Rental Property and Intellectual Rights

Real Estate Rental, Tangible Property and Intellectual Property Rights

Relationship Between Commercial Rental Property and Inventories

Landlords own the real property rented by tenants (rental property). Tenants have an interest in the use of that real property. A commercial landlord rents square footage to the tenant and grants the tenant permission to operate a business from the rented space. Under most commercial leases, inventory remains the personal property of the tenant. Landowners may also operate their own businesses from commercial real properties.

Real Property Cases: Traditionally Matters for State Courts, However…

For centuries, disputes involving real property and rental property contracts have fallen under the law of the jurisdiction where the real estate is located. Each State has its own version of its real property laws. However, in today’s world, federal laws can influence a State’s real property laws.

Intangible Patented Inventions as Tangible Personal Property

A Patentee can sell tangible widgets that include intangible patent rights for the circuitry, processor, and memory that cause the tangible widgets to operate differently from unpatented widgets. Patent infringement of the patented widget can result when someone who did not purchase the patented widget from the Patentee makes, uses, sells or offers to sell the patented widget without the permission of the Patentee.

Under United States law, Patent infringement cases have exclusive jurisdiction and venue in federal district courts.

When Patented Widgets are Offered for Sale on Consignment

Possible interactions between the real estate owner or the commercial tenant (hereinafter Commercial) and the Patented Widgets Owner (hereinafter PWO):

  • As long as Commercial and PWO meet the terms of the consignment agreement, both parties are probably happy.
  • When Commercial refuses to pay PWO according to the consignment agreement, the PWO could sue the Commercial for breach of contract in a State court.
  • When Commercial refuses to honor the consignment agreement and subsequently gives the patented widgets to a third party who thereafter uses the patented widgets in the third party’s plant. Under the Supreme Court’s Impression Products, Inc. v. Lexmark International, Inc., 581 US 1523 (2017) case, because there was no sale of the patented widgets by the Patentee, PWO can sue both the thirty party and Commercial in a federal district court for patent infringement. Any case by PWO for breach of contract by Commercial would likely be joined with the patent infringement case in federal court.

The commercial tenant (hereinafter Tenant) and the PWO:

  • When Tenant sublets a space for a booth to PWO and PWO fails to pay rent to Tenant, the Tenant can sue PWO in State court for collection of unpaid rent.
  • In a State that provides for commercial landlord lockouts and seizures of personal property, Tenant fails to pay rent and the landlord locks out and seizes all inventory including PWO’s patented widgets. Under the lease, Tenant did not have a right to sublet space to PWO and the landlord is unaware that PWO’s patented widgets are not part of Tenant’s inventory. After seizing PWO’s patented widgets, the landlord sells PWO’s patented widgets to a third party who resales the patented widgets to a fourth party who destroys the patented widgets and sells the junked parts to a recycler. Under Impression Products, Inc. v. Lexmark International, Inc., 581 US 1523 (2017), because there was no sale of the patented widgets by the Patentee, PWO could sue the commercial landlord, the third party and the fourth party for patent infringement in federal court. For the landlord, the third party and the fourth party, reliance solely on real estate law is insufficient to prevent a patent infringement lawsuit in federal court.

Have More Questions About Intellectual Property?

Contact Business Patent Law, PLLC  to get your questions answered and to discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

LLC friendly states

Organizing Your LLC Intellectual Property Startup

Limited Liability Company – IP Startup

One or more Limited Liability Companies, can be be beneficial for Intellectual Property startups. As indicated in a prior blog, it is prudent for companies owning Intellectual Property rights to hold the Intellectual Property in a holding company and to have the goods/services associated with the Intellectual Property owned by a separate manufacturing/distribution company.

LLC Organization and Tax Law

Should organizers of a Limited Liability Company seek the advice of a tax professional prior to organization the LLC?  Yes.

Business Patent Law, PLLC does not provide tax counsel. However, with the ever-changing tax codes, organizers should consult with a tax professional. If an inappropriate jurisdiction is initially selected for the organization of the LLC, it may not be cost-efficient to redo the LLC’s organization in another jurisdiction.

Limited Liability Companies are Legal Entities

Limited Liability Companies are legal entities of the state (or District of Columbia) in which the LLC is organized.

For a Limited Liability Company with all members domiciled in the same jurisdiction, some states offer more owner friendly in-state taxation and fees to the citizen-members than other states.

You should review a state’s securities laws (and jurisdictional fees associated with the capitalization of the LLC) to determine if a state other than your home state may be better for the organization of the LLC.

As a general rule, a Limited Liability Company is treated as a pass through entity for federal income taxation purposes.

Where Should I Organize my LLC?

Where Should the Organizers Organize a Limited Liability Company? It depends

  • The nature of the LLC’s business can affect which jurisdiction is more favorable, e.g., some jurisdictions provide favorable state and local tax preferences for certain businesses
  • Some jurisdictions are more organizational, fee and tax-friendly than other jurisdictions
  • Management of an LLC can find it advantageous to organize in a first jurisdiction and locate the LLC’s principal office in a second jurisdiction
  • Some jurisdictions require out-of-state members to pay jurisdictional taxes in the jurisdiction where the LLC is organized or conducts business while other jurisdictions do not tax out-of-state members

Business Patent Law, PLLC has a history of working with tax professionals to optimize the organizational structures of LLCs. Because of our experience with different jurisdictions, Business Patent Law, PLLC (in conjunction with a trusted tax professional) can create a workable organizational structure for LLCs.

If you have questions about the organization of a Limited Liability Company or  Intellectual Property matters, please contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

Intellectual property as collateral for small businesses

Can Intellectual Property Be Used As Collateral For A Loan?

Can your company’s intellectual properties be used as collateral for a loan? Yes, under certain situations. For instance, if a specialized insurance policy is used to establish a value for the intellectual property, the property can be used as collateral for loans from commercial banks.

Sources of Quick Cash

Occasionally, your company may need a quick influx of cash that exceeds your balance sheet’s liquid assets.

Traditional Sources for Cash Include:

  • Commercial Bank Loans
  • Government Grants
  • Small Business Administration Loans
  • Sale of Stock or Bonds

Other Sources of Cash: Angel Investors

Other potential sources of quick cash for your company are “angel investors.” Angel investors generally take greats risks when in investing in a startup or a company with few sales and expect large returns for their investments in return.

Beware of using Angel investors since the terms of “angel contracts” can cause companies to cease doing business.

Quick Cash for Publicly Traded Companies

You may have heard, “When you don’t need a loan, the bank is ready to lend more than you need!” If you do need a loan and your publicly traded company needs quick cash, you may consider:

  • Prime Rate Loans from Large Commercial Banks
  • Lines of Credit
  • Sales of Stocks or Bonds

Quick Cash for Private Companies

Private sales of stocks or bonds are an excellent source of capital for companies not traded in the public markets, but this is not usually an option for quick cash.

Before offering or issuing stocks or bonds, a privately traded company must be careful not to violate the Securities Laws of the United States or the “Blue Sky” laws of the state were buyers reside.

Disputes over the dilution of equity for current stockholders is a serious deterrent for using the sale of stock or bonds to raise capital.

SBA Secured Loans

Currently, the Small Business Administration will not guarantee an intellectual properties secured loan.

Collateral Protection Insurance for Your Company

Some startups or smaller and medium-sized companies have valuable intellectual property portfolios. These same companies frequently encounter cash flow difficulties.

Although intellectual properties are valuable assets for companies, most commercial banks are ill-equipped to determine the fair market value of the intellectual properties.

If you decide to leverage your company’s intellectual property portfolio, you can purchase a collateral protection insurance policy from a commercial insurance carrier. The collateral protection insurance policy establishes the value of the company’s intellectual properties (which can be used as collateral for the loan) and insures the lender against default on the loan.

Is An Intellectual Property Secured Loan Right for My Company?

This quick cash strategy is not for every company, but if you want to learn more about this option for your company, contact Business Patent Law, PLLC . We can discuss possibilities for your business and your intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter.

manufacturing and business strategy

Business Strategy: Patent Portfolios and Holding Companies

Is it a prudent business strategy for a holding company (Company H) to own the patent assets used by Company A in manufacturing products sold by Company A?

Perhaps, let’s consider the following scenario:

Manufacturing/Distribution Considerations

  • Company A has been in business for several years and has an impressive twenty percent market share for its Widget.
  • The Widget generates one-half of Company A’s profits.
  • Company A has a superb engineering staff that has patented various improvements of the Widget invention creating a profitable patent portfolio for Company A.
  • Company A also generates royalties from its patent license agreements with other companies.

Supply Chain Problems

  • For several years, SupplyCo provided Company A with 99% pure Critical Composition to manufacture its Widgets, but due to temporary utility power supply limitations, Company A was able to deliver only 96% pure Critical Composition to Company A.
  • To meet pressing needs of its customers, Company A shipped 20 tons of Widgets made with 96% pure Critical Composition.
  • During the subsequent six week period, due to the number of injuries to the users of the Widgets manufactured with 96% pure Critical Composition, a national recall of the 20 tons of Widgets was initiated by Company A.
  • Unable to weather the recall and the pending lawsuits, Company A was forced to declare bankruptcy and the Widget patent portfolio was eventually sold in liquidation by the bankruptcy trustee.

Could the Sale of Company A’s Patent Portfolio been Avoided?

Generally – Yes – as long as the transactions between Company A and Company H are arms’ length dealings.

To minimize devaluation of an intellectual property portfolio, management can use one or more holding companies in their business strategy, such as limited liability companies to stabilize the value of the portfolio in the event the “unthinkable” occurs.

Advantages of Using a Holding Company for Intellectual Property

If Company H had owned the Widget patent portfolio and granted Company A an exclusive license to make, use and sale the patented Widgets, then:

  • The Widget patent portfolio would not have been part of Company A’s bankruptcy and liquidated by the bankruptcy trustee.
  • Company H would remain in business and could grant an exclusive license to Company X to make, use and sale the profitable Widgets.
  • Company H could sell the valuable Widget patent portfolio to Company Y.
  • It is likely that royalty income to Company H would be deemed as passive income.
  • It is probable than any sale of the Widget patent portfolio to Company Y would be determined to be a long term capital gain.

Other Considerations for Using a Holding Company as a Business Strategy

  • Better supply and manufacturing quality control – thereby avoiding the Widget recall and the ultimate demise of Company A.
  • Remove Company A’s engineering department from Company A and setup Company E to do business with Company H, identified above, to better take advantage of the tax code’s provisions for intellectual properties.
  • Company E can provide special enticements for its engineering staff to better retain and recruit the best engineering staff that will create subsequent generations of better and more profitable Widgets for licensing by Company H to Company A.
  • Special enticements for the engineering staff apply only to Company E – not Companies H or A.
  • Company E can be easily located in an area where Company E takes maximum advantage of governmental tax incentives.
  • Regardless of what happens to Company A utilizing this business strategy, Companies H and E remain viable entities.

As you can see, there are many different business strategies which o utilize corporate structures to maximize profits and reward the best efforts of employees. This illustration provides only a few of those options.

Contact Business Patent Law, PLLC and we will discuss possibilities for your business and intellectual properties.

If you would like to stay up-to-date with news that impacts your intellectual property, sign up for Business Patent Law’s Monthly Mailer™ newsletter

legal contracts online downloaded from the cloud

Legal Contracts From The Cloud?

Legal Contracts Online

Are you considering the use of downloaded legal contracts online? Before you do, you need to know a bit more about the pros and cons of using legal contracts you may find in the cloud.

Business owners, investors and bankers consider Intellectual Properties and the products associated with those Properties to be both intangible and tangible assets. Because these assets are the lifeblood of many companies, it is wise to use a seasoned professional to prepare your Intellectual Property agreements.

Cloud Intellectual Property Contracts

With the intent of saving money, sometimes a business drags a contract for intellectual property out of the Cloud.  On rare occasions, the Cloud strategy may be adequate for the business. (This is especially true if the agreement is never challenged.)

If, however, you pull a contract off the Internet and it IS challenged, you may find yourself in an expensive legal quagmire. More importantly, you may lose the challenge along with your rights to your Intellectual Property. Consider your needs carefully before using legal contracts online.

Patents, Trademark and Copyright Agreements

When Intellectual Property contracts are prepared, each genre has its own eccentricities. For example:

  • Contracts associated with Copyright rights frequently include the phrase “all rights reserved.”
  • In many jurisdictions, the sale or license of Trademark rights must also include the goodwill associated with the Trademark.
  • License agreements flowing from Patent rights should generally include royalty milestones, among other things.

Intellectual properties are unique and the facts associated with each Intellectual Property agreement are also different. A well-drafted contract takes time and expertise to prepare properly. This is not a “one-size-fits-all” legal situation and legal contracts online are usually too general to be of use.Continue reading

Intellectual Property Copyright Law Example

What Types of Property Can Accrue Intellectual Property Rights?

The Building Blocks of Your Business

Like many of their larger Fortune 500® counterparts, most creative companies know intellectual property is their most valuable asset. Intellectual property rights are essential in the legal exclusion of competition. Endeavors thrive because of their intellectual property, and due to Treaties enacted by many of the World’s governments, creative intellectual property owners often find the privileges and monopolies flowing from their Patents, Trademarks and Copyrights to be global in scope.

Protecting Your Products

Creatives with business savvy understand the importance of excluding competitors from competing directly against their product or service. In today’s far-reaching marketplace, only the most resourceful people have any hope of surviving the assault of their cheapest cutthroat competitors.

In the end, most creative start-ups find their intellectual property assets are the lifeblood which sustains them against the onslaught of larger and better financed rivals. History is replete with examples of this reality. At the same time, recent reports demonstrate Wall Street investors reward creative entrepreneurs, who are well-endowed with valuable intellectual property holdings.

Patent rights are excellent assets.

What Property Can Be Protected?

What kind of property is sufficiently creative to be protected by intellectual property rights? Business Patent Law, PLLC offers the following criterion to appraise the potential value of owning Patents, Trademarks and Copyrights.Continue reading