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(Message started by: lemonbar on Oct 3rd, 2007, 9:49pm)

Title: Does an LLC protect against Patent Infringement?
Post by lemonbar on Oct 3rd, 2007, 9:49pm
Does an LLC protect against Patent Infringement or can they break through it and get to the induvidual possessions of a 1 person LLC?

Title: Re: Does an LLC protect against Patent Infringemen
Post by patent_type on Oct 4th, 2007, 6:52am
Depends on the state law, but LLCs are generally set up to protect the personal property of the principals.  That corporate veil, however, can be pierced.  Too many fact variation possibilities to get a good answer from a fake interent lawyer--at least from this fake internet lawyer.

Title: Re: Does an LLC protect against Patent Infringemen
Post by Isaac on Oct 4th, 2007, 8:52am
In many jurisdictions, the liablity shield is relatively weak when it comes to protection from tort liability resulting from a business owner's own actions.   In particular, I would generally expect the corporate veil to be pierced in the case where the infringement were found to be willful.



Title: Re: Does an LLC protect against Patent Infringemen
Post by lemonbar on Oct 4th, 2007, 11:10am
Lets say the case is a 1 person LLC and for worst case scenario that person created a product after another persons product that is US patent pending but the product ended up infringing on their patent ideas.

Not sure to what that person would have to do in this case to be willful so I ask this:

If the person that created the new product stopped as soon as they received a "infringment" letter OR the other products patent was finally granted then is that considered infringement.

Can you give examples of willful infringement that would force them to peirce the veil of the LLC?

(joke: which by the way said person will never concede too)

Title: Re: Does an LLC protect against Patent Infringemen
Post by JSonnabend on Oct 4th, 2007, 11:27am
I don't agree with Isaac or the other poster.  Generally, if you follow business entity formalities, the LLC will be difficult to pierce.  This holds true for torts as well as other causes of action.  (If it didn't hold true for torts, the corporate shield would be pretty worthless, no?)

- Jeff

Title: Re: Does an LLC protect against Patent Infringemen
Post by Isaac on Oct 4th, 2007, 4:18pm

on 10/04/07 at 11:27:59, JSonnabend wrote:
I don't agree with Isaac or the other poster.  Generally, if you follow business entity formalities, the LLC will be difficult to pierce.  This holds true for torts as well as other causes of action.  (If it didn't hold true for torts, the corporate shield would be pretty worthless, no?)

- Jeff


We've disagreed on this before as I recall.  

Let me first admit that the law  concerning business entities isn't something I deal with in my practice, and that most of what I remember on the subject is book knowledge from law school.

That said, under my interpretation, the corporate shield would still useful because it would allows shielding a member or partner from liability other than his own personal torts (such as from fellow members or employees) and from liability from debts of the LLC (i.e. contracturally incurred liability).  However non of the vicarious tort stuff is going to be applicable in a one member LLC with no employees.

Here's a link to discussion of an example case discussing the matter of liability for one's own torts in an LLC setting.  

http://lawprofessors.typepad.com/unincorporated_business/2006/10/court_applies_c.html

In particular I point to this paragraph of the discussion:

"The court found that this provision barred any contractual liability. As for whether the Beans could be personally liable on the tort claims, however, the court observed that “[i]n the context of general corporate law,” agents and officers of a corporation are liable for torts that they personally commit, even when acting on behalf of the corporation and even if the corporation is also liable. The court went on to conclude “this well-accepted principle of law regarding individual tort liability and business entities should apply in relationship to the ‘unless otherwise provided by law’ exception of MCL 450.4501(3)"

I stand by my statement that in at least some jurisdictions, the liability shield isn't much help against your own torts.


Title: Re: Does an LLC protect against Patent Infringemen
Post by lemonbar on Oct 4th, 2007, 6:50pm
I'm obviously not an attorney because of all the help everyone is providing for me here (thanks by the way)...

But, I will say that 4 of the 6 of the books I'm reading on LLC's do say if you get a second person or more into the LLC you will have greater protection from your own personal assets.

They also say nothing is 100%, except your attorneys bill :D

Title: Re: Does an LLC protect against Patent Infringemen
Post by JSonnabend on Oct 9th, 2007, 7:46am
Isaac, you're misreading the cited language.  Of course you're always liable for your own personal torts.  If I hit you with my car, even if it's leased through the LLC, I'm still liable.  That doesn't mean if the LLC infringes somehow I'm personally liable, even as a sole member LLC.  The LLC's infringement is not my "personal tort," it's the LLC's tort.

- Jeff

Title: Re: Does an LLC protect against Patent Infringemen
Post by Isaac on Oct 9th, 2007, 10:00am

on 10/09/07 at 07:46:59, JSonnabend wrote:
Isaac, you're misreading the cited language.  Of course you're always liable for your own personal torts.  If I hit you with my car, even if it's leased through the LLC, I'm still liable.  That doesn't mean if the LLC infringes somehow I'm personally liable, even as a sole member LLC.  The LLC's infringement is not my "personal tort," it's the LLC's tort.

- Jeff


The case I referenced wasn't about a LLC owner getting into a car accident, but about misrepresentations made by the LLC owners in the course of business (that is on behalf of the LLC)

If you own one person LLC, the difference between your torts and the LLCs torts can be quite ephemeral.  If you are driving a delivery truck in the course of business, and hit someone, is that an LLC tort or your own tort?


Title: Re: Does an LLC protect against Patent Infringemen
Post by lemonbar on Oct 9th, 2007, 10:41am
I was asking mostly about a 1 person LLC protecting aginst patent infringment cases.

Title: Re: Does an LLC protect against Patent Infringemen
Post by JSonnabend on Oct 10th, 2007, 7:36am
No, Isaac, it's not nearly as "ephemeral" as you're making it out to be.  Even in multi-owner corporations the individual acts of a director can lead to personal liability.  Fraudulent statements uttered by such a person clearly can fall within the "acts of the individual".

By contrast, when an LLC is in the business of selling a product that later is found to infringe, that's not the act of the individual, it's the act of the LLC.  

By your argument, the individual signing the contract on behalf of the LLC would be on the hook personally as well, as he would be for anything the LLC did, since an LLC is not a natural person capable of actually "doing" anything.

- Jeff

Title: Re: Does an LLC protect against Patent Infringemen
Post by Isaac on Oct 10th, 2007, 8:43am

on 10/10/07 at 07:36:18, JSonnabend wrote:
No, Isaac, it's not nearly as "ephemeral" as you're making it out to be.  Even in multi-owner corporations the individual acts of a director can lead to personal liability.  Fraudulent statements uttered by such a person clearly can fall within the "acts of the individual".


I agree with you here.   I just think the hypo presented here at least hints at a possibility of infringing acts attributable to the owner.

In the case of an LLC simply selling a product found to be infringing, I would agree that the facts would suggest against personal liability, but in a one person LLC where the owner designed, manufactured the product himself, or even closely directed the design my a contractor,  the infringing acts could be attributable to the owner, particularly if the infringement is found to be willful.  

In a willful infringement scenario what would be the argument that the infringement wasn't a personal tort?


Quote:
By contrast, when an LLC is in the business of selling a product that later is found to infringe, that's not the act of the individual, it's the act of the LLC.


I agree.


Quote:
By your argument, the individual signing the contract on behalf of the LLC would be on the hook personally as well, as he would be for anything the LLC did


That doesn't follow.  I did point out that liability in contract was treated differently than tort liability.


Title: Re: Does an LLC protect against Patent Infringemen
Post by TataBoxInhibitor on Oct 10th, 2007, 12:25pm

on 10/03/07 at 21:49:07, lemonbar wrote:
Does an LLC protect against Patent Infringement or can they break through it and get to the induvidual possessions of a 1 person LLC?



I have to admit I did not read the later posts, but the corporate veil is pierced in extreme circumstances, i.e. "deep rock," undercap, fraud/misrep in forming the company done by the member(s), making them personally liable.

However, infringement, while also a tort is a tort on behalf of the formed company, making the company liable, not the person.  Just my view, not advice.

Regards,




Title: Re: Does an LLC protect against Patent Infringemen
Post by Isaac on Oct 10th, 2007, 3:29pm

on 10/10/07 at 12:25:58, TataBoxInhibitor wrote:
However, infringement, while also a tort is a tort on behalf of the formed company, making the company liable, not the person.  Just my view, not advice.

Regards,


I did some google searching to see what others had written on the subject.   While I wouldn't rely on what I found as legal advice, or even to support an argument with Jeff :), it isn't too hard to find discussion of patent infringement cases holding individuals liable without piercing the veil.    There's also some discussion in Chisum to that effect that mostly cites older appellate court decisionss.

The most recent CAFC case I saw discussed was a 2004 case that seems to suggest that the piercing the veil standard is to be applied, which would suggest that it isn't all that easy to hold the owner liable in a garden variety infringement case.


Title: Re: Does an LLC protect against Patent Infringemen
Post by lemonbar on Oct 11th, 2007, 12:50am
It seems that it is safer to form an LLC just in case it helps protect me in general for my product causing harm to a consumer and also it might protect me from infringement actions. Maybe, maybe not.

What would examples of willing infringement and unwilling infringement?

In my situation I believe I have found prior art - same  simple thing used the same way for the same purpose and documented and sold years prior.

Also, I do not see any patent application or any other document for that matter in the US and its has been longer then 30 months after filing the WIPO PCT.

Also, their product states patent pending US. (might be fraud if they never applied for it on time)

Also, they do not have a patent granted yet in any state.

Also, the Internation Searching Authority gave the opinion that as it was written it is not Novel or Inventive. They did however find it to be Industrial. (The PCT has 3 conditions needed for all claims in the patent.)

Lastly, if they ever did get a patent and asked me to stop I would verify the patent and show the prior art to an attorney and let him judge it. After that I would stop selling all together without a problem.

Does this hint at anything at all that could be considered 'willing' infringment?

I'm in the process of finding a PCT attorney and already used a patent attorney not well versed in PCT. Said I needed to get a PCT attorney to determine what status is of their patent app since it would take him a lot more hours to figure that stuff out.

Thanks

Title: Re: Does an LLC protect against Patent Infringemen
Post by TataBoxInhibitor on Oct 12th, 2007, 8:28am

on 10/10/07 at 15:29:40, Isaac wrote:
I did some google searching to see what others had written on the subject.   While I wouldn't rely on what I found as legal advice, or even to support an argument with Jeff :), it isn't too hard to find discussion of patent infringement cases holding individuals liable without piercing the veil.    There's also some discussion in Chisum to that effect that mostly cites older appellate court decisionss.

The most recent CAFC case I saw discussed was a 2004 case that seems to suggest that the piercing the veil standard is to be applied, which would suggest that it isn't all that easy to hold the owner liable in a garden variety infringement case.



Would you mind submitting the cite or link to that case?  It would be an interesting read.

Regards,





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