Utilization of Unregistered Assets · even the design or get-up of a product or décor of a shop...

Intellectual Asset Management Seminar21st November 2006

Utilization of Unregistered Utilization of Unregistered Assets:Assets:

Trade Secrets, Technical Information, Trade Secrets, Technical Information, Contracts, Accreditation and Contracts, Accreditation and

Show HowShow How

Andrea FongLicensing Executives Society of China,

Hong Kong Sub-Chapter

21st November 2006

Intellectual Asset Management

Seminar

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21st November 2006

1. IntroductionRegistered assets vs Unregistered assets

Registered assets

• Assets which have a value immediately measurable and can be easily registered, patented, trademarked or copyrighted

• e.g. patent, trademark, design, copyright (although registration is not necessary)


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Registered assets vs Unregistered assets

Unregistered assets

• Assets which do not have a value immediately measurable and cannot be easily registered, patented, trademarked or copyrighted

• Usually intangible, such as knowledge and skills, standards and values, explicit know-how and technology, management processes and assets, images, relationships, networks21st November 2006

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Unregistered assets

• Trade secretsInformation which is of commercial value (such as a coating process), which is only known to a limited number of individuals.

(definition from Intellectual Assets Centre at www.ia-centre.org.uk)

e.g. secret formula for “Coca Cola”

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Unregistered assets

• Technical informationProcess, procedures and technical information which are (or can be) documented and can be shared e.g. standard operating procedures; novel methods of resolving technical issues etc.



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Unregistered assets

• ContractsLegal agreements such as licenses, leases, contract of employment, distribution agreements etc. Can be either verbal or written and apply to employees or external business contacts.


e.g. licence agreement to use certain well-known trademarks on specific goods21st November 2006

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Unregistered assets

• AccreditationAwarded by a variety of organisations, and include compliance with specific industrial standards (ISO, BSS), regulatory requirements (FDA, MCA), and business outcomes (IIP).


e.g. ISO 9001:2000 for quality management systems


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Unregistered assets

• Show howMay comprise of a demonstration of activities such as equipment maintenance, production process etc, which can be used as a training tool or traded if recorded e.g. by video.


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Unregistered assets

• Other

Goodwille.g. goodwill built on a mark, trade name or even the design or get-up of a product or décor of a shop


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2. Utilization of unregistered assets

Commercial exploitation

• Licensing

• Assigning

• Franchising

• Mortgaging (for Contracts mainly)Intellectual Asset

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Licensing

• Points to note in a licence agreement for unregistered assets

- define the rights granted and the scope of grant clearly

exclusive/non-exclusivegeneral/limitedextent of usesub-licensing allowed?territoryduration


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Licensing

- should cover the following areas:-standard of qualityduty of confidentialityproduct liability, loss and insurancecompliance with local regulations obtain necessary government approvalsnon-competitionmaintenance and enforcement of IP rights in event of infringement by third parties


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post-termination- cessation of use of licensed matter- return of all proprietary materials- disposal of stock- duty of confidence to survive

termination


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Licensing

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• Assigning- transfer of ownership from assignor to

assignee

• Franchising- larger form of licensing- franchisee operates under the franchisor’s

trade name and uses its intellectual property

• Mortgaging- may use contracts like distributorship

agreement as security

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3. Protection of unregistered assets

Trade secrets & Technical Information- confidentiality - restraint of trade

Contracts- carefully drafted contract terms- effective dispute resolution


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Accreditation- maintenance- complaints against fraudulent/improper

use of accreditation by other third parties

Show-how- carefully drafted licence agreement- if recorded, monitoring copyright

infringement by third partiesIntellectual Asset

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Confidentiality in general

• Contractual terms

• Duty of confidence

- the information itself must have the necessary quality of confidence

- it must have been imparted in circumstances importing an obligation of confidence

- there must be an unauthorized use of that information to the detriment of the party communicating it

(Coco v Clark (AN) (Engineers) Ltd [1969]RPC 41)


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Confidentiality in general

• Enforcement

- Civil action for breach of contract and/or breach of confidence

- remedies e.g. injunction, damages, account of profits, delivery up and destruction of infringing items


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Confidentiality vis-a-vis employees

• During employment

duty of good faith and confidentiality not to disclose confidential information (including more ordinary business information)

• After termination of employment

(implied) limited duty not to misuse confidential information

only trade secrets are protected


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• What is a trade secret?

- used in a trade or business

- confidential, i.e. not already in the public domain

- can be easily isolated from other information which the employee is free to use so that any man of average intelligence and honesty would think it is improper to use the information at the disposal of his new employer


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- if disclosed to a competitor, it would be liable to cause real or significant harm to the owner

- its owner must have limited its dissemination or at least must not have encouraged or permitted its widespread publication or must have otherwise impressed upon the employee the confidentiality of the information

(Toto Toys Lid v Lee Man Shu (unreported, Civil Action No.2600 of 2004))


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• For confidential information which is nottrade secret

- express confidentiality clause after termination of employment in employment contract / confidentiality agreement is necessary

- must be reasonable to be enforceableIntellectual Asset

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How to draft a good confidentiality agreement

• Terms to be included

(1) Parties- should be accurately defined- include other group companies and

affiliates if necessary

(2) Consideration- consideration or executed as a deed


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(3) Commencement- whether information have been

disclosed before signature of agreement

(4) Subject matter of agreement- briefly identify in general terms the area

of technology in which disclosure will be made

- include the fact that a confidentiality agreement has been made

specific provisions governing press releases and public statements


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(5) Information covered by the agreement- type of information covered- e.g. only information which is in

writing and marked confidential

(6) Disclosing and receiving parties- who should disclose or receive the

information? - include employees, agents, contractors

or group companies Intellectual Asset Management

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(7) Exceptions to confidentiality obligations- e.g. information which the recipient

claims to have already developed or subsequently develops in a separate part of the organization without access to the information disclosed

- whether the onus is on the receiving party to prove that information falls within an exception and standard of proof

- common exceptions: information in public domain, information known to recipient before disclosure, independently developed information


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(8) Restrictions- permitted use --- allow internal use? - prohibit copying of materials containing

confidential information- disclosure to recipient’s employees and

representativesonly to those who need to know the

information in connection with the purposes of the agreement and who have undertaken to comply with the terms

separate undertakings to be signed by staff


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(9) Positive duties on recipient- take security measures to protect

information- return materials containing the

information on termination of agreement or on demand

(10) Duration of agreement and obligations- termination by reasonable notice- information disclosed after date of

termination not to be subject to the agreement

- obligations to survive after termination


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(11) Obligations on the disclosing party- (under exclusive licence) not to disclose

the information to other third parties

(12) Implied terms- no licence to use the information is to be

implied- disclaimer of other implied terms and

representationsIntellectual Asset

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(13) Law and jurisdiction- state the governing law- dispute resolution: arbitration?

(14) Competition restrictions- restrictive covenants- reasonableness and public policy


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Restraint of trade• must protect legitimate interests of the

employer

• only enforceable if it is reasonable as between the parties and with reference to public policy

• relevant factors include duration, scope and geographical location


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Position in ChinaBusiness secrets• Law against Unfair Competition of the PRC

(Article 10)

Business secrets in this Article refer to the technical information and operational information which is not known to the public, which is capable of bringing economic benefits to the owners of the rights, which has practical applicability and which the owners of the rights have taken measures to keep secret.


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An operator shall not adopt any of the following means to infringe on the business secrets of others:

1. obtaining business secrets from the owner of the right by stealing, promising of gain, resorting to coercion or other illegitimate means;

2. disclosing, using or allowing others to use the business secrets of the owner of the right obtained by the means mentioned in the preceding item;


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3. disclosing, using or allowing others to use the business secrets that it has obtained by breaking an engagement or disregarding the requirements of the owner of the right to preserve the business secrets.

Where a third party obtains, uses or discloses the business secrets of others when it or he has or should have full knowledge of the illegal acts mentioned in the preceding section, it or he shall be deemed to have infringed on the business secrets of others.


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• Also other regulations, rules (e.g. issued by the State Administration for Industry and Commerce) and local legislation

e.g. 國家工商行政管理局<<關於禁止侵

犯商業秘密行為的若干規定>>, 深圳經濟

特區企業技術秘密保護條例 (restraint of trade after termination of employment limited to 3 years & fixed amount of compensation fees)

• No special provision under PRC LabourLaw governing confidentiality or non-competition clauses


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• No implied common duty of good faith and confidentiality on employees

• Must rely on confidentiality agreement vis-à-vis third party and vis-à-vis employees

• Confidentiality fees

no implied duty of confidentiality on employees

need to pay confidentiality fees as consideration

should expressly state that salary also constitutes confidentiality fees


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• Enforcement

- Civil action for breach of confidentiality agreement and/or unfair competition

- Criminal action for infringement of business secrets leading to substantial damage to the complainant

- Administrative action by AIC (fines, delivery up of tangible infringing items and destruction of infringing products)


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Case study – Hong KongS.A.S. Electronic Co Ltd v Lee Sun Kenneth

(DCCJ 9287/2001, District Court, 26 October 2004)

• SAS was a non-exclusive distributor and seller of digital still camera components from a few suppliers

• SAS alleged that Mr. Lee whist employed by SAS:-

(1) solicited and transferred business from SAS’s customers to two competitors


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(2) disclosed trade secrets or confidential information obtained during the course of employment (e.g. another supplier’s pricing info) to SAS’s supplier and/or competitors

(3) worked as the marketing director for SAS’s competitor


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• It was alleged that Mr. Lee had failed to disclose information which would result in a risk of SAS losing clients (e.g. clients’complaint and request) and passed on confidential information to SAS’s competitors to enable them to solicit potential customers.

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• Court held that Mr. Lee has deliberately abandoned customer requiring technical support partly for his private interest to foster customers’ disappointment over SAS’sservices, thereby spurring them towards the competitors and his private interest was to position himself for a future role with the competitor

• He has also passed on confidential information to SAS’s potential rivals without SAS’sapproval


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• Mr. Lee was in breach of his implied obligations of loyalty, good faith, fidelity, non-competition and duties of trust and good faith during his employment with SAS

• As substantial loss and damages have not been satisfactorily proved, SAS should be entitled to nominal damages only

• No injunction or other remedy was pleaded for


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Case study – ChinaPlaintiff: Xi An Heavy Machinery Research Institute

(西安重型機械研究所)

Defendant: Pei Guo-liang (裴國良) and Zhong Ye

Lian Zhu Technological Engineering Limited (中冶連鑄技術工程有限公司)

• Mr. Pei was the Plaintiff’s former senior engineer and he copied the designs of the Plaintiff during the course of his employment.

• Mr. Pei then joined Zhong Ye and used the stolen designs to obtain two projects


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• The Intermediate People’s Court of Xi An City held that Mr. Pei has stolen the Plaintiff’s business secrets and supplied the same to others and such act constituted infringement of the Plaintiff’s business secrets.

• Zhong Ye used the stolen business secrets in substantial portion without the Plaintiff’s authorization thereby causing economic losses to the Plaintiff and should be accountable for such losses


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• Mr. Pei was sentenced to 3 years’imprisonment and fined RMB50,000 whilst the Plaintiff was awarded damages in the sum of RMB17.82 million to be paid by Mr. Pei and Zhong Ye

• Highest amount of damages for infringement of business secret cases in China!Intellectual Asset

Management Seminar

21st November 2006

Thank you

Andrea FongLicensing Executives Society of China

Hong Kong Sub-ChapterIntellectual Asset

Management Seminar

21st November 2006

Utilization of Unregistered Assets · even the design or get-up of a product or décor of a shop...

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