Intellectual Property (IP) refers to a unique type of creation in the mind for which a number of exclusive rights are recognized under a number of corresponding laws. Within the intellectual property law, the owners’ posses exclusive rights to many kinds of intangible assets which may include artistic works, discoveries, inventions, symbols, and designs. In many jurisdictions, the common types of intellectual property rights are copyrights, industrial design rights, patents, and trade secrets (Haynes, 1995).
Gomulkiewicz (2010) argues that intellectual property disputes may involve intellectual property like copyrights, patents and technical innovations that many businesses need to adequately protect. Such disputes may include securing software licenses; negotiation, enforcement and defense of confidentiality and non-compete agreements; and drafting and the negotiation of software development and marketing contracts.
This particular case involving Tonica Car Manufacturing and Systems Inc is an intellectual property dispute concerning royalty claim in the negotiation of software development, non-compete agreements, and marketing contracts (Torrance & Tomlinson, 2011).
In the first instance, the relationship that Tonica has had with System Inc have been cordial, to the extent that a verbal agreement was enough to let Tonica use the software system exclusively. Even with a change the change of management at Tonica, who needed formality in the investment, and given that licenses gives only limited use of the software. System Inc. could not have included the very strict clauses to their new customer, as they have had a brief history of friendly relationship. Systems Inc. had earlier risked Tonica using the software in unfair means like distributing it to other parties, or may be as was not intended.
This is a change of heart from the part of System Inc, to have decided to take the matter to court, which they could have easily settled the way they had started the sale agreement. This is a case where Systems Inc are infringing on the nature of their business relationship. Tonica may decide to withdraw from the agreement, and will not end up the loser. Though, system Inc risks losing a customer.
According to Gomulkiewicz (2010), valuation of technology is often subjective, though it may reflect its historical cost as adjusted by depreciation and the value directly related to its expected profitability. Since technology is an intangible asset, the valuation criteria should establish parameters within the financial arrangement could be negotiated, not including only amounts, but also how the payments are to be made. The income approach is most appropriate in determining the respective shares the parties should each have of the benefits then find a royalty formula, as a rule of the thumb; the 25% rule should be applied. Assuming the income accrued by Tonica will be $6 million annually and then the royalties that System Inc will receive is $1.5 million yearly.
If Tonica loses the case,
- The alternatives available for them may arise from the fact that the agreement was done through a verbal approval (lack of formal contract) and not a legitimate Intellectual Property Licensing. These illustrations show all the components of licensing agreements that were not all taken care of by System Inc.
Figure 1: conceptual framework
- The alternatives available to Tonica are: Auditing Licensing Agreements does not give Tonica all the terms of compliance with the royalty claims for current or future business plans. Royalty or other costs associated with the non-existing license were not communicated to Tonica in advance. Estimated legal duration and period of technological use of the system is very ambiguous and therefore, Tonica has no legal obligation to be tied to these royalty claims. Therefore, they can seek legal redress, acquire the system from another company, or just continue with System Inc.
- They should not continue with System Inc, because of System Inc. Do not seem sincere in their business dealings. In the initial verbal agreement, the clause on the royalties was not part of the costs but later fixed by System Inc.
- The fixed cost contract would be most appropriate to Tonica, considering the cost of the system, future business performance and the ever-changing technological advancements. These royalty payments will continue eating into their profits and add operation cost in their business. Tonica should severe their relationship with System Inc and look for another system supplier who is in cognisant with their business goals and objectives.
If the matter goes to court, Tonica should win the case, System Inc could not safeguard their intellectual property right by entering into a verbal contract. It is the responsibility of organizations to ensure that the software they build and sell is done within a responsible policy framework for the use of their software and protection of their intellectual property. Withdrawal from negotiation is not the same as failure (Gomulkiewicz, 2010).
Gomulkiewicz R, (2010). Enforcement of Open Source Software Licenses: The MDY Trio’s Inconvenient Complications. Yale J. Law & Tech. 106
Torrance, W. &, Tomlinson, (2011). Property Rules, Liability Rules and Patents: One Experimental View of the Cathedral. Yale J. Law & Tech. 138
Jack M. Haynes (1995). Computer Software: Intellectual Property Protection in the United States and Japan. Byline: Issue: VOL. XIII. NO. 2
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