Revenue Enforcement

Legal Strategies

Lawrence K. Nodine

Ballard Spahr

December 16, 2009

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A patent license is a contract

• Underpayment is a breach

• Under-reporting is a breach

• Failure to cooperate with an audit is a breach

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Remedy?

• Negotiate

- Direct

- Mediation

• Sue

- On the contract, for money due; or

- Terminate the contract

• sue for breach

• infringement

• Difference?

- Termination ends right to practice the invention

- Converts licensee into an infringer

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Litigation

• In court

- State or

- Federal

• Diversity jurisdiction

• Patent infringement based on federal law

• Arbitration

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What to do first?

• Negotiate a stand still agreement

- Parties agree not to sue during negotiations

• Send notice of breach and give required time to cure

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Notice and cure

• Most license agreements require that you give notice of a breach and a time period to fix the problem

• Termination would be invalid if notice not given

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How detailed should the notice be?

• Matter of state law

• Varies by jurisdiction

• Generally: notice should be detailed enough to tell the licensee what needs to be fixed

• Assume that

- in subsequent litigation, licensee will argue termination was not valid because notice was not detailed enough

- terminated licensee will challenge “new arguments” not included in the notice

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Commence litigation

• Where? Your home town

• When? After cure period expires

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Can licensee sue you first

• Yes

• Licensee may not wait until cure period expires

• Licensee may sue in its home court

• This can be challenged with transfer motion

- improper anticipatory litigation, especially if negotiations active

- but hard to win such transfer motions

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Helpful clauses

• Exclusive venue clause

• Neither party may commence litigation during cure period

• Mandatory mediation

• Arbitration

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Forum selection clause

• The parties agree that all lawsuits relating to this Agreement shall be litigated exclusively in the State and Federal courts located in the County of ABC, State of XYZ. This choice of venue is intended to be mandatory and not permissive, thereby precluding litigation relating to this Agreement in any other jurisdiction. Each party hereby waives its right to object to venue with respect to any litigation brought in compliance with this provision.

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Litigation standstill clause

• The parties mutually agree to forego their respective right to institute litigation for a limited period of time to allow time for good faith negotiations to resolve a dispute. Accordingly, the parties agree not to institute litigation during the pendency of negotiations to resolve disagreements relating to ____. This agreement shall be binding for ___ days. This agreement may be terminated by either party upon 5 days written notice.

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Standard mediation clause

• “If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure.”

http://www.adr.org/sp.asp?id=27417

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Standard arbitration clause

• “Any controversy or claim arising out of or relating to this contract, or the breach thereof, including any dispute relating to patent validity or infringement, shall be settled by arbitration administered by the American Arbitration Association under its Supplementary Rules for the Resolution of Patent Disputes and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. (The award shall be rendered within _______months of the filing of the Demand.).”

http://www.adr.org/sp.asp?id=27417

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Multi-step DR clause

• Negotiation Between Executives: “(A) The parties shall attempt [in good faith] to resolve any dispute arising out of or relating to this [Agreement] [Contract] promptly by negotiation between executives who have authority to settle the controversy and who are at a higher level of management than the persons with direct responsibility for administration of this contract. Any person may give the other party written notice of any dispute not resolved in the normal course of business. Within [15] days after delivery of the notice, the receiving party shall submit to the other a written response. The notice and response shall include (a) a statement of that party's position and a summary of arguments supporting that position, and (b) the name and title of the executive who will represent that party and of any other person who will accompany the executive. Within [30] days after delivery of the initial notice, the executives of both parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute. [All reasonable requests for information made by one party to the other will be honored.] All negotiations pursuant to this clause are confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence.”

http://www.cpradr.org/ClausesRules/CPRModelDisputeResolutionClauses/tabid/157/Default.aspx