Risk Management and Compliance Overview
Michael Brodowski, Ph.D. Partner (Intellectual Property)
John Edwards Partner (Insurance)
Mark Pomfret Partner (Employment)
Thomas Turano Partner (Intellectual Property)
Today’s Agenda
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Introduction
IP Risk Considerations
Employment Risk Considerations
Insurance Risk Considerations
RISK
 RISK - The quantifiable likelihood of loss or lessthan-expected returns.
 May be thought of in terms of expected value.
 Everyone is concerned about risk but risk is
frequently subjective.
 As reported in the Economist, some 1500 additional
people were killed in automobile accidents following
September 11th, when more people chose to drive
rather than fly.
RISK as a Business Condition
 Sufficiently economically developed societies
legislate to reduce societal risk.
 Failure to meet these legislative requirements may
result in either civil or criminal liability.
 Today we will talk about three areas of risk and
discuss ways to reduce risk in those areas.
IP Risk Considerations
Michael Brodowski, Ph.D.
Thomas Turano
Intellectual Property-Related Risk Management
 Two areas of concern
 Your Company’s Intellectual Property
 Other’s Intellectual Property
Risk Management – Your Company’s IP
 Ownership – Do you own what you think you own?
 Divulgation of IP – Did you lose rights by divulging
your IP?
 Transactional Considerations – Are you in breach of
your agreements? What is the worst that can
happen?
 Trade Secrets – Are they really secret and did you
do all you should to protect the secrets?
Risk Management – Your Company’s IP
 Ownership – Patents, Trademarks & Copyrights
 Employee Agreements – Do you have them?
 Explicit Assignment of Rights – Do you have
executed assignments?
 Consultants/Works for Hire – Are there agreements in
place? Do you explicitly recite nothing going either
way?
 Government Rights in Inventions – Was there
government money involved in the development?
Did you take all the steps necessary to secure rights?
Risk Management – Your Company’s IP
 Divulgation of IP
 Divulgation of Invention – May cause a loss of patent
rights by publication or offering for sale
 Grace Period in United States – 1 year to file
 Loss of Non-U.S. Rights – Actual publication causes loss of
rights
 Loss of Trade Secret Status – It’s not a trade secret
once it is published
 Patent Foreign Filing Licenses – May be required if
the invention takes place in another country
Risk Management – Your Company’s IP
 Transactional Considerations
 Compliance with License/Agreement Provisions
 Frequent source of problems in investments and mergers
 Proper Use of Open Source Code
 Open Source Code License Types – Viral and Benign
 Still must comply with license terms even if benign
 Transferability
 Assignability of patent license rights needs to be in writing
 Due Diligence
 Representations and Warranties
 Who owns the RISK?
Risk Management – Your Company’s IP
 Trade Secrets
 Trade Secret Protection vs. Patent Rights – Can’t
have it both ways
 Maintaining IP as a Trade Secret
 Policy and Procedures
 Must treat it as if it were a trade secret
 Need-to-know basis
Risk Management – Other’s IP
 Patent, Trademark & Copyright Clearance
 Monitoring of Other’s Patenting Activity
 Monitoring Significant IP Court Decisions and
Impact on Portfolio
 Defensive Portfolio Considerations
Risk Management – Other’s IP
 Patents
 Clearance of Product/Service – “freedom-to-operate”
 Attempt to ensure your product does not infringe before
commercial release
 Patent Opinions Relating to Infringement and Validity
 Formal reasoned opinions regarding non-infringement by
your product and/or invalidity of the relevant patent
 Patent Reexamination/Non-U.S. Opposition Practice
 Attempt to invalidate a patent in a patent office instead of
litigation
Risk Management – Other’s IP
 Trademarks
 Clearance of Proposed Trademark
 Besides the issue of infringement, why advance another
party’s mark?
 Common Law vs. Registered Trademark
 Trademark rights by use vs. State, Federal or treaty
registration
 Oppositions/Cancellation Proceedings
 To remove or limit a trademark held by another party
Risk Management – Other’s IP
 Copyrights
 Registration NOT Required
 Fair use vs. infringement
 Registration vs. Non-Registration
 Statutory damages
 Right of U.S. entity to sue in the U.S. affected
Risk Management – Other’s IP
 Monitoring of Other’s Patenting Activity
 Understand Patent Landscape, Keep Updated
 Knowledge is Power
 Finding out about a problem early may permit a designaround
 May permit fencing in of the patent
 Patents, Patent Publications, Scientific Journals
 Downside – If not willing to follow through on
information, potential exposure to willfulness, treble
damages and attorney fees
Risk Management – Other’s IP
 Monitoring Significant IP Court Decisions and
Impact on Portfolio
 Revisit portfolio analysis in view of changing legal
standards
 For example, has Supreme Court decision in KSR
rendered patents more susceptible to an obviousness
invalidity finding?
 Consider not only impact on other’s IP but
Company’s IP too
Risk Management – Other’s IP
 Defensive Portfolio Considerations
 Breadth of portfolio provides potential negotiating
leverage in dispute
 Need to evaluate leverage based on current legal
standards, e.g., KSR decision
Employment Risk Considerations
Mark Pomfret
Protection of IP Through Employment
 Non-Disclosure Agreement
 Invention Agreement
 Non-Competition Agreement
– Legitimate Business Interest
– Reasonable in Terms of Content, Duration and
Geographic Scope
Non-Solicitation Agreement
– Employees
– Customers
Practical Considerations (1)
 Provide for favorable choice of law and/or consent
to jurisdiction
 Consider requiring former employees to disclose all
employment/consulting relationships undertaken
during restricted period
 Get agreements signed at the outset of
employment
 Keep agreements in file, under lock & key
 Give copies to employee upon departure
 Remind employee of obligations
Practical Considerations (2)
 Non-Disclosure Agreement
– Treat confidential information as confidential
– Secure the information
– Don’t let anyone see your IP without signing an
NDA
– Include remedies that will produce real
deterrence
– Ensure survivability language
Practical Considerations (3)
 Non-Competition Agreement
– Don’t ask everyone to sign the non-compete
– Get a new non-compete if duties or nature of
business change
– Focus on what you really need
– Consider paying for the non-compete
– California issues
– Weigh deterrent effect on attracting talent
 Always have a successors clause
Employee Classification Risk Avoidance
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Introduction
Exempt v. Non-Exempt
Salary and Duties Tests
Employer Recordkeeping
Employee v. Independent Contractor
Employee Classification Risk Avoidance (2)
 Proactive Practical Steps
– Audit
– Address Question and Complaint Through
Hotline
– Establish Investigation Process
– Prepare and Abide by OT Policies
– Develop Payroll Integrity Policies
Wage Payment Risk Avoidance
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Timing
Payroll Information
Vacation Policies
Meal/Rest/Holidays
Reporting Pay
Dangerous Documents Risk Avoidance (1)
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Applications
Offer Letters
Equity Agreements
Job Descriptions
Personnel Records and File Retention
Handbooks
Electronic Communication Policies
Restrictive Covenant Agreements
Dangerous Documents Risk Avoidance (2)
 Performance Appraisals Up To Date
– Supports Decision-Making
– Workforce Planning
 Retention of Key Performers
– Inducements to Remain
– Defined Role in Reorganization
IP Risk - Insurance Considerations
John M. Edwards
Insurance For IP Risks
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Comprehensive/Liability
IP Defense
IP Defense and Indemnity
IP Infringement Abatement
Comprehensive/Liability & D&O
 Not a Primary Source of IP Coverage
 Often Contain Exclusions Purporting to Bar
Coverage for Copyright, Patent and Trademark
Claims
 But IP Litigation Often Accompanied by Claims of
Trade Secret, Misappropriation and Other Business
Torts which Might be Covered
 In These Policies, Pay Attention to and Avoid
Language Regarding Allocation of Defense Costs
IP Defense and IP Defense and Indemnity
 Protection for Claims Made Against You
 IP Defense – Costs of Defense Only
 IP Defense and Indemnity
 Costs of Defense and any Resulting Settlement – Judgment
(Past royalties, Past Profits, Interest, Taxed Costs and Fees)
 Claims – Made
 Claims First Made During Policy Period
 Claims First Made and Reported During Policy Period
 Defense Costs Erode Limits
 Defense Settlement and Judgment/Cost Participation (5%25%)
IP Infringement Abatement
 Indemnifies for Costs of Prosecuting a Patent
Infringement Action
 Must Claim Infringement and Request Authority to
Commence Litigation
 Subject to Deductibles, Participating Percentages
and Limits Once Authorized, Litigation Expenses
will be Advanced Periodically
 Underwriting Process is Considerable and Can Cost
Money Whether or Not Coverage is Offered
 Patents Often must be Explicitly Identified
IP Infringement Abatement (2)
 Timing of Infringing Activity is Critical
 Retroactive Dates
 Pre-Policy Awareness of Infringement or
Foreseeability of Infringement
 Economic Benefit/Presumed Economic Benefit
 Carefully Consider What Constitutes Economic
Benefit/Presumed Economic Benefit
 Carefully Consider Whether Paybacks Will Exceed
Economic Benefit
Employment Risk – Insurance Considerations
John M. Edwards
Insurance for Employment Risks
 Comprehensive Liability General
 D&O
 Employment Practices Liability
Comprehensive General Liability and D&O
 Not a Primary Source of Employment Practices
Liability (“EPL”) Coverage
 Exclusions Purport to Bar Coverage for EPL Claims
 EPL Claims Often are Mixed with Other Claims, such
as Defamation
 Pay Attention to and Avoid Allocation of Defense Cost
Provisions and Scope of EPL Exclusion
Employment Practices Liability Insurance
 The Principle Source of EPL Coverage (Wrongful
Discipline, Discrimination, Retaliation, Breach of
Contract, Other Employment Law Violations)
 Claims – Made
 Claims First Made During Policy Period
 Claims First Made and Reported During Policy Period
 Defense Costs Erode Limits
 Avoid Panel Counsel Obligations
 Carefully Review Defense Consent Clauses
Employment Practices Liability Insurance
 Avoid or Revise Hammer Clauses
 Pay Close Attention to Potential Coverage Gaps
 Analyze Interplay Between Claims – Made Language
and
 Retroactive Dates
 Prior or Pending Litigation Exclusions
Questions & Answers