Atlanteknology - Technology News for Atlantic Canada

Oh Brother, Why?

A recent case out of Idaho in the USA (Just Med Inc. v. Byce) wonderfully demonstrates all the complexities that may arise when family relationships intermingle with business and intellectual property law.

The ugly facts are as follows:

Two brothers-in-law had an idea to improve artificial larynx technology. After the usual experimentation they obtained a patent for their improvement. 

The project was derailed by the death of one of the brother's wives, but was revived a few years later.

A corporation was formed with both brothers having a seat on the Board of Directors together. Shares were split 1/3 for one brother and 2/3 for the other and his wife.

Brother 1 and an employee (paid with stock) did most of the work on the technology. The employee eventually left and Brother 2 became actively involved in the project, reworking the source code. As with the former employee, Brother 2 was compensated with stock. Brother 2 eventually quit his regular job to work full-time on the software. During the trial he stated that he had redone the software almost from scratch.

As happens from time to time, Brother 2 eventually became disgruntled and undertook a series of actions for which he was ultimately held accountable. The first was to change the copyright notice on the source code to show himself as the copyright owner instead of the company. He also asked Brother 1 for a cash salary, which Brother 1 agreed to. Brother 1 sent Brother 2 salary cheques for a period of time but these were never cashed. 

The straw that broke the camel's back occurred in the spring of 2005 when the company was negotiating a merger or buyout on very favourable terms. The night before Brother 1 was to demonstrate the product to some of the interested parties, Brother 2 deleted the most current (and bug-free) copy of the source code from the company's computers. Needless to say, the demonstration went poorly and the merger/buyout possibility evaporated.

The company ultimately sued Brother 2 and Brother 2 raised, as a defence, the claim that he was the sole author and owner of the computer software. He alleged that his relationship with the company was that of an independent contractor as opposed to an employee. 

This distinction is important because software produced by employees in the course of their employment is, in the absence of an agreement to the contrary, property of the employer company. However, software developed by an independent contractor in the course of their services is property of the independent contractor in the absence of an agreement to the contrary.

The Court ultimately concluded that Brother 2 was an employee of the company and that the software belonged to the company and not Brother 2. The Court further held that Brother 2 was liable for various other unsavoury actions (see above) and the end result was a $41,000 judgment against him, not including punitive damages - which have yet to be assessed.

The motto of the story is this:

Document the relationships between individual programmers and an employer company - i.e., whether they are employees or independent contractors, and make sure that the agreement, whatever its form, contains provisions relating to ownership of intellectual property. The second general rule is that you should not go into business with your in-laws.

Patent reform (judicial and legislative) in the USA - change is in the wind

The United States of America Supreme Court recently handed down two substantial decisions pertaining to patent law in the United States of America. 

In KSR International Co. v. Teleflex Inc., 127 S. Ct. 1727 (2007), the Supreme Court considered an appeal relating to a patent for a gas pedal KSR had created. Teleflex sued, alleging that KSR's invention infringed Teleflex's prior patent for a pedal system. Among KSR's defences was the usual defence that Teleflex's patent was invalid because it was obvious. 

The Supreme Court clarified the traditional test for obviousness, being the so- called "teaching, suggestion, or motivation" test and held that a court must not consider this rule too rigidly. Rather, a court must inquire whether the improvement is more than the predicable use of previously disclosed inventions. A court should further analyze whether there was an apparent reason to combine the known elements in the fashion claimed by the patent applicant.

The net effect of this decision is to make it more difficult for those seeking to obtain patents and to make it easier for those seeking to invalidate patents. 

In the second decision, Microsoft Corp. v. ATT Corp., 127 S. Ct. 1746 (2007), the Supreme Court handed down a decision which will ultimately make it harder for patent holders in the United States to recover damages for alleged infringement that occurs abroad. 

In Microsoft, ATT held a patent on the digital processing of speech and it alleged Microsoft infringed this patent because the Windows operating system contained similar code. 

Microsoft claimed that there was no infringement because it sent the Windows software to foreign manufacturers via encrypted transmission. The software would then be decrypted and installed on computers manufactured and sold outside of the United States of America. However, there is a section in the Patent Act that creates liability where "components" are "supplied" from within the United States. ATT claimed that the component (Windows) was supplied within the United States and therefore liability was engaged. 

The Supreme Court disagreed, holding that the copies of Windows did not originate from within the United States and were therefore not supplied from within the United States. 

It remains to be seen how these two decisions will affect the state of patent law in the United States of America given the current reform processes under way there. The USA House of Representatives recently voted to enact sweeping reforms (the bill is set to be discussed in the Senate in October, barring delays) and it will be interesting to see how recent case law, taken together with reforms, will change the patent law landscape in the United States (and by extension throughout the world).