Thanks to Mike Mireles of the IP Finance blog, IP Draughts has learnt of a new patent purchase programme, known as IP3, that builds on the Google exercise of last year. Mike has expressed interest in IP Draughts’ views on the standard assignment agreement for the new programme. Could it be as bad as the Google agreement that IP Draughts previously commented on, in an article on this blog, Do No Evil …Drafting?
Preparing for this article, IP Draughts revisited the terms of the Google agreement of last year. He discovered that some of the drafting mistakes that he had identified had been corrected, but many others remained.
Comparing the new agreement for IP3 with the older Google agreement, it is clear that some of the text of the older agreement has been copied and pasted into the new one. Other parts of the new agreement are very different. IP Draughts has the impression that the drafter has taken their own, favoured template, and bolted in provisions from the earlier agreement, perhaps in response to specific instructions from their client.
He assumes it has been drafted by the Californian law firm, Fenwick & West LLP, as the address of the assignee is stated in the agreement to be this firm’s address in San Francisco, “Attention: Jake Handy”. Handy is a partner in the firm and chairs their technology transactions practice.
If IP Draughts’ name were put in the first paragraph of a document of this kind, he would be very keen to ensure that the drafting was up to scratch.
PATENTS 3 GUINEAS
In IP Draughts’ view, the IP3 agreement is an improvement on the Google agreement, as he would expect from the work product of a reputable IP law firm. The template on which it is based is more mainstream, less home-made in style. There are fewer obvious drafting errors than in the Google agreement. But it suffers from problems that are seen in many law firm templates, including turgid, old-fashioned language, terms that are irrelevant to the present transaction (which should have been deleted) and wording that has been bolted on to the template in a very clumsy way. It also has its fair share of typos.
Here are a few of the problems with the text:
- Multiple verb pile-up. Rather than just “assign” the patents, the drafter considers it necessary, in the operative assignment clause (Section 1.1), to “assign, convey, sell, grant and transfer”. This is one up on the Google agreement, which only required the assignor to “sell, assign, transfer and convey”. But in the recital to the IP3 agreement, the assignor has only agreed to “transfer and assign” the patents. The IP3 assignor is also required to execute a formal confirmatory assignment, the terms of which are set out in Exhibit B to the agreement. Here, the assignor is to “sell, assign, transfer and convey”. Perhaps we should forgive the drafter for using redundant language that appears in their office template, though the chair of the technology transactions practice might feel it is time to modernise the wording of his firm’s IP agreements. But should we also forgive the lack of consistency in the wording throughout the document, which is the responsibility of the individual drafter?
- Sloppy and inconsistent drafting of warranties. Article 3 sets out some warranties. They start off in conventional style, but the drafting deteriorates towards the end. For instance, the first sentence of Section 3.3 starts “Assignor represents and warrants to Assignee”, which is clear as to who is making the promise, and to whom the promise is given. The second sentence starts “Assignor has provided Assignee with” – is this a warranty by the Assignor, or an acknowledgement by the Assignee? The first sentence of 3.4 starts “No funding …was utilized” – it is not clear whether either party is making any promise about this statement, though it is more likely than not to be meant as a warranty by the assignor. Depending on the intended meaning, all of these statements should start in the same way. The drafter has not cleaned up inconsistencies in the text. The Google agreement was better in this point, as all of the warranties in Article 6 were qualified by lead-in wording at the start of the Article, which read “Seller hereby represents and warrants to Google…”
- Typographical errors. The drafter seems not to have focussed very hard on the wording of section 3.4, as it also appears to have two typos: the word “form” in line 1 should be “from”, and the second instance of the word “and” in line 3 should be “any”. In section 1.3 the term “Assignee” should be used rather than “IP3”.
- Irrelevant text. According to section 1.1(d), the assignment includes an assignment of “all goodwill associated therewith”. “Therewith”, in this context, must mean the patents and inventions described earlier in the section. Perhaps there is some quirk of US patent law that has escaped IP Draughts’ attention, but he would have expected an assignment of associated goodwill to appear in a trade mark assignment, and not in a patent assignment. Can any US reader enlighten IP Draughts as to what, in legal terms, it means to assign goodwill in a patent? Or is this section a drafting mistake?
- Unclear drafting. Section 3.2 refers to the patents being free of encumbrances including “identifications to standard committees”. IP Draughts finds this wording very unclear but assumes it is the same point that appears in the Google agreement as a warranty that “there is no obligation imposed by a standards-setting organization on Seller or Google to license any of the Patents on particular terms or conditions.” If so, IP Draughts prefers the clarity of the Google wording. More significant, perhaps, is the lack of clarity in section 3.3, which states that the assignor has provide the assignee with “all information …concerning …validity, patentability and/or enforceability of the Patents”. Is this a warranty of validity by the back door? Should it be read as all information in the assignor’s possession or all information in the universe?
There are also drafting points that raise commercial issues, eg Article 2 says that assignee “will pay” the price, but doesn’t say when it will do so, though the sentence ends with an acknowledgement of receipt.
Many of terms in the IP3 agreement are designed to protect the interests of the assignee, and in principle one can see why these terms have been included. What is less understandable is why some of them are different from the warranties and obligations in the Google agreement, when the context of both agreements is similar.
Some of these differences seem random, as if they are simply a reflection of the template that the drafter picked up on each occasion. For example, the Google agreement has much more detail on what the seller must do with the prosecution files, including keeping them confidential (section 5.1), considers it important to address the position of Affiliates, and has extensive clauses limiting liability. The IP3 agreement doesn’t focus on these issues but instead has more of a focus on encumbrances, withholding tax and payment of renewal fees after the Effective Date. It is tempting to speculate that some of these terms reflect issues that arose on an earlier transaction, rather than topics that are important for the present transaction.
Overall, IP Draughts prefers the IP3 agreement, but neither document is well drafted. In some areas, as mentioned above, the Google agreement is better. For example, both agreements refer to the possibility that the assignor may have licensed the patents, but only the Google agreement specifically asks the assignor to deliver the licence agreements (see Exhibit A); section 3.5.2 of the IP3 agreement should have included this item in its list.
IP Draughts is left with the impression that both of these agreements have been drafted by patent attorneys who are focussed on the technical process of transfer of title to patents, and who lack some of the skills required to draft contracts clearly and accurately. Perhaps their clients do not demand such clarity, and instead assume that patents (including patent transactions) are a difficult technical subject that they can’t and don’t need to understand. If so, that is a shame. We are told that a revolution is coming in the way in which law is practised. Lawyers who are inward-looking and focus only on their core skills may find they are less marketable to employers and clients in future.