Wednesday, 12 May 2010

T 384/08 – A Frozen Business

Yesterday we have seen how the transfer of opponent status relates to the question of reformatio in peius. The substantive questions related to the transfer under consideration are also of interest, as we will see today.

[11] According to the established case law (see G 2/04), an opponent status is not freely transferable. It does however move to the successor in title in case of universal succession such as a takeover or merger of legal persons. Furthermore, it may be transferred or assigned to a third party as part of the opponent’s business assets, together with the assets in the interests of which the opposition was filed (see G 4/88). In this context, the term “business” has to be understood in a broad sense as describing an economic activity which is or could be carried on by the opponent and which constitutes a specific part of his business assets (G 4/88 [5]).

[12] When the original opponent Protogene filed its opposition in October 1999, it was conducting scientific research and development in the field of micro-arrays. The company had been founded in 1996 by Dr Brennan and Dr Molinari. Dr Brennan was its chief scientist until August 2000, a member of the board of directors and its major shareholder. […] Dr Molinari was Protogene’s Chief Executive Officer from 1996 to 1999 and vice president from 1999 to April 2000. He was appointed to the board of directors in April 2001 […].

[13] During the first few years of its existence, Protogene funded itself by forming R&D partnerships with other companies interested in utilizing or co-developing Protogene’s technology. Protogene did not manufacture and sell its own micro-arrays. However its R&D efforts resulted in several granted patents and pending patent applications […].

[14] The appellant has argued that at the time when Protogene filed its opposition there was no appropriate economic activity upon which a relevant legal interest could have been based. If, however, such an economic activity existed at all, it could only have been the envisaged chip development collaboration with the corporation Incyte Pharmaceuticals, in the context of which Protogene was encouraged to file the opposition.

[15] The board does not find these arguments persuasive. Since the subject-matter of the opposed patent concerns high-density arrays of nucleotide or amino acid sequences, the patent fell squarely within Protogene’s core activity of scientific research and development in the field of micro-arrays. The opposition was directly connected to this economic activity which, in accordance with the decision G 4/88, qualifies as the “business” in the interest of which the opposition was filed. As the term “business” has to be understood in a broad sense, it also encompasses the economic activities of a biotechnological R&D firm in a development stage. Thus there is no basis for the proposition that Protogene’s opposition was not linked to any business at all or that it was exclusively linked to one specific joint collaboration project.

[16] After Protogene had filed its opposition, its business situation worsened. Dr Brennan left the company in late 2000, but he remained a majority shareholder and developed a plan to start a new company that would continue Protogene’s work on a smaller scale […]. Protogene lost money at an increasing rate until the company was running on bridge loans from its investors in early 2001. In April 2001, the board of directors ordered the company to lay off approximately 60% of its employees […].

[17] During the summer of 2001, Dr Brennan, on behalf of a newly formed company Creogen, began negotiating with Protogene’s board of directors to purchase all of the equipment and technology necessary to enable Creogen to continue Protogene’s custom oligonucleotide arrays and array PCR business […]. In September 2001 the board of directors voted to restructure the company which involved winding down the day to day operations and selling off certain physical assets, in order to make the company a more attractive takeover or merger candidate. On 1 November 2001 an auction took place where most of the equipment was sold to over one hundred different parties […]. However, in accordance with an understanding reached before the auction took place, laboratory equipment necessary for the microassay R&D business was set aside in view of its future sale to Creogen […].

[18] The board considers that while the auction led to the transfer of many tangible assets owned by Protogene and generated a considerable amount of money, it did not involve a transfer of business. It is noted in particular that the physical assets were sold to many different persons and that the auction did not concern intangible assets such as Protogene’s patent portfolio. Thus none of the buyers at the auction acquired Protogene’s micro-array business or a specific part of it.

[19] Creogen was reincorporated as Metrigen in July 2002 […]. On 20 December 2002 an Asset Purchase Agreement (hereafter: “the Agreement”) was concluded between Protogene as the seller and Metrigen as the buyer and became effective on 21 December 2002 […]. In the introductory part of the Agreement it is stated that the seller is engaged in the business of DNA micro-arrays, methods to perform highly parallel experiments on micro-arrays, single nucleotide polymorphism genotyping, and other drug discovery products and services and that the buyer desires to purchase from the seller certain assets of the business.

[20] […] The purchased assets inter alia include
  • all tangible personal property listed on a schedule 2.1(a),
  • all IP listed or described on a schedule 2.1(b) together with 
    • (i) all of the seller’s IP rights associated therewith, 
    • (ii) goodwill associated therewith, 
    • (iii) licenses and sublicenses granted and obtained with respect thereto, 
    • (iv) rights thereunder, 
    • (v) remedies against infringements thereof, and 
    • (vi) rights to protection of interests therein under the applicable laws of all jurisdictions,
  • all causes of action, lawsuits, judgments, claims and demands of any nature available to or being pursued by the seller with respect to the seller’s personal property, seller’s IP, or contracts, including the seller’s EPO opposition against the [opposed] patent, it being acknowledged that the opposition constitutes an inseparable part of the seller’s IP and the assets.
[21] Schedule 2.1(a) lists the laboratory equipment which was set aside during the auction in November 2001 […]

[22] IP rights are defined in Article 1 of the Agreement as including, inter alia, all trade secrets and other rights in know-how and confidential or proprietary information. Schedule 2.1(b) contains a list of 40 patent applications and patents related to the results of Protogene’s research and development.

[23] […] Certain assets are excluded from the Agreement, in particular contractual employment arrangements as well as cash, cash equivalents, marketable securities and accounts or notes receivable of the seller.

[24] While the Agreement explicitly refers to Protogene’s opposition against the European patent in suit as “an inseparable part of the Seller Intellectual Property and the Assets”, this as such is not sufficient for a transfer of opponent status since according to the established case law oppositions are not freely transferable (see point 11 above). Rather, in accordance with decision G 4/88, it has to be ascertained whether, by means of the Agreement, those business assets of Protogene in the interests of which the opposition was filed were transferred to Metrigen.

[25] The appellant takes the view that, at the time of the conclusion of the Agreement, Protogene had no business activities any more. All the business terminated in autumn 2001 so that by the end of 2002 Protogene had neither customers nor employees. The appellant in particular relies on a declaration […] which reads as follows: “Protogene had ceased on-going commercial efforts and was no longer selling product, remaining management attention being completely focused from then on at providing liquidity to investors by selling business assets as part of the shut down.”

[26] With respect to Protogene’s patent portfolio, the appellant argues that the holding of IP rights should not be equated with a business as an economic activity since patents are only negative rights and do not give a positive right to use the claimed invention. Furthermore, since all the employees had already left the firm, trade secrets which have to be regarded as a key component of any business and as being of significant importance for R&D businesses could not be transferred any more.

[27] The board does not agree with this line of argument. Even a firm which has closed its day-to-day operations and is going to be dissolved in view of financial difficulties has a business as long as there are business assets which allow the carrying out of a business activity connected with them. While in such circumstances one may possibly speak of a business “in a frozen state” or a “residual” business, there is nevertheless still a business (see decision G 4/88 [5]: “an economic activity which is or could be carried on” [emphasis added by the board]).

[28] In the present case, when the Agreement was concluded, Protogene still owned valuable tangible and intangible property relating to its business as defined in the introductory part of the Agreement. Furthermore, the plan of the company’s majority shareholder Dr Brennan was to continue Protogene’s work on a smaller scale within a new company […]. In accordance with this plan, certain laboratory equipment was set aside in the auction of November 2001 with the purpose of being later transferred to the new company (see point 17 above). Therefore the board concludes that Protogene still had a business that could be transferred when the Agreement was concluded.

[29] The next issue to be decided is whether the opposition division (OD) was correct in holding that the Agreement had the effect of only transferring certain items of property and did not result in the transfer of Protogene’s business or a specific part of it.

[30] The board accepts that according to the case law of the boards of appeal there may well be situations in which a transfer of industrial property rights is not sufficient for accepting the claimed transfer of opponent status, in particular where the relevant business activity is continued by a person different from the assignee of the industrial property rights (see T 659/92 [3.2]). On the other hand, the mere fact that certain assets are explicitly excluded in an assignment contract is as such not sufficient for concluding that the contract did not result in the transfer of a business or a specific part of it (see T 799/97 [2.4]).

[31] In the present case, the board is convinced that, following the plan conceived by Protogene’s majority shareholder and former chief scientist Dr Brennan, the Agreement was executed for the purpose of transferring to Metrigen all the business assets considered to be relevant for continuing Protogene’s core business, i.e. research and development in the field of microarrays. It is noted in particular that the Agreement related to the selling company’s patent portfolio and to essential laboratory equipment. […]

[32] It is true that, as correctly stated by the OD and the [patent proprietor], the Agreement did not encompass all of Protogene’s assets without exception. However, these exceptions concern assets which, as persuasively explained by [the opponent], were of no importance for continuing the micro-array business. For example, it is perfectly understandable that Metrigen did not see any need to acquire Protogene’s remaining trademarks which could be regarded as valueless since no commercial sales had been generated or even as having negative connotations in the marketplace in view of Protogene’s lack of success […]. The [patent proprietor] was unable to point to any asset remaining with Protogene which could be reasonably considered as relevant, let alone as essential, for continuing the micro-array business.

[33] When taking into account the intentions of Protogene’s majority shareholder and of Metrigen’s CEO […], the provisions of the Agreement and Protogene’s economic situation in December 2002, there is nothing to suggest that Protogene intended to retain and revitalize its microarray business or any part of it after the conclusion of the Agreement. What remained of Protogene afterwards was an empty shell.

[34] The board therefore comes to the conclusion that the business assets in the interest of which the original opponent 02 Protogene filed its opposition were validly transferred to Metrigen. This has the consequence that, following Metrigen’s corresponding request and its submission of appropriate evidence in the course of the proceedings before the OD, the opponent status has validly been transferred from Protogene to Metrigen. Thus Metrigen is the correct respondent I in the present appeal proceedings.

To read the whole decision, click here.


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Anonymous said...

what is a frozen business?please i need your answer.thanks

Oliver G. Randl said...

Well, the answer is in the decision: what is meant is "a firm which has closed its day-to-day operations and is going to be dissolved in view of financial difficulties [but which still has] business assets which allow the carrying out of a business activity connected with them." Such a business is paralysed but not dead, so to say.