By Julie Nixon
Last week TechCube hosted Daniel Glazer of Fried Frank Technology to guide us through the legal pitfalls of doing business in the USA. While the US market can accelerate a company’s growth and customer base, it is essential to consider issues surrounding Intellectual Property (IP) and commercial contracts that could have far reaching effects on a company’s finances. Many of the points discussed in Daniel’s excellent presentation are common to both Scottish and US jurisdictions, but some are particular to the US and can vary from state to state. Here I discuss a few of the commercial issues raised.
In the US there is an exception to the principle that only the author of a work can claim copyright. This exception is set in statute and known as “works made for hire”. Certain works commissioned by an employer fall into this exception (including atlases!), but notably software is not among them. So in a scenario where a UK company commissions a US software developer to develop code for them, there must be an assignation of the copyright in the software by the US company to the UK company. An agreement that the copyright will belong to the UK company will not suffice. This mirrors the situation in the UK, when using a consultant to develop software always make sure there has been an assignation that would satisfy any due diligence made in the future.
Joint ownership of IP in the US can produce challenges for a UK company collaborating with a US company. For example the rules for sharing royalties differ between copyright and patents in the USA. With jointly owned patents the default rule is that each owner can exploit the patent without the permission of the other joint owners (in the UK joint owners need the consent of the other joint owners to exploit the patent), and the exploiting joint owner has no obligation to share royalty revenues with any other joint owner. However joint owners of a US copyright must share royalties. Where a software product is protected by both a patent and copyright, joint owners would need to determine what percentage of the software product is exempt from sharing royalties under US patent law, and what percentage is subject to sharing royalties under US copyright law.
Non-compete agreements are largely dependent on state law in US. This is worth bearing in mind if you enter into a non-compete agreement with a US employee that prohibits the employee working in a similar business for a period after termination of the agreement. In California for example there is a prohibition on non-compete clauses except in limited circumstances. Where a UK company has agreed a non-compete agreement with an employee in a US state that recognises the agreement, if the employee then works for a competitor in California the agreement may be held as unenforceable.
Daniel’s talk brought home that while UK solicitors can give an indication of some of the key areas that companies should be aware of when conducting business in the US, the complexities surrounding employment, tax and IP, to name a few, should ideally be dealt with by US counsel. It was also a reminder of the importance of having a trade mark search carried out if you are proposing to do business in the US. Otherwise you risk walking into a trade mark infringement claim if your company or product name is too similar to one used by a US company.
Daniel has been in Scotland working with Scottish Development International to provide invaluable advice to Scottish companies “Coming to America”. Those representing young companies in the audience at TechCube departed better equipped to navigate the US IP landscape and deal with US based counterparties.