Virginia Business Law Update : Virginia Business Lawyers & Attorneys : PCT Law Group : Litigation Defenses, Contract Disputes, Business Formation : Northern Virginia, Arlington, Fairfax, Alexandria

If an employee misappropriates their current or former employer’s proprietary information, and discloses such information to its new employer and/or any other unauthorized person(s), that is enough to establish a violation under the Virginia Uniform Trade Secrets Act (“VUTSA”) so says the Virginia Supreme Court. There is no requirement under the Act that the employee or new employer actually use the misappropriated information to compete with the former employer.

In the case of Geographic Services, Inc. v. Collelo, et al. (2012), the Virginia Supreme Court held that once an employer establishes the existence of a trade secret, all that they are then required to show is that the trade secret was misappropriated as that term is defined under the Trade Secrets Act. The entity from which the trade secret was misappropriated does not have to show that defendants used the trade secret in order to establish a claim under the VUTSA and recover damages. Disclosure of the trade secret is sufficient where it can be shown that the new employer and/or person to whom the trade secret was disclosed knew, or had reason to know, that the trade secret was acquired by improper means. In such cases, where the plaintiff cannot readily prove measurable damages, then the VUTSA provides that the court can impose a reasonable royalty upon the wrongdoers for the unauthorized disclosure of the trade secret.

This decision by Virginia’s highest court provides a cautionary note for Virginia employers: if you know, or should have known, that an employee has obtained proprietary information from its prior employer without its knowledge, you could be on the hook for damages if the employee discloses the information to your company – even if your company never uses the information. The disclosure, in and of itself, will be enough to expose companies to monetary damages. Conversely, companies in which an employee has taken proprietary information can seek legal redress and possibly obtain damages even if the employee and its new company did not use the information.

© Copyright, PCT Law Group 2012, all rights reserved.
 

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There has been a lot of recent talk, blog posts, articles, court activity and even proposed legislation in Congress around the issue of “False Patent Marking.”  What does it all mean and why should small- and medium-sized enterprises (SMEs) care!?  Well, I present answers, in brief, to these questions below.

The first thing to know is that the U.S. Patent Laws allow patent owners to give notice to the public by affixing a notice to the patented product (or its packaging if marking the product is not practical or possible) such as “Protected by U.S. Patent No. 3,141,592”  See 35 U.S.C. § 287(a).  This is colloquially known as the “patent marking” statute.  Absent such a marking, in most cases, a patent owner cannot recover damages for patent infringement unless they can prove the infringer was notified of the infringement.

Second, we know that affixing a patent notice to a product (or its packaging) not only acts as a deterrent to competitors by putting them on notice, but it also has some marketing cache!  Thus, that is why it is common to see not only actual patent number notices, but also notices of “patent pending” on many products.

Third, there is also what is known as the “false marking” statute which prohibits anyone from marking a product (or its packaging) with:

• an expired patent number
• a false patent number
  
• with the words “patent applied for” or “patent pending” when no application for patent has been made or is no longer pending, respectively.
  

See 35 U.S.C. § 292.  Each of these three false marking offenses, however, must be shown to have been done “for the purpose of deceiving the public,” and not merely done as a result a good faith mistake.

What makes the false marking statute interesting is that it contains a whistleblower-type provision.  That is, any private citizen can sue the manufacturer of a product they believe has been falsely marked to recover “not more than $500 for every such offense.”  Thus, one can imagine that if a company produces 1,000,000 units of a product that in some way was falsely marked, a $500M lawsuit becomes very attractive for anyone with the time and the right contingency law firm behind them.  See Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009).  In fact, over 150 of these types of lawsuits have been filed in the last several months alone!  The only drawback is that 50% of any recovery must go to the federal government.  (Thus, the private citizen in my example can keep only $250M of the possible recoveries – still not too shabby!)

On June 10, 2010, a federal court of appeals, interpreting the false marking statute, ruled that “the combination of a false [patent marking] and knowledge that the [patent marking] was false creates a rebuttable presumption of intent to deceive the public.”  See Pequignot v. Solo Cup Co., Case No. 2009-1547 (Fed. Cir.).  A defendant in one of these false marking suits can successfully defend itself by showing via “a clear preponderance of the evidence that it did not have the requisite purpose to deceive.”  For example, the defendant in the Solo Cup case successfully obtained a dismissal of the suit by explaining that they knew the patent number on their products had expired but it was prohibitively expensive and disruptive to the business to prematurely replace the manufacturing molds which contained the now-expired patent numbers.

So, what should SMEs glean from all this hoopla?  Well, four things:

1. If your enterprise manufactures no products covered by U.S. patents, ignore it;
2. If your company has no patents that cover a specific product, do not “fake it until you make it” by marking it with one or more non-existent patent numbers;
3. If your company has not applied for any patents that cover a specific product, do not use the words “patent pending” in an attempt to obtain marketing cache for such product; and
4. If any of your competitors are manufacturing products which you suspect are falsely marked with an intent to deceive the public, consult a plaintiff’s lawyer!

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I was recently contacted by a professor who was seeking advice about a piece of intellectually property (IP) he created, and that his university was profitably exploiting. Who owned the IP? Can he exploit it himself? Was he entitled to share in the proceeds above and beyond his university (base) salary? Not surprisingly, these questions are not rare. After all, universities, colleges and research institutions are hot beds of creativity. In 2008, U.S. universities and research institutions spent over $51.47B in R&D and received 3,280 issued U.S. patents, all while forming 595 new companies in IP “spin-outs.” [1]

Given this setting, who then owns the IP created by someone within a university community? Intuitively, the answer seems simple in the case of a tenured, research professor who develops IP related to their university research duties – the university owns it! But how about the case of an undergraduate student who creates IP totally unrelated to any of her coursework!? The student? How about certain university community citizens, such as university executives, administrators, (exempt or nonexempt) staff, graduate students, postdoctoral fellows, wage payroll employees, adjunct faculty, emeritus or retired faculty, visiting scholars and others? The analysis for those university community citizens is often a fact-intensive endeavor.

In general, under varying applicable state and federal laws where the university employs the individual in question, there is a presumption that the employee owns the rights to their IP, even though it may have been created during the course of their employment. This general rule, however, has two exceptions and one limitation.

•  First Exception: If the employee has an express employment agreement, stating the contrary (i.e., an employee agreement assigning all IP to the employer/university), then the general rule does not apply.
• Second Exception: If the employee was specifically “hired to invent,” later directed to solve a specific problem, or his employment requires that he exercise his “inventive faculties,” then the above-stated general rule also does not apply.
• Limitation: Even when none of the two exceptions to the above-stated general rule apply, the employer – in the case of patented inventions – may have a non-exclusive, non-transferable, royalty-free license to practice the employee’s patented invention if it was made using the resources of the employer. This is known as an employer’s “shop right.”

An overwhelming majority of universities have an “official intellectual property policy” that requires employees, as a condition to employment, to assign their IP rights under certain circumstances (e.g., when university funds or facilities are involved in the creation of the IP). Thus, most situations fall under the above-stated first exception even though many professors and postdoctoral fellows fail to read such policies when they sign their employment agreements!

So what about the case of the undergraduate student who created IP totally unrelated to any of her coursework? What if that IP was created without a professor’s help? Well, in a recent reported case having those exact facts, a university’s lawyers demanded a 25% ownership stake and two-thirds of any profits from four undergraduate students who created a popular iPhone® application in their dorm room! Although the university eventually backed down, one campus technology transfer expert has observed that many universities “generally seek to retain ownership, or at least have a formalized mechanism for assessing ownership of a student’s work in much the same way they would regarding a faculty member’s work.”

In sum, those working/learning/creating within a university community should become familiar with their university’s intellectual property policy at the start of their affiliation, and pay attention to the agreements they sign as a part of the new university employee “on-boarding” process. And, when potentially valuable new IP is created, be vigilant about asserting their rights in such IP.

 [1] Association of University Technology Managers, AUTM U.S. Licensing Activity Survey, FY2008: Survey Summary.

 

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In the current recessionary economic climate, there is one customer that is arguably still spending a lot of money to receive goods and services – the U.S. federal government. For many small businesses trying to team with government agencies, the best approach may be to team with a larger company that can supplement your small business' skill sets, and provide leverage and credentials you may not yet have acquired. In pursuit of these contracts, it is vital to pay attention to your small business’ intellectual property (patents, trademarks, copyrights, trade secrets).

By encouraging teaming of large government contract firms with small businesses, government agencies can benefit.  Government agencies fulfill their goal in carrying out the principal tenet of the original Small Business Act (1953) – to encourage and develop small business growth. By consolidating their buy requirements with a single contractor, government agency buyers of goods and services can reduce their administrative burden, program management costs and risks, all while expanding opportunities for small business that result in overall increased competition and the fostering of innovation.

So, what’s in it for the large firms? Well, both small and large companies benefit from teaming. While a small company can tap its larger counterpart’s knowledge, experience and purchasing power, the larger firm gains access to small business set-aside opportunities. For example, by partnering with Service-Disabled Veteran Owned Small Businesses (SDVOSB), large firms can access one of the hundreds of monthly set-aside contracting opportunities for which they would otherwise be ineligible to compete. Also, partnering with a small business can enhance a large business’ relationship with various federal contracting agencies as many struggle to meet their set-aside goals. The mutually beneficial relationship of the teaming arrangement results in a highly-efficient and diversified team capable of winning new business and providing excellent customer service to the government.

Regardless of the mechanics of a large government contractor-small business teaming arrangement, smaller firms – simply because they are small and are eager for new business – have to be vigilant about their intellectual property rights. For example, unbeknownst to many small, high-tech firms is that Section 52.227-11(k)(3) of the Federal Acquisition Rules makes it illegal for a large firm to require a small business it is partnering with on a government contract to give up any IP rights as a precondition to working on the contract. Thus, there is a statutory framework that levels the playing field in negotiations with large firms. This statutory level playing field, however, only applies to patent rights. For a small firm’s innovations protected by trade secret, copyright or trademark, extra vigilance is required when negotiating such agreements to preserve these forms of IP rights.

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In today’s knowledge economy, intellectual property (copyrights, patents, trademarks, trade secrets) can play a tremendous role in the success of a small or medium-sized business. By gaining a better understanding of trademarks, trade secrets, copyrights, and patents, and how they affect your business, you can effectively manage these tools and use them to your advantage.

Trademarks help you protect the name of your business, products and services. Perhaps the most important asset of any business is its name.  Your business name and that of your products or services establish your reputation. Therefore, it is important to protect that name and reputation by applying for trademarks and registering them with the United States Patent and Trademark Office.

Trade secrets also play an important role in your business. Trade secrets include secret recipes, formulas, or manners in which you conduct your business. For someone owning a bakery or manufacturing a certain type of food, the recipe you use should be kept secret in order to ensure that no one can replicate your products. A trade secret can also be process that saves money over known processes.

Copyrights and patents generally relate to creations of the mind. Those in the service businesses will probably not require a patent or a copyright to do business, nor should they worry about the copyrights and patents of another. On the other hand, those who create or develop products for manufacture or sale will probably need to consider obtaining copyrights to protect their writings or other expressions of ideas and patents to protect and enforce their rights to manufacture, use or sell an improved product or service.

Let’s look at Richmond-based company, Reynolds Metals Company (recently acquired by ALCOA). The company, now commonly known for its food storage supplies and containers, was founded in 1919 by R.S. Reynolds, as tin foil supplier for cigarette and candy companies. Shortly after its creation, the company turned its sights towards using thin aluminum foil for food storage. By 1926, Reynolds Metals was producing the first high-speed, gravure-printed foil, aluminum bottle labels, heat-sealed foil bags for foods and foil-laminated building insulation paper. Since then, the company has invented countless food storage devices and has become a household name in America. It currently holds hundreds patents and has a plethora of trademarks and trade secrets. These patents, trademarks, and trade secrets protect Reynolds® brand innovations. Without doubt these patents, trademarks, and trade secrets have aided Reynolds in the success in establishing itself and positioning it among America’s successful companies.
 

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