IP Law Bulletin

Key Takeaway: Key business considerations relevant for choosing between patents and trade secrets include:  (1) Need for transfer of IP rights; (2) Life cycle of the product or service; (3) Cost of IP protection; and (4) Other business considerations.

When would a company undergo intellectual property due diligence?

Konstantin Linnik: Any corporate transaction involving IP assets necessitates diligence: merger, acquisition, IPO, investment (such as a venture capital financing), in-license, partnering, co-development, or distribution agreements. The buyer who is evaluating the Target could be a licensee, business partner, investor, banker, or underwriter. IP due diligence analyzes patent issues, trade secrets, trademarks, copyrights, freedom to operate, IP litigation, licensing, reps, warranties, disclosures, and even employment agreements. The process will examine the Target’s IP, such as how well the existing and potential IP protects the Target, what projected revenues will be based on the exclusivity period and geographic scope, and the current and projected expenses, including prosecution, maintenance, royalties, and enforcement. Because the diligence is expensive and is typically charged off as the overall transactional cost, the diligence is conducted as close to pre-closing as possible.

In Zircore, LLC v. Straumann Manufacturing, Inc. (E.D. Tex. 2017), as in many patent litigations since Mayo, Myriad, and Alice, the defendant moved to dismiss the infringement allegations contending that the patents in suit are ineligible subject matter under 35 USC § 101. Here, despite Straumann’s assertion that Zircore’s U.S. Patent No. 7,967,606 was invalid under § 101 as directed to an abstract idea, the court found that the claims were patent eligible under § 101 as directed to a method of manufacturing a physical object.

The Defend Trade Secret Act of 2016 (DTSA) was passed on April 4, 2016 by the Senate, and on April 27, 2016 by the House of Representatives. There is no change between the House (H.R. 3326) and the Senate (S. 1890) versions. President Obama is expected to sign the DTSA very soon.