sou · GQB3112 · 2003-01-01 00:00:00 — 1.identify the value of intangible assets not accounted for in the balance sheet; 2.identify the intellectual property rights forming the com- panys core values; 3.identify intellectual property shortages; 4.ascertain the possibility of otherwise of registering or oth- erwise protecting the intangible assets; 5.establish future routines for the identification of intellectual properties; 6.establish a future IPR strategy to be adopted by the board; 7.identify the measures are necessary to compensate intellec- tual property shortcomings. Furthermore, an IPR differs from a traditional M & A due diligence insofar as the IPR will often be helpful in other situations than an M & A situation.2 For example, a company may gain advantages by performing an IPR before the launch of a new product. By identifying the in- tellectual properties connected with the product in question, the company will be able to achieve more comprehensive protection Strength, Weaknesses, Opportunities, Threats. Merger & Acquisition. of the product and thus a market advantage, since it will then be able to keep its competitors at a comfortable distance. Other situations where a company could gain advantages from having identified and listed its intellectual property assets are for exam- ple: 1.when procuring insurance coverage; 2.when signing licence agreements which are of core impor- tance to the company; 3.when procuring capital, for example by a new issue of shares; 4.when acquiring a product. If a company has performed an IPR before enter- ing into the aforementioned transactions, its possibilities of nego- tiating better commercial conditions and achieving greater legal certainty will be correspondingly increased. 4 How to identify the rights concerned and the protec- tion afforded As mentioned above, the purpose of an IPR is firstly to ascertain which intellectual property rights exist and are used within a company. , in the initial phase of an IPR procedure, the primary objective is to identify, for ex- ample, the material and symbols and words used by the company in its market activities, but also to identify the software products, databases and other technology products the company depends on. Once such critical elements are identified, the next stage of the due diligence procedure is to ascertain whether: 1.the elements are protected by intellectual property rights; 2.if so, the scope of such protection; 3.the elements are used within the scope of such protection; 4.the elements infringe third-party rights. In order to ascertain whether an element is protected by intellec- tual property rights, we have to ask a wide range of questions, ranging from practical issues such as whether the company pro- vides for restricted computer access to documents stored in com- puter networks (the answer to that question is necessary, for ex- ample, in order to establish whether information is protected as trade secrets) and whether the company has stored marketing ma- terials (necessary, among other things, in order to establish whether a trademark is protected by means of acquired distinct- iveness on the market or whether the trademark has been used in the past five years and consequently is not in danger of de- registration). In addition to the aforementioned identification of material and information supporting the existence of intellectual property rights, a range of searches of publicly available patent, design, trademark and tradename registers is necessary in order to estab- lish whether an element has obtained protection by means of reg- istration, and in that case, the scope of the protection. Such searches will not only extend to searches of national registers: a search will also have to be made of international registers such as the trademark register of the Office for the Harmonisation of the Internal Market (OHIM). Such searches must not be limited to the registration certificate as such, but must also be more detailed and for example analyse whether a trademark registration is de- pendent on third party consents submitted to the Patent and Reg- istration Office or OHIM. 5 Has the company duly acquired the rights? Having established which elements are of interest in the due dili- gence procedure, it is of the utmost importance to analyse whether the rights have been duly acquired from third parties and if the elements are surrounded by restrictions as to their use. As regards copyright, for example, the general principle under Swedish copyright law is that the copyright stays with the origi- nator unless otherwise agreed. Works developed as part of an as- signment are to some extent licenced to the assignee, but if the parties have not agreed on a full transfer of copyrights, the as- signee is only granted a limited licence to use the works. Simi- larly, since the copyright work for hire principle does not apply under Swedish copyright law, copyright (with the exception of computer programmes and supporting material) in- stead remains with the employee. This means that employment agreements and consultant agreements have to be analysed in or- der to establish to what extent the employer has acquired the copyright in works created by the employee. Since the use of employees hired from rental firms has become quite common, arrangements of this kind will also give rise to compli- cated copyright assignment issues. Similar principles also apply under patent law where the em- ployee, depending on the kind of invention and whether it has been developed in the employees spare time or not, is entitled to remuneration for patentable inventions. Summing up, in the course of a due diligence procedure, it will be necessary firstly to ascertain where the intellectual prop- erty right has originated and if and how it has been acquired by the company. In many cases, employment and assignment agree- ments can be used as the basis of such an analysis. It is, however, very important not to simply identify the written existent agree- ments and to base an analysis on such facts, but also to go beyond the written documentation and to identify verbal agree- ments and other factors which indicate the intellectual property rights have been acquired in a certain . 6 Are there any limits to the intellectual property rights as such? Once having identified which elements are of interest to protect and whether the rights to such elements have been duly acquired, the next stage will be to ascertain whether the rights are limited as such. The possible limitation of an intellectual property right can be instanced with a trademark registered in connection with a disclaimer excluding part of the trademark from protection. An- other example is trademarks of a descriptive or possibly generic character, which gives them low distinctiveness, thus limiting the scope of protection to more or less identical symbols or words. Similarly, patents need to be analysed in relation to the product which it is intended to protect, in order to establish whether the patent claims mirror the actual product or whether there are any limitations in the patent protection as such. Once any limitations of the intellectual property rights have been identified, the findings can be used as the basis of a strategy to strengthen the protection of intellectual property rights which are limited in scope. The findings will also strengthen the aware- ness of possible infringing consequences of the companys use of intellectual property rights, which is limited as such. 7 Present or future threats towards the existence of the intellectual property right Apart from the fact that an intellectual property right may be lim- ited in its scope due to disclaimers or other such limitations, it is also highly interesting to analyse the relative strength of an intel- lectual property right in order to establish whether it is able to re- sist attacks from competitors or, possibly, infringers as a defen- sive measure in infringement proceedings. Industrial property rights in particular face the risk of de- registration or invalidation, due to their having been registered despite the existence of impeding rights or other absolute grounds for registration refusal. A trademark could be de- registered, for example, on the grounds of degeneration, partial or full non-use during the last five years or the fact of its having been registered despite the existence of a confusingly similar trademark. These risks of de-registration also apply to patents, where, especially in patent proceedings, there is an imminent risk of an alleged infringer claiming that the patent is invalid due to formal shortcomings preceding the registration. One very com- mon counterclaim in such proceedings is that the patented inven- tion was not new, due to the existence of other similar inventions or due to the inventor having made it available to the public be- fore submitting the patent application, when it was patented. The same principles apply to registered designs. , in the course of the IPR it is important to identify any such po- tential threats against registered industrial property rights and, if any formal shortcomings existed before the date of registration, to take steps to offset them. 8 Maintenance of an intellectual property right Where industrial property rights are concerned, it is particularly important to monitor actual and potential competitors applica- tions for patents, designs or trademarks falling within the protec- tive scope of the companys industrial rights. , it is often important that a company has established routines and structures enabling it to react to possibly infringing applications for the reg- istration of new industrial rights. Such routines are of increasing importance, since the public scrutiny of industrial property appli- cations has decreased and will decrease further (cf. the proposed new Swedish Trademark Act, under which the registered trade- mark proprietor is solely responsible for monitoring applications submitted to the Patent and Registration Office and for opposing such applications within a certain length of time period). Conse- quently, the scope of an IPR would also need to include the identification of routines for the monitoring of intel- lectual property rights. Intellectual property maintenance routines could also take the form of trademark use instructions where the users of the company trademark are instructed to use the trademark in capital letters and in connection with the TM-symbol or the registered trademark symbol ® so as to avoid degeneration of the trademark and to establish bad faith on the part of trademark infringers. 9 Intellectual property infringements An intellectual property right is of or no use if it cannot be enforced in relation to third parties. Thus, an IPR should aim at identifying whether the company concerned is, or has been, subject to intellectual property rights infringements and how it has responded to them. In this regard it could be of inter- est to analyse the companys standard procedures, if it has any, for attacking infringements. In Swedish case law, there are ex- amples of rightholders who have tried to enforce rights in a dubi- ous way and where, as a result of infringement warning letters, the alleged infringer has counter-sued and successfully claimed that the sending of warning-letters amounted to unfair marketing. On the other hand, an counter-infringement policy is important since the legal consequences of not instigating proce- dures towards an infringer could be the right-holder losing its right to request interim measures, or, at worst, the parallel use of an infringing trademark being recognised in court. 10 Limitations as to the use, assignment or modification of intellectual property right protected elements Finally, since intellectual property rights could in many respects be subject to limitations as to their use, assignment or modifica- tion, an IPR report needs to take into account whether such use, assignment or modification is subject to limita- tion. One obvious limitation to the use of intellectual property rights could be stipulated in licensing agreements for the intellec- tual property right in question. Common examples of such re- strictions are the format in which the intellectual property right may be used (such restrictions are often, implicitly or explicitly, stated in copyright and trademark licences), whether the licence may be assigned or sub-licensed and whether the works subject to the licence may be modified by the licensee, such modification being subject, among other things, to mandatory copyright rules on modification and moral rights. The method for establishing the limits of the permitted use, licence and assignment is firstly to analyse licensing agreements entered into by the company. Secondly, such rights could be evi- dent from the licensors and licensees historical behaviour, which may indicate that the licensor has consented to certain forms of use or certain possibilities of modifying the licence ob- ject – such information to be gathered through interviews with employees of the company familiar with the historical licence situation. 11 Use of databases to structure IPR in- formation The IPR database developed in our IPR team is aimed at making the IPR procedures more efficient and able to cross-reference the findings of an IPR in a more sophisticated than would be possible if the material had only been categorised in manual files. There are a number of ad- vantages in using database structures when gathering and analys- ing the vast number of documents and other information emerg- ing in the course of an IPR procedure. Firstly, the material may be cross-referenced so as, for example, to generate a report on which intellectual property rights are connected to a certain product. Secondly, if a flexible database structure is used, it is possible to generate a number of reports which are useful in the future strategic management of a companys intellectual property rights, such as reports indicating which intellectual property rights are about to expire, which products that have not been protected in the best possible way available and which agreements relate to the licensing or sale of a certain intellectual property rights. The use of a database structure also simplifies matters in the event of a separate product or department of a company being sold to a third party, since the intellectual prop- erty rights and agreements affected by such a sale can then be identified immediately. Furthermore, if a database is used as the information- gathering instrument in the course of an IPR pro- cedure, the risk of personal aberrations if the analysis is per- formed by several different persons is less than if the procedures were to be performed manually, since that would allow the indi- viduals more scope for using their own methods for analysing the material. If a database is used, the technology can be used to streamline the way the information is analysed, and the provision of support functions such as explanatory texts will make the analysis far easier. In the rapidly developing technology environment, it could also be observed that the technology could be used for develop- ing database supportive functions like that described above. Voice recognition and optical character-reading mechanisms are good examples of technologies which could be used to enhance the information content of a database. Extended search engine and hyper-linking possibilities could also be used to enhance the possibility of quickly cross-referencing, say, trademark registra- tions with licensing agreements for the trademark at issue. Data- bases of the said kind can also be connected to scanning facili- ties, so that information today stored in a manual format will be readily available within the framework of the database, which in turn will make the management and administration of intellectual property rights far easier. With the extended possibilities of mak- ing databases and information available via web interfaces and intranets, the information contained in an IPR database could also be distributed within an organisation in a which is quite different from the use of paper-based documentation sys- tems. Summing up, the corporate importance of intellectual properties seems to be growing as companies head into more service- intense areas of business where intangible assets are of crucial value to them. At the same time, with the intellectual property law field growing more and more complex, it is often difficult for a company to obtain an overview of intellectual property rights issues which really matter. Many companies are therefore faced with a situation where it is necessary to adopt a new attitude to- wards intellectual property rights and to adopt procedures and strategies ensuring that the elements eligible for intellectual property right protection are identified and are registered and up- held to the best extent possible. This also means to say that intel- lectual property issues will become more of a focal consideration in a companys daily board work and possibly also at meetings of shareholders, since the existence of a certain right could be cru- cial to the whole existence of a company. The main objectives of an IPR procedure are to establish: 1.which elements are of interest for the review; 2.whether those elements are afforded intellectual property right protection and – in that case – which protection and to what extent; 3.whether the company has duly acquired the rights; 4.whether there are any restrictions on the intellectual prop- erty right at issue; 5.whether there exist any present or future threats to the intel- lectual property rights identified; 6.whether there are any restrictions on the use, modification or assignment of the intellectual property right at issue. Once these facts are established, the company which is subject to the IPR procedure will have an overview of the intellectual property rights which are crucial to its operations and of its intellectual property weaknesses and strengths. Further, the company will be able to identify the measures necessary in order to uphold and strengthen the intellectual property rights in ques- tion. If a database instrument is used in the performance of an IPR , major advantages are achieved by compari- son with manual filing systems, since a database enables the user to generate reports containing the summarised specific informa- tion on certain objects of interest to the user. The use of data- bases will also simplify the dissemination of information, thereby making the management of intellectual property rights more effi- cient in the long term. Efficiency, Innovation, and Transparency – The Future of Intellectual Property Rights – Why are they after me? In the movie Antitrust, , with his usual excellence, plays the part of the character. When the char- acter blurts out his desperation it is because is on his tail, exploring the innermost secret of the code in computer programs. In one of the crucial scenes where character eventually loses control over his code, Rob- bins still cannot understand why his protégé character is working against him. After all, the code is mine, character concludes. Should not as the copy- right proprietor be able to decide just what to do with his com- puter programs? Should not the legislator protect the Robbinses of our world from the efforts of self-appointed freedom fighters to release and reveal the code to the world? Only to a certain point. 1 Experimental copyright in action The number one full-scale experiment on intellectual property in history is now in practice. I am referring to the new types of li- censes for computer programs: free software and open source. We are looking at an experiment that will define the future of in- tellectual property. Free software, as defined by , rests on four foundations: N You are free to run the program, for any purpose. N You are free to modify the program to suit your needs. (To make this freedom effective in practice, you must have access to the source code, since making changes in a is an associate with the office of the law firm where he specialises in IT law, commercial law, and intellec- tual property law. Among other things, he has been chairman of the Swedish professional organisation of on-line of contents and services (Bi- toS). He is also the Swedish editor of the Nordic Intellectual Property Re- view (NIR). program without having the source code is exceedingly difficult.) N You are free to redistribute copies, either gratis or for a fee. N You are free to distribute modified versions of the pro- gram, so that the community can benefit from your im- provements. Free software is very simple in its construction. It uses the provi- sions of copyright law whereby the author has an exclusive eco- nomic right in his work. In copyright law, computer programs are regarded as literary works. Thus, the author of a computer pro- gram can enter into any agreement regarding his work. One such agreement is the GNU GPL. GNU GPL stands for GNU General , while GNU is a recursive abbreviation of Gnus Not Unix. GNU is the manifestation in practice of free software and attempt at a free Unix system. The most famous part of the GNU system is the kernel developed by under the name Linux. The GNU GPL that lays software is enforce- able both under the principle of freedom of contract and through copyright law. According to Stallmans legal counsel, Professor , the GNU GPL has yet to be successfully challenged. As I write this, in the spring of 2002, in a decision handed down in , US District Judge . has ruled on the prelimi- nary injunction motion in vs. That case is often referred to as the first test in court of the GNU GPL. It is a complicated case with several components. In the matter of Progresss distribution rights under GNU GPL, Sa- ris did not grant an injunction. In the public hearing, Judge made clear that she sees the GNU GPL as an enforceable and binding license, but that as long as appears to be presently in compliance with the GNU GPL, there is probably no irreparable harm being caused to , and therefore no case for a preliminary injunction. Open source is different from free software. Open source is based on a definition designed by and . The basic idea behind open source is simple: when pro- grammers can read, redistribute, and modify the source code for a piece of software, the software evolves. People improve it, people adapt it, and people fix bugs. And this can happen at a speed that, if one is used to the slow pace of conventional soft- ware development, seems astonishing. and Perens de- signed the open source definition. Open source is less restrictive than GNU GPL and free software, but it does not just mean ac- cess to the source code. Open source is not a license, but a set of rules that any license claiming to be open source must follow. The most important in the open source definition requires the distribution terms of open-source software to comply with the following criteria: The program must include source code, and must allow distribu- tion in source code as well as compiled form. Where some form of a product is not distributed with source code, there must be a well-publicized means of obtaining the source code for no more than a reasonable reproduction cost – preferably, downloading via the Internet without charge. The source code must be the pre- ferred form in which a programmer would modify the program. Deliberately obfuscated source code is not allowed. Intermediate forms such as the output of a preprocessor or translator are not allowed. Source Definition is described as a bill of rights for the computer user. It is not a developed philosophy like free soft- ware, but maintains a more pragmatic hands-on approach.