Patent Litigation Step-In Rights
Development of a new product can be expensive and time consuming, requiring the developer to seek outside funding from a donor. What happens to the donor when the developer fails to repay the loan?
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Step-In Rights
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If the developer cannot pay back an initial loan from the primary lender, the primary lender can exercise step-in rights. The primary lender will then receive control or ownership of the product.
The Patent Itself
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While the primary lender may receive control over the marketing and development of the product, step-in rights do not necessarily grant the primary lender control over the patent itself. The original developer retains the patent; however, the primary lender's further development of the product does not violate intellectual property laws because the developer has defaulted on the original loan.
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Patent Transfer
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After stepping in and taking control of the product, the primary lender can petition for full control over the patent itself after seven years. If full control is granted, the primary lender must lessen or forgive the original debt incurred by the developer.
And the Developer?
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If the developer pays back the original loan in full, interest and penalties included, within seven years of the lender's initial assumption of product development, the developer will once again have full control over both the patent and the product.
Similar Cases
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Step-in rights in patent law are similar to those in the real estate business in which the main backer of a construction project assumes control of the project if the developer fails to repay the loan or finish the project. The main backer of the project can then complete and sell the property for repayment.
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