(Second Edition)

Kenneth L. Port,  Jay Dratler, Jr.,  Faye M. Hammersley, Esq.,  Terence P. McElwee,
Charles R. McManis, and Barbara A. Wrigley

On-Line Problem Supplement
Copyright © 2005, 2008   Carolina Academic Press.   For permission, see CMI.

Exercise B: Implied Licensing Exercises

1. At the request of the owner of a small landscaping business, a freelance photographer takes fifteen pictures of the landscapers work at various sites.   The landscaper tells the photographer that he intends to use the pictures to present samples of his work, in person, to prospective clients in order to secure their business.   The landscaper pays the photographer $100 for each photograph, and the photographer gives the landscaper two glossy prints and a copy of the negative for each.   Five years later, when the landscapers business has grown enormously, the landscaper publishes the photographs in a statewide advertising campaign in the print media (magazines and newspapers) and on television.   When the photographer sees these advertisements, he asks the landscaper for additional payment, but the landscaper refuses.   If the photographer sues, what result, and what remedy, if any?

2.   X owns a patent on a shrimp shelling machine.   The machine consists of three parts: (1) a cylindrical stainless-steel hopper to contain the shrimp, with inward-facing ridges and sharp edges to take off the shells as the hopper rotates, (2) a shaft and belt to rotate the hopper, and (3) a motor to drive the belt.   None of these parts is patented by itself; Xs patent claims only the combination of all three together.   Does any of the following activities of Y infringe Xs patent?
    a.   Y buys a hopper (part (1)) from Xs authorized distributor, buys parts (2) and (3) from independent sellers having no relationship with X, and assembles the three parts into her own shrimp-shelling machine.
    b.   Y owns one of Xs shrimp-shelling machines, which Y purchased from Xs authorized distributor.   After the hopper in that machine wears out, Y buys a replacement hopper from the same authorized distributor and installs it in the machine.
    c.   Same facts as in (b), except that Y buys the replacement hopper from an independent seller having no relationship with X or Xs authorized distributor.

3.  Company Q develops and markets computer software for small businesses.   It hires A as a janitor to work at night cleaning its offices and bathrooms.   Because As work does not involve software, A has no written agreement with Company Q.   However, A does not wish to remain a janitor forever.   Late at night and in the early mornings, A teaches himself to program computers, using books, manuals and computers on Company Qs premises.   Then A uses the same facilities to write a computer program for keeping track of customers and marketing programs.   When his program is finished, A leaves company Q and obtains a patent on his program, but he leaves a copy of the program on Company Qs computers.   Company Qs management discovers the program and finds it highly useful and brilliantly designed but is aware of As patent.   May Company Q use the program (1) in its own internal operations and/or (2) for marketing and licensing to Company Qs customers?

4.   Company W makes widgets for sale to the general public.   Its widgets are quite popular, and Company Ws revenue from their sale is substantial and growing rapidly.   After about three years of successful production, Company Ws CEO receives a letter from C claiming that C owns a patent that covers the widgets, with a copy of the patent enclosed.   The letter asserts that Company Ws production and sale of the widgets is patent infringement, offers to grant Company W a license at a 5% royalty rate, and threatens to sue if the license is not signed and returned within 60 days.   For five years, Company W does nothing in response, but continues to make and sell the widgets.   During that time, Company W hears nothing further from C.   After the five years have passed, Company Ws CEO notices an advertisement placed by C in a trade publication, boasting of Cs patent and Cs highly successful licensing program.   Sixth months after reading that ad, the CEO authorizes a substantial and costly expansion of Company Ws production facilities.   As a result, Company Ws sales of widgets increase still further.   Two years later, C sues Company W for patent infringement.   What result?   Would it make any difference if the IP at issue were a trademark for the widget, rather than a patent?

5.   Z makes two inventions related to mobile phonesa pioneering invention and a commercially important improvement.   Z applies for patents on both inventions.   The patent on the pioneering invention issues first (Patent 1). After Patent 1 issues, but before the second patent (Patent 2) issues, Z enters into a license agreement with M.   The granting clause recites that Z hereby grants M a nonexclusive, worldwide, royalty-bearing license under Patent 1 to develop, manufacture and sell mobile phones.   M invests in a plant and begins to make and sell phones covered by Patent 1.   Nine months later, Patent 2 issues.   It appears to cover Ms phones, so Z asks M to increase the royalty rate.   Should M agree?   Could you have drafted the granting clause of the license to make Ms legal position stronger and, if so, how?

6.  Your client is a firm that makes household appliances.   It hires an electrical engineer to design circuits for the appliances.   After working for the firm for two years, the engineer has a dispute with management and quits.  Two months after the engineer has left the company, management discovers a diagram for a novel circuit in the departed engineers desk.   The design bears the engineers highly distinctive handwriting.   After examining the circuit, management decides that its use would cut the cost of producing most appliances by at least 10% and would cut their electrical power usage by 20%, making them more efficient and cheaper to operate.   Management would like to begin production and use of the circuit immediately.  Advise management what it should do.   What difference would it make if a manager telephoned the engineer, asked if the firm could use his circuit, and he said yes?   What additional facts, if any, would you need to know in order to provide reliable advice?

7.   Firm Z makes a patented air purifier for indoor use.   The machine uses a patented air filter consisting of charcoal impregnated with a special electrostatic substance.   Firm Z sells the air purifier for $150 and the air filter used in it for $75.   Firm Q sells a replacement air filter, which is identical to Zs filter, for only $25.  Can you lawfully buy Firm Qs filter, instead of Firm Zs, and use it in Firms Z air purifier? Would it make a difference if Firm Zs air filter used ordinary charcoal without the special electrostatic substance that is an essential element of Firm Zs air filter patent?

8.   Firms L and M are fierce rivals in the business of developing and marketing vaccines.   Both are working on vaccines against bird flu.  During the course of its research, Firm L discovers a powerful adjuvant, i.e., a chemical that vastly boosts a vaccines effectiveness.   But Firm L is unable to create an vaccine that is effective against bird flu.   Meanwhile, Firm Ms research produces a vaccine that is weakly effective against bird flu but needs a boost in strength to be able to ward off a pandemic.   Each firm applied for a patent on its discovery. Because Firm Ls adjuvant has a wide range of applications, Firm L grants licenses to make, use and sell it to most firms in the vaccine industry at a standard royalty rate of $1 per dose.   But because Firm M is such a fierce rival, Firm L refuses to grant such a license to Firm M.  Firm Ms management asks Firm Ls CEO whether Firm M can use a small amount of Firm Ls adjuvant for research purposes.   The CEO says yes, and sends Firm M a small sample of the adjuvant. Firm M then tests the adjuvant and finds it boosts the protective power of Firm Ms vaccine to the point that it could provide protection against a pandemic.   In the process of its research, Firm M also analyzes the adjuvant and discovers its chemical composition and how to make it.   Firm M would like to manufacture the adjuvant to combine with its vaccine without getting a license from Firm L.  Advise Firm M of the legal soundness and risks of its plan.

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