The Value (Or NOT) Of a Non-disclosure Agreement
What You Need To Know About the Trademark Modernization Act of 2020
Black Paint and the Limits of Licensing
IP Client Spotlight

The Value (Or NOT) Of a Non-disclosure Agreement

By Kevin R. Casey

A non-disclosure agreement ("NDA") is an important tool in protecting a company’s confidential information. (Trade secrets are a specific type of the more general term “confidential information.”) But an NDA is only one tool and, sometimes, not the most effective tool. More specifically, when deciding whether to share confidential information with another party (including an employee who may at some point become an ex-employee, perhaps working for a competitor), a company should consider carefully the five tiers of protection commonly available to protect confidential information against improper disclosure and use. The five tiers are (1) non-disclosure of the information; (2) a patent application and, hopefully, a patent claiming the invention, if any, reflected in the confidential information; (3) an NDA or confidentiality agreement; (4) monitoring the recipient of the information and contacting them to prevent either inadvertent or nefarious use and disclosure and (5) legal action asserting claims such as patent infringement, breach of contract or misappropriation of trade secrets.

The best way to prevent someone from “stealing” (i.e., copying and commercializing) confidential information is, of course, not to disclose the information to them at all. In fact, refraining from disclosure is the only guaranteed form of protection. Because good business reasons often support such disclosure, however, a careful risk-benefit analysis should be completed in deciding whether to disclose the information. Such an analysis includes an assessment of the recipient’s perceived trustworthiness, the negative impact theft of the information might have on the company and other considerations.

Mention of a patent or pending patent application might deter the recipient of the information from stealing the information. The source of such deterrence is a prospective patent infringement suit. But there is no guarantee that the confidential information is patentable, that a patent will issue based on an application or of deterrence regardless. And patent applications are typically published 18 months after they are filed.

An NDA offers further deterrence (risk of a breach of contract suit) against stealing or disclosing confidential information. Some people do not view an NDA as worth the paper on which it is written, however, because NDAs are difficult to enforce, involving problems relating to proof of what was disclosed when, meeting the definition of “confidential information” or “trade secrets,” and determining whether an exception applies (e.g., the recipient already had or independently developed the information). Recipients who wish to use or disclose information despite an NDA are likely to argue that the confidentiality obligations of the NDA do not apply to the information. They might also argue that the information was (1) already publicly available, (2) already in their possession before they met the company or (3) independently developed by the recipient.

Despite its limitations, an NDA offers some protection against misuse by a recipient of confidential information that it received from the company. An NDA provides a basis, for example, for the company to contact the recipient and advise the recipient of the company’s concerns about improper disclosure and use with a related demand that the recipient stops such activities. That contact depends, of course, on the company having become aware of the improper activities.

Finally, litigation (or at least the threat of litigation) may be necessary to enforce the company’s rights in its confidential information. If disclosure is imminent, a court might grant a request for a temporary restraining order precluding the disclosure. A prophylactic injunction is appropriate to protect trade secrets when the new employment of an individual to a certain role would necessarily involve the use of a prior employer’s trade secrets. In considering litigation, however, the company must be mindful of litigation costs: litigating claims such as patent infringement, breach of contract or misappropriation of trade secrets can be expensive and time-consuming.

In conclusion, an NDA is a market standard in many industries. Companies often use such agreements when sharing confidential information. Reliance only on such agreements to protect a company’s confidential information, however, would be ill-advised. Rather, the company should view the NDA as but one tool available to it.

What You Need To Know About the Trademark Modernization Act of 2020

By Allison Gifford

On Dec. 18, 2021, the U.S. Patent and Trademark Office (“PTO”) rules implementing the Trademark Modernization Act of 2020 (the “TMA”) went into effect. There are several notable changes to the Lanham Act governing U.S. trademark law which will impact how trademark law is practiced before the PTO.

One of the biggest pushes to change and update the Lanham Act is the increase in suspicious submissions, which range from inaccurate to fraudulent, many of which originate from overseas applicants. Considering marks for adoption has frequently been frustrating for trademark owners, and options for canceling or challenging what may be fraudulent use of a mark in registration have been limited. Now, with the TMA implementation, trademark owners and practitioners will have more robust options for challenging third-party use of a registered mark instead of relying on the more costly and time-consuming inter partes (between parties) cancellation proceedings.

Also, conversely, trademark owners should consider an audit of their own trademarks and registrations and consider taking proactive steps at the time of registration maintenance or renewal to delete goods and/or services from registrations that are no longer in use to avoid a non-use challenge.

Two new options for ex parte (one party) procedures for challenging a registration based on non-use of a trademark in a registration are Reexamination and Expungement. The filing requirements and considerations for each option follow.

Expungement

• Procedure directed at trademark registrations on the basis that a registered mark has never been in commercial use on some or all of the goods or services listed in the registration.
• Challenge can be filed between the third and tenth anniversaries of the registration. Until Dec. 27, 2023 (two years after the proposed rules go into effect), a proceeding may be requested for any registration at least three years old, regardless of the ten-year limit.
• Successful challenge will result in removal of any goods or services not in use under the trademark.
• Section 44 and 66 registrants (typically foreign trademark owners who register marks relying upon a home-country registration or application and not upon actual use of a mark in the United States) can establish excusable non-use for the first five years of registration.
• Expungement procedure is a difference in the timing of the use by a registrant rather than the current cancellation proceeding use basis (i.e., a presumption of abandonment arises if no use for three years with no intent to resume).
• A verified statement establishing that a reasonable investigation was conducted to determine the trademark has not been used in commerce with the specific goods and services.

Reexamination

• Procedure directed at trademark registrations that issued based on the alleged use of a trademark and evidence is submitted to show that the trademark was not in use either as of the date the underlying application was filed or as of the date a statement of use was filed. The proceeding would address the date the underlying use-based application was filed, the date an amendment to allege use was filed, and the expired period of time for filing a statement of use.
• Challenge must be filed before the fifth anniversary of the registration.
• A verified statement establishing that a reasonable investigation was conducted to determine the trademark has not been used in commerce with the specific goods and services.
• A successful challenge will result in the removal of any goods or services not in use under the trademark.
• The Director of the PTO may institute reexamination on its own.

Additional Information

• $400.00 filing fee per class for both proceedings.
• No co-pending proceedings are allowed, and you only get one chance!
• Reasonable investigation is an appropriately comprehensive search likely to reveal the use of the mark in commerce on or in connection with the relevant goods and/or services if such use was, in fact, made. The elements of a petitioner’s investigation should demonstrate that a search for use in relevant channels of trade or advertising for the identified goods and/or services did not reveal any relevant use. A search using a single Internet search engine will not be considered sufficient evidence.
• How both proceedings will work:
  • Petition to request reexamination or expungement is submitted to PTO Director.
  • PTO Director will review to determine for instituting a proceeding whether the petitioner has submitted evidence sufficient to establish a prima facie case (such evidence as will prevail unless contradicted and overcome by other evidence) that the trademark was not used. PTO Director’s determination is final and non-reviewable. At this point petitioner’s involvement ends.
  • If a proceeding is instituted, a PTO Examining Attorney will issue an Office Action notifying the registrant (or its Attorney) about the proceeding. The registrant will have three months to respond with a one-month extension available for $125.00. Registrant may respond by providing appropriate evidence of use and/or deleting from the registration some or all of the goods or services at issue.
  • The Examining Attorney will then consider all of the evidence and render a decision.
  • An appeal or request for reconsideration may be filed by the registrant after the decision.

Now is the time for all trademark owners and, in particular, non-US trademark owners to be proactive and consider a review of their U.S. trademark registrations. If a mark is not in use in U.S. interstate commerce and is more than three years old, a new application should be considered. Pending applications should also be considered as to when the trademark may be used in the United States and how possibly to delay registration grant by not relying on a foreign registration but instead relying on an intent-to-use basis, and then extended the time for three years from the Notice of Allowance date.

Trademark owners should also be ready for shorter Office Action response deadlines beginning December 2022. The significant change is that applicants and registrants will be required to respond to Office Actions within three months, excluding Madrid Section 66(a) applicants. A single three-month extension of time for $125.00 to the initial three-month period is proposed and must be received within the first three-month period.

Stradley Ronon IP attorneys stand ready to help trademark owners navigate the new rules and procedures, initiate any non-use proceedings, and review existing trademark portfolios to minimize any potential issues concerning non-use.

Black Paint and the Limits of Licensing

By James R. Major, D. Phil.

Driven by the late Charlie Watts’ thumping drumming, Paint It Black is one of the Rolling Stones’ most nihilistic tracks. It is no surprise that Stanley Kubrick chose the track for the end credits of the searing Full Metal Jacket. A recent article in connection with black paint recently caught my eye. The paint “is made of carbon nanotubes, that reflect virtually no light.” Potential applications of such paint are myriad, with the inside of optical telescopes being perhaps the most obvious. What is notable in the article is the assertion that an artist’s “studio . . . holds an exclusive license to the technology that ‘limits the coating’s use in the field of art, but does not extend to any other sectors.’” While the subject of the article is a dispute between that artist and another, let’s look at how the “license” works in practice.

A license is a right to use property. Although there are any number of ways to structure a license, one of the fundamentals is that the licensee must return the property to the licensor upon termination. While there is often a myriad of differences between a license of real property and a lease thereof, the concept is the same: Upon termination of the lease, the tenant returns the property to the landlord who is free to lease the property to someone else. Intellectual property licenses are the same in that termination of the intellectual property rights will usually return the licensor to its status before the license. It is well settled, however, that a court will disregard the styling of a document in favor of substance. Put differently, a purported license may act as a flat-out sale of the property.

Applying these concepts to the paint in question, it is clear that the purported license, in fact, acts as a sale. It is axiomatic that, upon drying, paint irreversibly transforms into a form that cannot be used again. This would cause significant enforcement problems in that a sale of the artist’s work containing the now-dry paint would presumably be a license of the work itself. But there is tension here with the common law’s favoring of the free alienation of goods. Rather, the license of the paint acts as a sale, and that’s where the fun begins. For example, the paint per se does not represent creative expression meaning that there’s no copyright protection. Patent protection is also out in view of the doctrine of patent exhaustion that terminates patent rights upon the authorized sale of a product. Trademark protection is a non-starter as the color of the black paint is clearly functional, and trademarks cannot be functional. And there’s no trade secret in the use of the paint, although there could conceivably be some in its formulation.

The lesson is clear: Those wishing to enter transactions must consider the mechanics of what’s really going on. It’s one thing to style a document as a license, but there can be real problems if the transaction is, in practice, a transfer of the property. Stradley Ronon’s lawyers always look to the substance of an agreement to ensure that our client’s rights are what they are intended to be, not what they superficially appear to be.

IP CLIENT SPOTLIGHT

Stradley Ronon handles IP law (patents, trademarks, copyrights, trade secrets and related areas) matters for Triumph Group, Inc. Headquartered in Berwyn, PA, Triumph Group and its subsidiary companies design, engineer, manufacture, repair and overhaul a broad portfolio of aerostructures, aircraft components, accessories, subassemblies and systems. The companies serve a broad, worldwide spectrum of the aviation industry, including Original Equipment Manufacturers (OEMs) of commercial, regional, business and military aircraft and aircraft components, as well as commercial and regional airlines and air cargo carriers. Triumph is ideally and uniquely positioned as one of the few companies worldwide ($1.9 billion in net sales, over 7,000 employees and 30 locations) that can offer a total solution of products, services and systems to the largest aerospace and airline companies in the industry.

Stradley Ronon’s IP attorneys work closely with Triumph representatives to address IP issues that arise for Triumph. Stradley Ronon and Triumph have collaborated to anticipate and resolve many interesting and unique IP issues that have arisen around the world as the team manages Triumph’s worldwide patent and trademark portfolios and assists in-house counsel in negotiating and drafting a wide variety of IP-related agreements. Stradley Ronon’s ever-growing knowledge of Triumph’s needs and goals and of the aviation industry in which Triumph thrives has served both Stradley Ronon and Triumph well. Stradley Ronon is proud to assist Triumph in its efforts to navigate complex IP issues faced by a growing and expanding global company, along with a variety of non-IP work, including mergers and acquisitions, tax matters, litigation and general corporate counseling.

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

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