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I. SUMMARY OF U.S. INTELLECTUAL PROPERTY LAWS

A. Patents – 35 U.S.C. 100 et seq. 1. Scope of Protection a. Utility patents cover any “new and useful process, machine or composition of matter” that would not have been obvious to a person of ordinary skill in the relevant art; patentable subject matter includes living organisms and computer software b. Design patents cover any “new, original and ornamental design for an article of manufacture” 2. Duration of Protection a. Utility patents run for 20 years from date of filing b. Design patents run for 14 years from date of issuance c. Maintenance fees must be paid periodically during the life of a patent in the U.S. and foreign countries to keep the patent in effect; failure to make payment results in the patent’s lapsing 3. Establishing Rights – Patent rights arise only after filing an application with the U.S. Patent Office and being granted a patent after an examination process a. Timing – An application must be filed within one year of public use or sale of the invention or design; note, however, that a filing made after an initial disclosure may affect the company’s ability to obtain patent protection outside the United States b. Priority – The first to invent has priority c. Owner – Filing is made in the name of the inventor who then assigns the patent application to a company, if obligated to do so 4. Enforceability – Patents give the owner the right to exclude others from using the claimed invention, but not the right to practice the invention if it itself infringes an earlier granted (and still extent) patent a. Basis for Infringement – a patented invention can be infringed when another invention uses the patented invention or an equivalent invention (“doctrine of equivalents”); a design patent is infringed by a substantially similar design b. Remedies (1) Damage awards can be based on a reasonable royalty or on lost profits and can include prejudgment interest (2) Treble damages and attorneys fees are available in cases of willful infringement (3) Injunctive relief is sometimes granted 5. Due Diligence Process Concerns a. Ownership (1) Ensure that documentation is kept so that the time of invention can be documented; employees need to understand the criticality of filing prior to disclosure (2) Assignment agreements should be in place with employees so that they are obligated to assign inventions to the company (3) Maintenance fee and annuity dates should be docketed so that rights are maintained b. Infringement (1) Depending on the nature of the company’s business, is the company doing searches prior to utilizing an invention to avoid claims of infringement of third parties’ rights (2) When products are sourced from third parties, an indemnification should be obtained so that the manufacturer bears the responsibility for infringements c. Rights of Others – Under the Bankruptcy Code, a licensee can continue to use licensed technology under certain circumstances after a licensor’s bankruptcy; the agreement should provide protection to the licensee in the event of a licensor’s bankruptcy so that the licensee can maximize its use of the licensed rights B. Copyrights – 17 U.S.C. 101 et seq. 1. Scope of Protection a. Protects any “original works of authorship fixed in any tangible medium of expression,” including literary and dramatic works, visual arts, graphics, audio-visual works and computer programs b. Ideas are not protected by copyright, only the expression of ideas 2. Duration – Varies with when the work was created and/or published; for works created on or after January 1, 1978, it is the life of the author plus 50 years; works made for hire expire on the earlier of 75 years from publication or 100 years from creation 3. Establishing Rights a. Timing – Copyright exists from creation of a work when it is fixed in tangible form; registration is not required, but is a prerequisite to bringing an infringement suit based on a work authored by a U.S. citizen b. Ownership – The author or authors are the owners on creation; if the work is a work made for hire, ownership vests in the employer c. Work made for hire is any work created by an employee in the course of employment or a work within one of the enumerated categories ( 17 U.S.C. 101) which the parties agree in writing is a work made for hire d. In any other case, the work must be assigned to the company 4. Enforceability – Infringement can be criminal or civil a. Basis for Infringement – A substantially similar work which has been copied from the protected work b. Remedies (1) At the election of the plaintiff, either actual or statutory damages are recoverable; actual damages are the plaintiff’s damages and the infringer’s profits; statutory damages are $ 500.00 to $20,000.00 per infringement, and up to $100,000.00 in cases of willful infringement; note that multiple copies of one work are considered one infringement for purposes of assessing statutory damages (2) Attorney’s fees are generally awarded to the prevailing party (3) Injunctive relief is also available (4) Under some circumstances, infringing works can be impounded or seized 5. Due Diligence Process Concerns a. Ownership – Assignments should have been obtained from all nonemployees creating copyrightable works and/ or they should agree in writing that the work is a work made for hire (if applicable); filing for registration should be made within 3 months of publication so that statutory damages and attorneys fees are available b. Infringement – Indemnification from infringement of rights of third parties should be obtained from nonemployee creators and, also, they should represent and warrant that their work is an original creation (or disclose the extent to which it is not); licenses from third parties should cover all significant uses c. Rights of Others – Under the Bankruptcy Code, a licensee can continue to use licensed rights under certain circumstances after a licensor’s bankruptcy; the agreement should provide protection to the licensee in the event of a licensor’s bankruptcy so that the licensee can maximize the use of the licensed rights C. Trademarks – 15 U.S.C. 1051 et seq. 1. Scope of Protection – Extends to any “word, name, symbol or device” which acts as an indication of source for products or services, including slogans, sounds and container shapes 2. Duration of Protection – Can be indefinite 3. Establishing Rights a. Timing – Rights are established by use and/or the filing of an intent-to-use application with the U.S. Trademark Office which is followed up by use; registration is not a prerequisite to enforceable rights b. Priority – Generally the first user or the first to file an intent- to-use application has priority 4. Ownership – The owner is either the user or the entity which controls or has the right to control the user (e.g., a licensor) 5. Enforceability a. Basis for Infringement – A likelihood of confusion as to source or sponsorship between two marks, or if one mark would potentially dilute the strength of the earlier mark b. Remedies (1) Injunctive relief is available (2) Damages are recoverable and can be augmented if the infringement is willful (3) Counterfeit goods can be seized (4) Attorneys fees may be awarded in exceptional cases 6. Due Diligence Process Concerns a. Ownership (1) Company should consider filing intent-to-use applications prior to actual use to avoid a third party’s obtaining prior rights while the company works to introduce a product or service and make use of a mark (2) Renewal and other filing dates should be docketed so that rights are maintained (3) Trademark licenses must provide for the trademark owner’s exercise of quality control over the licensee; agreements should be reviewed to ensure that the terms of license agreements are sufficient in this regard b. Infringement (1) When products are sourced from third parties, an indemnification should be obtained so that the manufacturer bears the responsibility for infringements (2) It is advisable to search prior to adoption of a mark to determine if a third party has already established rights to an identical or substantially similar mark D. Trade Secrets 1. Scope of Protection a. Extends to information, including (under the Uniform Trade Secrets Act) a “formula, pattern, compilation, program device, method, technique or process” that is maintained in secrecy and which has economic value by virtue of its not being generally available to others b. Most states have adopted the Uniform Trade Secrets Act 2. Duration – Indefinite provided that the confidentiality of the information is maintained 3. Establishing Rights a. Timing – Trade secret protection arises on creation as long as the information is not disclosed to others without an obligation of confidentiality b. Ownership – If an employer has an effective assignment with an employee, the company will own the trade secret; otherwise the creator is the owner; no statutory filing is made in relation to trade secrets 4. Enforceability a. Basis for Infringement – Misappropriation of trade secret information b. Remedies (1) Injunctive relief is available (2) Damages are recoverable (3) Attorneys fees may be recoverable 5. Due Diligence Process Concerns a. Ownership – Is the company preserving the confidentiality of its information b. Infringement – Incoming employees should be instructed not to use former employer’s confidential information; exiting employees should be reminded of confidentiality obligations E. Miscelaneous Rights – Right of publicity, semiconductor ship protection

II. INTELLECTUAL PROPERTY DUE DILIGENCE PROCESS

A. In approaching the intellectual property due diligence process, there are three main areas to focus on (“Partner” refers to an entity participating in an alliance): 1. What rights does Partner have? This is significant for two reasons: a. The Partner may have rights that it can use exclusively and that consequently allow it to preclude others from using b. The more significant the Partner’s rights, the greater the Partner’s potential value 2. What rights do other entities have that can limit Partner’s use or expansion of its rights? a. For example, exploiting a patent may require a license from a prior patentee b. Trademark rights owned by someone else may prevent shipment of number a product with that mark into country where entity has conflicting rights 3. What rights has Partner not perfected, what don’t they have? B. If the transaction will result in the remaining entity having liability for Partner’s past problems (e.g., a merger) or if an alliance will continue to use a Partner’s policies and procedures, consider potential areas of exposure: 1. Infringements of the rights of others 2. Antitrust 3. IP Misuse C. Practical Considerations: Timing and monetary considerations usually make it impracticable, if not impossible, to fully review all potential issues, so priorities need to be established 1. Determine what rights are most significant to the deal and focus due diligence efforts on those 2. Limit confirmation of Partner’s rights and searching for conflicting rights to countries which are commercially the most viable for the alliance’s products/services 3. Review third party rights as they relate to the main business of the alliance 4. Ask for representations and warranties from Partner as to validity, enforceability, ownership and noninfringement 3. Ownership Issues – In any joint venture, there are issues of ownership of the IP contributed by the Partner and ownership of any IP which is developed by the joint venture A. Identify with particularity the IP contributed by each Partner B. Improvements by the joint venture to contributed IP: Could be licensed back to the contributing Partner during life of the venture and/or thereafter. On termination of the venture, the contributing Partner will typically want to own the improvements. Other Partner may want some rights, particularly if the other Partner provided most or all of the funding C. If the venture uses a trademark belonging to one Partner, it should not be combined with another word or symbol belonging to the venture unless that Partner will own the composite mark that has been used by he venture D. Avoid providing that no one owns the trademark on dissolution of the venture since it could be a valuable asset that would be abandoned for nonuse by the Partners and, thus, available for others to use. 4. Due Diligence Checklist – The following is a sample checklist which gives examples of the type of information which could be sought from a Partner
Previously Provided Provided Herewith N/A
[ ] [ ] [ ] (A) Basic corporate documents for PARTNER and all entities controlled directly or indirectly by PARTNER and any entities in which PARTNER owns directly or indirectly more than 30% of the voting securities of such entity (ENTITIES).
[ ] [ ] [ ] (1) Certificate of Articles of Incorporation, including amendments.
[ ] [ ] [ ] (2) Bylaws, including amendments.
[ ] [ ] [ ] (3) Minutes of all meetings of directors, committees of directors, and shareholders, including copies of notices of all such meetings where written notices were given, and copies of all written consents.
[ ] [ ] [ ] (4) List of states in which qualified to do business.
[ ] [ ] [ ] (5) Description of capital structure of all entities.
[ ] [ ] [ ] (B) Issuances of common stock, preferred stock, warrants, options, debentures, bonds, or any other securities.
[ ] [ ] [ ] (1) Schedules setting forth all issuances or grants of stock and options by the ENTITIES, listing the names of the issuees or grantees, the amounts issued or granted, the dates of the issuances or grants, and the consideration received by the ENTITY in each case.
[ ] [ ] [ ] (2) Lists of all current record and beneficial owners of stock, including addresses and number of shares owned.
[ ] [ ] [ ] (3) List of all options currently outstanding, including names and addresses of option holders and the number of options held by each.
[ ] [ ] [ ] (4) Copies of any voting trust, shareholder or investor rights or other similar agreement covering any portion of any ENTITY’S shares.
[ ] [ ] [ ] (5) All communications with shareholders.
[ ] [ ] [ ] (6) Stock option plans and forms of option agreements which have been used.
[ ] [ ] [ ] (7) Stock purchase agreements which have been used for the purchase or sale of common stock.
[ ] [ ] [ ] (8) Any agreements or documents reflecting understandings relating to registration rights, sale or transfer of any securities held by the ENTITIES, the voting of any such securities and any restrictions in relation thereto.
[ ] [ ] [ ] (9) Permits or other state or federal securities law filings for issuance or transfer of ENTITIES’ securities.
[ ] [ ] [ ] (C) Material contracts and agreements (whether executed or not) which relate to the ENTITIES’ current operations.
[ ] [ ] [ ] (1) Loan agreements, including those with officers, directors or employees.
[ ] [ ] [ ] (2) Lease agreements for significant equipment, furniture and automobiles.
[ ] [ ] [ ] (3) Contracts with major suppliers and others.
[ ] [ ] [ ] (4) Insurance policies.
[ ] [ ] [ ] (5) Partnership and joint venture agreements.
[ ] [ ] [ ] (6) Sales agent and distributorship agreements.
[ ] [ ] [ ] (7) Acquisition and asset purchase agreements.
[ ] [ ] [ ] (8) Documentation of merger with any predecessor corporations.
[ ] [ ] [ ] (9) Any material transactions which are based on oral understandings rather than written documents. Any information relating to material commitments, understandings and/or agreements which are not reflected by a document in writing signed by the party to be bound.
[ ] [ ] [ ] (10) Product development agreements.
[ ] [ ] [ ] (11) Other material contracts outstanding.
[ ] [ ] [ ] (12) Notices of default, termination or noncompliance in relation to any agreement listed in (C)(1)-(11).
[ ] [ ] [ ] (D) Sales and Product Information
[ ] [ ] [ ] (1) List of top 10 selling products by volume in 1993, 1994, 1995, 1996 and 1997.
[ ] [ ] [ ] (2) Advertising and marketing literature in relation to products listed in (1).
[ ] [ ] [ ] (3) Agreements with current advertising, marketing and promotional agencies.
[ ] [ ] [ ] (4) All products currently under development by and ENTITY.
[ ] [ ] [ ] (5) Sales catalogues for 1994, 1995, 1996, and 1997.
[ ] [ ] [ ] (6) Agreements relating to sales to government entities.
[ ] [ ] [ ] (7) Outside submission policies and all form documentation used in relation thereto.
[ ] [ ] [ ] (E) Intellectual Property (IP)
[ ] [ ] [ ] (1) List of issued patents and pending applications (both domestic and foreign).
[ ] [ ] [ ] (2) List of trademark/servicemarks, trademark/servicemark registrations or pending applications.
[ ] [ ] [ ] (3) List of trade names.
[ ] [ ] [ ] (4) List of copyrights, copyright registrations and pending applications.
[ ] [ ] [ ] (5) All agreements in which any of the ENTITIES is licensed to use IP rights of third parties.
[ ] [ ] [ ] (6) All agreements in which any of the ENTITIES licenses IP rights to third parties.
[ ] [ ] [ ] (7) All agreements in which any person or entity is acting as a licensing agent for any ENTITY.
[ ] [ ] [ ] (8) Since January 1, 1994, any allegations received or of which an ENTITY is aware, relating to infringement of the rights of any third party by an ENTITY, including but not limited to allegations of patent, trade secret, mask work, copyright, trademark, trade name or right of publicity and the disposition thereof.
[ ] [ ] [ ] (9) Since January 1, 1994, any allegations of which any ENTITY is aware, of infringement of the rights of any ENTITY, including but not limited to patent, trade secret, mask work, copyright, trademark, trade name or right of publicity and the disposition thereof.
[ ] [ ] [ ] (10) Since January 1, 1994, all correspondence and other communications with any third parties alleging infringement of the rights of any no change, including but not limited to patent, trade secret, mask work, copyright, trademark, tradename or right of publicity and the disposition thereof.
[ ] [ ] [ ] (11) Any information relating to any limitations on the rights of any of the ENTITIES to IP being used or which is planned to be used.
[ ] [ ] [ ] (12) Any conflicts with third parties which would prevent, restrict or limit any ENTITY from e xpanding, using, transferring, or otherwise exploiting IP rights being used or which are planned to be used.
[ ] [ ] [ ] (13) Any allegations from any third party or any documents reflecting any ENTITY’s knowledge of any allegations that any IP rights are or might be invalid, abandoned or nonenforceable.
[ ] [ ] [ ] (F) Pending or threatened litigation, assessment or claims. All information requested is from January 1, 1993 forward unless otherwise indicated.
[ ] [ ] [ ] (1) List of all filed lawsuits in which any ENTITY is a party or has been a party.
[ ] [ ] [ ] (2) Copies of documentation and pleadings relating to any lawsuit currently pending.
[ ] [ ] [ ] (3) List of any disputes with suppliers, competitors, distributors, sales reps, customers or end users regarding any claim or potential claim for an amount in excess of $50,000.
[ ] [ ] [ ] (4) Correspondence, memoranda and notes concerning inquiries from governmental entities or information given to any governmental entity regarding compliance or noncompliance with any law, statute, rule or regulation.
[ ] [ ] [ ] (5) Correspondence, memoranda and notes concerning any claim or potential claim involving the employment or termination of employment of any employee or consultant of an ENTITY, including any claims or allegations of harassment and/or discrimination.
[ ] [ ] [ ] (6) Correspondence, memoranda and notes concerning any litigation or claims involving the import or export of any ENTITY’s products.
[ ] [ ] [ ] (7) Correspondence, memoranda and notes concerning any litigation or claims involving antitrust allegations.
[ ] [ ] [ ] (G) Audit documentation.
[ ] [ ] [ ] (1) Management letters from auditors concerning internal accounting controls in connection with all audits since the PARTNER’s inception.
[ ] [ ] [ ] (2) All letters that have been sent to any ENTITY in connection with all audits since the ENTITY’s inception.
[ ] [ ] [ ] (3) Correspondence with auditors and correspondence received from counsel in response to requests from auditors regarding threatened or pending litigation, assessment or claims, including attorneys’ opinion letters to auditors in connection with audits.
[ ] [ ] [ ] (H) Employee documentation.
[ ] [ ] [ ] (1) Correspondence, memoranda and notes concerning labor or employment disputes since January 1, 1994.
[ ] [ ] [ ] (2) Collective bargaining agreements, if any.
[ ] [ ] [ ] (3) Employment, noncompetition or any similar agreements with employees and consultants.
[ ] [ ] [ ] (4) Pension, profit-sharing, severance and retirement plans.
[ ] [ ] [ ] (5) Employee benefit, 401(l), management incentive and/or bonus plans.
[ ] [ ] [ ] (6) Proprietary Information and Inventions or similar agreements with employees and consultants.
[ ] [ ] [ ] (7) Copies of all employment policies for all ENTITIES.
[ ] [ ] [ ] (8) Listing of all employees with job function and salary.
[ ] [ ] [ ] (9) Assignment, confidentiality and other agreements with employees.
[ ] [ ] [ ] (I) Real Estate
[ ] [ ] [ ] (1) Schedule of real estate owned and documentation (including title reports, etc.) therefor.
[ ] [ ] [ ] (2) Lease agreements for offices and other facilities.
[ ] [ ] [ ] (3) All agreements relating to the acquisition of real estate currently owned by an entity.
[ ] [ ] [ ] (4) All agreements relating to the sale of any real estate by an entity since January 1, 1993.
[ ] [ ] [ ] (5) All agreements relating to the construction of any buildings, improvements or fixtures on or in any real estate of any ENTITY entered into since January 1, 1993.
[ ] [ ] [ ] (6) Any information relating to compliance or noncompliance with any laws, regulations or statutes in relation to any real estate owned by any ENTITY.
[ ] [ ] [ ] (7) Any information relating to any dispute with any third party in relation to any real estate owned or leased by any ENTITY.
[ ] [ ] [ ] (J) Forms
[ ] [ ] [ ] (1) Confidentiality Agreements.
[ ] [ ] [ ] (2) Consulting Agreements.
[ ] [ ] [ ] (3) Product development/acquisition/ license agreements.

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