Rolling Forecasts: Minimizing Risks of Uncertain Supply and Demand

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When two companies enter in to a relationship for the manufacture and supply of goods, both sides often have legitimate concerns about the volume of future orders and production.

The customer seeks assurance that all of its orders will be filled, so it won’t be left in the lurch in times of high demand. The supplier seeks assurance that purchasing volume will remain steady, or increase, so its initial investment will be recaptured, profit margin will be realized and it won’t be stuck with a warehouse full of costly, unwanted inventory.

Those legitimate concerns on both sides may largely be alleviated through the artful drafting of several possible contract provisions. The variations are endless, but here are a few basics. Continue reading →

Enforceability of Forum Selection Provisions by U.S. Courts

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My former employer, a Taiwan OEM, was sued in U.S. District Court for $5.4 million for alleged breach of a patent licensing agreement. The agreement states that “any U.S. District Court will have jurisdiction” over disputes arising from the agreement. We promptly moved to dismiss for lack of jurisdiction, the case was dismissed and we sued them in Taiwan instead (“Ha! Welcome to Taiwan. How’s your Mandarin?”).

In that case, the U.S. federal court lacked jurisdiction – despite the choice of forum provision – because none of the parties was a U.S. entity, so no diversity jurisdiction existed, and the claim was for breach of contract, which is a state, not a federal claim. That is, the criteria for federal jurisdiction were not met and parties cannot create federal jurisdiction even by mutual agreement where it does not otherwise exist.

While the dismissal of our case was exhilarating, it was hardly a rare event. Courts routinely disregard the express language of choice of forum provisions when they feel the chosen forum is improper. Continue reading →

International Service of Process in Taiwan? Relax, it’s FedEx.

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Last month a U.S. district court asked, “When service of process absolutely, positively has to be effected on a Taiwanese defendant pursuant to Federal Rule of Civil Procedure 4(f)(2)(C)(ii), is Federal Express enough?”

The case, SignalQuest v. Chou, involved allegations of U.S. patent infringement. After filing the Complaint and failing to convince defendant’s counsel to accept service of process on defendant’s behalf, plaintiff’s counsel filed a request for consent to serve Mr. Chou at his business in Taiwan by FedEx.

Federal Rule of Civil Procedure (FRCP) Rule 4 allows process to be served on a foreign defendant by any internationally agreed means of service, such as means permitted by the Hague Convention, but Taiwan is not a party to most international agreements, including the Hague Convention. Continue reading →

10 Tips for Successful Negotiations

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Perhaps no skill is more valuable for attorneys than the ability to negotiate well. Whether one is concluding a commercial or corporate agreement, resolving disputes over defects or patents, or reaching a deal with a client or colleague, strong negotiation skills will always come in handy. Here are 10 tips to consider.

1. Collabortive v. Competitive. In a collaborative approach the parties seek a win-win solution through cooperation, sharing information and creative problem-solving. A competitive or win-lose approach, involves threats, manipulation and withholding of information. Collaboration is usually preferable, particularly if the parties are present or potential business partners, but sometimes a competitive approach may be appropriate.

2. Assess the Issues Beforehand. Before commencing negotiations, list your issues and your counterpart’s issues and prioritize them. Are some issues linked? Can or should they be linked? What areas of common ground exist? What concessions might be available for each side? What are some reasonable proposals? How badly does each side need an agreement? Continue reading →

Technology Manufacturing Contracts: Don’t start work without ‘em.

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Here in Asia, it’s surprising how often technology companies will team up with a business partner and commence manufacturing, with no contract in place, placing trust in a few emails, oral conversations and purchase orders. I know, because they will then come to me, after problems have arisen, with questions about their legal rights. Regardless of whether the manufacturer is an ODM, OEM or contract manufacturer, much risk and uncertainty can be eliminated if the parties will first negotiate and sign a basic manufacturing agreement.

Below are a few key terms that may be clarified in such agreements.

Product and Pricing. Naturally, the agreement should include precise descriptions of the product, packaging and pricing, including design, specifications, materials, components, logos, and so forth. Such items are best described in addendums to the agreement, so they may be easily modified as needed. The agreement may also describe the process for making any price adjustments.

Quality and Inspections. The agreement should specify all governmental, environmental, industry, compatibility and customer quality requirements to be complied with, as well as required testing and certifications. It may permit quality audits by the customer (the customer may outsource that task if needed) and should clearly describe inspection rights and remedies for non-conforming products. Continue reading →

Joint Development Agreements: Proceed with Caution!

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Companies that wish to produce new technologies have basically three options: (a) develop the technology, (b) purchase or license it, or (c) jointly develop it with others. That third option is popular, as it allows two companies to share their respective strengths, resources and expertise and benefit from a synergistic business relationship. It is also risky, because each party relies on the other and may be required to share sensitive trade-secrets, know-how and other intellectual property rights. However, handled properly, the risks can be minimized and a mutually beneficial relationship can flourish.

Typically, such collaborations utilize a succession of agreements, starting with an NDA, followed by a Joint Development Agreement, then perhaps Manufacturing, Purchasing and Licensing Agreements. This article will focus on the Joint Development Agreement.

First, the agreement should clearly identify the parties and their objectives. What is the goal of the collaboration? What technology is being developed? Do the parties plan to manufacture or sell products? Where? When? Which party will have such rights and will they be exclusive? What is the expected timeframe? What are the milestones? Greater certainty up front will reduce future disagreements. Continue reading →

10 Tips for Drafting Non-Disclosure Agreements

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Like Rodney Dangerfield, Non-Disclosure Agreements (“NDAs”) often get no respect. Business persons may plunge into negotiations, revealing confidential information with no agreement in place, or Legal may issue the same form agreement in every case, as if one-size-fits-all. Well, like any contract, the NDA can provide vital protection, but should be drafted with care. Here are 10 tips to consider.

1. Nature of the Obligation. Naturally, the heart of the NDA is language prohibiting one party from wrongfully using or disclosing certain information received from the other. The agreement should require the recipient to use at least the same degree of care that it would use to protect its own confidential information, but at least a reasonable degree of care.

2. Mutual v. Unilateral. Legal should inquire with Business to learn what types of information will be disclosed by each party. Obviously, the disclosing party wants stronger protection; the receiving party wants fewer restrictions. Nonetheless, in almost every case each party will disclose some sensitive information, so it almost always makes sense to include mutual confidentiality obligations. Continue reading →

U.S. Patent Liability based on Foreign Sales or Manufacturing

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Can a Taiwan company that manufactures products in China and delivers them in Hong Kong, pursuant to contracts signed in Taipei, be held liable for infringing U.S. patents based on those transactions, even if it never imports the goods to or does business in the U.S.? Surprisingly, yes.

Direct Infringement. Under Section 271(a) of the U.S. Patent Act it is unlawful to make, use, offer to sell, sell or import in/into the U.S. any device that makes use of a valid patent, without authority from the patent owner. To do so constitutes direct infringement.

It’s not always clear what constitutes U.S. sales. In MEMC v. Mitsubishi, a Japanese supplier sold goods exclusively to a Japanese customer, but placed shipping labels on the products indicating a U.S. destination and otherwise helped facilitate importation by the customer. Nonetheless, a U.S. court found the supplier didn’t engage in U.S. sales.

However, in LightCubes v. Nothern Light, the court found a supplier engaged in U.S. sales despite delivering the goods in Canada, because it sold them to U.S. customers. And in SEB v. Montgomery Ward, the court found U.S. sales despite delivery in Hong Kong, because the supplier manufactured the goods with North American electrical fittings, affixed U.S. trademarks on the goods, and stated U.S. destinations on the invoices. Continue reading →

International Arbitration v. Litigation: Is ADR really Better?

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How many times have we heard the old clichés about arbitration being faster, cheaper and preferable to litigation? Well, that may be true in some cases, but often a party may be better off with litigation. Making that determination depends on multiple factors. This article will address seven of them.

1. Speed Surveys note a growing perception that arbitration is no faster, no cheaper and less reliable than litigation. In theory, there are many methods to speed up arbitration, such as using just one arbitrator, rather than three; restricting discovery, witnesses and submissions; submitting the case on the pleadings; and so forth. However, parties may feel such limitations inhibit their ability to fairly present their case and receive a correct decision. Consequently, such methods may be less suitable for more costly or complex disputes.

2. Cost Resolving a US$10 million dispute in the International Court of Arbitration, using three arbitrators, will cost $397,367 in administrative costs and arbitrator fees; a US$5 million dispute with one arbitrator will cost $132,349; but those figures don’t include fees for attorneys and experts. As with speed, the parties may reduce cost by limiting evidence, procedures and number of arbitrators; but, again, any savings must be weighed against the possibility of compromised justice. Continue reading →

Defending Patent Licensing Demands (III of III)

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III. Prepare for Battle

In Parts I and II of this series, we discussed how to evaluate and respond to licensing demands and search for internal solutions. In this post we’ll discuss what to do when such efforts fail and litigation seems imminent.

Should one obtain a non-infringement opinion? Perhaps during product development, if one fears a particular patent, but after that it’s probably not worth the cost. In the U.S., failure to obtain an opinion may help support a finding willful infringement and enhanced damages. But most demands won’t go to trial and obtaining an opinion does not guarantee protection from enhanced damages.

It might be more helpful to explore potential cooperation with similarly-situated parties. If multiple parties share common issues, they may share legal costs and coordinate strategy by entering into a Joint Defense Agreement. However, before sharing information, be sure to enter into a Common Interest Agreement to help preserve confidentiality with respect to third parties. Continue reading →