Perspectives bull Analysis bull Visionary Ideas

INTELLECTUAL PROPERTY AND TECHNOLOGY NEWS

wwwdlapipercomip_global | Issue 11 Q3 2011

THE UK PATENT BOX PROPOSAL HOW DOES IT MEASURE UP

ONE SIzE DOES NOT FIT ALL PROTEcTIng TRADE SEcRETS WHEn DRAfTIng EMPlOyMEnT AgREEMEnTS

EMOTIONAL INTELLIGENCE AND DIVERSITY EMPOWERIng SUccESS

CLOUD COMPUTING AND HOw TO USE IT

Attorney Advertising

THE glObAl PATEnT RAcE

UNITED STATES

you are receiving this communication because you are a valued client former client or friend of DlA Piper The information contained in this newsletter is for informational purposes only and should not be construed as legal advice on any matter To unsubscribe from this mailing list send an email to communicationsdlapipercom or send your written request to DlA Piper Attention Marketing Department 401 b Street Suite 1700 San Diego california 92101-4297 USA copyright copy 2011 DlA Piper llp (us) DlA Piper uk llp and other affiliated entities for questions comments and suggestions email us at IPTnewsdlapipercom or contact Diane Vislisel Senior Practice and Industry Marketing Manager T +1 619 699 3541 dianevisliseldlapipercom US chair ndash Intellectual Property and Technology John Allcock T +1 619 699 2828 johnallcockdlapipercom Editor in chief Kathryn Riley grasso T +1 619 699 2842 kathrynrileydlapipercomAssociate Editor licia E Vaughn T +1 619 699 2997 liciavaughndlapipercomDlA Piper llp (us) 401 b Street Suite 1700 San Diego california 92101-4297 USA

Find all current and past editions of the Intellectual Property and Technology News ndash United States and Intellectual Property and Technology News ndash Asia Pacific here wwwdlapipercomipt_news In support of our Global Sustainability Initiative this publication is printed on 100 recycled paper Please recycle this newsletter

In the 11 years I have been a patent litigation lawyer I have had the privilege of trying patent cases all over the country Through all of these cases I have seen first hand the wide disparity among district court judges in their interest in patent cases Many a time I have wished for a judge who was intrigued by patent litigation and willing to take the time to understand its unique aspects It looks like my wish has been granted

Fourteen district courts have been chosen to participate in a ten-year pilot program aiming to enhance expertise in patent cases among US district judges The pilot mandated by Public Law No 111-349 launched in July 2011 To be eligible the district courts had to be one of the top 15 patent filing jurisdictions in 2010 or must have agreed to adopt patent local rules The director of the Administrative Office of the United States Courts selected the courts for the program from this list

The patent pilot courts reflect a cross-section of the United States from courts with numerous patent litigation filings to courts less familiar with patent litigation

Each of these district courts has designated at least two judges to hear patent cases who volunteered for the assignment because of an interest in hearing patent cases However patent cases filed in the patent litigation pilot courts are initially randomly assigned to any district judge in that court If the assigned judge is not one of the judges designated for patent cases he or she can decline the case and it will be reassigned to one of the judges designated to hear patent cases

We will be closely following how this plays out over the years but it is a safe bet that these district courts will see a marked increase in patent litigation filings

While I have been thinking about the patent pilot program my partner Vicky Lee has been thinking about cloud computing and wrote an informative article for this edition of the IPT News In addition my colleague Henry Koda wrote a fascinating article about the global patent race You wonrsquot want to miss it This issue also features an article comparing the proposed UK Patent Box tax regime with those of other EU countries and an article on the importance of drafting employment agreements with an eye toward protecting trade secrets Lastly we offer the next installment of our series on Emotional Intelligence (EQ)

I hope you enjoy this edition of the IPT News As always I look forward to hearing any feedback or comments to continue tailoring future editions toward our readersrsquo interests

kathrynrileydlapipercom

EDITORrsquoS COLUMN

Kathryn Riley GrassoPartner Patent Litigation

The patent litigation pilot courts

bull Central District of California

bull Northern District of California

bull Southern District of California

bull Southern District of Florida

bull Northern District of Illinois

bull District of Maryland

bull District of New Jersey

bull District of Nevada

bull Eastern District of New York

bull Southern District of New York

bull western District of Pennsylvania

bull western District of Tennessee

bull Eastern District of Texas

bull Northern District of Texas

DLA PIPER LAWYERS SPEAK AT POPULAR TOKYO PATENT SEMINAR

DLA Piper lawyers spoke to a

sold-out crowd of more than

100 patent practitioners and

corporate legal officers from

Japanese companies at the

Tokyo International Forum

This nearly full-day seminar

on patent law held in

July was co-sponsored

by Mekiki Creates and

DLA Piper In attendance

were representatives from

leading Japanese companies

such as Toray Hitachi Fujitsu

Sumitomo Nippon Oil Koito

and Mitsubishi

Henry Koda DLA Piper

Senior Counsel in Tokyo

focusing on patent law spoke

on the historical basis of US

patent reform and strategies

for filing patent applications

in the US Author of more

than 15 books Henry is also a

professor at Soka Law School

in Tokyo He was joined by

Dan Christenbury US Patent

Prosecution chair who spoke

on the implications of US

patent reform

Henry KodaSenior CounselIntellectual Property and Technology

DLA Piperrsquos growing IP and Technology practice

has further expanded with the arrival of two

significant partners in Houston with extensive

experience in IPT litigation and appeals

Claudia wilson Frost a renowned trial lawyer has

nearly 30 years of experience handling state and

federal trials arbitrations and appeals of complex

litigation matters including Section 337 actions in

the ITC and appellate experience in the Federal

Circuit Fifth Circuit Ninth Circuit Tenth Circuit

DC Circuit Texas Supreme and intermediate

appellate courts and the United States Supreme

Court Claudia represents companies in high-stakes

patent infringement matters covering technologies

ranging from telecommunications to oil and gas

Chambers USA 2011 notes ldquoClients admired [this]

lsquohighly responsive and fabulous strategistrsquo for

her powers of lsquobrilliant analysisrsquordquo She has a trial

background and a depth of appellate experience with a particular niche in

patent infringementrdquo Legal500 has called her ldquoone of the best known names

in the fieldrdquo for her IP Litigation Appellate work

Dr Jeffrey Johnson focuses on IP law with an emphasis in patent

litigation opinion work and counseling Representing clients in a variety

of technologies he has served as counsel in cases involving patent

infringement trademark infringement copyright infringement trade secret

misappropriation unfair competition and antitrust violations Jeffrey has

a PhD in Interdisciplinary Engineering in the disciplines of Organic

Chemistry and Mechanical Engineering from Texas AampM University and

a BS in Chemistry from East Texas Baptist University

Jeffrey grew up in Marshall Texas ndash the location of the most active patent

litigation forum ndash and has a wealth of experience with Texas patent litigation

matters He also serves as editor in chief of patstatsorg and is an adjunct

research professor at the University of Houston Law Center

wwwdlapipercomip_global | 03

ExPAnDIng IPT TEAM In TExAS As of this writing we

have more than 35 new professionals in our IPT group mdash located on either the worldrsquos largest island or its smallest continent depending on how you look at it Effective May 1 2011 DLA Piper merged with the DLA Phillips Fox firm a 120-year-old ldquoBig Eightrdquo Australian firm with offices in five cities spanning Australia

In addition to being the same size as the 48 mainland states in the United States Australia is an important place on the global playing field for Intellectual Property and Technology Australia is a G20 country with a growing economy particularly in the areas of high tech clean tech and life sciences Moreover it is a key part of the rapidly emerging Asia Pacific region with ever stronger relations with China Korea and Japan Australia is a place where a law firm interested in servicing the needs of technology and IP clients on a truly global basis needs to be and DLA Piper is now there in a very big way

Our on-the-ground team in Australia has demonstrated experience in all our core IPT areas and specifically in technology and sourcing IP litigation privacy and data protection They arrive in the immediate wake of other expansions that grow our IP capabilities in mainland China and Japan We now have the largest fully integrated IPT team in Asia Pacific with just under 70 IPT lawyers in the region

And we are not done ndash in Australia or in the Asia Pacific We see our IPT practice continuing to expand substantially in the region with significant additions to our capabilities in all areas of practice and in all regions in particular Australia and China

So let me extend a warm welcome to the newest members of our IPT group We look forward to working with you even more and more closely than in the past

johnallcockdlapipercom

WELCOME AbOARD

John AllcockPartner Global Co-Chair and US Chair Intellectual Property and Technology

Claudia wilson FrostPartner Intellectual Property and Technology

Dr Jeffrey JohnsonPartner Intellectual Property and Technology

DLA PIPER IPT LAWYERS HONORED

Ann Ford

was named

among the

ldquoTop women

Lawyers in the

Northeastrdquo

in the July

August issue

of Arrive magazine the official

publication of Amtrak and

Acela Express A partner in

our washington DC office

Ann is the US chair of our

Trademark Copyright and

Media practice

Jennifer

LaCroix

was named

a 20112012

woman of

the Year by

the National

Association of

Professional women Based

in our Chicago office Jennifer

is an associate focusing on

patent law

04 | Intellectual Property and Technology news ndash United States

The use of cloud computing technology has grown significantly as IT departments have sought to extend their existing capabilities without investing significantly in new infrastructure or training new personnel

WHAT IS CLOUD COMPUTING

Cloud computing means using multiple Internet-based services via a digital network as though they were one computer This shared use differs from outsourcing which uses the infrastructure of the customer managed by a third party It is also a departure from the traditional enterprise license of software or purchase of on-premises hardware equipment

WHY THE CLOUD

The most important reason for the accelerating interest in cloud computing is that Internet users increasingly find themselves using multiple computers and other devices and thus require a shared data center that can be accessed anywhere For businesses cloud

computing enables applications to be deployed more efficiently and saves on costly software and IT The costs associated with the people products and facilities to run cloud computing are substantially lower than the traditional enterprise-based licensing model

bENEfITS

Cloud computing allows resource pooling dynamically assigning resources according to demand flexible access across platforms and provision of services rapidly and even automatically

WHAT KIND Of CLOUD DO YOU WANT

Cloud service can be provided in many ways but four options have emerged as the most prominent

Public clouds Infrastructure platform and software are provided through services accessible via online terms of use and paid for based on actual usage Amazon Web Services is an example

Private clouds Dedicated cloud computing resources are made available to a specific customer through negotiated service agreements Because the resources are dedicated capital investment may be greater

Hybrid clouds This model may be used by a customer who desires the ease of use of a public cloud but also wants some level of dedicated resources afforded by a private cloud

Managed clouds This model is actually similar to outsourcing but rather than having the customer own the infrastructure and outsource its management to a third party the customer owns the cloud computing capability and outsources management to a third party

Each of these methods can encompass the three basic cloud computing business models including Infrastructure as a Service (IaaS) ndash where customers receive access to IT infrastructure often shared with others Platform as a Service (PaaS) ndash where customers can develop and operate applications by accessing a computing platform and Software as a Service (SaaS) ndash where customers receive access to a suite of software applications remotely and on-demand

DEvELOPING CLOUD SERvICE LEvEL AGREEMENTS

The service level a customer receives from a vendor is usually set forth in terms that can be part of the cloud computing agreement or appear in a separate service level agreement incorporated by reference Here are some considerations in developing service level agreements

Level of effort Vendors should consider whether they want their performance under the agreement to be absolute or subject to a less than absolute standard such as ldquocommercially reasonable effortsrdquo

clOUD cOMPUTIng AnD HOW TO USE ITBy Victoria Lee

Ann FordPartnerwashington DC

Jennifer LaCroixAssociateChicago

approach may be for customers and service providers to work together to ensure that any data is collected stored and processed in accordance with applicable privacy laws

Security Many vendors try to limit their security obligations to ldquostandard industry practicesrdquo and further limit the scope of obligations to the use of ldquoreasonable commercial effortsrdquo to meet that standard Because such standards are not yet firmly established this approach is dangerous One risk is the use of multi-tenancy with numerous tenants on a single server potentially allowing tenants access to third-party data A customer should negotiate with the provider for specific security obligations including monitoring for problems and adhering to the most up-to-date standards

HERE TO STAY

Cloud computing may be young but it is here to stay Offering new efficiencies and cost savings it is the future of outsourced data handling However as companies and other institutions continue to explore alternative IT sourcing strategies they need to plan with the cloudrsquos inherent legal issues ndash interruption risks data security and privacy ndash in mind to mitigate risk and ensure effective practices and solutions

Victoria lee is a partner in DlA Piperrsquos Intellectual Property and Technology group based in Silicon Valley She focuses on IP counseling technology procurements and transfers open source business models and licensing issues Reach her at victorialeedlapipercom

INTERNATIONAL TRADEMARK ASSOCIATION MEETS IN SAN fRANCISCO

More than 8500 attendees from over 140 countries

came to San Francisco in May for the International

Trademark Association 2011 Annual Meeting among

them more than 40 DLA Piper lawyers from Asia

Australia Europe and the US

To celebrate the event DLA Piper hosted a

reception The firm also used its blog ReMarks

(wwwReMarksblogcom) to further connect with

attendees and expand the conversation

L to R Tom zutic DLA Piper Partner Leslie Shanklin Vice President Legal Affairs Scripps Networks Interactive Margaret Jaklitsch Manager Legal Affairs Scripps Networks Interactive Ryan Compton DLA Piper Associate Marty Lorenzo DLA Piper Partner

Nature of obligations Most service level agreements focus on service availability but vendors should also be prepared to respond to requests for commitments on performance such as response times and bandwidth

Definition of uptime Service level agreements should clearly define such variables as how uptime will be measured what constitutes downtime the nature of permitted downtime and circumstances that do not constitute downtime

Ability to suspend services A cloud computing vendor may at times need to suspend services such as if a customerrsquos use of the services creates a security risk While it is reasonable for the vendor to retain this right it will be important for the vendor to consider the nature of the notice that may be given to customers

Service credits Vendors must consider the amount of service credits available to customers whether customers are automatically entitled to credits and whether there are circumstances under which the vendor may provide an actual refund

PRIvACY CONCERNS

Customers repeatedly cite data protection and security as a barrier for moving to the cloud

Privacy Privacy concerns pose unique issues in the cloud environment because of the intensely local and varying nature of statutes regarding protection of personal information A realistic

For an expansive look into cloud computing including interviews with business leaders and counsel across Europe read the DLA Piper report Shifting Landscapes Cloud Computing here wwwdlapipershiftinglandscapescomindexhtml

STRATEGIC fACTAlthough district courts apply the same legal

standards the win rates on summary judgment vary

drastically by district ndash even among those districts

handling hundreds of patent cases Here are examples

of the substantial variations among these courts

Source legalMetric (used with permission)

EDTX

242

DNJ

389

CDCA

479

NDCA

485

WIN RATES ON SUMMARY JUDGMENT

approach may be for customers and service providers to work together to ensure that any data is collected stored and processed in accordance with applicable privacy laws

Security Many vendors try to limit their security obligations to ldquostandard industry practicesrdquo and further limit the scope of obligations to the use of ldquoreasonable commercial effortsrdquo to meet that standard Because such standards are not yet firmly established this approach is dangerous One risk is the use of multi-tenancy with numerous tenants on a single server potentially allowing tenants access to third-party data A customer should negotiate with the provider for specific security obligations including monitoring for problems and adhering to the most up-to-date standards

HERE TO STAY

Cloud computing may be young but it is here to stay Offering new efficiencies and cost savings it is the future of outsourced data handling However as companies and other institutions continue to explore alternative IT sourcing strategies they need to plan with the cloudrsquos inherent legal issues ndash interruption risks data security and privacy ndash in mind to mitigate risk and ensure effective practices and solutions

Victoria lee is a partner in DlA Piperrsquos Intellectual Property and Technology group based in Silicon Valley She focuses on IP counseling technology procurements and transfers open source business models and licensing issues Reach her at victorialeedlapipercom

INTERNATIONAL TRADEMARK ASSOCIATION MEETS IN SAN fRANCISCO

More than 8500 attendees from over 140 countries

came to San Francisco in May for the International

Trademark Association 2011 Annual Meeting among

them more than 40 DLA Piper lawyers from Asia

Australia Europe and the US

To celebrate the event DLA Piper hosted a

reception The firm also used its blog ReMarks

(wwwReMarksblogcom) to further connect with

attendees and expand the conversation

L to R Tom zutic DLA Piper Partner Leslie Shanklin Vice President Legal Affairs Scripps Networks Interactive Margaret Jaklitsch Manager Legal Affairs Scripps Networks Interactive Ryan Compton DLA Piper Associate Marty Lorenzo DLA Piper Partner

Nature of obligations Most service level agreements focus on service availability but vendors should also be prepared to respond to requests for commitments on performance such as response times and bandwidth

Definition of uptime Service level agreements should clearly define such variables as how uptime will be measured what constitutes downtime the nature of permitted downtime and circumstances that do not constitute downtime

Ability to suspend services A cloud computing vendor may at times need to suspend services such as if a customerrsquos use of the services creates a security risk While it is reasonable for the vendor to retain this right it will be important for the vendor to consider the nature of the notice that may be given to customers

Service credits Vendors must consider the amount of service credits available to customers whether customers are automatically entitled to credits and whether there are circumstances under which the vendor may provide an actual refund

PRIvACY CONCERNS

Customers repeatedly cite data protection and security as a barrier for moving to the cloud

Privacy Privacy concerns pose unique issues in the cloud environment because of the intensely local and varying nature of statutes regarding protection of personal information A realistic

For an expansive look into cloud computing including interviews with business leaders and counsel across Europe read the DLA Piper report Shifting Landscapes Cloud Computing here wwwdlapipershiftinglandscapescomindexhtml

STRATEGIC fACTAlthough district courts apply the same legal

standards the win rates on summary judgment vary

drastically by district ndash even among those districts

handling hundreds of patent cases Here are examples

of the substantial variations among these courts

Source legalMetric (used with permission)

EDTX

242

DNJ

389

CDCA

479

NDCA

485

WIN RATES ON SUMMARY JUDGMENT

06 | Intellectual Property and Technology news ndash United States

THE GLObALPATENT RACE By Henry Koda

Patents have a fascinating history and can be traced as far back as England in the 1300s (some say there are signs patent-like rights were granted even in ancient Greece) The US patent system itself has a long history The United States Constitution provides the legal foundation for US patent protection empowering the federal government to ldquopromote the Progress of Science and useful Arts by securing for limited Times to Authors and Inventors the exclusive Right to their respective writings and Discoveriesrdquo The first US Patent Act passed into law on April 10 1790 right after the Constitution was ratified Over the last 220 years the US patent system has made tremendous contributions to the nationrsquos economic growth Indeed it can be convincingly argued that a solid patent system and a strong flow of patent applications directly relate to a countryrsquos economic strength

Japan launched its patent system in 1885 soon after the Meiji revolution (1868) by which Japan opened its door to foreign trade after 300 years of national isolation This new patent system had a positive impact on the Japanese economy In fact Japan one of the poorest nations after world war II grew in less than 40 years to become the worldrsquos second largest economic power following only the US without a patent system (including utility model registration) that allowed patenting and licensing of postwar inventions Japan could not have achieved this dramatic result Chart 1 clearly shows the interrelationship between the number of patent applications in Japan and its Gross National Product

China started its patent system relatively late ndash in 1985 Ten years after its enactment the total number of patent applications filed before the Chinese Patent Office was as low as 15000 per year while Japan had almost 370000 annually and the US almost 200000 per year Yet by 1995 applications in China had climbed to 100000 annually while Japan had 450000 and the US 400000

CHART 1 JAPANrsquoS PATENT APPLICATIONS AND GNP Based on a report from the Takumi Patent Office

CHART 2 NUMbERS Of PATENT APPLICATIONS WITH fUTURE PROJECTIONS (K)Source Nikkei Business January 2011

600 China

USA

Japan

Korea

500

400

300

200

100

600Gross National Products (10 Billion Yen)

Number of Patents Applications (K)500

400

300

200

100

1995

1956 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001

2000 2005 2010 2015

600 China

USA

Japan

Korea

500

400

300

200

100

600Gross National Products (10 Billion Yen)

Number of Patents Applications (K)500

400

300

200

100

1995

1956 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001

2000 2005 2010 2015

understand that the world of patent filings and thus global economies is experiencing major changes

JAPAN fROM ITS PATENT GOLDEN AGE TO RECENT DECLINE

In the 1980s Japan had the largest number of patent application filings in the world far exceeding any other country In fact in the mid-1980s the Japanese Patent Office received 550000 patent applications (including utility model applications) amounting to 45 percent of the global total

Interestingly the Japanese economy kept growing in proportion to the growth of the number of patent applications filed before the Japanese Patent Office Looking back over the last ten years we see significant declines in patent activities in Japan as shown in Chart 1

It is important to understand and observe the interests of foreign entities filing patent applications in the Japanese Patent Office

Table 2 shows the depth of interest by foreign entities in filing in each country The fact that Japan has the lowest proportion of filings by foreign entities reflects reduced interest by foreign entities in Japanese patent activities

As a US lawyer but also as a native Japanese I have concerns about these negative trends in Japan According to my observations there seem to be three main reasons for the recent decline

wwwdlapipercomip_global | 07

PATENT APPLICATION vOLUME AS AN INDEx Of LARGER ECONOMIC TRENDS

In 2010 the number of patent applications filed before the USPTO increased to 460000 the number filed in Japan decreased to 350000 and the number in China showed massive growth ndash 390000 patent filings

Strikingly these figures mirror global economic trends The US and Korea have shown steady growth in patent applications for the last 15 years Japan has shown a decline in its patent application filings and between 2005 and 2010 China showed an amazing annual growth rate in patent applications of 21 percent

These statistics demonstrate only the number of patent applications the respective patent offices received per year The figures do not necessarily mean Chinese technology has exceeded Japanese technology and is getting close to the US in terms of the quality of technology and patents Nonetheless the numbers are interesting and help us analyze what is happening in these countries and help us look to the future

PATENT ACTIvITIES IN CHINA ndash A TURNING POINT

The number of patent applications filed in China has been dramatically increasing at over 20 percent per year since 2005 China additionally has the utility model (small patent) registration and design (design patent) registration systems

Table 1 shows the exact numbers of patent utility and design registrations in China Including the utility and design systems in Chinarsquos figures for 2010 would result in a total of 1222286 IP applications in China

WHAT CAUSED THE TURNAROUND IN CHINA

Two major factors support the growth of IP application filings in China First the Chinese government industry and private sector have now recognized the importance of patents and their licensing through growing international licensing activities Second the Chinese government has begun actively providing extensive financial support to private entities for patent filings

Statistics show that in 2005 China started to actively engage in patent licensing with foreign entities particularly with the US and Japan According to the Chinese governmentrsquos official figures the number of patent licensing transactions before 2004 was

less than 100 per year By 2009 the number had soared to 10000 These licensing activities show that the Chinese government and private industry have learned the use of patents is key to quickly advancing technology and efficiently generating profit

To encourage patent application filings the Chinese government offers substantial financial incentives to private business entities For example when Company A files its patents the Chinese government reimburses 50 percent of its patent filing expenses at the time of filing If Company A then achieves a certain goal set by the government (in number of patent applications) then Company A is reimbursed the other 50 percent of its expenses In other words Company A may effectively file patent applications without any related expenses

These and other policies will allow Chinese businesses to maintain their aggressive IP strategies in the future

PREDICTING THE UNPREDICTAbLE

If the current trend continues in the year 2013 China will exceed the US in number of patent applications filed China would then become the worldrsquos leading country in patent application filings

Chart 2 shows some astonishing phenomena in comparing numbers of patent applications by leading countries since 1995 The chart also forecasts numbers of patent applications by major countries up to 2015 assuming current trends continue

Some may argue that the quality of Chinese inventions is below those of the US and Japan Nonetheless history cautions us that changes in quantity may one day turn into changes in quality For example in the 1960s many people outside Japan did not consider Japanese automobiles worthy competitors in the global marketplace Yet 30 years later Japanese cars had come to be regarded as of the highest quality

It is difficult to accurately forecast patent application filing numbers however with current numbers and trends we can clearly

2004 2005 2006 2007 2008 2009 2010

Patent 130133 173327 210490 245161 289838 314573 391177

Utility 112825 139566 161366 181324 225586 310711 409836

Design 110849 163371 201322 267668 312904 351342 421273

Total 359807 476264 573178 694153 828328 976686 1222286

TAbLE 1 NUMbERS Of PATENT UTILITY MODELS AND DESIGNS (2004-2010) IN CHINA Based on a report from Chinarsquos National Intelligence Office

TAbLE 2 PROPORTION Of fILINGS bY fOREIGN ENTITIES IN JAPAN (2002) Source Japan Patent Office Annual Report 2005

China411

USA518

EU492

Korea221

Japan152

44855

USARank 1

32156

JapanRank 2

12337

ChinaRank 4

9686

KoreaRank 5

17171

GermanyRank 3

understand that the world of patent filings and thus global economies is experiencing major changes

JAPAN fROM ITS PATENT GOLDEN AGE TO RECENT DECLINE

In the 1980s Japan had the largest number of patent application filings in the world far exceeding any other country In fact in the mid-1980s the Japanese Patent Office received 550000 patent applications (including utility model applications) amounting to 45 percent of the global total

Interestingly the Japanese economy kept growing in proportion to the growth of the number of patent applications filed before the Japanese Patent Office Looking back over the last ten years we see significant declines in patent activities in Japan as shown in Chart 1

It is important to understand and observe the interests of foreign entities filing patent applications in the Japanese Patent Office

Table 2 shows the depth of interest by foreign entities in filing in each country The fact that Japan has the lowest proportion of filings by foreign entities reflects reduced interest by foreign entities in Japanese patent activities

As a US lawyer but also as a native Japanese I have concerns about these negative trends in Japan According to my observations there seem to be three main reasons for the recent decline

wwwdlapipercomip_global | 07

PATENT APPLICATION vOLUME AS AN INDEx Of LARGER ECONOMIC TRENDS

In 2010 the number of patent applications filed before the USPTO increased to 460000 the number filed in Japan decreased to 350000 and the number in China showed massive growth ndash 390000 patent filings

Strikingly these figures mirror global economic trends The US and Korea have shown steady growth in patent applications for the last 15 years Japan has shown a decline in its patent application filings and between 2005 and 2010 China showed an amazing annual growth rate in patent applications of 21 percent

These statistics demonstrate only the number of patent applications the respective patent offices received per year The figures do not necessarily mean Chinese technology has exceeded Japanese technology and is getting close to the US in terms of the quality of technology and patents Nonetheless the numbers are interesting and help us analyze what is happening in these countries and help us look to the future

PATENT ACTIvITIES IN CHINA ndash A TURNING POINT

The number of patent applications filed in China has been dramatically increasing at over 20 percent per year since 2005 China additionally has the utility model (small patent) registration and design (design patent) registration systems

Table 1 shows the exact numbers of patent utility and design registrations in China Including the utility and design systems in Chinarsquos figures for 2010 would result in a total of 1222286 IP applications in China

WHAT CAUSED THE TURNAROUND IN CHINA

Two major factors support the growth of IP application filings in China First the Chinese government industry and private sector have now recognized the importance of patents and their licensing through growing international licensing activities Second the Chinese government has begun actively providing extensive financial support to private entities for patent filings

Statistics show that in 2005 China started to actively engage in patent licensing with foreign entities particularly with the US and Japan According to the Chinese governmentrsquos official figures the number of patent licensing transactions before 2004 was

less than 100 per year By 2009 the number had soared to 10000 These licensing activities show that the Chinese government and private industry have learned the use of patents is key to quickly advancing technology and efficiently generating profit

To encourage patent application filings the Chinese government offers substantial financial incentives to private business entities For example when Company A files its patents the Chinese government reimburses 50 percent of its patent filing expenses at the time of filing If Company A then achieves a certain goal set by the government (in number of patent applications) then Company A is reimbursed the other 50 percent of its expenses In other words Company A may effectively file patent applications without any related expenses

These and other policies will allow Chinese businesses to maintain their aggressive IP strategies in the future

PREDICTING THE UNPREDICTAbLE

If the current trend continues in the year 2013 China will exceed the US in number of patent applications filed China would then become the worldrsquos leading country in patent application filings

Chart 2 shows some astonishing phenomena in comparing numbers of patent applications by leading countries since 1995 The chart also forecasts numbers of patent applications by major countries up to 2015 assuming current trends continue

Some may argue that the quality of Chinese inventions is below those of the US and Japan Nonetheless history cautions us that changes in quantity may one day turn into changes in quality For example in the 1960s many people outside Japan did not consider Japanese automobiles worthy competitors in the global marketplace Yet 30 years later Japanese cars had come to be regarded as of the highest quality

It is difficult to accurately forecast patent application filing numbers however with current numbers and trends we can clearly

2004 2005 2006 2007 2008 2009 2010

Patent 130133 173327 210490 245161 289838 314573 391177

Utility 112825 139566 161366 181324 225586 310711 409836

Design 110849 163371 201322 267668 312904 351342 421273

Total 359807 476264 573178 694153 828328 976686 1222286

TAbLE 1 NUMbERS Of PATENT UTILITY MODELS AND DESIGNS (2004-2010) IN CHINA Based on a report from Chinarsquos National Intelligence Office

TAbLE 2 PROPORTION Of fILINGS bY fOREIGN ENTITIES IN JAPAN (2002) Source Japan Patent Office Annual Report 2005

China411

USA518

EU492

Korea221

Japan152

44855

USARank 1

32156

JapanRank 2

12337

ChinaRank 4

9686

KoreaRank 5

17171

GermanyRank 3

08 | Intellectual Property and Technology news ndash United States

THE GLObAL PATENT RACE

DISCOURAGING PATENTS

First unlike courts in other countries Japanese courts seemed to be heading in an anti-patent-holder direction The win rate for plaintiff patent holders during 2002-2007 dropped as low as 20 percent

Second in an effort to resolve the problem of delays in the examination process the Japanese Patent Office requested that major Japanese corporations actually reduce the number of patent applications submitted

Third as a result of the first two trends Japanese corporations discouraged by these patent-unfriendly tendencies cut down the number of their applications

Not only do statistics appear to show that Japanese corporations were filing fewer patent applications in Japan but also that foreign entities filed fewer patent applications in Japan during this period This means that less technical information was coming into Japanese society Therefore patent practice

in Japan came to face a serious challenge Because Japanese patent activities like those in any nation are closely related to the national economy if Japanese industry is to survive and thrive it must stand up and take action in the patent arena

JAPAN RESPONDS WITH PUNCH

Japanese patent practitioners together with policy makers have recognized these problems and to reverse the downward trend have launched a number of programs to revitalize Japanese patent activities

As part of this rebuilding the Japanese courts and the Japanese Patent Office seem to be following a fresh line of thinking Recent statistics show the win rate for plaintiffs at

the district court level in Japan has increased to over 35 percent

Japanese industry is trying to focus on building strong patent portfolios to reinforce industryrsquos IP capability A significant number of Japanese corporations have started programs encouraging engineers to create more innovative technologies In addition Japanese universities are getting more interested in patent activities Many of the programs they are pursuing are an outgrowth of the Technology and Licensing Organization Law enacted by the Japanese government in 1998 to promote IPT activities by universities

In the past Japanese corporations kept a somewhat closed business structure in terms of technological activities However many Japanese corporations are now welcoming ldquoopen innovation activitiesrdquo This policy will allow Japanese companies to cooperate with foreign entities in exchanging technical information through licensing and cross-

licensing For this reason the number of Patent Cooperation Treaty applications filed by Japanese companies has continued to increase trailing only the US Along these lines a significant number of Patent Cooperation Treaty applications have been filed in Japan recently (see Table 3)

The Patent Cooperation Treaty or PCT is an international agreement for filing patent applications administered by the World Intellectual Property Organization As the WIPO website notes the PCT provides a way to file for patent protection of an invention simultaneously in each of a large number of countries by filing an ldquointernationalrdquo patent application1 A PCT application does not result in an international patent ndash international patents do not exist ndash the

control over granting of patents remains with the national patent offices The PCT process however provides several benefits more time a search report and written opinion allowing the patent applicant to determine the likelihood of success in patenting its invention in various member countries an ability to amend the international application and reduction in search and examination time and reduced translation costs and national fees2

For so many Japanese inventors to have embarked on the PCT application process is a signal that the country is determined to raise its competitiveness globally Table 3 compares the number of PCT applications emanating from five major competitors in the worldwide patent race

AT THE fRONT Of THE PACK

The global patent race is now at a crucial point with China charging to the fore as a major contender We are also watching Korea make a strong push toward the front of the pack Meanwhile the US faces internal challenges to its patent process with appropriations cutbacks continuing to impair its ability to advance patent applications in a timely way

Not only businesses but also national governments are heavily invested in the outcome of this global race which has importance for their economic status and political power

Finally on a personal note it is my firm belief Japan will recover sooner than the world expects not only in its patent activities but also from the earthquake tsunami and nuclear disaster

And as a native Japanese I would like to express my sincere appreciation for everyone around the globe who has offered so much warm support for the victims in Northeastern Japan

Arigato

Henry Koda is Senior counsel in DlA Piperrsquos IPT group based in Tokyo where he was born Since emigrating to the US in 1972 he has focused on US IP law primarily on behalf of Japanese corporations Reach him at henrykodadlapipercom

1 wwwwipointpctentreatyabouthtml

2 Id

TAbLE 3 NUMbER Of PCT APPLICATIONS bY MAJOR COUNTRIES (2010) Source WIPO News amp Events 2010

China411

USA518

EU492

Korea221

Japan152

44855

USARank 1

32156

JapanRank 2

12337

ChinaRank 4

9686

KoreaRank 5

17171

GermanyRank 3

THE UK PATENT bOx PROPOSAL HOW DOES IT MEASURE UP

Her Majestyrsquos Treasury recently released a ldquoPatent Boxrdquo proposal that would provide substantial tax incentives for UK companies that derive profits from patents

While the proposal would make the UK a more desirable location for IP-producing companies the tax regimes in several neighboring European nations continue to provide better alternatives from a tax minimization perspective How does the UK proposal measure up to the tax regimes in the Netherlands Luxembourg Belgium and Ireland

THE bOTTOM LINE COMPARING EffECTIvE TAx RATES

Starting in April 2013 the UK Patent Box proposal would tax profits derived from qualifying patents at an effective rate of 10 percent This rate is substantially lower than the general corporate tax rate in the UK (scheduled to be 24 percent in April 2013) However it is still substantially higher than the effective tax rates available in several neighboring European nations

For example the effective tax rate established by the ldquoInnovation Boxrdquo in the Netherlands is 5 percent The effective tax rate established by Luxembourgrsquos ldquoIP Boxrdquo is 576 percent In Belgium the equivalent effective tax rate is 68 percent

On the other hand the effective tax rate proposed by the UK Patent Box is lower than the statutory tax rate established in Ireland for ldquotrading incomerdquo which is 125 percent

WHICH IP qUALIfIES

The UK Patent Box would only apply to profits derived from patents granted by the UK or EU patent offices though Her Majestyrsquos Treasury has expressed a willingness to consider including patents

if acquired that the company have developed the patent further (though no new patents need to have been created in the process of ldquofurther developmentrdquo of the acquired patent) However a company still qualifies for the reduced rate of taxation under the Innovation Box even if it outsources up to 50 percent of RampD activities When more than 50 percent of the RampD activities are outsourced the company must prove that it both bears the risk and expense of these activities and that it directs and coordinates the activities

Belgiumrsquos IP tax regime applies to income generated by Belgian companies as well as Belgian branches of foreign companies The Belgian IP tax regime also shares many of the characteristics of the Dutch Innovation Box (ie requiring that a patent either be self-developed or if acquired further developed) However a Belgian company or branch may use both related as well as unrelated subcontractors for development (or further development) of patents

Luxembourgrsquos IP Box has relatively relaxed standards in this area It generally only requires that a company be the economic owner of the IP for the lower tax rate to apply wherever the IP is registered

In Ireland in order to be subject to the lower rate awarded for trading income an Irish company only needs to be active in carrying on a trade which includes the management and exploitation of the IP There are a variety of factors the Irish Tax Authorities will consider when evaluating this requirement Essentially as long as a company is not merely receiving passive income related to IP profits derived from the IP should be subject to the reduced rate applicable to trading income

For a more in-depth analysis of this issue please review the full article at wwwdlapipercomthe-UK-patent-box-proposal-how-does-it-measure-up

Alison Maxwell based in Silicon Valley is an associate in DlA Piperrsquos International Tax group who concentrates on tax compliance issues in operational structuring cross-border MampA and post-acquisition integration Reach her at alisonmaxwelldlapipercom

This article was written with the assistance of Tax intern Peter benesch

by Alison Maxwell and Peter Benesch

granted by other nationsrsquo patent authorities in the future Additionally the current Patent Box proposal would include profits derived from all valid patents granted by these offices

In comparison the Dutch Innovation Box does not impose any formal restrictions on which patent offices may grant the patent from which profits are derived In addition the Innovation Box applies to profits derived from non-patented IP for which an ldquoRampD certificaterdquo is acquired RampD certificates are given for activities that either cannot receive a patent (but yet are recognized as innovative and socially useful) or could receive a patent but have not because the company is reluctant to make the details of those activities public knowledge The Innovation Box only applies to profits derived from patents and RampD certificates first registered after December 31 2006

The IP tax regime in Belgium mirrors the Dutch Innovation Box with regard to qualifying IP

The tax regime in Ireland is unique in that the ldquotrading profitsrdquo rate applies to profits derived not only from patents but also from copyrights trademarks and even know-how Additionally there is no cut-off date for IP to qualify for inclusion

Luxembourgrsquos IP Box is also fairly inclusive as it applies to patents copyrights on IP software trademarks (including service marks and domain names) and designs and models However the regime does not apply to copyrights on literary or artistic works plans secret formulas or processes or know-how Additionally Luxembourgrsquos IP Box only applies to profits from IP acquired or constituted after December 31 2007

HOW A COMPANY qUALIfIES

The UK Patent Box is relatively generous in only requiring that a company be the legal owner or exclusive licensee of a patent in order for profits derived from the patent to be taxed at the lower rate Consequently the profits a UK company derives from a patent that it purchases or even from an exclusive license it acquires (including geographic exclusivity) would be taxed at the lower rate

In principle the Dutch Innovation Box requires that a patent be self-developed or

In todayrsquos global business environment a diverse workforce is a vital part of an organizationrsquos success Diversity ensures the workplace mirrors the world we encounter on a daily basis Everyone has strengths and weaknesses by virtue of professional and life experiences Collaboration within a diverse group helps minimize the impact of any weaknesses while collectively leveraging individual strengths into positive decision making and powerful results

Creating and nurturing a professional environment that meaningfully respects and embraces peoplersquos differences is essential Emotional intelligence is an integral part of such efforts and plays a fundamental role in each of the key components to a successful diversity and inclusion program including the recruitment development retention and promotion of diverse talent It also is invaluable in succession planning

DEfINING DIvERSITY WITHIN YOUR ORGANIzATION

Effectively creating a diverse work environment is a 247 365-day-a-year proposition It involves constantly raising the consciousness and awareness of what diversity means to the organization and conveying its importance across all levels of the business particularly from the top to truly imbue it throughout the culture

A critical first step is for senior management to carefully define what diversity means and looks

like within the context of the organization and to set both short- and long-term goals for achieving diversity and determining how success will be measured Managementrsquos communications in this regard must be driven by honesty humility and integrity There also must be open discussion both about what is and is not working in DampI efforts Formal committees and other management frameworks often provide helpful ways to develop implement and execute a strategic plan for diversity Those charged with creating diversity in an organization must understand their constituency and need to be held accountable Some have an innate understanding of diversity from a moral standpoint seeing that it is the right thing to do Others need to comprehend the economic business case for diversity if their support is to be developed and maintained

walking the walk both within and outside the organization is essential to ensure that DampI efforts are authentic and collaborative not merely window dressing A strong link between the organizationrsquos espoused values and its behaviors is vital

CREATING MAINTAINING AND PROMOTING A DIvERSE WORKfORCE

Recruiting is an essential part of creating a diverse workplace and there are a variety of ways to recruit diverse talent Typical activities include job fairs networking events summer internships and activities

focused on diversity awareness In recent years pipeline initiatives have become an increasingly popular recruiting tool Targeted to college high school and even grammar school students the primary focus is to develop long-term relationships with young adults aiming to maximize the likelihood they will attend college graduate and ultimately enter the workforce

Once new recruits are hired consistent and meaningful mentoring and training is essential to ensure they enjoy a successful career start effective integration and continued awareness These efforts should also be directed toward existing employees to foster their development and growth Effective talent management includes recognizing and understanding that the issues and challenges facing a diverse workforce are different and in some ways more complex and challenging than ever before All employees must make an effort to understand support and feel empathy for one another ldquoDiversity championsrdquo often serve an important role in this regard They are individuals in a position of power who are willing to provide meaningful one-on-one support to more junior employees throughout their careers

Promotion is the most significant way an institution can demonstrate its faith in and commitment to its employees In many ways this is the most challenging part of the equation and it is essential that onersquos consideration for advancement be evaluated and strategized

well in advance of the actual promotion cycle Promotions are integral to creating role models for the next generation of lawyers They actually help ensure that the recruiting retention and promotion cycle continues into the future ndash that it is a recognized feature of the institutionrsquos landscape

Succession planning is fundamental in enabling the organization to be well positioned for the future Its success lies in the recognition that even senior-level individuals need support mentoring guidance and leadership development training to ensure continued success

THE fUTURE Of DIvERSITY AND INCLUSION

These ingredients are just a few tools with which an organization can maximize the effectiveness of its diversity and inclusion efforts Ultimately our collective success hinges on our ability to focus on the things that bring us together as professionals and as people rather than on what divides us This simple behavioral approach can make all the difference in creating the necessary paradigm shift to build more inclusive environments both now and in the future

Tina Martini based in chicago is a partner in the Intellectual Property and Technology group She focuses on trademark copyright domain name Internet advertising and unfair competition law Reach her at christinamartinidlapipercom

EMOTIONAL INTELLIGENCE AND DIvERSITY EMPOWERING SUCCESSBy Christina Martini

10 | Intellectual Property and Technology news ndash United States

When companies form legal strategies to protect their IP assets and trade secrets employment agreements are an essential part of the overall structure Todayrsquos work force is increasingly specialized and companies extend across jurisdictions with different laws In this competitive potentially litigious environment companies should consider customizing employment agreements for each position and in some cases for each individual employee especially those in executive and leadership roles

Mattel v MGa

The high-profile case Mattel Inc v MGA Entertainment Inc underscores the need for customization Toy designer Carter Bryant signed an employment agreement with Mattel agreeing to communicate and assign all ldquoinventionsrdquo which was defined as all ldquodiscoveries improvements processes developments designs know-how data computer programs and formulaerdquo1 Interestingly artistic and copyrightable works were not included although Bryant was hired to create such works for Mattel

Bryant left Mattel in October 2000 but began showing drawings for a potential line of dolls the Bratz to competitors in August 2000 Shortly thereafter MGA hired Bryant and began selling Bratz Mattel sued MGA alleging ownership of the drawings and doll designs for the Bratz line by virtue of Bryantrsquos employment agreement2 The district court found the agreement was sufficient to transfer Bryantrsquos interest in the Bratz line to Mattel3 On appeal the Ninth Circuit vacated the award and remanded the case for a new trial consistent with instructions that the term ldquoinventionsrdquo did not appear to cover copyrightable works such as the drawings and dolls4 After almost ten years of litigation on remand the district court found that the employment agreement did not transfer the Bratz line to Mattel and MGA became the victor

BiMBo Bakeries v Botticella

Bimbo Bakeries v Botticella illustrates how an employment agreement customized to an employeersquos duties can save a company

from having its highly confidential and proprietary information land in the hands of a competitor As Bimbo Bakeriesrsquo vice president of operations Chris Botticella had acquired ldquoa broad range of confidential information about Bimbordquo including the secret process for creating Thomasrsquo English Muffins5

In autumn 2009 Botticella accepted an offer from Hostess to become a vice president but he remained at Bimbo until January 2010 During that period he continued accessing Bimborsquos confidential and proprietary information When Bimbo learned of the Hostess offer it moved for a preliminary injunction to enjoin Botticella from joining Hostess and from divulging any confidential or proprietary information In support of its case Bimbo offered Botticellarsquos agreement which stated he would not disclose Bimborsquos confidential or proprietary information and upon ceasing employment he would return every document he had received from Bimbo6 In large part because of the comprehensive employment agreement the district court granted the injunction against him and it was upheld by the Third Circuit7

STRATEGIES fOR DRAfTING AGREEMENTS

Matters covered by an employment agreement are of the highest importance The Bryant agreement appears to have been directed toward engineers and scientists rather than creative personnel whereas the Botticella agreement was specifically tailored to his position as an executive with access to high-level trade secrets Because Bimbo customized Botticellarsquos employment agreement to his particular position it was easier to prevent his move to a competitor and any potential disclosure of trade secrets

In short customization of an employment agreement to match an employeersquos responsibilities and access to proprietary information can be the difference between an immediate injunction and lengthy fruitless litigation

Governing law is an essential component of any employment agreement Currently 19 states have enacted statutes governing covenants

not to compete often integral to employment agreements Most states enforce such agreements under common law Pennsylvania for example follows the inevitable disclosure doctrine (addressed in Bimbo Bakeries) essentially providing that a former employee can be enjoined from taking a position with a competing company if disclosure of the former companyrsquos trade secrets will be inevitable in the new position California in contrast continues to reject the inevitable disclosure doctrine and requires a showing of actual or threatened misappropriation or breach of contract If a company resides in several jurisdictions it should consider choice of law provisions in its employment agreements

When drafting employment agreements customization is the key to greater predictability Take into account the type of work the employee is hired to perform the information the employee may access and the IP the employee may generate It is also important to examine jurisdictional considerations such as the state where the company resides the state where the employee resides and the state where the work will primarily be performed In balance customization can provide more certainty and should a dispute arise it can have a significant impact on the outcome

IPT partner Darius c gambino based in Philadelphia focuses on patent prosecution and litigation trademark registration and enforcement trade secrets licensing opinions and due diligence investigations Reach him at dariusgambinodlapipercom

IPT associate Tiffany nichols focuses her practice on IP litigation IP prosecution and general litigation She is based in Philadelphia you may reach her at tiffanynicholsdlapipercom

1 Mattel Inc v MGA Entmrsquot Inc no cV 04-9049 (Bryant v Mattel) slip op at 5 (cD cal Dec 27 2010)2 Mattel Inc v MGA Entmrsquot Inc 616 f3d 904 907 (9th cir 2010)3 Id at 9084 Id at 9175 Bimbo Bakeries USA Inc v Botticella 613 f3d 102 105 (3d cir 2010)6 Id 7 Id at 119

ONE SIzE DOES NOT FIT ALL PROTECTING TRADE SECRETS WHEN DRAfTING EMPLOYMENT AGREEMENTS

wwwdlapipercomip_global | 11

By Darius C Gambino and Tiffany Nichols

GROWING ACROSS ASIA PACIFIC

DLA Piper grows with our clients in mind we have new arrivals and even stronger IPT capabilities

in Shanghai and across Australia As we add to our strength in markets that matter we aim to be

your trusted advisor on your global IPT issueswhen it matters to our clients it matters to us

DLA Piper llp (us)

401 B Street Suite 1700San Diego California 92101-4297

Attorney Advertising

wwwdlapipercomemsp |emsp DLAemspPiperemspLLPemsp(US)