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Chapter 8

Intellectual Property and Internet Law INTRODUCTION 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.

ADDITIONAL RESOURCES —



VIDEO SUPPLEMENTS

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The following video supplements relate to topics discussed in this chapter—

PowerPoint Slides To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for Chapter 8.

Business Law Digital Video Library The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or individual review. Clips on topics covered in this chapter include the following.

•

Drama of the Law

Intellectual Property: Trade Name: Rally Round the Trade Name—The name of your business is an important intellectual property right. When the name of your business is subject to confusion with another

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business, a dispute may occur.

•

Legal Conflicts in Business

Choosing a Business Name and a Domain Name: Wizard for Hire dot com—A start-up software company finds that there are others who have similar business and domain names. What options do they have for resolving the conflict?

Intellectual Property: Permissions in Cyberspace: Deep Linking Just Good Business?—The software company has set up a web site that uses deep links to another site. Do they need permission from the linked site to put them into a frame?

•

Ask the Instructor

Intellectual Property: Patents and Trade Secrets: 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.

ANSWER TO CHAPTER OBJECTIVE/FOR REVIEW QUESTION NO. 1 What is intellectual property? Intellectual property is property resulting from intellectual, creative processes: information, software, music, and movies, for example.

ANSWER TO CHAPTER OBJECTIVE/FOR REVIEW QUESTION NO. 2 Why are trademarks and patents protected by the law? As stated in Article I, Section 8, of the Constitution, Congress is authorized “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Laws protecting patents and trademarks, as well copyrights, are designed to protect and reward inventive and artistic creativity.

CHAPTER OUTLINE I.

Trademarks and Related Property A trademark is a distinctive mark, motto, device, or implement that a manufacturer stamps, prints, or otherwise affixes to the goods it produces so that they may be identified on the market and their origin vouched for.

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CASE SYNOPSIS—

Case 8.1: Coca-Cola Co. v. Koke Co. of America Coca-Cola Co. sought to enjoin 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 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 palpable fraud because possibly here and there an ignorant person might call for the drink with the hope for incipient cocaine intoxication.” ..................................................................................................................................................

Notes and Questions Until 1903, the amount of active cocaine in each bottle of Coke was equivalent to one “line” of cocaine, 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 attempted 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, © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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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.

ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 8.1 Suppose that Coca-Cola had been trying to make the public believe that its product contained cocaine. Would the result in the case likely have been different? Explain your answer. Yes. The product in this case did not actually contain cocaine. To advertise that it did would be to commit fraud. A court will refuse to grant relief to a complaining party who commits fraud.

ADDITIONAL CASES ADDRESSING THIS ISSUE — Recent 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.

• 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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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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), 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.

2.

Use of a Similar Mark May Constitute Trademark Dilution A famous mark may be diluted by the unauthorized use of an identical or a similar mark.

ADDITIONAL BACKGROUND—

The Federal Trademark Dilution Act Congress 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 historical notes, as the statute appears on Westlaw.

UNITED STATES CODE TITLE 15. COMMERCE AND TRADE CHAPTER 22—TRADEMARKS SUBCHAPTER 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 association 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.

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(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.

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(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 liability 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.

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B.

TRADEMARK REGISTRATION To 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 (1) if it is currently in commerce or (2) if 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 INFRINGEMENT When 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 MARK Only trademarks deemed sufficiently distinctive from competing trademarks are protected, however.

1.

Strong Marks Fanciful, suggestive, and arbitrary (common words not ordinarily associated with the product) trademarks are generally considered to be the most distinctive.

2.

Secondary Meaning Descriptive terms, geographical terms, and personal names are not inherently distinctive and do not receive protection until they acquire a secondary meaning (such as “London Fog” for coats with “London Fog” labels). 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 Terms Generic terms, such as bicycle or computer, cannot be trademarked, even if they acquire secondary meanings (but they still cannot be used to deceive consumers).



ANSWER TO VIDEO QUESTION NO. 4



Assume that Navin is able to manufacture his invention. What might Navin do to ensure that his product is identifiable and can be distinguished from other products? Navin could affix a distinctive mark or emblem as a trademark on his invention in order to help consumers identify his product and vouch for its origin.

E.

SERVICE, CERTIFICATION, AND COLLECTIVE MARKS A 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). A certification mark is applied to goods or services by someone other than the owner to certify the region, materials, mode of

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manufacture, quality, or accuracy of those products (such as the “Good Housekeeping Seal of Approval”). When used by members of a cooperative, association, or other organization, a certification mark is a collective mark (such as the union seals in movie credits).

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F.

TRADE DRESS The 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 GOODS Counterfeit goods copy or imitate trademarked goods but are not genuine.

H.

II.

1.

Stop Counterfeiting in Manufactured Goods Act This 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 Counterfeiting These 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.

TRADE NAMES A 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).

Cyber Marks Cybersquatting and domain names have been contentious issues. The text covers questions concerning cyber marks (trademarks in cyberspace) that relate to these and other issues.

A.

DOMAIN NAMES The text explains what a domain name is and identifies the chief conflict that arises with respect to the names. The Internet Corporation for Assigned Names and Numbers (ICANN) oversees the Internet domain name system and facilitates the resolution of domain name disputes.

B.

ANTICYBERSQUATTING LEGISLATION The text reviews the Anticybersquatting Consumer Protection Act (ACPA) of 1999, which amended the Lanham Act to make cybersquatting clearly illegal. Bad faith intent is one of the elements, and the ACRA lists factors for courts to consider. Damages may be awarded. But problems continue. To protect genuine marks, businesses register thousands of misspelled names to protect their rights from cybersquatters or typosquatters (registrants of misspelled marks that they do not own).

C.

META TAGS Meta tags are words in a Web site’s key-word field that determine when the site is listed in response to a search engine query. Using others’ marks as tags without permission may constitute trademark infringement.

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ANSWER TO VIDEO QUESTION NO. 3

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Suppose that after Navin legally protects his idea, he realizes he doesn’t have the money to mass produce the special glasses handle. Navin therefore agrees to allow Fox to manufacture the product. Has Navin granted Fox a license? Explain. Yes, Navin has granted Fox a license because he has given Fox permission to use his property (the patented idea) for a certain purpose (manufacturing the product).

D.

DILUTION IN THE ONLINE WORLD Dilution occurs when a mark is used, without permission, in a way that diminishes its distinctive quality. Tech-related cases have concerned the use of marks as domain names (such as “Candyland”) and spamming under another’s logo. To be diluted, however, a mark must be famous when the alleged infringement occurs.

ENHANCING YOUR LECTURE—





A BOOK IS A BOOK IS A BOOK— BUT IS IT AN “E-BOOK”?

  One of the significant issues raised by the cyber age has to do with whether copyrights in printed materials extend to the same materials presented in digital form over the Internet. A related issue involving licensing agreements came before a federal district court in 2001. The case was brought by the well-known publishing firm Random House, Inc., against Rosetta Books, LLC, with which several authors had arranged to publish works electronically. At issue in the case was the following question: Did contracts in which the authors had licensed Random House to “print, publish and sell” their works in “book form” include the right to publish their works in electronic formats (as “e-books”) as well?

In evaluating the issue, the court looked to the letter of the law, as decided by other court cases, but found little guidance. Hence, it looked to the words of the contract and to the definition of the term book given by the Random House Webster’s Unabridged Dictionary. That dictionary defines a “book” as “a written or printed work of fiction or nonfiction, usually on sheets of paper fastened or bound together within covers.” The court ultimately concluded that a book is not an e-book and therefore refused to grant Random House’s motion to enjoin (prohibit) Rosetta Books from publishing the authors’ works as ebooks.a THE BOTTOM LINE To avoid litigation, anyone signing a licensing contract should make sure that the specific wording in the contract makes very clear what rights are or are not being conveyed.

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a. Random House, Inc. v. Rosetta Books, LLC, 150 F.Supp.2d 613 (S.D.N.Y. 2001).

E.

III.

LICENSING Licensing (permitting the use of a mark for certain purposes) is one way around many intellectual property dilemmas. A license in this context is defined and the parties involved are noted in the text. 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 agreement.

Patents A 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. To qualify, an applicant must satisfy the U.S. Patent and Trademark Office (USPTO) that the invention, discovery, process, or design is genuine, novel, useful, and not obvious in light of current technology. Unlike most other countries, the United States grants a patent to the inventor rather than to the first person to file a patent application.

A.

SEARCHABLE PATENT DATABASES The 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. Databases can be used to inventory business assets, to study trends in technology, to gather information about competitors, to develop business strategy, or to evaluate job applicants.

B.

WHAT IS PATENTABLE? Software often does not meet the “novel” and “not obvious” requirements because it simply automates procedures that can be performed manually. Also, the basis for a program is often a mathematical equation or formula, which is not patentable. Sometimes a patent may be obtained for the process. Otherwise, almost anything is patentable except for (1) the laws of nature, (2) natural phenomena, and (3) abstract ideas (including algorithms). A process used to conduct business on the Web (may be patented. Plants that are reproduced asexually and genetically engineered (or cloned) microorganisms and animals are patentable in the United States.

ANSWER TO CRITICAL ANALYSIS QUESTION IN THE FEATURE— ONLINE DEVELOPMENTS Some patent experts think that the Bilski decision, and sentiments such as those expressed by Judge Mayer, may signal an end to all business process patents in the near future. Should business process patents be severely limited or eliminated? Why or why not? Yes, because many software products simply automate processes or methods that can be performed manually. There are also too many patent applications for what might be more properly characterized as ideas, which are not patentable. Patenting such processes or methods can also lead to more litigation, in part because they often involve accounting, finance, and similar fields.

Besides, as dissenting Judge Mayer said in the Bilski case, “the patent system is intended to protect and promote advances in science and technology, not ideas about how to structure commercial transactions.”

No, such patents should not be severely limited or eliminated because they use technology and, as the © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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judge says in the quote in the previous sentence, “the patent system is intended to protect and promote advances in science and technology.”

C.

PATENT INFRINGEMENT A 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.



ANSWER TO VIDEO QUESTION NO. 2



Suppose that after Navin legally protects his idea, Fox steals it and decides to develop it for himself, without Navin’s permission. Has Fox committed infringement? If so, what kind: trademark, patent, or copyright? Fox has committed patent infringement. Patent infringement occurs when one uses or sells another’s patented design, product, or process without the patent owner’s permission.

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D.

IV.

1.

Patent Infringement Suits and High-Tech Companies Foreign firms can obtain U.S. patent protection on items that are sold in the United States.

U.S. firms can obtain protection on items that are sold in foreign nations. But no infringement occurs under U.S. law when a product patented in the United States is made and sold in foreign country by a foreign firm.

2.

Apple, Inc. v. Samsung Electronics Co. Apple and Samsung have entered what is likely to be prolonged litigation over Apple’s trademark and patent infringement claims relating to Samsung’s mobile phones and tablets.The claims cover design features, including displays and user interfaces.

REMEDIES FOR PATENT INFRINGEMENT If 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).

Copyrights A 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.

ANSWER TO CHAPTER OBJECTIVE/FOR REVIEW QUESTION NO. 3 What laws protect authors’ copyrights in the works they generate? Copyright law protects the rights of the authors of certain literary or artistic productions. Currently, the Copyright Act of 1976, as amended, covers these rights.

A.

WHAT IS PROTECTED EXPRESSION? To be copyrighted, a work must be “fixed in a durable medium” from which it can be perceived, reproduced, 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.

1.

Section 102 Exclusions

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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, illustrated, 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 expression cannot be copyrighted. Generally, anything that is not original—widely known facts and page numbers, for example—will not qualify for protection.

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2.

Compilations of Facts Compilations 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.”



ANSWER TO VIDEO QUESTION NO. 1



In the video, Navin (Steve Martin) creates a special handle for Mr. Fox’s (Bill Macy’s) glasses. Can Navin obtain a patent or a copyright protecting his invention? Explain. Navin should obtain a patent on his invention.

Copyrights are reserved for literary or artistic productions. Patents are used for inventions, discoveries, processes, or designs that are genuine, novel, useful and not obvious in light of current technology.

B.

COPYRIGHT INFRINGEMENT Copyright 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).

ENHANCING YOUR LECTURE—

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COPYRIGHT LAW VERSUS FREE SPEECH

  Since the ratification of the First Amendment to the U.S. Constitution in 1791, Congress has been prohibited from making any law “abridging the freedom of speech.” Clearly, at that time the framers did not anticipate radio, television, the movies, computers, computer programs, or the Internet. As radio, television, and the movies became important at the beginning and middle of the twentieth century, they gave rise to free speech issues. As the Internet moves into virtually everyone’s home and place of work in the twenty-first century, First Amendment issues have arisen and will continue to arise.

A major contemporary legal debate today concerns free speech rights in the context of intellectual property in digital form that is encrypted to prevent its unauthorized copying and use. More specifically, the courts are now addressing the tension between movie studios, which are encrypting their DVDs, and “hackers” who have posted code-cracking programs on the Internet so that DVDs can be copied numerous times.

APPLYING THE DIGITAL MILLENNIUM COPYRIGHT ACT OF 1998 Almost as soon as encryption technology was used to safeguard the contents of DVDs, the code was cracked by a group of hackers, including nineteen-year-old Norwegian John Johansen. His decryption program, called DeCCS, was quickly made available at various sites on the Internet including 2600.com, owned by Ed Corly. Almost immediately after DeCCS was posted, a group of movie companies, including Disney and Twentieth Century-Fox, filed suit. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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In what was seen as a victory for the motion picture industry, a federal district court ruled, in Universal City Studios, Inc. v. Reimerdes,a that DeCCS violated the Digital Millennium Copyright Act (DMCA) of 1998. As noted elsewhere, among other things the DMCA prohibits the circumvention (by decryption programs, for example) of encryption systems that are embedded in intellectual property to protect the property from piracy, or unauthorized use. The court noted that since the posting of DeCCS, along with a separate video-compression program known as Divx, the pirating of movies had become increasingly common on the Internet.

The defendants argued that software programs designed to break encryption schemes were a form of constitutionally protected speech. The court, however, rejected the free speech argument. “Computer code is not purely expressive any more than assassination of a political figure is purely a political statement . . . . The Constitution, after all, is a framework for building a just and democratic society. It is not a suicide pact,” stated the court. A federal appellate court affirmed the trial court’s decision. b A DIFFERENT APPROACH In November 2001, a California appellate court reviewed a case brought by a trade association of movie industry businesses against Internet Web site operators who made DeCCS programs available from their Web sites. The trade association asked the court to enjoin the defendants from copying, distributing, publishing, or otherwise marketing the DeCCS computer program because, by doing so, the defendants were, by necessity, disclosing or using the trade secrets contained in the encryption programs.

The California appellate court weighed in on the side of free speech and refused to grant the injunction. In contrast to the Universal City Studios decision, the court reasoned that the DeCCS program was a form of “pure speech.” Furthermore, stated the court, the “scope of protection of trade secrets does not override the protection offered by the First Amendment. The California legislature is free to enact laws to protect trade secrets, but these provisions must bow to the protections offered by the First Amendment.” The court labeled any attempt at blocking the future use of computer programs “an impermissible prior restraint” on Web site operators’ First Amendment rights. c THE DEBATE CONTINUES If you buy a book, you can read it, throw it away, give it to someone else, or sell it to a used bookstore. Once you have bought it, you can legally do just about anything with it except make copies for resale. There is no way that the owner of the intellectual property contained in that book can insert an encryption system to prevent you from letting someone else read it. In contrast, any form of digitized intellectual property can contain an encryption system.

In principle, the 1998 DMCA protects all such encryption systems from being circumvented by “code cracking.” Understandably, the movie industry is urging the courts to interpret the DMCA’s provisions against circumvention narrowly. Yet some argue that several passages in the act would seem to allow for a broader interpretation—one that would allow constitutional challenges to succeed. Ultimately, the controversy may have to be decided by the United States Supreme Court.

WHERE DO YOU STAND?

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At issue in the twenty-first century is the trade-off between the necessity of writers, musicians, artists, and movie studios to profit from their work and the free flow of ideas for the public’s benefit.

Movie (and music) industry participants claim that encryption programs are necessary to prevent piracy.

Others, however, including the defendants in cases such as those discussed above, argue that the law should at least allow purchasers of movies, music, and books in digital form to make limited copies for fair use. Which side of this debate do you support? Is it possible to strike an appropriate balance between the rights of both groups on this issue? a. 111 F.Supp.2d 294 (S.D.N.Y. 2000). b. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001). c. DVD Copy Control Association v. Bunner, 113 Cal.Rptr.2d 338 (2001). Note that in 2002, the California Supreme Court agreed to review this case.

1.

Remedies for Copyright Infringement Penalties 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. A permanent injunction is also possible.

2.

The “Fair Use” Exception The reproduction of copyrighted material is permitted without payment of royalties under the Copyright Act’s fair use doctrine. Courts consider “(1) the purpose and character of the use, including whether such use 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 copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.”

3.

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

4.

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

CASE SYNOPSIS—

Case 8.2: UMG Recordings, Inc. v. Augusto Universal Music Group (UMG) regularly ships free, unsolicited, promotional CDs to music critics and others. The CD labels state that they are “the property of the record company,” “licensed to the intended recipient,” and for “Promotional Use Only—Not for Sale.” When Troy Augusto sold some of the CDs through online auction sites, UMG filed a complaint in a federal district court, alleging copyright infringement. Augusto asserted that his sales fell under the first sale doctrine. UMG argued that the © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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statements on the discs and the circumstances of their distribution granted only a license to each recipient, not a transfer of ownership. The court issued a summary judgment in Augusto’s favor. UMG appealed.

The U.S. Court of Appeals for the Ninth Circuit affirmed. UMG conveyed title of the promotional CDs to the recipients, not simply licenses. “The promotional CDs are dispatched to the recipients without any prior arrangement . . . . No attempt is made to keep track of where particular copies are or what use is made of them.” There was no indication that the recipients had agreed to a license, so none was created. ..................................................................................................................................................

Notes and Questions What interest does the public have in upholding copyright law? The public interest is the interest in upholding copyrighted protection. If there were no protection for music and other works of intellectual and creative processes, or if the copyright laws were not enforced, there would be less incentive to produce, package, and market such works. Our lives would be less rich in their absence.

ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION” QUESTION IN CASE 8.2 What could UMG have done to better protect its copyrights in the music on the promotional CDs? UMG could have done several things to better protect its copyright. For example, the company could have made prior arrangements with the recipients of the promotional CDs specifying what they could do with the CDs after listening to them. It could have kept track of the individual copies of the CDs it sent out. It could have e-mailed the recipients before sending out the discs and asked them to agree to the terms of a licensing contract for the promotional CDs. Alternatively, it could have structured the whole transaction online and sent the recipients a hyperlink to access the music files, rather than sending out CDs. It could have created a Web site for promotional purposes requiring the recipients to agree to licensing terms prior to accessing or downloading particular copyrighted files (similar to the procedure used by iTunes).

If UMG had entered into explicit licensing agreements with the recipients of the CDs, it could have avoided or won this infringement dispute.

ANSWER TO “THE SOCIAL DIMENSION” QUESTION IN CASE 8.2 What would be the implications for society if the first sale doctrine did not exist? Without the first sale doctrine, any resale or gift of a copyrighted work from the original buyer would require the copyright owner’s permission. A person could not buy a CD or book and give it to a friend or family member, for example, without risking an infringement action. Businesses could no longer sell used recordings, books, © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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movies, and video games. In addition, because it would be impossible for copyright holders to give permission every time an item was sold, the value of a copyright would decrease, and the relevance of copyright law would be reduced. It is almost impossible to list all the negative effects on society of not being able to resell or give away copies of copyrighted material after the original purchase.

C.

COPYRIGHT PROTECTION FOR SOFTWARE The Computer Software Copyright Act of 1980 extended Copyright Act protection to computer programs. A computer program is a “set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.” 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 not to extend protection to programs’ “look and feel” (general appearance, menus, windows, and other screen displays).

ADDITIONAL BACKGROUND—

Digital Millennium Copyright Act of 1998 The following is an excerpt from the Digital Millennium Copyright Act of 1998, downloaded from lcweb.loc.gov/copyright/penleg.html.

Sec. 1201. Circumvention of copyright protection systems (a) VIOLATIONS REGARDING CIRCUMVENTION OF TECHNOLOGICAL MEASURES— (1)(A) No person shall circumvent a technological measure that effectively controls access to a work protected under this title. The prohibition contained in the preceding sentence shall take effect at the end of the 2-year period beginning on the date of the enactment of this chapter.

(B) The prohibition contained in subparagraph (A) shall not apply to persons who are users of a copyrighted work which is in a particular class of works, if such persons are, or are likely to be in the succeeding 3-year period, adversely affected by virtue of such prohibition in their ability to make noninfringing uses of that particular class of works under this title, as determined under subparagraph (C).

(C) During the 2-year period described in subparagraph (A), and during each succeeding 3-year period, the Librarian of Congress, upon the recommendation of the Register of Copyrights, who shall consult with the Assistant Secretary for Communications and Information of the Department of Commerce and report and comment on his or her views in making such recommendation, shall make the determination in a rulemaking proceeding on the record for purposes of subparagraph (B) of whether persons who are users of a copyrighted work are, or are likely to be in the succeeding 3-year period, adversely affected by the prohibition under subparagraph (A) in their ability to make noninfringing uses under this title of a particular class of copyrighted works. In conducting such rulemaking, the Librarian shall examine— (i) the availability for use of copyrighted works;

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(ii) the availability for use of works for nonprofit archival, preservation, and educational purposes; (iii) the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research; (iv) the effect of circumvention of technological measures on the market for or value of copyrighted works; and (v) such other factors as the Librarian considers appropriate.

(D) The Librarian shall publish any class of copyrighted works for which the Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to such class of works for the ensuing 3year period.

(E) Neither the exception under subparagraph (B) from the applicability of the prohibition contained in subparagraph (A), nor any determination made in a rulemaking conducted under subparagraph (C), may be used as a defense in any action to enforce any provision of this title other than this paragraph.

(2) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof, that— (A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively controls access to a work protected under this title; (B) has only limited commercially significant purpose or use other than to circumvent a technological measure that effectively controls access to a work protected under this title; or (C) is marketed by that person or another acting in concert with that person with that person’s knowledge for use in circumventing a technological measure that effectively controls access to a work protected under this title.

(3) As used in this subsection— (A) to `circumvent a technological measure’ means to descramble a scrambled work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the copyright owner; and (B) a technological measure `effectively controls access to a work’ if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work. (b) ADDITIONAL VIOLATIONS— (1) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any tech-

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nology, product, service, device, component, or part thereof, that— (A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; (B) has only limited commercially significant purpose or use other than to circumvent protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof; or (C) is marketed by that person or another acting in concert with that person with that person’s knowledge for use in circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner under this title in a work or a portion thereof.

(2) As used in this subsection— (A) to `circumvent protection afforded by a technological measure’ means avoiding, bypassing, removing, deactivating, or otherwise impairing a technological measure; and (B) a technological measure `effectively protects a right of a copyright owner under this title’ if the measure, in the ordinary course of its operation, prevents, restricts, or otherwise limits the exercise of a right of a copyright owner under this title. (c) OTHER RIGHTS, ETC., NOT AFFECTED— (1) Nothing in this section shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title.

(2) Nothing in this section shall enlarge or diminish vicarious or contributory liability for copyright infringement in connection with any technology, product, service, device, component, or part thereof.

(3) Nothing in this section shall require that the design of, or design and selection of parts and components for, a consumer electronics, telecommunications, or computing product provide for a response to any particular technological measure, so long as such part or component, or the product in which such part or component is integrated, does not otherwise fall within the prohibitions of subsection (a)(2) or (b)(1).

(4) Nothing in this section shall enlarge or diminish any rights of free speech or the press for activities using consumer electronics, telecommunications, or computing products. (d) EXEMPTION FOR NONPROFIT LIBRARIES, ARCHIVES, AND EDUCATIONAL INSTITUTIONS— (1) A nonprofit library, archives, or educational institution which gains access to a commercially exploited copyrighted work solely in order to make a good faith determination of whether to acquire a copy of that work for the sole purpose of engaging in conduct permitted under this title shall not be in violation of subsection (a)(1)(A). A copy of a work to which access has been gained under this paragraph— © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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(A) may not be retained longer than necessary to make such good faith determination; and (B) may not be used for any other purpose.

(2) The exemption made available under paragraph (1) shall only apply with respect to a work when an identical copy of that work is not reasonably available in another form.

(3) A nonprofit library, archives, or educational institution that willfully for the purpose of commercial advantage or financial gain violates paragraph (1)— (A) shall, for the first offense, be subject to the civil remedies under section 1203; and (B) shall, for repeated or subsequent offenses, in addition to the civil remedies under section 1203, forfeit the exemption provided under paragraph (1) .

D. COPYRIGHTS IN DIGITAL INFORMATION Copyright law is important in cyberspace in part because the nature of the Internet means that data is “copied” before being transferred online. The Digital Millennium Copyright Act of 1998 imposes civil and criminal penalties on anyone who circumvents encryption software or other technological antipiracy protection. Other violations include making, importing, selling, and distributing devices for circumvention.

ENHANCING YOUR LECTURE—

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LEGAL ISSUES FACING BLOGGERS AND PODCASTERS

  Companies increasingly are using blogs (Web logs) and podcasts (essentially an audio blog, sometimes with video clips) internally to encourage communication among employees and externally to communicate with customers. Blogs offer many advantages, not the least of which is that setting up a blog and keep it current (making “posts”) costs next to nothing because so much easy-to-use free software is available. Podcasts, even those including video, require only a little more sophistication. Nonetheless, both blogs and podcasts also carry some legal risks for the companies that sponsor them.

BENEFITS OF BLOGS AND PODCASTS Internal blogs used by a company’s employees can offer a number of benefits. Blogs provide an open communications platform, potentially allowing new ways of coordinating activities among employees.

For example, a team of production workers might use a blog to move a new product idea forward: the team starts a blog, one worker posts a proposal, and other team members quickly post comments in response. The blog can be an excellent way to generate new ideas. Internal blogs also allow for team © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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learning and encourage dialogue. When workers are spread out across the country or around the world, blogging provides a cheap means of communication that does require sophisticated project management software.

Many companies are also creating external blogs, which are available to clients and customers.

External blogs can be used to push products, obtain feedback from customers, and shape the image that the company presents to outsider. Even some company chief executive officers (CEOs) including the CEOs of McDonald’s, Boeing, and Hewlett-Packard have started blogs.

POTENTIAL LEGAL RISKS Despite their many advantages, blogs and podcasts can also expose a company to a number of legal risks, including the following.

Tort Liability Internal blogs and podcasts can lead to claims of defamation or sexual harassment if an employee posts racist or sexually explicit comments. At the same time, if a company monitors its employees’ blogs and podcasts, it may find itself facing claims of invasion of privacy (see Chapter 17 for a discussion of similar issues involving employees’ e-mail).

Security of Information Blogs may also be susceptible to security breaches. If an outsider obtains access to an internal blog, a company’s trade secrets could be lost. Outsiders could also potentially gain access to blogs containing financial information and other financial data.

Discovery Issues As explained in Chapter 3, litigation today frequently involves electronic discovery.

This can extend to blog posts and comments as well as to e-mail. Thus, a company should be aware that anything posted on its blogs can be used as evidence during litigation. A company will therefore need to preserve and retain blog postings related to any dispute likely to go to trial.

Compliance Issues Many corporations are regulated by one or more agencies and required to comply with various statutes. Laws that require compliance may also apply to blog postings. For example, the Securities and Exchange Commission (SEC) has regulations establishing the information a company must disclose to potential investors and the public in connection with its stock. A company regulated by the SEC will find that these rules apply to blogs. The same is true for companies regulated under the Sarbanes-Oxley Act. Copyright Infringement Blogs can also expose a company to charges of copyright infringement. Suppose, for example, that an employee posts a long passage from a magazine article on the company’s blog, either internal or external, without the author’s permission. Similarly, photos taken from other blogs or Web sites cannot be posted without prior permission. Note, also, that copyright infringement can occur even if the blog was created without any pecuniary motivation. Typically, though, a blogger can claim “fair use” if she or he posts a passage from someone else’s work with an electronic link to the complete version External blogs carry most of the same risks as internal blogs and others as well. Not only can external blogs lead to charges of invasion of privacy, defamation, or copyright infringement related to what the company and its employees post, but they can also expose the company to liability for what visitors post. If a company’s blog allows visitors to post comments and a visitor makes a defamatory statement, the company that created the blog could be held liable for publishing it. Thus, any company considering © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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establishing blogs and podcasts, whether internal or external, should be aware of the risks and take steps to guard against them.

FOR CRITICAL ANALYSIS Do individuals who create blogs face the same risks as companies that use blogs? Explain. a. 111 F.Supp.2d 294 (S.D.N.Y. 2000). b. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001). c. DVD Copy Control Association v. Bunner, 113 Cal.Rptr.2d 338 (2001). Note that in 2002, the California Supreme Court agreed to review this case.

ENHANCING YOUR LECTURE—

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

COPYRIGHT LAW VERSUS FREE SPEECH

  Since the ratification of the First Amendment to the U.S. Constitution in 1791, Congress has been prohibited from making any law “abridging the freedom of speech.” Clearly, at that time the framers did not anticipate radio, television, the movies, computers, computer programs, or the Internet. As radio, television, and the movies became important at the beginning and middle of the twentieth century, they gave rise to free speech issues. As the Internet moves into virtually everyone’s home and place of work in the twenty-first century, First Amendment issues have arisen and will continue to arise.

A major contemporary legal debate today concerns free speech rights in the context of intellectual property in digital form that is encrypted to prevent its unauthorized copying and use. More specifically, the courts are now addressing the tension between movie studios, which are encrypting their DVDs, and “hackers” who have posted code-cracking programs on the Internet so that DVDs can be copied numerous times.

APPLYING THE DIGITAL MILLENNIUM COPYRIGHT ACT OF 1998 Almost as soon as encryption technology was used to safeguard the contents of DVDs, the code was cracked by a group of hackers, including nineteen-year-old Norwegian John Johansen. His decryption program, called DeCCS, was quickly made available at various sites on the Internet including 2600.com, owned by Ed Corly. Almost immediately after DeCCS was posted, a group of movie companies, including Disney and Twentieth Century-Fox, filed suit.

In what was seen as a victory for the motion picture industry, a federal district court ruled, in Universal City Studios, Inc. v. Reimerdes,a that DeCCS violated the Digital Millennium Copyright Act (DMCA) of 1998. As noted elsewhere, among other things the DMCA prohibits the circumvention (by decryption programs, for example) of encryption systems that are embedded in intellectual property to protect the property from piracy, or unauthorized use. The court noted that since the posting of DeCCS, along with a separate video-compression program known as Divx, the pirating of movies had become increasingly © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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common on the Internet.

The defendants argued that software programs designed to break encryption schemes were a form of constitutionally protected speech. The court, however, rejected the free speech argument. “Computer code is not purely expressive any more than assassination of a political figure is purely a political statement . . . . The Constitution, after all, is a framework for building a just and democratic society. It is not a suicide pact,” stated the court. A federal appellate court affirmed the trial court’s decision. b A DIFFERENT APPROACH In November 2001, a California appellate court reviewed a case brought by a trade association of movie industry businesses against Internet Web site operators who made DeCCS programs available from their Web sites. The trade association asked the court to enjoin the defendants from copying, distributing, publishing, or otherwise marketing the DeCCS computer program because, by doing so, the defendants were, by necessity, disclosing or using the trade secrets contained in the encryption programs.

The California appellate court weighed in on the side of free speech and refused to grant the injunction. In contrast to the Universal City Studios decision, the court reasoned that the DeCCS program was a form of “pure speech.” Furthermore, stated the court, the “scope of protection of trade secrets does not override the protection offered by the First Amendment. The California legislature is free to enact laws to protect trade secrets, but these provisions must bow to the protections offered by the First Amendment.” The court labeled any attempt at blocking the future use of computer programs “an impermissible prior restraint” on Web site operators’ First Amendment rights. c THE DEBATE CONTINUES If you buy a book, you can read it, throw it away, give it to someone else, or sell it to a used bookstore. Once you have bought it, you can legally do just about anything with it except make copies for resale. There is no way that the owner of the intellectual property contained in that book can insert an encryption system to prevent you from letting someone else read it. In contrast, any form of digitized intellectual property can contain an encryption system.

In principle, the 1998 DMCA protects all such encryption systems from being circumvented by “code cracking.” Understandably, the movie industry is urging the courts to interpret the DMCA’s provisions against circumvention narrowly. Yet some argue that several passages in the act would seem to allow for a broader interpretation—one that would allow constitutional challenges to succeed. Ultimately, the controversy may have to be decided by the United States Supreme Court.

WHERE DO YOU STAND? At issue in the twenty-first century is the trade-off between the necessity of writers, musicians, artists, and movie studios to profit from their work and the free flow of ideas for the public’s benefit.

Movie (and music) industry participants claim that encryption programs are necessary to prevent piracy.

Others, however, including the defendants in cases such as those discussed above, argue that the law should at least allow purchasers of movies, music, and books in digital form to make limited copies for fair use. Which side of this debate do you support? Is it possible to strike an appropriate balance between the rights © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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of both groups on this issue? a. 111 F.Supp.2d 294 (S.D.N.Y. 2000). b. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001). c. DVD Copy Control Association v. Bunner, 113 Cal.Rptr.2d 338 (2001). Note that in 2002, the California Supreme Court agreed to review this case.

CASE SYNOPSIS—

Case 8.3: Maverick Recording Co. v. Harper Whitney Harper shared digital audio files of songs with others through a peer-to-peer network.

Maverick Recording Co. and others filed a suit in a federal district court against Harper for copyright infringement. She asserted that her infringement was “innocent.” Under Section 504(c)(2) of the Copyright Act when an infringer is not aware, and has no reason to believe, that his or her act is copyright infringement, “the court in its discretion may reduce the award of statutory damages to a sum of not less than $200.” The court ruled in the plaintiffs’ favor on the issue of infringement, but awarded only $200 per infringed work. Both parties appealed.

The U.S. Court of Appeals for the Fifth Circuit affirmed the finding of liability, but reversed the finding of the innocent-infringer defense, and ordered the damages increased to $750 per infringed work.

When a copyright notice appears on a work, “no weight shall be given to * * * a defendant's interposition of a defense based on innocent infringement.” The plaintiffs’ works included the notice.

Harper’s contention that “she was too young and naive to understand that the copyrights on published music applied to downloaded music” was irrelevant. ..................................................................................................................................................

Notes and Questions How might a file-sharing system, or a similar service, be put to commercially significant but nonfringing uses? One possibility is that the service could pay copyright owners before allowing the transmission of their material via the Internet and charge its Web site’s users to download that material. The same might be done with other types of intellectual property—movies, books, etc.

What interest does the public have in upholding copyright law and granting the sort of relief that was awarded in this case? The public interest is the interest in upholding copyrighted protection. If there were no protection for music and other works of intellectual and creative processes, or if the copyright laws were not enforced, there would be less incentive to produce, package, and market such works. Our lives would be less rich in their absence.

When rights such as those in this case become more valuable as a result of new technology, should the law be changed to redistribute the economic benefit of those rights? Why or why not? It might be argued that the law should be changed in such circumstances for the same reasons that the law protects the rights in their

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original formats: to promote progress and development in the arts and sciences. It might be countered that the law should not be changed for similar reasons: redistributing economic rights after their creation could inhibit the development of new products and services.

ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 8.3 In this and other cases involving similar issues, the courts have held that when the published phonorecordings from which audio files were taken contained copyright notices, the innocent infringer defense does not apply. It is irrelevant that the notice is not provided in the online file. Is this fair? Explain. Some contend that labels placed on the physical copies of the CDs from which downloaded songs originate are not sufficient notification to someone who accesses the songs on the Internet. Therefore, this group claims, the courts should not rule out the innocent infringer defense as a matter of law just because the original works were copyrighted.

Rather, in situations such as Harper’s, defendants should be able to use the defense—and the burden for defendants using the defense is not slight. According to the Copyright Act, defendants raising this defense must prove that they were unaware—and had no reason to know—that their actions constituted copyright infringement. Further, a defendant must hold a good faith belief in the innocence of his or her conduct and show that holding such a belief was reasonable. Note that the innocent infringer defense is not a defense to liability for copyright infringement. Rather, it allows a court to reduce the amount of damages to be awarded to the plaintiff. In this case, the trial court had awarded damages of $200 per infringement because the defendant claimed that she was an innocent infringer. The appellate court, however, after holding that the innocent infringer defense was not available as a matter of law, upped the damages to $750 per infringement. For Harper, this increase meant that she was liable for $27,750 in total damages, instead of the $7,400 in total damages awarded by the trial court.

E.

V.

MP3 AND FILE-SHARING TECHNOLOGY The text describes MP3 file compression and music file sharing over the Internet through peer-topeer (P2P) networking. The copyright issues in this context are noted. Liability exists where a distributor of file-sharing software had reason to know of infringement and did not stop it, or could control infringing activities and benefited financially from them.

Trade Secrets Some business processes and information that cannot be patented, copyrighted, or trademarked are protected against appropriation by a competitor as trade secrets. Customer lists, plans, research and development, pricing information, marketing techniques, production techniques, formulas, and generally anything that makes an individual company unique and that would have value to a competitor constitute trade secrets.

A. STATE AND FEDERAL LAW ON TRADE SECRETS Theft of trade secrets is a violation of the common law, some states’ statutes (some based on the Uniform Trade Secrets Act), and a federal crime (under the Economic Espionage Act of 1996).

B.

TRADE SECRETS IN CYBERSPACE

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The nature of technology (especially e-mail) undercuts a firm’s ability to protect its confidential information, including trade secrets.

ANSWER TO CHAPTER OBJECTIVE/FOR REVIEW QUESTION NO. 4 What are trade secrets, and what laws offer protection for this form of intellectual property? Trade secrets are business processes and information that are not or cannot be patented, copyrighted, or trademarked.

Trade secrets consist of generally anything that makes an individual company unique and that would have value to a competitor. The Uniform Trade Secrets Act, the Economic Espionage Act, and the common law offer trade secrets protection.

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 information in the agreement. Do you want to protect just your customer list or all financial, technical,

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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.

VI.

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.

International Protection for Intellectual Property A. THE BERNE CONVENTION International copyright agreements include 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.

ANSWERS TO CRITICAL ANALYSIS QUESTION IN THE FEATURE— BEYOND OUR BORDERS Why did the parties negotiating ACTA take several years to disclose the details of the provisions under consideration? An international standard for such protection would promote progress and development in the arts and sciences, and save the time and expense of seeking the protection many times under different standards in different countries. Reasons for not disclosing provisions under consideration may relate to the differences among the standards of that protection in the various countries of the parties involved in the negotiations.

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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 CONVENTION FOR 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 * * * * 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 * * * * (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 dramaticmusical 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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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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 having the character of mere items of press information.

Article 2[b] * * * * (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 informatory purpose.

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

Article 3 * * * * (1) The protection of this Convention shall apply to: (a) authors who are nationals of one of the countries 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

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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 * * * * 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 * * * * (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 en joy 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

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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 More significant is the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

TRIPS was part of the agreement creating the World Trade Organization (WTO). 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.

ANSWER TO CHAPTER OBJECTIVE/FOR REVIEW QUESTION NO. 5 What steps have been taken to protect intellectual property rights in today’s digital age? Among the steps that have been taken to protect intellectual property in “today’s digital age” are the application of traditional and existing law in the cyber context, the signing of such treaties as the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement and the World Intellectual Property Organization (WIPO) Copyright Treaty, and the passage of such federal laws as the No Electronic Theft (NET) Act and the Digital Millennium Copyright Act.

C.

WORLD INTELLECTUAL PROPERTY ORGANIZATION (WIPO) COPYRIGHT TREATY Current international law includes the WIPO Copyright Treaty of 1996, which the United States implemented in the Digital Millennium Copyright Act of 1998.

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 © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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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 compact discs, cassette tapes, videocassettes, and laserdiscs. Should copying computer software be treated any differently than copying cassettes? Why? 3. To help students analyze problems that focus on topics in this chapter, you might outline the following three steps. First, it should be determined if the party who is bringing the suit has a protectible 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 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. What is trademark infringement? When a trademark is copied to a substantial degree or used in its entirety by another, it has been infringed.

2. 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.

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3. 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.

4.

What are service, certification, and collective marks? A service mark distinguishes services rather 4han 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.

5.

What is a trade name? A trade name is all or part of a business’s name. Words must be unusual or fancifully used to be protected as trade names.

6.

Why don’t all software products qualify for patent protection? 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.

7.

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 author 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, every country that has signed the Berne Convention must recognize his or her copyright. What is copyright infringement?

Copyright infringement is when the form or expression of an idea is copied in substantial part.

8.

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.

9.

What copyright protection is available for software? Under the Computer Software Copyright Act of 1980, Copyright Act protection was extended to computer programs. The act defined a computer program as a “set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result.” A program’s source code was clearly included. The courts have also extended protection to the binary object code. Program structure, sequence, and organization have been held copyrightable—there may be infringement even if there is no substantial similarity between programs’ literal elements. Protection may extend to programs’ “look and feel.” In at least one case, menu command structure was held to be copyrightable.

10.

Why is copyright the most important form of intellectual property protection on the Internet? What is the protection for copyrighted works online? Copyright law is probably the most important form of intellectual property protection on the Internet, in part because much of the material on the Internet consists of works of authorship © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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(multimedia presentations, software, database information, etc.). These works are the traditional focus of copyright law. Copyright law is also important because the nature of the Internet requires that data be “copied” to be transferred online. Loading a file or program into a computer’s random access memory, or RAM, constitutes the making of a “copy” for purposes of copyright law.

The World Intellectual Property Organization treaties provide international protection for copyrighted material. The Digital Millennium Copyright Act (DMCA) of 1998 implemented these treaties in the United States. The DMCA imposes civil and criminal penalties on anyone who circumvents encryption software or other technological anti-piracy features. Also banned are the manufacture, import, sale, or distribution of devices or services for circumvention. (The statute excepts the “fair use” of circumvention for educational and other noncommercial purposes. Also, an Internet service provider (ISP) is not liable for any copyright infringement by its customer if the ISP is unaware of the subscriber’s violation. An ISP may be held liable only after learning of the violation and failing to take action to shut the subscriber down. A copyright holder has to act promptly, however, by pursuing a claim in court, or the subscriber has the right to be restored to online access. The exceptions are to be reconsidered every three years.)

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.

3.

Ask students to research online how the design of a Web site can be protected. Here is one possibility: (1) Register it with the U.S. Copyright Office. This is not necessary but it establishes (a) a public record of your design in case a claim is filed and (b) prima facie evidence in court of the validity of the copyright. Additional damages and attorney fees may be available in a court action if the registration occurs before a claim is filed. (2) Put a copyright mark on the page. This is not required either, but it prevents an infringer from claiming “innocent infringement.” What is not copyrightable? Probably features that are merely functional, that are commonly used by others, that are directed by whatever software is used to create the site, or that are required by the Web, the Internet, or the ISP. What other protection is needed (for instance, for software that can be downloaded from the site) and what is available? Who owns the copyright—the owner of the site or the developer? Put it in writing.

4.

Ask students to research online the following question: how does a business choose and protect a domain name? (1) Find out if a name is taken (there are firms that run global searches). (2) Register the name. (3) Consider: (a) the risks of not registering in countries other than the United States (for instance, do you do business abroad? do you have foreign competitors? etc.); (b) the costs of registering elsewhere (about $250 per country, with as many as two hundred countries in which to register); and (c) the complications of registering elsewhere (technical and regulatory subjects to deal with in each country—requirements, fees, language translations, currency conversion, etc.). (4) Hire a professional registration service to do everything.

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5.

More than most of the other chapters in this textbook, the material in this chapter can be researched online. As of this writing, most, if not all, of the cases set out in this chapter can also be found at more than one Web site. Ask students to go online and update any of the individual cases or topics discussed in the text. Ask students, when undertaking this research, to evaluate the sources of the material that they find on the Web. How do you know when a source is reliable?

EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT Footnote 12: Playboy Enterprises, Inc. (PEI), trademarks include “Playboy,” “Playmate,” and “Playmate of the Year.” Terri Welles, who was featured as “Playmate of the Year” in 1981, maintains a Web site titled “Terri Welles—Playmate of the Year 1981.” As meta tags, the site uses the terms “Playboy” and “Playmate.” PEI filed a suit in a federal district court against Welles, asking the court to order her to, among other things, stop using the terms. On this issue, the court granted a summary judgment in Welles’s favor. PEI appealed. In Playboy Enterprises, Inc. v. Welles, the U.S. Court of Appeals for the Ninth Circuit concluded that Welles’s use of PEI’s trademarks as meta tags was a permissible use. It implied no current sponsorship or endorsement by PEI. “There is simply no descriptive substitute for the trademarks used in Welles’ metatags. Precluding their use would have the unwanted effect of hindering the free flow of information on the internet, something which is certainly not a goal of trademark law.” Also, “[t]he metatags use only so much of the marks as reasonably necessary and nothing is done in conjunction with them to suggest sponsorship or endorsement by the trademark holder.”

The court also analyzed Welles’s use of the PEI term “PMOY” as wallpaper on her Web site. Was this use nominative? No. “The repeated depiction of ‘PMOY ‘81’ is not necessary to describe Welles. ‘Playboy Playmate of the Year 1981’ is quite adequate. Moreover, the term does not even appear to describe Welles—her name or likeness do not appear before or after each ‘PMOY ‘81.’ Because the use of the abbreviation fails the first prong of the nominative use test, we need not apply the next two prongs of the test.” The court remanded the issue for a determination of whether this use infringed on a PEI trademark, however. The question was whether “PMOY” is entitled to protection.

Could the winner of an Academy Award, or a Heisman Trophy, or any other award with a familiar title, use that trademark as a meta tag for a Web site? Probably. The outcome in any case would depend on the factors applied in the Welles case. If the circumstances were similar, however, it is likely that the result would be the same. Could someone who has not won such an award use the trademark as a tag? This would also depend on the factors mentioned in the Welles case. If the use of the mark on the Web site were editorial—an article discussing contenders for Academy Awards, for example—it would not seem inappropriate to permit the use of the trademark as a tag..

Footnote 27: Bridgeport Music, Inc., and Westbound Records, Inc., own the copyright to “Get Off Your Ass and Jam,” which opens with a three-note solo guitar riff that lasts four seconds. The rap song “100 Miles and Runnin” contains a two-second sample from the guitar solo, at a lower pitch, looped and extended to sixteen beats, in five places in the song, with each looped segment lasting about seven seconds. “100 Miles” was included in the sound track of the movie I Got the Hook Up, which was distributed by No Limit Films. Bridgeport, Westbound, and others filed a suit in a federal district court against No Limit and others, alleging copyright infringement. The court issued a summary judgment in the defendants’ favor. Westbound appealed. In Bridgeport Music, Inc. v. Dimension Films, the U.S. Court of Appeals for the Sixth Circuit reversed. Digitally sampling a © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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copyrighted sound recording of any length is copyright infringement. “[A] sound recording owner has the exclusive right to ‘sample’ his own recording.” In other words, “the world at large is free to imitate or simulate the creative work fixed in the recording so long as an actual copy of the sound recording itself is not made. . . .

Get a license or do not sample,” because “even when a small part of a sound recording is sampled, the part taken is something of value. “ Suppose that instead of a sound recording, this case had involved three seconds of a copyrighted movie, which the defendants pirated off the Internet and incorporated as background in a music video production. Would this court’s holding be different? The result probably would have been the same, based on the same reasoning. The owner of the copyright in a film has the exclusive right to its use. Licensing is always possible.

Who is most likely to perceive the holding in this case—which arguably sets out a new rule—to “stifle creativity”? The court stated, “Since digital sampling has become so commonplace and rap music has become such a significant part of the record industry, it is not surprising that there are probably a hundred articles dealing with sampling and its ramifications. It is also not surprising that the viewpoint expressed in a number of these articles appears driven by whose ox is being gored. As is so often the case, where one stands depends on where one sits. For example, the sound recording copyright holders favor this interpretation as do the studio musicians and their labor organization. On the other hand, many of the hip hop artists may view this rule as stifling creativity. The record companies and performing artists are not all of one mind, however, since in many instances, today’s sampler is tomorrow’s sample. The incidence of ‘live and let live’ has been relatively high, which explains why so many instances of sampling go unprotested and why so many sampling controversies have been settled.”

How can artists sample others’ works and avoid liability for infringement? The court explained, “[M]any artists and record companies have sought licenses as a matter of course. Since there is no record of those instances of sampling that either go unnoticed or are ignored, one cannot come up with precise figures, but it is clear that a significant number of persons and companies have elected to go the licensing route. Also there is a large body of pre-1971 sound recordings that is not protected and is up for grabs as far as sampling is concerned. Additionally, just as many artists and companies choose to sample and take their chances, it is likely that will continue to be the case.”

Suppose that rather than taking a few notes from another’s musical composition, No Limit had played the exact same notes in the studio when recording. In other words, the band did not “sample” the copyrighted work of another. How would this change the outcome of the case? Could Bridgeport and Westbound still prove copyright infringement? The result might have been the same, based on the same reasoning. The owner of the copyright to a song has the exclusive right to its use. Licensing is always possible. No Limit might have avoided liability if it could have proved that it had never heard the copyrighted piece.

ANSWERS TO ESSAY QUESTIONS IN STUDY GUIDE TO ACCOMPANY THE LEGAL ENVIRONMENT TODAY, SEVENTH EDITION 1.

What does a copyright protect? A copyright does not protect any “idea, procedure, process, system, method of operation, concept, principle or discovery, regardless of the form in which it is described, explained, illustrated, or embodied.” A copyright does protect the way in which an idea is expressed. If the idea and its expression are inseparable, no copyright will be granted. Generally, anything that is not original does not qualify; compilations of facts do. © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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2.

What is a trade secret and how is it protected? Trade secrets are customer lists, plans, research and development, pricing information, marketing techniques, production techniques, formulas, and generally anything that makes a company unique and that would have value to a competitor. They cannot be patented, copyrighted, or trademarked, but they are protected from appropriation by the common law and in some states by the Uniform Trade Secrets Act. The protection extends to ideas and their expression. There are no registration or filing requirements.

REVIEWING—

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INTELLECTUAL PROPERTY AND INTERNET LAW

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Two computer science majors, Trent and Xavier, have an idea for a new video game, which they propose to call “Hallowed.” They form a business and begin developing their idea. Several months later, Trent and Xavier run into a problem with their design and consult with a friend, Brad, who is an expert in designing computer source codes. Before Hallowed is marketed, however, the video game “Halo 2” is released for both the Xbox and Game Cube systems. Halo 2 uses the same source codes as Hallowed and imitates its overall look and feel. Ask your students to answer the following questions, using the information presented in the chapter.

1. Would the name Hallowed receive protection as a trademark or as trade dress? The video game, “Hallowed,” would not receive protection as either a trademark or trade dress because game had not been released to the general public for use. The law protects only trademarks that are in use. Trade dress applies to a product’s distinct image and appearance, but only once the distinctiveness of a product’s appearance has been established.

2. If Trent and Xavier had obtained a business process patent on Hallowed, would the release of Halo 2 infringe on their patent? Why or why not? No, because all steps of a patented process must be copied to constitute infringement and these two games contain different features. For infringement of a business process patent to exist, all steps or their equivalent must be copied. In this scenario, while Halo 2 uses some of the same source codes as Hallowed, not all features alike, so it does not infringe on Hallowed’s patent.

3. Based only the facts described above, could Trent and Xavier sue the makers of Halo 2 for copyright infringement?

Why or why not? Yes, because Halo 2 copies the source codes of Hallowed. Whenever the form or expression of an idea is copied, an infringement of copyright occurs. The courts generally hold that copying the source codes of copyrighted software is infringement. Because Halo 2 used similar source codes as Hallowed, Trent and Xavier can sue for copyright infringement.

4. Suppose that Trent and Xavier discover that Brad took the idea of Hallowed and sold it to the company that produced Halo 2. Which type of intellectual property issue does this raise? The fact that Brad took and sold Trent and Xavier’s idea to another company raises a trade secret issue, because Brad wrongfully disclosed the idea of a new video game to a competing company. Unlike copyright and trademark protection, protection of trade secrets extends both to ideas and their expression.

© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

CHAPTER 8: INTELLECTUAL PROPERTY AND INTERNET LAW

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 LINKING THE LAW TO MARKETING—

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TRADEMARKS AND SERVICE MARKS

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The U.S. Patent and Trademark Office requires that a trademark or service mark that is registered must actually be put into commercial use within three years after the application has been granted. Why do you think the federal government put this restriction into place? In the online world, there is something called cybersquatting.

Someone registers a domain name that a large company might want to use in the future in this situation. The owner then “squats” on this domain Internet address until he or she is offered a large enough price to transfer it to a company that can actually make use of it.

The U.S. Patent and Trademark Office clearly is trying to prevent what we could call trademark squatting and service mark squatting. In other words, the federal government wants to make sure that once a trademark or service mark is created, the owner has either to “use it or lose it.” This “use it or lose it” regulation avoids lawsuits in the future, sometimes in the distant future, when someone else creates the same or a similar trademark or service mark. If a registered trademark or service mark is never put into commerce, it is difficult for others to determine that it exists. They might inadvertently use a trademark or service mark that is similar and then face a lawsuit. This would be an inefficient use of resources, particularly for our judicial system.

 EXAMPREP—

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ISSUE SPOTTERS

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1. Global Products develops, patents, and markets software. World Copies, Inc., sells Global’s software without the maker’s permission. Is this patent infringement? If so, how might Global save the cost of suing World for infringement and at the same time profit from World’s sales? This is patent infringement. A software maker in this situation might best protect its product, save litigation costs, and profit from its patent by the use of a license. In the context of this problem, a license would grant permission to sell a patented item. (A license can be limited to certain purposes and to the licensee only.)

2. In 2000, Eagle Corporation began marketing software under the mark “Eagle.” In 2009, Eagle.com, Inc., a different company selling different products, begins to use “eagle” as part of its URL and registers it as a domain name. Can Eagle Corporation stop this use of “eagle”? If so, what must the company show? Explain. Yes. This may be an instance of trademark dilution. Dilution occurs when a trademark is used, without permission, in a way that diminishes the distinctive quality of the mark. Dilution does not require proof that consumers are © 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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likely to be confused by a connection between the unauthorized use and the mark. The products involved do not have to be similar. Dilution does require, however, that a mark be famous when the dilution occurs.

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© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.