LICNESING PATENTS, TRADE SECRETS AND TRADEMARKS

FINAL EXAMINATION

Professor Jorda

December 9, 1999

Instructions:
This is a three-hour, open-book exam (four and one-half hours for certain foreign students). You may consult the course materials as well as any other materials. Yet, your examination must be your own work. Do not discuss it with other students.

Write your answers in the blue books supplied, but please use only one side of the page and observe the margins. Please write or print as legibly as possible.

Grading will be anonymous; please do not put your name on anything you turn in. BE SURE YOUR EXAM NUMBER IS ON EACH BLUE BOOK YOU TURN IN.

PROBLEM I

A. Facts
For many years, eyeglass lenses made of glass (not those made of plastic) had been required by the U.S. government to be of a specified hardness (strength) so that they would not be likely to break (in normal usage) and injure the wearer. Until 1990, a special heat treatment (annealing) of the lenses was adequate to meet government specifications. In 1990 new specifications were promulgated and the old heat treatment techniques were no longer adequate.

Edward Bell invented a new process for chemically treating the lenses so they could meet the government specifications. Bell obtained a patent on his process, which was adopted immediately by the entire eyeglass lens industry.

This industry is composed of three large competitors and a large number of smaller companies. The market share of these companies is as follows:

Thomasina Edison, Universal Optical Corporation's director of licensing, has been approached by Colt to take a license. Edison has asked Universal's patent counsel, Perry Bailey, to check out the patent.

Bailey told Edison that it is clear that Universal, as well as the rest of the industry, got its technology from Bell's work and is infringing the patent. However, because of some prior publications and prior patents, Bell's patent may not be valid. When pressed, however, Bailey states that, all things considered, he thinks there is a 60% chance the patent would be held to be valid by a court.

Colt tells Edison that Bell is going to file a patent infringement suit against one of the big three companies, and Cold thinks Bell might decide to file suit against Universal, the smallest of the big three, because he might have a better chance of winning, or settling, a suit against the smaller company.

Edison has negotiated the royalty rate down about as far as she thinks she can and Universal does not object in principle to taking a license at these rates. However, Universal does not want to have to pay royalties to Bell unless its two bigger competitors are paying the same royalties.

Edison believes that Bell may sue Universal first. Edison also believes, from talking to AO's and B&L's patent and licensing people, that neither AO or B&L will take a license until Bell wins a patent infringement suit against either AO or B&L. Also, Edison is afraid that if Universal is sued, and loses, Bell could obtain an injunction which would, in effect, require Universal to pay much higher royalties to Bell (before Bell would have the injunction removed) than Edison has negotiated.

Edison's objectives, are, therefore:
1 . Not get sued by Bell because of the years which would be spent in the
litigation, the cost of the litigation, estimated as at least $ 1,000,000, and
the disruption the litigation would cause to Universal's management, its
lawyers and its technical and marketing employees.

2. Not pay any royalties until AO and B&L pay.

3. Not pay any royalties higher than AO and B&L will ultimately pay.

Bell's objectives are:
I . License all the eyeglass lens industry.

2. If the only way #1. can be accomplished is by suing for patent infringement, then Bell will sue.

B. Question
What kind of business arrangement should be proposed that would meet the objectives of both Universal (Edison) and Bell? Please prepare an outline of the features of your proposed business arrangement - one that would pass the fairness test and would be a will/win resolution. Do not draft an agreement or clauses for an agreement. 125 points]

PROBLEM II
A. Facts

An actual Know-how/Trade Secret Agreement - in letter-agreement form - is attached (Click here for letter_agreement). it was prepared by business/technical people without consultation with patent counsel. It is woefully inadequate in many respects. Most importantly, it has no confidentiality provisions.

B. Question

How should appropriate and necessary confidentiality or secrecy provisions, that should have been included, read? Please draft such provisions - and no others. [20 points]

PROBLEM III

A. Facts

Mestle Company (Mestle) opposed the trademark application of Mash-Finch Company (Mash) to register DELI QUIK for various delicatessen products. Mestle had prior use and a registration of the marks MESTLE QUIK and QUIK for powdered, sweetened cocoa, and related products.

Mash was a wholesale food distributor to supermarkets and grocery stores, servicing some 390 affiliated stores and, additionally, owning and operating some 90 supermarkets, grocery stores, or warehouse-type markets. Many of these affiliated and company owned stores included delicatessen departments, from which Mash's DELI QUIK delicatessen products were sold.

Mestle asserted abandonment by Mash of its trademark as a result of Mash's failure to sufficiently control the nature and quality of the goods sold under the DELI Q1UIK mark, alleging, among other things, the following:

1 . Recipe books were incompletely distributed to affiliated stores and use of the recipes was not mandatory.

2. Affiliated stores were encouraged to develop their own recipes and to sell products without prior approval from Mash under the DELI QUIK mark.

3. Participation in Mash's delicatessen training program was not mandatory.

4. There was no requirement that ingredients for the goods had to be purchased from Mash, nor was there an approved list of ingredient suppliers.

5. Inspections by Mash of affiliated stores using the DELI QUIK mark were incomplete and insufficient to insure control over the quality of the products sold. Mestle contended that this resulted in a naked license situation. However, there was evidence which established that:

1 . Mash did provide deli training manuals and training programs for deli managers and assistant managers (which were mandatory only for company store personnel).

2. Mash also distributed recipe books for its DELI QUIK products and a sandwich program manual providing specifications in connection with a variety of the sandwiches.

3. Regular merchandising bulletins were sent to the stores.

4. Mash encouraged (although it did not require) affiliated stores to purchase all material from Mash, and over 8% of the raw materials used in DELI QUIK products were, in fact, purchased from Mash.

5. Mash's district managers did regularly inspect company and affiliated stores to observe operations and to handle problems.

6. Mash also employed a deli merchandiser - an inspector - who visited the delicatessen departments of the stores on a regular basis and oversaw operation of those departments.

B. Questions
What should the ruling be and why? In your answer also discuss the rationale behind the quality control requirement in trademark licensing. [10 points]

PROBLEM IV

A. Facts

In a hybrid patent/trade secret license agreement
- the licensed patent and trade secret rights are about equally important,

- the stipulated royalty rate is 5% of the net sales of the licensed product for the duration of the agreement,

- the "Term and Termination" clause provides for duration of the agreement "until the last-to-lapse of the Licensed Patent and Trade Secret Rights," and

- the patent rights in fact expire at one point during the agreement while the trade secrets continue and survive as trade secrets.

So far the licensee has paid all royalties due under the agreement in a timely manner. Another royalty payment will be due soon.

B. Questions

Can the licensee stop making royalty payments to the licensor now? If so, why? [5 points]

PROBLEM V

A. Facts

Jane Doe as an employee of Contronic, Inc. 1) invented and patented a reflow solder method and apparatus, 2) assigned her patent rights to Contronic, 3) then left and founded and became president and CEO of Ceptronic Corporation, 4) practiced said patented invention and 5) when sued for patent infringement by Contronic, defended on the ground that the patent in suit was invalid and not infringed.

B. Question

Who prevails and why? [5 points]

* * * END OF EXAMINATION  * * *

>>> LETTER_AGREEMENT <<<

361 EAST OHIO STREET CHICAGO. ILLINOIS 60611 3 1 28 2 8 - 9 6 0 0

M I C H I G A N

CHEMICAL

CORPOPORAT ION

January 24. 1975

Mr. Al F. Jarossy
/Technical Service Manager
Ciba-Geigy Corporation
Saw Mill River Parkway
Ardsley Now York 10502

Dear Al:

We have reviewed the counter proposal to my December 16, 1974 memo made by You and Ralph Miller on January 20 and find the terms acceptable. I have summarized our understanding below:

Is Michigan believes that it has developed a process for converting 4-chloro-nbutyronitrile to cyclopropylnitrile.

2. The process developed by Michigan does not utilize sodium meth- oxide *a the reagent
for cyclization

3. The cost of the reagent used in the Michigan process Le substan- lose than the current cost of sodium methoxide.

4. The conversion of chlorobutyronitrile to cyclopropylnitr'Lle by the Michigan process is equivalent to the conversion obtained by Michigan when practicing the sodium methoxide process disclosed to Michigan by Ciba-Geigy on a laboratory scale. The Michigan process has not been practiced on a commercial scale. Therefore, Michigan warrants its results are valid on a laboratory scale only.

5. Michigan will have no responsibility for the suitability of the Process or the infringement of the interests of others and Ciba- shall hold Michigan harmless from any such liability,

In return for Michigan's disclosing to Ciba-Geigy the details of the Michigan
Process# Ciba-Geigy will,

I. Pay Michigan $10,000.00.

2, If the Michigan process is practiced by Ciba-Geigy to manufacture CFN Ciba-Geigy will manufacture the first 500,000 pounds without paying Michigan a license it*. After the first 500.000 pounds are



Ciba-Geigy
1/24/75
Page Two

manufactured, Ciba-Geigy will pay Michigan a royalty of $0.02 per pound of CPN produced until 10,000,000 pounds have been produced. At that time, Ciba-Geigy is granted a paid-up license to utilize the Michigan technology.

If so requested, Michigan will demonstrate the operation of the process to Ciba-Geigy representatives on a laboratory scale in the Michigan research laboratory at St. Louis$ Michigan.

Please indicate your acceptance of this agreement by signing and returning the duplicate original of this letter to us.

Very truly your&,

MICHIGAN CHEMICAL CORPORATION

By:.                      
T. A. Girard        
President  

AGREED:
CIBA-GEIGY

By

TAG:cvm