Jianming Jimmy Hao, Ph.D. writes:

A patent battle between University of California and MIT has casted clouds over the ownership of the CRISPR gene-editing technology potentially worth billions of dollars.  Bio-pharma companies, investors, and researchers should use caution when navigating the complex intellectual property landscape.

The CRISPR gene-editing technology has created intense excitement in the community of bio-pharma and venture capital industry.  It is believed that this technology will transform our ability to edit the genomes of all living organisms, including humans. “CRISPR is absolutely huge. It’s incredibly powerful and it has many applications, from agriculture to potential gene therapy in humans,” said Craig Mello of the University of Massachusetts, who shared the 2006 Nobel Prize for medicine for discovery of RNA interference.  See the New York Times

While venture capital funds and biotech-pharmaceutical companies are pouring money into companies developing CRISPR technology (see, e.g., FierceBiotech), University of California and MIT are entering into a fight for control of what could be hugely lucrative intellectual property rights to the technology.  On April 15, 2014, the USPTO awarded the first CRISPR-related patent (US 8697359) to a group led by Dr. Feng Zhang at the Broad Institute of MIT and Harvard University.  Since then a group of inventors led by Dr. Jennifer Doundna at University of California, Berkeley, who also filed their own patent applications, have submitted thousands of pages of documents to the USPTO challenging the patent.  If the USPTO accepts the UC Berkeley group’s challenge, a so-called “interference” proceeding will be initiated to prove which group invented the claimed technology first.

Had any of the two groups filed their patent application after March 16, 2013, there would be no such  fight as after that date the US patent system changed to a “first-to-file” system.  Before that date, however, the US patent system was a “first-to-invent” system and, under that system, whoever invented a claimed technology first is entitled to the patent right.  In this CRISPR fight, the UC Berkeley group actually filed their patent application about seven months earlier than the MIT group.  Yet, the latter group secured a patent first as they took advantage of a so-called “fast track” practice, which allowed them to jump the queue at the USPTO.  Despite the timing differences, both groups’ applications are assessed under the old system and the “interference” proceeding can be used to decide who invented what first.

Going forward, this legal battle could take several years to settle and either party may end up with significantly limited patent protection or even walk away empty-handed.  Meanwhile, more and more patent applications have been filed in the field.  As of May 26, 2015, there are about 787 published PCT applications (including some filed by Fox Rothschild for its clients) that are related to CRISPR.  As more funds are pouring in, companies, investors, and researchers should use caution in their licensing, investing, collaboration, and R&D activities in connection with the technology and related intellectual property landscape.


Jianming Jimmy Hao, Ph.D. is an associate in Fox Rothschild’s Princeton office.

David Magagna writes:

For all of the optimism in recent years regarding worldwide innovation and advancements in technology across all industries, would it surprise you to learn that total global patent volume increased by a meager 3% in 2014?  Or that this 3% growth rate represents the worst patent volume growth rate since 2009, one year removed from the worst global recession since the Great Depression?

Copyright: kentoh / 123RF Stock Photo
Copyright: kentoh / 123RF Stock Photo

2014’s stunted growth in patent volume did not confine itself to one specific industry, as many traditional innovators, such as semiconductors, aerospace and defense, struggled to produce new patents.  In fact, in 2014 semiconductors and aerospace and defense saw their patent volume plummet by 5% and 1%, respectively.

Not all of 2014’s innovation and patent news disappointed, however, as life sciences posted strong results.  The pharmaceutical and biotech industries in particular saw patent growth rate increases of 12% and 7%, respectively.  Many economic and business experts, such as Deloitte Consulting LLP, anticipate that this strong growth in life sciences will continue into the near future due to the fact that today’s current global economic environment displays several factors necessary for life science success and innovation, at least with respect to the U.S.  According to Deloitte’s 2014 Global Life Sciences Report, these factors include a growing U.S. GDP, an aging country population, and increasing levels of federal and state government spending in the life sciences arena.  Look for the life sciences industry to post another successful year in patent growth – and investment – for 2015 and beyond.


David Magagna is a summer associate in Fox Rothschild’s Warrington, PA office.

Early stage companies with valuable intellectual property often receive solicited or unsolicited opportunities to sell their business, which a buyer may view as a means of acquiring intellectual property.  Differences as to enterprise valuation may be bridged through an “earnout” mechanism whereby the buyer pays an initial amount at closing and, if certain milestones are met post-closing, an additional amount.

Sellers resist earnouts because, following closing, strategic issues that relate directly to the profitability of the business, which in turn directly affect whether an earnout will be paid to the seller, are to be decided by the buyer. As a result, sellers may seek to impose approval rights relating to the buyer’s conduct of the business post-closing.  Buyers will often resist this on the basis of “we bought it, we own it, we run it.”

The end result is often the inclusion of language in the acquisition documentation similar to the language at issue in Lazard Technology Partners, LLC v. Qinetiq North America Operations LLC, where the buyer was prohibited from “tak[ing] any action to divert or defer [revenue] with the intent of reducing or limiting the Earn-out Payment.”  There, when an earnout payment was not forthcoming, the seller sued arguing the buyer had breached its contractual obligations and had violated the implied covenant of good faith and fair dealing which is considered to underlie every commercial transaction.

The Delaware Court of Chancery held for the buyer, finding that the seller had not proven that the buyer had intended to limit the earnout, and that, notwithstanding that the buyer’s actions may have impacted the likelihood of an earnout, the court could not conclude that the buyer intended to reduce or limit the earnout.  The court also found the implied covenant of good faith and fair dealing was not applicable because there was no “gap to be filled” in the heavily negotiated acquisition agreement, which spoke for itself as to the buyer’s obligations.

The Delaware Supreme Court affirmed the Court of Chancery, suggesting that the implied covenant of good faith and fair dealing could exist side by side with a contractual covenant, but ultimately holding “the implied covenant did not prohibit the buyer’s conduct unless the buyer acted with the intent to deprive the seller of an earn-out payment.”

Sellers negotiating earnout arrangements should therefore not rely upon the implied covenant of good faith and fair dealing when the definitive agreement establishes a standard to be applied to the buyer’s post-closing actions.  On the other hand, Buyers should disclaim any implied duty of good faith and fair dealing so as to avoid application of an objective standard that may expand the contractual standard of behavior negotiated by the parties in the acquisition agreement.  This will help to retain focus on the buyer’s intent and will help to limit or eliminate an examination of the ultimate result of any decision by the buyer that conceivably impacts its obligation to make an earnout payment to the seller.

 

When deciding on a business venture, it is important to put serious thought into the name of a new company name or product line.  From an intellectual property perspective, the strongest names or trademarks get the most protection, and when deciding on a mark, creativity and originality are key.

With regard to creativity, marks generally fall into one of four categories:

  1. Fanciful or Arbitrary;
  2. Suggestive;
  3. Descriptive; or
  4. Generic.

Fanciful or Arbitrary Marks

The strongest and most easily protectable marks are fanciful marks and arbitrary marks.  Fanciful marks are words created for the sole purpose of being a trademark, such as XEROX for copiers.  Arbitrary marks are words with a common meaning that have no relation to the goods or services being sold in connection with the mark, such as APPLE for computers.

Suggestive Marks

Suggestive marks suggest a quality or characteristic of the good or service being provided in connection with the mark, such as COPPERTONE for sunscreen.  Suggestive marks are also considered to be strong and registerable.

Descriptive Marks

Descriptive marks describe the goods or services being sold in connection with the mark.  Descriptive marks are considered “weak” and hard to protect.  In fact, descriptive marks are not federally registerable unless they have acquired distinctiveness, which usually happens by use and heavy marketing of the mark for more than five years.

Generic Marks

Generic marks are common names for a type of product made by multiple companies, such as clothing, soda, or chocolate.  Words used in this way are not distinctive and do not point to a particular company as the source of a product or service.  Generic marks are the weakest marks and are not protectable.

At the end of the day, when picking a name for a new business venture, company, or product line, the best thing to do is to either:

(A) make up a word (fanciful mark);

(B) select a random word (arbitrary mark); or

(C) use a word that suggests a characteristic of the new business venture, company name, or product (suggestive mark).