Author Archives: Mark Anderson

About Mark Anderson

I am an English solicitor (attorney) who qualified originally as a barrister in 1983. After working as an in-house lawyer and with Bristows in London, I formed Anderson & Company in 1994. Our offices are based in Oxfordshire, on the banks of the River Thames, 50 miles west of London. Outside work, I enjoy walking and canoeing. I met my wife Sara whilst cycling from Land's End to John O'Groats (1,100 miles) in 1991.

Learning transactional skills

middleIt has been a busy week. IP Draughts’ client work on Monday and Friday seemed like light relief compared with the three middle days, which were spent running a new training course. Three days in a row “on stage”, using untested material, is rather demanding!

The course was for LLM (Master of Laws) students at University College London. The subject was transactional skills. The course tutors (mainly Jelena Madir and IP Draughts, but with support from a new Anderson Law associate, Francis Davey, on day 3) introduced students to some of the issues that they would face when they started work in a law firm.

45 students signed up for the course. They were mostly from outside the UK. Colombia, Cyprus, Germany, India, Russia and Ukraine were some of the countries that were mentioned by students.

The topics that were covered on days 1 and 2 included the role of the lawyer in commercial transactions, the typical sequence of events in a large commercial deal, the structure of a contract, contract drafting techniques and techniques for clear legal writing generally. On day 3, students elected to work on an international financing deal with Jelena, or on an international technology collaboration with IP Draughts, and this day included sessions when the students were divided up into teams to negotiate the deal.

new york barFor IP Draughts, the most interesting aspect of the course was meeting the students and hearing their views on various topics. In the previous week he had participated in a discussion of the English Law Society’s strategy, in which it had been suggested that the UK was losing out in a race with the USA to attract overseas law students and to get overseas lawyers to become dual-qualified. It was good to hear the students explain this subject. It seems that US universities are even more expensive than those in the UK (it apparently costs £19,000 for an overseas student to take an LLM course at UCL) but it is easier to obtain the New York Bar qualification while doing a postgraduate US law degree than it is to qualify as a UK solicitor. The immigration rules are currently stricter in the UK than they are in the USA.

Note: IP Draughts does not wear a bow tie when lecturing.

Note: IP Draughts does not wear a bow tie when lecturing.

IP Draughts’ previous experience of teaching on an LLM course had been that many of the overseas students sat passively in the audience. In the absence of a well-established ‘Socratic method’ in UK law schools (we tend not to pick on students and demand answers to questions, in the way that is apparently done in the USA – think Professor Kingsfield in the Paper Chaseit is too easy for students to keep their heads down and say nothing. In the announcements for this course we had emphasised that students would be expected to contribute to the discussions, and thankfully most of them did.

IP Draughts was impressed by the quality of the students in last week’s course, and their willingness to engage with the topics that were being taught. We should encourage people like them to contribute to life in the UK, and not make it difficult for them to do so through the blunt instrument of immigration policy.

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Strategy meetings – are they worth having?

strategySelect a dozen or so people who have a common interest but different perspectives on a subject, say intellectual property or legal services. Select people who represent ‘stakeholders’ in the subject. Give them a draft document that you wish to discuss with them. Hold a meeting lasting an hour and a half, at which you canvass their views on the document.

Last week, IP Draughts participated in two such meetings. The first was a meeting of solicitors to discuss the Law Society’s corporate strategy. The second was a meeting of various trade bodies to discuss national IP strategy.

The two meetings were very different in their participants, subject-matter and the way they were run. But in some ways the meetings felt very similar. You may think that some of the following points are obvious, but they only became obvious to IP Draughts after reflecting on how the meetings went, and how they differed from the meetings of IP lawyers and business people that he is used to attending.

  1. It is very difficult to develop any coherent conclusions on a topic when (a) the topic is complex and multi-faceted, and has numerous points of detail, (b) the meeting participants have widely-differing interests and personalities (and in many cases have not met before), and (c) you only have an hour and half to discuss the topic.
  2. Getting people to stick to an agenda, and to discuss their pet subjects under the relevant agenda headings rather than download their ideas all at once, is much harder than one might expect.  Strong chairmanship is required.
  3. Meetings develop ‘group-think’. The nature of that group-think depends on who has been invited to the meeting.

These comments make some tacit assumptions as to the purpose of the meeting, eg that they are intended to find solutions to problems through discussion. But what if the purpose of the meeting, at least on the part of the people who called it, is to ‘engage’ with stakeholders in the wider sense, without necessarily expecting (or needing) that engagement to lead to any consensus?

By contrast, meetings of the Law Society’s Intellectual Property Law Committee seem much more productive. This may be partly because:

  1. Under our current Chair’s guidance, the IPLC has been good at sticking to an agenda in its meetings. Preparatory work is done outside meetings, eg through the development of draft submissions on proposed legislation, and sufficient time is given in the meeting to discuss each point in a focussed way.
  2. Members of the IPLC get to know one another over several years, and develop a productive working relationship.
  3. Members of the IPLC are not representing ‘interests’, other than in the very general sense of all being specialist IP lawyers.
  4. IP lawyers tend to take what IP Draughts calls an ‘engineering approach’ of trying to find workable solutions to problems.

Similarly, client meetings that IP Draughts has attended, eg of the executive committee of a listed biotech company, have been focussed, kept to an agenda and produced relevant conclusions.

It is not surprising that strategy discussions take more of a ‘blank sheet of paper’ approach, and this inevitably leads to a looser discussion. But IP Draughts is left wondering about exactly what the purpose was of the meetings he attended this week and whether, in the minds of the organisers of each of those meetings, the purpose was achieved.

 

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Volunteer speakers – a big thank you!

Take a bow...

Take a bow…

Our 5-day course, Intellectual Property Transactions: Law and Practice, has now been running for 3 years at UCL, and we hope it will be a long-term fixture. Designed for newly-qualified UK IP lawyers, it has also attracted lawyers and patent attorneys from all over the world, including the USA, Japan, Costa Rica and Brazil.

The success of the course is based largely on the quality and commitment of its volunteer speakers. We would like to thank them all for preparing high-quality materials and delivering stimulating lectures and workshops, as confirmed by the excellent feedback that this course gets every year from its students.

The course is led by Mark Anderson of Anderson Law and UCL, and by Professor Sir Robin Jacob of UCL. Special mention should be made of the following people, who lead teams from their firms giving an extended programme of talks:

Mark Lubbock from Ashursts, whose team runs a half-day session on IP aspects of M&A transactions
Nigel Jones from Linklaters, whose team runs a half-day session on IP as security
John Enser from Olswang, whose team runs a half-day session on media transactions

Other firms including Bristows and Pennington Manches provide similar levels of support, spread among several speakers. The speakers and workshop facilitators at the 2015 outing of the course were:

1. Mark Anderson of Anderson Law
2. Chris Bates of Ashurst
3. Christine Bendall of PharView
4. Kathy Berry of Linklaters
5. Michelle Blunt of Baker & McKenzie
6. Stephen Brett of Anderson Law
7. Simon Bullock of Ashurst
8. Toby Crick of Bristows
9. Sam de Silva of Pennington Manches
10. John Enser of Olswang
11. Michael Fealy QC
12. Louise Fullwood of Pinsent Mason
13. John Hull of Farrers
14. Robin Jacob of UCL
15. Nigel Jones of Linklaters
16. Tomos Jones of Olswang
17. Mark Lubbock of Ashurst
18. Leigh Martin of Clarion
19. Christoph Rieken of Ashurst
20. Judith Schallnau of WIPO
21. Chris Shelley of Pennington Manches
22. Paul Sidle of Linklaters
23. Sally Shorthose of Bird & Bird
24. Jeff Skinner of London Business School
25. Adrian Toutoungi of Eversheds
26. Joanne Vengadesan of Pennington Manches
27. Patricia Wade of Ashurst
gold star28. Philip Wareham of Hill Dickinson
29. Matthew Warren of Bristows
30. Tim Worden of Taylor Wessing
31. Cerys Wyn Davies of Pinsent Mason

A big thank you to all of you!

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Post-expiry royalties: what’s the problem?

weirdThere are some weird terms in US licence agreements. Let’s leave aside the general peculiarities of US contract wording. Examples such as “indemnify, hold harmless and defend”, “represents, warrants and undertakes”, “successors and assigns”, and a host of other excrescences, appear in many types of commercial agreement and not just IP licences. Instead, let’s focus on wording that deals with the duration of royalties in licence agreements. This issue came into sharp focus last week, with the decision of the US Supreme Court in the case of Kimble v Marvel Entertainment, LLC.

More on that case later. The general issue, in the US and internationally, is whether it is appropriate to require a licensee of IP to pay royalties after the IP has expired, been revoked, or otherwise ceased to exist. A generation or two ago, there seemed to be a consensus among legislators and the courts that it was not appropriate. This attitude could be seen, for example, in:

  • the US Supreme Court case of Brulotte v Thys Co, a 1964 decision that was discussed and followed in the Kimble case linked above. In Brulotte, the court decided that a contractual obligation to pay patent royalties after the patents had expired was “unlawful per se“.
  • the UK Patents Act 1977, which included a provision in section 45, since repealed, that: “Any contract for the supply of a patented product or licence to work a patented invention, or contract relating to any such supply or licence, may at any time after the patent or all the patents by which the product or invention was protected at the time of the making of the contract or granting of the licence has or have ceased to be in force, and notwithstanding anything to the contrary in the contract or licence or in any other contract, be determined, to the extent (and only to the extent) that the contract or licence relates to the product or invention, by either party on giving three months’ notice in writing to the other party.”
  • the 1984 EC Block Exemption Regulation for patent and know-how licences, which black-listed a provision whereby: “the licensee is charged royalties on products which are not entirely or partially patented …without prejudice to arrangements whereby, in order to facilitate payment, the royalty payments for the use of a licensed invention are spread over a period extending beyond the life of the licensed patents …” Recital 22 to the Regulation clarified that this spreading of payments referred to “spreading payments in respect of previous use of the licensed invention” – ie use during the period when the patents were in force.

A possible solution to this issue is to grant a mixed patent and know-how licence, in which royalties can be charged for use of know-how in circumstances where there are no patents, eg because they have expired or not been applied for in a particular country.

While this solution may work in many countries, there has clearly been a strand of opinion that, in the USA, a more nuanced approach to royalty terms is required. It seems to be thought by some that the licence agreement should state separate royalty rates for use of patents and for use of know-how. Presumably this makes it easier to show that there is no disguised patent royalty after the patents have expired. This approach is consistent with a comment from Kagan J in the Kimble case. She said:

That means, for example, that a license involving both a patent and a trade secret can set a 5% royalty during the patent period (as compensation for the two combined) and a 4% royalty afterward (as payment for the trade secret alone).

IP Draughts has seen some very strange royalty terms that try to finess this issue, eg providing separately for X% for use of patents and another royalty of X% for use of know-how, but stating that for as long as both patents and know-how protect the product, only the patent royalty applies. After the patent expires, only the know-how royalty of X% applies. Hey presto, X% applies both before and after the patent expires! IP Draughts has severe doubts about the effectiveness of this type of legal engineering.

More conventional, in IPDraughts experience, is a clause that sets the royalty at X% and reduces it to 50% of X in any country where there is no valid patent.

Ley lines

Ley lines

IP Draughts’ impression is that economists and competition (or in the USA, antitrust) authorities are no longer as concerned about post-expiry royalties as they once were. For example, the European Commission’s 2014 Guidelines on Technology Transfer Agreements state, at paragraph 187:

Notwithstanding the fact that the block exemption [for technology transfer agreements] only applies as long as the technology rights are valid and in force, the parties can normally agree to extend royalty obligations beyond the period of validity of the licensed intellectual property rights without falling foul of Article 101(1) of the Treaty. Once these rights expire, third parties can legally exploit the technology in question and compete with the parties to the agreement. Such actual and potential competition will normally be sufficient to ensure that the obligation in question does not have appreciable anti-competitive effects.

Kimble

In Kimble, the parties had settled patent litigation on terms that the inventor, Kimble, assigned a patent to Marvel in return for royalties. The parties set no end-date for the payment of royalties. Some years later, Marvel “stumbled across Brulotte” and sought and obtained a declaratory judgment that it could cease paying royalties at the end of the patent term. On appeal, the Supreme Court upheld the award of the declaratory judgment. In passing, one wonders how such a defective settlement agreement could have been drafted. Presumably the parties were advised in their patent litigation and settlement negotiations by lawyers who held themselves out as specialists in US patent law.

The majority of the justices in Kimble appeared to recognise that the current thinking of economists (and therefore antitrust authorities) does not object to post-expiry royalties. As the majority judgment put it:

A broad scholarly consensus supports Kimble’s view of the competitive effects of post-expiration royalties, and we see no error in that shared analysis.”

However, that consensus was irrelevant, according to the majority, as the issue before them was one of interpreting statutory patent law, and not antitrust law. The Supreme Court was bound by the principle of stare decisis to follow the decision in Brulotte. If the case had been properly considered as an antitrust case, they might well have been prepared to decide Kimble differently.

IP Draughts found this part of the Kimble decision surprising. Though he has no expertise in US laws, he had always understood the general issue, at least as it is understood in the UK and Europe, to be one of competition (antitrust) law.

The 3 minority justices in Kimble also saw things differently. They commented that the earlier Brulotte case “was an antitrust decision masquerading as a patent case”.

stare decisisGood old stare decisis. IP Draughts remembers being taught about the English version of the rule in his first term as an undergraduate law student, in 1979. Courts are sometimes bound by earlier court decisions on points of law. The English rule is not so constraining as the US one, it seems. The UK House of Lords (now the UK Supreme Court) simply announced in 1966 that it would no longer consider itself bound by its previous decisions.

IP Draughts is left feeling perplexed by the decision in Kimble. It is concerned only with a narrow point on the duration of patent royalties. But on that narrow point, US licensing practice and to some extent (because of the strong, international influence of the US) non-US licensing practice, is frozen in time by the opinions and decisions of an earlier generation of US judges. It matters not whether the decision is based on statutory interpretation or antitrust laws, the practical effect is the same.

Practitioners advising on licence agreements that have a US element to them must consider carefully how the royalty duration is expressed. Many of IP Draughts’ licence agreements provide for royalties to be paid, on a country-by-country basis, for the longer of (a) the duration of the licensed patents, or (b) in the case of know-how, for a period (often 10 years) from the first commercial sale of licensed products. At first glance, this would appear to address the issue. What is troubling IP Draughts is whether the agreement needs to go further, in light of this US case law, and have separate royalty rates for patents and for know-how, as some US templates for patent licence agreements seem to prefer. Readers – do you think this is necessary?

 

 

 

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