Wednesday, September 19, 2007

Outsourcing and Offshoring Gain Traction in U.K. Legal Market

On the western edge of New Delhi, amid the glittering office developments of the suburb of Gurgaon, the newest part of Clifford Chance's global empire is open for business. Unlike the firm's other offices, however, this outpost is not practicing law, still a prohibited activity in India for overseas law firms. Instead, the Clifford Chance office houses a group of Indian IT and accounting specialists, part of the Magic Circle firm's back-office function. By moving these operations out of higher-cost offices in Europe and the United States, chief executive David Childs predicts, the firm will save £30 million ($60 million) during the next three years.

When it comes to outsourcing, the U.K. legal community still lags far behind many multinational corporations and major U.S. firms -- but U.K. firms are beginning to catch on. Clifford Chance's new Gurgaon facility makes it the first global firm to locate part of its support business in India. Two other Magic Circle firms -- Allen & Overy and Linklaters -- have already outsourced some back-office functions to Indian contractors, while Eversheds has outsourced a large chunk of its IT function to a U.K.-based specialist.

No major U.K. firms have gone so far as to outsource legal work, and not every British firm is convinced of the virtues of outsourcing even back-office functions. Freshfields Bruckhaus Deringer has yet to make a move in that direction, although chief executive Ted Burke admits that outsourcing is something that the firm will have to look at. Slaughter and May is even less interested. "Clifford Chance operates a different business model from ours in the approach to international legal services," says practice partner David Frank. "Their decision to outsource to India will be driven by economies of scale that are not relevant to us."

Lawyers and consultants attribute the legal sector's reticence to conservatism and concerns over confidentiality. But outsourcing companies such as Williams Lea are now targeting British law firms, confident that demand will grow. "Many of our other markets have reached a plateau, and we've noticed an upsurge in interest from the U.K. legal market," says Tony Davies, business development director for Williams Lea's legal division in the United Kingdom.

Among U.K. firms, A&O took the lead in 2003 when it signed an agreement with outsourcing specialist OfficeTiger to move part of its document management function to the Indian city of Chennai. In Linklaters' more modest foray offshore, it now draws IT support from India-based IT specialist Pro Systems.

Then there's Clifford Chance's more radical bid to cut costs. In 2004 the firm outsourced part of its document production function to an Indian center operated by Integreon Managed Solutions Inc., a global outsourcing specialist, which then advised Clifford Chance on setting up its own facility in New Delhi. To date, the firm has focused on moving basic accounting and IT functions to India, covering such things as payments to suppliers, invoices, expenses and IT system development.

In contrast to outsourcing efforts by other Magic Circle firms, Clifford Chance's Indian staff are all direct employees of the firm. "It's all fairly small-scale compared with what financial institutions have done, but having 100 people in New Delhi will be a big deal for us," Childs says. Two senior members of staff, operations director Wayne Phillips and financial controller Jo Harvey, have relocated to India to manage the office. By keeping the facility part of Clifford Chance, the firm maintains direct control while taking advantage of economies of scale. "You need to treat the offshore center as an integral part of the firm, with complete transparency between it and the rest of the firm," Childs says. "It sounds fairly obvious, but these are areas where you can make mistakes."

The question for Clifford Chance is how much of its business it can transfer overseas. So far it has only moved IT and accounting operations out of London, with New York and Germany next on the list. Childs refuses to comment on which, if any, business areas might follow. "We don't want to affect morale among what is a very good cadre of business services staff [in the U.K.]," Childs says. Outsourcing specialists such as Roy Marshall of Magellan Consultancy Services Ltd. suggest that paralegal work could be handled from a lower cost base offshore; marketing materials or pitch documents could also be prepared from a remote facility.

Outside the Magic Circle, Eversheds has undertaken one of the most ambitious outsourcing projects, signing a deal last December with European IT services provider Computacenter plc to outsource a large chunk of its IT operation. This agreement covers such functions as Eversheds' IT service desk and IT training and saw 79 former employees of the firm transfer to two U.K. Computacenter offices. U.K. managing partner Bryan Hughes describes the move as "largely cost-neutral." Instead, the drivers were access to more sophisticated IT systems and a realization that the IT function could be managed better by a dedicated supplier. "We're not IT experts," Hughes points out. Although Eversheds hasn't moved anything offshore, Hughes expects to visit India later this year to assess various options. "There is a hint of inevitability about it," he says.

To a large extent, the U.K. firms are catching up with many of their U.S. counterparts. Orrick, Herrington & Sutcliffe, perhaps the most aggressive outsourcer, first established its own global operations center in West Virginia in 2002 to handle some support services in IT, finance, human relations and marketing. Two years ago it outsourced the rump of its document management function to Williams Lea, again in West Virginia. Baker & McKenzie, meanwhile, was one of the first to transfer some support functions abroad to what it rather imaginatively calls an "insourced offshore facility" -- a 350-strong operation in Manila that handles various IT and marketing functions, saving Baker around $10 million a year.

Reducing overhead is at the top of the list for most firms considering the outsourcing route. A legal secretary in India, handling basic secretarial work such as transcribing files, costs £12,500-£14,000 ($26,000-$28,000) annually, compared with up to £35,000 ($70,000) in London. Suppliers and consultants, however, stress that it's not just about the bottom line. "Cost is the hook, but improved service levels and getting access to better qualified people are definitely ancillary benefits," says Magellan's Marshall. Having access to IT or secretarial support located overseas can mean that a firm is covered 24 hours a day and thus is better placed to cope with the demands of cross-border cases or deals.

Marshall admits that the whole concept of outsourcing still carries some negative connotations. "The gut reaction is that it's about call centers, but this has nothing to do with call centers," he says, alluding to the customer complaints that recently forced British companies Powergen Ltd. and Lloyds TSB Group plc to close their Indian call centers. Some firms have concerns over keeping client matters confidential. Williams Lea says that it has yet to have a security breach; keeping control of offshore operations, as Clifford Chance and Baker & McKenzie do, provides even more of a safeguard.

The pressure to improve profitability while associate wages and property costs continue to soar means that interest in outsourcing and offshoring among British firms will only grow. Clifford Chance's New Delhi pioneers can expect company soon.

Richard Lloyd
The American Lawyer

Friday, September 14, 2007

Sony loses privacy complaint over Unfit Kids [International - Data Privacy]

A documentary that cited video games among the reasons for childhood obesity did not treat Sony unfairly when criticising the PlayStation maker's refusal to sponsor a fitness scheme for kids. Sony also lost a claim that the company's privacy was breached.

The ruling was published by Ofcom, the regulator for the UK's communications industries, yesterday. Sony Computer Entertainment UK Ltd had complained that Ian Wright's Unfit Kids, a Channel 4 show presented by the former footballer, made Sony the target for unfair, one-side and pejorative comment.

Sony also argued that its privacy was "unwarrantably infringed" when footage of the company's offices and logo were used and a confidential email from the company was included in the programme.

In the programme, Ian Wright explored some of the reasons behind childhood obesity. In the first show, Wright selected overweight 13–14 year olds who did little or no exercise and devised an After School Fitness Club programme for them. He tried to extend the project and the second episode of the series, broadcast on 20th September 2006, showed his attempt to secure funding.

He arranged to meet representatives of Sony to seek sponsorship from them. Sony decided not to sponsor the scheme. Sony was referred to in the programme which also showed an email from the company in relation to sponsorship and footage of the exterior of the company's offices.

Sony complained to Ofcom.

Sony said that Wright's comments created an erroneous and unfair impression of the company, which was disproportionate in the context of the refusal of a request for sponsorship. In particular, Sony complained about Wright's remark, "Fuck Sony, man. Sony's not gonna stop this from working".

Sony also argued that the programme implied wrongdoing on Sony's part, alleging that it failed to sponsor Wright's project and unfairly contrasted this with a statement about the firm's worldwide turnover of $8.6 billion from video games. Wright also said that there is a Sony PlayStation game for "every single thing that a child can go out and exercise [for]."

Sony also claimed that the programme makers did not explain the nature and purpose of the programme to them and that they did not inform Sony that its refusal to have the meeting with Wright filmed would be referred to negatively in the programme. It complained that Sony's positive views about Wright's project and the company's involvement in other sports-based initiatives were omitted.

Channel 4 countered that it was "perfectly reasonable" for Wright to express his frustration at the company's decision. It also said that Sony was made aware from the outset the nature and purpose of the programme.

Sony said its privacy was infringed when its offices and logo were filmed without permission and it pointed out that the email used in the programme was confidential correspondence intended for the addressee only. Channel 4 countered that the programme makers did not need permission to film Sony's offices "as the programme makers were filming openly from a public highway." It added, "All company emails are routinely accompanied by confidentiality wording," but said that there was express authorisation from a Sony representative to use the email.

Ofcom found that the inclusion of Wright's reaction to the news that Sony was not going to provide funding was "reasonable as a reflection of his disappointment." This did not amount to an allegation of wrongdoing to which the programme makers should have given Sony an opportunity to respond, said Ofcom.

Ofcom said it was "entirely acceptable" for the programme makers to film and broadcast footage recorded from a public place. Ofcom added: "Such material was firmly in the public domain and did not require consent from the company."

Ofcom noted that there was a clear conflict between Sony and Channel 4 as to whether the broadcaster had permission to use the email. It concluded that it was for the courts to determine the question of any misuse of confidential information.

However, Ofcom was able to consider whether there had been an infringement of Sony's privacy under Rule 8.1 of the Broadcasting Code which states: "Any infringement of privacy in programmes, or in connection with obtaining material included in programmes, must be warranted."

Ofcom said it considered both the subject matter and content of Sony's email and ruled that the parts used did not contain any information that was inherently private to Sony, such as exposing the inner workings of the company.

The regulator also said it was foreseeable that the programme would wish to make reference to what Sony had said in the email and there was no evidence Sony had specifically asked for it not to be included. Ofcom ruled that Sony did not have a legitimate expectation of privacy.

Ofcom's ruling concluded: "The complaints of unfair treatment and infringement of privacy were not upheld. Accordingly the complaint was not upheld."

Thursday, September 13, 2007

Utah State Law Addressing Keyword Searches Likely Unconstitutional

The Utah Trademark Protection Act, signed on March 19, 2007, prohibits the sale and use of advertising keywords registered in Utah as "electronic registration marks" if the advertising generated by the use of the keywords is for directly competitive businesses, products or services or is otherwise likely to cause confusion between the goods and services of the advertiser and the electronic registration mark owner.

According to the legislative review note accompanying the legislation,

This legislation allows the registration of an electronic mark that would
prohibit the triggering of an advertisement for a competitor. The most prominent
application for this type of mark is the use of user-entered search terms in an
Internet search engine to trigger advertisements. These triggered advertisements
are often advertisements for a competitor of an entity whose name is entered in
the search engine by a potential customer. Because of the potential impact on
interstate commerce from the state's regulation of electronic registration mark
use on Internet search engines, this legislation has a high probability of being
held to be unconstitutional.

"Google has already publicly taken the position that the act is unconstitutional," notes Wendy Robertson. Learn more from Inside Counsel.

Patent Prosecution Highway Extends to United Kingdom [International - Patents]

The U.S. Patent and Trademark Office (USPTO) and the United Kingdom Intellectual Property Office (UK IPO) announced on September 4, 2007 that they are now accepting applications for participation in a pilot Patent Prosecution Highway project established between the two offices.

Under the Patent Prosecution Highway, an applicant receiving a ruling from either the UK IPO or the USPTO that at least one claim in an application is patentable may request that the other office fast track the examination of corresponding claims in corresponding applications. Full requirements for participation in the trial program at the USPTO can be found at According to the press release from the UK Patent Office, patent applicants will be required to submit search and examination reports prepared by the other patent office in order qualify for accelerated treatment.

The purpose of the trial program is to gauge the interest of applicants and determine if the program improves quality and efficiency and reduces the workload at the USPTO and the UK IPO. The trial period is set to expire September 4, 2008, but may be extended for up to one year or terminated earlier depending on volume of activity and other factors. Both offices will provide notice of any adjustment in the trial period.

Ten Things to Ponder before filing a Patent Infringement Action

According to "Ten Things to Ponder Before Filing A Patent Infringement Action," by Brandon Baum (Mayer Brown LLP) via PLI, there are certain "good practices" you should engage before starting the time-consuming and pricey process of suit:
  • Perform an infringement analysis of the accused product(s)
  • Identify and preferably interview your witnesses
  • Make sure everyone with a "need to know" is aware you are in pre-litigation mode
  • Place a freeze on documents
  • Identify preferred venue
  • Identify and possibly retain consultants
  • Review prosecution history and prior art
  • Perform a rough damages analysis if the client is interested in damages
  • Evaluate the target's likely response
  • Understand and manage client expectations

New Website for Copyright Stakeholders

Columbia Law School is launching a Web site to help artists and writers retain control of their copyrights and manage those rights through their careers. The site, , is the work of Columbia Law School professors Jane Ginsburg and Timothy Wu [Who Controls the Internet; Oxford University Press]. "We want to reach the most vulnerable creators with this," said Ginsburg. "We’re creating a different vision for what the future of copyright should be – to actually benefit authors and creators."

Ordinarily Seperable Stereoisomer Obvious for Lack of Increased Potency Over Mixture [International - Patents]

In Aventis Pharma Deutschland GMBH, et al. v. Lupin, LTD., et al. (September 11, 2007), the Federal Circuit held that claims covering a 5(S) stereoisomer of ramipril in a composition substantially free of other isomers were obvious where the stereoisomer was ordinarily separable from the prior art mixture with inactive ingredients and did not offer increased potency.

According to the opinion by Circuit Judge Linn,
The record suggests that when Dr. Smith synthesized SCH 31925, she understood that the 5(S) form of ramipril was the mixture’s therapeutically active ingredient. Even if she did not, however, the prior art provides a sufficient reason to look to the 5(S) configuration. . . . Moreover, the ’944 patent specifically taught that stereoisomers of ramipril “can be separated by conventional chromatographic or fractional crystallization methods.” ’944 patent, col. 10, ll. 28–31. Aventis’s protestations notwithstanding, there is no evidence that separating 5(S) and SSSSR ramipril was outside the capability of an ordinarily skilled artisan.

Aventis attempts to rebut this prima facie case of obviousness by arguing that purified 5(S) ramipril exhibited unexpected results in the form of increased potency. . . . The prior art supporting prima facie obviousness included the SCH 31925 mixture, and so Aventis must show that 5(S) ramipril had unexpected results not over all of its stereoisomers, but over that mixture, which did not contain the [higher potency] RRSSS form. And the potency of pure 5(S) ramipril is precisely what one would expect, as compared to a mixture containing other, inert or near-inert stereoisomers.

All evidence suggests, and the district court found, that potency varies with the absolute amount of the 5(S) isomer in a mixture. Invalidity Opinion at 37. That is, a 30 milligram dose of a mixture that is 1/3 5(S) ramipril has the same effectiveness as a 10 milligram dose of pure 5(S) ramipril. Id. Aventis has thus failed to show unexpected results that would tend to rebut a prima facie case of obviousness. See Pfizer v. Apotex, 480 F.3d 1348, 1368–69 (Fed. Cir. 2007) (holding obvious a patent claim to amlodipine besylate over prior art disclosing the small genus of pharmaceutically acceptable amlodipine salts, where there was an insufficient showing that the properties of amlodipine besylate, purportedly superior for the purpose of mass-manufacturing tablets, were unexpectedly superior to other obvious-to-try salts); cf. Forest Labs., Inc. v. Ivax Pharms., Inc., No. 07-1059, slip op. at 10–11 (Fed. Cir. Sept. 5, 2007) (holding that prima facie obviousness of a claim to a particular stereoisomer over a racemic mixture was rebutted where the particular stereoisomer showed unexpected benefits and evidence indicated that the isomers would have been difficult for a person of ordinary skill in the art to separate).

In sum, we hold that claims 1 and 2 of the ’722 patent, which cover the 5(S) stereoisomer of ramipril in a composition substantially free of other isomers, are invalid under 35 U.S.C. § 103 over the SCH 31925 mixture, the ’944 patent, and the enalapril references in the prior art.

Wednesday, September 05, 2007

Google Foe Ends Unique Trademark Suit Over Keywords

After four years of locking horns with Google in court, Michigan-based American Blind and Wallpaper Factory has abandoned its unique trademark infringement case against the Silicon Valley titan.

The end comes just a couple of months shy of a scheduled trial date. Such a trial would have been the first time a jury took a crack at an important question in today's trademark law: whether a search engine infringes when it lets one company pay to place its ad alongside search results on a competitor's name.

In a settlement reached late last week, both sides agreed to halt their claims. American Blind won no concessions whatsoever.

American Blind's chief executive, Joel Levine, said Tuesday the company pulled out for financial reasons, and because American Airlines, which has more money in its litigation coffers, has recently filed a very similar suit.

"American Airlines is more well-suited to take on Google than we are," Levine said. "We sell blinds and wallpaper and that's what we do best. We're not litigators."

American Blind did hire some heavy hitters to handle the Northern California federal court case on its behalf -- New York-based Kelley Drye & Warren and Howrey. Google hired Keker & Van Nest.

Keker partner Michael Page said American Blind's decision wasn't just about money.

"They had a terrible case and they decided it wasn't worth pursuing," he said. "They quit and went home."

Indeed, American Blind suffered some serious setbacks this year, including being sanctioned in June for failing to preserve and hand over relevant documents. Magistrate Judge Richard Seeborg found that, "even though the evidence does not support a conclusion of intentional document destruction or that American Blind or its employees specifically intended to deprive Google of relevant evidence, the record demonstrates a willful indifference at American Blind towards ensuring that relevant documents were preserved, collected, and produced."

The company was ordered to pay Google $15,000 in compensation.

The judge also allowed Google to present evidence at the upcoming trial about American Blind's alleged purchase of its own competitors' trademarked keywords.

Levine, to whom Howrey attorneys referred all comment Tuesday, said the sanctions had "zero" effect on their decision to pull out of the litigation. The CEO pointed out that the case began when Google filed a declaratory judgment complaint against American Blind.

Levine said he thinks Google chose to file suit against American Blind because it is small.

"They chose us," he said. "It's a legal strategy. They picked a sizable company but not a huge one."

Keker's Page disputes this, saying Google filed suit only after American Blind had been threatening to sue for 18 months.

"We didn't pick them because they were a small guy," he said.

In April, U.S. District Judge Jeremy Fogel found that two of American Blind's allegedly infringed trademarks were not well-known enough to support a trademark infringement case. This greatly limited the number of marks at play in the litigation.

Courts across the country have given mixed rulings on whether the search engine advertising model at issue -- which, for Google, is called AdWords -- constitutes trademark infringement, said Eric Goldman, a professor at Santa Clara University School of Law. All other cases of this nature have also ended pretrial, said Goldman, who closely tracks such litigation.

Google has not yet filed a response to American Airlines' complaint, which was brought in North Texas.

Tuesday, September 04, 2007

Greenberg v. National Geographic - the latest [Copyright, International]

After separate three-judge panels in the 11th U.S. Circuit Court of Appeals ruled for -- and then against -- a freelance photographer suing the National Geographic Society over copyright claims, the full court has agreed to consider the case.

The Aug. 30 decision to vacate the latest ruling in Greenberg v. The National Geographic Society means that the 11th Circuit could reinstitute a conflict between the 11th and the 2nd Circuits about whether publishers, specifically National Geographic, may reproduce publications in digital CD-ROM format without paying more royalties to freelance photographers for additional use of their work. The U.S. Supreme Court tends to favor consideration of cases on issues in which circuit courts disagree.

The copyright litigation was first addressed by the 11th Circuit in 2001 in a decision penned by Judge Stanley F. Birch Jr., the court's resident intellectual property expert. That opinion found in favor of freelance photographer Jerry Greenberg, whose photos had been published by National Geographic and then reproduced in its digital library. In similar cases in New York against National Geographic, the 2nd Circuit has taken the opposite stance, ruling that reproducing the magazine's library on CD-ROM does not violate freelancer copyrights.

Two months ago a new 11th Circuit panel overruled Birch's 2001 decision in the Greenberg case, saying instead that National Geographic should prevail. The latest decision was written by U.S. District Judge David G. Trager, a visiting senior judge from New York, which is part of the 2nd Circuit. He was joined by 11th Circuit Judge Rosemary Barkett and Senior Judge Phyllis A. Kravitch.

Trager's ruling also sidestepped a precedent which generally binds appellate panels to earlier circuit decisions addressing the same issue of law unless it has been overturned either by the entire 11th Circuit or by the U.S. Supreme Court.

But Greenberg asked the full court for an en banc review, and a majority of the active judges voted to rehear the case. En banc orders do not identify how the judges voted, but this one noted that Judge Frank M. Hull recused and that Kravitch, who joined Birch's 2001 decision with Judge Gerald B. Tjoflat, would participate.

"You can imagine how gratified we were to hear about that," Greenberg's attorney, Norman Davis of the Miami firm Squire, Sanders & Dempsey, said last week of the en banc order. "It doesn't happen very often."

"Had the prior decision stayed in place, the case would essentially have been done," said Davis. "Now, it's not. I look forward to learning what issues they [the circuit judges] want briefed and to engaging in responding to those issues."

In response to the 11th Circuit action, the National Geographic Society released a statement saying that the organization and its attorneys "now look forward to presenting our arguments in this important case to the full U.S. Court of Appeals for the 11th Circuit and believe that the full court will agree with the three-judge panel and the U.S. Court of Appeals for the 2nd Circuit that the National Geographic Society is entitled to make past issues of its magazine available in CD-ROM format without violating the copyright laws."

The Greenberg case raises on behalf of freelance photographers many of the same issues raised by freelance writers in another landmark copyright suit decided by the Supreme Court in 2001. That case, New York Times v. Tasini, 533 U.S. 233, favored freelance writers and came three months after the 11th Circuit panel ruled in favor of freelance photographer Greenberg.

In the closely watched Tasini case, freelance writers of articles previously published in newspapers and magazines brought copyright infringement claims against publishers and owners of electronic databases that had made the articles widely available via the Internet and services such as Lexis-Nexis. In a 7-2 opinion issued June 25, 2001, the Supreme Court ruled in favor of the writers.

For a decade, the Greenberg and Tasini cases have pitted publishers against freelance photographers and writers -- all of them seeking to define copyright law in a digital age. At stake are royalties and fees that publishers could be forced to share with freelancers whenever they reproduce and sell those freelancers' previously published works in merchandise designed for computer access.

In 2001 in the 11th Circuit, the Birch panel found for the photographers, specifically dismissing arguments offered by National Geographic that a 30-disc CD-ROM set containing reproductions of every National Geographic magazine was not a new product but was merely a reprint of a previously published work.

"The critical difference, from a copyright perspective, is that the computer, as opposed to the machines used for viewing microfilm and microfiche, requires the interaction of a computer program in order to accomplish the useful reproduction involved with the new medium," Birch wrote in what is now called Greenberg I. "These computer programs are themselves the subject matter of copyright, and may constitute original works of authorship, and thus present an additional dimension in copyright analysis."

Birch emphasized his point by attaching to 2001 opinion a copy of National Geographic's copyright application for the CD-ROM library.

$400,000 AWARD

On remand, a district judge in Florida, using Greenberg I as a guide, awarded Greenberg damages of $400,000. That ruling came in 2004, three years after Tasini. National Geographic appealed, resulting in the June opinion by Trager in what is called Greenberg II.

His panel sided with Trager's home circuit -- which since Tasini, has rejected claims against National Geographic by other freelance writers and photographers -- and bluntly labeled the earlier Birch opinion as "wrong."

The 2nd Circuit in those cases has interpreted Tasini as "an intervening (post-Greenberg I) change in the law" even though Trager acknowledged in his opinion that Tasini was decided on different facts than either Greenberg or the other National Geographic cases in New York.

After the en banc order was issued last week, Greenberg lawyer Davis said that an opinion issued by another 11th Circuit panel on Aug. 23 in an unrelated case has given him hope that the full court may restore Greenberg I.

In the case, which deals with maritime law, the panel showed that the court clearly frowns on reversing its own previous rulings, even in cases where a Supreme Court ruling has intervened.

The central question in Atlantic Sounding Co., Inc, v. Townsend, No. 06-13204, is whether the 11th Circuit can, or should, depart from a prior circuit ruling based on the Supreme Court's intervening decision in a similar case.

"We conclude that we may not," wrote Chief Judge J.L. Edmondson, joined by Edward E. Carnes and Senior Judge Peter T. Fay. "Under our prior panel precedent rule, a later panel may depart from an earlier panel's decision only when the intervening Supreme Court decision is 'clearly on point.'"

Edmondson added that the 11th Circuit had concluded in a 2003 case that "an intervening Supreme Court decision did not 'implicitly overrule' a prior circuit decision because the cases dealt with different issues and were not 'clearly consistent.'"

"The Supreme Court reminds us that '[t]here is, of course, an important difference between the holding in a case and the reasoning that supports that holding,'" Edmondson continued. "So, that the reasoning of an intervening high court decision is at odds with that of our prior decision is no basis for a panel to depart from our prior decision. As we have stated, [o]bedience to a Supreme Court decision is one thing, extrapolating from its implications a holding on an issue that was not before that Court in order to upend settled circuit law is another thing."

Monday, September 03, 2007

Intellectual Property in Mergers and Acquisitions [International]

The nation is witnessing an increasing trend towards mergers and acquisitions. One of the most important factors in ensuring the success of an M&A deal is for the acquiring company to conduct proper "due diligence," lawyer-speak for the process whereby the potential buyer evaluates the target company and its assets.

While lawyers have long focused due diligence efforts on tangible assets, including land, buildings, and equipment, little attention has been paid to intangible assets, such as intellectual property, which can in some instances be as or more valuable to the company’s operations and profitability.

Due diligence should extend to a wide range of intangible assets related to intellectual property, including business information, employee know-how, licence agreements, marketing and distribution agreements, domain names and even intellectual property which is not legally protectable, e.g., business ideas. Like customer "good will", these types of intangible assets can be important elements of a target enterprise’s value, although evaluation of their worth is not an easy task.

Intellectual property itself is a term that has traditionally referred to copyrights, patents, trademarks and trade secrets. The concept of industrial property is further understood as including industrial designs, utility solutions, layout-designs of semi-conductor integrated circuits, trademarks, trade names, geographical indications, trade secrets, and rights to repression of unfair competition under the IP Law.

Well-known trademarks established on the basis of use, however, may be protected independent from registration procedures. However, a claim for protection of a well-known mark is complex, as it is normally made during cancellation or infringement proceedings. Therefore, the protection afforded by registration is more effective in most ordinary cases.

Unlike industrial property objects such as industrial designs and trademarks, objects which are protected by copyright do not need to be registered to afford protection. In this respect, Vietnamese law is consistent with international definitions of copyright which provide that copyright adheres in an original work of authorship published or fixed in a particular medium. Registration of the copyrighted work serves purposes of providing notice and evidence of the copyright.

When conducting due diligence into these types of intangibles, a lawyer must ask two fundamental questions: (1) what are the key rights and intangible assets needed to operate the business successfully? and (2) how can the business be assured the benefits of those rights and assets following the acquisition?

The lawyer then must confirm licences and ownership records, evaluate contracts and licensing agreements, and check for existing litigation and infringement notices. Issues uncovered in the course of due diligence may significantly alter the terms of an acquisition. For example, if the prospective buyer discovers the target company’s trademark is in use by another firm and rights cannot be secured to the target company, this could lead to significant costs involving re-branding and re-working marketing and promotional materials. Such information, revealed in the course of due diligence, could dramatically affect the target company’s value in the eyes of the prospective investor.

IP rights owned by another division within the target group would also need to be assigned or licensed to the target if the acquiring investor wants to secure these rights. Lawyers conducting due diligence must also ensure target company employees have signed confidentiality agreements and agreed in writing to assign inventions to their employer. This prevents critical copyrights, patents, and trade secrets from leaving the company with departing employees. For instance, a company might sell off a software division, only for the buyer to learn that it owns the copyright in original software but not in any modifications after the developer became an independent contractor.

In addition to ensuring control of IP rights before and during a merger or acquisition, lawyers must also consider what happens after the sale. Following any acquisition, patents will usually need to be re-assigned, licence agreements may need amendment, and notices about the transfer of rights may need to be issued.

Depending on the type of intellectual property, the lawyer must determine whether a particular form of intangible asset is transferable as a matter of contract or under the IP Law. For instance, most industrial property objects such as trademarks, patents, and industrial designs may be transferable, but the moral rights in a copyrighted work cannot be transferred, except under certain circumstances, pursuant to the IP Law.

In short, investigating IP issues in the course of due diligence is of paramount importance during an acquisition. Though often time-consuming and resource-intensive, solid IP due diligence will lessen risk, make valuation more accurate, and give an investor a better understanding of the target company’s business.