how to avoid procuring ip when doing procurement

60757262.pptx

How to Avoid Procuring IP When Doing ProcurementHow to Avoid Procuring IP When Doing Procurement

William A. Tanenbaum

Chair, Technology, Intellectual Property & Outsourcing Group

Chair, GreenTech and Sustainability Group

Kaye Scholer LLP

New York and Palo Alto Offices

60757262.pptx

Different IP Rights Apply SimultaneouslyDifferent IP Rights Apply Simultaneously

• Different IP rights apply simultaneously to licensed subject matter

– Patent

– Copyright

– Trade Secret

– Trademark and Service Mark

– Database Rights

• EU vs. U.S. Copyright

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Agreements as “Early Warning System” Agreements as “Early Warning System” • Fact Pattern: Provider owns IP in base service and Customer

owns IP in customizations

• Risk 1: Customer fails to obtain ownership of IP in customized work

• Solutions– Specify deliverables

• Customized work product• IP ownership and documentation, complete pre-agreed upon

assignment in recordable form, even if not recorded, and record with PTO or Copyright Office when advisable

• Draft, then police, Task Orders• Audit rights to verify proper delivery of deliverables and IP documents• Draft RFP to convert to schedules and draft schedules for review by

proper business unit

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Early Warning System (2) Early Warning System (2)

– Periodic review of PTO and Copyright Office filings

– Can default be customizations owned by Customer if dispute arises?

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• Risk 2: IP “Chain of Assignment” infected by the virus of subcontractors and affiliates who create customized work product in whole or in part and fail to convey IP to Provider (and compounded by offshore work)

• Solutions

– Require subcontractor approval

– Require form and approval of IP assignment from subcontractor to Provider

– See deliverable requirement above

– Alternative: direct assignment from subcontractor to Customer

– Customer audit rights

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Cloud Computing Cloud Computing

• Cloud raises issues that overlap with subcontractor issues

• New level of due diligence required when Cloud Computing is used

• Increased IP and licensing rights issues arise with Cloud chain of providers and technology

– Indemnities may be inadequate

– Contract negotiation opportunities in public vs. private Clouds

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• Risk 3: IP infringement suits that are adverse to Customer threaten procurement/services

• Solutions

– Require timely notice of claims, including pre-lawsuit

– Notice given as part of governance meetings to structure as a remedy

– Contractual obligation to create work-around or have provider secure license, etc.

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Early Warning System (5)Early Warning System (5)

• Fact Pattern: Customer requires use of its or its licensor’s IP by Provider

• Risk: Provider’s failure to comply with conditions puts IP or license at risk

• Solutions

– Express license requirements and limits

– Penalties

– Audit rights that track risks:

• Locations; users; subcontractors; scope of use; DR; offshore; Cloud

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• Risk: Lack of cooperation between providers

• Solution: Contract requirement for cooperation, with SLA’s for response times, etc. and possible bonus payments

– Audit

– Analysis of time-to-solution and obstacles to solution

• Overall, treat portfolio of providers as equivalent of stock market portfolio

• Portfolio model requires cross-licensing from provider to provider for benefit of common Customer

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Early Warning System (7)Early Warning System (7)

• Risk: Customer violates regulatory requirements because of failure by Provider

– Often more of data than pure IP problem

– Not just government regulatory requirements; increasingly, supply chain sustainability reporting requirements

– Defense outsourcing/supply chain as example of convergence of IP and regulatory compliance

• Solution:

– Specificity in data reporting requirements and feeds to Customer IT portals

– Audit right and Penalties

– Do you need a Data Manager and Relationship Manager?

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IndemnitiesIndemnities

• Fact Pattern: Provider has right to terminate entire agreement if it cannot cure or avoid allegation of IP infringement

• Risk: Termination right is a bridge too far

• Issue: Provider’s system infringes a patent, but underlying technology standing alone does not

• Solution: Reduce scope of termination right to allow Customer to use underlying technology apart from system; to procure license from IP owner; to operate outside of U.S.; etc.

• Summary: Infringement “remedies” should preserve not preclude Customer options

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Indemnities (2) Indemnities (2)

• Use different indemnity buckets for different categories of damages

– Ordinary breaches

– Higher cap for IP, confidentiality, data breaches (including Cloud)

– Additional bucket for breaches during termination services

• Automatic adjustment to all buckets when scope expands

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• Fact Pattern: Customer seeks indemnification from Provider for technology or IP that Provider specifically requires to be used

• Risk: Mutuality

• Solution

– Have Provider seek indemnity from IP owner, not Customer

– Asymmetrical: Provider retains control over litigation, etc.

– Tailor scope of remedies

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• Risk: Indemnification exception for coverage of combinations

• Solutions

– Limit exclusions (identify covered combinations, especially when multiple providers)

– If cannot limit exclusion for combination, then Customer to require all information from Provider necessary for Customer to defend IP infringement suit

• Access to documents and employees

• Waiver of trade secret and other protections

• Control of litigation

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Damages Damages

• Risk: Damages will be denied because construed as consequential rather than direct damages

• Solution: In agreement specifically identify certain damages as direct damages (e.g., cost of data restoration)

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Joint IP OwnershipJoint IP Ownership

• Collaborative improvements lead to ownership problems

• Joint ownership appeals to business teams

• Risk 1: unexpected license by joint owner to competitor of Customer (or Provider)

• Risk 2: trumps Customer ownership of customized improvements

• Risk 3: difference between authorship and inventorship

• Risk 4: patent inventorship law renders patent unenforceable

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Work Made for HireWork Made for Hire

• Limitations of the Work Made for Hire Rule

• Why getting an assignment is often best

– Offshore

– Subcontractors

– Affiliates

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Supply Chain Sustainability Supply Chain Sustainability

• Need for objective standards

• Many are IT-enabled technologies

• Reporting requirements

– Can you use trade secrets to protect potentially damaging sustainability reporting?

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Protecting Customer IP Protecting Customer IP

• Risk: Outsourcing/supply chain enable competitive intelligence

– Even subcontractors

– Even Facilities Management and government filing of building plans

• Solution:

– Combine Confidentiality and IP approaches

– IP notices and labels

– Modify public domain exceptions in standard NDA’s

– Contract confidentiality and trade secret provisions

– Need to know

– Background checks (and smart phone camera rules)

– Indemnification for breach

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Confidentiality Provisions and Big DataConfidentiality Provisions and Big Data

• Cover assessments, evaluations and reports

• Emerging Big Data issues

– Data

– Predictive analytics algorithms

– Data sets

• Providers will want to combine customer data sets and monetize

– Cover assessments and reports

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Cloud Computing (2) Cloud Computing (2)

• Cloud of clouds

• Renewed importance of software escrow

• What do you need in escrow?

– Programmer names

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Questions and Answers Questions and Answers

William A. Tanenbaum

Chair, Technology, Intellectual Property & Outsourcing Group

Chair, GreenTech and Sustainability Group

Kaye Scholer LLP, New York and Palo Alto

[email protected]

212-836-7661

mailto:[email protected]

60757262.pptx

William A. [email protected] A. [email protected]

William A. Tanenbaum is the international chair of Kaye Scholer’s Technology, Intellectual Property & Outsourcing Group and its GreenTech and Sustainability Group and works in the firm’s New York and Palo Alto offices. Chambers found that he “built one of New York City’s most outstanding transactional IT practices,” that he is a “well-respected attorney, with a well-informed approach [who] provides litigation, transaction work and strategic counseling on a range of technology issues,” that he is “efficient, solution-driven and makes excellent judgment calls,” and that he is an “internationally recognized intellectual property, technology and outsourcing lawyer”. He is recognized as a “Leading Individual” and was awarded “Recommended” ratings in both “Technology and IT Outsourcing” and “Business Process Outsourcing,” and named as a “Notable Practitioner” at the national level in Outsourcing. He was voted one of the world’s top 250 IP strategists (IAM client survey) and he was selected as one of the country’s top 25 pre-eminent IT practitioners in the Best of the Best USA. He regularly advises clients on strategic intellectual property concerns, privacy, data security, data transfer, information life cycle management and competitive intelligence matters, in both transactional and litigation contexts.

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William A. Tanenbaum (cont’d)William A. Tanenbaum (cont’d)

Mr. Tanenbaum is the founder and co-chair of PLI’s annual Outsourcing Conference, the founder and chair of its Green Technology conference, and a regular lecturer at industry outsourcing conferences. He chairs Kaye Scholer’s GreenTech breakfast seminar series and presents a webcasts on IT, IP and GreenTech topics. He has contributed to Bloomberg’s Energy Sustainability Law Report. He is a past President of the International Technology Law Association (formerly the Computer Law Association) and is listed in Who’s Who in America, the International Who’s Who of Business Lawyers, the Guide to the World’s Leading Litigation Experts and the Guide to the World’s Leading Patent Law Experts. He is the privacy and data protection columnist for the New York Law Journal, co-author of a book on privacy law and has been quoted in The Economist magazine as an expert on IP law. His articles have been used at Harvard and other law schools. He graduated from Brown University (degree with highest honors and Phi Beta Kappa) and Cornell Law School.

Copyright ©2011 by Kaye Scholer LLP. All Rights Reserved. This publication is intended as a general guide only. It does not contain a general legal analysis or constitute an opinion of Kaye Scholer LLP or any member of the firm on legal issues described. It is recommended that readers not rely on this general guide in structuring individual transactions but that professional advice be sought in connection with individual transactions. References herein to “Kaye Scholer LLP & Affiliates,” “Kaye Scholer,” “Kaye Scholer LLP,” “the firm” and terms of similar import refer to Kaye Scholer LLP and its affiliates operating in various jurisdictions.

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how to avoid procuring ip when doing procurement

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