chapter 8 – intellectual property and unfair competition

Crimes

Intentional Torts

Negligence and Strict Liability

Intellectual Property and Unfair Competition

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Intellectual Property and Unfair Competition

I dream for a living.

Steven Spielberg

quoted in Time magazine

July 1985

© 2010 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives

v Infringement of intellectual property rights

v Misappropriation of trade secretsv Unfair competition - intentional tortsv Unfair competition – the Lanham Act

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v PATENT:w Engine design,

business methods

v TRADEMARKw Logo, trade

namev COPYRIGHT

w Sales materials, artwork

Types of Intellectual Property

Marketing materials for Case Construction Equipment

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v Grant from federal government to an inventor in which inventor obtains exclusive right to make, use, and sell his invention for a period of 20 years (14 years for designs)

v U.S. Patent Act requires registrationw http://www.uspto.gov/

Patent

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v A patent will not be issued if more than one year before patent application the invention was patented elsewhere, described in a printed publication, or in public use or on sale in the United Statesw Example: Pfaff v. Wells Electronics, Inc.

w Inventor sold patented item on April 8, 1981w Inventor applied for patent on April 19, 1982wMore than one year passed, the patent was invalid

Patent

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v Protection for: a process, a machine, a product or manufacture, a composition of matter (such as a new chemical compound), an improvement of any of the above, an ornamental design for a product, a plant produced by asexual reproduction, certain business methods

v Even though an invention fits one of the categories, it is not patentable if it lacks novelty, is obvious, or has no utility

Patent

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KSR International Co. v. Teleflex, Inc.

v Teleflex sued KSR claiming one of KSR’s products infringed on a Teleflex patent

v Issue was whether disputed patent claim was obviousv Supreme Court said obviousness determined by:

wScope and content of the prior art; w Level of ordinary skill in the art; wDifferences between claimed invention and prior art; wObjective evidence of nonobviousness (commercial

success, long-felt but unsolved needs, and failure of others)

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v Intangible right granted by statute to the author or creator of certain tangible literary or artistic productionsw Can’t copyright an “idea”

v Applicable law: Copyright Protection Act and the Copyright Term Extension Act

v http://www.copyright.gov/

Copyright

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v Protection automatic; registration not required, though recommended

v Works created after 1/78 are given protection for life of author + 70 years

v Protection for a work-for-hire (corporation owns copyright) is 95 years from first publication or 120 years from creation, which ever comes first

Copyright

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Work-for-Hire

v A work-for-hire exists when w (1) an employee, in the course of her regular

employment duties, creates a copyrightable work; or

w (2) an individual or corporation and an independent contractor (i.e., nonemployee) enter into a written “hire” agreement under which the non-employee creates a copyrightable work for the individual or corporation

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v Facts & Procedural History: w Defendants Grokster and StreamCast

Networks, Inc. distributed free software that allowed computer users to share electronic files through peer-to-peer networks

w Many copyright owners (collectively referred to as MGM) filed separate lawsuits against defendants and the cases were consolidated

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Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.

v Facts & Procedural History: w MGM sought damages and injunction alleging

defendants knowingly and intentionally distributed software to enable users to reproduce and distribute copyrighted works in violation of the Copyright Act

v Issue: w Under what circumstances is distributor of a

product capable of both lawful and unlawful use liable for acts of copyright infringement by third parties using the product?

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Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.

v Legal Reasoning: w One infringes contributorily by intentionally

inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it

w Substantial evidence shows defendants acted with a purpose to cause copyright violations by use of software suitable for illegal use

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Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.

v Holding: w One who distributes a

device with the object of promoting its use to infringe copyright, as shown by affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties

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v Distinctive mark, motto, device, or emblem that a manufacturer or service provider stamps, prints, or affixes to products it produces or services it performs to distinguish products or services from those of competitors

v Applicable law: Lanham Actv Registration with state or fed. government

recommended, but not required

Trademark

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Trademark

v “Trademark” applicable to: w Trade name (e.g., McDonald’s, Nike)w Trade image (e.g., Ronald McDonald)w Trade logo (golden arches, swoosh)w Trade dress (orange & red of McDonald’s)

v Trademark dilution is the diminishment of the capacity of plaintiff's marks to identify and distinguish plaintiff's goods or services

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E-Commerce Infringement

v Trademark dilution on the internet is prohibited by the Anticybersquatting Consumer Protection Act

v Creates civil cause of action against a person who, with bad faith intent to profit from a trademark, registers, traffics in, or uses a domain name identical or “confusing similar” to distinctive mark w Example: Volkswagen sued Virtual World for

their registration of VW.com and won

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Infringement

v Violation of intellectual property right: when someone uses, makes, or sells another’s trademarked, patented, or copyrighted intellectual property without owner’s permission, license, franchise

v Penalties -- actual or statutory damages in civil proceedings or criminal penalties for willful violations

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Proof of Infringement

v Generally, infringement requires proof that: w (1) defendant had access to protected work;w (2) defendant engaged in enough copying

(deliberately or subconsciously) that resemblance between allegedly infringing work and protected work could not be coincidental; and

w (3) substantial similarity exists between the works

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The “Fair Use” Defense

v For copyright and trademark infringement, a fair use defense or exception exists when the copyrighted work or trademark is used without the property holder’s permission

w “For purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research” Section 107 of the Copyright Act

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The “Fair Use” Defense

v A court weighs factors in a fair use determination: w (1) purpose and character of the use, w (2) nature of the copyrighted work, w (3) amount and substantiality of portion used

in relation to copyrighted work as a whole,w (4) effect of use on the potential markets for

the copyrighted work or on its value

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Exceptions/Defenses

v Fair use may include parody

w In Campbell v. Acuff-Rose Music, Inc., Supreme Court held that 2 Live Crew’s version of Roy Orbison’s “Pretty Woman” was a parody and could be a fair use if use not excessive and did not harm market for the originalwCase remanded to determine whether use

was excessive or harmed the market, but parties eventually settled

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Louis Vuitton Malletier, SA v. Haute Diggity Dog, LLC

v Procedural History & Facts: wLouis Vuitton Malletier ("LVM"), the well-

known maker of luxury goods, sued a Las Vegas company for infringement of its marks and design copyright

wDefendant Haute Diggity Dog ("HDD"), manufactures and sells chewable dog toys intended to mimic and parody famous luxury products

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v Procedural History:w Defendant moved for

summary judgment to dismiss and the trial court granted the motion

v Issue on Appeal: w Did defendant’s use of

LVM’s intellectual property infringe on or dilute LVM’s rights?

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Louis Vuitton Malletier, SA v. Haute Diggity Dog, LLC

v Legal Reasoning and Holding:w LVM established a prima facie case of infringementw Copyright Act and Lanham Act recognize certain

statutory exceptions to protectionsw “Purpose and character of use” factor in fair use

inquiry asks what extent new work is transformative and does not supplant originalw Parodic works comment and criticize, thus often sufficiently

transformative to fit under fair use exception

w Clear parody and dilution claim fails since successful parody might strengthen a mark’s distinctiveness

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Louis Vuitton Malletier, SA v. Haute Diggity Dog, LLC

v International intellectual property law is governed by multilateral agreementsw Paris Conventionw Madrid Agreement Concerning the International

Registration of Trademarksw Madrid Protocolw World Trade Organization’s Agreement on Trade-

Related Aspects of Intellectual Property Rights

v World Intellectual Property Org. resolves international intellectual property disputes

International Law

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Test Your Knowledge

v True=A, False = Bw You may copyright an idea w Copyright protection requires registration with

the U.S. Copyright Officew The U.S. Patent Act requires registration of a

patent to obtain protection for the intellectual property

w The Lanham Act protects trademarks

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Test Your Knowledge

v True=A, False = Bw Trademark dilution refers to the overuse of a

trademark on products or servicesw An employee who creates a new software

program has made a work-for-hire w The fair use defense is an absolute defense

to an infringement claim

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Test Your Knowledge

v Multiple ChoicewA trademark refers to:

(a) trade name

(b) trade image

(c) trade logo

(d) trade dress

(e) all of the above

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Test Your Knowledge

v Multiple ChoicewTrademark dilution on the internet is

prohibited by: (a) Anticybersquatting Consumer Protection Act

(b) Patent & Trademark Act

(c) Berne Convention

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v Trade secret: any secret formula, pattern, process, program, device, method, technique, or database used in the owner’s business that offers competitive advantage

v A firm must take reasonable measures to maintain secrecy

Trade Secrets

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v Misappropriation of a trade secret occurs when a person discloses or uses after acquiring the secret:w By improper means (theft, trespass, etc.)w Through another party who is known or

should have been known to have obtained the secret by improper means,

w By breaching a duty of confidentiality

Misappropriation

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v Facts:w North Atlantic produced electronic equipmentw Firm acquired TMI in which Haber was a 1/3

owner and presidentw Acquisition of TMI conditioned on Haber’s

continued employment since Haber’s client contacts were a valuable intangible asset

w Haber’s employment contract with a confidentiality clause ended in 1997, when he joined Apex, a firm with a similar target market

North Atlantic Instr. v. Haber

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v Appellate Court Reasoning and Ruling:w North Atlantic sued Haber and Apex for

misappropriation of trade secrets w Based on a magistrate’s findings, trial court

enjoined Haber and Apex from using client contacts; Haber and Apex appealed

w Appellate court agreed with magistrate’s findings that identity of North Atlantic’s client contacts was a protectable trade secret and that Haber had breached his duty of confidentiality

w District court’s injunction affirmed8 - 35

North Atlantic Instr. v. Haber

v Commercial torts are intentional torts that involve business or commercial competition

v Injurious falsehood (product disparagement) involves publishing false statements that disparage another’s business, property, or title to property, harming economic interestsw Example: Jefferson County School District v.

Moody’s Investor’s Services, Inc.

Commercial Torts

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v Intentional interference with contractual relations occurs when one party to a contract claims that the defendant’s interference with the other party’s performance of the contract wrongly caused the plaintiff to lose the benefit of that performance

Commercial Torts

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v Intentional interference with prospective advantage parallels elements for interference with contractual relations, but prospective relations are focus (not existing contracts)

v Section 43(a) of the Lanham Act creates civil liability for unfair competition, including misleading, confusing, or deceptive representations made in connection with goods or services

Commercial Torts

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v Lanham Act tort in which multichannel video service companies battled over whether defendant had engaged in false advertising on television and the internet

v Issue was whether statements were sales puffery or literally false statements

v Television statements by TWC’s competitor were literally false (not mere sales puffery)

v TWC demonstrated irreparable harm, thus preliminary injunction affirmed

Time Warner Cable, Inc. v. DIRECTV, Inc.

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Thought Questions

v Music is intellectual property. What do you think about people who download music illegally? Have they committed theft?

v Does the MGM v. Grokster decision make good law?

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