Intellectual property and international mergers and acquisitions

University of Cincinnati Law Review

Volumn 66, Issue 4, 1998, Pages 1283-1313

  McManis, Charles R ^a  

^a WASHINGTON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 22444455727     PISSN: 00096881     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (189)

1. In the United States, the term "intellectual property" is generally understood to mean any subject matter protectable under the federal law of patents and copyrights, the federal and state law of trademarks and trade names, or the state law of trade secrets. The term also includes two sui generis forms of federal statutory protection for semiconductor chip designs and new plant varieties, respectively, as well as a more amorphous body of state common law that protects the commercial value of news, ideas, and ephemeral performance and publicity rights of celebrities and others. Other countries conceptualize intellectual property somewhat differently. For example, in Europe and elsewhere, several common forms of intellectual property, such as copyright-like industrial design protection, utility model (or petty patent) protection, and "neighboring rights" protection for performers, producers of phonograms, and broadcasting organizations, have no exact counterpart in U.S. intellectual property law, but are recognized in various international intellectual property conventions. For a discussion of these international conventions and the definitions they establish for the term "intellectual property," see infra notes 20-24, 68-69, 75, 153-59 and accompanying text.
2. See Leslie Wayne, Wave of Mergers is Recasting Face of Business in U.S., N.Y. TIMES, Jan. 19, 1998, at A1.
3. Leslie Wayne, Wave of Mergers is Recasting Face of Business in U.S., N.Y. TIMES, 1998, A1. Id.
4. See David J. Morrow, SmithKline and American Home Products Are Talking of Huge Drug Merger, N.Y. TIMES, Jan. 21, 1998, at C1.
5. Id. (quoting Mark Becker).
6. See David J. Morrow & Laura M. Holson, Drug Merger Studied, With New Partners, N.Y. TIMES, Jan. 31, 1998, at D1. According to this article, the combined company would constitute the largest corporate merger ever, and would dwarf its competitors in worldwide pharmaceutical sales - approximately forty-seven percent more than the number two pharmaceutical firm, Merck & Company. See id.
7. Id. (quoting Mark Becker).
8. See David J. Morrow, Huge Drug Merger Proposals Send Industy Into Shock, N.Y. TIMES, Feb. 2, 1998, at A8.
9. See David J. Morrow, Huge Drug Merger Proposals Send Industy Into Shock, N.Y. TIMES, 1998, A8. id.
10. See David J. Morrow & Laura M. Holson, Drug Giants Cancel Plans For a Merger, N.Y. TIMES, Feb. 24, 1998, at C1. The issue of who would run the combined company apparently derailed the deal. See id.
11. See generally Frederick M. Abbott, Public Policy and Global Technological Integration: An Introduction, in PUBLIC POLICY AND GLOBAL TECHNOLOGICAL INTEGRATION 7-8 (Frederick M. Abbott & David J. Gerber eds., 1997) [hereinafter Abbott & Gerber].
12. See Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Apr. 15, 1994, LEGAL INSTRUMENTS - RESULTS OF THE URUGUAY ROUND vol. 1 (1994), 33 I.L.M. 1125 (1994) [hereinafter Final Act]. 1994
13. See Final Act, supra note 12, Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization [hereinafter WTO Agreement], Annex 1C, LEGAL INSTRUMENTS - RESULTS OF THE URUGUAY ROUND vol. 31; 33 I.L.M. 81 (1994) [hereinafter TRIPS Agreement];
14. see also INTERNATIONAL TREATIES ON INTELLECTUAL PROPERTY 588-618 (Marshall A. Leaffer, ed. 1997) (providing helpful introductory material on the TRIPS Agreement and other IP treaties).
15. For a more detailed introduction to the TRIPS Agreement, see INTERNATIONAL CHAMBER OF COMMERCE, INTELLECTUAL PROPERTY & INTERNATIONAL TRADE: A GUIDE TO THE URUGUAY ROUND TRIPS AGREEMENT (1996).
16. The three most explicit recent treatments of the topic can be found in management consulting, practitioner, and bar journals. See Joseph S. Iandiorio, Intellectual Property in Ownership Transfers, 9 J. MANAG. CONS. 21 (1997);
17. Evelyn M. Sommer & Mauro Premutico, Intellectual Property Issues in Mergers and Acquisitions, N.Y. ST. B. J., May-June 1995, at 42;
18. Kenneth A. Plevan et al., Intellectual Property Law: The recent flurry of merger-and-acquisition activity warrants a close look at the laws that govern the sublicensing of copyright, patent and trademark rights, NAT'L L.J., Mar. 20, 1995, at B5. None of these articles focuses on international mergers and acquisitions.
19. Convention de Paris pour la protection de la propriété industrielle [Convention of Paris for the Protection of Industrial Property], Mar. 20, 1883, 13 U.S.T. 2, 828 U.N.T.S. 107, as last revised at the Stockholm Revision Conference, July 14, 1967, 21 U.S.T. 1629, 25 U.N.T.S. 303 [hereinafter Paris Convention].
20. Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, 331 U.N.T.S. 217, as last revised at the Paris Universal Copyright Convention, Jul. 24, 1971, 25 U.S.T. 1341, 828 U.N.T.S. 221 [hereinafter Berne Convention].
21. See Charles R. McManis, Taking TRIPS on the Information Superhighway: International Intellectual Property Protection and Emerging Computer Technology, 41 VILL. L. REV. 207, 215-17 (1996).
22. See Convention Establishing the World Intellectual Property Organization, July 14, 1967 reprinted in INTERNATIONAL IP TREATIES, supra note 13, at 564. Prior to 1967, the Paris and Berne Conventions were administered by the international bureaus of the Paris and Berne unions, which were united in an organization called Bureaux Internationaux Reunis pour la Protection de la Propriete Intellectuelle, known as BIRPI. See INTERNATIONAL IP TREATIES, supra note 13, at 561.
23. See McManis, supra note 17, at 215.
24. See Paris Convention, supra note 15, art. 2. Article 2 states: Nationals of any country of the Union shall, as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals; all without prejudice to the rights specially provided for by this Convention. Id. Article 1 of the Convention states that the protection of industrial property has as its object "patents, utility models, industrial designs, trademarks, service marks, trade names, indications for source or appellations of origin, and the repression of unfair competition." Id. Several of the enumerated forms of industrial property - namely utility models and industrial designs - although common in Europe and other parts of the world, have no exact counterpart in U.S. law.
25. See Paris Convention, supra note 15, art. 4.
26. Article 10bis of the Paris Convention states that Member Countries "are bound to assure to nationals of [Member] [C]ountries effective protection against unfair competition." Id. art. 10bis. Article 10bis goes on to define unfair competition as any act contrary to honest practices in industrial or commercial matters, including, but not limited to, acts of passing off, disparagement, or deceptive advertising. See id.
27. See Berne Convention, supra note 16, art. 2 at 1343.
28. See id. at 1342. In keeping with its essentially European concept of intellectual property, the Berne Convention does not contain any provisions dealing with the "neighboring rights" of performers, producers of phonograms, or broadcast organizations. Rather, these rights are addressed in a separate international agreement, the International Convention for the Protection of Performers, Producers of Phonograms and Broadcast Organizations, Oct. 26, 1961, 496 U.N.T.S. 43, and, therefore, are not subject to the Berne Convention's national-treatment requirement.
29. Universal Copyright Convention, 6 U.S.T. 2731, 216 U.N.T.S. 134 (1952), raised July 24, 1971, 25 U.S.T. 1341, 943 U.N.T.S. 178.
30. See Berne Convention Implementation Act of 1988, Pub. L. No. 100-568, 102 Stat. 2853 (1988). Two years later, Congress further amended the U.S. copyright statute to bring U.S. law into compliance with the Berne Convention. See Judicial Improvements Act of 1990, Pub. L. No. 101-650, 104 Stat. 5089 (1990); Title VI Visual Artists Rights Act of 1990, Pub. L. No. 101-650, 104 Stat. 5128 (1990) (codified at 17 U.S.C. §§ 101, 106A, 107, 113, 301, 411, 412, 501, 506); Title VII Architectural Works Copyright Protection Act, Pub. L. No. 101-650, 104 Stat. 5133 (1990) (codified at 17 U.S.C. §§ 101-120 (1994)).
31. See McManis, supra note 17, at 211-14.
32. See Frederick M. Abbott, The WTO TRIPS Agreement and Global Economic Development, in Abbott & Gerber, supra note 11, at 41.
33. Set WTO Agreement, supra note 13.
34. General Agreement on Tariffs and Trade, opened for signature Oct. 30, 1947, T.I.A.S. No. 1700, 55 U.N.T.S. 188, reprinted in 4 GENERAL AGREEMENT ON TARIFFS AND TRADE, BASIC INSTRUMENTS AND SELECTED DOCUMENTS (1969). The term "GATT" is generally used to refer both to the General Agreement on Tariffs and Trade itself, and to the rules, organization, and trading system that evolved under the GATT Agreement. See William J. Davey, The WTO/GATT World Trading System: An Overview, in 1 PIERRE PESCATORE ET AL., HANDBOOK OF WTO/GATT DISPUTE SETTLEMENT 7 n.1 (1995).
35. See TRIPS Agreement, supra note 13, Part II. Article 1 of the TRIPS Agreement states that "the term 'intellectual property' refers to all categories of intellectual property that are the subject of Sections 1 through 7 of Part II." Id. Part I. These seven sections cover: (1) Copyright and Related Rights, (2) Trademarks, (3) Geographical Indications, (4) Industrial Designs, (5) Patents, (6) Layout-designs (Topographies) of Integrated Circuits, and (7) Undisclosed Information. See id. Part II.
36. See id. Part III.
37. See id. Part IV.
38. See id. Part V.
39. See id. Part VI. Under Article 65 of the TRIPS Agreement, industrialized countries were obliged to be in compliance with the obligations of the agreement by January 1, 1996, one year after the date of entry into force of the WTO Agreement. See id. Developing-country Members and Members in the process of transformation from a centrally-planned into a market, free-enterprise economy are given an additional four years to implement most of their obligations under the TRIPS Agreement. See id. Under Article 66, least-developed-country Members are entitled to a ten-year transition period from the date of entry into force of the WTO Agreement, with the possibility of further extensions. See id.
40. See supra note 35.
41. See Abbott, supra note 28, at 41.
42. See id.
43. See generally Carlos A. Primo Braga & Garsten Fink, The Economic Justifications for the Grant of Intellectual Property Rights: Patterns of Convergence and Conflict, in Abbott & Gerber, supra note 11, at 99-121.
44. See Abbott, supra note 28, at 44 (citing Intellectual Property Rights and Foreign Direct Investment, UN Transnational Corporations and Management Division, Department of Economics and Social Development, U.N. Doc. ST/CTC/SER.A.24 (1993)).
45. Abbott, supra note 28, at 46.
46. See id. at 46-48.
47. See id. at 47-48.
48. See Charles R. McManis, The Interface Between International Intellectual Property and Environmental Protection: Biodiversity and Biotechnology, WASH. U.L.Q. (forthcoming 1998).
49. Charles R. McManis, The Interface Between International Intellectual Property and Environmental Protection: Biodiversity and Biotechnology, WASH. U.L.Q. 1998. Id.
50. See Charles R. McManis, The Interface Between International Intellectual Property and Environmental Protection: Biodiversity and Biotechnology, WASH. U.L.Q. 1998. id.
51. For an optimistic assessment of the impact that TRIPS will have on India, see Martin J. Adelman & Sonia Baidia, Prospects and limitations of the Patent Provision of the TRIPS Agreement: The Case of India, 29 VAND. J. TRANSNAT'L L. 507, 529-33 (1996).
52. See Abbott, supra note 28, at 49.
53. See Abbott & Gerber, supra note 11, at 7-8. For a discussion of the interplay between the TRIPS Agreement and antitrust concerns, see Eleanor M. Fox, Trade, Competition and Intellectual Property - TRIPS and its Antitrust Counterparts, 29 VAND. J. TRANSNAT'L L. 481 (1996).
54. Primo Braga & Fink, supra note 39, at 103 (footnotes omitted).
55. Sumner J. La Croix, The Rise of Global Intellectual Property Rights and Their Impact on Asia, in ASIA PACIFIC ISSUES 1995 (Analysis from the East-West Center Series Nov. 23, 1995).
56. Keith E. Maskus & Denise Eby Konan, Trade-Related Intellectual Property Rights: Issues and Exploratory Results, in ANALYTICAL AND NEGOTIATING ISSUES IN THE GLOBALTRADING SYSTEM 401 (Alan V. Deardorff & Robert Stearns eds., 1994).
57. La Croix, supra note 51, at 4 (citing E. Helpman, Innovation, Imitation, and Intellectual Property Rights, 61 ECONOMETRICA 1247-80 (1993)).
58. E. Helpman, Innovation, Imitation, and Intellectual Property Rights, 61 ECONOMETRICA 1247-80 ( 1993). Id.
59. See J.H. Reichman, From Free Riders to Fair Followers: Global Competitian Under the TRIPS Agreement, 29 N.Y.U. J. INT'L L. & POL. 11, 17 (1997).
60. See id. at 89.
61. See id. at 89-90.
62. See id. at 90.
63. TRIPS Agreement, supra note 13, art. 10.
64. Id.
65. Id.
66. Prior to the TRIPS Agreement, there was some doubt over whether the Berne Convention applied to either computer programs or databases. See McManis, supra note 17, at 220.
67. See generally J. H. Reichman, The Know-How Gap in the TRIPS Agreement: Why Software Fared Badly, and What Are the Solutions, 17 HASTINGS COMM. & ENT. L.J. 763, 774-84 (1995). The author's main reason for concluding that software fared badly in the TRIPS Agreement is that TRIPS essentially ignores software patent protection. See id. at 767. For a discussion of software patent protection, see infra text accompanying notes 81-85.
68. See, e.g., J.H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 COLUM. L. REV. 2432, 2481-82 (1994) (discussing sui generis treatment of computer programs under French law).
69. See supra note 60 and accompanying text.
70. See id. On the other hand, nothing in the TRIPS Agreement prohibits the creation of sui generis protection for database contents. See infra note 70 and accompanying text.
71. 499 U.S. 340 (1991).
72. Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the Legal Protection of Databases, 1996 O.J. (L77) [hereinafter Database Directive].
73. Id. arts. 7-11. For a discussion of the sui generis protection created by the Database Directive, see McManis, supra note 17, at 253-62.
74. TRIPS Agreement, supra note 13, art. 1.
75. See Database Directive, supra note 68, at recital 56, art. 11. Recital 56 states that: Whereas the right to prevent unauthorized extraction and/or reutilization in respect of a database should apply to databases whose makers are nationals or habitual residents of third countries or to those produced by legal persons not established in a Member State, within the meaning of the Treaty, only if such third countries offer comparable protection to databases produced by nationals of a Member State or persons who have their habitual residence in the territory of the Community. Id. at recital 56. Article 11 limits the beneficiaries of sui generis protection to nationals of a Member State or persons having their habitual residence in the territory of the European Community. See id. at art. 11.
76. For a discussion of the reciprocity provision of the Database Directive, see McManis, supra note 17, at 255-62.
77. See id. at 225.
78. See id.
79. See id.
80. See id. at 261.
81. See Paul E. Geller, Intellectual Property in the Global Marketplace: Impact of TRIPS Dispute Settlements?, 29 INT'L LAW. 99, 110 (1995); McManis, supra note 17, at 258-59.
82. See supra notes 34, 56 and accompanying text. For a more detailed discussion of the TRIPS dispute settlement provisions, see McManis, supra note 17, at 226-32; Rochelle Cooper Dreyfuss & Andreas F. Lowenfeld, Two Achievements of the Uruguay Round: Putting TRIPS and Dispute Settlement Together, 37 VA. J. INT'L L. 275 (1997).
83. TRIPS Agreement, supra note 13, art. 27(1).
84. See, e.g., Adelman & Baldia, supra note 47, at 518-20 (discussing Indian patent law).
85. See TRIPS Agreement, supra note 13, art. 27(1).
86. Id. at n.5.
87. McManis, supra note 17, at 247.
88. 450 U.S. 175 (1981).
89. See, e.g., Arrhythmia Research Tech., Inc. v. Corazonix Corp., 958 F.2d 1053 (Fed. Cir. 1992) (holding claims directed to a method and apparatus for analyzing clectrocardiographic signals in order to determine certain characteristics of the heart functions to be patentable subject matter).
90. TRIPS Agreement, supra note 13, art. 27(3).
91. Id.
92. International Convention for the Protection of New Varieties of Plants (UPOV), as revised at Geneva, 1978, reprinted in INTERNATIONAL IP TREATIES, supra note 13, at 49-64. UPOV was completed in 1961 and entered into force in 1968. See id. at 47. UPOV was revised in 1978, and further revised in 1991. See id. However, as of January 1, 1997, the 1991 revision had not entered into force. See id.
93. See generally Bernhard Bergmans, Industrial Property and Biological Diversity of Plant and Animal Species, 72 J. PAT. [& TRADEMARK] OFF. SOC'Y 600-09 (1990);
94. Carlos M. Correa, Biological Resources and Intellectual Property Rights, 14 EUR. INTELL. PROP. REV. 154 (1992).
95. See TRIPS Agreement, supra note 13, art. 27(3).
96. See, e.g., Fred H. Cate, Information Issues: Intellectual Property, Privacy, Integrity, Interoperability, and the Economics of Information, 48 FED. COMM. L.J. 5, 11-14 (1995) (remarks of Brian Kahin) (describing the information superhighway as the product of technological, market, and legal or policy convergence);
97. Andrew Christie, Reconceptualising Copyright in the Digital Era, 17 EUR. INTELL. PROP. REV. 522, 522-23 (1995) (describing the convergence of information technologies).
98. See McManis, supra note 17, at 207-09.
99. Henry H. Perritt, Jr., Access to the National Information Infrastructure, 30 WAKE FOREST L. REV. 51, 52-53 (1995).
100. See Teresa Riordan, Could a new chip in your electricity meter become the brains of a household computer? N.Y. TIMES, Feb. 16, 1998, at C2 (describing Patent No. 5,699,276, which covers a patent for a semiconductor chip that would be embedded in electricity meters to monitor electricity usage continuously, but could also function as a "digital junction box" for homes).
101. See generally Symposium, Digital Content: New Products and New Business Models, 12 BERKELEY TECH. L.J. No. 1 (1997);
102. David A. Rice, Digital Information as Property and Product U.C.C. Article 2B, 22 U. DAYTON L. REV. 621 (1997);
103. Symposium, Intellectual Property Law in the International Marketplace, 37 VA. J. INT'L L. No. 2 (1997).
104. See McManis, supra note 17, at 283.
105. Primo Braga & Fink, supra note 39, at 104.
106. See John P. Barlow, The Economy of Ideas: A Framework for Rethinking Patents and Copyrights in the Digital Age (Everything You Know about Intellectual Property is Wrong), WIRED (Mar. 1994) 〈http://www.wired.com/wired/2.03/features/economy.ideas.html〉 [hereinafter The Economy of Ideas].
107. The Electronic Frontier Foundation is a public-interest group whose other co-founder, Mitchell D. Kapor, the retired founder and former owner of the Lotus Development Corporation, designed the popular computer spreadsheet program, Lotus 1-2-3. For an introduction to Kapoks view of the appropriate scope of intellectual property protection for computer programs, see Pamela Samuelson et al., A Manifesto Concerning the Legal Protection of Computer Programs, 94 COLUM. L. REV. 2308 (1994).
108. Barlow, supra note 98.
109. See id. at 85.
110. Id.
111. Id. at 87.
112. Primo Braga & Fink, supra note 39, at 104 (citing J. Peny Barlow, The Economics of Ideas, WIRED (1994)).
113. See McManis, supra note 17, at 284. For a discussion of the enforceability of electronic contracts and problems of federal copyright preemption of such contracts, see Dennis S. Karjala, Federal Preemption of Shrinkwrap and On-Line Licenses, 22 DAYTON L. REV. 511(1997);
114. Mark A. Lemley, Shrinkwraps in Cyberspace, 35 JURIMETRICS J. 311 (1995).
115. See McManis, supra note 17, at 285.
116. Esther Dyson, Intellectual Value, WIRED, July 1995, at 137. As Dyson notes, these trends are already beginning to play out. See id. at 140-41. For example, the producers of the two leading Internet software search products, Netscape and Microsoft Internet Explorer, recently began free distribution of their products.
117. See id. See also Peter H. Lewis, Microsoft Offering News Without Charge on Internet, N.Y. TIMES, Apr. 30, 1996, at D4 ("[T]here will be no subscription charge for access . . . [but] Microsoft and its partners can expect to reap potentially large revenues from advertising . . . .").
118. Dyson, supra note 106, at 140.
119. McManis, supra note 17, at 285 (quoting Reichman, supra note 64, at 2444).
120. See id.
121. See id.
122. See id.
123. See, e.g., Jane C. Ginsburg, Copyright Without Walls?: Speculations on Literary Property in the Library of the Future, 42 REPRESENTATIONS 53 (1993);
124. Raymond T. Nimmer & Patricia A. Krauthaus, Copyright on the Information Superhighway: Requiem for a Middleweight, 6 STAN. L. & POL'Y REV. 25, 26 (1994) (noting that the focus of the copyright legal system is poorly fitted to the world of modern electronic information systems); Christie, supra note 91.
125. See Paul E. Geller, Legal Transplants in International Copyright: Some Problems of Method, 13 UCLA PAC. BASIN L.J. 199 (1994).
126. See generally ALAN WATSON, LEGAL TRANSPLANTS: AN APPROACH TO COMPARATIVE LAW (2d ed. 1993).
127. Geller, supra note 114, at 199.
128. See id.
129. See id.
130. See infra notes 123-39 and accompanying text.
131. See infra notes 134-35 and accompanying text.
132. See Samson Helfgott, Cultural Differences Between the U.S. and Japanese Patent Systems, 72 J. PAT. [& TRADEMARK] OFF. SOC'Y 231, 235-37 (1990).
133. See generally Samson Helfgott, Cultural Differences Between the U.S. and Japanese Patent Systems, 72 J. PAT. [& TRADEMARK] OFF. SOC'Y 231 ( 1990). id.
134. See Harold C. Wegner, TRIPS Boomerang - Obligations for Domestic Reform, 29 VAND. J. TRANSNAT'L L. 535, 556-58 (1996).
135. Helfgott, supra note 120, at 232.
136. See id. at 233.
137. See id. at 232. But see infra notes 140-43 and accompanying text.
138. See Helfgott, supra note 120, at 233.
139. See id. at 234. See also Toshiko Takenaka, The Role of the Japanese Patent System in Japanese Industry, 13 UCLA PAC. BASIN L.J. 25, 25-26 (1994).
140. See generally Dan Rosen & Chikako Usui, The Social Structure of Japanese Intellectual Property Law, 13 UCLA PAC. BASIN L.J. 32 (1994).
141. See Helfgott, supra note 120, at 234.
142. See id.
143. See id.
144. See id.
145. See Michael Todd Helfland, How Valid Are U.S. Criticisms of the Japanese Patent System?, 15 HASTINGS COMM. & ENT. L.J. 123, 132 (1992).
146. See Helfgott, supra note 120, at 235.
147. Id. at 236.
148. See id. at 237.
149. See Takenaka, supra note 127, at 26.
150. Id. at 27. See also Rosen & Usui, supra note 127, at 44-45.
151. See James E. Armstrong, Comparative National Approaches to Intellectual Property Rights: Japan: in WALLERSTEIN ET. AL., GLOBAL DIMENSIONS OF INTELLECTUAL PROPERTY RIGHTS IN SCIENCE AND TECHNOLOGY 155-74 (1993).
152. For a concession that the Japanese Patent Office recently made with respect to allowing filings in English, so long as a Japanese translation is timely filed, see infra text accompanying note 140.
153. Under the Mutual Understanding Between the Japanese Patent Office and the United States Patent and Trademark Office, Jan. 20, 1994, the Japanese Patent Office agreed to accept a patent application in English if a Japanese translation is filed within two months, and the United States Patent and Trademark Office agreed to seek legislation providing for the publication of patent applications eighteen months after filing, regardless of whether it has granted a patent. 33 I.L.M. 313. Under the Japan-U.S. Patent Systems Agreement, Aug. 16, 1994, U.S. COMM. DEP'T, the Japanese Patent Office agreed to: (1) end its current practice of allowing third parties to oppose a competitor's patent before it is granted, (2) accelerate the patent examination process, and (3) abandon the practice of ordering a non Japanese inventor to issue a dependent patent compulsory license. 34 I.L.M. 121.
154. See supra note 140.
155. In 1995, the Patent Publication Act of 1995, H.R. 1733, 104th Cong., 1st Sess. (1995), was introduced in the House of Representatives. This bill would have amended 35 U.S.C. § 122 to provide for publication of patent applications eighteen months after filing. See id. Eventually, the House of Representatives passed and referred to the Senate H.R. 400, the 21st Century Patent System Improvement Act, H.R. 400, 105th Cong., 1st Sess. (1997), which would also amend 35 U.S.C. § 122 to provide for publication of most patent applications eighteen months after the earliest filing date for which priority is sought. However, in response to complaints by small businesses and individual inventors that the publication provision will diminish the value of trade secret protection, the bill contains a provision that would exempt from the publication requirement applications filed by a small business entitled to reduced fees under 35 U.S.C. § 41(h)(1), by an individual who is an independent inventor entitled to reduced fees under that same section, or by an institution of higher education (as defined in Section 1202 of the Higher Education Act of 1965) entitled to reduced fees under such section 41(h)(1). See id.
156. For the legislative response to these concerns, see supra note 142.
157. For Japanese efforts in this regard, see supra note 138 and accompanying text.
158. John Maynard Keynes, A Tract on Monetary Reform, in THE OXFORD DICTIONARY OF POLITICAL QUOTATIONS, at 207 (Antony Jay ed., 1996) ("But this long run is a misleading guide to current affairs. In the long run we are all dead.").
159. For an introduction to the concept of due diligence in corporate acquisitions, and the ways in which the concept is understood in different countries, see DUE DILIGENCE FOR CORPORATE ACQUISITIONS (Winfried F. Schmitz ed., 1996).
160. For a guide to conducting due diligence reviews in the process of corporate mergers and acquisitions, see DAVID A. BROADWIN, NEGOTIATING AND DOCUMENTING BUSINESS ACQUISITIONS 21-38 (1997). See also infra Part V (Appendix: Valuating Intellectual Property, written by William T. Neese).
161. See supra text following note 37.
162. Sommer & Premutico, supra note 14, at 42.
163. Id.
164. See generally infra Part V. As Professor Neese makes clear in the Appendix, however, the effort to place a value on intellectual property assets poses particular difficulties for the accounting profession. In general, these assets are undervalued by the accounting profession. Nor do they normally appear as a discrete item on corporate financial statements. See infra note 163 and accompanying text.
165. See generally Robert L. Filek, How Acquirers Can be Blindsided By the Members, 31 MERGERS & ACQUISITIONS, May-June 1997, at 28.
166. For those forms of intellectual property recognized elsewhere in the world but having no exact equivalent in the United States, see supra notes 1, 20, 24, 68-69, 74-75 and accompanying text, and infra notes 153-57 and accompanying text. For discussions of the reasons why new, sui generis forms of intellectual property protection are likely to continue to proliferate, see McManis, supra note 17, at 221-26; Reichman, supra note 64, passim.
167. See TRIPS Agreement, supra note 13, Part II, § 4.
168. See id, Part II, § 3.
169. See the TRIPS Agreement, which obliges industrialized countries to be in compliance one year after the entry into force of the agreement establishing the World Trade Organization. TRIPS Agreement, supra note 13, art. 65(1). The latter agreement entered into force on January 1, 1995. See INTERNATIONAL IP TREATIES, supra note 13, at 585. For a discussion of the transitional arrangements governing developing countries, see supra notes 35-36 and accompanying text.
170. See J. H. Reichman, Universal Minimum Standards of Intellectual Property Protection Under the TRIPS Component of the WTO Agreement, 29 INT'L LAW. 345, 375-77 (1995) (arguing that the non-obviousness requirement in current U.S. design patent law is in conflict with obligation under Article 25(1) of the TRIPS Agreement to protect "independently created industrial designs that are new or original").
171. For a discussion of industrial design protection in Europe, and the significance of recent efforts in the European Union to harmonize industrial design protection within the Union, see Graeme B. Dinwoodie, Federalized Functionalism: The Future of Design Protection in the European Union, 24 AIPLA Q.J. 613 (1996).
172. See Paul J. Heald, Trademarks and Geographical Indications: Exploring the Contours of the TRIPS Agreement, 29 VAND. J. TRANSNAT'L L. 635, 645 (1996). The author notes that none of the TRIPS provisions governing geographical indications of origin creates any conflict within U.S. trademark law. See id. However, this is only because in 1993, just as the Uruguay Round was nearing completion, and again in 1994, Congress amended the Lanham Trademark Act to provide stronger protection for geographical indications of origin, particularly with respect to geographical indications for wines or spirits - an obvious bid to gain European (and more particularly French) support for, and ratification of, the TRIPS Agreement. See Pub. L. No. 103-182, Title III, Subtitle C, § 333(a), 107 Stat. 2114; Pub. L. No. 103-465, Title V, Subtitle B, § 522, 108 Stat. 4982.
173. See TRIPS Agreement, supra note 13, arts. 23, 24.
174. See Heald, supra note 157, at 648.
175. See supra notes 55-56 and accompanying text.
176. William T. Neese, Associate Professor, School of Business, Georgia College and State University.
177. Compare (NPV) with (a) the payback method, (b) the average return on book value method, and (c) the internal rate of return (IRR) method. Both payback and average return on book value methods are ad hoc procedures, ignoring the timing of future cash flows and therefore failing to account for the time value of money (i.e., the opportunity cost of the investment under consideration). IRR is preferred to both the before-mentioned methods, and is calculated by setting the NPV at zero to derive the discount rate. This discount rate is then compared to the opportunity cost of capital (i.e., what the required funds could earn if invested in other assets, such as stocks or bonds). The firm should accept the project if the IRR is greater than the opportunity cost of using that money for something else. IRR is a popular algorithm among financial managers; unfortunately, it is easy to misapply for a number of reasons. For example, multiple sign changes in cash flows over time (i.e., from positive to negative back to positive) confound the calculation of a single IRR, and mutually exclusive projects that vary in characteristics (e.g., time horizons or the magnitude of investments required) may be ranked against one another incorrectly. See Richard A. Brealey & Stewart C. Myers, PRINCIPLES OF CORPORATE FINANCE (5th ed. 1996).
178. Appraising the value of intellectual property that contributes indirectly to the income stream of the firm is particularly problematic; goodwill "arises out of the conduct of a business and can only be transferred with the business. It is dependent for its existence on other things such as a name, license, trademark, business contracts, know how, etc." Grant Cathro, Goodwill: Now You See It, Now You Don't, AUSTL. TAX REV. 169 (1996). "We think that this type of valuation is best left to the market, which will make its assessment taking into account the expected net cash flows, risk, etc. We have not seen any literature that would suggest that accountants or valuers can do better than the market in valuing the overall firm when the market is provided with up-to-date information."
179. John Ryan & Gary Tibbits, Intangibles - An Alternative View, AUSTRALIAN ACCT., May 1996, at 50-52.
180. For a discussion of the valuation of intangible assets in both the matrimonial context and the partnership dispute context, see Robert S. Cohen and Arthur J. Ciampi, Goodwill, Though Intangible, Can Be Assigned Value: Methodologies Considered, N.Y.L.J., Mar. 3, 1997, at S2.
181. Estimating future income streams for intellectual property is almost never done independently of the portfolio of assets the purchaser is acquiring through the merger or acquisition. As such, the appraiser must detect the synergy produced by the asset mix after finalizing the transaction and assuming that the resulting firm exploits the asset mix in the "best" way possible, which is not necessarily the way the assets are being used at the time of acquisition. For an introduction to the valuation of intellectual property see generally GORDON V. SMITH & RUSSELL L. PARR, VALUATION OF INTELLECTUAL PROPERTY AND INTANGIBLE ASSETS (1989). As Smith and Parr point out, the method we discuss involving estimating future income streams (i.e., net cash flows) is best suited for the appraisal of contracts, licenses and royalty agreements, patents, trademarks, and copyrights, franchises, securities, and business enterprises. See id. at 160. The NPV formula inherently considers the cost of replacement in the future of the assets in question, both in terms of cost impact on annual net cash flows as well as salvage value at the end of the project's duration. However, another appraisal possibility remains: "obtaining a consensus of what others in the market-place have judged it to be [which requires] (1) an active, public market and (2) an exchange of comparable properties." Id. Real estate agents use this method to value the appreciation of property in various locations based on final selling prices of similar property in the area. See id. at 161. The major advantage of this method is simplicity and ease of understanding, but it assumes that other buyers were aware of all relevant facts and arrived at a fair value for the property at the time. See id. at 162. As Smith and Parr point out, "[t]his approach is typically least effective for: . . . intangible assets and intellectual property." Id.
182. "Even when a target's figures are totally correct, they can flash misleading signals to a buyer that doesn't check them out in detail." Filek, supra note 151, at 28.
183. See id. at 28-29.
184. Id. at 32.
185. Id. at 30.
186. This analysis focuses on the direct acquisition of tangible and intangible assets, as well as corresponding liabilities, through merger and consolidation deals. The reader should note that discounted cash flow procedures can also be based on annual tax savings figures as well as revenues purely derived from stock purchases. Firms acquiring intellectual property assets directly have managerial control over their exploitation, and can best leverage under-utilized assets to maximize return. However, asset ownership also maximally exposes the firm to future liabilities arising from their misuse as well, or from any other event such as patent expiration or reverse engineering of a trade secret which might significantly devalue that property. See generally JOSEPH H. MARKEN, MERGERS & ACQUISITIONS: A VALUATION HANDBOOK (1993).
187. See, e.g., Deborah A. Sudbury & Douglas M. Towns, Paying the Price for a Seller's Bias After Closing, 31 MERGERS & ACQUISITIONS, May-June 1997, at 33. "Acquirers facing a broader array of potential post-deal legal claims need to be tougher in probing a target's employment practices." Id.
188. For a detailed discussion of the components involved in analyzing the target's historical performance, see TOM COPELAND ET AL., VALUATION: MEASURING AND MANAGING THE VALUE OF COMPANIES (2d ed. 1994).
189. See, e.g., Christian A. Carrington, Hurdles to Clear When Investing in Latin America, MERGERS & ACQUISITIONS, May-June 1997, at 41, 41-45.