juridiko by Sean Hogle

Strategies for overcoming time-bound confidentiality obligations

In non-disclosure agreements, or any type of agreement that contains confidentiality provisions, clauses that terminate the confidentiality obligation after a period of time are common. "The obligations of confidentiality under this agreement expire five years after termination," for example.

I understand the arguments of those that defend such clauses: administrative convenience and finality; that most information should be expected to "go stale" after a 3 years or so anyway; and that it's better to use a separate agreement for true trade secrets.

New California labor law impedes effective legal representation of residents negotiating with out-of-state employers

Last week, Governor Brown signed SB1241. This law adds section 925 to the California Labor Code. The heart of this new statute is section 925(a), which provides, "An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following: (1) Require the employee to adjudicate outside of California a claim arising in California; (2) Deprive the employee of the substantive protection of California law with respect to a claim arising in California."

Any employment-related contract entered, modified, or extended on or after January 1, 2017 that runs afoul of these strictures is voidable at the election of the employee, in which case any matter under dispute must be adjudicated (either via litigation or arbitration) in California.

The statute includes a surprising twist: its protections will not extend to "an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied."

Regrettably, this provision's impact on the attorney-client relationship was apparently not considered. A resident might be better off not being represented at all, especially if the out-of-state employer is large and inflexible on choice of law/forum clauses. And, there's a non-trivial risk that simply advising a client on the terms of the agreement – or merely giving the client the thumbs-up for signature – would render the client a represented employee, and therefore ineligible for the protection of the statute.

A more detailed discussion of this matter and strategies for workarounds can be found at Redline (redline.net): http://redli.ne/2dA0Ej6; as well as here

M&A-friendly technology license agreements

Back in the day, when I was in-house counsel at Sun Microsystems, Sun was the frequent target of takeover rumors, particularly during the height of the late '90s dot-com boom. Then-CEO Scott McNealy would typically respond to press inquiries about such rumors with the same refrain: Sun is always for sale if the price is right.

Apropos of the recent announcement of Tim Kaine as Hillary's VP

"I am correct, am I not, that Syria has not invited us to conduct military operation within the nation of Syria?" Kaine asked Defense Secretary Ash Carter.

"You are correct," Carter responded. "But we do have lawyers."

Drop the mic.


Amazon Web Services terms of use: run far away, run fast

Amazon sells Amazon Web Services (AWS), a collection of cloud-hosting services. Amazon promotes AWS as a way for companies to secure computing capacity quickly and economically, eliminating the need to purchase and maintain physical servers. Thousands of companies, including traditional mainline businesses, internet startups and technology ventures, use AWS to host their software and brands on Amazon servers, including Comcast, Siemens, Reddit and Netflix.

The AWS Customer Agreement (http://aws.amazon.com/agreement/) contains an IP non-assertion clause that is breathtaking in its reach: "During and after the Term, you will not assert, nor will you authorize, assist, or encourage any third party to assert, against us or any of our affiliates, customers, vendors, business partners, or licensors, any patent infringement or other intellectual property infringement claim regarding any Service Offerings you have used." "Service Offerings" are defined as AWS, "(including associated APIs)", the "AWS Content" (which includes software), the "AWS Marks" (which are any marks that Amazon uses now or in the future), and "any other product or service" provided by Amazon under this agreement.

New Federal Trade Secrets Act compels changes to standard confidentiality text in all employee/contractor agreements

This past week, President Obama sign the Defend Trade Secrets Act of 2016. Most lawyers are unaware that the Act necessitates changes to all employee and contractor confidentiality agreements if the enhanced remedies available under the Act are to be preserved.

We must punish those who willfully infringe patents -- unless the infringer's losing patent invalidity defense is a "close call"

Marvell dodged a bullet in the case of Carnegie Mellon University v. Marvell Technology Group, Ltd. (Fed. Cir. Aug. 4, 2015). The jury and district court had found that Marvell willfully infringed certain Carnegie Mellon (CM) patents, and the judge slapped Marvell with enhanced damages (under 35 U.S.C. § 284) equal to 23 percent of the reasonable royalty award, or $287 million. On appeal, the Federal Circuit reversed the award, finding as a matter of law that Marvell had an "objectively reasonable" invalidity defense to infringement.

The evidence of Marvell's intentional duplication of the methods and systems claimed in the Carnegie Mellon patents was striking. Marvell's engineers used the name of one of the CM inventors as the basis for internal code names for the product development project in which Marvell replicated the patented CM methods. What saved Marvell was its invalidity defense.

The notion that the US patent system fosters public disclosure of inventions is a joke

A "patent", according to Wikipedia, is "a set of exclusive rights granted by a sovereign state to an inventor or assignee for a limited period of time in exchange for detailed public disclosure of an invention." Yet no one engaged in the business of developing technology ever reads patents for R&D purposes. The reason? Knowledge of a patent enables the patent-holder to claim willful infringement, and willful infringement opens the door to enhanced or even treble damages.

I know of many technology companies with rigorously-enforced policies prohibiting engineering staff from reviewing competitor patents. I was involved in an asset purchase transaction recently in which the acquiring company's in-house lawyers refused to allow their staff to review the very patents they were buying, in case the deal failed to close. This fear of enhanced damages, whether justifiable or not, effectively nullifies the patent system's invention disclosure justification.

Intentional breach of contract

Under US law, the courts as a general matter (outside of special contexts like insurance) refuse to penalize intentional breaches of contract. If the damages resulting from the breach are outweighed by the loss caused by compliance with the contract, the courts will usually not punish the breaching party merely because of that party's intention to breach. "The traditional goal of contract remedies is compensation of the promisee for the loss resulting from the breach, not compulsion of the promisor to perform his promises. Therefore, ‘willful’ breaches have not been distinguished from other breaches …." Freeman & Mills, Inc. v. Belcher Oil Co. (Cal. S. Ct. 1995). The concept of "efficient breach" under US law is based on "the understanding that people will sometimes intentionally break their contracts for no other reason than that it benefits them financially." Sierra v. Lockerby (9th Cir. 2008).

I have three questions I'd like to pose with respect to the "efficient breach" concept:

The absolute best anti-reverse engineering clause I've ever seen

Because relevant US and EU software copyright law permits reverse engineering as "fair use", blanket contractual prohibitions on reverse engineering (eg, "Licensee will not reverse engineer, decompile, decode, decrypt, disassemble, or in any way derive source code from, the Licensed Software") might not be enforced. See eg SAS Institute, Inc. v. World Programming Ltd. (ECJ 2012); Vault v. Quaid Software Ltd. (US 5th Cir. 1988). These jurisdictions countenance reverse engineering as fair use if conducted in order to achieve interoperability between the licensed software and independently created software.

Most drafters of technology license agreements representing licensors recognize this, and consequently use the following commonly found formulation: "Licensee will not reverse engineer, decompile, decode, decrypt, disassemble, or in any way derive source code from, the Licensed Software, except to the extent enforcement of the foregoing is prohibited by applicable law."

The problem with this clause, however, is that it operates in a purely binary fashion: if the licensee's activities are within the legal contours of fair use, the anti-reverse engineering clause will not be enforced. If they are not, then the clause will be enforced. This type of clause is not much of an improvement over a simple blanket prohibition. No effort is made to attempt to define in advance what the parties would consider fair use.

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