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The Chief Contractual Relations Officer

I’m going to be giving a presentation to a large group of in-house counsel and thought that I would conclude with some thoughts on the important role that they can play in advancing the business goals and objectives of their firm by effectively administering the contract review and approval process.  I believe that it is useful to the general counsel or other senior manager in the legal department to view his or her role as that of a Chief Contractual Relations Officer assigned to do the following:

  • Understand and manage the company’s network of contractual relationships;
  • Establish and administer the company’s procedures for review and approval of contractual relationships;
  • Establish and administer the company’s procedures for execution of contracts;
  • Establish and administer the company’s procedures for retention of records relating to its contractual relationships;
  • Design and implement formal programs for educating managers and employees about reviewing and negotiating the terms of contractual relationships;
  • Develop procedures for continuously informing members of the senior management team about the alignment between the company’s strategic business plan and its network of contractual relationships;
  • Create and continuously update tools and procedures for making the contracting process more efficient and comfortable for internal clients;
  • Establish strong relationships with departments and business units to ensure that information regarding contract matters flows to and from the legal department;
  • Establish your credentials among other members of the management team—particularly the CEO, CFO and Senior Vice President of Sales—as to your knowledge of the business activities of the company;
  • Build reasonable expectations within the company regarding the time required to review proposed contracts and then meet or exceed those expectations without fail; and
  • Continuously strive to maintain an understanding of the larger environment within which your company operate and establish and maintain open communications with key players throughout the company.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


Legal Protection for Valuable Non-Secret Information

In some situations, unauthorized use or disclosure of non-secret information may be actionable, even though the conditions for trade secret protection have not been satisfied, and courts have recognized the need for protection of information about one’s business whether or not it constitutes a trade secret and held that one who, for the purpose of advancing a rival business interest, procures by improper means information about another’s business is liable to the other for the harm caused by his possession, disclosure or use of the information.

In one case, the court found that the defendant’s acquisition of face towel designs, production methods, and costs by misrepresenting themselves as potential buyers amount to misappropriation, even though the information was publicly available in an expired patent.  The court noted that the “essence of [this trade secret] action is … breach of faith,” and recognized that the defendants had a duty not to use information acquired during a confidential relationship to the detriment of the disclosing party. In another case where the purported secret information was, in fact, disclosed in publicly available patent filings, the court nonetheless held that the defendants “could not avoid its obligation of confidence due to the availability of lawful means of obtaining the concept when those means were not employed.”  Defendants have also failed in their attempts to save the time and expense of developing information that was publicly available, and thus not a trade secret in the traditional sense, by gaining the confidence of another party to learn various manufacturing processes and marketing methods.

The Uniform Trade Secrets Act does not cover non-secret information; however, common-law remedies may nonetheless still be available in states which have followed the Uniform Act.  In addition, companies may rely on contracts, rather than the common law, to protect information that does not quality as a trade secret from disclosure by employees or other business partners.  However, the efficacy of such an agreement is far from clear and courts will often refuse enforcement based on public policy reasons, particularly concerns that the agreement may prevent the party who is to be bound from practicing his or her trade or profession.  For example, an employee may sign an agreement that obligates him or her to maintain the confidence of specified information.  If that information subsequently enters the public domain through no fault of the employee a court is unlikely to enforce the agreement against the employee after the employment relationship terminates if by so doing it will restrict the former employee’s ability to engage in his or her chosen profession by using the information that is now no longer eligible for trade secret protection.  Of course, the court may also overturn the agreement based on the fact that since the information is now known generally the company would no longer be subject to harm from the former employee’s use of such information.  In addition, agreements to refrain from disclosing non-secret information may be treated as a non-competition agreement and thus subject to stringent requirements with respect to reasonableness of duration and geographic scope.

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


Entrepreneurship as a Behavioral Phenomenon

Many have expressed dissatisfaction with the limited analytical utility of the traditional definitions of entrepreneurship and their focus on either economic functions or personality traits.  An instructive alternative was provided by Howard Stevenson of Harvard Business School in his 1983 note on “A Perspective on Entrepreneurship” in which he examined entrepreneurship as an approach to managing an enterprise based on a fundamental strategy of identifying and pursuing opportunities in the firm’s external environment without feeling limited by the actual resources that the firm currently has under its own control.  In order to understand how this “entrepreneurial behavior” works it is useful to compare the mindset and corresponding actions of “promoters” and “trustees” with respect to certain key dimensions of managerial activity.  A promoter is someone who is comfortable assuming the risks and challenges of pursuing new business opportunities regardless of whether or not he or she currently controls the resources necessary for the pursuit to have a reasonable chance of success.  On the other hand, the trustee falls at the opposite end of the spectrum and is continuously focused on efficient management and utilization of the firm’s existing resources.

Contrasts between the behaviors of promoters and trustees can be seen along several different dimensions of managerial activity and Stevenson described the following defining characteristics of the management philosophy of companies that can legitimately be classified as “entrepreneurial”:

  • Strategy is driven by the perception of opportunities available in the environment and is not constrained by concerns relating to a current lack of control over the resources necessary to pursue the identified opportunities.
  • Once opportunities have been identified and the decision has been made to pursue them, actions will be taken quickly following consultation with a limited group of constituencies.
  • Resources are committed to the pursuit of new opportunities in stages and each commitment is limited to the minimum amount of resources necessary at each stage or decision point in order to manage exposure and permit rapid withdrawal and redeployment of the resources.
  • When resources are needed to pursue an opportunity it is sufficient to borrow, lease or license those resources to complete the immediate action and defer acquisition of full control over such resources until the expense of the investment is justified.
  • The optimal organizational structure is flat with minimal hierarchy and multiple direct information networks.
  • The reward philosophy is value-driven, performance based and team-oriented.

As with many other aspects of the study of entrepreneurship there is no genuine agreement that entrepreneurs consistently apply some universal set of management principles to their pursuit of opportunities and innovation.  In fact, it is difficult, if not impossible, to clearly and definitively analyze and explain the decision process of an entrepreneur that embarks on a path toward innovation.  However, Stevenson does provide prospective entrepreneur-managers with some tangible guidelines. 

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.



Federal Statutory Protection for Trade Secrets

A number of federal statutes afford some sort of protection to trade secrets. For example, governmental agencies or employees are prevented from disclosing trade secrets under the federal Trade Secrets Act, the Freedom of Information Act (“FOIA”), and the Toxic Substances Control Act.

The FOIA illustrates the potential tension between public interest in disclosure and the rights of parties that risk having their trade secrets disclosed.  In general, the FOIA requires that citizens have the right to seek public disclosure of most of the information gather by agencies and departments of the federal government; however, Congress did limit mandatory disclosure by the creation of certain exemptions, including trade secrets and other privileged or confidential commercial or financial information.  However, the Supreme Court has held that these exemptions are discretionary, and the agency may elect whether or not to disclose the information.  If possible, parties submitting trade secrets to the government should negotiate a confidentiality agreement with the staff of the receiving agency and should such an agreement not be feasible consideration should be given to asking a court to issue a protective order before disclosing the confidential information.  Parties that have submitted trade secrets to the federal government may later attempt to block disclosure; however, success of any such action will turn on whether the party seeking to prevent disclosure can show that substantial competitive harm will occur if the disclosure is made.

Disclosure of trade secrets may also give rise to criminal liability in certain circumstances.  The Federal Trade Secrets Act makes it a crime for any employee of the United States or any states or any agency thereof, to the extent not authorized by law, to publish, divulge, or disclose information that constitutes a trade secret.  Criminal sanctions may also be available under the Economic Espionage Act of 1996.   Both civil and criminal penalties may be imposed under the Computer Fraud and Abuse Act against persons that access a computer used in interstate or foreign commerce without authorization or that exceed the limits of their authorized access to such a computer.  Liability for trade secret theft, including substantial fines and/or imprisonment, may also imposed under federal mail fraud and wire fraud statutes for schemes that use the mail or wires to defraud another of property or to deprive them of the intangible right of honest services, which often cover the misappropriation of confidential and proprietary information that qualifies as “property” for purposes of the statutes. Finally, the government may bring criminal complaints and indictments under the federal Racketeer Influenced and Corrupt Organizations Act alleging that the theft of trade secrets constitutes the forming of an enterprise to engage in a pattern of racketeering activity. 

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


Business Plan Preparation: The Mission Statement

One of the most important and challenging elements of any business plan is the mission statement, which should be a short and concise pronouncement of the purpose for which the company has been organized and the specific targets and objectives of the company’s business activities.  The process of developing the mission statement forces the founders and other members of the senior management team to carefully evaluate the resources of the business, their own personal goals and objectives and the function that the company’s product and services may serve in the marketplace.  The mission statement should not be confused with operational aims such as achieving profitability or accumulating wealth for investors—the statement should educate customers, employees, business partners, regulators and members of the general public about the social function that the company intends to serve (i.e., the value that the company will create in the marketplace).  A statement of purpose creates an identity for the business and also helps guide decisions about key issues such as what products and services to offer and how they should be positioned and marketed.  The mission statement also become a rallying point for the company’s human resources and plays a strong role in how and where the company seeks capital to fund its operations.

The process of creating a mission statement forces companies to address a fundamental question that is often deceptively difficult to answer—just what business is the company engaged in?  While it is typical for companies to define their business by reference to the specific products and services that they offer the better approach is to focus on the value associated with the output of the company’s business activities and the core competencies that the company has developed in order to generate that value.  By taking this approach companies can avoid defining their businesses too narrowly and thus missing out on opportunities for positive that may be created by unforeseen future events such as new technologies and competitors.  For example, the launch of a new company may be based on development and commercialization of a specific device to provide greater protection against theft at the homes and offices of customers.  While the particular product may be sufficient to sustain the company in the short-term, the ultimate survival of the business will likely depend on the continuous development and introduction of a suite of security-related products and services.  In fact, this will be crucial given that competitors may soon duplicate the original device and drive down prices and margins.  In that situation the company must embrace a mission statement that institutionalizes a broader goal of offering value in the form of superior security products and services and acquiring the resources necessary for creating and sustaining the necessary core competencies to developed value-added outputs.

Although the mission statement should be short, often no more than a single sentence, it can take days or months to emerge and once the statement has been drafted there is still more work to do—the founders and other members of the management team must identify the basic philosophical tenants of the firm that will support the mission statement and serve as the foundation for the appropriate corporate culture.  There is obviously a vast array of issues and questions that might be considered when crafting a company’s basic philosophy and organizational culture has become an important sub-discipline within the broader field of organizational studies and theory.  In any case, serious thought needs to be given to fundamental questions such as the level of risk that is appropriate in making decisions about new products, services and business relationships and the best ways for the company to interact with its external environment (e.g., customers, suppliers, competitors and regulators).  The answers will determine how the business operates and the decisions by managers and employees that are considered appropriate.  For example, if the firm philosophy is relative “risk averse” the sales team may shy away from aggressive credit policies for new customers and the product development group will be more likely to select projects that incrementally improve on current offerings as opposed to pursuing ideas that may lead to true innovations but also carry much higher levels of uncertainty.

The content in this post has been adapted from material that will appear in Business Transactions Solutions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.




Trade Secrets Aspects of Unsolicited Ideas for New Products

Companies must ponder potential liability under trade secret law when consider submissions of unpatented ideas or inventions from outsiders interested in having the company commercialize the idea or invention by bringing new products to market.  While it would seem that a company would welcome innovations from outsiders, there are real risks involved in accepting such disclosures that often drive companies to refuse to accept unsolicited ideas.  For example, if the company has already developed the idea or invention on its own (or something reasonably close to it) and later seeks to make use of its own independently developed idea, which it is generally allowed to do without being subject to liability to another that has similarly come up with the idea on their own, another party who has disclosed the idea to the company may claim that his or her idea has been misappropriated by the company even though the company had learned nothing from the outside party’s idea.  Companies are also exposing themselves to great risk by accepting unsolicited ideas from outsiders since employees may inadvertently disclose the ideas and thus create liability for the company based on failure to protect the trade secrets of others.  This may occur due to lack of effective security procedures within the company or when a company employee discusses the idea with prospective marketing partners who have not been required to sign a non-disclosure agreement with the company before disclosures are made.

Rather than operate under a policy of not accepting outside submissions of inventions or ideas companies may elect to do so on the condition that the submitting party executed and deliver a “reverse confidentiality” agreement.  Such an agreement includes an express waiver of any duty of the company to maintain the confidentiality of the submission and the acknowledgement and agreement of the inventor that he or she will rely solely on patent law for protection of the submission.  Inventors should carefully consider the practical effect of entering into such an agreement given the costs associated with filing and prosecuting a patent application and such an arrangement may simply be unworkable in situations where the inventor believes that it may be necessary to rely on trade secret protection for all or a significant portion of the invention or idea.

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.


European Patent Convention Substantially Revised

Substantial revisions to the European Patent Convention (EPC), the first in over 30 years, went into effect on December 13, 2007.  The EPC establishes the European Patent Organization, which consists of a European Patent Office (EPO) and a managing body called the Administrative Council. The task of granting European patents is carried out by the EPO, under the supervision of the Administrative Council.  The European Patent Organization is financed through the imposition of fees and through payments and special contributions by the Contracting States. The purpose of creating the European Patent Organization as a centralized system was to avoid the duplication of effort and improve the overall quality of the patent inspection.

Much of the substantive law in the EPC is based on the Strasbourg Convention, particularly as regards the subject matter of a patent application. Under the EPC, a European patent will be granted for any inventions, in all fields of technology, provided that they are new, involve an “inventive step,” and are susceptible to industrial application.  Excluded from the relevant definition are discoveries, scientific theories and mathematical methods; aesthetic creations; schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers; and presentations of information.  The EPC also provides that European patents will not be granted with respect to inventions the commercial exploitation of which would be contrary to “ordre public” or morality, provided that such exploitation shall not be deemed to be so contrary merely because it is prohibited by law or regulation in some or all of the Contracting States; plant or animal varieties or essentially biological processes for the production of plants or animals, however, this exclusion does not apply to microbiological processes or the products thereof; or methods for treatment of the human or animal body by surgery or therapy and diagnostic methods practiced on the human or animal body, however, this exclusion does not apply to products, in particular substances or compositions, for use in any of these methods.

An invention is considered to be new if it does not form part of the state of the art and is considered as involving an inventive step if, after having regard to the state of the art, it is not obvious to a person skilled in the art.  An invention is considered as susceptible of industrial application if it can be made or used in any kind of industry, including agriculture.  The right to a European patent belongs to the inventor or his successor in title. If the inventor is an employee, the right to a European patent is determined in accordance with the law of the country in which the employee is mainly employed; if the country in which the employee is mainly employed cannot be determined, the law to be applied will be that of the country in which the employer has his the place of business to which the employee is attached.  If two or more persons have made an invention independently of each other, the right to a European patent therefor belongs to the person whose European patent application has the earliest date of filing, provided that this first application has been published.

An application for a European patent may be filed with the EPO, or branch office, or at the competent patent authority of a Member State, which will forward it to the EPO’s main office.  Under the recent revisions the application may be filed in one of the three official languages (i.e., English, French or German) or, if filed in any other language, translated into one of the official languages. Throughout the proceedings before the EPO, such translation may be brought into conformity with the application as filed. If a required translation is not filed in due time, the application will be deemed to be withdrawn.  An application for a European patent must contain the following:

  1. A request for the grant of a European patent on a special EPO form;
  2. A description of the invention;
  3. One or more claims;
  4. Any drawings referred to in the description or the claims; and
  5. An abstract.

Disclosures in the patent application must be sufficiently clear and complete to allow the invention to be carried out by a person skilled in the art.  Claims must be clear and concise and be supported by the description of the invention.  The abstract, preferably in not more than 150 words, serves mainly for use as technical information only and may not be taken into account for any other purpose, in particular not for the purpose of interpreting the scope of the protection sought.

Applicants are allowed to request the grant of a European patent for one or more of the Contracting States and the application must contain the designation of the Contracting State(s) in which protection is sought.  Initially, Contracting States had to be positively designated in the request for grant; however, this practice caused problems since, in principle, a later designation made after the filing date of the European patent application was inadmissible.  In order to make the entire process more efficient, the EPC now provides that applicants are deemed to have designated all the Contracting States that are parties to the EPC at the time that the application is filed; however, applicants have the option of withdrawing designations and may do so at the outset, upon filing the application, if they so wish. 

Once the application has been filed, it is then subject to an examination and search procedure. The EPO will then decide whether to refuse or grant the European patent.  The EPO will publish the application as soon as possible (a) after the expiry of a period of eighteen months from the date of filing or, if priority has been claimed, from the date of priority, or (b) at the request of the applicant,  before the expiry of that period. The application will be published at the same time as the specification of the European patent when the decision to grant the patent becomes effective before the expiry of the period referred to in the previous sentence. Within nine months of the publication of the fact of the grant of the European patent in the European Patent Bulletin, any person can give notice of opposition to the patent so granted.

Once granted, the European patent takes effect as the equivalent of a national patent in all, or if requested, a designated number, of the Member States that adhere to the Convention. Any infringement of the European patent is thereafter dealt with by the national courts.  The term of the European patent is twenty years from the date of filing of the application.  Any Contracting State may, if the European patent as granted, amended or limited by the EPO is not drawn up in one of its official languages, prescribe that the proprietor of the patent shall supply to its central industrial property office a translation of the patent as granted, amended or limited in one of its official languages at his option or, where that Contracting State has prescribed the use of one specific official language, in that language. The period for supplying the translation ends three months after the date on which the mention of the grant, maintenance in amended form, or limitation of the European patent is published in the European Patent Bulletin, unless the Contracting State concerned prescribes a longer period. The EPC, which allows an applicant to acquire a “bundle of rights” with obvious savings in costs and administrative time, has been quite successful, although the lack of a common appeal structure from decisions that are made by national courts regarding patent litigation can, in theory, lead to variations in the treatment of a European patent among Member States.

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.