JOINT OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS IN TURKEY

This Article was originally published at LES Nouvelles, December 2012

JOINT OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS IN TURKEY

By

Omer HIZIROGLU, CLP General Manager, Inovent Corp

And

Yucel HAMZAOGLU, Director, BTS Partners

                In Turkey, Intellectual Property ownership rights of are generally addressed in the applicable laws regulating patents, Decree Law 551 (“DL 551”), trademarks, Decree Law 556 (“DL 556”) and Copyrights, Law 5846 on Intellectual and artistic works (“5846”). While these legislative texts generally address the ownership rights regarding joint ownership, for the intricacies and specific circumstances one must refer to other legislative texts such as the Turkish Civil Code (4721) and the Code of Obligations (6098).

                As an introduction, we note that with regards to patents, in the context of a joint invention, the ownership interests of the joint investors shall be as “joint-owners” as opposed to Copyrights where ownership interests on jointly created works shall be on “co-owner” principle.

                In practice we observe that most issues and litigation related to, often difficult to manage and monitor ownership issues arising out of the claims of two or more claimants, are in the area of Copyrights. The authors, at the time of the drafting of this article are not aware of any case law regarding joint ownership related disputes or case law arising out of patents.

A note on patents:  with increasing university- industry collaboration projects, we note that when ownership issues on the potential invention is leading to a deadlock, parties look upon a “joint patent” as a mutually acceptable compromise, often unaware of the possible risks of future disputes that a joint patent may lead to during the commercialization process. Most collaborative agreements address the issue with a basic language such as “all intellectual property rights arising out of this agreement shall be jointly owned by the parties.” While this simple but naive approach resolves the negotiation dead lock, we observe first signs of trouble when an IP disclosure does indeed happen and parties face the music for the first time as they try to struggle with basic questions such as: Who shall manage the application? Who should be named as inventors? Who shall have the right to (exclusively) commercialize the invention?  How to handle various approaches that national legislations have regarding the maintenance, exploitation and enforcement of intellectual property rights? We have also observed an extreme case where a party simply filed for a patent in its own name, naming only its inventors in the application in a clear breach of the research agreement that had called for a joint application. Thus, we would expect to see Turkish courts forced to address issues of joint ownership of patents in a relatively near future as the “easy way out” short term solutions lead to long-term disputes.

In this article we focus solely on joint ownership issues pertaining to patents and copyrights in Turkey. We purposefully left out trademark issues as these should be the subject of a separate article. We will simply note that the Turkish trademark law, the Decree Law 556 is essentially silent on issues relating to joint-ownership interests on trademarks. As a trademark's main purpose is to identify the source and origin of the goods and services offered under it, a jointly owned trademark appears to be a rare occurrence and possibly go against the main reasoning behind the trademarks. The DL 556 does however address collective marks, a different concept, in its article 55. We can however anticipate the issues relating to joint owners’ rights of a trademarks is likely to be controlled by the Turkish Civil Code and the Code of Obligation’s relevant provisions. We have also left out issues relating to trade secrets. N  nmm

Joint ownership rights in Patents

                In Turkey, patents and rights related thereto are regulated under the Decree Law No 551 (“551”) enacted in 1995.[1] Turkish law distinguishes inventor from the applicant. While the inventor has to be a real person, an applicant may be a real person or a legal entity as would be the case of employee inventions. The right to apply for a patent is reserved by 551 to the inventor or inventors such a right is transferable.  If the invention is conceived by two or more persons then these inventors will be deemed joint inventors. Unless parties have agreed otherwise in writing, they will have right to file for a patent as “joint-owners”.

                Article 85 of DL 551 states that the rights of joint-owners shall be controlled by the agreement between the parties. In the absence of an agreement between the parties, the same article refers to Turkish Civil Code’s joint-ownership provisions. However, article 85 further states that each right holder can: i) freely dispose of or transfer his portion of the right. In the event the right is to be transferred to a third party, the Turkish Patent Institute shall provide a notice within two months to the joint-owners who benefit from  a first right of refusal to be exercised within one month of the  receipt of the notice; ii) use the invention provided a notice is given to the other right holders; iii) can take measures to protect the patent application or the patent as the case may be; iv) in the event there is an alleged infringement of the patent or the pending application, enforce such rights by bringing an enforcement action or place a criminal complaint. However, the party bringing forth the action has a duty to notify other right holders within one month of the initiation of the law suit so that these parties can join the law suit.  A crucial part of article 85 states that in the event the invention is to be licensed to a third party, such license is only possible by a decision of all joint owners. Thus a licensee of a Turkish patent should require that all joint owners sign the license agreement or if dealing with one of the joint owners, require the licensor to provide a written document that other joint owners have assented to the license agreement.

                In the event the joint invention is used by or more of the joint owners, it is suggested that those who utilize the invention pay a fair value for the use of the invention to the joint owners. If the joint owners cannot agree on the fair market value for the uses of the invention, the issue will be decided by the court.[2]

                For matters related to joint ownership where 551 is silent, ownership rights shall be deemed to be an issue of joint-ownership as regulated by the Turkish Civil Code and ordinary partnership provisions of Turkish Code of Obligations. Accordingly we can anticipate that, Turkish law will require unanimous decision of the joint-owners on transactions on the patent. It is further implied that all joint-owners have an equal interest on the patent and all rights related thereto.

                Turkish Civil code 4271 states in its pertinent provisions that unless otherwise agreed by the parties all rights are shared equally. Each right holder is free transfer his or her right, post it as a security and all such rights are subject to attachment by the joint-owner’s creditors.

                Article 689 of 4271, while clearly drafted with real property in mind, states that parties can agree amongst them and allocate the rights to use and manage the joint property. However, parties cannot allocate the rights and obligations with regards the management of the joint property in issues related to the safeguard of the value of the joint property, actions to be taken to prevent damages or risk of damage to the property. Article 694 states that, unless otherwise agreed by the parties, all expenses, including taxes and management fees are to be shared equally by the parties. Thus, it is suggested that patent maintenance fees will be shared by the parties equally unless parties state otherwise in an agreement and parties may be, by analogy to real property, required to act together in actions that may threaten the continued existence, validity of the patent.

                Article 693 states that one of the joint owners can represent the other owners to protect other parties’ interests. We can also state that in the event a joint-owner dies, his interest on the patent shall pass to his/hers heirs as part of the estate.

                Co-ownership in Copyrights:

Turkish Copyright Law (5846) (The law on intellectual and artistic works) states that unless otherwise provided (i.e.: under an employment contract/work for hire) the copyright on the work covered by the law belongs to the author of such work. A work of authorship may result as the effort of one or more authors. The law distinguishes works resulting from the joint effort of one or more authors (joint works) from collective works where the work in question is a compilation of several, otherwise independent works such as in an anthology. For the purposes of this article, we shall discuss only joint works (not to confuse with “joint ownership”).

In context of joint works, it is assumed that the all authors have contributed to create an indivisible single work whereby the contribution of one author cannot be separated from the work without compromising the nature and the integrity of the work as a whole.

While it is possible that all authors may not have contributed equally to the resulting work, each author’s contribution must be creative in its nature. A mere technical assistance to the creation of the work will not justify a claim of authorship. For instance, a research assistant's compilation of data shall not be deemed to generate an ownership interest or a right to claim a co-author credit on the resulting academic publication.

With regard the rights and obligations in context of Joint works Turkish copyright law 5846 refers to Turkish Code of obligations and defines the relationship between the right holders as that of a simple partnership. However parties are free to allocate these rights and obligations among themselves with a written agreement.

Because the relationship among the right holders is defined as a simple partnership, the ownership interests will be defined as co-ownership within the pertinent sections of Turkish Civil Code and these sections will control, by analogy the ownership interests of the parties to the extent they are applicable to works of authorship.

A critical distinction between co-owner interests as opposed to joint-ownership interests in patents is that under co-ownership, co-owners have a property interest on the entirety of the work as a whole. Co-owners will not have a right to transact on or transfer the work subject to co-ownership or the portion they have contributed independently from the other co-owner[3].

Under simple partnership system, all profits and losses on the work shall be shared equally among the co-owners. Articles 523 and 524 of the Turkish Code of Obligations suggest that co-owners have an equal say on the use of rights on the work. Whether seen under the simple partnership provisions of the Code of Obligations or under the co-ownership statute resulting from the Civil Code, a unanimous decision of the co-owners will be needed for the management of the co-owned work or any transactions with third parties[4].

If one co-owner unreasonably withhold his or her consent in a transaction where unanimous action is required, the party that seeks the consent may take the issue to the court, in the even court decides favorably with regards to the contemplated transaction, that court’s decision will be deemed to be the co-owners consent.

With regards to moral rights on the work, the law deems these rights to be personal rights and any co-owner is free to exercise these rights without the consent of the other co-owner provided that such exercise does not infringe the other co-owner’s rights on the work[5].

In the event of an infringement of the copyrights on the joint work, any co-owner may act alone to protect the interests on the co-owned work or the interest of the co-ownership. However, a co-owner who is seeking to enforce the copyright may not benefit alone from the results. In the event a court action finds infringement and damages are awarded, the other co-owner shall have an equal right on such damages

Conclusion

As a general rule, joint or co-ownerhip of intellectual property represents challenges in practice as it is the case in most jurisdicitons. The main challenge comes from the fact that unless a joint-ownership agreement exists between the parties, the dynamics of the relationship along with mutual rights and obligations may be subject to various legisltative textes, the scope and applicaiton of which is very often not anticipated. In the event an agreement is entered into by the parties, the agreement must be carefully drafted by an experienced attorney who can, not only anticipate possible issues arising out of the laws of the local jurisdiction (so that the agreement is not in conflict with existing law) but also takes into account various ownership issues in foreign jurisdictions where the intellectual property is to be exploited. Not an easy task. One must also take care in identifying parties’ overall interests on the underlying intellectual property and their capacity to enforce, exploit and commercialize the intellectaul property. Joint-ownerhsip of the IP sould not be seen as a possible comprimise, as in joint R&D agreements, but a solution of last resort in case of a deadlock. Indeed, it is the authors experience that much more practical solutions such as exclusive license rights and future options exist provided that parties take the time to educate each other during negotiations and identify common goals and mutual abilities and independent objectives. In any event a template joint ownership agreement will mostl likely cause more problems on the long term than it solves in the short term and both sides should seek experienced legal opinion.

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[1] A new revised law is expected to pass this year. As of the date of this article, 551 is still thecontrolling legislative text. However, we dont expect to see critical changes  regarding joint ownerhsip rights in the proposed draft legislation.

[2]  Ünal TEKİNALP, Fikri Mülkiyet Hukuku, Arıkan Yayınları, 2005 p.512 

[3] Nuşin AYİTER, “Hukukta fikri ve Sanat ürünleri”, A.Ü. Hukuk Fakülteis Yayınları, Ankara 1972 p.102

[4] Mustafa Ates “Fikri Hukukta Eser Sahipliği” Adalet Yayınevi, Ankara 2012  Ed 1, p 218

[5] Ayiter, p 102

Fikri mülkiyet hakları ve diaspora

Note: This is an old article published in Turkish in "Bilgi Çağı" Magazine on June of 2008 relating to the role of IP rights and how to reverse the brain drain.

Fikri mülkiyet diasporası

Diaspora, “değişik sebeplerle öz yurtlarını terk etmiş bir grup insan” şeklinde tanımlanabilir. Endüstriyel devrimden sonra gelen ve halen içinde olduğumuz enformasyon devriminin alt yapısını oluşturan ‘entelektüel kapital’ diye de adlandırabileceğimiz insan kapitalini diaspora içerisinde düşündüğümüzde, diasporayı yurtdışında yaşayan, eğitim seviyesi yüksek, işlerinde başarılı, mühendis, bilim adamı ve üst düzey yöneticiler olarak tanımlayabiliriz.

Genellikle ‘beyin göçü’ olarak tanımladığımız ve çoğunlukla gelişmekte olan ülkelerden gelişmiş ülkeler istikametinde gelişen bu beyin transferinin beyin göçünü kabul eden ülkelere getirisi sayısız kitap ve makalelere konu olmuştur. Neticede, bu yazının amaçları çerçevesinde sınırlı bir kavram olan beyin göçü yerine ‘beyin transferi’ diye tanımladığım olay, bir ülkenin insan, bilgi, birikim kapitalinin ülkemiz dışında işlenmesi ve katma değerin bu ülkelerde kalmasıdır. Göçü alan ülkelerin lehine elde edilen bu katma değer, ülkelerini değişik sebeplerle terk etmiş insanların potansiyeline o ülke tarafından yapılan yatırımın ödülüdür. Diasporanin, dolayisiyla, beyin transferinin, onemli alt guruplarindan birtanesi, egitimi icin yurtdisina cikan ancak geri donmeyen ogrencilerdir.

Özelikle ülkelerindeki alt yapı ya da fırsat eksikliği yüzünden lisansüstü ve doktora eğitimine devam etmek için yurtdışına çıkan grubun önemli bir bölümü orada kalmaktadır ABD de 1998 yılında doktorasını tamamlamış 153 Türk öğrencinin yüzde 48’i 2003 yılında halen ABD’de ikamet etmekte oldukları belirlenmiştir. Aynı istatistik Çin için yüzde 90, Yunanistan ve İngiltere dışındaki diğer AB üye ülkeleri icin yüzde 50 civarlarinda ve ABD’de 1998 yılında doktora almış tüm yabancıların toplamı içinde yüzde 71’dir.

Diasporanın başka önemli bir alt grubu ise ikinci veya üçüncü jenerasyon, bir yere kadar ya da tamamen göç alan ülkeye asimile olmuş bilim adamları ve mühendislerden oluşmaktadır. İkinci jenerasyon Hint diasporasın bir mensubu olarak düşünebileceğimiz Dr. Amar Bose bilim ve inovasyonda aktif bir insanın ekonomik ölçülerde ülkeye getirdiği değerin güzel bir örneğidir. 1960’larda meslek yatırım desteği ile kurduğu Bose şirketi, Dr. Bose’un özelikle akustik teknolojilerine yönelik patentleri temel olarak kullanaraktan bugün ABD’nin Massachusetts eyaletinde kurulu ve dünya çapında 10 binden fazla insan çalıştıran Ar-Ge ağırlıklı ürün üreten bir şirket olmuştur. Ayrica, Bose, dunyanin onde gelen cogu sirketi gibi fikri mulkiyetinden kaynaklanan katma degeri ve rekabet avantajini eş zamanli olarak dunyanin hemen hemen her yerinde verimli olarak  işlemektedir.

İşini yapmakta olan bir yönetici ya da mühendis ister istemez coğrafi ve fiziksel olarak kısıtlamalara tâbidir. Modern teknolojiyle uzaktan işini takip edebiliyor olsa bile, işini yapabilecek sadece bir kişi vardır, o da kendisidir. Bu çerçevede bu kişinin ekonomiye bireysel katkısı sınırlıdır. Öte yandan, fikri mülkiyetin fiziksel bir yapısı olmadığı için, aynı anda değişik yerlerde, değişik kurum ve kişilere bir getiri sağlıyor olabilir. Dolayısıyla kişilerin diasporası dışında bir fikri mülkiyet diasporasının oluştuğu ve bu mülkiyet diasporasını gelişmekte olan ülkelerin Ar-Ge, inovasyon süreçlerini hızlandırmada ve ekonomiye direkt etkilerinin klasik anlamda beyin göçünün geri çevrilmesinden daha değerli olduğu ve belki daha kolay bir yaklaşım olduğunu düşünmemiz gerekmektedir. Kişiler diasporası kesin ya da geçici dönüş yapamasa bile, fikri mülkiyet üzerinden bugüne kadar gelişmiş ülkelerin değerlendirdiği entelektüel kapitalin getirisini ana vatanlarına yönlendirebilmekte hatta münhasıran buralarda değerlendirme süreçlerini tercih etmektedirler. Bu sureclerin anlasilmasi icin dunyadaki bazi gelismeler dikkate alinmalidir.

Yeni gelişmeler

Globalleşme, fikri mülkiyetin global ekonomide kazandığı önem, modern ulaşım ve iletişim sayesinde 1990’lı yıllara kadar süregelmiş beyin transferinde bazı önemli değişiklikler olmaya başlamıştır.

1)Fikri mülkiyet hakları ve teknoloji transferleri: Gelişmekte olan ülkelerin inovasyon ve Ar-Ge süreçlerini hızlandırma politikalarındaki önemli adımlardan biri fikri mülkiyet mevzuatlarını güncellemek, gerekli kurum ve kuruluşları oluşturmak ve fikri mülkiyet konularını bilen ve bu amaçlar çerçevesinde yetkilendirilmiş hâkimlerin eğitimi ve fikri mülkiyet mahkemelerinin kurulması yönünde atılmıştır. Bununla beraber, uluslararası fikri mülkiyet konusundaki işbirlikleri fikir üreticilerine yatırım yapılması için gerek ulusal gerek uluslararası güven ortamını sağlamaktadır. Türkiye açısından baktığımızda son 15 yıldır çok önemli adımlar atılmış olmakla beraber gerek mevzuat bazında gerek uygulamada ve özellikle endüstrinin fikri mülkiyet haklarının yönetiminin stratejik olarak önemini henüz tam olarak benimsenmemiş olması ve konuda uzman avukatların yeni yeni yetişmekte olması önemli eksiklerimizdendir.

2) Diasporanın ülkeleri ile olan duygusal bağları: Burada bahsedilen değişiklikler ile beraber, diasporanın vatanından uzakta olduğu süreçte vatanına giderek daha duygusal bağlara bağlandığını sosyal bir gerçek olarak varsayabiliriz. Bu gerçek ikinci ve üçüncü jenerasyonlarda da değişik şekillerde kendini göstermektedir. Batıda, özellikle orta ve uzak doğu Asya kökenli diasporalarda bu bağlılık özellikle fark edilmektedir. Diasporanın ana vatan özlemi sadece kesin dönüş yaparak tatmin edilebilir olsa bile, fikri mülkiyet diasporasının fiziksel sınırlamaları olmadığı için ana vatanda değerlendirilebilmesi beyin transferinin geri dönüşünü sağladığı gibi global ekonomideki entelektüel kaynakların daha eşit olarak dağıtılmasında uzun vadede faydalı olacaktır. Diasporanin, doğru ortam sağlandığında ülkelerine katkı sağlama fırsatlarını değerlendirmeye yatkın oldukları düşünülebilir. Özellikle akademisyenler fikri mülkiyet diasporası ile gayri resmi bir network kurmuş olduklarını üniversitelerimizde gözlemek mümkün. Bu network aracılığı ile yapılan bilgi alış verişi sayesinde diaspora fikri mülkiyetinin dolaylı ya da dogrudan Türkiye’de değerlendirildiği örneklerle gösterilebilir. Outsourcing” fenomenindede diasporanin yine kendi ana vatanlarini tercih ettigi gozlenmektedir.

3) Modern ulaşım ve iletişim: Modern ulaşım ve iletişimin gelişmesi ve gelişen ülkelerin belli sektörlerdeki oldukça liberal göç politikaları sayesinde ülke sınırları işveren ve yüksek vasıflı çalışanlar arasında gittikçe önemini yitirmiş ve arz talebe cevaben profesyonel göçte dikkat çekebilecek rakamlara ulaşmıştır. 1980’li yıllarda beyin göçünü bir yere kadar geri çevirmeyi başarmış olan Güney Kore’de, ülkelerine kesin dönüş yapmış olan bilim adamlarının ve tecrübeli mühendislerin tekrar ABD’ye döndükleri gözlenmiştir. Ancak, aynı etkenlerin aksi yönde de etkili olabileceği bir gerçektir. Iş dünyasında da ya da akademide değişik tecrübe ve birikimlere sahip birçok değerli insanın profesyonel çalışmalarını daha rahatlıkla birkaç ülke arasında dağıttabildigi de gözlenmektedir.

Vatana dönüş

1)Yatırımcılar: Diaspora içerisinde yatırımcı olarak tanımlayabileceğimiz kurumlar (kurumsal yatırımcılar, private equity, risk yatırımı) ya da kişiler dogrudan fikri mülkiyet diasporasının bir parçası olmasalar bile, ki olabilirler, yurtdışındaki yatırım amaçlı fonları yurtiçindeki fikri mülkiyetin ticarileştirilmesinde kullanarak ya da diaspora fikri mülkiyetinin ticarileştirme sürecini Turkiyeden yoneterek diaspora fikri mülkiyetinin geri dönüşüne onemli katkilari olabilir. Bu ticarileştirme süreci devaminda ortaya çıkan katma değer in ulkemizde degerlenmesi disinda, yerel entelektüel kapitalin zenginleşmesine de faydasi olucaktir.

Türkiye henüz değişik kademelerdeki ünlü risk sermayelerini ülke içindeki fikri mülkiyet ve inovasyonlar yatırım yapmaya çekmekte başarılı değil. Türkiye gelişmekte olan bir ülke olarak fikri mülkiyete yatırım risklerinden bağımsız olarak bir takım sosyo-politik ve ekonomik riskler taşımaktadir. Daha da onemlisi, henüz Türkiye'den dikkat çekecek fikri mülkiyet ağırlıklı özgün bir başarı hikâyesinin çıkmamış olmasıdır. Diaspora mensubu yatırımcılar bu sürecin başlatılması ve Türkiye'nin teknoloji ve inovasyon yatırımlarında bir dünya oyuncusu olabileceğini gösterecek o ilk başarı hikâyesinin gerçekleştirilmesinde çok önemli roller alabilir ve almalılardır.

2) Diaspora fikri mülkiyetinin ticarileştirme sürecinin ana vatanda başlatılması: Son birkaç yıldır gözlemlediğimiz başka ilginç bir gelişme ise diasporanın kendi fikri mülkiyetlerinin ticarileştirme sürecini Türkiye’de yürütme arzusudur. Biyoteknoloji alanında Türk bilim insanlarının büyük başarısı sayabileceğimiz önemli bir buluş, ABD de gerekli risk yatırımi temin edilmiş olmasına rağmen, teknolojinin Türkiye’de değerlendirilmesi için bu buluşçumuzun önemli temasları olmuştur ve kendisi biyoteknoloji alanındaki tek örnek değildir. Aynı zamanda, enerji sektöründe de diaspora fikri mülkiyetinden kaynaklanabilecek katma değeri Türkiye ile paylaşmak isteyen girişimciler vardır. Benzeri, değişik çaplarda örnekler çoğalmaya devam etmektedir.

 Kısaca fikri mülkiyet diasporasının geri dönüşü, beyin transferleri neticesinde kaybolmuş katma değerlerin diasporanın ülkelerine kesin dönüş yapmadan ülke ekonomisine paha biçilmez katkılarda bulunmasını sağladığı ortadadır.

Bu trendin orta ve uzun vadede geri beyin göçü yerine diasporanın birikimlerinden daha efektif faydalanabilmek icin. 1) Burda kisaca degindigimiz ancak baska bir yazinin konusu olmasi gereken fikri mulkiyet hukuku altyapisindaki bazi eksikliklerin duzeltilmesi; 2) diasporanin ilgisini cekebiliceek birtakim tesvik programalrinin yaratilmasi ve basit mevzuatlar ile desteklenmesi; 3) Ozelikle fikri mülkiyet diasporasını hedefleyen ortak projelerin geliştirilmesiyle diaspora ve akademi arasindaki networkun buyutulmesi ve bu surece devletin degisik kademelerde katkisi; ve 4) Turkiyeden dunyada ilgi uyandirabilicek bir girisimci basari hikayesinin cikmasi kanimizca cok onemlidir.

           

(1) Michael Finn (2005) Stay rates of foreign doctorate recipients from US universities, 2003. Oak Ridge Institute of Science and Education.

(2) http://e n.wikipedia.org/wiki/Amar_Bose

(3) Hah-Zoon Song (2003) Networking lessons from Taiwan and South Korea. http://www.scidev.net/dossiers/index.

(4) Hah-Zoon Song (2003) Networking lessons from Taiwan and South Korea. http://www.scidev.net/dossiers/index.

Hidden dangers of Bankruptcy in Licensing: Patent Zombies in the making.

Hidden dangers of Bankruptcy in Licensing: Patent Zombies in the making.

August 2012

Omer Hiziroglu, CLP

Non practicing Entities (“NPE”), otherwise known as patent trolls are now a well understood phenomenon in the IP management ecosystem.

A NPE is a patent holding company. It does not practice the technologies covered by the patents (i.e.: turning the technology into a product) but rather seeks to enforce such patents against technology companies usually through litigation or the threat of litigation.

The trolls have been around for a while and the business plan has shown some important “successes”. One prominent case that comes to mind is RIM vs. NTP. NTP, a non practicing entity, brought action against RIM in 2000 at the US District court for the Eastern District court of Virginia, seeking to enforce a patent covering a functional wireless email system against RIM (the producer of Blackberry devices). With the threat of an injunction banning the sale of Blackberry devices in the US, the case was eventually settled in 2006 where RIM agreed to pay NTP over 600 million USD. While the amount is huge, the news of the settlement was well received by Wall Street and RIM shares jumped from 72.00 USD per share to 86.30 following the announcement of the settlement.

NTP had other major companies in its crosshair as it sued AT&T, Spring Nextel, Verizon and T-mobile in 2007, Apple, Google, HTC, LG, Microsoft and Motorola in 2010. These cases were settled in 2012 but the terms of the settlement were not disclosed.[i]

Several major technology companies in the technology producing countries have been targeted over the past decade by patent trolls and according to one study by Boston University the NPE’s cost to the targeted companies totaled 29 billion USD in 2011 in US alone[ii].

How do NPE’s build their patent arsenal?

Typically a NPE will seek to purchase patent portfolios in a target market from sole inventors, universities, from technology companies who are not utilizing the technology, in patent or in bankruptcy auctions.

Recently we have seen large patent portfolios hitting the auction block as a result of bankruptcy procedures. Nortel patent portfolio was sold for 4.5 billion USD to a Microsoft, Apple, and Sony consortium. Apple and Google are currently fighting over Kodak’s patent portfolio valued at 2.6 billion USD.  While none of these companies can be deemed to be NPEs, they clearly see the acquisition of these large portfolios as a strategic defense in the ongoing patent wars in the mobile sector. For instance, when Google bid, but ultimately lost, for Nortel patents, it was seeking to protect its Android system from future legal[iii] challenges especially from its competitors in highly competitive and very lucrative market.

Having large portfolios in their defensive arsenal can also turn out to be valuable for the proud owners if and when challenged by a patent troll. Indeed, the company may look in its portfolio to identify a patent that may cover the challenged technology and introduce it as a defensive shield during the lengthy and costly legal battle.

Most NPEs will not have the breath to purchase such large portfolios, although I am sure that they would love to. However as stated above, NPEs do often purchase more modest portfolios offered for sale as a result of bankruptcy. There is nothing new here. A much more recent situation is bit more novel to me. What happens when the trustee in bankruptcy starts acting as patent troll (as opposed to simply auctioning the patents) by enforcing the patents against third parties, or much more interestingly against former licensees? The issue is getting quite a lot of press attention from the specialized trade magazines lately.

Generally speaking a trustee in bankruptcy is appointed by the court and his main duty and fiduciary obligation is to maximize the assets of the company in bankruptcy in favor of company’s creditors. While bankruptcy laws are obviously national and specific applications change substantially from country to country the general mechanism is worth a look.

First we have to note that the trustee in bankruptcy will generally have the ability to reject existing contracts between the company in bankruptcy and third parties if certain conditions are met. License agreements are such agreements the trustee may chose to reject if he believes that license revenues are undervalued (i.e.: better value can be obtained elsewhere). The result is that the licensee may find itself without a right to practice a technology that may be critical in their business. US bankruptcy code has special provisions to protect such licensee whereby the licensee can elect to retain the rights under the license agreement[iv]. The same is not true for all major jurisdictions.

An interesting multijurisdictional case is Qimonda AG (a German company) that produced DRAM products with multiple licensees in the US. In 2011 a German court appointed an insolvency administrator as Qimonda became insolvent. The administrator filed with a Virginia court to seek assistance with ancillary bankruptcy procedures to manage Qimonda’s extensive US assets and liabilities. The administrator sought to terminate various US license agreements and to offer new licenses under better (market) terms. The issue was, whether the administrator who clearly had such authority (if not the duty) under German law could extend this authority into US despite US licensees requests to retain the license under section 365(n) of US bankruptcy code. On remand, US bankruptcy court found that eliminating the application of 365(n) would be against US public policy. While such a ruling is to the advantage of the US licensees, this case shows the challenges of doing business globally. Indeed, these licensees are selling their products globally and while the ruling of the US bankruptcy court applies nationally to US patents (thus, these licensees may continue to use the technology in the US), the licenses in Germany and elsewhere in the world may be terminated according to applicable national laws.

Result is that if a trustee in bankruptcy lawfully terminates the license, the licensee may very well find itself in the difficult position to either stop utilizing the technology covered by the license or be forced to face a possible infringement action initiated by the trustee in bankruptcy of the licensor company. While this issue brings forth the importance of drafting a solid license agreement that addresses bankruptcy questions (taking into account the application of national laws of countries covered under the license), even a solid agreement may not be able to address all potential problems in a multijurisdictional issue. So we may now see a trustee playing the role of a patent troll in all but the name. Another interesting question is what happens if the trustees see the most value in enforcing patents against independent third parties where he might have a somewhat legitimate claim of patent infringement, thus acting very much like a troll. The issue may even become more complex if the trustee is acting on behalf of the creditors of the technology company who had contributed patents to a standard setting patent pool. Will the trustee have an authority to get out of the pool and sue to remaining consortium members for infringement?

Several countries are trying to address several ethical and practical issues raised by NPEs with legislation. In the mean time, several defensive aggregators against NPEs are set up such as RPX Corporation, a NPE in itself but set up based on a concept similar to insurance policy where members will receive a perpetual license to a relevant technology to be counter-asserted against NPEs. We also see major industry players where they pool their patent portfolios to be able to mount a credible defense if one of the members is attacked by a troll.

The Raise of Zombies

While those who challenge NPE’s existence define NPE’s business plan as legal black mail without much legitimacy the question is bit more challenging when we consider the role of the trustee in bankruptcy acting as a troll but protected by the very legitimate obligation under the bankruptcy laws.

It seems likely that we will see further enforcement litigation initiated by trustees in bankruptcy before the law makers eventually decide to tackle how to address the uncertainty caused when a perfectly legitimate and well mannered company turns into a troll (shall we try to coin the term “zombie”?)[v] as it becomes insolvent. Going with the horror theme, I am reminded of the late Michael Jackson’s Thriller video as the well mannered young kid turns into a werewolf but has the presence of mind to warn his girlfriend to run for cover. Will companies warn their licensees beforehand as they start feeling to noxious blood of insolvency start running in their veins turning them into potential zombies? Unlikely. Most likely though, before the legislators can address the issue, market will come with a new business plan to address the problem.

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[i] http://en.wikipedia.org/wiki/NTP,_Inc.

[ii] http://www.bbc.com/news/technology-18598559

[iii] http://www.guardian.co.uk/technology/2011/jul/01/nortel-patents-sold-apple-sony-microsoft

[iv]US bankruptcy code 11U.S.C.  s 365(n)

[v] I have come accross several reference to patent zombies on the internet but not in this context, rather the term zombie seems to be used most often with business method patents, patent owners blissfully unaware of several infringements until after the expiration of the patent or “zombie patents” meaning patents that should be clearly void as a matter of law.