The terms and conditions in most contracts deal with the standard nuts-and-bolts aspects
of production, schedules, delivery and payment, as well as general warranties and
representations. Intellectual property issues concerning the ownership, control, sharing
and enforcement of patents, trademarks, copyrights and trade secrets are rarely
completely covered.
In a business environment where interests may be shifting toward new markets with
technologies and customers (and their competitors) unfamiliar to the injection molder,
care should be taken to be sure that the company’s business interests are protected.
Protection takes the form of the ability to produce a product and/or practice a
technology, as well as gaining and holding valuable rights against competitors.
Forms of IP Protection
Intellectual property (IP) law covers a relatively complex patchwork of largely
invisible, intangible property rights that vary in what they cover, and how each may be
created, owned, maintained (or lost), licensed and enforced. Utility patents may cover
any useful machine, process, material composition or manufactured article, and US patent
rights are owned initially by the inventor(s) until assigned. The same is true of design
patents that cover the aesthetic appearance of any useful article.
Trade secrets can protect any valuable information kept in confidence, whether or not of
a technical nature, and may include everything from technical know-how, designs and data,
to best practices, pricing, business plans and the identities of customers or suppliers.
These rights have value simply by acquiring the information and keeping it secret.
Copyrights protect works of original art or authorship from being copied, distributed or
incorporated into a new version. These rights arise as soon as the work of art or
authorship is put in some tangible form. Copyright registration, though not required to
preserve the rights, gives many legal advantages and should be sought as soon as
practicable.
Trademarks are symbols of a company’s goodwill, whether words, symbols or other device
such as color combinations. These rights start once, and to the extent, the mark is used.
Federal and/or state trademark registrations enhance and extend these rights.
These often interwoven rights sometimes can make a simple contract for manufacturing
product into fertile ground for legal conflict.
The Nightmare Scenario
Suppose an injection molder successfully responds to an RFP by a sensor company to
produce components for a medical sensor to be sold by its customer, a downstream medical
device company. The parts to be produced are for a medical sensing device that has a
housing and specially arrayed vapor openings and associated controls. The housing is to
be produced by a specialized molding process that allows portions of the housing walls to
be molded to a specific attenuation to make it permeable to gas. The technique is to be
disclosed to the successful bidder, and a proprietary patented resin is to be specified
and is to be blended by the injection molder.
The RFP also provides that a logo is to be embossed upon one of the housing parts: an
archer with a drawn bow and arrow; a new logo designed by an independent artist for the
sensor company. The new logo bears some resemblance to a depiction of the Sagittarius
Centaur (the half man, half horse mythical creature), also drawing a bow and arrow, that
is a registered trademark of the medical device company’s competitor.
The manufacturer wins the contract, and the customer provides the injection molder with
the necessary CAD files and confidential information needed to prepare the components.
While working with the mold set, one of the injection molder’s engineers develop an
improved method for extracting the attenuated-walled component from the mold, leading to
20 percent less waste.
Unknown to – or unforeseen by – the injection molder:
- The sensor has been copied by the customer, who in turn sells it in competition with
its own competitor that owns trade secrets relating to the molding process that were
given to the customer by a competitor’s former employee.
- The specified resin is covered by a patent owned by a large chemical company who
exclusively licensed the technology to the competitor.
- The medical device company’s competitor also sells an array of medical devices and
supplies that are used in the same clinical setting as the manufactured medical device,
in association with the Sagittarius Centaur logo, a federally registered trademark.
- The artist was never paid for designing the archer artwork. She demands that the
customer not use her copyrighted artwork, the same artwork that is now embossed on 4,000
sensor housings.
- The customer claims ownership in the invention made by the injection molder’s
engineers because it paid for the work.
Under this nightmare scenario, the injection molder might face legal action by the
competitor for trade secret misappropriation, the chemical company for patent
infringement, the medical device company’s competitor for trademark infringement and the
artist for copyright infringement.
From a defensive standpoint, terms and conditions should address situations that might
place the injection molder in the legal cross-hairs of intellectual property
infringement, typically by providing representations, warranties and agreements relating
to the defense and settlement of legal challenges. The injection molder also may wish to
check its own insurance policy for coverage and limits for these types of injuries and
claims.
In this scenario, it turns out that the injection molder’s own engineer may have created
a patentable invention and/or valuable confidential information, which should be claimed
and secured for the injection molder’s benefit. There often are misunderstandings
regarding the ownership of intellectual property rights, and contract terms also should
allocate ownership of rights that may arise as work proceeds. While typically one party
may be in a position simply to demand ownership (and the other party is willing to comply
in the interest of preserving the business relationship), it is best to spell out
ownership in the contract to be sure the rights to exploit inventions and confidential
information are preserved. Intellectual property rights also can protect business from
competitors. In this case, if the injection molder was to own the patent on the improved
method for extracting the attenuated-walled component, it could prevent competitors from
using the invention, including competitors that might compete for the on-going business
of the original customer, such as the medical device company in this scenario. That is,
having a patent could help lock in the ongoing contract(s) with the original customer for
which the invention was made.
Contract terms should therefore provide for obligations of assignment and cooperation, as
well as reciprocal confidentiality provisions, to protect know-how that may remain
confidential. It also is beneficial to secure obligations of future cooperation to mature
patent and copyright rights through the required filings.
Responses to proposals and negotiations, especially between previously unfamiliar
parties, should go hand-in-hand with diligent investigation of the nature of the
technology to be applied, its source and the third parties involved or that might become
involved. In some manufacturing scenarios, it may be advisable to provide contractual
obligations that parties keep each other apprised under confidence of ongoing development
efforts, so that they might cooperate to secure, apportion and license intellectual
property rights to plan for their future exploitation.
Understanding the nature of all forms of intellectual property – what they protect and
how they are created and secured – allows a company to provide contractual terms and
conditions to prevent accidental or intentional loss of rights, avoidance and/or defense
of infringement of third parties’ rights (and pursuit infringement by third parties), as
well as to preserve the relationship between the parties before unanticipated
developments forestall development of profitable ventures.
Early due diligence, alertness to possible scenarios where important intellectual
property may be created or infringed and timely involvement of counsel are keys to the
development of both standard terms and conditions, as well as more detailed contractual
language tailored to specific situations of greater complexity that arise or are
anticipated.
Where these important rights are concerned, an ounce of prevention is easily worth a
pound of cure.
For more information, visit www.icemiller.com. |