by Roger A. Gilcrest, Ice Miller, LLP
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.
