Episode 4: November 5, 2024 | Cornered: R. Mark Halligan Dives Into Intellectual Property

Show Notes

• 2:49 - If I invent something at work, do I own it or does my company own it?
• 13:14 - What copying is allowed under the fair use doctrine?
• 23:34 - Wrapping up -- Thank you, Mark!

Transcript

00:00:01 Oh, you're an attorney. I have a friend…

00:00:03 I've been meaning to update my will, but I just bought a new house…

00:00:06 I want to start a business…

00:00:06 so I was wondering…

00:00:08 My brother was fired…

00:00:09 My friend got divorced awhile back. I just don't understand how her…

00:00:14 You've been there at a social function, meeting friends of friends. Word gets out that you're an attorney, and suddenly your night is filled with party goers.

00:00:22 Asking you quote unquote, simple legal questions, the questions are seldom in your area. Some of the stuff you haven't thought about since law school, you're being cornered out of.

00:00:32 Court in the cornered out of court podcast from IICLE, you'll hear from fellow attorneys about the questions they get and the responses they give to escape being cornered. Some individuals and small businesses may not think that intellectual property issues will impact their employment.

00:00:52 Or business practices?

00:00:54 But matters involving intellectual property can arise for both employees and any size of company in the course of conducting ordinary business. R Mark Halligan, partner and chair of the Trade Secrets Practice Group at Fisher Broyles, explains some of the fundamentals of intellectual property he sees impacting the business.

00:01:15 World education and the arts today.

00:01:18 I am a partner in the law.

00:01:20 Firm of Fisher Broyles.

00:01:22 Over my career, I've been in a number of different firms. I have taught advanced trade secrets law at the John Marshall Law School, now at the University of Illinois, Chicago School of Law, Trade Secrets for 28. I think this year will be 29 years. I'm also the.

00:01:42 General editor of the IICLE Intellectual Property Law Handbook, which we are about to introduce the 2024 edition. And that's a project that dates back many years. When I put together a dream.

00:01:57 Being to do the intellectual property while handbook, I'm a I'm a frequent lecturer. I requested to you know, lecture on different subjects. And so today we're going to talk about intellectual property.

00:02:10 And that that's been really the my career. I also am involved in antitrust and related licensing issues. Of course, there's always contract issues that may may pop up with all that on a jury trial lawyer. I have tried a number of jury cases over the years.

00:02:30 And so.

00:02:32 I'm.

00:02:33 Right now, for example, I'm working sort of behind the scenes in the trade secrets the case that's set to go to trial in November.

00:02:42 Question number one, if I invent something at work, do I own it or does my company own it?

00:02:49 Well this this is a question that perplexes a lot of people and it's one of these issues that swept under the rug rug.

00:02:59 Owner.

00:03:00 Yeah. For example, the trade secret for years was kind of slept under, swept under the rug. You'd litigated trade secrets place and some at some point in the litigation, someone would raise the issue for the first time. Well, I knew the owner. And so we, we need to understand a couple of things. First of all, I want to step away for a moment.

00:03:20 And talk about intellectual property in the broadest sense on this issue.

00:03:26 If you meet a.

00:03:27 Lawyer at a cocktail party or a reception and they say they're an intellectual property lawyer and you ask them what the four intellectual property rights are and. And if they don't say patent, copyright, trademark and trade secret instantly, then then it's I'm suspect that they're an intellectual property lawyer. And in in my career what I have.

00:03:46 Being in the intellectual property bar.

00:03:49 Because I kind of came in the bathroom as a litigator. But as I got into the substance and berries of the law, what I realized, and I saw time and time again as patent lawyers, could only see patent issues.

00:04:02 And copy lawyers can only see the copyright issues.

00:04:06 And the trademark lawyers can only see the trademark issues and on trade secrets, no one really knew what a trade seeker was.

00:04:13 You really need to look at the intellectual property in the in the broader context. Now of those four intellectual property rights, you know, patents, copyrights, trademarks, and trade secrets only two.

00:04:25 Protect information the a patent if that. If that information on that application is prosecuted and there's a patent issue, or alternatively a trade secret where that information is kept secret, a trademark is a source identifier and copyright law protects only the originality of expression but not the underlying idea.

00:04:45 Information. So with that all said in mind, if I have a piece of information.

00:04:51 Or I have today some flash of genius or or there's some I I come up with a solution to a problem on them and I'm an employee and a lot of these disputes come up and the employer employee relationship, the owner of the information, the owner of the idea of the owner of the creation, the invention, the modification.

00:05:12 Is the and is the person who created it. The person who modified it it and you look at it actively. That is the inventor. That is the modifier that that that's the person who did.

00:05:24 As they are the owner, there is no work for higher doctrine built in the either the patent statute or in or into the common law. There is in copyright law.

00:05:36 Within the copyright statute.

00:05:38 A transfer of copyright rights from the employee to the employer, and so there's a statutory work for hire doctrine built into the copyright law, but no such thing for patents, and no such thing for trade trade secret.

00:05:53 And and and trademarks, of course. It's against that story, but the trademark applicant is the trademark owner. What happens is the employer operates from the perspective that anything that the employee does during the the the time he works.

00:06:13 At the company it's owned by the company.

00:06:16 So this this new modification that that helped to make a particular manufacturing line more efficient, an employee on the 2nd shift comes.

00:06:27 Up with a solution.

00:06:29 The employee owns owns it because they are the inventor. They are the creator, they are the modifier. They are the one that discovered it and they own it and at best, at best the employer is going to get a ShopRite to practice this invention. But I'll come back to that in a second, but absent.

00:06:48 Any sign of this invention or this idea of this modification of there has to be an assignment from the Creator, the inventor, to the employer absent an assignment which is contractual.

00:07:02 But can also be be done or only if if you can establish that it it it was agreed to the invention, the creation etcetera continues to remain the ownership of the employee.

00:07:16 I want to introduce one other legal principle that comes into play here and that is if you're hired to invent.

00:07:25 And I've seen very rarely legitimate hired to invent cases in my career that have ended up in these disputes. But if you are hired to invent, let's just take an example of a new vacuum cleaner. You want to design and manufacture a a new vacuum cleaner that has the following functional requirements.

00:07:44 Or.

00:07:45 Features.

00:07:46 And you enter into this relationship with the company to invent that type of or create that type of product.

00:07:55 The law presumes that during the negotiation process to agree upon the terms of that contract that the which basically are being hired to invent.

00:08:04 A new vacuum cleaner with certain characteristics.

00:08:08 That.

00:08:09 The quick pro call the consideration whatever the contractual relationship was that was established.

00:08:17 Falls under the hired to invent doctrine, and in that case and that and that case.

00:08:23 The company will own the invention because the law assumes that the that was part of the the agreement between the parties before before he began to work on a new vacuum vacuum cleaner. So having said that, and trying to articulate this.

00:08:40 I I think these illustrations are very helpful. They come from Section 42 of the restatement. Third of the American Law Institute Unfair competition, which may, although the rules governing ownership of valuable information created during an employment relationship are most frequent or most frequently applied to inventions, the rules.

00:09:00 Are also applicable to information such as customer lists, marketing ideas and other valuable business information.

00:09:07 Of course, that's the encompass trade secrets. If an employee collects or develops such information as as part of the assigned duties of his employment, the information is owned by the employer. Thus, if the information qualifies for for protection as a trade secret, then unauthorized use of disclosure would be subject to the employee liability.

00:09:28 What happens when you go through this legal analysis is if there is no assignment, and that's often the case, there is just that there's been no assignment. The owner is the creator, the inventor. If it's an employee, employee relationship.

00:09:43 Yep.

00:09:44 It's the employee. If it's an employer, employer relationship.

00:09:49 And in the scope of that relationship, he used the tools and equipment of his of his employer to create the invention. Without the assignment, he remains the owner, but the manufacturer or the employer gets a royalty free shop, right? Because the the the companies, tools and equipment manufacturing process.

00:10:09 Are used to create the.

00:10:10 Invention. So the first analysis is, is there a?

00:10:13 Sign over the years, many companies have done the boilerplate agreements where they have a provision and then anything he invents or.

00:10:24 Or anything he creates now or in the future, anything at all becomes the employee you know is the ownership of the company.

00:10:32 But the law requires an assignment now that now some courts will construe that language to be, in essence, an assignment, cause he agreed to do that to to do it the right way, to make sure that legally it will hold up the.

00:10:46 The owner should transfer in an official document labeled as an assignment and and that he's assigning any and all rights. He has an X.

00:10:55 Now if there is, if we're dealing with a situation where there is no assignment.

00:11:01 Then we have to go through the ownership analysis whenever the X is or whatever the invention is was he hired to invent that if.

00:11:10 The answer is.

00:11:11 No, you move on. If the answer is yes, then on the hired to invent that, then the company's gonna own it. It there is no hire to invent. It turns out that.

00:11:20 He he conceives this, but this was just something that he and that happened at work wasn't a specific hired to invent type situation. He remains the owner and and I can tell you the companies, they find it hard to accept that the employee owns or is deemed legally as the owner.

00:11:41 Of information or invention or whatever that occurred while they were at work working with the company. Well, you have to tell you have. If your client is the company, have to say you're you have a ShopRite to practice it. You can't be sued for pending.

00:11:55 But you had a royalty free shop, right? The pregnancy invention. So. But the fact is the he he this brilliant employee have this is his invention. Now you can sync you know to get an assignment. But if he refuses to give you an assignment you're only option at that point will be you know be determinate them.

00:12:15 If he if if he doesn't comply with the request by the company to transfer the information because he's.

00:12:19 An Ant well employee.

00:12:21 But then later on, when he shows up with a new company or new competitor with this product or service and you sue the former employee and the new competitor, you're going to lose because legally the way this is going to play out is that you you're you're not the owner, they are the owner. They have a right to play invention and in this whole analysis, you get into these issues.

00:12:41 The general now skills and experience too.

00:12:45 The law says that former employees entitled to use as general knowledge, skills and experience.

00:12:51 In future employment, etcetera, but he cannot disclose or use his former employers, trade secrets and the dividing line is a very difficult one. But again, like many, many aspects of of intellectual property law, it's fact intensive and requires discovery of the types of information that we talked.

00:13:10 About in this.

00:13:13 Question #2.

00:13:14 What copying is allowed under the fair use doctrine?

00:13:19 I want to start with this.

00:13:21 For the record, now copyright rights again.

00:13:26 This can be a complex.

00:13:28 Discussion copyrights are a creature of statute. They're created by statute. Copyright rights attached. The moment that you take the conception of the idea or an article or whatever, and and we and we reduce it to writing, and then the question becomes, are you are you infringing someone else's copyright rights?

00:13:49 This happens all the time and people are creating and reducing, reducing to a tangible, tangible medium of expression copyright. Now with all the different technologies we.

00:13:59 Have.

00:14:00 There's rampant copyright infringement occurring, and if you were to prosecute every copyright LS copyright case and all that mean.

00:14:09 The system where it was, it would have been unmanageable years ago, but it certainly is unmanageable today so.

00:14:15 Really, what the courts do is if they're, if it's determined that there is kind of going through all the different hoops and and they.

00:14:22 Are dealing with.

00:14:24 Let's say an article that was written or something and and then that gets in the plagiarism you can get into these. You get into these issues.

00:14:34 You know, involving parities and and and things like that. So a U.S. court of Appeals that.

00:14:41 Long ago, long ago.

00:14:44 Called the question of Fair use.

00:14:46 The most troublesome in the whole law of.

00:14:50 Right.

00:14:51 That description remains accurate today.

00:14:56 Each case involves a question, each case involving a question of Fair use requires a very difficult case-by-case balancing of complex factors. This important doctrine in US copyright law has been recognized since at least 1841.

00:15:14 When the concept was invoked in Folsom versus Marx.

00:15:19 A case in the district of Massachusetts, though originally it was a judge, a judge, made doctrine, but now the Fairness doctrine has been codified in the Copyright Act of 17 USC Section 107. So what is fair use? Fair use is an affirmative defense that can be raised in response to claims.

00:15:40 By a copyright owner that a person is infringing a copyright, their use permits a party to use a copyrighted work without the copyright owner's consent or permission.

00:15:54 For purposes such as criticism, comment, news reporting.

00:16:00 Teaching, scholarship or research, and these purposes are just some examples. They only illustrate what might be considered as fair use, and they're not examples of what will always in every case be considered a fair use. So you come in and say I'm using it for teaching it, that's we're gonna have a much more fact intensive analysis.

00:16:20 But the purpose is only to illustrate what might be considered as fair use and are not examples. In other words, there are no bright line rules.

00:16:30 And every copyright infringement case where the if their use comes into play, which is every case, it's fact intensive, there are no bright line rules in determining fair use, and it is determined on a case by case basis. While the four factors that develop the common law and are now qualified, there's four factors #1 the purpose and.

00:16:50 Character of the use, including whether such use is of a commercial nature or is an or is for nonprofit educational purposes. 2 factor 2. The nature of the copyrighted work. Second factor considers the nature of the underlying.

00:17:07 Or specifically whether it is more creative or more factual use of a more creative or imaginative underlying work is less likely to support a claim of Fair use, while use of factual work would come out differently. The third, the third factor considers the amount of the copyrighted.

00:17:27 Or that was used and compared to the capillary work as a whole when the amount used is very small in relation to the calculated work, this factor will favour of finding a fair use. But when the amount used is is not significant.

00:17:41 And this factor will favor the copyright owner. This factor also considers the qualitative amount of the copyright work used. If the portion used was the heart of the work, this factor would likely outweigh away against the the finding of Fair use, even if that portion was otherwise a very small amount.

00:18:03 The 4th factor not only considers whether defendants activities may harm the current market, but also considers whether the use may cause any harm to potential markets that could be exploited by the copyright owner if the use were to become widespread. If the use harms the copyright owners, current or potential.

00:18:23 Market. Then it will weigh against various.

00:18:27 Along with the first factor, this factor factor 4 is one of the most important in the in the fair use analysis you have to look at all four factors and the one that often decides and and from my experience is the one that.

00:18:41 I've seen that's the the.

00:18:43 The winner, I mean a successful affirmative defense, is factor #1 the purpose and character of the use, including whether such use is of is of a commercial nature or is for nonprofit educational purposes, in other words.

00:18:59 Follow the money.

00:19:00 Look at. Look to see if the infringer is deriving.

00:19:05 An economic a benefit or commercially he's being paid or receiving income in some way for as a a direct approximate result of the of the acts of copyright infringement. That that's a no no.

00:19:19 So I think we're at the point in this discussion where you can see that it's important in intellectual property law to retain a specialist in that. In other words, you know, lawyers will tell you that there are masters of of all four and Bill McGrath, for example, is the copyright guru in the the bar professor.

00:19:39 She also taught at the John Marshall Law School copyright law. Some would say I, you know, that I I have that reputation in trade secrets, but you need to you need to have a patent lawyer you and you finally you need to have a trademark lawyer. You really need to.

00:19:56 Use a specialist in that particular area, so I'm not going to go into a copyright lawyer like Grant on trademark issues because that's not his practice. We can give an overview, but the bottom line is.

00:20:10 That you you really need to correlate the issue that you have with the type of intellectual property.

00:20:16 Right.

00:20:17 The other, the other thing is I think it's very important is that and and and this involves a small business what happens, the small business they decide to set up a business and they go to a lawyer, but they only go to a business lawyer and the business lawyer can help set up their their board of directors.

00:20:37 The the annual meeting and have the corporate law book to help them with the tax issues system and setting up different accounting requirements within the company. But that's the only legal advice.

00:20:51 They get.

00:20:52 And they go out into the marketplace and despite their best efforts.

00:20:57 To survive, they go out of business. The statistics are like 90% of new of start up. New companies don't do not make it. They they go out.

00:21:10 As soon as others realize they're making money, they flood in and spend do the same thing next to you know, their other business.

00:21:18 So what's the name of the game? The name of the game is intellectual property you need to you need to look at the entire overview overview of the company and you have to look at what can I pay and what can I copy it? What can I trademark? What? What can I keep as a trade secret? You have to look at all four intellectual property rights.

00:21:38 So when the another company comes in.

00:21:41 To try to copy what you're doing, you can fend them off with copyrights, trademarks, trade secrets, and that's how you start to grow and thrive. And if you look at any company, like even Microsoft in their garage, or go back to to Sony and some of these companies where where they were, you know, they they grew into bigger.

00:22:02 Companies. It's because they understood from day one that every action they take and everything they do has to be correlated with a patent, a trim.

00:22:13 Or a copyright, or a trade secret, everything so that when the inevitable competition comes, they can fend them off with infringement cases, trademark infringement cases, complete infringement cases, and trade secret misappropriation cases. And if you look and see those companies that got aggressive and they focused.

00:22:34 At all times on intellectual property that those are the companies that survived and got successful. That's why intellectual property is so important. The most important type of legal advice that a new company needs is the is the advice I'm giving today makes.

00:22:50 Here you you look at the four intellectual property issues that make sure that you connect with an intellectual property lawyer to help you because that's those are those are the defenses, those are the and what I do is I I will file file a counter. You know they'll sue for trade secret misappropriation and I'll counterclaim against the the the.

00:23:11 Or trade secret misappropriation. Whatever the fact situation might be. But I mean, I could go on there, but when I'm defending someone in a small company, particularly, that's been sued, depending on the fact I've got some offense.

00:23:24 I could go.

00:23:24 Back with in the form of a counterclaim to help them reach a mediate, you know, to mediate and and reach a, you know, a result that's.

00:23:32 Allows us to to move on.

00:23:34 Thank you, mark.

00:23:36 R Mark Halligan focuses his practice on intellectual property litigation in the United States and abroad, as well as authoring publications and teaching at the University of Illinois, Chicago School of Law.

00:23:49 If you have an idea for a topic you would like to hear discussed on the cornered out of court podcast, we welcome your suggestions by e-mail. Our address is info that's INFO@iicle.com. IICLE is a 501(c)(3) not-for-profit based in Springfield, IL. We produce a wide range of practice guidance for Illinois attorneys.

00:24:10 And other legal professionals in all areas of the law with the generous contributions of time and expertise from volunteer attorneys, judges and other legal.

00:24:18 Else, if you are interested in our many authorship and speaking opportunities, please give us a call at 217-787-2080 or sign up for the IICLE volunteernetwork@iicle.com/volunteer.

00:24:33 Thank you for joining us for another edition of cornered out of court, brought to you by the Illinois Institute for Continuing Legal Education.