INTELLECTUAL PROPERTY SUMMER INSTITUTE
PROFESSOR KARL F. JORDA
This is a two-hour (three hours for foreign students), open-book exam. You may consult the course books and 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 legibly.
Grading will be anonymous; please do not put your name on anything you turn in. USE YOUR EXAMINATION NUMBER.
A gourmet cook who is also an amateur chemist and a tinkerer, has come up with a novel formula for flavoring tablets that can make a cup of coffee taste like you just ground the beans. She wants to sell or license her formula to a big food products company like RJR Nabisco. If a big corporation has no interest in it, she will try to sell or license it to someone regional. She plans to start contacting these companies soon. However, she is concerned that when she discloses her formula to companies, they will steal it. She is not sure it is patentable, and it might not be a trade secret, either.
What can she do to protect herself in her dealings with any of these companies? [15 points]
ACE Corporation entered into an oral agreement pursuant to which ACME Corporation was permitted to use ACE's trademark on goods manufactured and sold by ACME. At least 90% of the components for ACME's goods were manufactured by ACE. ACE told ACME that if ACME chose to use its own parts, ACE wanted to know about it. ACE tested parts of ACME's goods. Further, ACE had been associated with ACME for over ten years and respected its ability and expertise. ACE never received any complaints about ACME's goods. Subsequently, the parties had an irreconcilable disagreement about royalties and ended up in court with ACE suing ACME for breach of contract. In defending itself, ACME contended that the agreement between them was a naked license and hence unenforceable.
How should the court rule in this situation and why? [15 points]
An ÒExclusive License AgreementÓ between VORTRAN CORPORATION and VORTRAN MEDICAL TECHNOLOGY, INC., which is at the center of a law suit between the two companies tried in a California state court a few years ago, contains the two following provisions:
7. Best Efforts Obligation. VMT shall exercise its best efforts to exploit the Licensed Products.
13.Term and Termination. This Agreement shall remain in full force and effect until the last patent, or claim on a licensed Invention, expires.
Please comment on the adequacy of these clauses. If you find them inadequate, indicate in a general way how they should read and what other additional or alternative provisions should be included. [15 points]
In a hybrid patent/trade secret license agreement
Ñ the licensed patent and trade secret rights are about equally important,
Ñ the stipulated royalty rate is 5% of the net sales value of the licensed product for the duration of the agreement,
Ñ the ÒTerm and TerminationÓ clause provides for duration of the agreement Òuntil the last-to-lapse of the Licensed Patent and Trade Secret RightsÓ, and
Ñ 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.
Can the licensee stop making royalty payments to the licensor now? What would your answer be if the trade secrets lapsed and ceased to be enforceable while patent rights continued in full force and effect? [15 points]
A patent licensing provision limited the license grant to certain patented washing machine attachments Òfor use only in connection with and as a part of power-operated washing machines of the general type and design shown in the circular attached hereto.Ó
Does this provision constitute patent misuse and/or an antitrust violation? Why or why not? [10 points]
END OF EXAMINATION