Patently saleable?

Patents can be bought and sold like any other property. But patents differ from other forms of IP in that they can be expensive and time-consuming to maintain. Therefore it may be more attractive to sell an asset such as a patent in insolvency than maintain it. The flip-side of this is that there may be some good bargains to be had from an insolvent company if you know what you are looking for.

What is the life of the patent?
If an insolvent company owned a patent, the Patent Office should be informed of the winding-up order and asked to note the Official Receiver’s interest in the patent. The Patent Office should also be asked to provide details of the remaining “life” of the patent, as this could materially affect the value and details of any renewal fees outstanding.

The patent is effective from the date of publication of the specification of the invention by the Patent Office, which is approximately 18 months after the filing date.

Maintaining your patent
A patent must be maintained or its registration may lapse and it will then become worthless. The first renewal date is the end of the calendar month of the fourth anniversary of the application filing date and renewal fees are then due every year for the remaining 15 years that the patent remains in force (some pharmaceutical and agrochemical patents can obtain extension through supplementary protection certificates for up for five additional years).

You should pay your renewal fees to the Patent Office. Fees can be paid any time between 3 months before the due date for payment and one month after, without attracting penalty charges for late payment. If the renewal fee is not paid within six months of the due date then the patent will lapse and the invention will not be protected.

What happens if the patent lapses?
If the patent is not renewed in time it is possible to restore the patent rights by application to the Patent Office as long as that application is made within 19 months of the missed renewal payment. It is necessary for the applicant to satisfy the Patent Office that it intended to pay the renewal fee on time. But you must provide evidence such as a witness statement and any other evidence you may have, setting out the circumstances in which the renewal fee was not paid.

It is possible for the Official Receiver to ask the Patent Office to confirm that the time limit for restoration has not expired. However, the Patent Office cannot give any indication on the likely success of such an application. If the Official Receiver is considering making an application to restore a patent in order to sell it, the costs of the application should be taken into account in the negotiations relating to the sale and should not exceed the potential sale proceeds.

What might prevent the sale of a patent?
Enquiries should be made to establish whether there are any licensees or mortgagees of the patent in order that they can be informed of the making of the Insolvency Order and asked to note the Official Receiver’s interest.

By virtue of s.30(2)&(3) Patents Act 1977 (“PA 1977”) patents, like real property, can be subject to a secured loan by way of a mortgage and will vest by operation of law in the same way as any other personal property; thus a patent owned by a company subject to a winding-up order would belong to the liquidation estate. Bu, instead of contacting the Land Registry, the Official Receiver should verify ownership of a patent by contacting the Patent Office. Information can also be found in the insolvent company’s accounting records and/or by searching at the Patent Office.

Where a patent vests in the liquidation estate, the patent may be sold with the assignment being signed by the liquidator of the liquidation estate. S.30(6) details that the Patent Office should be informed of any change in ownership.

Licences and royalties
But it is not just the patent itself that can be sold. It may be financially beneficial to grant a licence to use the patent. However, such licences need be maintained; the Official Receiver should consider whether such an obligation can be met before such a licence is granted. As when transferring the patent itself, any assignment of a licence should be in writing and signed by the parties; the Patent Office should be informed of the transfer.

Royalties may be paid by a third party to the owner of a patent in return for the right to exploit that patent. The royalties may be payable under the terms of a licence, with the owner retaining the patent. In circumstances where a winding up order is made against the owner of a patent, the Official Receiver should make contact with the third-party and ask them to pay any royalties due to the trustee.

A liquidated company may be in receipt of royalties as a condition of the sale of a patent. In this case, the royalties cannot be claimed as an asset, because the patent does not vest in the liquidation estate. Instead, the royalties should be treated as income and can be claimed under an income payments agreement or an income payments order.

Deciding whether to buy, sell, maintain or licence a patent is a commercial decision. And remember, your patent is worthless if you are unable to defend it against infringement and defending it can be an expensive process in itself. Companies are looking to exploit their patents and other IP rights in the current economic downturn as a way of protecting assets and taking other player out of the market. A report by Freshfields Bruckhaus Deringer found that nearly 40 per cent of the largest corporations "are actively looking to litigate" to protect their rights. In such a climate as this does a liquidated company really have the financial means to protect and maintain patents? If the answer is no, there may be some bargains to be had for the rest.

What do you get for 60m kronor?

Having just read on the IPKat about the sale of The Pirate Bay to Global Gaming Company for 60m kronor (£4.7m), I find myself wondering what sort of intellectual assets the purchaser is obtaining and how valuable they will prove to be.

A couple of weeks ago I looked to see if The Pirate Bay had any trade marks. It didn't seem to have any registered and, if I recall correctly, its website indicated that consumers were free to do interesting and imaginative things to its logo and then send a sample back in order to show what they'd done. As for the software, my impression is that it was licensed in and was basically off-the-peg stuff. Its user database probably wouldn't be worth much, seeing as it consists primarily of people who are used to paying nothing for what they want.

If anyone has any thoughts on the subject or, better still, hard facts, do please let me know.

How much is really lost through downloading? A question of credibility

Via David Holland comes this link to "Home taping didn’t kill music" by Ben Goldacre, who writes the Bad Science column for The Guardian. It was published much earlier this month but I lost sight of it and have only just rediscovered it. The article reads, in relevant part:

"... “Downloading costs billions” said the Sun. “MORE than seven million Brits use illegal downloading sites that cost the economy billions of pounds, Government advisors said today. Researchers found more than a million people using a download site in ONE day and estimated that in a year they would use £120bn worth of material.”

That’s about a tenth of our GDP. No wonder the Daily Mail were worried too: “The network had 1.3 million users sharing files online at midday on a weekday. If each of those downloaded just one file per day, this would amount to 4.73 billion items being consumed for free every year.”

Now I am always suspicious of this industry .... I also doubt that every download is lost revenue since, for example, people who download more also buy more music. I’d like more details.

So where do these notions of so many billions in lost revenue come from? I found the original report. It was written by some academics you can hire in a unit at UCL called CIBER, the Centre for Information Behaviour and the Evaluation of Research (which “seeks to inform by countering idle speculation and uninformed opinion with the facts”). The report was commissioned by a government body called SABIP, the Strategic Advisory Board for Intellectual Property Policy.

On the billions lost it says: “Estimates as to the overall lost revenues if we include all creative industries whose products can be copied digitally, or counterfeited, reach £10 billion (IP Rights, 2004), conservatively, as our figure is from 2004, and a loss of 4,000 jobs.”

What is the origin of this conservative figure? I hunted down the full CIBER documents, found the references section, and followed the web link, which led to a 2004 press release from a private legal firm called Rouse who specialise in intellectual property law. This press release was not about the £10bn figure. It was, in fact, a one page document, which simply welcomed the government setting up an intellectual property theft strategy. In a short section headed “background”, among five other points, it says: “Rights owners have estimated that last year alone counterfeiting and piracy cost the UK economy £10 billion and 4,000 jobs.” An industry estimate, as an aside, in a press release. Genius.

But what about all these other figures in the media coverage? Lots of it revolved around the figure of 4.73 billion items downloaded each year, worth £120 billion. This means each downloaded item, software, movie, mp3, ebook, is worth about £25. ... this already seems rather high. I am not an economist, ... but to me ... an appropriate comparator for someone who downloads a film to watch it once might be the rental value, not the sale value. ...

In any case, that’s £175 a week or £8,750 a year potentially not being spent by millions of people. Is this really lost revenue for the economy, as reported in the press? Plenty will have been schoolkids, or students, and even if not, that’s still about a third of the average UK wage. Before tax. Oh but the figures were wrong: it was actually 473 million items and £12 billion (so the item value was still £25) but the wrong figures were in the original executive summary, and the press release. They changed them quietly, after the errors were pointed out by a BBC journalist. I can find no public correction.

I asked what steps they took to notify journalists of their error, which exaggerated their findings by a factor of ten and were widely reported in news outlets around the world. SABIP refused to answer my questions in emails, insisted on a phone call (always a warning sign), told me that they had taken steps but wouldn’t say what, explained something about how they couldn’t be held responsible for lazy journalism, then, bizarrely, after ten minutes, tried to tell me retrospectively that the whole call was actually off the record, that I wasn’t allowed to use the information in my piece, but that they had answered my questions, and so they didn’t need to answer on the record, but I wasn’t allowed to use the answers, and I couldn’t say they hadn’t answered, I just couldn’t say what the answers were. Then the PR man from SABIP demanded that I acknowledge, in our phone call, formally, for reasons I still don’t fully understand, that he had been helpful.

I think it’s okay to be confused and disappointed by this. Like I said: as far as I’m concerned, everything from this industry is false, until proven otherwise".

This piece was picked up by Techdirt, the Adam Smith Institute and Slashdot, but doesn't seem to have gone any further. The CIBER report can be downloaded from the SABIP website here, with a 16-page executive summary here.

I'm not sure that a workable solution to the problem of unauthorised downloads can be found, whether we have the right data concerning their commercial impact or not -- but I feel strongly that any research that seeks to quantify that impact must be reliable if it is to justify any measures that are taken to counteract the activity in question. SABIP seems to be in a huge hurry to secure commissioned research in its various target areas, putting great pressure on its suppliers of research results to do so speedily and cheaply. One may wish to ask whether this haste is counterproductive.

All tied up

Neil Wilkof's recent licensing post ("So Is It Joint Ownership or a Licence?") has brought a good crop of what Neil has described as "superb responses". Neil is however all tied up in a transaction at the moment, so he has asked me to say that he'll be making his own responses as soon as time permits.

So Is It Joint Ownership or a Licence?

This week's contract construction issue involves joint ownership. Joint ownership of IP rights is one of those relationships to which parties often gravitate, even if legal counsel takes a dim view. In that context, consider the following two provisions, which in various related forms, I have encountered from time to time.

First, the parties state that they "agree they shall jointly own all of the intellectual property rights resulting from their mutual performance of the Project."

Second, the parties further agree that "Party A grants to Party B an [exclusive] licence with respect to the use of the Intellectual Property rights created during their mutual performance of the Project [for defined purposes of use]."

The obvious question is why are there two clauses apparently covering the same subject matter, one establishing joint ownership, while the other purports to grant a licence from one party to the other? If the IP is jointly owned then, subject to any particular local laws, each party is permitted to do what it likes with respect to these rights. If so, what purpose is served by the grant of licence? Permit me to offer several suggestions (readers are urged to offer their own comments):

1. Declaration of jont ownership may not be legally sufficient to create co-ownership. Perhaps the licence provision is a back-up in the event that joint ownership is not recognized. Even if A and B are not joint owners, A does grant to B the same rights that B would have enjoyed a co-owner.

2. Alternatively, the licence is an unartful attempt to create a limitation on the unfettered right of each joint owner to use the mark with restriction from the other joint owner, in this case a limitation on the right of use by B.

3. To the contrary, the grant of an exclusive licence could have the affect of limiting the right of use by A, in accordance with the meaning of an exclusive licence under various national laws.

4. The licence is provided in accordance with the requirements of local law. We were informally advised, e.g., that there is such a provision under German law. If this is correct, the provision serves to bring the parties into compliance with the applicable local law.

I probably have missed other possible ways to understand the two clauses. Dear readers: the floor is open.

Software: Precautions Against Supplier Insolvency

What would you do if the supplier of your critical systems went insolvent?

In times of economic uncertainty, industries associated with software and technology services are highly likely to suffer. They are heavily reliant on solvent customers themselves, and on those with a sufficient degree of disposable budget to spend on non-essential work, such as software developments and updates (as opposed to rent, bills, wages, etc...). If the software companies are vulnerable, so too are their clients; and -- like it or not -- almost every business is the client of a software company.

Computer software is commonly used and found in most businesses and for every software program there is a source code without whch the software cannot be sold. Importantly this code enables the software to be revised and maintained. Source code is mostly protected by copyright.

Software may be developed by a third party for a client exclusively, or it may be licensed. More often than not it is leased or purchased ‘off the shelf’ and not owned by the business using it. As most of a business’s software is licensed, it will not be transferable and it will probably not available for assignment by the official receiver as liquidator or trustee. Further, as discussed in my previous articles [see note on Tuesday articles in the right hand side-bar], companies should be aware that the official receiver can disclaim onerous property under the Insolvency Act 1986; and that includes licences which may be a critical part of your business.


“But wait”, I hear you say “I own the IP in my software because it was developed for me. That means I’m safe doesn’t it?”. Not necessarily; even when bespoke software is developed exclusively for a company, the software company may still own the IP rights to some or all of the code behind the product. In such circumstances the official receiver should consider the agreement entered into with the supplier in light of both restrictions on assignments and the ownership of copyright. If a software supplier has 'invented' the software for the insolvents use it is likely that they will own it and not the insolvent.

If the software has been developed within the business this may give rise to problems as the individual designing the software may be a contractor rather than an employee. If that is the case the agreements by which that contractor is engaged should be carefully examined to determine who owns any IP rights created.


As a business you should establish at a minimum: (1) who holds the IP rights for your critical software; and (2) where would you find that source code should the company that developed it go bust. Number 2 is easier said than done. The owners or creators of software should not be relied upon to provide information on the location of software they have developed for you after they have gone into liquidation and it is unlikely that the official receiver will know where to begin.

One way of ensuring you know exactly where your code is and how to get to it is to have an escrow agreement built into any software agreement you enter into. Escrow agreements allow code (and other property) to be held upon agreement of the parties by a neutral third party. Code subject to the agreement will they only be released according to the agreement upon the fulfilment of its terms.

You should ensure that the conditions which stipulate the release of source code are looked at in order to determine when and in what way they can be enforced. You should also ensure the agreement allows the beneficiary to request a third party verify the code subject to the escrow is complete and this right should be exercised! You may view verification as an unnecessary expensive, but it can be invaluable. If the escrowed code is defunct it is essentially worthless and by the time you find out it is worthless, the liquidated company may not be in a position to help you locate the correct code.

Many businesses value critical transactions and contracts by value. However, this can be fatal when reviewing your software contracts for criticality. You may find that a critical software package that controls you payment systems cost almost nothing to develop, but consider for a moment wht would happen if that software stopped working and the company which developed it went into liquidation; it may have huge knock-on consequences to your business revenue.

In fact a low value contract is likely to be related to a smaller vendor and smaller vendors are more likely to be impacted by the economic downturn and have insufficient safety mechanisms when they do. Therefore your low value contracts may be the critical ones when reviewing your software safeguards in the economic downturn.

So it is not just the criticality of your contracts that you should be managing; you should also ensure that you are aware of the financial state of your suppliers. This way you can direct your resources to deal with the suppliers controlling your critical IP that are financially exposed.

Before a company goes into liquidation, look out for the warning signs that they are in trouble. For instance, has there been a drop in service provided by the company to your business? Have their accounts and annual returns been posted late? In times of financial difficulty, the accounts department will often be distracted by other pressures and overlook accounts filing deadlines. Often when a business is getting into financial difficulty, VAT and PAYE/NIC payments are regularly made late as available cash is being used to pay suppliers to keep the business running. In such cases HMRC will often apply for a business to be wound up if crown debts are continually left unpaid. To protect your interests make sure that if you are aware your supplier of software may go bankrupt ensure you follow the company closely and involve yourself in the insolvency proceedings.

And finally, a note to those dealing with insolvent companies. It has recently been reported that former employees of Factor 5 Inc in the US, who declared Chapter 7 bankruptcy in May, are being sued by former employees for fraudulently hiding assets before declaring bankruptcy in order to avoid paying employees and other debtors. The company ran into trouble when Brash Entertainment, whom it had signed a publishing deal, fell victim to its own financial difficulties and went under, which ended funding for Factor 5's project and eventually forced it to close down as well. The suit alleges that prior to the bankruptcy, the founders of Factor 5 created a new company called Blue Harvest, to which they "fraudulently transferred assets, including source code and other intellectual property," including a partially-completed version of Star Wars: Rogue Squadron for the Wii. It is alleged in the complaint that Factor 5 and White Harvest are essentially the same company. When dealing with an insolvent's estate it may be worth checking, have the rights to code and other IP rights been transferred ‘on mass’ just prior to liquidation? This is easy enough to see when directors transfer houses to their spouses, but may not be as apparent with unregistered rights such as copyright.


Tomorrow I’ll be popping along to give a talk at Winston & Strawn’s Bootlaw Session with my colleague Ian Silcock from Hardwicke Building. It’s free of charge to attend and if you would like further details you can have a look at Bootlaw’s Meet Up page.