Someone once observed that most car accidents occur within 10 blocks of the driver’s home. We see a analogous trend in Intellectual Property “crimes” – i.e. infringement of patents, trademarks, or copyrights; or misappropriation of a trade secret. Intellectual Property (IP) disputes between two parties that are strangers to one another are the exception, not the rule.
More often than not, IP infringement suits are between parties that were formerly in some type of business relationship. The most typical relationships that go awry are license relationships, joint ventures, and dealerships or distributorships.
The licenses can be for trademarks, trade secrets, or patents. In a trademark license, the licensor (the trademark owner who is granting the license) should ensure that the agreement covers good will generated by the licensee. The license agreement should clearly state that good will generated by the licensee in the trademark inures to the benefit of the licensor, not the licensee. Additionally, the agreement should state that any registrations that the licensee seeks to obtain in its name either (1) will be deemed to be obtained for the benefit of the licensor or (2) can be voided by the licensor. Licensees who elect to part ways with the licensor should be careful not to infringe the licensor’s trademarks going forward. Former licensees should discard or return to the licensor (check the agreement) all old parts lists, brochures, and marketing materials and start fresh with new materials.
In patent licenses, as well in joint ventures (JVs), the most common dispute is over improvements to technology. The license or venture agreement should spell out exactly what happens in the various scenarios of inventorship. The three possibilities are: (1) the licensor (or JV partner #1) creates the new technology; (2) the licensee (or JV partner #2) creates the new technology; or (3) the invention is truly jointly created by the licensor and licensee (or both JV partners). The license or JV agreement should state how the parties will handle inventions arising under each of these three categories. An important provision is that each party should be under a duty to report all inventions to the other party, even if the reporting party believes it is the sole owner of the invention. Such an obligation ensures that the parties are fully disclosing their activities, and provides an additional legal claim (breach of contract) in addition to the IP infringement claims which might be available.
When dealers or distributors sever their relationship with a manufacturer; it is often because the dealer has decided to make its own products. The dealer must be careful to fully assess the manufacturer’s IP rights. The dealer should consult with IP counsel to steer around those IP rights and avoid any infringement claims. From the manufacturer’s perspective, the manufacturer should be careful to follow the procedures outlined in the dealer agreement. A court will not look favorably upon a manufacturer who failed to follow the procedures outlined in the dealer agreement; especially if the agreement is a form agreement drafted by the manufacturer.
A final consideration in disputes with former partners is that these disputes are often very emotional situations, and the scenario tends to be driven by personalities. It is important to remember that the dispute is simply another part of one’s business and should be treated with sound business judgment. When possible to do so, the person making decisions about the dispute should be a person who was not directly involved in the earlier relationship. When cooler heads prevail, the terms of the “divorce” can be settled in a manner that allows everyone to get back to business.