LICENSING INTELLECTUAL PROPERTY
Professor Jorda December 16, 1997
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.
XCORP is a software company that created and markets a software product called FastXÔ that makes other company’s software run faster on the computer. FastXÔ is known by consumers who are more likely to license a software package that has FastXÔ . Therefore, software companies are anxious to get a license for FastXÔ so that they can imbed it in their products.
GOODWORD software is interested in obtaining a license to FastXÔ as part of its word processing software. GOODWORD’s lawyers have reviewed XCORP’s standard license agreement and agree to its terms, provided XCORP adds the following additional terms to the Agreement.
XCORP shall provide GOODWORD with source code* and other documentation necessary to enable GOODWORD to make modifications and improvements to FastXÔ . In addition, XCORP shall provide whatever technical assistance is necessary to enable GOODWORD to create such modifications and improvements.
*Source code is the human readable form of software that is considered a trade secret by XCORP.
If at any time during the term of this License Agreement, XCORP enters into a license with any third party for FastXÔ at more favorable rates than those contained herein, XCORP will notify GOODWORD thereof, and GOODWORD shall be entitled to receive the same favorable rates as said third party.
You are an associate in XCORP’s IP Department. How would you advise XCORP to proceed with respect to each of the two proposed additional clauses [15 Points]?
Gamma Corporation, which manufactures Product X using its patented process, offers a license for its process technology to every other manufacturer of Product X, each of which competes worldwide with Gamma in the manufacture and sale of X. The process technology does not represent an economic improvement over the available existing technologies. Indeed, although most manufacturers accept licenses from Gamma, none of the licensees actually uses the licensed technology. The licenses provide that each manufacturer has an exclusive right to sell Product X manufactured by using the licensed technology in a designated geographic area and that no manufacturer may sell Product X, however manufactured, outside the designated territory.
If asked to draft the licenses between Gamma and its licensees, what licensing clauses would you recommend? What misuse and antitrust concerns would you raise before the President of Gamma? [12.5 Points]
ABC, S.A. of 100 Rue du General de Gaulle, Louviers, France, developed a proprietary method for pre-treating and dying animal fibers, e.g. wool, in 1995/96. In May of 1997, ABC disclosed this process to XYZ Spinning, Inc. of 200 General Patton Street, Woonsocket, R.I. on the basis of a "Confidential Disclosure Agreement", to enable XYZ to evaluate the subject process and determine its interest in commercially using it under license from ABC.
In September of 1997 ABC filed a patent application on the subject process, in which it was defined generally as a procedure for producing bicolor or multicolor effects on animal fibers by subjecting said animal fibers to a certain pre-treatment with acids, blending such pre-treated fibers with untreated fibers, knitting or weaving such blend of fibers into yarns, fabrics or garments and dying these materials in a single dye bath with a dyestuff having affinity for the pre-treated fibers.
In October 1997 XYZ expressed an interest in being licensed to practice ABC’s process and ABC agreed to license XYZ on terms agreeable to XYZ as follows:
1) Non-exclusive grant with the right to "sublicense", or extend the license to, dyers (as subcontractors or suppliers) to practice the licensed process, subject to approval by ABC, inasmuch as XYZ is in the business of making rather than dying fabrics.
2) Geographic scope: USA, Canada, Mexico.
3) XYZ is to pay to ABC a fixed royalty of $10,000 per annum, plus $.10 per lb., of yarn, fabric or garment on which the pre-treatment has been applied. For the first introductory year the annual fixed royalty will be reduced for XYZ to $5,000 and the weight/production royalty to $.05 per lb. of yarn, fabric or garment produced.
4) Appropriate record keeping, reporting, payment, auditing provisions.
5) Appropriate confidentiality obligations.
7) Hold-harmless obligation running from XYZ to ABC.
8) 10-year term which is renewable and default provisions.
9) Termination option by XYZ upon 3-months advanced notice.
Please draft appropriate grant and grant-back clauses (and no others) reflecting the above fact pattern. [15 Points]
Red Maple Restaurant, Inc. sued Red Maple, Inc. for trademark infringement. The Plaintiff owned two registrations: "RED MAPLE" and "RED MAPLE and DESIGN" for restaurant services, while defendant had no registration but operated under the name RED MAPLE RESTAURANT. Plaintiff had leased the restaurant to one of its key employees, including exclusive use of its two marks for a term of one year. The defendant claimed that plaintiff had therefore abandoned the mark by granting a naked license, inasmuch as there was no control by plaintiff of the nature and quality of the restaurant’s services. Evidence adduced at trial by plaintiff showed that the lease provisions granted plaintiff certain rights of control; plaintiff continued to show an interest in the restaurant’s operation; defendant used the same menus, served the same food as had plaintiff and there was no depreciation of the quality of the restaurant services rendered during the period of the lease.
Who prevails and why? In answering these questions, also discuss the rationale behind the quality control requirement in trademark licensing and what the requisite elements and steps of a quality control policy and procedure are? [12.5 Points]
1. If your client or company negotiates a license agreement in the U.S. with a value in excess of $15 million, what do you have to be concerned about and why? [5 Points]
2. What are the salient differences between trademark licensing and franchising? [5 Points]
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