The Lit-Year

Anyone working in technology is familiar with the light year.  It is not a measure time, but of distance — the distance that light travels in one year — about 5.9 trillion miles.  In the world of intellectual property we should define another unit of measure: the lit year.  A lit year, like a light year, is not a measure of time.  Rather, the lit year is the typical spend in IP litigation in a year.  The most recently published AIPLA Economic Survey reports the median cost of a medium ($2-$10 million) patent infringement case at $2 million. The 2017 PWC Litigation Study puts the medium time to trial in a patent case at 2.4 years.  This makes a conservative estimate of the lit year at a little over $833,000.

So what’s the use for the lit year?  Like its scientific cousin the light year, the lit year is a bench mark that provides perspective.  For example, a $350,000 IPR might initially sound budget busting, but if you consider that it is only 0.42 lit years — the amount you would spend in about 5 months of litigation — its starts to make sense.  Similarly, a $20,000 new product clearance may seem like a needless expense but when you consider that this is just 0.024 lit years —  the amount you spend in about six days of litigation, it sounds like a better idea.

The lit year is a helpful tool in measuring risk, or more precisely the cost of reducing risk.



Reverse engineering (now does the title make sense?) is a common and legitimate business practice.  The recent federal Defend Trade Secrets Act specifically excludes reverse engineering from the definition of misappropriation.  18 USC §1839(6) (“the term ‘improper means’ . . . (B) does not include reverse  engineering.”).   While the Uniform Trade Secrets Act (some form of which is in force in 48 states and the District of Colombia) does not expressly mention reverse engineering, the Comments to Section 1 adopt the Restatement of Torts position that “Discovery by ‘reverse engineering’, that is, by starting with the known product and working backward to find the method by which it was developed” is not an improper means of acquiring a trade secret (provided the acquisition of the product was by a fair and honest means).

Thus if an unpatented product is acquired legally, and there is no enforceable promise not to reverse engineer, the owner of the product is free to analyze and copy the product.   Some courts have enforced  “no reverse engineering” clauses[1].  However after Impression Products, Inc. v. v. Lexmark International, Inc,  such restrictions may not be enforceable beyond the first purchaser, and in any event, at least some courts have found such “no reverse engineering” clauses unenforceable, for example where they interfere with the fair use of computer software.[2]

A business including reverse engineering as part of its product development process should be careful not to cast its own activities in a false light.  Emails and other internal documents referring to the business’ reverse engineering efforts as “knocking off” or similarly disparaging terms, may unfairly portray the company and its products should there be litigation in which the these documents come to light.  A business should instead accurately characterize its efforts as developing non-infringing competitive products, of which reverse engineering is just one part.


[1] See K&G Oil & Tool Service Co. v. G&G Fishing Tool Service, 158 Tex. 94, 314 S.W.2d 782, 785-86 (1958)(enforcing a negotiated agreement not to reverse engineer); Pioneer Hi-Bred Int’l, Inc. v. DeKalb Genetics Corp., 51 U.S.P.Q. 1987 (S.D. Iowa 1999)(enforcing “bag tag” restrictions on use of seed for research purposes).

[2] See Vault Corp. v. Quaid Software Ltd., 847 F.2d 255 (5th Cir. 1988).


Give a Man Cupcake Sushi, and He’ll Have Dessert for a Day; Teach a Man to Make Cupcake Sushi, and He’ll Rip You Off

Lori Shubert and her company Cupcake Sushi, LLC filed an interesting lawsuit against Santiago and his associates doing business as Sushi Sweets, for patent infringement, trademark infringement, misappropriation of trade secrets, common law trademark infringement, federal and state unfair competition, and trade dress infringement. Shubert claims to have invented a unique confectionery dessert cake: cupcake sushi. Shubert has apparently built a thriving business in Key West Florida.  According to the complaint, Santiago, a former licensee and employee of Cupcake Sushi, absconded with product, equipment and Cupcake Sushi’s trade secrets.

Shubert clearly had an interesting and appealing idea, and while she took some steps to protect it, she probably should have formed a more comprehensive plan at the outset.  As she pleads in her lawsuit she applied for a utility patent (14/487364), she allowed the application to abandon.  She also applied for and obtained a design patent (D789,025) but filed the application several years after she claims to have developed her product.  Even if this patent validly protects a later design, she left her earlier designs exposed. While she did register her CUPCAKE SUSHI name and logo (Reg. Nos. 4471750 and 4770652), she might have also tried to protect her products names and appearances.

Resources are always tight in start-ups, and it is easy to second guess the allocation (or lack thereof) to lawyers, as entrepreneurs always seem to have other fish to fry. Shubert probably could have done more and done it sooner.  Shubert did take a number of appropriate steps to protect herself, and if those rights have been violated, then hopefully she will be able to enforce them and this won’t represent the fish that got away.  However, a more comprehensive approach might have made enforcement like shooting fish in a barrel:

Shubert may have learned another important lesson about protecting confidential information.  A confidentiality agreement does not make a dishonest person honest. The most important steps in protecting confidential information is limiting disclosures to people who can be trusted.

Shubert may have to also have to face the fact that no matter how comprehensive your intellectual property protection, there will always be some way for other to compete.  Good luck to Ms. Shubert, but if things don’t work out, there are always other fish in the sea.

An Implied Contract Can Turn You “Inside Out” — Remember the Non-Confidential Disclosure Agreement

Denise Daniels has sued the Walt Disney Company in the Central District of California for breach of an implied-in-fact contract to compensate her for using her ideas in the movie Inside Out.  Daniels alleges that she relied on the custom in the entertainment industry “to provide ideas and materials to produces and studios in exchange for compensation and credit if such ideas or materials are later used.” She further alleges that “Disney-Pixar accepted the disclosure of the ideas in The Moodsters with an expectation that it would have to compensate Daniels if Disney-Pixar used this idea in any television, motion picture, merchandise, or otherwise.”

This case is a reminder that receiving information from a third party is risky business.  Even where there is no violation of any traditional intellectual property right such as a patent, copyright, trademark or trade secret, one can still find oneself in a lawsuit alleging an implied-in-fact contract to pay for the “idea.”

While an implied-in-fact contract — a contract where none really existed —  is well recognized legal doctrine, this case appears to present a new doctrine — implied-in-fact consideration.  While most cases enforcing rights in ideas require that the idea be both concrete and confidential, many of the aspects of Daniels’ idea appear to have been publicly available.   Her company, Moodsters Company, obtained a copyright registration (PA0001394057) on a pilot The Moodsters: Amoodsment Park Mixup, claiming a date of first publication of June 1, 2007.  There have been Moodsters websites, and Daniels and her company have of and on been trying to register various Moodsters trademarks for more than a decade.

If the Moodsters are as publicly available as it appears, what did Daniels bring to Disney-Pixar that wasn’t already available to anyone?  Is it possible that Disney-Pixar is in a worse position for talking to Daniels, than someone who just referenced her public domain materials.  The answer is clearly yes.  Not because Daniels is certain to win, but rather because even if Disney-Pixar is in the right, they now have to defend themselves.

Daniels reminds us that even in the absence of a confidentiality agreement, there is a risk receiving information from a third party.  Rather than expose oneself to the vagaries of an after-the-fact contract, you may be better served with an explicit contract spelling out your obligations (or lack of obligations) to the disclosing party.

Imagining the Perfect Confidentiality Agreement

The perfect confidentiality agreements is, in most cases, overkill and in any event probably never would be signed. Hundreds, if not thousands of CDAs, NDAs, and other secrecy agreements are signed every day, and the vast majority perform adequately for their purpose.  Rather than chase perfection, the parties should focus on avoiding mistakes.

From the Perspective of the Disclosing Party

Prevent disclosure and use.  The disclosing party should make sure that the agreement not only prevents disclosure but also use of the confidential information.

Define protected information. The definition of protected information should include anything that the disclosure is likely to disclose.  The disclosing party should resist requirements that could result in accidental forfeiture, such as requirements that the information be marked confidential or that oral disclosures must be confirmed in writing.

Define the time.  The duration of the receiving party’s obligations should be clearly defined, as should the period of time during which the disclosing party can disclose information under the agreement.

Have an enforcement plan.  If the party to the agreement discloses or uses the information, there is a breach of contract action.  However, if a rogue employee or contractor, who is not a party to the agreement, discloses or uses the information, what is the plan?  The agreement can provide a right of enforcement, or require the receiving party to enforce the agreement on the disclosing party’s behalf.

Unnecessary obligations.  While it is easier to get a reasonable agreement when the provisions are mutual, a disclosing party should not accept confidentiality obligations to the receiving party if it does not need to.

Disclosing Party Options.  Ownership. The disclosing party may want to control ownership of inventions inspired by the disclosed invention.  Non-filing.  The disclosing party may want to restrict the receiving party from filing patent applications on subject matter inspired by the disclosure.  No Export.  The disclosing party may want to prevent export of the information.  Choice of law.  The disclosing party may want to select law that will protect the disclosed information.  Choice of forum.  The disclosing party may want to select a forum that is convenient and reliable, No warranties.  The disclosing party may want to disclaim any warranties about the disclosed information.  No obligation.  The disclosing party may want to disclaim an obligation to deal further with the disclosing party.

From the Perspective of the Receiving Party

Define protected information.  The receiving party needs to precisely define the information that is subject to the confidentiality obligations,

Exceptions.  The receiving party should define exceptions to its obligations for information that is already in the public domain; information that the receiving party already had in its possession, and information that subsequently comes into its possession other than from a breach of duty to the disclosing party.

Define the time. The receiving party needs to know how long to maintain confidentiality, and how long the disclosing party can make disclosures that the receiving party has to protect.

Receiving Party Options.  Confidentiality. The receiving party may want some protection for its own information that it might exchange with the disclosing party.  No obligation.  The receiving party  may want to disclaim an obligation to deal further with the disclosing party.  Choice of Law.  The receiving party may want to know the law that applies to the construction and enforcement of the agreement.   Choice of forum.  The receiving party may want to limit where it can be sued to enforce the agreement.

Checklist for a Confidentiality Agreement

  1. Parties properly identified
  2. Definition of protected information
  3. Obligation not to disclose protected information
  4. Obligation not to use protect information
  5. Duration of obligation to protect protected information
  6. Duration of agreement (period of disclosures by disclosing party)
  7. Indemnity by receiving party for breaches by those to whom it discloses the protected information
  8. Representations by receiving party
    1. Ability to enter into agreement
    2. Agreements with third parties to ensure performance
  9.  Ownership of developments based upon disclosed information.
  10. Promise not to file filing patent applications on subject matter inspired by the disclosure.
  11. No Export of the disclosed information.
  12. Choice of law that applies to the agreement.
  13. Choice of forum where agreement can be enforced.
  14. Disclaimer of warranties regarding the disclosed information.
  15. Disclaimer of obligation to deal further with the other party.
  16. Boilerplate
    1. Assignability
    2. Severability
    3. Effectiveness of copies
    4. Integration
    5. Authority of Signatories



Promise to Arbitrate Claims “Arising Under” is Narrower than Promise to Arbitrate Claims “Relating to” Agreement

In Evans v. Building Materials Corporation of American, [2016-2427](June 5, 2017), the Federal Circuit affirmed the denial of a motion to dismiss a complaint for patent infringement and trade dress infringement.

Evans U.S. Design Patent No. D575,509 on a three-dimensional roofing model designed to be used by a seller of roofing products during a sales pitch.  He entered into an agreement with GAF under which GAF agreed to promote the product to GAF’s network of certified contractors, Evans agreed to sell the product at discounted prices to the GAF contractors and to pay GAF a percentage of sales.  The Agreement contained an arbitration clause for “any dispute or disagreement [that] arises under this Agreement.”

Evans sued alleging that after termination of the agreement, GAF made and sold infringing roofing models.  GAF moved to dismiss or stay pending arbitration, invoking the arbitration clause.  The district court found that 2009 agreement has expired, and thus did not apply, and alternatively, that the present dispute did not “arise under” the terminated 2009 agreement.

The Federal Circuit found GAF’s contention “wholly groundless.” The Federal Circuit said that the arbitration clause only reaches claims arising under the 2009 agreement. GAF conceded that under controlling Fourth Circuit precedent the focus is “whether the claims at issue have a direct nexus to the contractual obligations, and more specifically, whether the claims are ‘related to the interpretation and performance of the contract itself.’” The Federal Circuit noted that the “arising under” language was narrower than “relating to” — under which a claim may be arbitrable if it has a “significant relationship” to the contract, regardless of whether it arises under the contract itself.

What Would the Perfect Employee Agreement Look Like?

Lawyer’s strive for perfection in their , but time constraints, budgets, and other factors work against us.  Also, perfection is not always the same thing in every circumstance.  It is interesting, however, to contemplate, what perfection might look like

1. Confidentiality

One of the primary purposes of an employee agreement is to protect the confidential information of the employer, as well as the employers suppliers and customers.  The agreement should obligate the employee to protect all confidential information that the employee reasonable knows the employer regards as confidential, regardless of whether the information is marked confidential.

2. Non-Compete

While in some jurisdictions it may be possible to get an injunction against an former employee from competing with the former employer where it is inevitable that the former employee will disclose or use the former employer’s trade secrets, generally the only way to stop a former employee from competing is with a specific covenant not to compete.  Even with such a covenant, the protection is usually limited to instances where the departing employee had access to trade secrets or had contacts with customers.

While current employees cannot complete with their employer, they are generally permitted to prepare to compete.  However such preparation is something that an employer might be able to restrict by contract, for example requiring an employee refrain from making preparations to compete with the employer while still employed, or preventing an employee from working with current or former employees in preparing to compete with the employer while still employed.  The employer should also consider requiring employees to report any breach of the non-compete provisions, so that it gets timely notice of problems.

To facilitate enforcement of a covenant not to compete, the employer might require the employee to keep the employer advised of subsequent employers.  The employer should further obtain a consent of the employee to contact subsequent employers to advise them about their new employees obligations to the former employer.  Otherwise, the employer could face a claim of tortious interference from the former employee.

3.  Non-Solicitation

It’s bad enough when an employer loses a critical employee, but losing a group of employees can be devastating.  This can be addressed in part with carefully crafted covenant not to compete.  However, an employee can agree not to solicit his/her co-workers to work for a competitor,

4.  Assignment of Inventions

Aside from confidentiality, the critical function of employee agreements is to transfer employee inventions to the employer,  The agreement should require the employee to promptly disclose new inventions to the employer.  The agreement should also include a promise to assign inventions, as well as a present assignment of inventions. Employers should be careful, however, because some states restrict the inventions that an employer can require an employee inventor to assign.

The employer should include a specific consent by the employee to file a patent application on any invention made by the employee during the term of employment. The employer should also consider an agreement not to contest any patents that are obtained.  While the courts generally won’t entertain such attacks because of assignor estoppel, but the Patent Office will allow inventors to attack the patent through inter partes review.

To protect against the situation where an inventor is unwilling or unable to execute a subsequent assignment document, the employer might include a power of attorney, so that an officer can execute assignment document on behalf of the employee.

Particularly where an employee has a history of inventing, the employer should consider requiring new employees to identify previously made inventions that the new employee may claim do not belong to the inventor.

While copyrightable works prepared by employees in the scope of their employment are works-made-for-hire that belong to the employer, works prepared by employees outside the scope of their employment — even if they relate to the employer’s business — belong to the employee.  An employee agreement can of course change this result, and the employer should ensure that it obtains ownership or at least the right to use all of the works of its employees that relate to the business.

5.  Access to Computers

The Computer Fraud and Abuse Act (can corresponding state laws) provides some protection from disloyal employee’s misuse of the employer’s computer systems and data.  However, this protection hinges on whether or not the employee’s access to the computer system and data was authorized.  Since most employees are on some level authorized users. it is important for an employer to define what access is authorized, and what access is not.

6. Return of Employer Property and Confidential Information

The Employer should specifically require the return of any employer property and information by a specific date.  The failure of a departing employee to do so is surprisingly common, and gives the employer legal leverage over the departing employee.

7.  Publicity and Social Media Restrictions

Employee names and likenesses are often incorporated into the employer’s marketing, and the employer would prefer not to have to rework these materials every time an employee departs.  Thus, an employer should obtain the express consent of employees to use their names and likenesses in promoting the employer, and this consent should survive the termination of the employee’s employment.

For employees that are active on social media, the employer should consider imposing some restrictions on employee conduct on social media.  The employer might require that employees not associate the employer with their personal posts.  The employer might also require that the employee not comment about the employer, or at least comment negatively about the employer.

Occasionally, whether by design or by accident, an employee who is active on social medial becomes the official or unofficial voice of the employer.  The employer needs to consider what happens to the employer’s social medial presence when this employee leaves.  Does the employer get to take over the account? Does the employer have the user name and password?


  1. Recitation of Consideration
  2. No impact on Status of Employment at Will
  3.  Confidentiality
    1. Protects Company information and that of customers and suppliers from disclosure or use.
    2. Regardless of whether marked “confidential.”
    3. Prevents export of information (if appropriate).
    4. Promise not to disclose confidential information of previous employers and other third parties
  4. Covenant to Not-to-Compete
    1. Appropriately limited in geographic scope or time.
    2. Protects confidential information and/or customer contacts.
    3. Includes preparations to compete while employed.
    4.  Competition/Competitors clearly defined.
    5. Guaranteed period of non-competition.
    6. Obligation to advise employer of subsequent employment
    7. Consent for employer to contact subsequent employers
  5. Non-Solicitation
    1. Appropriately limited to key personnel
    2. Appropriately limited as to duration
  6. Assignment of Inventions
    1. Appropriate definition of invention (consistent with state law).
    2. Requirement of prompt disclosure (of all inventions including those not subject to obligation to assign).
    3. Automatic, immediate assignment of inventions when made, as well as a promise to assign inventions.
    4. Power of attorney to execute confirmatory assignment on behalf of employee.
    5. Authorization to file patent applications on assigned inventions
    6. Identification of prior inventions not subject to assignment,
    7. Treatment of inventions made in period after termination of employment.
    8. Assignment of copyrightable works.
    9. Agreement to execute further documents to secure and enforce rights in assigned inventions
    10. Promise not to challenge validity of patents on assigned inventions
  7. Access to computers and data
    1. Access limited to activities that solely benefit employer and no other purpose.
    2. Acknowledgement that accessing computer system or data for any purpose other than for the benefit of the company is unauthorized.
    3. Acknowledgment of and consent to monitoring of computer usage, email, and company resources.
  8. Return of Employer Property
    1. Obligation to return all employer property
    2. Obligation to return/delete all employer data from personal computers and other electronic devices
    3. Obligation to turn over or destroy all physical and electronic files containing information belonging to employer
  9. Publicity and Social Media
    1. Consent to use name and image in advertising and promotion, even after the employee leaves.
    2. Restrictions on references to employer on social media, including in usernames or scree images on any social media.
    3. Requirement to turn over login information for any social media accounts officially or unofficially associated with employer.
  10. Representations from Employee
    1. Free to accept employment
    2. Not under any covenant not to compete (or identification of existing covenants)
    3. Not under any confidentiality agreement (or identification of existing agreements)
  11. “Boiler Plate” Provisions
    1. Choice of law.
    2. Choice of forum.
    3. Non waiver.
    4. Modifications must be in writing.
    5. Duplicates and Facsimiles of Agreement are effective.
    6. Integration.