Now more than ever, technology is influencing the way we do business, communicate, move through and around the world, access and manage our homes, receive and administer healthcare, make purchases, secure information, and protect our most valuable property. Morrison Foerster keeps pace with this rapidly evolving landscape across our internationally recognized corporate, finance, intellectual property, and litigation practices. MoFo Tech brings together our insights relating to fields such as blockchain and distributed ledger, cloud and as-a-service technologies, driverless cars, drones, fintech, computer hardware and software, the Internet of Things, semiconductors, and telecommunications. The MoFo Tech blog offers real-time, in-depth analyses of the trends and complex issues shaping the global technology industry.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Scott Llewellyn’s practice focuses on complex litigation in federal and state courts around the country, with an emphasis on patent and trade secret disputes. Over the past decade, he has worked on some of the most significant, high–profile IP cases involving technology for televisions, smartphones, and self–driving cars, relying on 40 years of experience with computer hardware and software. Scott also has significant experience with business divorce cases before courts and arbitrators, involving a mix of trade secret, patent, tort, and contract claims relating to technology development and implementation.Scott also has successfully tried general commercial arbitration and agency matters, briefed and argued various appeals in federal appellate court, and tried more than 20 cases for the Denver City Attorney’s office, most of them jury trials.Scott also has an active pro bono practice, having worked on a variety of criminal and immigration appeals, and having represented Colorado criminal defense and mental health organizations in high–profile suits against the state of Colorado for violations of the constitutional rights of defendants.At MoFo, Scott serves on the board of the Morrison & Foerster Foundation. In the broader legal community, he serves on the boards of the Colorado Lawyers Committee and Drop in the Bucket (a charity that builds wells and sanitation systems in sub–Saharan Africa).After law school, Scott clerked for the Honorable Clarence A. Brimmer, District of Wyoming, and the Honorable Diarmuid F. O’Scannlain, Ninth Circuit. He was also previously an adjunct professor at the Georgetown University Law Center.

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Scott Llewellyn’s practice involves complex litigation before state and federal courts around the country, with an emphasis on patent and trade secret disputes for high-tech companies, to which he brings more than 35 years of experience with computer hardware and software, in particular relating to the processing and transmission of audio, video, voice, and other types of data. Mr. Llewellyn has also tried commercial arbitration and agency matters; briefed and argued various appeals in federal appellate court; and tried more than 20 cases for the Denver city attorney’s office, most of them jury trials.

Scott F. Llewellyn

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IntroductionSpurred by both planetary and economic needs, the industry commonly referred to as “cleantech”—short for “clean technology”—has been on the rise. Current estimates predict clean energy technologies could dominate oil and gas by as early as 2030 (<a href="https://www.statista.com/statistics/1409852/global-cleantech-market-size-country-region/#:~:text=The%20global%20market%20size%20for,billion%20U.S.%20dollars%20per%20year." target="_blank" dir="ltr">Global cleantech market size by country 2030 | Statista</a>). <a href="https://www.mckinsey.com/industries/public-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it" target="_blank">The Inflation Reduction Act of 2022</a> provided for up to 400 billion dollars in clean energy infrastructure and subsidies. And clean energy is just one aspect of clean technology. Other examples include recycling waste products that would otherwise fill landfills, carbon sequestration, and low-carbon footprint industrial solutions.Established companies and new startups alike seek to navigate and contribute to this expanding market. Like most expanding markets, success in this industry is closely tied to the strength of the company’s intellectual property (IP) and the terms of its licensing programs. We present here the top 10 IP and commercial contract issues in licensing cleantech innovations.1. CHOOSE THE RIGHT IP PROTECTION TO MAXIMIZE THE VALUE OF YOUR IPIn this rapidly changing industry, cleantech companies need to understand the various options available to protect their innovations and how to strategically devise an appropriate IP strategy that aligns with their research and business needs.  Depending on the nature of the technology, one must consider whether the technology is best protected using patents, trade secrets, or a combination of the two.  Patent protection is for a limited duration—typically about 20 years—and is in exchange for the substantial disclosure of the technology to the public.  In contrast, trade secret protection is potentially perpetual in term and generally only ceases when the technology no longer derives economic value from not being generally known or is no longer subject to reasonable efforts to maintain its secrecy.  One has to consider whether the technology can be easily reversed engineered and whether the company can take appropriate measures to keep aspects of the technology a trade secret. Strategic use of both forms of IP and careful navigation of the requirements of each can provide a cleantech company with both valuable assets and a competitive edge.2. STRATEGICALLY PROTECT INNOVATIVE ASPECTS OF YOUR IPPatent protection may be suitable to protect various aspects of cleantech innovations. For example, let’s say a company invented a new material for capturing carbon dioxide from the atmosphere. Such a technology can be patented from various angles, including the composition of the new material itself, the process of producing the new material, and the ways in which the material may be used.  A claim covering the composition of the new material can block others from making (including by using any process), using, selling, importing, or offering for sale the new material.  In contrast, a claim covering the new process of producing the new material only prevents others from performing the steps of the claimed process. In other words, if a competitor figures out an alternative method to produce the material, the manufacturing process claim may not block that competitor’s process.  As such, it is important in a robust patent portfolio to think about the different types of coverage that can create an exclusivity fence around the technology.3. EVALUATE EXPEDITED EXAMINATION OF PATENT APPLICATIONS DIRECTED TO MITIGATING CLIMATE CHANGECleantech companies filing patents containing at least one product or process claim directed to mitigating climate change by reducing, removing, preventing, and/or monitoring greenhouse gas emissions may consider submitting a petition under the <a href="https://www.uspto.gov/patents/laws/patent-related-notices/climate-change-mitigation-pilot-program" target="_blank">Climate Change Mitigation Pilot Program (CCMPP)</a>, which expedites the issuance of a first Office Action or allowance. The CCMPP is of limited duration—applicants can submit a free petition until the earlier of June 7, 2027, or the date upon which 4,000 petitions for the CCMPP program have been accepted by the United States Patent & Trademark Office (USPTO). As of October 3, 2023, the USPTO has granted 422 applications out of 572 filed applications for examination under the CCMPP. As with any accelerated filings, it will be important for the applicant to develop a strategic claim set to pursue so as to set up the case for success.4. CONSIDER TERMS AND CONDITIONS ASSOCIATED WITH GOVERNMENT FUNDINGGovernment funding has played a key role in accelerating the innovation of clean technologies. The Bayh-Dole Act allocates rights, including patent rights, for inventions developed with federal funding under contracts, grants, and other government funding agreements. Contractors and grant recipients can generally take title to any such inventions, subject to certain terms and conditions. One notable term and condition is that non-exclusive licensees must substantially manufacture any products embodying the subject invention or produced through the use of the subject invention in the United States. A new <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2023/07/28/executive-order-on-federal-research-and-development-in-support-of-domestic-manufacturing-and-united-states-jobs/" target="_blank">Executive Order</a> suggests that application of the U.S. manufacturing requirement could also be extended to non-exclusive licensees, particularly with respect to inventions related to “<a href="https://www.whitehouse.gov/wp-content/uploads/2022/02/02-2022-Critical-and-Emerging-Technologies-List-Update.pdf" target="_blank">critical and emerging technologies</a>,” which has been defined by the Biden administration to include various renewable energy generation and storage technologies.5. MINIMIZE RISK AND STRENGTHEN YOUR IP BY PERFORMING FREEDOM-TO-OPERATE (FTO) SEARCHESPatent rights give the patent holder the ability to preclude others from operating within the scope of that patent. In other words, patents afford an exclusion right. They do not guarantee that the patent holder can actually practice the patent or commercialize the claimed invention. Another party may have patent rights that block another from practicing or commercializing its own invention. At the appropriate time, cleantech companies may want to assess their FTO risk, whether by monitoring key competitor’s IP and/or performing FTO searches at key stages of the innovation cycle. If a potential FTO risk is identified, the company should devise a strategy to address such risk. This may involve establishing a non-infringement position, an invalidity position, licensing considerations, and other offensive strategies based on the company’s own patent portfolio.6. TAILOR THE SCOPE OF THE LICENSE GRANTIP rights can be the lifeblood of a cleantech startup, and both licensors and licensees must carefully consider the scope of any license grant. The licensor will want to ensure it provides what the licensee needs, but nothing more. Anything beyond the intended use may be considered an unnecessary encumbrance on the licensor’s IP, which is often its most valuable asset.Licensees will want to make sure they have full freedom to use the licensed technology as intended. Otherwise, their activities may accidently infringe the very IP rights they are licensing.Both licensors and licensees alike should carefully consider the variables at issue in nearly every license grant: (1) the specific IP rights that are granted (such as whether the license is under all of the licensor’s patents or a specific portfolio), (2) the field of use, (3) whether the grant is exclusive (even as to licensor) or non-exclusive, (4) the territory, (5) the duration and termination conditions, (6) whether the license is royalty-free, fully paid-up, or royalty-bearing, and (7) whether the licensee has the right to grant sublicenses to affiliates or third parties. If the licensee does have the right to grant sublicenses, both parties should carefully consider under what conditions sublicenses may be granted and for what activities.7.  CONSIDER WHETHER THE LICENSEE NEEDS ACCESS TO KNOW-HOW OR TECHNOLOGY AND TAILOR CONFIDENTIALITY APPROPRIATELYA license provides the grant of authority for a licensee to conduct activities that would otherwise be an infringement or misappropriation of the licensor’s intellectual property rights, but it does not necessarily enable the licensee to act. A licensee may need, in addition to the legal right to act, possession of the know-how or technology to properly exercise the license as intended. This is especially true in the cleantech space where much of the technology may be protected by trade secrets rather than by patents.Both licensors and licensees will want to ensure the scope of any tech transfer is tailored appropriately. The licensor may be incentivized to provide some technology to ensure the licensee’s success, but it should be careful that it does not give away too much information that can be competitively sensitive. The licensee will want access to technology needed to proceed with the license, but it may be better off without getting more than that. If a licensor later accuses the licensee of misappropriating trade secrets, the licensee’s best defense may be that it never had access to the technology to begin with. Thus, both parties should consider carefully what is needed and how to keep track of it.Nearly every commercial agreement in the cleantech space involves sharing non-public information, and appropriate confidentiality terms are a must. Each party should ensure that at least the three core provisions are present: (1) maintain in confidence, (2) non-disclosure to third parties, and (3) non-use except for permitted purposes. Depending on the nature of the technology, the licensor may need to provide highly confidential technical information. Additional administrative and technical safeguards may be appropriate in those circumstances, as well as a confidentiality duration lasting for as long as the information is not publicly known.8. CAREFULLY NEGOTIATE OWNERSHIP OF AND RIGHT TO USE TECHNICAL IMPROVEMENTSUse of an existing technology in a new setting, or the ability to tinker around with a technology, carries with it the possibility of new innovations. By default in the United States, ownership of patentable inventions rests with the inventor unless the agreement assigns ownership otherwise.Parties negotiating a commercial agreement have a plethora of options. The licensor could require the licensee to assign all new improvements to the licensor, which would then be licensed back to the licensee. Another option would be for the licensee to grant a license back to the licensor for any new IP, which the licensor could then sublicense to its other licensees. Yet another option could be a “community license,” where a licensee can “opt in” to sharing its improvement technology with the licensor in exchange for access to the licensor’s and to other licensees’ improvements.Depending on the duration of the license, an evergreen obligation to share improvements may not be appropriate. The parties should carefully consider whether there should be a time limit for sharing improvements.9. ALIGN RISK ALLOCATION WITH THE TECHNOLOGY AND ITS USECleantech is a relatively new field, and so are the bulk of the specific technologies. When licensing technology in this space, both parties should carefully allocate risks regarding (1) the ability of the technology to perform as intended, and (2) third-party liabilities arising from certain uses of the technology, such IP infringement. The parties can accomplish this with carefully tailored representations regarding the licensed technology and an indemnity for third-party claims caused by certain negotiated triggers.  But beware: not all risk allocations mechanisms are the same. Representations and warranties carry with them the additional risk of termination for breach and financial damages for breach of contract. Indemnities typically do not.Some parties may choose to apply a waiver of consequential and indirect damages and an aggregate liability cap as a method to avoid risk. But having this apply across the agreement to all kinds of breaches can be a trap for the unwary. Some breaches by their nature may only have nominal direct damages, but the real recovery would be in the form of consequential or indirect damages, such as breaches of confidentiality or improper use of trade secrets. Companies should take care to carve these out from the waiver and potentially from the liability cap.10. TAILOR TERMINATION TO THE SPECIFIC DEALA common construct in commercial agreements is to allow the licensee to terminate for its own convenience and to allow each party to terminate for the other’s material breach. But this may not be appropriate in all circumstances. In some deals where the licensee would suffer massive harm if the agreement terminates, even termination for material breach may be too low of a threshold. It may be more appropriate to have a narrower class of termination rights that are particularly nefarious or cause irreparable harm to the licensor, such as willful misappropriation of the licensor’s material trade secrets.In other deals, the licensor may need broader termination rights. Regulations rarely keep up with science and technology, and the clean technology space is no exception.  As export regulations continue to evolve, companies in this space can hedge risk by building flexibility into their commercial agreements. If, for example, new regulations materially alter the main commercial benefit of the agreement, the licensor may want to be able to terminate the contract or at least renegotiate the financial terms.In either case, parties should carefully structure the post-termination obligations. Some licensors may require the licensee’s assistance in transitioning use of the technology back to the licensor or to a new licensee. Where regulatory approvals are involved, the licensee may need to transfer government authorizations to a new party. Similarly, the licensee may need a reasonable period of time to wind down operations and to sell of any existing inventory of product that it would not be able to sell once the rights in the agreement terminate.

Top 10 Considerations in Licensing Cleantech Innovations

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Matt Ferry is a partner in the San Diego office and a member of the firm’s Technology Transactions Group.
Matt’s practice focuses on strategic transactions involving intellectual property (IP), techno

Matthew Ferry

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Anita Choi has decades of experience providing strategic advice to companies and investors in the Life Sciences and Food + Agriculture industries. She has helped start-up companies build IP portfolios around their core technologies, and counseled them on issues related to patents versus trade secrets.

Anita Choi

Anita Choi’s practice focuses on patent prosecution, portfolio management, IP due diligence, and IP litigation support. Her clients range from early-stage start-up enterprises to established domestic and international companies. She is well-versed in building and managing worldwide patent portfolios across many sectors and technologies, including small-molecule pharmaceuticals, medical devices, diagnostics, industrial chemicals and advanced materials, food and agtech.

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Associate

Emily’s practice focuses on patent preparation, prosecution, and counseling.

Emily Jane Roberts Ph.D.

Emily Roberts

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Top 10 Considerations in Licensing Cleantech Innovations

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Spurred by both planetary and economic needs, the industry commonly referred to as “cleantech”—short for “clean technology”—has been on the rise.

Although the European, U.S., and UK Patent Offices have denied patent applications on the grounds that an AI system cannot be listed as an inventor, not every country seems to be following that approach and some may be set to buck the trend.Last year, we <a href="https://mofotech.mofo.com/topics/can-ai-be-an-inventor.html">reported</a> on the first European Patent Office (EPO) ruling on its approach to patent applications that designate artificial intelligence (AI) systems as inventors. Both the UK Intellectual Property Office (UKIPO) and the EPO reasoned that AI systems cannot be inventors. However, South Africa and Australia did not follow suit this year.What did DABUS “invent”?The “Artificial Inventor Project,” an international group of patent attorneys, filed patent applications directed to inventions that were supposedly “invented” by DABUS, an AI system developed by Dr. Stephen Thaler. The applications are directed to a light-emitting device that could be used as an emergency signal beacon and a food container.Success in South Africa could be prematureA patent application was granted in South Africa by the Companies and Intellectual Property Commission, listing DABUS as the inventor and Dr. Thaler as the owner of the patent.A contributing factor to the grant is the lack of definition of “inventor” in South African patent law and the structure of the local patent system. Patent applications are not formally examined prior to their grant – they will be granted if they meet the required formalities as a minimum.Thus, the local patent office did not undertake a substantive examination of the patent application ahead of its grant.Now the patent is vulnerable to applications made against it that are filed in the South African court. Any third party may apply to the Court of the Commissioner of Patents to revoke the patent. The patent could be revoked for a number of grounds, including lack of inventiveness, lack of novelty, and most pertinently, because Dr. Thaler, who is not the inventor, was not entitled to apply for it.The Federal Court of Australia’s decisionIn Thaler v Commissioner of Patents [2021] FCA 879, the Australian court reasoned that the ordinary meaning of “inventor” does not exclude non-humans. It also found that in patent law, unlike copyright law, there is no requirement for a human inventor.Dr. Thaler argued that the objectives of the relevant legislation supported AI systems being recognized as inventors because it is intended to promote technological innovation and the dissemination of technology.The court also considered that various persons can contribute to the output of an AI system, and that recognizing the AI system as the inventor would avoid uncertainty as to who should be recognized for the inventive process.While the court was only faced with deciding whether DABUS could be an inventor, it also discussed whether Dr. Thaler could be the patent grantee. The court found in favor of Dr. Thaler by determining that he could be a grantee since he derived title to the invention. Dr. Thaler owns and controls DABUS, therefore its inventions are in Dr. Thaler’s possession.Status of global DABUS applications<ul><li>In the UK, Dr. Thaler appealed to the UK Court of Appeal in July 2021, after rejections from the UKIPO and the UK High Court. </li><li>A hearing date has been set for a European appeal in December 2021. </li><li>The Deputy Commissioner of Patents in Australia has four weeks to appeal the July 30, 2021 decision. </li></ul>Further similar patent applications involving issues of AI inventorship have been unsuccessful in Canada, China, Taiwan, Germany, and the United States. There are still pending applications in India, Israel, Japan, and South Korea. Given the fate of the DABUS applications thus far, it is advisable to continue listing the individuals, not the AI systems, as the inventors on patent applications.

Autodesk

HM Revenue and Customs

Home Office, Department for Communities and Local Government, Department of Health

Intel

ITworx

lastminute.com

NYSE-listed health tech company

One of UK's largest public EV charging networks

Phoenix Group

Telenor

UK Border Agency

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Alistair Maughan co-leads Morrison & Foerster's European Technology & Commercial Practice.

Alistair Maughan

Alistair advises on the deployment of new technology platforms involving, for example, the internet of things, AI and machine-learning, and blockchain and distributed ledger technology.

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Georgia Wright is an associate based in the London office of Morrison & Foerster and is a member of the Technology Transactions Group and the Global Privacy Group.
Georgia advises clients on a range o

Georgia Wright

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Of Counsel

Anna Yuan’s practice focuses on patent prosecution, IP due diligence, post-grant proceedings, and IP litigation support. 

Anna Yuan

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AI as a Patent Inventor – an Update from South Africa and Australia

In the Public Eye: USPTO Issues Report on AI

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Although the European, U.S., and UK Patent Offices have denied patent applications on the grounds that an AI system cannot be listed as an inventor, not every c

AI as a Patent Inventor – an Update from South Africa and Australia

UPC – And it got up againHaving been sent down for the count by constitutional complaints in Germany, the road finally seems paved for the Unified Patent Court.  On July 9, 2021, the German Federal Constitutional Court (GFCC) announced that it had dismissed two applications for a preliminary injunction seeking to void the German Act of Approval of the Agreement on a Unified Patent Court (the “Bill”).  Based on these applications, the GFCC had (once again) asked Germany’s president to suspend the Bill’s ratification, the final major step before the UPC can come into existence.Germany – The ultimate battle ground The so-called “European Patent Package” is comprised of by two EU regulations and an international treaty, the Agreement on a Unified Patent Court (UPCA).  The two regulations pertain to the creation of the Unitary Patent (UP), a single patent having effect in all participating EU Member States.  Both regulations, which are based on the concept of “enhanced cooperation” (i.e., a framework allowing EU Member States to work closely together), passed in 2012 and were not challenged.  Even though these regulations have technically been in effect since 2013, they have remained pending until the UPCA’s ratification.The UPCA is the foundation of the corresponding Unified Patent Court (UPC), a court system for litigation over UPs with effect in all participating Member States.  25 of the EU Member States (all except for Spain, Croatia, and Poland) signed the UPCA in 2015.  To enter into force, however, it must be ratified by at least 13 Member States, including the three with the highest number of European patents (originally, Germany, France and UK).Everything seemed close to set when all 35 of the 631 members of the Second Chamber of the German Parliament (Bundestag) who were present on that day unanimously decided to pass the UPCA in 2017, making Germany the 13th state expected to ratify the UPCA.  That left only the UK’s ratification remaining for the UPC to take off.  (With BREXIT, the UK’s ratification is no longer necessary, as the UK has withdrawn from the UPCA.)The plot started to twist in 2017 when a first constitutional complaint put ratification on hold in Germany.  The GFCC held in November 2020 that, due to the UPCA’s transfer of sovereignty, a different majority for ratification was required by the German Basic Law (Grundgesetz).  The GFCC further held that that majority was not satisfied with only 35 parliamentarians present.  To warrant democratic legitimization, the UPCA therefore had to take at least another turn before the Bundestag.  Due to this formal deficit, the GFCC had no reason in the meantime to assess the UPCA’s conformity with substantial aspects with the Basic Law.  It did, however, suggest that there might be violations. The formal deficits were overcome in December 2020 when both the Bundestag and the German Federal Council (Bundesrat) approved the legislation with the necessary majority.  Complainants subsequently lodged two new preliminary complaints in order to again delay the UPCA’s ratification.  The complainants asserted that the UPCA violated a number of rights and principles:-        The individual’s right to democratic self-determination (as the power of the German Parliament would be undermined)-        The fundamental right to effective legal protection (due to a lack of independence of the UPC judges, whose six-year terms with the possibility of re-election permit potential indirect bias)-        The individual’s right to a lawful judge (as one of the central divisions was to be in London)-        An "eternity guarantee" regarding fundamental principles of the Basic Law (arising from UPCA’s unrestricted prioritization of Union Law, which might cause the GFCC to lose its position to warrant these principles)-        Irreconcilability of the UPCA with Union Law (since cooperation between the European Court of Justice and Member State Courts is impaired by a court that is separate from the courts of the Member States) and other democratic deficits as well as deficits in the rule of law (e.g., because the UPCA was enacted despite changes due to BREXIT)-        The principle of autonomy of Union Law which was violated because the UK is still a contracting partyThe GFCC held that the complainants failed to sufficiently substantiate their assertions.  It explained that individuals can allege a violation of their right to democratic self-determination, which requires a very stringent showing.  But they do not have the right to challenge a democratic parliamentary decision. As the complainants are unlikely to overcome this fundamental deficit and succeed with a further complaint on the merits, the field is open for the UPC.  Before starting to hear cases, the UPC will enter into an 8-12 month pilot phase.  During this phase, judges will be appointed and trained, the IT systems will be set up, and other pre-operational measures taken.  To start the pilot phase, two more Member States who have already ratified the UPCA will need to sign the Protocol on Provisional Application.  These procedural formalities are not likely to lead to further delays, as some Member States do not require a lengthy parliamentary ratification process but only a signature or a unilateral declaration to do so.The new arena – UPCThe dawn of the UPC should signal the end of the need for fragmented patent enforcement, due to its exclusive competence over traditional European Patents (EP) as well as UPs.  Its decisions and orders will be enforceable in any contracting EU Member State.  The court will be structured as a Court of First Instance (i.e., comprising local, regional, and central divisions, the latter seated in Paris and Munich), a Court of Appeal (in Luxemburg), and a Registry. Now that the UK has withdrawn from the UPCA in the context of BREXIT, it remains to be seen where the third seat of the central division (formerly London) will be located.  Italy is promoting Milan as a third venue, and other possible candidates are Amsterdam and Paris.  Pending this decision, responsibilities will likely be shared between Munich and Paris.Together with the UPCA, a transitional regime will come into effect, allowing for any EP granted to be transformed into a UP for uniform protection with equal effect.  Plaintiffs will be free to choose whether to commence proceedings based on UPs before the national court (i.e., in the traditional fragmented system) or the UPC.The fragmented patent landscape will persist for at least a while, however.  This is because a UP covers only the territories of those Member States that ratified the UPCA at the moment of registration of unitary effect, i.e., the registration of a UP or the transformation of an EP into a UP.  Up to now, 15 Member States have ratified the UCPA, and after the GFFC’s ruling, Germany has been given the green light do so as well.  Spain and Croatia are the only two Member States that are not yet participating in either the Unitary Patent System or the UPC, but they may do so at any time.  Thus, even with the UPC up and running, the patent landscape will remain segmented into different “layers” of Unitary Patents, each different in territorial scope.In the long run, the Unitary Patent System definitely has the potential to significantly reduce costs and increase efficiency and legal certainty of patent enforcement in Europe.

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Wolfgang advises clients on contentious and non-contentious matters involving their most valuable intellectual property assets in the digital, high-tech, life sciences, and pharmaceutical industries.

Wolfgang Schönig

Wolfgang Schönig is a partner of Morrison Foerster (International) LLP based in our German office in Berlin. His practice specialty is advising on IP aspects relative to transactions in, among others, the life sciences, AgTech and pharmaceuticals industry, as well as legal representation in IP disputes. Wolfgang is specialized in research and development collaborations, complex licensing agreements, technology acquisitions, know-how protection strategies, and employee invention law.

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Green Light for UPC

Japan: Privacy Updates on Handling Personal Information in the “Digital Market”

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UPC – And it got up again
Having been sent down for the count by constitutional complaints in Germany, the road finally seems paved for the Unified Patent Court

Green Light for UPC

The German patent system has repeatedly proven to provide reliable and effective means to enforce patent rights against infringers. There are three key reasons why the German patent system is so attractive for patentees when seeking to enforce their rights in Europe:<ol><li>Injunction gap: Infringement and validity are heard by different branches of the judiciary (bifurcation). The infringement courts only stay the proceedings pending parallel nullity actions if they have a strong indication that the patent-in-suit is invalid. That is, unless the patent is obviously invalid, first instance proceedings can be completed in about 1.5 years. Parallel nullity actions usually take much longer. Among other disadvantages for the defendants, this gap may result in unfavorable settlements based on potentially invalid patents. </li><li>De facto automatic injunction: If infringement is found, the default remedy is an injunction. While infringement courts do have some discretion if and to what extent an injunction shall be granted, they almost never make use of it. This as well provides substantial leverage to patentees in settlement negotiations.</li><li>Preliminary injunctions: Preliminary injunctions are available, even in complex cases.</li></ol>RECENT DEVELOPMENTSAll three areas are subject to recent developments: <ul><li>On June 10, 2021, the Second Act on the Simplification and Modernisation of the Patent Act (Zweites Gesetzes zur Vereinfachung und Modernisierung des Patentrechts) (“Bill”) passed the German Parliament (Bundestag). Among other things, the Bill introduced: <ul><li>A rule pursuant to which the nullity court (Bundespatentgericht [Federal Patent Court]) “shall” provide to the litigants a first indicative assessment of the case (qualifizierter Hinweis) within six months after the nullity action has been filed. The rationale is to inform the litigants (and the infringement court) prior to the first instance decision on the preliminary reasoning of the nullity court. However, this provision alone will only have little impact unless funding and staffing of the nullity court will be significantly improved, which is a separate topic currently discussed in Germany.</li><li>A codification of a proportionality test providing courts an express basis for temporary or permanent suspension of the injunction against a fair compensation in addition to potential damages for past infringement. While it is unlikely that this rule will dramatically change the way injunctions are being granted in Germany, it may provide relief in certain edge cases as the case law evolves on this issue. Such edge cases may include unreasonably aggressive patent trolls, extreme cases of discrepancy between the value of the invention and the economic loss suffered by the defendant, or detriment to paramount interests of third parties like access to lifesaving medicines or access to vital infrastructure. It is unlikely, however, that the new law will have an impact on evolving case law on standard-essential patent (“SEP”) litigation.</li></ul></li></ul>The Bill will likely enter into law in the fall.<ul><li>With respect to preliminary injunctions, already in January of 2021, the Regional Court of Munich has challenged the long-standing practice of courts in Germany requiring the claimant of a preliminary injunctions to demonstrate sufficient prospects of validity of a patent-in-suit, e.g., by showing that the patent has survived inter partes opposition or revocation proceedings or is otherwise largely accepted by the industry as valid. (NB: there are exceptions from this rule, for instance, to protect pharma companies against generic entry, where no such “strength” of the patent has to be demonstrated.) Arguing that this practice discriminates against patentees of newly granted patents, the Munich court has asked the European Court of Justice (“CJEU”) to decide whether this is in line with European Law. The CJEU’s decision cannot be expected until the beginning of 2022.</li></ul>While the changes introduced by the Bill will likely strengthen the defendants’ position in German patent litigation proceedings, the CJEU referral has the potential to significantly strengthen the patentee’s position. Below, we will shed more light on the proportionality test introduced by the Bill.PROPORTIONALITY TESTNew § 139 para. 1 of the German Patent Act (Patentgesetz) now reads:“The [injunction] claim may be excluded to the extent that the claim due to the special circumstances of the individual case and the requirements of good faith would lead to disproportionate hardship for the infringer or third parties, not justified by the exclusive right. In this case the infringed party shall receive a reasonable monetary compensation. The claim for damages [. . .] remains unaffected.”The German legislator reiterates, in his explanatory statements underlying the Bill, that the new provision is a mere codification of what has been the law anyway. He stresses that the principle of proportionality is a cornerstone of the German Constitution and the German legal system in general and that judges must apply this principle regardless of whether it is expressly laid down in a statue or not. He also points to the European <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32004L0048R%2801%29">Directive 2004/48/EC</a> on the Enforcement of Intellectual Property Rights that also clearly calls for all judicial decisions to be proportionate.In addition, the legislator notes that the German Federal Court (Bundesgerichtshof – “GFC”) in its Heat Exchanger decision (Case No. X ZR 114/13) held that a grace period may be granted under exceptional circumstances in patent cases—but did not do so in the case at hand— namely, “if the economic consequences of immediate compliance with the injunction effect and disadvantage the infringer [. . .] beyond the disadvantages which would be caused by its grant as intended, to an extent which makes the unconditional injunction appear unreasonable.”However, the legislator complains that the lower infringement courts did not sufficiently pick up on this proportionality assessment established by GFC, warranting express codification. As a result, it is likely that this issue will be more prominently discussed between litigants in the future and that the courts will have to provide more detailed reasoning on this issue than in the past. The reasoning and further specification provided by the legislator in its explanatory statement that will be relevant in these discussions can be summarized as follows:<ol><li>Delaying or suspending an injunction must be the absolute exception. </li><li>The risk of being enjoined from the market, including all of its economic consequences, is inherent to the German patent system.</li><li>The right to an injunction does not require the plaintiff to actually practice the invention or that the defendant use the invention intentionally. </li><li>There is a presumption that the patentees’ interest prevails, and the burden on showing disproportionality is on the defendant. The plaintiff has the benefit of doubt.</li><li>Facts that speak in favor of the defendant can be:<ol><li>If the unconditioned grant of an injunction would result in extraordinary high costs or losses on the part of the infringer that are in stark disproportion to the value of the patent-in-suit. This may be the case in complex products where the patent‑in‑suit only has a subordinate role.</li><li>If the “design around” takes an unusually long time because of regulatory requirements, again in light of the actual value and relevance of the patent-in-suit.</li><li>If the defendant infringes despite having conducted customary freedom-to-operate (“FTO”) searches.</li><li>If the plaintiff has delayed bringing suit until a moment where defendant has made significant investments, but the plaintiff could have brought suit earlier. </li><li>If substantial third-party interests would be affected, e.g., cut off from lifesaving medicaments or essential infrastructure.</li><li>“Patent trolls”, i.e., patent accumulators with the sole purpose to generate royalty income for its shareholder, may not be entitled to an injunction (or even a compensation in addition to “regular” damages) if it can be shown that patents have been acquired specifically to use the threat of an injunction to extract unreasonably high license fees or any other type of bad faith.  (NB: the explanatory statements are quite clear that non-practicing entities (“NPEs”) are not generally disapproved or “evil”, and that also for NPEs there is a presumption for an entitlement to an unconditioned injunction.)</li><li>The impact of the patentee shall be as minimal as possible, and courts must carefully consider duration of the denial of an injunction (i.e., short grace period vs. permanent suspension). </li><li>Baseline for the compensation for the suspension of the injunction to be awarded on top of damages for past infringement should be what reasonable parties would have agreed to for such use. The compensation can be higher if the defendants did not perform a customary FTO search. It can be lower, if the plaintiff is denied the injunction for reasons of bad faith.</li></ol></li></ol>Although the legislator’s explanatory statement addresses NPE and third-party interests, the statement is unlikely to override the evolving case law on FRAND (fair, reasonable, and non-discriminatory) licensing. Especially in the SEP context, FRAND case law seeks to balance all involved interests and thus inherently reflects a proportionality assessment.

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Counsel

Robert advises companies in the healthcare, pharmaceutical, medical device, and technology industries on all aspects of intellectual property law, primarily in connection with commercial life sciences, licensing, and technology transactions. His clients range from multinational companies to startups.

Robert Grohmann

Robert Grohmann is counsel at Morrison Foerster’s German office in Berlin. As a member of the technology transactions group, he focuses on advising domestic and foreign companies and startups in all areas of technology and IP law, including patent and software licensing, employee inventions law, as well as know-how protection. Moreover, Mr. Grohmann’s expertise encompasses the judicial and extra-judicial representation in matters of trademark law, design law, and competition law.

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Recent Developments Regarding Patent Injunctions in Germany

Digital Compliance in Europe: Regulatory Alignment Post-Brexit

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The German patent system has repeatedly proven to provide reliable and effective means to enforce patent rights against infringers. There are three key reasons 

Recent Developments Regarding Patent Injunctions in Germany

I. IntroductionOn November 26, the Dusseldorf Regional Court handed down a long awaited decision in the so-called automotive patent wars (case ID 4c O 17/19). The court referred heatedly debated questions in connection with the enforcement of standard essential patents (“SEPs”) to the Court of Justice of the European Union (“CJEU”). The detailed set of questions addresses two main issues: 1. Whether the entity selling a device (here a car) that includes a component that implements the technology protected  by the SEP would be in compliance with the FRAND procedure set out by the CJEU in Huawei v. ZTE if it were  to refer  the SEP holder to the upstream component supplier rather than making a fair reasonable and non- discriminatory  (“FRAND”) offer itself; and 2. Certain clarifications on the Huawai v. ZTE requirements regarding the timing of the steps in what is often referred to as the “FRAND dance.”Although the outcome of an order for reference cannot be foretold, the CJEU decision is expected to be the most influential decision on FRAND licensing since the 2015 Huawei v. ZTE ruling (case ID <a href="http://curia.europa.eu/juris/document/document.jsf;jsessionid=6331314A3F81E1AED9537BAA8E87A934?text=&docid=165911&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=17464359">C-170/13</a>). It may create a more predictable framework of licensing negotiations for both SEP holders and implementers. In addition, it may encourage national courts to finally take a clear stance on the FRAND compliance of an offer in certain cases.In this article we will give a short overview of the background of the current SEP battles and an outlook of the practical consequences of the CJEU ruling. II. Uncertainties following Huawei v. ZTEIn Huawei v. ZTE, the CJEU ruled that the SEP holder must first alert a party of its alleged infringement before bringing an action. If the alleged infringer expresses a willingness to take a license, the SEP holder must provide a written licensing offer on FRAND terms. Only if the alleged infringer continues to use the SEPs in question and fails to respond diligently to the SEP holder’s offer may the SEP holder seek an injunction. A diligent response may include a counter-offer on FRAND terms.This landmark decision did not curb litigation on FRAND considerably. For one thing, it left courts with significant leeway to interpret each party’s obligations, particularly as to timing. For example, it is unclear how swiftly the offeree must reply before it is deemed unwilling. As a result, SEP cases are often tactically protracted. Furthermore, the CJEU decision did not cover all aspects of SEP enforcement. Important questions such as the actual terms fulfilling the FRAND requirement remained open. Hence, it is difficult for the parties to assess what license terms and royalties are substantively FRAND.The European Commission (“EC”) tried to provide guidance on those issues with its 2017 communication “Setting out the EU approach to Standard Essential Patents” <a href="https://ec.europa.eu/docsroom/documents/26583">(available here)</a>. Because its initial guidance left open many issues, the EC recently announced that it will encourage industry-led initiatives and possibly enact reforms as part of its action plan on IP (available here).III. Automotive WarsMeanwhile, the connected cars battle in Germany took off. In the advent of 5G and the IoT, the car industry, among many others, increasingly implemented mobile communication technology. Thus, their products moved gradually from the area of classic automotive engineering toward the area of mobile communications. This pursuit for connectivity of automated and digitalized products naturally calls for interoperable technical solutions based on standards. This potentially gives SEP holders a whole new field to reap.Members of the Avanci patent pool, such as Nokia and Conversant, did not want to play by the long-established rules of the car industry and grant licenses at the component level. This is because final product licensing provides a much more attractive royalty base than component-level licensing, as the market value of the smallest salable patent practicing unit is far lower than one of the end products. Accordingly, they launched a wider litigation campaign against car makers, including Daimler, and Volkswagen and other OEMs.Nokia brought 10 proceedings against Daimler before German courts in Munich, Mannheim, and Dusseldorf. In turn, Daimler and four of its suppliers launched antitrust complaints against Nokia before the Commission’s Directorate-General for Competition, claiming that Nokia abused its dominant market position by not granting a license to the suppliers. One of the suppliers, Huawei, followed suit and brought an action before the Dusseldorf Regional Court, seeking to obligate Nokia to grant a license.The order for reference by the Dusseldorf court is the latest striking, yet not unexpected, event in the connected cars proceedings. In the present case, Nokia has offered a license only to Daimler and not to Daimler’s suppliers. Daimler, on the other hand, always wanted its suppliers to take a license and the suppliers have emphasized that they are, in fact, willing to do so. Positions/ ArgumentsNokia claims it is more efficient to only deal with OEMs like Daimler. They also argue that exhaustion dynamics would have unacceptable practical consequences. On the other side, OEMs argue that injunctions against them are not proportionate in light of Art. 3 of the Enforcement Directive (<a href="https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32004L0048R(01)&from=EN">2004/48/EC</a>). Because suppliers implement the SEP first, OEMs contend that suppliers should be first in line to receive a license. OEMs also invoke efficiency arguments, noting that there are fewer suppliers than OEMs.Controversy on WillingnessFor a long time, the SEP holder’s offer appeared to be the pivotal event. At least before the Dusseldorf courts—the forum that hears the most SEP cases in Germany—it was relatively safe to assume that the SEP holder’s offer signaled the start of the FRAND dance only if the offer was in fact FRAND. In other words, the implementer’s steps under Huawei v. ZTE did not matter, so long as the implementer did not reject any attempt to engage in negotiations and thus render it “unwilling.”On May 5, 2020, the German Federal Court of Justice (“GFCJ”) specified that the implementer must clearly and unequivocally declare its willingness to conclude a license agreement with the SEP holder on reasonable and non-discriminatory terms. The GFCJ further required that the implementer subsequently participate in the license agreement negotiations in a deliberate manner (case ID KZR 36/17). For support, the GFCJ referred to the High Court of England and Wales’ holding in Unwired Planet vs. Huawei that “a willing licensee must be one willing to take a FRAND license on whatever terms are in fact FRAND.”Applying these standards, the Munich Regional Court (case ID 7 O 8818/19) and the Mannheim Regional Court (case ID 2 O 34/19) recently held that an SEP implementer does not indicate its unconditional willingness to accept a FRAND license by referring the SEP holder to its suppliers.  To the contrary, such a referral indicates that the SEP implementer is “unwilling” regardless of whether the SEP holder’s offer was FRAND.The controversial nature of this issue is evident by the Federal Cartel Office’s involvement.  In the Mannheim proceedings, the Federal Cartel Office weighed in to encourage the Regional Courts to stay the proceedings and providing a set of questions for referral to the CJEU.  The Mannheim court did not follow these suggestions, however, and instead issued its ruling with little delay.  Its decision is the second grant of an injunction to Nokia prohibiting Daimler sales, if enforced.Against this backdrop, the Dusseldorf Courts’ decision to focus on the issue provides hope to OEMs that wish to refer SEP holders to suppliers IV. The questions referred to the CJEUThe Dusseldorf Regional Court’s referral to the CJEU suggests the possibility of a different approach to this question favoring OEMs.  Loosely translated, the referred questions are: A. Must the SEP holder prioritize licensing of suppliers? 1. Can a downstream company impede an action for injunctive relief for infringement of a standards-essential patent   for which the patentee has irrevocably undertaken to grant FRAND licenses on the basis that the SEP holder is abusing   its dominant market position under Art. 102 TFEU by refusing to grant an unrestricted FRAND license to the upstream supplier? a. If common practice in an end-product manufacturer’s sector is that a part supplier’s license clears the   manufacturer of infringement, does this support the defense against injunctive relief? b. Must the SEP holder prioritize licensing of all suppliers regardless of their level in the supply chain, or only the   one supplier immediately upstream of the distributor of the final product? Does this also depend on industry practice? 2. Does Art. 102 TFEU require that the supplier be granted its own unrestricted license for all types of use relevant under patent law on FRAND terms for products implementing the standard with the result that end-product manufacturers (and, as applicable, intermediaries) no longer need to take their own, separate licenses from the SEP holder to avoid patent infringement for using the respective parts per their intended use? 3. If the first question is answered in the negative: does Art. 102 TFEU impose particular qualitative, quantitative, and/or other requirements on the criteria by which a SEP holder must decide which potential infringers at different levels of the supply chain it can sue for injunctive relief?B. Clarifications of the Huawei v. ZTE requirements 1. Putting aside the SEP holder’s and implementer’s pre-litigation obligations (infringement notice, request for license, FRAND licensing offer; license offer to suppliers to be licensed on a priority basis), is it still possible to satisfy   obligations not previously met during the course of court action to the effect that the rights are preserved? 2. Should a license request only to be deemed substantial if a comprehensive assessment of all circumstances clearly and unequivocally shows the SEP user’s willingness and readiness to conclude a license agreement with the SEP holder under FRAND terms, irrespective of what those terms (which, due to the non-existence of an offer at that time are not foreseeable) might be? a. Does an infringer’s silence for several months after receiving an infringement notice indicate its disinterest in a license, so that - despite a verbally formulated request for a license - there is no such license and the SEP holder's injunction request must be granted? b. Can the terms of an SEP user’s counteroffer be interpreted to mean that it has not actually requested a license,  such that the SEP holder's injunction request should be granted regardless of whether its initial license offer was FRAND-compliant? c. Is such a conclusion unwarranted if the counteroffer’s license terms, which shall imply that the SEP user has actually not submitted a substantial license request, are either incompatible with high court precedents or otherwise facially non-FRAND?V.  Nokia’s ReactionThe decision of the CJEU could take up to two years. But for Nokia, time is of the essence. After injunctions obtained in Munich and Mannheim were not sufficient to force Daimler into a license deal, Nokia cannot afford to lose any time and needs another victory fast. In an attempt to prevent the case from actually being heard by the CJEU, Nokia thus appealed the Dusseldorf Court’s decision. This move is not only unusual but also not very likely to succeed, as the Dusseldorf Regional Court’s referral was orchestrated with the Dusseldorf Higher Regional Court, the very same Court which will now have to decide on the appeal. VI. OutlookThe referral offers a glimmer of hope to Daimler and other OEMs that their recent run of unfavorable outcomes before German courts may come to an end. But the outcome of the actual decision, how the national courts will implement it, and its actual benefit to SEP implementers remain to be seen. For example, the Munich Regional Court may be reluctant to rely on industry practices regardless of the CJEU’s ruling, in view of its prior decision that a car manufacturer may not rely on car industry’s licensing practices when implementing technology from the mobile communications sector.The CJEU’s ruling likely will have effects beyond SEP cases involving complex supply chains. Its clarification of issues could accelerate licensing discussions, minimize tactical delays during litigation, and reduce costs overall. Its ruling also may encourage national courts to rule on FRAND terms.Morrison & Foerster Associate Jacqueline Feigl contributed to the writing of this blog post.

Huawei v. ZTE revisited – German automotive patent wars to reshape SEP litigation in Europe

I. Introduction
On November 26, the Dusseldorf Regional Court handed down a long awaited decision in the so-called automotive patent wars (case ID 4c O 17/19). 

Huawei v. ZTE revisited – German automotive patent wars to reshape SEP litigation in Europe

<p style="background-color: transparent;box-sizing: border-box;color: rgb(82, 83, 87);font-size: 16.93px;font-variant-numeric: normal;font-variant-east-asian: normal;line-height: 27.08px;margin-top: 0px;margin-right: 0px;margin-bottom: 20px;margin-left: 0px;padding-top: 0px;padding-right: 0px;padding-bottom: 0px;padding-left: 0px;overflow-wrap: normal;">On May 1, 2020 the last part of the German Trademark Law Modernization Act (Markenrechtsmodernisierungsgesetz – “MaMoG”), which contains practical relevant amendments to the procedural rules of the German trademark system, took effect. In particular, an administrative procedure for the revocation and the invalidation of trademarks based on relative grounds has been implemented, adding a new, cost-effective, and procedurally expedient tool to the range of possible methods of attacking adverse trademark registrations. It is expected that the amendments will be accompanied by a higher fluctuation of registrations and increases in demand for strategic counseling. <p style="background-color: transparent;box-sizing: border-box;color: rgb(82, 83, 87);font-size: 16.93px;font-variant-numeric: normal;font-variant-east-asian: normal;line-height: 27.08px;margin-top: 0px;margin-right: 0px;margin-bottom: 20px;margin-left: 0px;padding-top: 0px;padding-right: 0px;padding-bottom: 0px;padding-left: 0px;overflow-wrap: normal;">In our alert, we will provide you with a short overview of the new types of proceedings available and highlight their strategical relevance and effects. <p style="background-color: transparent;box-sizing: border-box;color: rgb(82, 83, 87);font-size: 16.93px;font-variant-numeric: normal;font-variant-east-asian: normal;line-height: 27.08px;margin-top: 0px;margin-right: 0px;margin-bottom: 20px;margin-left: 0px;padding-top: 0px;padding-right: 0px;padding-bottom: 0px;padding-left: 0px;overflow-wrap: normal;">Read <a href="https://www.mofo.com/resources/insights/Germany-Adopts-Administrative-Trademark-Cancellation-Actions.html" target="_blank" style="background-color: transparent;box-sizing: border-box;color: rgb(77, 169, 197);line-height: 27.08px;text-decoration-line: none;">our alert</a>.

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Germany Adopts Administrative Trademark Cancellation Actions

Germany Adopts Administrative Trademark Cancellation Actions

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On May 1, 2020 the last part of the German Trademark Law Modernization Act (Markenrechtsmodernisierungsgesetz – “MaMoG”), which contains practical relevant amen

This Monday, May 4, 2020, the United States Supreme Court will hear its first-ever telephonic oral arguments in a trademark case regarding the nature of the boundary between “descriptive” and “generic” terms.  While the question presented is narrow—whether the addition of a generic top-level domain (such as “.com”) to an otherwise generic term (such as “booking” for travel booking services) can create a protectable trademark—the Court’s ruling could affect how a wide array of brands are (or are no longer) enforced.Read our <a href="https://www.mofo.com/resources/insights/200501-landmark-trademark-protection-case-us-supreme-court.html">client alert</a>.