Category Archives: Intellectual Property

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Contract Tips for Avoiding Data Breaches – Part 1

There has been widespread concern throughout every industry about how to safeguard and protect confidential information from data breaches. Cybercrime is becoming one of the top concerns for the Federal Bureau of Investigation (FBI). Robert Mueller, FBI director, has stated that “[t]here are only two types of companies: those that have been hacked, and those that will be. Even that is merging into one category: those that have been hacked and will be again.”

The damage that can result from a data breach can range from business interruption and damage to your company’s reputation to lawsuits and regulatory fines. As a result, your business should mitigate its exposure by implementing formal policies and procedures, incorporating security technologies, training employees and buying cyber insurance. It is also important to consider steps you can take in negotiating, drafting and renewing your company’s contracts to prevent and avoid data breaches.

Pre-Contract Due Diligence

When you are considering using a third-party vendor that may house or otherwise have access to protected data, you should conduct due diligence in determining any security issues that should be resolved through the contracting process. It is effective to address this issue while you have maximum leverage before the contract is signed. You may want to require limited access to your systems or network, or even have a specific person with the vendor assigned to safeguard confidentiality and integrity.

Contractual Agreement

It is imperative that the contract clearly states who owns the information. Depending on your industry, the vendor may have full control over the data and have notification obligations under the law if it leaves its control, but you want to maintain ownership of the information. You may also want to include contractual language that:

  • limits how the data may be used
  • requires the vendor to return or destroy all of the data in the vendor’s possession upon termination of the contract
  • allows you to request confirmation that certain certifications or third-party reviews of the vendor’s system has occurred
  • provides for the encryption of data when it is being transferred or when not being used
  • requires background checks on employees with access to your protected information
  • provides that security updates and patches will be applied as necessary
  • sets forth any additional security measures that may be necessary (such as security code or card required for access to the data center)

The above are the initial considerations for protecting your digital data in vendor contracts. Our next blog will continue discussing this topic and cover more in-depth contractual provisions to include in your vendor agreements, so please check back.

To ensure that your vendor contracts provide you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

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The Scope of the License in Software Licensing Agreements

Licensor’s Perspective

If you are the owner of software and you want to allow other parties the right to use the software while maintaining ownership and control over it, you need a software licensing agreement. As a licensor, you can limit the scope of the license by defining how and for what purpose the licensee is allowed to use the software. A restricted license only allows the licensee to use the object code of the software, not the software’s source code. A licensor may also want to further restrict the license by limiting:

  • Fields of use (for example, for use only at the licensee’s internal business purposes)
  • Geographic use restrictions
  • The number of concurrent users allowed
  • The hardware upon which the licensed software may be used
  • The ability to transfer the software license

A licensor is more likely to seek additional revenue by enforcing the scope restrictions in an economic downturn. Thus, restrictions on the ability to transfer the license can allow the licensor the ability to extract additional fees if the licensee wants to assign the license.

Licensee’s Perspective

A licensee typically seeks to negotiate a broader license to help ensure it has adequate rights to use the software as needed. If a licensee does not sufficiently negotiate the ‘terms of use’ and later discovers it must exceed the restrictions, the licensee will have to renegotiate and likely pay additional fees. Thus, it is important for the licensee to carefully consider what its future needs of the software will be. If this is not a known factor, the licensee may consider including a means for increasing the limits imposed by the licensor in the contract, and specifying the amount to be paid for the changes. Finally, and particularly if the licensee is paying for development of all or a portion of the software, a licensee may wish to negotiate to have the exclusive right to use the licensed software in order to prevent other parties or competitors from being able to use the software.

When parties are negotiating a software licensing agreement, it is imperative that both the licensor and the licensee pay close attention to the provision regarding the scope of the license.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

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What to Include in a Licensing Agreement: The Licensor’s Perspective

If you are the owner of intellectual property (IP), it is imperative that you protect your rights by properly registering it and using a licensing agreement that safeguards your rights. For more general information, please read our blog titled “Understanding Licensing Agreements.”

When creating a licensing agreement, you first need to determine the scope of the license. You will want to keep ultimate ownership of the IP, but you can assign limited use rights. The license scope should be broad enough that others will want to use your IP. Generally speaking, unless the IP is custom-made, the license is usually nonexclusive, so you can sell or license the use of it to other parties.

In most circumstances, you will want to make it clear that the license does not allow the licensee to reproduce or pirate the IP in order to sell it to third-parties. However, if you allow the licensee to reproduce the IP, you will want to be paid royalties or ongoing maintenance charges in exchange for the resale license.

Other topics your license agreement should cover include:

  • How long the license will last
  • Outline any rights of the licensee to modify or combine the IP with other products
  • Set forth any prohibited uses of the IP
  • Establish whether there are rights to transfer or sublicense
  • Detail the warranties; Disclaimer of the UCC warranties
  • List the limitations on the licensor’s liability
  • Include a provision covering nondisclosure of protected information
  • Outline indemnity for infringement
  • Set forth available remedies
  • Establish the conditions for terminating the contract

There a numerous factors that must be considered and negotiated when creating a license agreement. The laws governing intellectual property can be complicated, so having a seasoned attorney assist you is invaluable. Contact Leslie S. Marell today to schedule your appointment.

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Understanding Licensing Agreements: From the IP Owner’s Perspective

Understanding what constitutes “intellectual property” (IP) and the importance of protecting it is important to any business owner. IP is anything that is created in an individual’s mind, including art, music, computer software, inventions, designs and trademarks. You can protect IP with a license, which is a type of contract that allows you to maintain control over your IP but transfers certain rights to a third party to use the IP.

The holder of the IP rights is called the “licensor.” The party that wishes to use the IP is called the “licensee.” By entering into a license agreement, the licensee pays money to the licensor for the right to use the invention or creative work. In many software license situations, the licensee is granted a non-exclusive right to use the IP. In other situations where the licensee has been involved in some development of the IP, the licensee may expect either ownership rights or exclusive rights to use the IP.

The primary way to protect your IP is to register for all rights that apply to your circumstance, such as:

  • Patents – inventions
  • Copyrights – original works of authorship
  • Trademarks – symbols, words, names or other designations used to identify goods made or sold in order to distinguish them from other similar goods

Intellectual property law can be complex, so it is important to confer with a knowledgeable attorney on how to protect and manage your IP rights. Once you have secured your rights to the IP, you can create your licensing contract.

A license agreement does not have to be lengthy and complicated, but it must be uniquely tailored to meet your individual needs. You want to ensure the contract is clear and concise, but most importantly, enforceable. Federal law imposes strict civil and criminal penalties for unauthorized use of IP. Your license agreement should provide you with the ability to file a lawsuit to enforce your rights and recover certain remedies such as an injunction and monetary damages if the licensee misuses the IP. You may also be entitled to recover actual damages, which may include any money you lost as a result of the infringement. In certain cases, you may even be able to recover any profits wrongfully gained by the infringing party.

To learn more about license agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today. For more information, please read our next blog titled “What to Include in a Licensing Agreement.”

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Protecting Your Trade Secrets Requires More than a NDA

There are several industries that require valuable intellectual property to be shared with third parties. In order to protect intellectual property, most businesses use confidentiality agreements or non-disclosure agreements (NDA). However, there are certain circumstances where having a NDA may not be enough.

In the case of nClosures, Inc. v. Block & Co., the Seventh Circuit Court of Appeals ruled that a NDA signed between the designer of a product and the manufacturer was unenforceable because the owner of the intellectual property failed to take reasonable steps to protect its confidentiality.

Facts of the case

nClosures was the designer of protective cases for electronic tablets and other similar devices. Block agreed to manufacture the cases for nClosures and executed a confidentiality agreement protecting nClosures designs. However, five months following nClosures’s initial sale of the cases, Block began selling its own competing product.

Decision

A lawsuit for violation of the NDA was filed by nClosures. Block moved for summary judgment, which the trial court granted. The trial court reasoned that nClosures could not enforce its NDA because it had not taken reasonable actions necessary to safeguard its case designs. More specifically, on appeal the Seventh Circuit ruled that nClosures failed to enter into NDAs with other parties who had access to the designs of the cases. Furthermore, nClosures did not mark its design drawings as “confidential” when they were given to Block and failed to limit electronic of physical access to the designs. The court ruled that because nClosures did not take reasonable steps to protect the confidential status of its designs, its NDA with Block was unenforceable.

Practical advice

If you are the owner of a trade secret, the take-away from the nClosures decision is that securing a confidentiality agreement is essential, but also not enough to protect your intellectual property by itself. You must exercise due diligence in protecting the confidential nature of your trade secrets. Failure to be vigilant could result in nullifying the enforceability of your NDA.

If you have questions regarding the nClosures decision or how we can assist you with other business-related matters, contact Leslie S. Marell to schedule an initial consultation.

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What You Need to Know About Registering Trademarks

Whether you are the owner of a start-up business or one that has been operating for a while, it is important to ensure that your company’s intellectual property is protected. Intellectual property can include items such as your business name, inventions, logo or trade secret. Ideally, you should register your business’s trademarks as soon as possible

Many business owners overlook the importance of registering their entity’s trademarks. However, there are numerous advantages gained by registering with the United States Patent and Trademark Office:

  • Your business will save time and money by researching the trademark earlier in the process before investing heavily in it
  • The quicker your register the less likely you are to violate an existing trademark
  • Registration provides notification to the public that you claim ownership of the mark
  • Your entity will have the ability to use the federal registration symbol (®) which creates a legal presumption of your entity’s exclusive right to use the mark
  • Once you have registered your trademark, you have the right to bring a lawsuit in federal court in matters related to the mark
  • Having your mark registered in the United States can make it easier to obtain registration in foreign countries
  • Your trademark can be filed with the U.S. Customs and Border Protection Service to prevent foreign goods that infringe on your mark from being imported
  • Once your mark has been registered, infringers cannot claim ignorance of the protected mark

If you are starting a new business, we can assist you with filing an “intent to use” trademark application for your entity name and/or logo. This will protect your marks while you are working to start business operations.

If you have questions regarding starting a new business or registering your entity’s trademarks, contact Leslie S. Marell for help. We serve as general counsel to clients who do not require, or choose not to employ, a full-time lawyer in-house. Call today to schedule your initial consultation.

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5 Important Tips for Your New Business Venture

When you are starting a new business, it is easy to feel overwhelmed by all of the decisions you have to make. The decisions you make now can have lasting consequences, so it is important to get them right. Below are five important tips to help ensure that your new business gets off to a successful start:

Legal Structure

There are several different types of business entities to choose from, each with its advantages and disadvantages. To learn more, please read our blog titled “Which Legal Structure is Best for Your Start-Up?” It is important for you to confer with a business attorney to ensure you select the legal structure that is most beneficial for your business.

Written Contracts

New business owners often fall prey to relying on oral promises that aren’t fulfilled. Getting your agreements in writing is the best way to protect your interests. This includes creating a written agreement between the founders of the business which outlines each owner’s percentage of ownership and how the daily business decisions will be made.

Intellectual Property

Intellectual property can include anything from your company name, to its logo, to the type of products you sell. All business owners should take the initiative to legally protect their intellectual property. If your entity fails to obtain the proper patent, trademark or copyright, it could result in you have no legal recourse if another party infringes on your rights. One important step in protecting your private information is to require all employees to execute a non-disclosure agreement.

Employees

There are a wide variety of laws governing an employer’s relationship with its employees. It is imperative that you educate yourself regarding the laws, rules and regulations that apply to your industry and your specific business.

Get help

When your business is first starting out, you will likely be tempted to try to save money and handle things on your own. Unfortunately, this approach can end up costing you significantly more than the cost of retaining a professional. One mistake could be the end of your business before it even gets off the ground. Don’t let that happen – get the legal assistance you need.

If you have questions regarding business law matters, contact us today to schedule an initial consultation. Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need.

 

 

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Cybersecurity & the Need for Vendor Agreements

If you own or manage a business, you should be concerned regarding your entity’s cybersecurity. With all the recent news regarding hackers obtaining confidential information, you can bet that your customers and clients are worried about how you are protecting their private information.

Protecting digital data became a “hot topic” when the Target breach occurred. Hackers obtained thousands of Target’s customer’s private financial information. Since then, the topic of cybersecurity has gained momentum as numerous other digital data breaches have been revealed. In fact, according to the New York Times, numerous businesses have started asking confirmation from their attorneys and other professionals that cybersecurity protections have been implemented to safeguard their confidential and sensitive information.

Business owners should not only examine their current security measures, but also the security procedures being used by your vendors. Vendors should not be surprised at your request and should be willing to provide evidence of its cybersecurity measures. By obtaining this information, you can reduce your liability and potentially hold your vendor accountable for any breaches. This knowledge will encourage your vendor to stay current on the tools available to protect your business’s private data.

Factors you should consider addressing with your vendors include:

  • Distribution. It is important to educate yourself about how the vendor distributes private information. For instance, private files should never be emailed to unsecure devices.
  • Networks. Ask your vendor to explain if their computers are linked to shared networks. This could make private data susceptible to hackers.
  • Access. Ask your vendor to provide a list of all employees or other personnel who will be given access to your company’s (and your customer’s) confidential information.
  • Protection. Request proof of the digital security tools that will be implemented by your vendor to protect your business’s private data.

Contact Leslie S. Marell for assistance in creating vendor agreements that will help ensure the safety of your confidential information, as well as lessen your liability if a breach should occur.

 

 

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The Value of Non-Disclosure Agreements/Why you should Protect your Trade Secrets

Many times the most valuable asset a business has is its “idea.” That idea is the basis upon which your product/ service is successful. Whether that is an innovative product or a specialized service, it can be worth a substantial amount of money, especially if it meets needs that are not being met by others. It is essential that your company take the necessary precautions to safeguard your idea.

One effective means for protecting confidential information and trade secrets is to require employees, independent contractors, business partners and any other third-parties to sign a non-disclosure agreement. Also commonly referred to as a “confidentiality agreement,” this type of contract binds the third-party to keep your non-public data protected. It can limit the allowed uses of the protected information. Importantly, if the third-party breaches a non-disclosure agreement, your business is entitled to recover damages and other remedies at law.

What should a non-disclosure agreement include? Below are a few of the key provisions to include in a confidentiality agreement:

  • Identify protected information. The agreement should clearly set forth the data that is private and protected from being disclosed.
  • Permitted disclosures. The contract should specify the situations where the confidential information is allowed to be shared with others. It should identify the circumstances and the parties with whom disclosures are permitted. Common examples include allowing the protected information to be shared with attorneys, accountants, insurers, and other professionals deemed appropriate.
  • Legal remedies. In the event of a breach, any remedies available to the non-breaching party should be detailed in the contract.
  • Other terms. A non-disclosure agreement is similar to other types of contracts and should contain provisions setting forth the applicable law that governs, whether the contract is assignable, the requirement of mediation or arbitration to resolve disputes and other similar stipulations. You may also want to consider including language saying that a performance bond is not required. A bond is often used as a guaranty of a party’s reimbursement of costs incurred in case a default occurs. Waiving the requirement of a bond can save you a significant amount of money and time.

Failure to have non-disclosure agreements signed by third-parties can put your business in jeopardy. It is important to protect the special concept or trade secret that sets you apart from the competition.

To learn more about non-disclosure agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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Part Two: Intellectual Property Copyright Ownership

As I discussed in a previous blog, under copyright law, the author who creates an “original work of authorship” owns the copyright to that work.  An “original work of authorship” includes designs, specifications, software, documentation, photographs, website development, artwork, or multimedia work.

This means that when your company outsources the design or development of any work, your company will not automatically own the copyright to the work created by the supplier/ independent contractor/ customer even when you’ve paid them for it. In order to acquire ownership, your company must obtain a written assignment (transfer) of copyright ownership signed by the author of the work.

The “Works for Hire” doctrine is an exception to the above general rule. However, those items considered “works for hire” are very limited and likely do not cover many of the projects companies typically outsource.

THE BUYER’S POSITION

Buyers assume that if they pay for the development of the work, design, software, services they should own the intellectual property rights to such development. At first blush, that position seems logical:  The Buyer pays for it, the Buyer should own it. The Buyer may also want the ability to be able to incorporate the work into other products, or modify the original work.  Additionally, the Buyer is concerned that the Supplier might sell or license the work to the Buyer’s competitors.

THE SUPPLIER’S POSITION

 Most frequently, the Supplier’s pre-existing intellectual property will be used in the development of the deliverable. The Supplier has likely spent many years and significant money developing its IP. If the Supplier transfers ownership to the Buyer of the entire work, the Supplier will end up giving up far more than it actually realized or intended:  The Supplier may lose its rights to its pre-existing/ background technology and, therefore, the assets to its business.

ISSUES TO CONSIDER

Many Buyer proposed IP assignment clauses are very broadly written to say that the Supplier will assign to the Buyer ownership to all IP contained in the entire deliverable/ work product. The problem with these clauses is that the Buyer is requesting ownership to IP not only for which it paid but for the Supplier’s pre-existing IP as well.

  • CARVE OUT SUPPLIER’S PRE-EXISTING TECHNOLOGY

A key step to resolution is to take the Supplier’s pre-existing technology “off the table” in terms of ownership. The Supplier will want to retain all ownership rights to its background IP and that’s certainly not unreasonable since the Buyer typically has not paid for the development of that background IP.

Supplier should prepare a separate exhibit to the contract that identifies in as much detail as possible the pre-existing technology to be included as part of the deliverable. It often is not possible to identify all the items of the Supplier’s background technology that will be used, so the contract should allow for additional items to be added later.

  • DETERMINE YOUR GOAL

If the Buyer is having the Supplier semi-customize a standard product or software, the Buyer often insists on ownership rights to the customized portion without giving thought to the underlying reasons. Generally speaking, the ownership of the code or design applicable to the customization will not be of much value.

Perhaps the Buyer is concerned that the Supplier will use the customized portion (paid for the Buyer) in product the Supplier sells to the Buyer’s competitors. If that were the case, a narrowly written restriction against performing the same sort of customization for Buyer’s direct competitors would be more to the point. (CAVEAT: Work with your lawyer in writing these “restrictive covenant” clauses because they must be carefully worded.)

Perhaps the Buyer wishes to include the technology in other products. In this case, the Buyer will want to discuss the possibility of acquiring a nonexclusive license to use the pre-existing technology with an exclusive license for the IP developed.

SEVERAL APPROACHES TO RESOLUTION

ALTERNATIVE 1:   Ownership by Supplier with Exclusive License to Buyer

One option is for the Supplier to retain ownership of the work (defined to exclude pre-existing technology) but give the Buyer the exclusive license to use it. If an exclusive license gives the Buyer the right to use the work in every possible context at every possible location, it would be the functional equivalent of ownership. In practice, however, the parties usually agree to limit the Buyer’s use rights. For example, the Buyer’s right to use the work may be limited as to duration, area (worldwide or domestic), or market. The Supplier has the exclusive right to modify the work and may sell or license it to others outside the Buyer’s area of exclusivity.

This arrangement often benefits both the Buyer and Supplier. The Buyer is assured that the Supplier will not sell or license the work to competitors during the term of the exclusive license. At the same time, the Supplier retains control over the work and will have the opportunity to earn income by licensing/ selling to others outside the area of the Buyer’s exclusivity and/ or after the exclusive license expires.

ALTERNATIVE 2:   Ownership by Supplier with Non-Exclusive License to Buyer

The most favorable ownership arrangement for the Supplier may be for the Buyer to be given only a nonexclusive license to use the work (defined to exclude pre-existing technology). This means that the Supplier is free to license/ sell the work to anyone else; including the Buyer’s competitors. This type of ownership arrangement should result in the lowest possible price to the Buyer, because the Supplier may earn additional income by licensing the work to others.

In nonexclusive license arrangements, it is not uncommon for the Supplier to agree to pay the Buyer a royalty for each license it sells to third parties. This often seems fair because the Buyer paid to have the work created in the first place. The total cumulative royalty is usually limited to the total price the Buyer paid the Supplier for the work. The royalty can be a percentage of the total price paid for each license or a set dollar amount. While this is a common solution, there are no industry guidelines for the amount of such royalties.

The Buyer may object to licensing of custom modifications for which it has paid to competing companies. One solution is hybrid:  the Supplier agrees to a one or two year exclusive license to the Buyer for the particular modifications before those modifications are made available to other users.

ALTERNATIVE 3:   Joint Ownership

Yet another option is for the Buyer and Supplier to jointly own the work. Under a joint ownership arrangement, each party is free to use the work or grant nonexclusive licenses to third parties without the other’s consent (unless they agree to restrict this right). Normally, joint owners must account for and share with each other any monies they earn from granting such licenses. However, in most circumstances, it is not practical or desirable in the Buyer/ Supplier situation.