Delaware’s Court of Chancery and Superior Court excel at safeguarding intellectual property
When you need heart surgery, you don’t go to the family doctor — you go to the most experienced surgeon you can find. That’s the best way to describe how Delaware’s court system fits into the national landscape, says Gene Quinn, president and CEO of IPWatchdog. For matters of corporate law, and specifically for cases dealing with intellectual property, the First State is your go-to surgeon.
[caption id="attachment_200415" align="alignright" width="331"] Chip Connolly | Photo c/o Connolly Gallagher[/caption]
In Delaware, he says, “you’re going to a court where they know what they’re doing, they do it all the time, and they get it right.” That advantage goes hand in hand with the state’s long-held reputation for being a good place to do business.
“Delaware just has a very good business climate,” says Quinn, himself a patent attorney and a leading commentator on patent law and innovation policy. “That’s very important for startups — it’s far more important for startups than people realize, I think.”
Intellectual property (IP) generally fits into four categories: patents, trademarks, copyright and trade secrets. Patents fall under federal law and have to be obtained through the U.S. Patent and Trademark Office; once a patent is issued, the owner gets a 20-year monopoly on the property covered by the patent. The downside is that, in order to get the patent, the owner has to divulge a lot of specifics, potentially opening the door to copycats and knockoffs.
Trademarks (for brand names) and copyright (for literary work, music, photographs, drawings, etc.) can be claimed under common law and can also be registered with the federal government. Trade secrets generally apply to the same sort of information as patents — except, rather than share the information publicly, the owner chooses to keep the recipe for the secret sauce, as it were, under wraps.
Trade secrets sometimes end up in court as a result of mergers and acquisitions, says Arthur G. (Chip) Connolly, founding partner of Connolly Gallagher LLP in Wilmington. Connolly’s career has been mainly in corporate, commercial and patent litigation in state and federal courts in Delaware. Often, during a prospective acquisition, the purchasing company will want to see the details of some protected software code at the company being considered for purchase. It sometimes happens that, after having a peek at the code, the purchasing company pulls out of the deal and tries to come out with a similar product. Or, it may happen that an employee at a tech firm strikes out on her own, and the company she left wants to make sure she doesn’t divulge or deploy its trade secrets.
That is where the Delaware Court of Chancery comes in. Companies or individuals seeking to protect intellectual property can get an expedited injunction there —basically a restraining order against use of the trade secret — that lasts 14 days; then, the court can (and often does) issue a preliminary injunction, essentially an extension of the original restraining order, to protect the trade secret through trial.
“You can move very quickly, and get very prompt relief,” Connolly says.‘We have the best trial courts in the country’
While the Chancery Court can provide injunctive relief, Delaware’s Superior Court is the venue for jury trials on IP issues. It, too, has a strong reputation for protecting innovators. “We’re really lucky in Delaware, in that we have the best trial courts in the country,” Connolly notes.
Quinn points out that cases tried and decided in Delaware courts tend to hold up well to scrutiny. “The district court in Delaware is very, very sophisticated,” he explains. “If you have a litigation in Delaware, and then that were to get appealed, nine times out of 10, those judges are not reversed — and that’s extraordinary because the federal circuit reverses everybody. The judges in Delaware — and this is well recognized and well understood — are a different breed, and it’s probably because they almost have to be. They see so many corporate matters with complex litigation that they have a lot of processes in place; they know what they’re doing. It’s not to say that other judges don’t know what they’re doing, but when you have a plethora of other kinds of cases [such as drug cases and criminal cases], you don’t necessarily get really good at complex civil litigation.”
It’s that experience, and the legal framework that supports it, that sets Delaware apart as a good place to start and grow a business. “If you have the opportunity to choose where to locate, and you can locate in a jurisdiction that has favorable business rules, it’s really a no-brainer,” says Quinn. “The benefits of being incorporated in Delaware are hard to match.”
By Matt Ward