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Chapter 6

Intellectual Property RightsINTRODUCTION

Laws protecting patents, trademarks, and copyrights are designed to protect and reward inventive and artistic creativity. These laws limit the economic freedom of some individuals, but they protect the freedom of others to enjoy the fruits of their labors—in the form of profits.

The study of intellectual property law is important because intellectual property is of increasing importance in the United States and internationally. Television shows, movies, and software are forms of intellectual property. The protection of intellectual property relating to computers posed difficulties for the courts because the legislators who drafted patent, trademark, and copyright laws did not envision computers. Previous laws have had to be amended, or new laws created, to serve the needs of a computer generation.

CHAPTER OUTLINE

I. Trademarks and Related PropertyA trademark is a distinctive word, symbol, sound, or design that identifies the manufacturer as the source of particular goods and distinguishes it products from those made or sold by others.

CASE SYNOPSIS—

Case 6.1: Coca-Cola Co. v. Koke Co. of America

The Coca-Cola Co. sought to enjoin The Koke Co. of America and other beverage companies from, among other things, using the word Koke for their products. Koke contended that the Coca-Cola trademark was a fraudulent representation and that Coca-Cola was thus not entitled to an injunction. Koke alleged that Coca-Cola, by its use of the Coca-Cola name, represented that the beverage contained cocaine (from coca leaves). The court granted the injunction against Koke, but an appellate court reversed. Coca-Cola appealed to the United States Supreme Court.

The United States Supreme Court upheld the trial court’s decision. The Supreme Court acknowledged that before 1900 Coca-Cola’s good will was enhanced by the presence of a small amount of cocaine, but that the cocaine had long been eliminated from the drink. The Court underscored that Coca-Cola was not “a medicine” and that its attraction did not lay in producing “a toxic effect.” Since 1900 sales had increased. The name had come to characterize a well known beverage to be had almost anywhere “rather than a compound

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2 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS

of particular substances.” The Court noted that before this suit was brought Coca-Cola had advertised that the public would not find cocaine in Coca-Cola. “[I]t would be going too far to deny the plaintiff relief against a pal -pable fraud because possibly here and there an ignorant person might call for the drink with the hope for incipient cocaine intoxication.”

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Notes and Questions

Until 1903, the amount of active cocaine in each bottle of Coke was equivalent to one “line” of co caine, and, “many years before this suit was brought,” as the Supreme Court put it, Coca-Cola was advertised as an “ideal nerve tonic and stimulant.” In the first part of this century, the word Dope was understood to mean Coke. If a customer asked for a “Dope,” he or she was given a Coke. Koke at tempted to associate the word with its product, and Coca-Cola also sought to stop this, arguing that people would be confused if they ordered a Dope, expecting a Coke, and got something else. The Supreme Court refused relief, concluding that Dope was not a sufficiently descriptive term. The court found that the word had no clear connection to Coke.

The name “Coke” was not registered as a trademark until 1945.

What, if any, harm could the Coca-Cola Company have suffered as a result of the Koke Company’s use of the Name “Koke” to market its products? The use of the name “Koke” may have created confusion in the mind of customers who could not distinguish “Koke” from “Coca-Cola.” Such confusion could result in lost sales for Coca-Cola. Confusion could also damage the reputation and goodwill associated with the Coca-Cola Company.

Suppose that the trial court had found that 25 percent of all adult Coca-Cola drinkers believed that Coca-Cola contained cocaine, despite the fact that cocaine was not listed among the soft drink’s ingredients. In that situation, should the court deny Coca-Cola’s request for an injunction against Koke? Probably not. Proving that many customers have a mistaken belief regarding a product is not the same as proving that the seller has fraudulently misrepresented the product.

Should the principles applied in this case to the confusingly similar product of a domestic manufacturer also apply to the goods of foreign producers? Why or why not? Yes, particularly if they are sold in the United States, where those principles apply under the law, and especially now, when products are easily imported, often at lower prices than similar goods can be obtained domestically, the same rules should be applied to all goods to insure a “level playing field” in the marketplace. No, different rules should apply to products made in different places, particularly if they are not sold in the United States or in any other locale in which those principles might apply, and with due consideration to the cultural and economic characteristics of those locales.

ADDITIONAL CASES ADDRESSING THIS ISSUE —

Consumer ConfusionRecent cases involving a sufficient likelihood of confusion to support an injunction against a non-

owner’s use or alteration of a trademark include the following.


CHAPTER 6: INTELLECTUAL PROPERTY RIGHTS 3

• Zino Davidoff SA v. CVS Corp., 571 F.3d 238 (2d Cir. 2009): The owner of the trademark “cool water” for fragrances would suffer irreparable harm in the absence of a preliminary injunction against a retail drugstore chain's sales of its product with the unique production code (UPC) removed, which increased the risk that consumers would unwittingly buy a counterfeit or defective product.

• TGI Friday’s Inc. v. Great Northwest Restaurants, Inc., __ F.Supp.2d __ (N.D. Tex. 2009): Restaurant franchisees cannot use “TGI Friday's” trade and service marks after the termination of their franchise agreement, even if franchisees continued to meet standards that franchisor required, because it is inevitable that customers will be confused into believing that they are dining at such restaurants.

• Productive People LLC v. Ives Design, __ F.Supp.2d __ (D. Ariz. 2009): A preliminary injunction is appropriate because there is complete identity between the allegedly infringing “www.namedrop.com” and the company's use of “namedrop” as a trademark when both parties use the Web as their primary marketing channel.

• Red Head Inc. v. Fresno Rock Taco LLC, __ F.Supp.2d __ (N.D. Cal. 2009): A corporation was entitled to a preliminary injunction barring a restaurant from further use of the corporation's trademarks, trade dress, and the name and likeness of musician Sammy Hagar after the restaurant breached their license agreement by, among other things, failing to pay royalties.

A. STATUTORY PROTECTION OF TRADEMARKS

1. Trademark Dilution

• Statutory protection of trademarks and related property is provided at the federal level by the Lanham Trademark Act of 1946 (amended by the Federal Trademark Dilution Act of 1995 and the Trademark Dilution Revision Act of 2006), which incorporates the common law of trademarks.

• Many states also have trademark statutes.• The dilution cause of action protects certain marks from unauthorized use regardless of a

showing of competition or a likelihood of confusion.• To state a claim for trademark dilution, a plaintiff must prove—

The plaintiff owns a famous mark that is distinctive.The defendant is using a mark in commerce that allegedly is diluting the famous mark.The marks’ similarity gives rise to an association between them.The association is likely to impair the distinctiveness of the famous mark or to harm its

reputation.

2. The Marks Need Not Be IdenticalA famous mark may be diluted by the unauthorized use of an identical or a similar mark.

ADDITIONAL BACKGROUND—

The Federal Trademark Dilution ActCongress passed the Federal Trademark Dilution Act in 1995 as an amendment to 15 U.S.C. § 1125.

The following is the complete statute (15 U.S.C.A. § 1125), as amended, with some of the his torical notes, as



the statute appears on Westlaw.

UNITED STATES CODETITLE 15. COMMERCE AND TRADE

CHAPTER 22—TRADEMARKSSUBCHAPTER III—GENERAL PROVISIONS

§ 1125. False designations of origin and false descriptions forbidden

(a) Civil action

(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which--

(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or as -sociation of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

(2) As used in this subsection, the term “any person” includes any State, instrumentality of a State or employee of a State or instrumentality of a State acting in his or her official capacity. Any State, and any such instrumentality, officer, or employee, shall be subject to the provisions of this chapter in the same manner and to the same extent as any nongovernmental entity.

(b) Importation

Any goods marked or labeled in contravention of the provisions of this section shall not be imported into the United States or admitted to entry at any customhouse of the United States. The owner, importer, or consignee of goods refused entry at any customhouse under this section may have any recourse by protest or appeal that is given under the customs revenue laws or may have the remedy given by this chapter in cases involving goods refused entry or seized.

(c) Remedies for dilution of famous marks

(1) The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court deems reasonable, to an injunction against another person’s commercial use in commerce of a mark or trade name, if such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to obtain such other relief as is provided in this subsection. In determining whether a mark is distinctive and famous, a court may consider factors such as, but not limited to--

(A) the degree of inherent or acquired distinctiveness of the mark;

(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;



(C) the duration and extent of advertising and publicity of the mark;

(D) the geographical extent of the trading area in which the mark is used;

(E) the channels of trade for the goods or services with which the mark is used;

(F) the degree of recognition of the mark in the trading areas and channels of trade used by the marks’ owner and the person against whom the injunction is sought;

(G) the nature and extent of use of the same or similar marks by third parties; and

(H) whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register.

(2) In an action brought under this subsection, the owner of the famous mark shall be entitled only to injunctive relief unless the person against whom the injunction is sought willfully intended to trade on the owner’s reputation or to cause dilution of the famous mark. If such willful intent is proven, the owner of the famous mark shall also be entitled to the remedies set forth in sections 1117(a) and 1118 of this title, subject to the discretion of the court and the principles of equity.

(3) The ownership by a person of a valid registration under the Act of March 3, 1881, or the Act of February 20, 1905, or on the principal register shall be a complete bar to an action against that person, with respect to that mark, that is brought by another person under the common law or a statute of a State and that seeks to prevent dilution of the distinctiveness of a mark, label, or form of advertisement.

(4) The following shall not be actionable under this section:

(A) Fair use of a famous mark by another person in comparative commercial advertising or promotion to identify the competing goods or services of the owner of the famous mark.

(B) Noncommercial use of a mark.

(C) All forms of news reporting and news commentary.

(July 5, 1946, c. 540, Title VIII, s 43, 60 Stat. 441.)

(As amended Nov. 16, 1988, Pub.L. 100-667, Title I, s 132, 102 Stat. 3946; Oct. 27, 1992, Pub.L. 102-542, s 3(c), 106 Stat. 3568; Jan. 16, 1996, Pub.L. 104-98, s 3(a), 109 Stat. 985.)

HISTORICAL AND STATUTORY NOTES

Derivation. Act Mar. 19, 1920, c. 104, s 3, 41 Stat. 534.

References in Text. Acts March 3, 1881, and February 20, 1905, referred to in subsec. (c)(1)(H), (3), are acts Mar. 3, 1881, c. 138, 21 Stat. 502 and Feb. 20, 1905, c. 592, 33 Stat. 724, which were repealed insofar as inconsistent with this chapter by act July 5, 1946, c. 540, s 46(a), 60 Stat. 444. Act Feb. 20, 1905, was classified to sections 81 to 109 of this title.

1996 Amendments. Subsec. (c). Pub.L. 104-98, s 3(a), added subsec. (c).

1992 Amendments. Subsec. (a). Pub.L. 102-542, s 3(c), redesignated existing provisions as par. (1) and, in



par. (1), as so redesignated, substituted “(A)” and “(B)” for “(1)” and “(2)”, respectively, and added par. (2).

1988 Amendment. Subsec. (a). Pub.L. 100-667, s 132, substituted provisions which related to liabil ity in civil action for any person who uses in commerce any word, term, name, symbol, or device, or any false designation of origin, false or misleading description of fact or false or misleading representation of fact in manner likely to cause confusion, or mistake, or deceive as to affiliation of such person with another person, for provisions which related to false designations of origin and false descriptions.

B. TRADEMARK REGISTRATIONTo register for federal protection, an application must be filed with the U.S. Patent and Trademark Office in Washington, D.C. A mark can be registered if—

• It is currently in commerce.• The applicant intends to put the mark into commerce within six months. (Under some

circumstances, the six-month period can be extended to three years.)

Registration is renewable between the fifth and sixth years after the initial registration and every ten years thereafter (twenty years for marks registered before 1990).

C. TRADEMARK INFRINGEMENTWhen a trademark is copied to a substantial degree or used in its entirety by another, it has been infringed. A person need not have registered a trademark to sue for trademark infringement, but registration is proof of the date of inception of the trademark’s use.

D. DISTINCTIVENESS OF THE MARKOnly trademarks deemed sufficiently distinctive from competing trademarks are protected.

1. Strong MarksFanciful, arbitrary, or suggestive trademarks are considered the most distinctive trademarks.

a. Fanciful and Arbitrary TrademarksFanciful trademarks use invented words. Arbitrary marks use common words that would not otherwise be associated with the product.

b. Suggestive TrademarksSuggestive trademarks bring to mind something about a product without describing the product directly.

2. Secondary MeaningDescriptive terms, geographical terms, and personal names are not inherently distinctive and do not receive protection until they acquire a secondary meaning. Whether a secondary meaning becomes attached to a term or name depends on how extensively the product is advertised, the market for the product, the number of sales, and other factors.

3. Generic TermsGeneric terms, such as bicycle or computer, cannot be trademarked, even if they acquire secondary meanings (but they still cannot be used to deceive consumers).



E. SERVICE, CERTIFICATION, AND COLLECTIVE MARKS

• Service mark—Distinguishes the services of one person or company from those of another (such as the mark of each airline that distinguishes it from other airlines).

• Certification mark—Applied to goods or services by someone other than the owner to certify the region, materials, mode of manufacture, quality, or accuracy of those products (such as the “Good Housekeeping Seal of Approval”).

• Collective mark—A certification mark used by members of a cooperative, association, or other organization (such as the union seals in movie credits).

F. TRADE DRESSThe image and overall appearance of a product is subject to the same protection as trademarks. As in common-law trademark infringement cases, a major consideration is whether consumers are likely to be confused by the allegedly infringing use.

G. COUNTERFEIT GOODSCounterfeit goods copy or imitate trademarked goods but are not genuine. U.S. laws do not apply to foreign counterfeiters, but U.S. officials can obtain a court order to shut down a Web site that sells counterfeit goods, regardless of the site owner’s citizenship.

1. Stop Counterfeiting in Manufactured Goods ActThis act makes it a crime to intentionally traffic in counterfeit goods or services, or use a counterfeit mark on or in connection with goods or services. The act covers counterfeit labels, stickers, packaging, and similar items, whether or not they are attached to any goods.

2. Penalties for CounterfeitingThese include fines of up to $2 million and imprisonment of up to ten years (more for repeat offenders). Forfeiture of counterfeit products and the payment of restitution to a trademark holder or other victim can be imposed.

3. Combating Online Sales of Counterfeit GoodsU.S. laws do not apply to foreign counterfeiters, but U.S. officials can obtain a court order to shut down a Web site that sells counterfeit goods, regardless of the site owner’s citizenship.

H. TRADE NAMESA trade name indicates all or part of a business’s name. A trade name may be protected at common law (if it is unusual or fanciful), but it is not protected under federal statutes and cannot be registered with the federal government—unless it is of course the same as the business’s trademarked product (such as Coca-Cola).

I. LICENSINGLicensing (permitting the use of a mark for certain limited purposes) is one way around many intellectual property dilemmas. Use of a mark for other than licensed purposes—which may need to include the maintenance of quality to protect the licensor’s rights—is a breach of the license.



II. PatentsA patent gives an inventor the exclusive right to make, use, and sell an invention for a period of twenty years and a design for fourteen years. Like most other countries, the United States grants a patent for an invention to the first person to file a patent application.

A. SEARCHABLE PATENT DATABASESThe USPTO provides searchable databases covering U.S. patents granted since 1976. The European Patent Office provides online access to 50 million patent documents in over 70 nations.

B. WHAT IS PATENTABLE?Federal law requires that to be patentable an invention, discovery, process, or design must be—

• Genuine.• Novel.• Useful.• Not obvious in light of current technology

Almost anything is patentable, including artistic methods, certain works of art, the structure of storylines, and genetically engineered plants and animals. Exceptions include—

• The laws of nature.• Natural phenomena.• Abstract ideas (including algorithms).

CASE SYNOPSIS—

Case 6.2: In re Imes

Kevin Imes applied for a patent for a device that can send digital camera image and video information wirelessly over a network. The Patent Office examiner rejected Imes’s device as “obvious” based on an earlier patent for a device that can transfer images to a computer via a removable memory card. In the examiner’s view, the previous device is wireless because no wire is used. The Patent Trial and Appeal Board affirmed. Imes appealed.

The U.S. Court of Appeals for the Federal Circuit reversed. “Wireless refers to a communications, monitoring, or control system in which electromagnetic or acoustic waves carry a signal through atmospheric space rather than along a wire * * * . The metal contacts of a removable memory card do not carry a signal through atmospheric space using electromagnetic or acoustic waves, and thus [a] removable memory card is not a wireless communication module under the broadest reasonable interpretation of that term.”

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Notes and Questions

Are most creative works in the public domain—and available for anyone to use without charge? If not, should they be? Yes, most creative works are in the public domain—and available for anyone to use without charge. In other words, the availability of works in the public domain is the rule, and the restriction on works with intellectual property protection is the exception.



Whether more creative work should be available is a question of policy. Some observers (Wikipedia supporters, for example) believe passionately that all information should be freely accessible by everyone. Others (authors, inventors, and musicians, for example) maintain with equal passion that creative works should remain under the ownership and control of those who hold the rights. The law attempts to strike a balance between these competing interests by protecting the rights’ holders for a limited time.

What are some of the pros and cons of having an international standard for patent protection? An international standard for patent protection promotes progress and development in the arts and sciences, and saves the time and expense of applying for the protection many times in different countries. The cons may include the differing application of that protection in various countries. Also, any flaw that exists in that standard will have universal application.

C. PATENT INFRINGEMENTA firm that makes, uses, or sells another’s patented design, product, or process without the patent owner’s permission commits patent infringement. Because patent litigation is costly, however, a patent holder will often license use of the patented design, product, or process rather than sue.

1. Patent Infringement Suits and High-Tech CompaniesForeign firms can obtain U.S. patent protection on items that they sell in the United States just as U.S. firms can obtain protection in foreign nations on goods sold abroad. But no infringement occurs under U.S. law when a product patented in the United States is made and sold by a different firm in another country.

2. Apple, Inc. v. Samsung Electronics Co.Apple, Inc., is currently suing Samsung Electronics Co., alleging Samsung’s phones and tablets infringe on Apple’s design patents. These patents cover the graphical user interface, the shell, and the screens and buttons, as well as the way information is displayed.

D. REMEDIES FOR PATENT INFRINGEMENTIf a patent is infringed, the owner can obtain an injunction against the infringer and damages for royalties and lost profits, as well as attorneys’ fees and costs. If the infringement was willful, the amount of damages may be tripled (treble damages).

III. CopyrightsA copyright is an intangible right granted by federal statute (the Copyright Act of 1976) to the author or originator of certain literary or artistic productions.

• The right is granted automatically (registration is not required).• Protection lasts for the life of the author plus 70 years. Copyrights owned by publishing houses expire 95

years from the date of publication or 120 years from the date of creation, whichever is first. For works by more than one author, the copyright expires 70 years after the death of the last surviving author.

Copyright owners are protected against—

• Reproduction of the work.• Development of derivative works.• Distribution of the work.• Public display of the work.



A. WHAT IS PROTECTED EXPRESSION?To be copyrighted, a work must be “fixed in a durable medium” from which it can be perceived, re -produced, or communicated. Copyright law protects works that are original and fall into one of the following categories:

• Literary works.• Musical works.• Dramatic works.• Pantomimes and choreographic works.• Pictorial, graphic, and sculptural works.• Films and other audiovisual works.• Sound recordings, architectural works, and computer software.

1. Section 102 Exclusions

• Protection is not available for any “idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, il-lustrated, or embodied.” Ideas may be freely used by anyone—what can be copyrighted is the way in which an idea is expressed. If an idea and its expression are inseparable, the ex-pression cannot be copyrighted.

• Generally, anything that is not original—facts, page numbers, mathematical calculations—will not qualify for protection.

CASE SYNOPSIS—

Case 6.3: Inhale, Inc. v. Starbuzz Tobacco, Inc.

Inhale, Inc., held a copyright on a hookah that included skull-and-crossbones images on its outside. Inhale filed a suit in a federal district court against Starbuzz Tobacco, Inc., alleging copyright infringement for the sale of identically shaped hookahs (without the skull-and-crossbones images). The court issued a judgment in Starbuzz’s favor. Inhale appealed.

The U.S. Court of Appeals for the Ninth Circuit affirmed. “The shape of a container is not independent of the container's utilitarian function—to hold the contents within its shape—because the shape accomplishes the function. The district court correctly concluded that the shape of Inhale's hookah water container is not copyrightable.”

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Notes and Questions

What is the test for determining whether a creative work has been unlawfully copied? All copying is not copyright infringement. For example, a copyrighted work may be used without the owner’s permission for purposes such as “criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research.” This is the “fair use” exception. Also, anyone can freely use an idea or theme embodied in a protected work. What cannot be freely used, however, is the particular way in which the idea is expressed.



To determine whether a creative work has been unlawfully copied, copying must first be shown. An exact reproduction of a work is not necessary—substantial similarity between the original and the allegedly infringing work is enough. Once this is proved, the two works can be compared to assess whether infringement has occurred. The test is whether a “lay-observer” would believe that the copying was of protectable aspects of the original work. The author's expression must be distinguished from the idea or theme that he or she seeks to convey, because of course the expression is protected and the idea or theme is not. The question is whether the allegedly infringing work is similar because it appropriates the expression of the original. If it only contains elements that would be expected when two works express the same idea or explore the same theme, there is no infringement.

Are there any useful articles whose artistic aspects can be identified separately from and exist independently of their utilitarian function? Yes, and the distinctiveness of the useful article’s shape would be relevant. To meet this test, the article’s design elements must be identified as reflecting the designer's artistic judgment exercised independently of functional influences.

Are most creative works in the public domain—and available for anyone to use without charge? If not, should they be? Yes, most creative works are in the public domain—and available for anyone to use without charge. In other words, the availability of works in the public domain is the rule, and the restriction on works with intellectual property protection is the exception.

Whether more creative work should be available is a question of policy. Some observers (Wikipedia supporters, for example) believe passionately that all information should be freely accessible by everyone. Others (authors and musicians, for example) maintain with equal passion that creative works should remain under the ownership and control of those who hold the rights.

How could Inhale hold a registered copyright on its hookah if the shape of the water container is not copyrightable? Throughout this litigation, the courts concluded that the shape of the water container on Inhale's hookah is not copyrightable. The courts reasoned that “the shape of a container is not independent of the container's utilitarian function—to hold the contents within its shape—because the shape accomplishes the function.”

But Inhale held a registered copyright on its hookah. This is not a contradiction. Inhale's copyright application included skull-and-crossbones images on the water container. As long as the certificate of registration did not show that the U.S. Copyright Office considered the shape of the container copyrightable—and it likely did not—then the images could serve as the basis for the copyright.

2. Compilations of FactsCompilations of facts will. A compilation is “a work formed by the collection and assembling of preexisting materials of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.”

B. COPYRIGHT INFRINGEMENTCopyright infringement occurs when the form or expression of an idea is copied in substantial part (a copy does not have to mirror the original or reproduce it entirely).



1. Remedies for Copyright InfringementPenalties and remedies range from actual damages plus the infringer’s profits or statutory damages not exceeding $150,000 imposed at the discretion of the court, to criminal proceedings for willful violations, which may result in fines or imprisonment. An injunction is also possible.

2. The “Fair Use” ExceptionThe reproduction of copyrighted material is permitted without payment of royalties under the Copyright Act’s fair use doctrine. To determine whether a use is fair, courts consider—

• The purpose of the use.• The nature of the copyrighted work.• How much of the original is copied.• The effect of the use on the market for the copyrighted work.

3. What Is Fair Use?Courts determine this on a case-by-case basis. The last factor above is often the most important.

4. The First Sale DoctrineThe owner of an authorized copy of a copyrighted work can sell, or otherwise dispose of it however he or she sees fit.

C. COPYRIGHT PROTECTION FOR SOFTWARE

• The Computer Software Copyright Act of 1980 extended Copyright Act protection to computer pro-grams. A program’s source code (the part of a program readable by humans) was clearly included. Protection has also been extended to the binary object code (readable only by computers). Program structure, sequence, and organization have been held copyrightable.

• The trend is to not extend copyright protection to programs’ “look and feel” (general appearance, menus, windows, and other displays). Trademark laws may apply, however.

IV. Trade SecretsSome business processes and information that cannot be patented, copyrighted, or trademarked are pro-tected against appropriation as trade secrets. Trade secrets include generally anything that makes an individual company unique and that would have value to a competitor such as—

• Customer lists.• Business plans.• Research and development.• Pricing information.• Marketing techniques.• Production techniques.• Product formulas.

A. STATE AND FEDERAL LAW ON TRADE SECRETSTheft of trade secrets (discovery of secrets by improper means and their disclosure or use) is—

• A violation of the common law.• A violation of some states’ statutes (some based on the Uniform Trade Secrets Act).



• A federal crime (under the Economic Espionage Act of 1996).

B. TRADE SECRETS IN CYBERSPACEThe nature of technology (especially e-mail) undercuts a firm’s ability to protect its confidential in-formation, including trade secrets.

ENHANCING YOUR LECTURE—

HOW CAN YOU PROTECT YOUR TRADE SECRETS? Most successful businesses have trade secrets. The law protects trade secrets indefinitely, provided that

the information is not generally known, is kept a secret, and has commercial value. Sometimes, of course, a business needs to disclose secret information to a party in the course of conducting business. For example, a company may need to hire a consultant to revamp a computer system, an engineer to design a manufacturing system, or a marketing firm to implement a sales program. All of these individuals may need access to some of the company’s trade secrets. One way to protect against the unauthorized disclosure of such information is through confidentiality agreements.

CONFIDENTIALITY AGREEMENTS

In a confidentiality agreement, one party promises not to divulge information about the other party to anyone else or to use the other party’s confidential information for his or her own benefit. Confidentiality agreements are often included in licensing and employment contracts, but they can also be separate contracts. The key is to make sure that the agreement adequately protects the trade secrets and applies to any related transactions between the parties. For instance, if you execute a separate confidentiality agreement with a marketing firm, you need to make sure that it refers to any other contracts you have made with that firm prior to the confidentiality agreement. Also, subsequent contracts with the firm should either refer back to the confidentiality agreement or include a new confidentiality provision.

DEFINING THE SCOPE OF THE AGREEMENT

Confidentiality agreements must be reasonable. Businesspersons should consider what information needs to be protected and for how long. Make certain to define what you mean by confidential in formation in the agreement. Do you want to protect just your customer list or all financial, technical, and other business information? Think ahead, cover the bases, and be specific.

The duration of the agreement usually depends on the nature of the information. Very important secret information should remain confidential for a longer time than less important secrets. Sometimes, as with an advertising campaign, the time period for confidentiality may be self-evident (if the campaign ends in six months, for example). Tailor the agreement to your needs as much as possible. If the party to whom you are disclosing information will no longer need the information after a certain date—such as when the project is completed—include a provision requiring the return of confidential information after that date. This will alleviate concerns that your confidential trade secrets might later fall into the hands of a stranger.

CHECKLIST FOR THE OWNER OF TRADE SECRETS

1. Determine what your trade secrets are and who may need access to them.



2. Make sure that confidentiality agreements define, in an all-inclusive manner, what information should be considered confidential.

3. Specify a time period that is reasonable under the circumstances.

4. Identify the agreements to which the confidentiality provisions apply.

5. Require that the confidential materials be returned to you.

6. Create a mechanism to enforce the policy.

V. International Protections

A. THE BERNE CONVENTIONUnder the Berne Convention, if an American writes a book, every country that has signed the convention must recognize his or her copyright in the book. Also, if a citizen of a country that has not signed the convention first publishes a book in a country that has signed, all other countries that have signed the convention must recognize that author’s copyright.

ADDITIONAL BACKGROUND—

The Berne Convention

International protection of copyright is provided by international treaties, including the Berne Convention, which the United States signed in 1989. If a work is protected by copyright law, permission must be granted by the author or publisher before the work can be copied for commercial purposes. The following are excerpts from the first five articles of the Berne Convention.

BERNE CONVENTIONFOR THE PROTECTION OF LITERARY AND ARTISTIC WORKS

OF SEPTEMBER 9, 1886

* * * *

(Source of Text: Paris Act of July 24, 1971, as amended on October 2, 1979, provided by the World Intellectual Property Organization, Geneva, 1987.)

The countries of the Union, being equally animated by the desire to protect, in as effective and uniform a manner as possible, the rights of authors in their literary and artistic works, * * * have agreed as follows:

Article 1

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The countries to which this Convention applies constitute a Union for the protection of the rights of authors in their literary and artistic works.



Article 2

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(1) The expression ‘literary and artistic works’ shall include every production in the literary, scientific and artistic domain, whatever may be the mode or form of its expression, such as books, pamphlets and other writings; lectures, addresses, sermons and other works of the same nature; dramatic or dramatic-musical works; choreographic works and entertainments in dumb show; musical compositions with or without words; cinematographic works to which are assimilated works expressed by a process analogous to cinematography; works of drawing, painting, architecture, sculpture, engraving and lithography; photographic works to which are assimilated works expressed by a process analogous to photography; works of applied art; illustrations, maps, plans, sketches and three-dimensional works relative to geography, topography, architecture or science.

* * * *

(3) Translations, adaptations, arrangements of music and other alterations of a literary or artistic work shall be protected as original works without prejudice to the copyright in the original work.

(4) It shall be a matter for legislation in the countries of the Union to determine the protection to be granted to official texts of a legislative, administrative and legal nature, and to official translations of such texts.

(5) Collections of literary or artistic works such as encyclopedias and anthologies which, by reason of the selection and arrangement of their contents, constitute intellectual creations shall be protected as such, without prejudice to the copyright in each of the works forming part of such collections.

(6) The works mentioned in this Article shall enjoy protection in all countries of the Union. This protection shall operate for the benefit of the author and his successors in title.

(7) Subject to the provisions of Article 7(4) of this Convention, it shall be a matter for legislation in the countries of the Union to determine the extent of the application of their laws to works of applied art and industrial designs and models, as well as the conditions under which such works, designs and models shall be protected. Works protected in the country of origin solely as designs and models shall be entitled in another country of the Union only to such special protection as is granted in that country to designs and models; however, if no such special protection is granted in that country, such works shall be protected as artistic works.

(8) The protection of this Convention shall not apply to news of the day or to miscellaneous facts hav ing the character of mere items of press information.

Article 2[b]

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(1) It shall be a matter for legislation in the countries of the Union to exclude, wholly or in part, from the protection provided by the preceding Article political speeches and speeches delivered in the course of legal proceedings.

(2) It shall also be a matter for legislation in the countries of the Union to determine the conditions under which lectures, addresses and other works of the same nature which are delivered in public may be reproduced by the press, broadcast, communicated to the public by wire and made the subject of public



communication as envisaged in Article 11[b](1) of this Convention, when such use is justified by the in-formatory purpose.

(3) Nevertheless, the author shall enjoy the exclusive right of making a collection of his works mentioned in the preceding paragraphs.

Article 3

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(1) The protection of this Convention shall apply to: (a) authors who are nationals of one of the coun tries of the Union, for their works, whether published or not; (b) authors who are not nationals of one of the countries of the Union, for their works first published in one of those countries, or simultaneously in a country outside the Union and in a country of the Union.

(2) Authors who are not nationals of one of the countries of the Union but who have their habitual residence in one of them shall, for the purposes of this Convention, be assimilated to nationals of that country.

(3) The expression ‘published works’ means works published with the consent of their authors, whatever may be the means of manufacture of the copies, provided that the availability of such copies has been such as to satisfy the reasonable requirements of the public, having regard to the nature of the work. The performance of a dramatic, dramatico-musical, cinematographic or musical work, the public recitation of a literary work, the communication by wire or the broadcasting of literary or artistic works, the exhibition of a work of art and the construction of a work of architecture shall not constitute publication.

(4) A work shall be considered as having been published simultaneously in several countries if it has been published in two or more countries within thirty days of its first publication.

Article 4

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The protection of this Convention shall apply, even if the conditions of Article 3 are not fulfilled, to: (a) authors of cinematographic works the maker of which has his headquarters or habitual residence in one of the countries of the Union; (b) authors of works of architecture erected in a country of the Union or of other artistic works incorporated in a building or other structure located in a country of the Union.

Article 5

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(1) Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the Union other than the country of origin, the rights which their respective laws do now or may hereafter grant to their nationals, as well as the rights specially granted by this Convention.

(2) The enjoyment and the exercise of these rights shall not be subject to any formality; such enjoyment and such exercise shall be independent of the existence of protection in the country of origin of the work. Consequently, apart from the provisions of this Convention, the extent of protection, as well as the means of redress afforded to the author to protect his rights, shall be governed exclusively by the laws of the country where protection is claimed.



(3) Protection in the country of origin is governed by domestic law. However, when the author is not a national of the country of origin of the work for which he is protected under this Convention, he shall enjoy in that country the same rights as national authors.

(4) The country of origin shall be considered to be: (a) in the case of works first published in a country of the Union, that country; in the case of works published simultaneously in several countries of the Union which grant different terms of protection, the country whose legislation grants the shortest term of protection; (b) in the case of works published simultaneously in a country outside the Union and in a country of the Union, the latter country; (c) in the case of unpublished works or of works first published in a country outside the Union, without simultaneous publication in a country of the Union, the country of the Union of which the author is a national, provided that: (i) when these are cinematographic works the maker of which has his headquarters or his habitual residence in a country of the Union, the country of origin shall be that country, and (ii) when these are works of architecture erected in a country of the Union or other artistic works incorporated in a building or other structure located in a country of the Union, the country of origin shall be that country.

B. THE TRIPS AGREEMENT

• The Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement was part of the agreement creating the World Trade Organization.

• TRIPS established standards for the international protection of intellectual property rights, including patents, trademarks, and copyrights for movies, computer programs, books, and music. Generally, each member country must provide broad intellectual property rights and effective remedies (including civil and criminal penalties) for violations of those rights.

C. THE MADRID PROTOCOLUnder this treaty, a U.S. company wishing to register its trademark abroad can submit a single application and designate other member countries in which they would like to register the mark.

D. THE ANTI-COUNTERFEITING TRADE AGREEMENT

1. Provisions and GoalsThe goal of the Anti-Counterfeiting Trade Agreement (ACTA) is to increase international cooperation, facilitate the best law enforcement practices, and provide a legal framework to combat counterfeiting. The ACTA applies to counterfeit physical goods and pirated copyrighted works.

2. Border SearchesMember nations are required to establish border measures that allow officials, on their own initiative, to search commercial shipments of imports and exports for counterfeit goods.

TEACHING SUGGESTIONS

1. It could be pointed out that disputes arising in the areas covered in this chapter are among the most volatile and most extensively—and expensively—litigated disputes in the law.

2. One of the issues raised in this chapter is whether an instructor should be allowed to photocopy (has the



common use of the brand name “Xerox” to refer to photocopying rendered the brand name generic?) all or part of one or more copyrighted works to hand out to a class of students. Should a single student be allowed to photocopy a chapter of a library book for later study? Would students feel differently if they owned the rights to the work and would receive royalties if the work were purchased instead of copied? The same questions can be raised in connection with the bootlegging of other products protected by intellectual property law, including CDs and DVDs. Should copying computer software be treated any dif-ferently than copying cassettes? Why?

3. To help students analyze problems that focus on topics in this chapter, you might outline the fol lowing three steps. First, it should be determined if the party who is bringing the suit has a protectable interest (that is, whether the subject matter of the plaintiff’s interest is appropriate for copyright protection, parent protection, trademark protection, or whatever the case may be). Second, it should be determined whether the other party—the defendant—has interfered with those rights. Third, it should be considered what remedy is appropriate.

Cyberlaw Link

Questions that students might be asked include the following.

• Is linking to a Web site without authorization an infringement of the site’s copyright? Is it a violation of trademark law? Would it make any difference if the URL included a person’s name or a trademark?

• Is framing another’s site a violation of any of the laws that protect intellectual property?

• Is caching a violation of copyright law?

• Should there be a different copyright law for cyberspace?

• Should a company be entitled to monitor the use of its copyrighted software after it’s been sold? If so, should it be a crime to resist this monitoring?

DISCUSSION QUESTIONS

1. What is a trademark? A trademark is a distinctive mark, motto, device, or emblem that a manufacturer stamps, prints, or otherwise affixes to the goods it produces, so that they can be distinguished from the goods of others. Personal names, words, or places that describe an article or its use cannot be trademarked. Words that are used as part of a design or device, however, or words that are used in an uncommon or fanciful way may be trademarked. Under the Trademark Revision Act of 1988, an applicant can register a mark with the federal Patent and Trademark Office on the basis either of use or of the bona fide intent to use it in commerce within six months.

2. What is infringement? Trademark infringement occurs when a trademark is copied to a substantial degree or used in its entirety by another, it has been infringed. Patent infringement is committed when a firm makes, uses, or sells another’s patented design, product, or process without permission. An invention need not be copied entirely, but all steps of a process must be. Copyright infringement is when the form or expression of an idea is copied in substantial part.



3. Would the use of a purported trademark solely on a Web site satisfy the “use in commerce” requirement for trademark protection? The use of a purported mark on a Web site alone would likely qualify as “use in commerce,” assuming of course that the use was sufficiently prominent. Together with other uses of the mark—displays in stores and catalogues, for example—the use of a mark on a Web site that includes pictures and descriptions of certain products would constitute the circumstances that meet the test.

4. Why is it important to allow those who have applied for trademark protection to defend preemptively against the use of the mark by another party? Policy considerations, especially the promotion of certainty in business transactions by fixing an applicant's priority right as of the date of its filing an application, and the encouragement and reward of early filing so as to put claims to marks on the public record as soon as possible.

5. What are some of the pros and cons of having an international standard for trademark protection? An international standard for trademark protection promotes progress and development in the arts and sciences, and saves the time and expense of applying for the protection many times in different countries. The cons may include the differing application of that protection in various countries. Also, any flaw that exists in that standard will have universal application.

6. What are service, certification, and collective marks? A service mark distinguishes services rather than goods. A certification mark is used by one or more persons, other than the owner, to certify the region, materials, mode of manufacture, quality, or accuracy of the owner’s goods or services. When used by members of a cooperative, association, or other organization, the mark is a collective mark. The same policies and restrictions that apply to trademarks apply to service, certification, and collective marks.

7. Why don’t all software products qualify for patent protection? A patent is a grant from the federal government securing the exclusive right to make, use, and sell an invention for seventeen years (designs are covered for a shorter period). The invention or design must be genuine, novel, useful, and not obvious. Software products often do not meet the “novel” and “not obvious” requirements because much software only automates procedures that can be performed manually. Also, the basis for a computer program is often a mathematical equation or formula, which is not patentable.

8. What is a copyright? A copyright is an intangible right granted to an author or originator of certain literary or artistic productions. The right is granted automatically; the protection lasts for the life of the au thor plus fifty years. Copyrights owned by publishers last for seventy-five years from the date of publication or a hundred years from the date of creation, whichever comes first. For works by more than one author, the copyright lasts fifty years after the death of the last surviving author. If an American writes a book, his or her copyright is recognized by every country that has signed the Berne Convention.

9. Discuss the fair use doctrine and what factors are considered in determining whether a use is fair. Reproduction of copyrighted works is permitted without payment of royalties under the fair use doctrine. The factors used in determining whether a use qualifies as fair are (1) the purpose and character of the use, including whether it is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the work as a whole; and (4) the effect of the use on the potential market for or value of the copyrighted work.

10. What's the difference between a patent and a trade secret? Both patents and trade secrets are forms of intellectual property. A patent is a right, granted by the government, to exclusive use of an invention. As a government granted right, the details of a patent are part of the public record. Trade secrets, on the other hand, consist of valuable unique processes, formulas, or ideas that are protected by virtue of the fact that they are kept confidential



ACTIVITY AND RESEARCH ASSIGNMENTS

1. News reports of local, national, and international controversies involving the subjects considered in this chapter can often be found and may be used effectively in discussing this material. Events that are currently widely publicized involve cyberlaw controversies and their resolutions. Have students keep an eye out for these and discuss them in class.

2. In discussing trademarks, trade names, service marks, and collective marks, ask students to bring to class an example of each. Discuss as a large group whether the examples are properly identified.

EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT

Footnote 15: KSR designed a pedal assembly for General Motors Corp. (GMC) to use in its Chevrolet and GMC light trucks. Teleflex Inc. filed a suit in a federal district court against KSR for the design’s infringement Teleflex’s patent titled “Adjustable Pedal Assembly With Electronic Throttle Control” (known as “the Engelgau patent”). KSR countered that “claim 4” of the Engelgau patent was obvious and thus invalid. The court ruled in KSR’s favor. The U.S Court of Appeals for the Federal Circuit reversed. The case was appealed. In KSR International Co. v. Teleflex Inc., the U.S. Supreme Court reversed and remanded. Under the “teaching, suggestion, or motivation” test (TSM test), a patent claim is obvious “if some motivation or suggestion to combine the prior art teachings can be found in the prior art, the nature of the problem, or the knowledge of a person having ordinary skill in the art.” In other words, “a patent for a combination which only unites old elements with no change in their respective functions” is obvious and not patentable. Here, the Court found claim 4 to be obvious. “[W]e see little difference between the teachings of [prior patents] and . . . claim 4 of the Engelgau patent. A person having ordinary skill in the art could have” arrived at the same result.”

Can your students rephrase in more succinct terms the Court’s ruling in the KSR case? The Court itself more eloquently summarized its position at the end of its opinion. “We build and create by bringing to the tangible and palpable reality around us new works based on instinct, simple logic, ordinary inferences, extraordinary ideas, and sometimes even genius. These advances, once part of our shared knowledge, define a new threshold from which innovation starts once more. And as progress beginning from higher levels of achievement is expected in the normal course, the results of ordinary innovation are not the subject of exclusive rights under the patent laws. Were it otherwise patents might stifle, rather than promote, the progress of useful arts. These premises led to the bar on patents claiming obvious subject matter established in [previous cases] and codified in [federal statutes]. Application of the bar must not be confined within a test or formulation too constrained to serve its purpose.

“KSR provided convincing evidence that mounting a modular sensor on a fixed pivot point of the Asano pedal was a design step well within the grasp of a person of ordinary skill in the relevant art. Its arguments, and the record, demonstrate that claim 4 of the Engelgau patent is obvious.”

If a person of ordinary skill can implement a predictable variation of another’s patented invention, does the Court’s opinion indicate that the item is not likely to be patentable? Yes, if, under the principles noted in the KSR case, a patent claiming the combination of elements of prior art is obvious. “When there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions, a person of ordinary skill has good reason to pursue the known options within his or her technical grasp. If this leads to the



anticipated success, it is likely the product not of innovation but of ordinary skill and common sense. In that instance the fact that a combination was obvious to try might show that it was obvious” for the purposes of a patent claim.

Based on the Court’s reasoning, what other factors should be considered when determining the obviousness of a patent? The Court explained that a court may need “to look to interrelated teachings of multiple patents; the effects of demands known to the design community or present in the marketplace; and the background knowledge possessed by a person having ordinary skill in the art, all in order to determine whether there was an apparent reason to combine the known elements in the fashion claimed by the patent at issue.” The Court emphasized that “the analysis need not seek out precise teachings directed to the specific subject matter of the challenged claim, for a court can take account of the inferences and creative steps that a person of ordinary skill in the art would employ.”

Footnote 25: Leadsinger, Inc., makes and sells a karaoke device—a microphone that plays music and displays the lyrics at the bottom of a television screen. BMG Music Publishing licensed Leadsinger to use the music but not to display the lyrics without a “lyric reprint” fee and a “synchronization” fee. Leadsinger refused, filing for a declaratory judgment to determine the dispute. The court ruled against the plaintiff. Leadsinger appealed. In Leadsinger, Inc. v. BMG Music Publishing, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of Leadsinger’s complaint. “Leadsinger's device falls within the definition of an audiovisual work. As a result, in addition to any . . . licenses necessary to make and distribute phonorecords and reprint licenses necessary to reprint song lyrics, Leadsinger is also required to secure synchronization licenses to display images of song lyrics in timed relation with recorded music. . . . Commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright.”

Could Leadsinger have written its own lyrics and displayed those in place of the licensed music’s actual words without paying additional fees? Probably. Leadsinger might then have successfully argued that its purpose was satire or parody. Could Leadsinger have provided printed lyrics without displaying them on a television screen and avoided paying additional fees? No. That would have been a clear violation of copyright law.

What was the underlying basis of Leadsinger’s attempt to avoid paying additional licensing fees to BMG? The most likely motive for Leadsinger’s attempt to avoid paying additional fees was to increase its own profit. To support that attempt, Leadsinger argued in part that its use of the lyrics was a “fair use,” an exception under copyright law to otherwise paying a copyright owner for the use its copyrighted work.”

Could Leadsinger have attempted to show that its karaoke programs were used extensively abroad to help others learn English? If successful in this line of reasoning, might Leadsinger have prevailed on appeal? Even if the assertion in this question were true, the court stated that “it is not reasonable to infer that teaching is actually the purpose of Leadsinger’s use of the copyrighted lyrics.” Instead, the firm’s “basic purpose remains a commercial one—to sell its karaoke device for profit. And commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright.” In other words, it is unlikely that Leadsinger would have prevailed on appeal with this argument.

Footnote 29: Under the Uruguay Round Agreements Act (URAA), which was enacted by Congress in 1994, copyright protection extends to many foreign works that were once in the public domain. A group of musicians, conductors, publishers, and others filed a suit, claiming that Congress exceeded its authority under the copyright clause in passing the URAA. The court ruled against the plaintiffs, who appealed. In Golan v. Holder, the United States Supreme Court affirmed. The copyright clause empowers Congress to protect authors’ exclusive rights to their works for “limited times.” The clause does not require that a “time prescription, once set, becomes forever fixed or inalterable.” Thus, works can be removed from the public domain by being granted protection for a limited time.



What is meant by the term “public domain”? This term means “not in copyright.” Why is this significant to musicians, conductors, publishers, and others? Works in the public domain can be used by anyone without permission and without the payment of royalties.

What does the Court’s decision in this case mean for copyright holders in the United States who want copyright protection in other countries? Will other nations be more or less inclined to protect U.S. authors? The Supreme Court’s decision can only help U.S. authors seeking copyright protection in other countries. If the Court found the URAA unconstitutional, the United States could not fully comply with the Berne Convention by treating domestic and foreign works alike. Other countries might be inclined to also violate the Berne Convention, meaning that U.S. authors might not enjoy full copyright protection abroad. After Golan, other countries will be far less tempted to retaliate against the United States for discriminating against foreign authors.

Why did a group of musicians, conductors, publishers, and others file this suit? What did they hope to gain by a decision in their favor? Works in the public domain can be used without the permission of the owners and the payment of royalties. The plaintiffs filed this suit so that they could continue to use the foreign works previously in the public domain that the plaintiffs had used before Congress enacted the Uruguay Round Agreements Act. They hoped to continue to use these works without the payment of royalties.


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