Even in this economic climate, intellectual property and technology transactions are growing areas.
“Technology transactions cover a very broad area and are getting more and more sophisticated,” says Spencer Garland, practice group manager for intellectual property and technology transactions at Greensfelder, Hemker & Gale, P.C. “To have a successful technology transaction, all parties must do a lot of homework to determine exactly what is being granted or transferred, the limitations involved, and the protection, if any, that is available.”
Smart Business spoke with Garland about how to approach technology transactions and how to ensure that you have the proper protections in place when licensing intellectual property.
What is a technology transaction?
Basically, it is a business transaction in which technology or intellectual property is an important element. As a result, a wide variety of transactions are included in the field, not just licensing or transfer of intellectual property such as patents, trademarks, copyrights and trade secrets.
Other types of transactions include acquisitions and sales of technology businesses, software development and distribution, Internet and Internet hosting applications, data processing, telecommunications, outsourcing, and information security and privacy. Sometimes the transactions are a combination of many of these.
How do you protect your intellectual property for a technology transaction?
Each situation is different. Much depends on the intellectual property involved and the type of transaction. Say you run a company that has invented a device, and you believe it has commercial value. Let’s assume that the invention is patentable and its highest value is not in your core business, so you want to license it.
To protect it, you can apply for a patent, keep it as a trade secret or file for a copyright on the software. If the device can be copied easily, a patent may be the best protection because if the patent is issued, you generally can exclude others from making or selling the device for the term of the patent.
If it can’t be copied easily, then maintaining it as a trade secret might be best. If software is involved, there are copyright considerations, as well. This is just one example, and it requires a lot of investigation to determine what protection can or should be obtained.
You also protect the value of your invention by strategically crafting a licensing strategy. There are many considerations and moving parts. For instance, should the license be exclusive or nonexclusive, broad or limited, or include sublicensing rights? The answers can depend on a good analysis of the applicable markets for the invention. The issues are complex, and knowledgeable professionals in this field will help you a great deal.
What’s the difference if you are a licensor or licensee?
Licensor and licensee interests in a license agreement are very different, but there is at least one common goal — both licensor and licensee want to make money. There are the usual financial issues regarding license fees and royalties, but a license agreement is also about allocating risks, costs and rights between the licensor and licensee. These include infringement risk and indemnity responsibility, allocation of development responsibility, product liability risk, minimum royalty requirements and limitations on liability, among many others.
Many of these issues are resolved based on the relative investment each party makes and the financial reward each party stands to gain from the commercialization of the licensed property. Bargaining power is also a critical factor. These license agreements can be very simple or extremely complex.
How do electronic information security and privacy affect technology transactions?
We read frequently about entity theft and theft of sensitive and personal information — for instance, account numbers, Social Security numbers, health records, credit card numbers and the like. Many laws require the protection of this personal information, for instance HIPAA for health care information and institutions, and the Gramm-Leach-Bliley Act for financial institutions.
Also, the new ‘Red Flag Rules,’ scheduled to be effective Nov. 1, published by the Federal Trade Commission and other U.S. government agencies, require financial institutions and a wide variety of other businesses that grant credit to develop and implement identity theft prevention measures. Think online banking, credit card processing, health insurance and the like. These issues affect technology transactions because agreements that permit access to or storage of such information must provide for its protection.
As a result, businesses and institutions that use or store sensitive personal information must investigate and understand which laws affect them and how to implement appropriate protection.
What are the consequences of failing to do due diligence?
There can be significant consequences for all types of technology arrangements. As an example, let’s say you’ve invested heavily creating a business to make and sell widgets based on a patent you have obtained. Just before you start manufacturing, you get a cease-and-desist letter saying you are infringing a third party’s patent and must cease operations.
To your chagrin, you discover this is true. You may then have to enter into an onerous license with X or even close your new business. By thoroughly researching your right to use your patent to make widgets in advance, you might have dealt with this problem before you made a big investment.
Spencer Garland is the practice group manager for intellectual property and technology transactions at Greensfelder, Hemker & Gale, P.C. Reach him at (314) 516-2613 or [email protected].
