Usage of a Law of Patents - Case Study Example

U.S.B. Chief Financial Officer, Butch Dodge Lucas Lawyer Esq. March 24, 2009 ---------------------------------------------------------------------------------------------------- I. It Would Imprudent To Act Before A Court Resolves the Issues Between Gene Eyus and Frothy Beer. This communication serves as advisory memorandum based upon the facts presented to this office by U.S.B. Chief Financial Officer, Butch Dodge. The first issue presented is the agreement signed by Gene Eyus (Gene). The agreement is between Gene and his prior employer (Frothy Beer) and it is purported to be inter alia a non-competition clause in his employment contract with Frothy Beer which, if valid would prohibit him from working for a competitor in an R&D capacity for one year following his departure from Frothy Beer. Presumably, Gene's position at Frothy Beer is the same as it is here, to wit, Research and Development. The rule of law in this scenario distilled to its' most natural state, a non competition clause or a covenant not to compete clause is actually a restraint on trade. Purchasing Associates, Inc. v Weitz, 13 NY2d 267, 269 (1963). It should be noted that federal courts will look to the state laws when interpreting the reasonableness of a covenant not to compete or a non competition clause. Thus the first question is where is Frothy Beer located The reason why the situs of Frothy Beer is important is because a reasonable inference of the facts indicates that part of the non-competition agreement states that jurisdiction of any dispute pursuant ot the agreement is within the United States. Judging by the information supplied, Frothy Beer is located in the United States. Because the headquarters of Awessa is located in Australia, Federal Court is the court of jurisdiction because of diversity of citizenship. Vaden v. Discover Bank --- S.Ct. ----, 2009 WL 578636 U.S. (2009). By way of example, if Frothy Beer was located in Virginia, then the federal courts would look to the state of Virginia codes in evaluating the non competition clause between Frothy and Eyus. In evaluating the reasonableness of the restraint from the employer's perspective, the first inquiry necessarily requires the court to consider the nature of the legitimate business interest at stake, namely, whether Frothy Beer possessed trade secrets or other confidential and proprietary information. Meissel v. Finley, 198 Va. 577, 579 (Va.Ct.App.1956) ("The possession of trade secrets and confidential information is an important consideration in testing the reasonableness of a restriction on competition.") (citing Stoneman v. Wilson, 169 Va. 239, 240 (Va.1937)). However, Paramount Termite Control Co., Inc. v. Rector, 238 Va. 171, 172 (Va.1989) notes that "Although often used as a justification for non-competition agreements, it is not necessary that the employees actually had acquired or possessed specific information that could be legally defined as confidential or a trade secret, ....")(internal quotations omitted). Here, the federal court would determine, in effect, whether Frothy Beer did or did not have any legitimate business interests worthy of protection. As a result, the district court's analysis of the restrictive covenant (here the non competition agreement) will likely be skewed by the fact that Eyus developed and applied for patents directly related to research and development of beer product within his first two years of employment at Awessa. II. While It Appears at First Blush That Awessa Can Enter into an agreement with U.S.B. Beer, all Environmental Issues in regards to the low carb beer production should first be resolved by Awessa before U.S.B. Beer enters into any transaction or memorandum of understanding. A patent may be awarded for either a product or a process: a product patent creates a monopoly over the manufacture, use and sale of product while a process patent creates a monopoly over the manufacture, use, and sale of a process. U.S. v. Studiengesellschaft Kohle, m.b.H. 670 F.2d 1122, 1123 (1981). A patentee (here Awessa) may grant one exclusive license or may grant many licenses. Id. Further, A patentee (again here Awessa) has the right to exclude others from profiting from the patented invention, including the right to suppress the invention or of continuing to prevent all others from using it, to license others, or to refuse to license, and charge such royalty as leverage of the patent monopoly permits. Id. The main and indeed relevant difference between product patent and process patent for this memorandum relates to scope, meaning, a product patent gives the patentee a right to restrict use and sale of product regardless of how and by whom it was manufactured while a process patent's power extends only to those products made by patented process. Id. at 1124. Here, it is likely that U.S.B. Beer would seek to enter into a license agreement with Awessa once the patents have been granted. However, it is also likely that Frothy Beer would initiate suit claiming ownership of the process patent and ownership of the product patent. It is likely that Frothy Beer would allege that any work, design and product which is the subject of either patent belongs to Frothy and they would seek an injunction and litigate the validity of any license agreement between Awessa and U.S.B. Beer. In U.S. v. Studiengesellschaft Kohle, m.b.H., the United States government initiated a civil enforcement proceeding against Studiengesellschaft Kohle m.b.H. (S.K.) and its licensees. The complaint challenged arrangements by the defendants which granted an exclusive license to sell the product of a patented process as an unreasonable restraint of trade and an attempt to monopolize a part of trade or commerce in violation the Sherman Antitrust Act. Before trial, the district court found that the patents did not protect the illegal behavior alleged in the complaint from judicial intervention. After a trial without a jury, the district court found that the license provisions in question minus patent law protection, violated Sections the Sherman Act. The court entered a decree stopping the enforcement of any agreement limiting sales of the product of its process patent, and requiring defendant to license the patented process to all applicants at a reasonable royalty. The issue according to the appellate court was whether or not the defendant had the right to limit the licenses he granted as the owner of the patent. The appellate court reversed the judgment of the district court and remanded with instructions that the district court enter judgment for the defendant. Here, there is nothing that indicates that the beer can- cum -mug is a product that was in production or even in basic development phase while Eyus was employed at Frothy. Indeed the fact that the patent was not even applied for until Eyus was employed by Awessa would, under U.S. v. Studiengesellschaft Kohle, m.b.H., allow Awessa and U.S.B. to enter into a license agreement once the patent is granted. This type of patent would be called a product patent. Awessa under U.S. v. Studiengesellschaft Kohle, m.b.H., could not be stopped by Frothy into entering any licensing agreements because "The essential rights of a patentee may be briefly summarized. A patentee has the right to exclude others from profiting from the patented invention.". Id. at 1127. Furthermore, Awessa, because the beer can/mug is a product may rightfully grant one exclusive license or may grant many licenses. Id. As to the process of creating the low- carb beer, a process patent creates a monopoly over the manufacture, use, and sale of a process. Id. Here, it is not advisable to enter into any agreement with regard to the manufacture, use and sale of the low - carb beer because there are harmful effects to the manufacture of the beer which leaves this company open to hideous litigation1. In Levi Case Co., Inc. v. ATS Products, Inc., 788 F.Supp. 428 (1992), a nonexclusive sub-licensee of patents for heating, ventilation and air-conditioning ductwork filed an antitrust conspiracy action against a patent holder and its exclusive licensee for antitrust and antitrust conspiracy violations. The District Court, held that the patent holder was legally incapable of entering into an antitrust conspiracy with its exclusive patent license. The Court held that the granting of an exclusive license excludes even the patent holder himself from exercising the rights conveyed by the license. It further held that the exclusive license does not by itself constitute an illegal restraint under antitrust laws. Id. at 429. This case tells us that there can be no conspiracy alleged between Eyus and Awessa, by Frothy Beer. Here however, it is important to note that should Awessa enter into any arrangement with U.S.B. Beer, they are automatically foreclosing any ability to act on their patents themselves. How this arrangement works in for U.S.B. Beer, I cannot say but I will speculate that since the balance sheet of the company is great cause for concern, the price of the license and any renewal fees could certainly help especially in these uncertain times2. In Lawlor v. National Screen Service Corp., 270 F.2d 146 (1959), a distributor of motion picture advertising accessories filed an action against a national corporation engaged in the same business also against motion picture companies. The district court entered a judgment dismissing the action, and the distributor appealed. The Court of Appeals held that the finding of the trial court, that the motion picture company defendants entering into an exclusive contract with the corporation for distribution of each company's motion picture advertising accessories had acted independently as a result of a substantial loss in their individual accessory business and that there was no per se invalidity of the exclusive licensing agreements. Further, this case dealt with competitive patents. While this case is certainly interesting, it is inapposite to the facts submitted to me. There is no competitive patent in this fact pattern. Rather there are (as noted above) separate patents, applied for by the same company for two totally separate things. Conclusion The patents, should be granted and there is no stopping an agreement between U.S.A. Beer and Aweesa. However due to the environmental and health issues, no letter of intent should be entered into with respect to the beer itself, only for the beer cans. Read More