Seasoned negotiators are well aware that negotiations are often won or lost before the players reach the negotiating table. At a minimum, negotiators should perform the following preparation before commencing formal negotiations:

I. The Recognized Need for Patent Law Reform Congress is now considering substantial modifications of the patent law. Most everyone recognizes that the patent system needs to be rationalized to make it function more efficiently, reducing obstacles that now impede inventors, the public and the courts. Reforms now under consideration— such as moving to first-to-file, improving post-grant review and fine-tuning standards for damages awards—represent political compromises among various industry groups, according to the ABA’s Intellectual Property Law Section. As such, they might not suffice for complete rectification. Hence in the context of the current interest in patent law reform, it behooves commentators also to consider more thorough approaches, including even a rethinking of first principles underlying the entire concept of, and mechanism for, protection of inventors’ work product. In that spirit, we offer this suggestion for a “U.S. Public Patent Pool,” modeled after industry pools such as those used for facilitating the creation of CD hardware. The proposal also borrows philosophically from the recently-enacted federal health insurance mandate, in that in its strongest form it compels all inventors to participate—since 100 percent participation is essential to effective patent reform under this plan.

The 25% rule is based on observations that royalty negotiations tend to a royalty rate that equals approximately one-quarter of the licensee’s expected operating profits derived from the technology. Over the years, the rule has been generalized, and sometimes is referred as the 25% to 33% rule, depending mainly on technology, industry normal, and other relevant issues. The 25% rule has been a useful rule of thumb for royalty determination. However, recent efforts to empirically prove its validity have been unsatisfying. For example, Goldscheider et al. (2002) demonstrated that the royalty rate as a percentage of operating margin appeared to be congruent with the 25% rule, but the work stopped short of exploring more fundamental relationships between royalty rates and profit margins. Kemmerer and Lu (2008) found that profitability and royalty rates were linearly associated, but the coefficients of various profit margins were much higher than the 25% rule would imply. The lack of convincing evidence to empirically validate the 25% rule is mainly due to the very nature of the data used in the studies. First and foremost, the royalty rates calculated by the 25% rule serve only as a starting point for royalty determination, and are subject to up- or downward adjustments based on industry-, company-, and technology-specific factors. In other words, even if the 25% rule is widely used in practice, after a series of such adjustments, the actual royalty data is a variation of the rule.

Outside the United States of America, the term “shop rights” remains something of a mystery. It does not appear that there are corresponding provisions anywhere else. However, there are somewhat similar provisions in some countries, such as Germany.

Companies regularly enter into trademark licenses to obtain the right to use a trademark in connection with the production, sale, marketing or distribution of goods. In a typical license agreement, the owner of a trademark, i.e., the licensor, will permit a licensee to use its trademark or “brand” in return for the payment of a royalty. Essentially, licensing a trademark allows the licensee to take advantage of already established goodwill or brand identification created by or for the trademark owner. Trademark royalties may be assessed and divided in a variety of ways, but are often expressed as a percentage of gross or net sales, as appropriately defined, or as a fixed fee per unit sold or produced. The tax treatment of such payments (i.e., to capitalize or to expense) varies, but usually depends on the terms of the licensing agreement. Many taxpayer licensees will allocate royalty expenses between expenses that can be immediately deducted and expenses that must be capitalized.

In response to the changing needs of the company and the region, intellectual capital (IC) awareness undertaking was introduced as a new initiative in Saudi Aramco. The company is the world’s largest producer and exporter of crude oil, a world-scale producer of natural gas, and a growing player in refining.

Merchandising of intellectual property (IP) is the marketing technique where the goods or services are decorated and embellished with established IP with an aim that such embellishment will induce the public to buy them. A coffee mug carrying the image of Spider-man, a toy made in the shape of He-man, a T-shirt with a logo of Harvard University, a rakhi in the shape of Donald Duck are all instances of merchandising of various forms of IP. In all these examples, IP such as trademarks, copyrights and designs belonging to others have been used by the producer of goods/services. The producer could, however, do that only through licensing of relevant IP rights.

This review of the archaeology and history of Intellectual Property should be of general interest to LESI members and of use in increasing understanding in our field. An attempt will be made to show how slavery, mystics, primogeniture, social status, anathema, domination, religion, forceps, economics, curses, and Roman Law influenced the development of Intellectual Property Law and licensing. The concept of placing a mark on an animal or pot to show ownership is ancient. The Torah and The Old Testament both tell the story of Cain and Abel, and how God cursed Cain who had killed his brother Abel: Cain complained to God that the curse would lead all men try to kill him: “Then The Lord replied to him, ‘In that case, whoever touches Cain will suffer vengeance seven times over.’ “And he placed a mark on Cain, so that whoever found him would not kill him.”

Ignorance of the law is not an excuse. This [in]famous saying has a lot to offer regarding ignorance in a world where the laws are territorial, but the business is across the territorial limits. The knowledge of the laws of a territory is increasingly becoming important before entering into the foreign waters. In fact such legal inputs have become an integral part of business strategy. Since it is done prior to actually triggering the business activities, the entire process has been rightly named due diligence. Intellectual property (IP) has emerged as front runner in the due diligence process because working on the IP due diligence can start at the same time as the development of the business strategy. However, it would not be right to give a notion that due diligence or IP due diligence is required only in cross-border situations. It is just like putting a step forward, only after making sure that you’re not going to stand on someone else’s tail.

Congress is currently considering the Patent Reform Act of 2010. If passed, and there is a good chance it may be passed, one significant change would be the adoption of a “first-to-file” system and the abandonment of our current “first-to-invent” system. Most corporations are strongly in favor of making this change. However, some small businesses and individual inventors are outraged over this proposed change. We at Miller Matthias & Hull LLP favor the change to a first-to-file system and think the concerns of some small businesses and individuals are unfounded for the following reasons.

Prior discussions of the treatment of royalty compensation among technology license arrangements typically address valuation methods or fixed methodologies to determine how much is paid for a given technology type or category. This article addresses the more critical aspect of how such royalties are structured under varying scenarios, with emphasis on the associated market risk inherent in the various technology royalty models presented below. The author’s focus is to distinguish the most prevalent royalty models encountered in today’s high-tech industry, addressing the actual allocation of risk versus return between licensor and licensee.