Intellectual Property Capture and Protection Strategies ... · •Intellectual property functions...

FINANCIAL INSTITUTIONS

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Intellectual Property Capture and

Protection Strategies for Oil & Gas

Technology Business

June 5, 2013 Mark Sajewycz, Brandon Potter & Tony Morris

Partners @ Norton Rose Fulbright

(1) Patent vs. Trade Secret Protection

Intellectual Property

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• Intellectual property functions to exclude competitors from the marketplace

– Monopoly power → charge higher prices, earn supernormal profits (i.e. higher than those achievable in a competitive marketplace) → attractive for business organization

• The concept of “intellectual property” for promoting valuable societal objectives, by rewarding people for their hard work / creative efforts, and thereby incentivizing such further activity.


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• Like other property, intellectual property may be sold or licensed.

• Licensing model is attractive:

– when game – changing technology with wide application;

– your existing infrastructure is unable to satisfy customer demand;

– for enabling access to foreign markets; or

– when invention relates to non-core technology.


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• The main types of intellectual property regimes include:

– Patents;

– Trade Secrets;

– Industrial designs;

– Trademarks; and

– Copyright

• Patents and trade secrets are the most relevance intellectual property vehicles for oil and gas technologies.

Patents

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• A patent is a time-limited exclusionary monopoly:

– a patent grants its owner the right to exclude others from making, using, and selling an invention in a specific jurisdiction for a limited time;

• Patents incentivize innovation:

– without monopoly power, unlikely to recoup R&D costs, as competitors would be able to freely copy, and commercialize at lower prices as they do not have to make-up R&D costs.

• Patents promote spillover innovation:

– patent documents are required to provide detailed information about the invention;

– others can springboard from such information to develop other inventions.

Practical Advantages of Patent Protection

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• By providing the right to stop others from using the invention, a patent can provide its owner a competitive advantage in the marketplace, enjoying an exclusive right to sell a superior product/service in the marketplace.

• Useful as a defensive tool in threatening retaliatory enforcement in response to third party’s assertion of its own patents.

Patents

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• A patent protects an invention.

• Eligible subject matter includes:

– a process;

– a composition of matter; or

– a machine.

• Oil and gas technologies typically fit within one of these categories.

Patents

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• But, wouldn’t a competitor be able to avoid patent infringement by making a minor modification to what I have patented, and begin competing with me?

• Maybe....if your patent is poorly drafted

Patents

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• Very important for patent to be well-drafted → no second chances.

• Theoretically, can re-file to optimize rights or correct mistakes → but likely too late for that.

• Often, poorly drafted patent applications not recognized until years later.

• By that time, poorly drafted patent application has been published, becoming prior art even against one’s own future patent applications, including any attempted re-filing.

Patents vs. Trade Secrets

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• Patents

– protection for subject matter that is new and non-obvious;

– jurisdictional in nature;

– of limited duration (typically, 20 years after filing date);

• Trade Secrets

– protection for subject matter that is secret / confidential, not publicly available;

– not jurisdictionally limited;

– potentially, of perpetual duration;

– however, ceases to exist once subject matter becomes publicly known, whether through inadvertence, or theft, or by independent third party development.


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• Patents and Trade Secrets are incompatible, must choose between the two

– patent documents eventually become published;

– once published, any information described in the patent document loses any trade secret quality.

• In some jurisdictions (e.g. Canada), if you choose trade secret protection, you are vulnerable to patent infringement liability to competitor who later invents and secures patent protection for same invention


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• Generally, bias towards patenting where:

– invention is publicly visible in commercial product/service;

– customers are unwilling to sign NDA's;

– high employee mobility;

– governmental regulation requires disclosure of technology (eg. for project approval/licensure by ERCB);

– licensing opportunities

– collaborative relationships in existence or foreseen; and

– high likelihood that competitor will develop same invention in the future.

Observations on IP Landscape of Oil & Gas Industry

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• Generally, stronger bias towards patenting for oil and gas service companies because:

– dealing with multiple customers;

– customers are reluctant to sign NDA's;

– highly competitive environment, competitors likely attempting to develop same invention, in parallel.


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• Innovators collaborating with major oil and gas operating companies:

– validating technology: partner with oil and gas operating company to build pilot plant at operating site, demonstrate proof of concept, and thereby validate technology for adoption by industry;

– developing technology with significant financial risks: some technologies (e.g. oil sands extraction) require significant R&D investment and assumption of risk, such that operating company is obvious choice for partner;

– deal is carefully structured to balance: (i) R&D partner’s interest to be fairly compensated for risk taking and contributions, and (ii) innovator’s interest to commercialize with other customers (provide head start, better terms to R&D partner?).


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• Opportunity to develop IP position in extraction/production technologies for “hard-to-reach” oil & gas resources

– e.g. oil sands, heavy oil, tight oil, and shale gas;

– why?: conventional resources being depleted, and availability being compromised by geopolitical factors;

– technological challenges exist to extract “hard-to-reach” resources;

– technology solutions to these challenges will be very valuable

– improve competitiveness; and

– licensing potential


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• Opportunity to develop IP position in heavy oil upgrading technologies

– competitive pressures created by increased U.S. oil and gas production resulting from technology advances (e.g. horizontal drilling, fracking);

– response is to improve efficiency of heavy oil upgrading processes, and thereby reduce costs.


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• Opportunity to develop IP position in clean technologies for mitigating environmental impact caused by extraction and upgrading of oil & gas resources

– increasing environmental regulation of oil & gas extraction and upgrading operations will incentivize development;

– creation of COSIA signals an appetite for adoption of clean technologies by oil sands operators;

– capture of clean technology IP improves competitiveness and provides licensing opportunity.

Conclusion

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• Important to protect oil & gas technologies with patents or trade secrets

• Patents are particularly important for oil & gas service companies

• Innovators may -need to collaborate with major oil & gas companies to validate and/or further develop technology

• Potentially lucrative opportunity for developing and exploiting intellectual property relating to:

– extraction/production of hand-to reach resources;

– heavy oil upgrading technology;

– clean technologies.

[email protected]

(403) 264-5973 (Calgary)

(2) Ownership Issues

To Start … Some Basic Questions

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• What is being created

– work of authorship = copyright law

– invention = patent law

– proprietary information = trade secret law

• Who is doing the work?

– is the creator an employee or contractor of the company

– a fiduciary …

• Where is the work occurring?

– inside or outside of Canada

– in cyberspace

– in space??

What is Intellectual Property

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• Copyright

– works of authorship (literary, musical, dramatic or artistic works)

– protects the expression of an idea … not the idea itself

– moral rights

• Patent

– inventions

– must be useful, new and non-obvious

• Trade Secret

– confidential information (technical, financial, business plans, etc.)

• Trade-mark , Integrated Circuit Topography and Industrial Design

What is Intellectual Property (Copyright)

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• Copyright

– works of authorship (e.g. software, reports, manuals, databases, etc.)

– protects the fixed expression of an idea … not the idea itself

– sole right to reproduce the work

– registration not necessary

– life + 50 years

• Ownership

– general rule: the author is the first owner of copyright

– exception: if the author is an employee and the work is created in the course of employment → the employer if the first owner of copyright

– important to distinguish employee vs. contractor

– no written assignment = contractor ownership

– joint and collaborative ownership are possible


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• Joint Ownership

– could arise from multiple authors, or a partial assignment of rights

– consider collective works (e.g. compilations) vs. joint authorship

– collective works will have separate copyrights in the individual (sub)works and the work as a whole

– in Canada, a co-owner may not license the work to a 3rd party without the consent of the other co-owner(s)

– can license without consent on a non-exclusive basis in the US, but must account to the other co-owner(s) for any licensing profits

– can always be changed by an agreement between the parties

– important to consider when collaborating on research with third parties


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• Also ... Don't Forget Moral Rights!

– an author’s right to the integrity of the work

– the right to be associated with a work, or remain anonymous

• Ownership

– moral rights can only be connected with the author of a work

– can't be assigned … only waived

– not in the US (at least not under copyright law)

What is Intellectual Property (Patent)

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• Patent

– protects the functional features of an invention (i.e. how it works)

– invention cannot be public

– registration necessary

– application + 20 years

• Ownership

– general rule: all rights originate with the inventor(s)

– absent assignment to a 3rd party → the inventor owns the patent rights

– multiple owners of patent rights are possible

– joint ownership has different consequences depending on the jurisdiction

– can be altered by contract

What is Intellectual Property (Patent)

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• Joint Ownership

– could arise from multiple inventors, or a partial assignment of rights

– Canada → a co-owner cannot dispose of anything less than his entire interest in the patent without the consent of the other co-owner (including granting licenses to third parties)

– US → the co-owner of a patent may dispose of his entire interest in the patent or any part thereof without having to account to the other co-owner (including granting licenses to third parties)

– can always be changed by an agreement between the parties

– important to consider when collaborating on research with third parties

What is Intellectual Property (Trade Secret)

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• Trade Secret

– subset of confidential information

– reserved for more technical information such as formulae, recipes, patterns, processes and devices

– derives its value from being "secret"

• Ownership

– governed by common law rules

– general rule: an employee will own their inventions unless:

– there is a contract in place stating otherwise

– the duties and responsibilities of the employee include an obligation to invent

– the employee owes a fiduciary duty to the employer

Protecting Ownership … Employees

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• Factors to Consider

– whether the employee was hired for the express purpose of inventing

– whether the employee had made the inventions prior to the time they were hired

– whether the employer had incentive plans encouraging product development

– whether the conduct of the employee, after the invention, suggested ownership was held by the employer

– whether the invention was a result of a problem the employee was instructed to solve

– whether the invention arose as a result of consultation with the employer

– whether the employee was dealing with confidential employer information

– whether it was a term of the employment that the employee could not use the ideas to their advantage


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• The Duty of Good Faith, Loyalty and Fidelity

– to serve the employer faithfully

– not to compete with the employer

– not to reveal confidential information

– not to conceal from the employer facts which ought to be revealed

– provide full time service to the employer


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• Post Termination

– An employer can only attempt to safeguard its trade secrets, confidential business information, data about its customers and suppliers and the firm's goodwill from being exploited by a former employee; it cannot prevent a former employee from using skills, general technical knowledge and expertise, even if gained in the course of employment

– As a general rule, an employee may leave his employment and lawfully compete against his former employer, taking with him knowledge gained in his former employment, but he may not take or use against his employer any of his employer's trade secrets, confidential information or customer lists, whether during or after his employment


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• Courts Will Restrain a Former Employee From …

– publishing or divulging that which was communicated in confidence under an express or implied contract not to divulge

– generally making improper use of information obtained in the course of confidential employment

– using, to the former employer's detriment, information and knowledge secretly obtained during employment

– using confidential information as a "springboard" for activities detrimental to the employer

• Employee Can …

– obtain employment with a competing organization

– use their skills gained during employment

– solicit customers (without taking lists)

– solicit other employees of the former employer

Protecting Ownership

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• Ways to Vary the Default Rules

– contractual agreement

– assignment

– license

– waiver of rights

• Can be Standalone or Part of a Larger Agreement

– collaboration or research agreements

– employment agreement

– public body policies → colleges and universities

– funding agreements


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• Copyright – consider whether the author is an employee or an independent contractor

– always have a written assignment in place

– this can be standalone or part of a larger agreement

– include a waiver of all moral rights

– consider any underlying copyrights

• Patent – always have an ownership agreement in place


– takes steps to avoid public disclosure

– file within the statutory timeline

– deal with any joint ownership issues up front


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• Trade Secret

– always have an ownership agreement in place and enforce it


– take necessary steps to maintain "secrecy" (e.g. NDA's, data security policies, etc.)

– refrain from presenting speeches, papers, publishing materials, etc. if the information disclosed would enable others to discover the nature of the information

– ensure any product sold manufactured using the trade secret cannot itself provide sufficient information for others to discover the nature of the trade secret

– confirm no information is leaving the organization when an employee resigns / is terminated

Common Issues

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• Just a Few Things to Watch Out For

– only considering IP ownership after the fact

– no process for identifying when IP is created

– failing to get agreements dealing with ownership → “not really necessary”

– allowing employee creators to act as if they have ownership

– not having the proper safeguards in place with respect to trade secrets and confidential information

– employees coming and going with trade secrets → entrance and exit interviews

[email protected]

(403) 267-8184

(3) Intellectual Capital and Licensing

Intellectual Capital Defined (?)

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• MC = PC + FC + IC

so

IC = MC - (PC + FC)

• IC is made up of:

– Human Capital

– employee skill, know-how and expertise

– Structural Capital

– supportive infrastructure, processes, technologies and systems that allow HC to function

– includes innovation capital (like IP)

– Relational Capital

– third party relations that derive value (e.g. customers)

• The "price" of a brand, for example

Top 10 Brands

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Intellectual Capital Management

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Intellectual Capital Management Programs

• A strategic vision for the company's IC

• Governance Models to encourage the coordination and leveraging of knowledge.

– begin with an IP audit

– develop and implement corporate-wide policies and processes

– create communities of practice to facilitate the exchange and proliferation of knowledge

– encourage sustained learning and innovative thinking

– continuously evaluate new ideas and determine appropriate protection

• Develop licensing, partnering and other business opportunity maximization programs

– set up contract management programs

– implement tax minimization strategies

– establish programs to identify, protect and correctly assert the organization's IP and other knowledge-based rights

• Use benchmarking or other accurate techniques to measure the performance of the Program

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Mechanisms to Initiate an ICM Program

• Define its scope and its strategic vision

• Implement policies and to:

– understand the processes by which the company creates, develops, acquires, perfects, maintains and uses IP or other types of knowledge

– accurately map the process by which knowledge is shared within the company

– promote constant employee learning and awareness of the company's knowledge

– continuously monitor knowledge bases in order to allow the company to act quickly to enforce it's knowledge-related rights

– consistently apply a legal compliance program

• Incorporate the following typical elements:

– concentrate ownership and management of all company IP in one (often the parent) company

– conduct a periodic knowledge and IP audit, before a transaction

– measure the costs and benefits of protecting acquired knowledge

– encourage early disclosure of new ideas, IP or knowledge

– evaluate appropriate confidentiality levels as well as knowledge disclosure

– implement continuing employee education and incentive programs regarding effective use of the company's knowledge base

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Mechanisms to Initiate an ICM Program

• Employee recruiting process:

– assign all rights in IP, inventions, and other knowledge created by them

– assume a duty of confidentiality to the company

– agree to cooperate fully in protecting and building the company's IP

• The Program should ultimately be geared toward business opportunity maximization for the company's entire knowledge base

– a contract management committee

– a policy development committee

– an evaluation committee to grade the company's Program performance

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Information Management Chart

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What are the elements of an IP Strategy?

• Do you need a CKO?

• Integration: an IP strategy should support the overall business strategy of the company

• Typical objectives include:

– the types of products and services on which the company intends to focus its resources

– the market it intends to serve

– the mitigation of risk

– the return on investment shareholders require

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Elements of an IP Strategy

• Development & acquisition: obtaining the IP necessary to achieve your business objectives

– developing IP assets

– retain key employees

– create a culture of innovation

– reward the creation of new ideas

– encourage sustained learning

– employee education

– capture rights to new ideas

– other acquisitions through

– purchase

– licensing

– joint venture

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• Protection: protecting the IP that you own or have rights to

– IP policies

– disclosure on a “need to know” basis

– contractual

– confidentiality agreements

– non-compete agreements

– licensing (e.g. web site terms of use)

– systems

– firewalls, encryption, safe-rooms, back-up procedures, etc.

– IP registrations

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• Monitoring to see how your IP strategy can be enhanced and to identify when it is compromised

– internal

– ensuring your IP strategy is being implemented and followed (e.g. employee exit interviews)

– external

– collecting competitive intelligence (e.g. patent and trademark database searches and web searches)

– monitoring the industry and marketplace

• Enforcement: establish an enforcement strategy to ensure your IP strategy is not compromised

– internal

– disciplining employees for breach of policies

– taking legal action against rogue employees, consultants, suppliers

– external

– taking legal action against IP infringers

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Preliminary Step: The IP Audit

• Identify all your potential and actual IP assets

– review documents (e.g. contracts, policies), results of R&D and business processes

– interview key employees

– create an inventory of IP assets

– non-protected intellectual assets (e.g. ideas, inventions, know-how)

– protected intellectual assets (e.g. copyright, trade-marks, patents)

• Confirm IP ownership and rights

– make sure you own the IP you want to own and have rights to the IP that you need to have rights to

– for example:

– employees vs. subcontractors

– web site development agreements

– images and logos (such as for links)

– licensing rights

– customer’s use of your web site (such user generated content)

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Preliminary Step: The IP Audit

• Identify risks associated with the ownership and use of your IP assets

– for example:

– potential third party liability (e.g. infringement suits)

– defects in protection (e.g. flaws in registration, insufficient policies and procedures)

• Place a value on your IP assets

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Patent Valuation

"It's not rocket science. It's harder."

• WIPO says:

– importance of the patent as a new area of technology (eg. Edison light bulb)

– the market size, product quantity, cost and price

– the patent term

– amount of prior art

– patent significance in an IP strategy (eg. a blocking patent)

• IP blog says:

– patent term

– number of inventors listed (the more, the better the quality)

– anticipated licensing revenue

– ability to trigger end product sales (eg. Intel chips)

– ability to generate add-on sales

– ability to generate sales in new market

– stage of development

– quality of law firm

– quality of patent examiner

– size of portfolio being sold (the larger, the better, to a limit of 75 patent families)

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Develop Yourself or License Out?

• Supernormal ROI or license

• Plenty of capital or license

• Plenty of time or license

• Love money or license

• Low management salary or license

• Access to angel and venture capital or license

• Effective management or license

• Long idea lifecycle or license

• Easy to manufacture or license

• Easy market acceptance or license

• Platform technology and multiple products or license

• Market defensibility or license

• Idea retention or license

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Value Extraction: Methods of Technology Transfer

• Release to the public

• Retain technology for your own purpose

• Sell all the rights to the technology

• Transfer a portion of the rights

• License (sole or exclusive)

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Dealing with the Exclusive Rights

• Can exclude others from:

– practicing the patented process (if a process patent)

– making, using, offering to sell or selling the product or process

– importing that product, or product made from the process, into the country issuing the patent

• For licensing, this is the heart of the grant clause

• A right to deal with the subject matter that would, in the absence of the right, constitute a breach of the associated intellectual property rights

• Example: "Any product the manufacture, use or sale of which would, but for the licenses herein granted, infringe a claim of Canadian Patent No. '123"

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Transfer of Rights

• Get the subject matter right

– "Technology" definition, including as protected by Patent '123, '456 and other registered and unregistered IP

– "Intellectual Property Rights" ≠ "Technology"

• Scope of Grant

– deal with the exclusionary rights

– field of use

– activities

– royalties, not price setting

– territory

– exclusivity

– term

– sublicense

– quantities

– improvements

– knowledge transfer efforts

• Do not exceed the rights you have as licensor

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Transfer of Rights

• Implied Licenses

– they do apply, so specific exclusion needed?

– examples:

– "make & sell" may include "use" but "make and use" does not imply "sell"

– "sell" does not generally include "make"

– "doctrine of exhaustion"

– other rights can be read in so that contractual intention is achieved

• Express limitations

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Joint Ownership

• Start with the Collaborative Business Plan

– common advantages and benefits

– capital contributed by each

– scope of work and milestones

– outcomes to achieve

– commercialization and exploitation

• Know the thresholds to "inventorship" that grounds the IP right

• Exploiting co-owned IP

– in Canada, a co-owner can:

– use for own benefit without consent or accounting

– assign or exclusively license entire interest without consent or accounting

– can not partially assign or non-exclusively license without consent (as violates exclusionary principle)

– in US, a co-owner can:

– assign in whole or part the co-owned interest and can grant non-exclusive licenses without consent

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Joint Ownership

• "What's ours is ours, yours is yours and what's joint is both of ours" is a prescription for disaster

– inventorship a rough measure

– future innovations garbled

• Instead, a Joint Development Agreement is needed:

– don't pull the trigger without it

– ownership to one party and cross license

– clearly specify the rights of each co-owner

– allocate rights per market driven, application focused, exclusive territory approach

– ensure registration, maintenance and enforcement rights are clear

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License Terms

• License vs. assignment

• Scope of the Grant

• Improvements

• IP Indemnities and Limitation

• Representations

– no known infringement of third party rights

– no claims made or anticipated

– technology properly and completely described

– patent disclosures meet legal requirements

– no registrar or third party oppositions

– technology adequate for the business purpose

– compliance with confidentiality agreements

– employee agreements, assignments, waivers

– no negative opinions regarding registrability, infringement, or enforcement

– included third party technology is properly licensed, related agreements are in good standing and no affected by the transaction

– no options, convertible rights, or escrow

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License Terms

– no instances of infringement, misappropriation or illegal export

– performance according to specifications

– no known defects/no claimed defects

– no legal or regulatory restrictions

• Payments and royalties

• Effect of invalidity or expiration of the IPR

– in US, can not extract further payment as that is patent misuse. In Canada, no such rule

• Licensee challenges the patent

– contract should require licensee to choose contract repudiation or continue to pay royalty and not challenge

[email protected]

(403) 267-8187

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Questions

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Disclaimer Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members (“the Norton Rose Fulbright members”) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

References to “Norton Rose Fulbright”, “the law firm”, and “legal practice” are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together “Norton Rose Fulbright entity/entities”). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity.

The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright.

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Intellectual Property Capture and Protection Strategies ... · •Intellectual property functions...

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Transcript of Intellectual Property Capture and Protection Strategies ... · •Intellectual property functions...