringing it based on overseas activity. But the patent statute has an exception when someone in the United States ships the components of a patented invention overseas where it is assembled or ships a key component overseas for assembly with other components.

This exception to the extraterritorial application of U.S. patent law was designed to ensure that one could not escape liability for patent infringement by having an item that was covered by a patent assembled overseas. Until a few months ago, courts had not allowed U.S. patent owners the ability to recover their lost profits for their lost overseas sales of patent products where the lost sales were the result of someone assembling a competing product from components shipped from the U.S.

On June 22 the Supreme Court in the case of WesternGeco LLC v. ION Geophysical Corp. changed that.

WesternGeco owned four patents covering a system for surveying the ocean floor, which it did not license to competitors. Rather, it used the system itself to perform surveys for oil and gas companies. The defendant, ION Geophysical, began selling a competing system that was assembled overseas from components manufactured in the U.S. At trial WesternGeco proved that it lost 10 survey contracts because of ION’s infringement and it was awarded its lost profits from those contracts. The Supreme Court reversed a lower court decision and held that WesternGeco was entitled to its lost overseas profits.

As a result of this case, patent owners now have the ability to recover lost profits from lost overseas sales of something covered by a U.S. patent if those sales were lost to a competitor who shipped components from the U.S. and assembled them abroad.
 

IP law is continually evolving. Is there a particular legal case outcome or dispute-resolution change that’s occurred recently that will have a major effect upon businesses? What is that development and what are the ramifications for Minnesota businesses?

One of the most significant impacts on IP law affecting Minnesota businesses came from another Supreme Court case that changed where a plaintiff could file a patent infringement suit. For years businesses in Minnesota and elsewhere were frustrated that they could be sued for patent infringement in places where they had very little contact, such as the Eastern District of Texas.

A little over a year ago, the Supreme Court, in the case of TC Heartland LLC v. Kraft Foods Group Brands LLC, held that a plaintiff could only sue a defendant where the defendant was incorporated or had committed acts of infringement and had a regular and established place of business.

This substantially narrowed the places where a defendant could be sued and has resulted in far fewer cases being brought in the Eastern District of Texas, a place viewed by most commentators as very friendly to patent holders. For Minnesota businesses planning to file a patent infringement suit, this narrows their options. For Minnesota businesses who find themselves named as a defendant in a patent infringement case somewhere where they don’t have a regular and established place of business they will now be able to argue that the case must be transferred to a friendlier jurisdiction.


Asserting U.S. Patent Rights

Clint Conner

Partner
Dorsey & Whitney LLP

Business leaders in the U.S. long have been concerned about intellectual property theft by China. From a legal standpoint, what can American companies do to protect their intellectual property? Also, are improvements being made to China’s in-country patent system?

The most important thing American companies can do to protect their IP vis-a-vis Chinese companies is to seek formal IP rights, because simply maintaining secrecy over valuable technology is often not a viable option. China requires disclosure of confidential information for certain product approvals. Additionally, China requires foreign entities in certain industries to form joint ventures with Chinese companies, and those arrangements typically require disclosure of trade secrets (such as, for example, source code) to the joint venture partner.

Chinese patents give American companies leverage to limit use of their technology in China and the means they need to enforce their rights in China in instances where trade secret protections fail.

China has strengthened its patent system over the last several years in ways that should ease concerns about unfair treatment and help provide a level playing field for foreign entities. For example, in 2014, China established three specialized IP courts —in Beijing, Shanghai and Guangzhou—that provide foreign patent owners with options for avoiding highly localized courts that are most susceptible to political influence. As another example, Chinese courts have recently awarded infringement damages to patent owners, including to foreign entities, in amounts that were unheard of just a few years ago. These developments should discourage infringement and establish precedent that should benefit patent owners, Chinese and foreign alike.

On the other hand, U.S. district courts and the U.S. International Trade Commission (ITC) provide effective forums for asserting U.S. patent rights to stop importation of infringing Chinese products into the U.S. The ITC has proven to be an effective forum for stopping infringing importation involving shadowy Chinese companies and widespread infringing importation involving China. After a patent owner prevails at the ITC, U.S. Customs is directed to stop infringing products from entering the country.


IP law is continually evolving. Is there a particular legal case outcome or dispute-resolution change that’s occurred recently that will have a major effect upon businesses? What is that development and what are the ramifications for Minnesota businesses?

Two recent developments stand out as having had a particularly significant impact on U.S. patent law and, consequently, Minnesota businesses: one, the America Invents Act (AIA); and two, the Supreme Court’s decision in Alice Corp. v. CLS Bank.

The AIA, which went into effect in 2012, established new procedures for challenging the validity of issued patents at the Patent and Trademark Office (PTO). Accused infringers now regularly petition the PTO to institute one of the new procedures, most commonly inter partes review (IPR). They have proven effective for invalidating patents. By way of illustration, the PTO has instituted AIA procedures in response to nearly 70 percent of petitions filed, and, of the procedures instituted, nearly 70 percent have resulted in cancellation of all challenged patent claims. The Supreme Court confirmed the constitutionality of IPR proceedings in a highly anticipated decision in April.

Separately, there has been a spike in the number of patents invalidated for claiming unpatentable subject matter over the past several years. Practitioners generally attribute this development to the Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank, which outlined a framework for determining patent eligibility. The court held, among other things, that an abstract idea does not become patentable by virtue of implementing it on a general-purpose computer. Courts applying Alice have invalidated many software and business methods.

Many practitioners think these developments are major factors in what appears to be an increased reluctance by patent owners to enforce their patents in court.


Using IP Protections Under Chinese Law

Robert Oberlies

Shareholder
Fredrikson & Byron PA

You’ve worked in China for more than a decade and are now chair of your firm’s China practice and co-chair of the firm’s Cross-Border Mergers & Acquisitions practice. The Trump administration’s tariffs against China are linked to U.S. complaints over intellectual property theft. How would you define the IP problem with China? Now that there appears to be a trade war, how can Minnesota-based companies with global operations do business in China?

The IP problem with China is principally two-fold. For one, U.S. businesses have expressed concerns over what they view are forced technology transfers. U.S. and other foreign companies often say they have to make undesirable concessions in technology transfer in exchange for access to the China market.

Second, U.S. companies also face a heightened risk of intellectual property infringement. While China has made improvements on these issues in the past three decades, tougher sanctions and penalties for intellectual property infringers and other reforms are still needed. In the absence of these protections, we work with our clients to find other strategies to protect their IP and mitigate these risks, such as:

  1. Using existing protections available under Chinese law for patents, copyrights, trademarks, and trade secrets. Some companies make the mistake of concluding that because of the challenging IP enforcement environment, it’s not worth filing for patents and certain other IP rights. Such an approach does not typically end well for such companies.
  2. Putting in place carefully drafted contractual measures for tech transfer agreements, licensing agreements, and trade secrecy agreements that are governed by Chinese law and drafted specifically for enforcement in China. Some companies make another common mistake, concluding that contracts are not enforceable in China so it’s not worth the resources putting any agreements in place, let alone well-drafted agreements. This too can be a costly mistake for such companies.
  3. Analyzing the client’s technology to assess its vulnerability to theft, given the relative ease or difficulty of it being copied or taken.
  4. Identifying stronger technological fail-safes and security protocols, such as China-compliant encryption products and enclave networks.

These measures can go a long way toward protecting against both large- and small-scale infringement, allowing clients to mitigate these risks while not missing out on the opportunities the China market can offer their businesses.


IP law is continually evolving. Is there a particular legal case outcome or dispute-resolution change that’s occurred recently that will have a major effect upon businesses? What is that development and what are the ramifications for Minnesota businesses?

A significant development recently was the ruling in China against leading U.S. semiconductor manufacturer Micron. This was an IP case coming out of the Intermediate People’s Court in Fujian, China, which issued a preliminary injunction against Idaho-based Micron in favor of Taiwan-based UMC and Fujian-based Jinhua. It effectively stops Micron from making, using, selling, importing, or exporting many of its products in China, a market that makes up close to half of Micron’s $20 billion in annual sales. Preliminary injunctions are rare in China, partly because they cause irreparable harm to the party being enjoined. The Fujian provincial government is an investor in Jinhua.

Many commentators view this as a politically motivated case. The assertion is that the Chinese government, which sees China’s dependence on foreign semiconductors as a national security issue, used its patent system to not only allow Jinhua to expropriate Micron’s technology, but also to allow Jinhua to block Micron from using Micron’s own technology in China (that is unless Micron can reach a monetary settlement with Jinhua and possible technology sharing of some kind).

Micron appears to be an early casualty of the U.S.-China trade war. For Minnesota companies, it is a cautionary tale of China’s focus on obtaining crucial technology to allow it to become a global competitor in high tech, including in semiconductors, robotics, and electric vehicles. Fortunately, the enforcement regime for non-politically motivated cases has been improving.


Protecting Trademark Rights

Karen McDaniel

Shareholder
Briggs & Morgan PA

In the area of trademarks, what legal steps should a business take to protect a trademark? Also, when is a product considered “generic” as opposed to when there is a legally enforceable trademark?

Once a business chooses a word, phrase, logo, design, or other sign that it would like to use as a trademark, it may obtain a trademark registration to protect its rights.

A federal trademark application (which provides protection throughout the United States) can be filed either before or after a business begins using the trademark. Trademark applications may also be filed in countries outside the United States, as generally each country administers its own system.

When the business begins using the trademark, it is recommended that the trademark be marked with the “TM” symbol after the trademark in the case of goods or “SM” in the case of services. The trademark should be marked on the products themselves or product packaging, and in at least the more prominent uses of the trademark in advertising materials. The “TM” or “SM” symbol indicates that the business is claiming rights in the trademark. Once a trademark is registered in the U.S. Patent and Trademark Office, then the registered trademark should be marked with the ® registration symbol to put others on notice that the trademark is registered.

Trademark rights cannot be developed in “generic” terms. Basically, a term is generic if the public would understand the term to be a name for those goods or services. For example, the word “APPLE” cannot be used as a trademark for apples, because “APPLE” is the generic name for those goods. However, “APPLE” can be used as a trademark in connection with computers, because “APPLE” is not a generic name for those goods.


IP law is continually evolving. Is there a particular legal case outcome or dispute-resolution change that’s occurred recently that will have a major effect upon businesses? What is that development and what are the ramifications for Minnesota businesses?

About four years ago, a Supreme Court case, Alice Corp. v. CLS Bank, commonly known as Alice, called into question whether software could be patented, or whether software lacked patent eligibility because it was an abstract idea and therefore unpatentable.

Courts were dismissing lawsuits involving patent software immediately out of the gate for failure to state a legal claim. More recently, the pendulum has begun to shift.Following Alice, questions about patent subject-matter eligibility in other fields were raised, such as whether claims relating to certain business methods were patentable. District courts, which are charged with evaluating patent claims, jumped on the bandwagon, and industry experts estimated that more than 70 percent of claims relating to software were invalidated in the first two years after the Alice decision. Legal practitioners began to think of software patents as dead. Not only was the Patent Office rejecting proposed software claims in patent applications claims left and right, courts were dismissing lawsuits involving patent software immediately out of the gate for failure to state a legal claim.

More recently, the pendulum has begun to shift. The appellate court for all patent matters, the Federal Circuit, now essentially requires courts evaluating such cases to look at the substance of the patent claims asserted in the particular case, rather than just wholesale dismissing the case because the patent involved relates to software. My partner, John Lunseth, recently won a pivotal ruling on this issue at the Federal Circuit, which makes it easier in cases involving infringement of a software patent to receive treatment by the courts that is equal to that given in cases not involving software patents.

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