Posted: May 1st, 2011
By Alayna R. Ness *
On March 25, 2011, the Wake Forest Journal of Business and Intellectual Property Law held a symposium titled Creative Capital: Intellectual Property Creation and Venture Capital. The morning panel, entitled “Intellectual Property – Cradle to Grave,” was interesting and covered a variety of topics. Each panelist was given an opportunity to speak for fifteen minutes about his or her respective topic or experiences with intellectual property law.
First up was Robert Rehm, a partner at Smith, Anderson, Blount, Dorsett, Mitchell & Jennigan, L.L.P. in Raleigh, North Carolina. He spoke about the practical aspects of intellectual property (“IP”) transfers, including whether IP transfers by operation of law or by written agreement. He described the different mindsets companies have towards intellectual property issues at the various stages of development. For example, companies in the early stages of development are faced with the temptation to take shortcuts with their IP, such as paying a person to write the code for their website without a written agreement in place. The real lessons learned from Mr. Rehm’s presentation include the importance of (1) getting a written agreement in place (even if you think you have an IP transfer by operation of law) and (2) resisting the temptation to cut IP corners, either because you are just starting up or because you are trying to remain competitive.
Daniel Egger was up next, and he provided great insight into the IP issues related to using open source software. Mr. Egger is the co-founder of the Wake Forest Elevator Competition and CEO of Open Source Risk Management, Inc. Open source software has source code that is available to the public, free of charge, with certain limitations. For example, a particular product might be 95% open source with the other 5% added by the manufacturer. The key IP problem arises because the major copyright trigger for open source licenses occurs when you distribute derivative works. Distributing a derivative work triggers copy left obligations. According to Mr. Egger, this means that every party receiving the closed source of your product has to be offered the source-code version of your product as well. Obviously, companies do not want to disclose this information unless required since it would give their competitors access to information about how the product works. Mr. Egger described a form of customary law accepted by engineers in the industry, since there are relatively few cases on the subject. This custom distinguishes between (1) applications that use formal protocols to access the open source material and (2) modifications that allow your application to communicate with the open source material in a unique way. The first is not considered a derivative work, but the second runs the risk of being considered derivative. Mr. Egger believes it is unlikely a court would later rule differently than this custom established in the industry.
The third speaker was Dean Stell, Associate Director in the Wake Forest University Office of Technology Asset Management. It is Mr. Stell’s job to determine what, if anything, can be done to create useful and profitable commercial opportunities with respect to the inventions of the many scientists working at Wake Forest University. Universities are unique in the sense that they do not actually make or market products. The university will file for patents on many of the inventions but licensing the technology becomes a key consideration. Mr. Stell explained that his office looks for markets with a connection between the kind of patent you can get and the products that can be sold. Thus, medical devices are a good opportunity in this area, especially because they do not require a huge amount of money to produce and sell. After the university licenses the patent to a company, there can be a lot of renegotiation of the agreements over time.
Michael Mireles was the fourth speaker, and he gave a very entertaining overview of Stanford v. Roche Molecular Systems. Oral arguments were heard before the Supreme Court on February 28, 2011. Professor Mireles is a professor of law at the University of the Pacific McGeorge School of Law. The case involves a researcher who was hired by Stanford to work in its AIDS research lab. The researcher was then sent by his supervisor to a corporation to learn more about methods of determining the efficacy of HIV treatments. This researcher signed agreements with Stanford assigning any inventions to Stanford, to the corporation assigning inventions to the corporation, and then again with Stanford. This main issue, according to Professor Mireles, is whether the Bayh-Dole Act, which gives universities patent rights to any invention created in part with federal funds, is superseded by the assignment agreement with the corporation. Professor Mireles reviewed some of the policy arguments relevant to the debate, including the recognition of inventor’s rights, preservation of the public interest in government funded inventions, and preservation of academic freedom. The professors in the room likely appreciated his point that we do not want to go down the road where professor work is treated as “work for hire” and their intellectual property becomes the property of the university in all cases.
The final speaker of the morning was Sibila Nagel, an attorney and partner in Munich, Germany. She provided the audience with the international perspective and commented on some of the subjects discussed by earlier speakers. Although the EU is working to harmonize the various fields of laws, there is still much work to be done, particularly in the area of patent protection. Ms. Nagel specifically discussed the remuneration rights of employee inventors, an area where national laws still apply. In Germany, an employee inventor must notify the employer of the invention. Prior to 2009, once the employer had been notified, it had four months to decide whether to claim title or not. If the employer did not claim title in writing within four months, the invention was free and belonged to the employee. Ms. Nagel echoed Mr. Rehm’s comment that often start-up companies gave in to the temptation to not consult attorneys on IP issues and so registered the patent but failed to get the title in writing. This was problematic because when venture capitalists came in to do due diligence, the problem was discovered and often the employee was no longer with the firm, perhaps having left on less than good terms. However, this changed drastically in 2009. The new process still requires notification by the employee inventor. But now, after four months, if the employer is silent, then title goes to the employer by operation of law. Ms. Nagel wrapped up the morning panel held at Wake Forest University School of Law.
* Alayna Ness is a third year law student at Wake Forest University School of Law, graduating in May 2011. She holds a Bachelor of Science in Business from Indiana University. In the summer of 2010, she worked at the Securities and Exchange Commission in Los Angeles, California. Ms. Ness will be taking the bar examination in Virginia and plans to practice corporate and securities law.