Private Placement of Alternative Investment Funds in the European Union (EU): Changing Regulatory Landscape

GT Law

I. Overview

The European Commission’s Alternative Investment Fund Managers Directive (“AIFMD”) was designed to establish a unified framework throughout the EU for regulating previously unregulated Alternative Investment Funds (“AIF”).

The AIFMD is effective as per July 22, 2013. The AIFMD, as any other EU directive, however needs to be transposed into European Union members’ national laws before it will actually have effect. Moreover, the AIFMD leaves the member states with the flexibility to make their own choices on certain aspects. This concerns also the private placement of units in AIF´s.

In preparation for its enforcement by the individual EU member states, this memorandum will discuss the AIFMD’s effect on non-EU managers of AIFs (“AIFM”) marketing non-EU AIFs within the EU.  The memorandum will first give a broad overview of some of the AIFMD’s measures significant for non-EU AIFMs, followed by a table summarizing how the private placement of AIF´s in the major capital markets of the EU is affected the AIFMD.

It should be noted that prior to July 22, 2013, the marketing of AIF´s in EU member states already required an individual analysis for each member state. For the time being not much has changed in this respect but marketing unregulated funds to selected non retail investors has certainly become more complex due to the AIFMD. Also these distributions may no longer be expected to remain of relatively little interest to securities regulators and fund managers may therefore be required to strengthen their compliance efforts in this area.

II. Regulatory Target – AIF Managers

The AIFMD seeks to regulate a set of previously unregulated AIFs, namely, “all collective investment undertakings that are not regulated under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive.”  These include hedge funds, private equity funds, commodity funds, and real estate funds, among others.

Rather than regulating AIFs directly, however, the AIFMD regulates AIFMs—that is, entities providing either risk or portfolio management to an AIF.  According to the AIFMD, each AIF may only have a single entity as its manager.

The AIFMD applies to AIFMs that are: (1) themselves established in the EU (“EU AIFM”); (2) AIFMs that are not established in an EU country (“non-EU AIFM”), but that manage and market AIFs established in the EU (“EU AIF”); or (3) non-EU AIFMs that market AIFs that are not established in a EU country (“non-EU AIF”) within an EU jurisdiction.

This memo principally deals with the third category, non-EU AIFMs that market non-EU AIFs in the EU.

III. Exemption – Small AIFs

Pursuant to the AIFMD, AIFMs that manage small funds are exempt from the full rigor of the AIFMD regulatory regime.  A lighter regulatory regime is applicable to these AIFMs.

The AIFMD defines AIFMs that manage small funds as either: (1) an AIFM with aggregate assets under management not exceeding € 500 million, where the AIFs are not leveraged, and the investors do not have redemption rights for the first five years after their investment; or (2) an AIFM with aggregate assets under management not exceeding € 100 million.

AIFMs of smaller funds are largely exempted from the AIFMD, and will only be subject to registration, and limited reporting requirements.

IV. Marketing – Definition

As previously discussed, the AIFMD applies to non-EU AIFMs marketing non-EU AIFs in one or more EU jurisdictions.

The AIFMD defines marketing as “a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the Union.”  This marketing definition does not include reverse solicitation, where the investor initiates the investment, and the investment is not at the AIFM’s direct or indirect initiative.

Thus, for example, if an EU investor initiated an investment in a U.S. AIF, managed by a U.S. AIFM, the U.S. AIFM and AIF would be unaffected by the AIFMD.  The AIFMD would only apply to U.S. AIFMs managing U.S. AIFs, if the U.S. AIFM solicited investment in the EU.

V. Regulating Non-EU AIFMs – National Private Placement Regimes

The AIFMD is designed to phase out national private placement regimes, creating a unified regulatory regime throughout the EU.  However, the AIFMD is scheduled to come into force in stages.

Between July 22, 2013, and 2018 (at the earliest), non-EU AIFMs will be able to market their non-EU AIFs in an EU jurisdiction (“EU Target Jurisdiction”) subject to the national private placement regimes applicable in that EU jurisdiction.

Thus for example, a U.S. AIFM marketing a U.S. AIF in the UK will be able to do so subject to the UK’s private placement regime.

VI. Regulating Non-EU AIFMs – Additional AIFMD Requirements

As explained, through 2018, the AIFMD will largely permit non-EU AIFMs to market non-EU AIFs subject to the private placement regime in the EU Target Jurisdiction.

However, the AIFMD does include three additional requirements for the non-EU AIFMD to be able to take advantage of the EU Target Jurisdiction’s private placement regime.  These include, specific disclosure and reporting requirements, cooperation agreements, and exclusion of AIFs and AIFMs established in certain countries.  Each of these will be discussed in turn.

a. Applicable AIFMD Reporting Requirements

By its terms, the AIFMD will require even non-EU AIFMs marketing non-EU AIFs pursuant to national private placement regimes to comply with certain AIFMD provisions concerning annual reports, disclosures to investors, periodic reporting to regulators, and acquisition of control over EU companies.

A non-EU AIFM will thus be required to make available: (1) an annual report for each non-EU AIF that it markets in the EU; (2) information relevant to potential investors, as well as changes in material information previously disclosed; (3) regular reports to the national regulator in the EU Target Jurisdiction; and (4) disclosure information to a listed or unlisted EU company over which the non-EU AIFM acquires control.

b. Cooperation Agreements

For non-EU AIFMs to be able to market their non-EU AIFs in an EU jurisdiction, the AIFMD requires that there be cooperation agreements in place between the regulator in the non-AIFM’s home jurisdiction, and the EU Target Jurisdiction.

ESMA has negotiated memoranda of understanding (“MOU”) with 34 regulators in a variety of jurisdictions.  These include regulators in Albania, Australia, Bermuda, Brazil, the British Virgin Islands, Canada (the provincial regulators of Alberta, Quebec and Ontario as well as the Superintendent of Financial Institutions), the Cayman Islands, Dubai, Guernsey, Hong Kong (Hong Kong Monetary Authority and Securities and Futures Commission), India, the Isle of Man, Israel, Jersey, Kenya, Malaysia’s Labuan Financial Services Authority, Mauritius, Montenegro, Morocco, Pakistan, Serbia, Singapore, Switzerland, Tanzania, Thailand, the United Arab Emirates and the United States (Federal Reserve Board, Office of the Comptroller of the Currency and Securities and Exchange Commission).

These MOUs, however, are insufficient to permit non-EU AIFMs to market their non-EU AIFs in any EU jurisdiction.  Rather, the EU Target Country must have a separate cooperation agreement with the regulator in the non-EU AIFM’s home jurisdiction (presumably these separate cooperation agreements will be based on the MOUs negotiated by ESMA).

Thus, for example, for a U.S. AIFM to be able to market its U.S. AIF in the UK, the UK’s Financial Conduct Authority must have a cooperation agreement with the United States’ Securities and Exchange Commission.

c. Exclusion of Non-Cooperative Country or Territory

Finally, pursuant to the AIFMD, to be able to market based on the EU Target Country’s private placement regime, neither the non-EU AIFM nor the non-EU AIF may be considered a country considered a “Non-Cooperative Country or Territory,” by the Financial Action Task Force on anti-money laundering, and terrorist financing.

In sum, through 2018, non-EU AIFMs may market their non-EU AIFs in EU jurisdictions according to the relevant EU Target Jurisdiction’s private placement regime, subject to a few additional AIFMD requirements.

VII. The AIFMD in Each EU Jurisdiction

The above discussion outlines the AIFMD’s general requirements pertaining to non-EU AIFMs marketing non-EU AIFs.

However, because to take effect the AIFMD must be transposed into the national law of each EU jurisdiction, and because through 2018 the AIFMD largely relies on national private placement rules to regulate non-EU AIFMs, there is bound to be substantial variation in the AIFMD’s application across EU jurisdictions.

The table below details relevant aspects of the AIFMD’s application in each of the EU jurisdictions (plus Norway, and Switzerland).  Supplementing the memorandum, the table serves as a basic guide for the AIFMD’s application to non-EU AIFMs seeking to market their non-EU AIFs in each of the EU jurisdictions.  The chart includes, for each country, whether it has transposed the AIFMD on time (“On time” / “Not on time”), an overview of the private placement regime, relevant reporting requirements, transitional provisions, and a list of the countries with which a cooperation agreement is in place.

Because some of the EU countries have yet to transpose the AIFMD, or have not completed the transposition, and cooperation agreement process we will indicate on the outline where completion of the process is pending.

BELGIUM

  • AIFMD Transposition
    • Not on time
  • Private Placement Regime
    • At present, AIFMs must be registered locally, and are subject to a minimum investment amount of € 250,000.
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions – Pending
  • Cooperation Agreements with non-EU Countries – Pending

DENMARK

  • AIFMD Transposition
    • Not on time.
  • Private Placement Regime
    • Denmark permits marketing to a maximum of 8 offerees, and requires that a non-EU AIFM be licensed in its member state of reference.1
  • Relevant Reporting Requirements
    • Non-EU AIFs licensed in another EU jurisdiction pursuant to AIFM regulations must submit additional documentation to the Danish FSA, including operating and managing plans, and contact information.
  • Transitional Provisions
    • Transitional provisions will permit non-EU AIFMs to market AIFs under Denmark’s current private placement regime until at least July 22, 2014 (provided that the AIFMs commenced marketing prior to the transposition date of July 22, 2013).
  • Cooperation Agreements with non-EU Countries – Pending

FINLAND

  • AIFMD Transposition
    • Not on time.
  • Private Placement Regime
    • Finland’s private placement regime permits AIFMs to market only to “professional” clients.
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions
    • The AIFMD is not expected to apply to non-EU AIFMs until 2015.
    • Transitional rules have been proposed (although not yet adopted) permitting AIFMs to market pursuant to existing private placement rules, provided that the AIFMs can show that they have made a good faith effort to comply with AIFMD.
  • Cooperation Agreements with non-EU Countries – Pending

FRANCE

  • AIFMD Transposition
    • On time.
  • Private Placement Regime
    • Under its present private placement regime, France does not permit AIFMs to actively solicit investment.
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions
    • It appears that a transitional period will apply until 22 July 2014, during which all French AIFMs will be able to continue marketing and / or managing any AIFs in France on the pre-AIFMD basis (for example by using reverse solicitation).
    • Other AIFMs (whether EU but outside France or non-EU) would, therefore, need to be authorized.
  • Cooperation Agreements with non-EU Countries – Pending

GERMANY

  • AIFMD Transposition
    • On time.
  • Private Placement Regime
    • Under the new German private placement regime, non-EU AIFMs may market to professional investors, subject to requirements.
    • To market in Germany, the non-EU AIFM must appoint an independent entity to act as a depositary (as defined in the AIFMD), and notify BaFin, Germany’s markets regulator, of the appointed depository’s identity.
  • Relevant Reporting Requirements
    • Notifying BaFin of its intention to market in Germany, and include an application with a comprehensive list of information and documents.  BaFin will have up to two months to review, and decide upon the application.
    • Making certain initial and ongoing investor disclosures.
    • Complying with reporting requirements to BaFin.
  • Transitional Provisions
    • Non-EU AIFMs that marketed funds in Germany by prior to the AIFMD’s July 22, 2013 effective date (“previously marketed funds”) will be permitted to continue marketing those previously marketed funds under existing private placement rules until July 21, 2014.
  • Cooperation Agreements with non-EU Countries – Pending

IRELAND

  • AIFMD Transposition
    • On time.
  • Private Placement Regime
    • Under Ireland’s private placement regime, non-EU AIFMs will be able to market in Ireland without restrictions additional to those of the AIFMD, discussed above.
  • Relevant Reporting Requirements
    • Ireland will only require that the non-EU AIFMs comply with the AIFMD’s reporting requirements for non-EU AIFMs discussed above.
  • Transitional Provisions
    • Non-EU AIFMs managing qualified investor alternative investment funds (“QIAIF”), as defined under the relevant Irish provisions, which were authorized prior to the July 22, 2013 transposition date will not be required to be AIFMD compliant until July 22, 2015.
    • Non-EU AIFMs managing QIAIFs authorized after July 22, 2013 will have two years from the QIAIF’s launch date to become AIFMD compliant.
  • Cooperation Agreements with non-EU Countries – Pending

ITALY

  • AIFMD Transposition
    • Not on time.
  • Private Placement Regime
    • Under Italy’s current private placement regime, which it seems will be available to non-EU AIFMs through 2015, AIFMs may market only to “expert” investors.
  • Relevant Reporting Requirements
    • Currently, AIFMs must disclose their balance sheets, certain administrative documents, and financial reports regarding their managers’ activities.
  • Transitional Provisions – Pending
  • Cooperation Agreements with non-EU Countries – Pending

LUXEMBOURG

  • AIFMD Transposition
    • On time.
  • Private Placement Regime
    • Through 2018, Luxembourg will permit small and non-EU AIFMs to market pursuant to its private placement regime.
  • Relevant Reporting Requirements
    • Luxembourg imposes certain transparency requirements on AIFMs, including disclosure of an AIFM’s net asset value, and disclosures upon gaining control of an EU company.
  • Transitional Provisions
    • Beginning on July 22, 2014, in addition to complying with Luxembourg’s private placement regime, non-EU AIFMs will be required to comply with the third country provisions of the AIFMD.
  • Cooperation Agreements with non-EU Countries
    • Luxembourg signed cooperation agreements with all 34 of the regulators that entered into MOUs with ESMA.

THE NETHERLANDS

  • AIFMD Transposition
    • On time.
  • Private Placement Regime
    • Netherlands will permit certain AIFMs to market pursuant to its private placement regime provided offerings are: (1) to less than 150 persons; (2) units have an individual nominal value of at least EUR 100,000 or consist of a package of units with at value of at least EUR 100,000; or (3) offered to professional investors only.
    • Non-EU AIFMs are exempted for offerings to qualified investors only if the AIFM is not domiciled in a non cooperative country under FATF rules and the Dutch regulator and the foreign regulator entered into a MOU.
    • AIFMs licensed by the relevant securities regulators in the USA, Jersey and Guernsey may offer to any investor under a license recognition regime.
  • Relevant Reporting Requirements
    • Notification to Netherlands Financial Markets Authority and reporting of investments, risk positions and investment strategy of AIF to Dutch Central Bank.
  • Transitional Provisions
    • Several grandfathering provisions for non-EU AIF’s that stopped marketing prior to 22 July 2013.
  • Cooperation Agreements with non-EU Countries – Pending

POLAND

  • AIFMD Transposition
    • Not on time.
  • Private Placement Regime
    • So far, the Polish regulator has not published an AIFMD transposition regulation.
    • However, under the existing private placement regime, non-EU AIFs that wish to market its units in Poland may do so if:
      • The units are qualified as equity or debt securities under their respective governing law; and
      • The units are offered under the “private placement” regime, meaning a nonpublic offer to sell securities to no more than 149 identified investors
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions
    • As mentioned above, the Polish regulator has not made an official announcement concerning AIFMS transposition.
  • However, a representative of the Polish regulator recently indicated in an interview that:
    • AIFMs currently marketing AIFs in Poland will have two years to determine whether they fall within the regulations of the AIFD; and
    • If so, the AIFMs will be required to become AIFMD compliant within the two-year period.
  • Cooperation Agreements with non-EU Countries – Pending

SPAIN

  • AIFMD Transposition
    • Not on time.
  • Private Placement Regime
    • Currently, no private placement regime is available, and it in not anticipated that a private placement regime will be made available in the implementation of the AIFMD.
    • Under proposed rules, registration with, and authorization from the Spanish regulator is required for non-EU AIFMs to market non-EU AIFs to professional investors only in Spain.
    • Authorization to market may be denied if:
      • The non-EU AIF’s home state applies discriminatory marketing rules against Spanish AIFs;
      • The non-EU AIF provides insufficient assurance of compliance with Spanish law, or insufficient protection of Spanish investors; or
      • The non-EU AIFs will disrupt competition in the Spanish AIF market.
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions – Pending
  • Cooperation Agreements with non-EU Countries – Pending

SWEDEN

  • AIFMD Transposition
    • Not on time.
  • Private Placement Regime
    • At present, there is no private placement regime for marketing AIFs in Sweden.
    • Many AIFs, simply fall outside the scope of Sweden’s regulations, and may market freely in Sweden
    • Other AIFs affected by Sweden’s regulation may only be marketed by a Swedish AIFM, or an AIFM regulated in another EU country.
    • It is unclear whether non-EU AIFMs will be able to continue to market freely after the AIFMD comes into force, or whether they will be prevented from marketing in Sweden altogether
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions – Pending
  • Cooperation Agreements with non-EU Countries – Pending

UNITED KINGDOM

  • AIFMD Transposition
    • On time.
  • Private Placement Regime
    • Provided that an AIF has been marketed by the non-EU AIFM prior to July 22, 2013 in an EEA jurisdiction, the non-EU AIFM will be able to continue to market the funds under the UK’s private placement regime until July 21, 2014 without complying with the requirements of the AIFMD.
    • For new funds marketed from July 22, 2013, the non-EU AIFM will need to comply with the reporting requirements of the AIFMD set out below.
  • Relevant Reporting Requirements
    • Prior to marketing in the UK, an AIFM must give the FCA written notification of its intention to do so.
    • In the notification, the AIFM must affirm that it is responsible for complying with the relevant AIFMD requirements, and that these relevant requirements have been satisfied.
    • Once it has submitted the notification to the FCA, the AIFM may begin marketing—it need not wait for the FCA’s approval.
    • Additionally, the AIFM is subject to disclosure requirements, including:
      • Ensuring that investor disclosure in fund marketing materials meets the disclosure and transparency requirements set out in the directive;
      • Reporting either annually or semi-annually to the FCA proscribed information; and
      • Submitting and publishing an annual report for each AIF that the AIFM manages or markets.
  • Transitional Provisions
    • The non-EU AIFMs that marketed any AIF in the EU prior to the AIFMD’s July 22, 2013 effective date will be permitted to market AIFs in the UK under the pre-AIFMD rules until July 21, 2014.
    • Non-EU AIFMs taking advantage of the transitional provision may do so irrespective of whether or not the FSA has cooperation agreements in place
  • Cooperation Agreements with non-EU Countries
    • The UK signed cooperation agreements with all 34 of the regulators that entered into MOUs with ESMA.

NORWAY2

  • Private Placement Regime
    • At present, Norway does not permit soliciting investment in AIFs.
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions – Pending
  • Cooperation Agreements with EU Countries – Pending

SWITZERLAND

  • Private Placement Regime
    • Non-EU AIFMs may market through the Swiss private placement regime without any additional regulation, approval, or license requirement or the investor is:
      • A License financial institution;
      • A regulated insurance institution; or
      • An investor that has concluded a written discretionary asset management agreement with a licensed financial institution, or a financial intermediary, provided that information is provided to the investor through the financial institution, or intermediary, and that the financial intermediary is:
        • Regulated by anti-money laundering regulation;
        • Governed by the code of conduct employed by a specific self-regulatory body recognized by the Swiss regulator; and
        • Compliant with the recognized standards of the self-regulatory body.
  • Relevant Reporting Requirements – Pending
  • Transitional Provisions
    • Non-Swiss AIFMs have until March 1, 2015 to:
      • Appoint a Swizz representative, and a Swiss paying agent; and
      • Comply with all relevant regulations.
    • Non-Swiss AIFMs that have yet to be subject to Swiss regulation must:
      • Contact, and register with the Swiss regulator by September 1, 2013; and
      • If not sufficiently licensed in their home country, apply for a license by March 1, 2015.
    • Cooperation Agreements with EU Countries – Pending

1 An AIFM’s member state of reference (“MSR”) is the member state where the marketing of most of the AIF takes place.  So, for example if a U.S. AIFM markets in Denmark, and Denmark is the Member State of Reference, then the Danish FSA must issue the U.S. AIFM a license prior to commencement of the U.S. AIFM’s marketing activities in Denmark.

2 Norway, and Switzerland are non-EU countries of interest.  Because they are not part of the EU, they are not required to transpose the AIFMD.

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Continuing the Conversation Around Working Women

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Anne-Marie Slaughter’s July 2012 Atlantic article, “Why Women Still Cant Have it All” stirred up the coals in the ever-simmering firestorm regarding working women. Further fueled by the March 2013 publication of Sheryl Sandberg’s book Lean In: Women, Work, and the Will to Lead, it seemed everyone had a word of criticism to offer.

The abundant criticism often missed the larger point – the conversation is important, and these two women should be applauded for spurring it.

Lean In contains illustrative stories about what holds women back in career and life, and offers encouragement for overcoming them. Sandberg, a Harvard graduate, mom of two, and wife to David Goldberg, CEO of SurveyMonkey, has had a storied career. The current COO of Facebook, she began her career as a research assistant to Lawrence Summers at the World Bank and later she served as a management consultant at McKinsey. She then became the chief of staff to Summers at the Treasury Department and spent six and a half years at Google, where she rose to the post of vice president of global online sales and operations. She also made it to the top of the notoriously male-dominated world of Silicon Valley, where the paucity of women among engineers, inventors andcomputer scientists is still clearly visible.

There is no doubt that Lean In offers a glimpse into the lives of the rich and famous that Sandberg affords (after all, Forbes lists her as the sixth most powerful woman). But, net worth and fame notwithstanding, there is valuable insight for women in the legal industry, where men still dominate at management and executive levels.

Take a chance

When Sandberg first received a job offer at Google in 2001, she questioned the title: Business Unit General Manager. There were no business units to manage and the company had less than 1000 employees at the time. Google CEO Eric Schmidt said, “If you’re offered a seat on a rocket ship, you don’t ask what seat. You just get on.” Sandberg went on to become Google’s vice president of Global Online Sales and Operations. Today, Google has over 30,000 employees.

Similarly, lawyers, and non-lawyer professionals in the industry, are often advised to decline a job opportunity if it means a step-down in title. These people may miss an opportunity to catapult their career by joining a growth organization simply because of a few words on a business card.

Don’t be afraid to negotiate

In 1970, American women made 59 cents for every dollar men earned. In 2010, women earned just 77 cents for every dollar men made. Sandberg’s solution: negotiate like a man. When she was talking to Mark Zuckerberg about joining Facebook, Sandberg says she was inclined to accept the first offer he made because she really wanted to work for Facebook. Both her husband and brother-in-law encouraged her to make a counter-offer, saying, “Damn it, Sheryl! Why are you going to make less than any man would make to do the same job?” Sandberg counter-offered.

She told Zuckerberg that he was hiring her to run his deal teams and this would be the only time they would ever be on opposite sides of the table. She laid out what she wanted, and got a more lucrative offer the next day.

Stop trying to please everyone

Herein lies an important female personality issue in the workplace. Most of us place significant value on being liked. During her first performance review, Sandberg notes Zuckerberg told her, “Your biggest problem is you worry way too much about everyone liking you all the time.” He said she would never make an impact unless she said something that at least one person disagreed with. “It’s going to hold you back,” he warned her.

Employees who concentrate on results and impact are more valuable than those who focus on fitting in and pleasing everyone.

View child care costs as an investment

Sandberg notes that over the past decade, child care costs have risen twice as fast as the median income of families with children. The cost for two children (an infant and a four-year-old) to go to a day care center is greater than the annual median rent payment in every state in the country. Rigid work schedules, lack of paid family leave, and expensive or undependable child care derail women’s best work efforts. Sandberg encourages women to compare child care costs to their future salary instead of their current one. Initial child care costs are an investment in a working mother’s career.

Include men in the conversation

Sandberg believes that the single most important career decision a woman makes is whether she will have a life partner and who that partner will be. A partner’s lack of participation in child care and domestic tasks are significant factors in some women’s decisions to leave the workforce or reduce their hours.

Because there are still significantly more men at the top of every industry, the proverbial good-old-boy network continues to flourish. And because there are already a reduced number of women in leadership roles, it is not possible for junior women to get enough support unless senior men mentor them.

The simple conclusion Sandberg strove for, clearly communicated and ultimately obtained, is that by turning the focus of the feminist movement toward personal choices, society has failed to encourage women to aspire to leadership. Thus the conversation needs to continue.

 

Kathryn Whitaker is Business Development Specialist at K&L Gates in Charleston, SC.

 

Ioana Good manages communications at Lowndes, Drosdick, Doster, Kantor & Reed, P.A. in Orlando, FL.

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Next Time, Buy the CDs, Re: Illegal Music Download

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Following the lead of other courts addressing statutory penalties for illegal music downloading, the U.S. Court of Appeals for the First Circuit upheld a $675,000 fine for downloading and distributing 30 songs.  Sony BMG Music Entertainment  v. Tenenbaum, Case No. 12-2146 (1st Cir., June 25, 2013) (Howard, J.).

For over eight years, Tenenbaum ignored the warnings of his father, his college and the music industry and continued to download and distribute thousands of songs he knew were copyrighted.  In 2007 five record companies sued Tenenbaum under the Copyright Act for statutory damages and injunctive relief.  The record companies only pursued claims for 30 songs, though Tenenbaum admitted at trial he had distributed as many as 5,000 songs.  The trial court held as a matter of law that Tenenbaum had violated the Copyright Act and the jury found his violations were willful.  The jury awarded $22,500 for each of Tenenbaum’s thirty violations (15 percent of the statutory maximum), for a total award of $675,000.  The district court reduced the award to $67,500 finding that the jury’s award violated due process.  The First Circuit vacated the district court’s judgment holding that the principle of constitutional avoidance required the court to first address the issue of remittitur before determining the due process question.  On remand the district court determined remittitur was inappropriate and that the original $675,000 award comported with due process. Tenenbaum appealed the decision solely on due process grounds.

musical notes

The Court reviewed two questions: what is the correct standard for evaluating the constitutionality of an award of statutory damages under the Copyright Act; and (b) did the $675,000 award violate Tenenbaum’s right to due process?

The 1st Circuit looked to St. Louis, I.M. & S. Ry. Co. v. Williams, not BMW of North America, Inc. v. Gore, as the proper standard for reviewing the constitutionality of statutory damages under the Copyright Act, noting that Gore applies to punitive damages and the concerns regarding fair notice to the parties of the range of possible awards were “simply not present in a statutory damages case where the statute itself provides notice of the scope of the potential award.”  Under Williams, a statutory damage award only violates due process “where the penalty prescribed is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.”

The 1st Circuit examined the purpose of the Copyright Act’s statutory damages and Tenenbaum’s behavior to determine if $675,000 metWilliams’ standard for constitutionality.  The 1st Circuit found that in 1999 Congress increased the Copyright Act’s minimum and maximum statutory awards specifically because of new technologies allowing illegal music downloading.  The record companies presented evidence that Tenenbaum’s activities had led to the loss of value of its copyrights and reduced its income and profits—precisely the harm Congress foresaw.  The Court went on to find that Tenenbaum’s conduct was egregious—he pirated thousands of songs for a number of years despite numerous warnings.  The Court held that “much of this behavior was exactly what Congress was trying to deter when it amended the Copyright Act.”  The 1st Circuit rejected Tenenbaum’s argument that the damages award had to be tied to the actual injury he caused, relying on Williams to find that the damages were imposed for a violation of the law and did not need to be proportional to the harm caused by the offender.

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Doing Business In Latin America: Does Your Local Supplier Have Best Practices In Place So That Your Company Can Avoid Liability Under The Foreign Corrupt Practices Act (FCPA)?

Sheppard Mullin 2012

Imagine yourself the CEO of a successful multinational company. In the past few years, you have overseen ACME’s expansion into Latin America – a market whose demographic profile holds the promise of mouthwatering profits for your company, particularly with the upcoming holiday season. As they say, la vida es buena!

In planning for the Latin America expansion, you knew about the rules and prohibitions of the Foreign Corrupt Practices Act (“FCPA”) and implemented measures to ensure your employees do not run afoul of the law. However, you may not have known that the company can incur FCPA liability for payments made by third parties, such as such as suppliers, logistics providers, and sales agents, with whom your company works. In fact, a company can be held liable if it knows or should know that a third-party intends to make a corrupt payment on behalf of or for the benefit of the company. Because a company can be responsible for conduct of which it should have known, a conscious disregard or deliberate ignorance of the facts will not establish a defense.

To protect your company from third party liability, it is essential to perform due diligence on potential business partners. This is not to say that you cannot consider the recommendations of local employees in selecting business partners. Relying on those recommendations alone, however, could expose the company to FCPA liability if that company does not conduct itself with the same level of integrity that you do. The amount of diligence necessary varies from one potential business partner to the next and can include an anti-corruption questionnaire, document review, reference interviews, or local media review, among other things.

That’s all well and good, but what about companies with whom you are already doing business and whom you now realize you may not have adequately investigated? Asking to review those companies’ FCPA compliance policies is a good first step. If you determine that a policy is inadequate, you may ask the company to provide FCPA training to its employees. You should also carefully monitor the company’s contract performance to ensure compliance. In particular, you should consider evidence of unusual payment patterns, extraordinary “commissions,” or a lack of transparency. The key question is: how is the company spending your money?

When in doubt, experienced legal counsel can assist you in navigating these and other FCPA issues. For example, Sheppard Mullin offers Spanish language training on the provisions of the FCPA and advice for successfully implementing internal safeguards and controls to protect against FCPA liability.

With a solid FCPA plan in place, your thoughts wander back to the upcoming holiday season and your company’s projected profits for the new Latin America division and you smile to yourself. La vida es buena.

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International Trade Commission Addresses Use of Standard-Essential Patents in Section 337 Investigations

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The International Trade Commission (ITC) addressed for the first time the issue of whether infringement of a patent that has previously been declared “standard-essential” may form the basis for either a limited exclusion order or cease-and-desist order under a § 337, ruling that nothing in the ITC’s enabling statute prevents issuing an exclusion order, even if the complainant is under an obligation to license the patent.  Certain Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794, (U.S. ITC, June 4, 2013) (ITC, per curiam); Commissioner Pinkert, dissenting).

The complainant, Samsung Electronics, held two patents that it had previously declared to be “standard-essential” to the Universal Mobile Telecommunications System promulgated by the European Telecommunications Standards Institute (ETSI).  ETSI’s Intellectual Property Rights policy required Samsung to offer licenses to such patents on fair, reasonable and non-discriminatory (FRAND) terms.  After licensing negotiations between Samsung and the respondent, Apple, broke down, Samsung filed a complaint at the ITC requesting a limited exclusion order against Apple’s mobile communication products.  After the administrative law judge ruled, on an initial determination (ID), that none of the patents at issue were valid and infringed, the ITC determined to review the ID and sought views from both the parties and the public as to whether Samsung’s declaration of the patents at issue as “standard-essential” should affect either the ITC’s analysis of whether there was a violation of § 337 or what relief should be provided.

In its final determination, the ITC found one of the two patents to be both valid and infringed, and that the proper relief was a limited exclusion and cease-and-desist order directed to the infringing articles.  The ITC first rejected Apple’s argument that the Commission should not investigate an alleged violation of § 337 based on infringement of patents subject to a FRAND undertaking, ruling that under § 337(b)(1), the ITC is required to investigate any alleged violation based upon a complaint under oath, whether or not those patents have been declared standard-essential.  The ITC also rejected Apple’s theory that the Commission “cannot address infringement of standard-essential patents other than in the exceptional scenarios such as where a potential licensee has refused to pay a royalty after a U.S. court has determined that royalty to be FRAND, or where no U.S. court has jurisdiction over the potential licensee in order to set a FRAND rate,” ruling that the remedies provided under § 337 could be imposed in addition to any damages or injunctions available from a district court.

The ITC further determined that Apple had not “properly argued any affirmative defense that would preclude the Commission from finding a violation based on assertion of a declared-essential patent,” such as a breach of contract, promissory estoppel, laches or fraud  The ITC ruled that even if Apple had offered sufficient evidence that the FRAND declaration was a legally enforceable obligation, the patents at issue were actually necessary to practice the standard and that Samsung was required to grant irrevocable licenses under FRAND terms to any party, it still would not have found in Apple’s favor, because the parties’ final offers were sufficiently close to each other that Samsung did not violate its obligation to negotiate in good faith.  Importantly, the ITC found that Samsung was not under any obligation to make an initial offer that was FRAND, because “the SSO intends the final license to be accomplished through negotiation” and “even if it were true that a FRAND agreement that requires Apple to pay Samsung ultimately is not reasonable, the offers that Apple criticizes do not necessarily demonstrate that Samsung has violated its FRAND obligations by failing to negotiate in good faith” (emphasis in original).  Finally, the ITC rejected the theory that whether a patent has been declared standard-essential should be considered when the public interest is analyzed, finding that its consideration of the public interest is limited solely to the four factors listed in § 337(d)(1).

Uncommonly for a Commission opinion, Commissioner Dean Pinkert wrote a dissent arguing that the ITC should not issue an exclusion order based on Samsung’s obligation to license the patents on a FRAND basis, that the evidence indicated Samsung was unwilling to make a FRAND licensing offer with respect to the standard-essential patents and that the absence of a FRAND offer should have a bearing on whether relief under § 337 is in the public interest.  Specifically, Commissioner Pinkert found that it was neither fair nor non-discriminatory for a FRAND-encumbered patent holder to require licenses to non-FRAND-encumbered patents as a condition for licensing the FRAND-encumbered patent.  Commissioner Pinkert also would have found that the statutory language of § 337(d)(1), as well as the legislative history of the statute that “any evidence” of price gouging or monopolistic practices on the part of the complainant would be a proper basis for denying exclusion, suggests that the section should be read broadly.

Practice Note:  The Commission’s rejection of a per se rule barring exclusion orders for patents that have been declared standard-essential is likely to lead to have a number of effects, including increased litigation of standard essential patents at the ITC, counter-suits requesting that a district court rule determine what royalty rate is FRAND and/or requesting that a complainant be enjoined from proceeding before the ITC, presidential review taking on increased importance and potential legislative action to curb the ITC’s jurisdiction.

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Twitter Best Practices Guide for Attorneys

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With more than 200 million active users, Twitter is a major social media network attorneys should not ignore. Twitter can be a highly useful marketing tool for attorneys to promote their blogs and other thought leadership content.

Here is a best practices guide for attorneys using Twitter:

Tweet 4x/day or less

Use fewer than 100 characters per Tweet

Add links to Tweets to get higher Retweet rates – Tweets containing links get 86% higher Retweet rates

Make sure the links are clickable by including a space before the URL

Tweet on the weekends – engagement rates are 17% higher then

Engage with followers during “busy hours” of 7 a.m. to 8 p.m.

Include hashtags in your Tweets, but no more than 2 per Tweet – Tweets with hashtags get twice the engagement

Add links to images to increase engagement – Tweets with image links enjoy twice the engagement rate than those without.

Use the word “Retweet” as a call-to-action to prompt your followers to share – Tweets that ask followers to Retweet receive 12x higher Retweet rates

Since Twitter is essentially a micro-blogging site, the same rules apply: create unique, original content that adds value, and your audience will respond.

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Recent Data Breach Reports: And the Hits Keep on Coming….

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The ”hits” to data bases, in any event.   Here is a rundown of some of the most recent data breach reports –

Oregon Health & Science University Data Breach Compromises 3,000 Patients’ Records in the Cloud.

Modern Healthcare (subscription may be required) reports that the Oregon Health & Science University announced it is “notifying more than 3,000 of its patients of a breach of their personally identifiable information after their data were placed by OHSU resident physicians on a pair of Google’s cloud-based information-sharing services.” The data breach, which involves “patients’ names, medical record numbers, dates of service, ages, diagnoses and prognoses and their providers’ names” posted to Gmail or Google Drive, was discovered in May by an OHSU faculty member.  According to  Healthcare IT News, this is OHSU’s “fourth big HIPAA breach since 2009 and third big breach just in the past two years, according to data from the Department of Health and Human Services.”

Citigroup Reports Breach of Personal Data in Unredacted Court Filings; Settles with Justice Department

American Banker reports that Citigroup recently admitted having failed to safeguard the personal data (including birthdates and Social Security numbers) of approximately 146,000 customers who filed for bankruptcy between 2007 and 2011. Citi apparently failed to fully redact court records placed on the Public Access to Court Electronic Records (PACER) system. “The redaction issues primarily resluted from a limitation in the technology Citi had used to redact personally identifiable information in the filings,” Citi said in a statement. “As a result of this limitation in technology, personally identifiable information could be exposed and read if electronic versions of the court records were accessed and downloaded from the courts’ online docket system and if the person downloading the information had the technical knowledge and software to restore the redacted information.”

In a settlement with the Justice Department’s U.S. Trustee Program, Citi has agreed to redact the customer information, notify all affected debtors and third parties, and offer all those affected a year of free credit monitoring.

University of Delaware Reports Cyberattack – 72,000 Records Affected

The University of Delaware is notifying the campus community that it has experienced a cyberattack in which files were taken that included confidential personal information of more than 72,000 current and past employees, including student employees. The confidential personal information includes names, addresses, UD IDs (employee identification numbers) and Social Security numbers.

Stanford University Reports Hack – Investigating Scope

Stanford University has announced that its information technology infrastructure has been breached, “similar to incidents reported in recent months by a range of companies and large organizations in the United States,” according to a Stanford press release. Though the school does not yet “know the scope of the intrusion,” an investigation is underway. “We are not aware of any protected health information, personal financial information or Social Security numbers being compromised, and Stanford does not conduct classified research.”

Japan’s Railway Company Apologizes for Unauthorized “Sharing”

The Wall Street Journal reported yesterday (registration may be required) that Japan’s national railway system has apologized for sharing its passengers’ travel habits and other personal information with a pre-paid fare card system without user consent, The Wall Street Journal reports. East Japan Railway admitted to selling the data to Suica—one of the pre-paid card businesses. The data included card holders’ ID numbers, ages, genders and where and when passengers got on and off the train. A transportation ministry official, however, said they will not investigate the issue for privacy violations because the railway company “told us that it wasn’t personal information, as it didn’t include names and addresses of users.” The Ministry of Internal Affairs and Communications is looking into the issue and has set up a team to research the matter, the report states.

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Health Resources and Services Administration (HRSA) Publishes Orphan Drug Rule for 340B Program

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Rule requires most manufacturers to change government pricing methodologies, calculations, and systems.

On July 23, the Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS) published a regulation[1] increasing the number of entities to which pharmaceutical manufacturers must sell orphan drugs at statutory ceiling prices under the 340B drug discount program, and complicating the determination of eligibility to purchase these drugs at the 340B price. This regulation conditions the ability of certain hospitals to purchase orphan drugs at the 340B price on implementation of costly new systems for tracking drug use and requires virtually every brand drug manufacturer to change its government pricing methodologies, calculations, and systems.

340B Program Background

The 340B drug discount program is a voluntary program created by section 340B of the Public Health Service Act, 42 U.S.C. § 256b, and implemented through a pharmaceutical pricing agreement (PPA) between manufacturers and HHS. Manufacturers opt into the program by signing these agreements and assuming the obligations set forth in their terms, which are specified by statute and linked, in many respects, to the terms of the Medicaid drug rebate statute. At the core of the agreement is the obligation to charge covered entities no more than a statutory ceiling price for drugs covered by the statute, which are defined by the term “covered outpatient drug” in the Medicaid statute.

Section 7101 of the Affordable Care Act (ACA) expanded the categories of hospitals eligible to purchase at the 340B ceiling price to include freestanding cancer hospitals, sole community hospitals, rural referral centers, and critical access hospitals. The ACA, as amended, simultaneously limited these hospitals’ participation in the program by excluding “a drug designated by the Secretary [of HHS] under section [526 of the Federal Food, Drug, and Cosmetic Act (FFDCA)] for a rare disease or condition”[2] from the definition of “covered outpatient drug.”

Orphan Drug Rule

HRSA’s regulation, codified at 42 C.F.R. part 10, includes a new section 10.21 (the Final Rule or the Orphan Drug Rule), which establishes standards for determining when the statutory exclusion applies, i.e., when a drug designated under section 526 is excluded from the definition of “covered outpatient drug.”[3]

The Final Rule interprets the statutory exclusion from manufacturers’ obligations under their pharmaceutical pricing agreements as being limited to purchases of designated drugs when used by their customers to treat orphan indications. As a result of this regulatory limitation, the Final Rule requires manufacturers to charge the newly added hospitals no more than the statutory ceiling price for drugs designated as orphan drugs when these drugs are used for nonorphan indications. At the same time, the Final Rule allows an affected hospital to purchase drugs at the 340B price only if the hospital has developed a system for tracking outpatient use of a purchased drug that satisfies the requirements of the Final Rule.

HRSA’s regulatory requirements are predicated on an interpretation of congressional intent underlying this provision of the ACA, which ties the definition of “covered outpatient drug” under the 340B drug discount program to the scope of other unrelated benefits of orphan drug designation, such as marketing exclusivity and tax credits. However, there are other indicia that Congress did not intend the orphan drug exclusion to be as narrow as HRSA has now declared through rulemaking. When asked to clarify the scope of the exclusion for all the newly added hospitals, Congress instead removed children’s hospitals (originally subject to the orphan drug exclusion in the ACA) from the provision and restated the exclusion for the rest.[4]

Legislative Rulemaking Authority

Congress has not yet delegated authority to HRSA to promulgate substantive regulations that set standards for determining the scope of manufacturers’ obligations under the statute or that impose new duties on manufacturers not specified in the terms of their agreements. The only authority that Congress has previously delegated to HRSA to promulgate regulations is the limited authority provided in section 7102 of the ACA, which allows HRSA to issue the following: 1) regulatory standards and methodology for calculating ceiling prices; 2) regulations establishing standards for the imposition of civil monetary penalties; and 3) a regulation establishing an administrative process for the resolution of claims.

HRSA has called the Orphan Drug Rule a “clarification” of the statutory exclusion; however, the rule imposes new obligations on all stakeholders. It requires manufacturers to include in the program drugs designated under section 526 of the FFDCA and concurrently allows affected hospitals to purchase them at the 340B price, under certain circumstances, and then establishes standards and requirements for determining those circumstances.

340B Entity Implementation Issues

In order to ensure that drugs used by covered entities for orphan diseases or conditions are excluded, the Final Rule provides that covered entities may not purchase designated orphan drugs for nonorphan indications under the 340B drug discount program unless they provide HRSA with assurances that they have systems capable of identifying and tracking the use of designated drugs in treating their patients and transmitting the data to their purchasing systems. Thus, a sale of a particular drug to a particular affected hospital could be classified as purchased under the 340B program or outside the 340B program, depending on whether the purchaser 1) has informed HRSA that it has a system capable of complying with the rule’s requirements and 2) uses the drug to treat a patient for an orphan disease or condition.

Because the 340B program is an outpatient program only, hospitals must distinguish between drugs purchased for inpatient and outpatient purposes. HRSA allows hospitals to have a single physical inventory and maintain separate accounts for inpatient purchases and outpatient purchases, and many hospitals have split-billing systems that order 340B drugs only as needed under the program. The same rules apply when contract pharmacies order drugs to fill prescriptions of 340B hospital patients and the hospital purchases drugs to replenish the pharmacy’s inventory.

However, hospitals’ existing 340B purchasing systems and pharmacy prescription data do not currently include hospital billing codes or other information from patients’ medical records indicating the diseases or conditions for which drugs are prescribed. Thus, it may be some time before hospitals seeking to purchase orphan drugs for nonorphan indications at 340B prices are able to comply with the requirements of the Orphan Drug Rule. Due to the difficulties in satisfying the requirements, some affected hospitals may choose to purchase all of their orphan drugs outside the 340B program if they cannot or do not wish to develop a compliant tracking system. Alternatively, some hospitals may choose to have certain of their facilities purchase outside the 340B program.

The Orphan Drug Rule provides for acceptable “alternate” tracking systems if HRSA approves such systems, but the rule does not provide hospitals with the standards for what would be acceptable to ensure compliance. It also does not appear that manufacturers will have any advance insight into the systems or an opportunity to comment on them. Additionally, the Final Rule does not offer assistance to stakeholders on how contract pharmacies can ascertain from prescription information whether a patient of a 340B hospital has been prescribed a drug to treat an orphan indication or some other indication.

Alternatives for Hospitals 

Hospitals affected by the Orphan Drug Rule, such as rural referral centers, may also qualify for 340B participation as disproportionate share hospitals, which are not subject to the rule. In that case, they may choose not to satisfy the requirements of the rule (applicable to rural referral centers) but would be prohibited from purchasing outpatient drugs outside the program, such as those carved out for Medicaid, through group purchasing organization (GPO) agreements (applicable to disproportionate share hospitals).

For most of the new categories of hospitals, individual entities may purchase orphan drugs outside the program under GPO agreements and benefit from the discounts available through those agreements. Thus, they are not disadvantaged by the 340B drug discount program if they cannot or are unwilling to satisfy the requirements to purchase orphan drugs under the program. However, for freestanding cancer hospitals, the Final Rule maintains the statutory prohibition against purchasing covered outpatient drugs through GPO arrangements. If these hospitals do not comply with the regulatory requirements, they must purchase orphan drugs in the open market or negotiate contracts with manufacturers.

Manufacturer Government Pricing System Issues

Based on the Final Rule, the classification of a manufacturer’s sale as a 340B program sale for purposes of the manufacturer’s drug price reporting obligations depends on each eligible hospital’s compliance with the rule’s requirements. That means a manufacturer’s operations must code each affected hospital and, in some cases, facilities within a medical center to determine whether the purchase of an orphan drug for a nonorphan indication is under the program or outside the program. These codings can change quarter to quarter as 340B hospital entities elect either to start or stop using the required tracking systems. Likewise, wholesalers processing invoices must be provided with information that allows them to know when a hospital is eligible to order an orphan drug under the 340B agreement at statutory ceiling prices (as opposed to under a GPO agreement, other contract, or open market), and the manufacturer’s chargeback validation system must be able to differentiate as well. Otherwise, a manufacturer could easily and inadvertently provide 340B pricing outside the program, which could trigger a best price under the Medicaid drug rebate program and simultaneously drive down the quarterly 340B statutory ceiling price. Many manufacturers’ current government pricing systems seek to identify best price-eligible sales at the class-of-trade level, with sales of orphan drugs to 340B entities coded for inclusion in best price, while sales of nonorphan drugs to these same entities are excluded from best price. Manufacturers of orphan drugs must now develop solutions that permit identification of the eligible and ineligible price points necessitated by the Final Rule.

Since the inception of the Medicaid drug rebate program, the Centers for Medicare and Medicaid Services (CMS) has refused to consider all transactions with covered entities to be exempt from best price and—in the absence of a clear statutory provision, such as the exemption of inpatient drug prices paid by disproportionate share hospitals—it is risky for manufacturers to assume all outpatient sales of orphan drugs to 340B eligible hospitals will be exempt from best price. Currently, for example, CMS’s proposed government pricing rule excludes from best price only “[p]rices charged under the 340B drug pricing program to a covered entity described in section 1927(a)(5)(B) of the Act.”[5]

Off-Label Use

The Final Rule does not answer comments about concerns with off-label use. The Final Rule states that a drug must be approved by the Food and Drug Administration for marketing to be in the program; however, it does not answer the question of whether a drug should be excluded if it is designated for an orphan indication, approved only for a nonorphan indication, but used by a covered entity off-label for the designated orphan indication. The Final Rule also does not indicate whether a manufacturer with a product approved only for an orphan indication will be deemed to be selling the product to a hospital for off-label use if it provides the 340B price for that off-label nonorphan use.

Implications

Hospitals added to the 340B program by the ACA (other than children’s hospitals) need to review their existing systems and modify them to satisfy their obligations under the Final Rule before they can purchase orphan drugs under the program. Manufacturers need to review their drug price reporting systems to ensure they are able to identify when a covered hospital is purchasing orphan drugs outside the program to avoid inadvertently setting their best price at the 340B price.

[1]. Exclusion of Orphan Drugs for Certain Covered Entities Under 340B Program, 78 Fed. Reg. 44,016 (July 23, 2013) (to be codified at 42 C.F.R. pt. 10), available here.

[2]. 42 U.S.C. § 256b(e).

[3]. Exclusion of Orphan Drugs, supra note 1.

[4]. See Medicare and Medicaid Extenders Act of 2010, Pub. L. 111-309, § 204.

[5]. Medicaid Program; Covered Outpatient Drugs 77 Fed. Reg. 5318, 5363 (Feb. 2, 2012) (emphasis added), available here.

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Design Patent Basics

Lewis & Roca

Design patents are often a forgotten form of intellectual property despite the fact that they have been available to inventors and designers for over 150 years.  A design patent protects a new and original ornamental design of a useful product.  For example, a design patent can protect the shape of a bottle or the pattern on the bottom of a shoe or the ornamental design of a unique-looking bird house.  Design patents can be incredibly valuable to a company since they protect “iconic” designs ranging from Apple’s iPhone graphics to the original glass Coca-Cola bottle.

Design patents are a cost-effective mechanism to add value to a company and combat copying of products. The typical cost for obtaining a design patent is anywhere from $1,500 to $3,000.  For a company whose long-term goal is to sell its products or technology in the future, a collection of design patents can significantly increase the selling price.  But the timeframe of that value is limited to the 14-year term of the design patent itself.

Requirements for patentability are that the design be new, original and ornamental.  The design cannot be completely functional as there must be some significant aspect of the design not dictated by function alone.

Design Patent Application Tips:

General

Claim the broadest possible design and not just one embodiment of the design.  Because the scope of the design patent claim is the drawings, the most important features of the design patent are the drawings.  In order to broaden protection, think about filing more than one design patent applications, each covering a different aspect of the design.  Or filing several design patent applications, each one covering a separate embodiment of a design.

Drawings

There is no limit on the number of views an applicant can include in a design patent application.  The application should include as many views “as necessary” to fully disclose every novel feature of the invention.  Depending on a number of variables such as disclaimed features, alternate positions, and number of embodiments, the number of views required may vary greatly.  There is a standard number of views that is a good starting point.  They are perspective view, front view, back view, top view, bottom view, and side views (for example, left side view and right side view).

Shading

Proper use of shading is critical in design patent application drawings.  The drawings should be provided with appropriate surface shading which shows clearly the character and contour of all surfaces of any three-dimensional aspects of the design. Surface shading is also necessary to distinguish between any open and solid areas of the design. Solid black surface shading is not permitted except when used to represent the color black as well as color contrast. Lack of appropriate surface shading in the drawing as filed may result in a rejection of the application. Additionally, if the shape of the design is not evident from the disclosure as filed, addition of surface shading after filing may be viewed as new matter and not allowed. New matter is anything that is added to, or from, the claim, drawings or specification, that was neither shown nor suggested in the original application.

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Women, Influence and Power in Law Conference – October 2-4, 2013

The National Law Review is pleased to bring you information about the upcoming Women, Influence & Power in Law Conference:

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When:

Where:

The Only National Forum Facilitating Women-to-Women Exchange on Current Legal Issues

Women, Influence & Power in Law Conference is presented by Summit Business Media’s Legal Suite – InsideCounsel magazine, InsideCounsel.com (website), producers of the 13th annual IC SuperConference, the prestigious Transformative Leadership Awards, and creators of Project 5/165.

Presented by InsideCounsel Magazine, the pioneering monthly magazine exclusively serving general counsel and other top in-house legal professionals, the first annual Women, Influence & Power in Law Conference offers an opportunity for unprecedented exchange with women outside counsel. This unique event was created with the assistance of an unheralded advisory board comprised of highly placed women attorneys who are all direct reports to the general counsel and were drawn from across the country. These attorneys have the highest levels of expertise and experience in key practice areas.

The Women, Influence & Power in Law Conference is not a forum for lawyers to discuss so-called “women’s issues.” It is a conference for women in-house and outside counsel to discuss current legal topics, bringing their individual experience and perspectives on issues of:

  • Governance & Compliance
  • Litigation & Investigations
  • Intellectual Property
  • Government Relations & Public Policy
  • Global Litigation & Transactions
  • Labor & Employment
  • Executive Leadership Skills Development

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