Are Your Corporate Attorneys Harming Your Future IP Strategy?

Entering into a corporate transaction without a careful review of the intellectual property (IP) involved can have negative consequences on your enterprise’s future IP strategy.  This is especially true when IP owners do not adequately supervise their corporate attorneys who may not appreciate or be aware of the unintended consequences of the language typically employed in merger, acquisition, joint venture, financing and other corporate transactional agreements.  A case decided a few months ago by the U.S. Court of Appeals for the Federal Circuit[1] illustrates the above concern.

The fact pattern of the case was as follows:

• Company A enters into a limited partnership with Company B
• As part of the transaction, Company A transfers tangible and intangible assets to Company B via a “Contribution Agreement”
• The Contribution Agreement defined the transferred assets as including patents, except “any and all patents and patent applications related to any pending litigations involving Company A.”
• Section 4.21 of the Contribution Agreement then stated that “there are no actions pending or threatened by or against, or involving Company A except as set forth in Schedule 4.21.”
• Five years later, Company B sought to enforce certain patents they assumed were obtained from Company A (purportedly via the Contribution Agreement) against Company C.

So, in the lawsuit, Company C used the defense that Company B did not own the patents-in-suit and thus cannot enforce them!  Thus, Company B had to prove the patents-in-suit they sought to enforce were indeed transferred by the Contribution Agreement, and were not part of the exception (i.e., the patents did not fall into the exception of “any and all patents and patent applications related to any pending litigations involving Company A”).   Seems easy, right?  Wrong!  Schedule 4.21 was never completed and there was no record of what actual litigations Company A was involved in five years earlier when the Contribution Agreement was signed!  Even if there was a record of what litigations were active five years earlier, the phrase “related to” was not defined in the Contribution Agreement!

Given these facts, the trial court was forced to dismiss the lawsuit and the appeals court affirmed that decision. Moral of the story: there are no routine IP provisions in corporate transactional documents to affect a transaction.  Care must be taken to make sure that the IP that is transferred (or licensed, exempted, etc.) is clearly identified and no unintended consequences result with respect to the involved parties’ future IP strategy.

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[1] Tyco Healthcare Group v. Ethicon Endo-Surgery, 2008-1269, – 1270 (Dec. 7, 2009).