Climate Change Project

Table of Contents



Intellectual Property - Summer 2001

Intellectual Property in the New Technological Age - Updates

(Aspen Law & Business, 2nd ed. 2000)

Mark Lemley, Peter S. Menell, and Robert P. Merges


I. Trade Secret Protection

  1. Subject Matter
  2. Misappropriation
  3. Agreements
  4. Remedies
II. Patent Law
  1. Elements of Patentability
  2. Infringement
  3. Defenses
  4. American Inventors Protection Act
  5. International Patent Law
  6. Remedies
  7. Design & Plant Patents
III. Copyright Law
  1. Requirements
  2. Subject Matter
  3. Ownership & Duration
  4. Rights of Copyright Owners
  5. Defenses
  6. International Issues
  7. Remedies
IV. Trademarks & Trade Dress
  1. Scope of Protection
  2. Establishment & Extension of Rights
  3. Infringement
  4. Defenses
  5. Remedies

  1. Trade Secret Protection
    1. Subject Matter
      1. Defining Trade Secrets
      2. Reasonable Efforts to Maintain Secrecy
      3. Disclosure of Trade Secrets
    2. Misappropriation
      1. Improper Means
      2. Confidential Relationship
      3. Reverse Engineering
      4. Departing Employees
    3. Agreements to Keep Secrets
    4. Remedies
      1. Damages for Misappropriation
      2. Injunctions
      3. Criminal Trade Secrets Statutes
  2. Patent Law
    1. Elements of Patentability
      1. Patentable Subject Matter
      2. Utility
        • In Juicy Whip, Inc. v. Orange Bang, Inc., 1999 U.S. App. LEXIS 18342, 51 U.S.P.Q.2D (BNA) 1700, (No. 98-1379) (Fed. Cir. Aug. 6, 1999), the court reversed a District Court decision holding Juicy Whip's patent invalid for lack of utility. The patent covered a 'post-mix' beverage dispenser, a machine that mixes the beverage at the time it's dispensed, while spinning a fake liquid in a sealed display bowl. The invention thus creates the impression that the beverage is dispensed from the bowl, while reducing the potential for bacterial growth in the beverage and the hassle of cleaning. The District Court reasoned that the machine's only use was to increase beverage sales through deception.

          The Federal Circuit held that this was sufficient utility to satisfy the requirements of 35 U.S.C. Section 101, stating, "the principle that inventions are invalid if they are principally designed to serve immoral or illegal purposes has not been applied broadly in recent years." Deceptive trade practices may be regulated by Federal Trade Commission and Congress may preclude patentability on such a basis, said the court - but given that there is no such rule here, the patent is valid.

          In its decision, the court explicitly declined to follow Rickard v. Du Bon, 103 F. 868 (2d Cir. 1900) (invalidating a patent on making low-quality tobacco leaves appear to be of higher quality), and Scott & Williams, Inc. v. Aristo Hosiery Co., 7 F.2d 1003 (2d Cir. 1925) (invalidating a patent on making stockings appear to be of higher quality), stating that they did not accurately reflect the concept of utility since the Patent Act of 1952, and that "[t]he fact that one product can be altered to make it look like another is in itself a specific benefit sufficient to satisfy the statutory requirement of utility." In this regard, the court pointed to cubic zirconia and imitation leather as additional examples. [blurb by CKR]


      3. Novelty & Statutory Bars
      4. Nonobviousness
        • In Amazon.com, Inc. v barnesandnobel.com, Inc., (No 00-1109) (Fed. Cir., Feb. 14, 2001), the Federal Circuit Court of Appeals vacated a district court's preliminary injunction barring defendant Barnesandnoble.com (BN) from use of its single action online ordering system, "Express Lane." The lower court had held that BN's Express Lane would likely be found to have infringed Amazon's "one-click" patent. In an opinion by Judge Clevenger, the Federal Circuit concluded that BN had "mounted a substantial challenge to the validity of the [Amazon] patent." The court was careful to point out, however, that it only held "that BN cast enough doubt on the validity of the '411 patent to avoid a preliminary injunction, and that the validity issue should be resolved finally at trial."

          Both BN and Amazon are major online retailers. Amazon's patent is directed to a method and system for "single action" ordering of items in a client/server environment such as the Internet (the '411 patent). Amazon developed the patent to overcome limitations with the "shopping cart model," which requires customers to select items and then proceed to a virtual "checkout" where they must input shipping and billing information to complete the transaction. Amazon's system employs a unique identifier or "cookie" stored on each users computer and transmitted to Amazon when a user connects to the Amazon web site. The identifier enables Amazon to reference previously stored customer data such as shipping and billing information. Once an item is displayed, a user can complete an order for that item with a single action, and without having to enter billing and shipping information.

          BN developed its own ordering system, dubbed "Express Lane," which also allowed users to complete purchases with a single action, once an item is displayed. Amazon brought suit against BN claiming Express Lane infringed its '411 patent. The district court found that Amazon would likely prevail in its infringement action, and immediately before the holiday shopping season entered a preliminary injunction barring BN from using Express Lane ordering system.

          On appeal, the Federal Circuit found no error with the lower court's finding that Amazon would likely succeed in proving BN's Express Lane feature infringed the '411 patent. On the issue of invalidity, however, the court found that the district court had committed clear error by misreading the factual content of the prior art references cited by BN and by failing to recognize that BN had raised a substantial question of invalidity of the asserted claims in view of the prior art references. The court emphasized that at the preliminary injunction stage of an infringement suit, a defendant need only raise a "substantial question" as to the validity of the asserted patent, which "requires less proof than the clear and convincing showing necessary to establish invalidity itself."

          Turning to specific prior art references, the court first discussed the "CompuServe Tend System," which allows subscribers of the pre-world-wide-web network to purchase stock charts for a surcharge of 50 cents per chart, with a single action. While noting that BN had not provided sufficient evidence for to establish anticipation, or obviousness, for purposes of a preliminary injunction, the reference raised a substantial question of invalidity. The court next turned to the "Web-Basket" system, developed by a Dr. Lockwood in August 1996, and employing a "cookie" specification to retrieve user billing and shipping information. BN argued that the system rendered Amazon's '411 patent obvious to one skilled in the art. The lower court cited the testimony of Dr. Lockwood that it never occurred to him to develop a single action version of Web Basket as evidence that it was not obvious. The circuit court held such reliance wrong as a matter of law; "[t]he relevant inquiry is what a hypothetical ordinarily skilled artisan would have gleaned from the cited references," not what Dr. Lockwood's would have personally gleaned.

          The court also found the lower court had erred by failing to recognize that a reasonable jury might have found that a passage in a 1996 book and a quote from a 1996 web site, when combined with the other cited references, provided sufficient motivation to "modify the shopping cart model to skip unnecessary steps." Again, these raised a substantial question as to validity. Finally, the court cited a patent ('780 patent), predating the '411 patent, and describing a system for single request access to "controlled content" on a web sever. The court held that the district court had erred in failing to recognize that a reasonable jury could have found that such "controlled pages" fall within the scope of the '411 patent, and that delivery based on a single request constituted a "single action," and thus anticipating the '411 patent. Finding substantial questions as to validity had been raised by BN, the court vacated the preliminary injunction, and remanded for further proceedings. [blurb by MSV]


      5. Written Description / Enablement
      • In Purdue Pharma v. Faulding Inc., 2000 U.S. App. LEXIS 26797, 56 U.S.P.Q.2D (BNA) 1481, (No. 99-1416, 99-1433) (Fed. Cir. Oct. 25, 2000) the Federal Circuit affirmed the District Court's decision holding Purdue's claim invalid because the patent's written description lacked sufficient details which could direct a skilled artisan to the claimed medication ratio. The patent covered a single, daily dose, sustained-release oral morphine formulation. This once-a-day formulation differed from previous attempts at single dosage delivery techniques in that instead of attempting to maintain an unchanging concentration of opioid throughout the system for the whole day the maximum concentration of opioid occurs within 2 to 8 hours of administration. Such a spike in the drug dosage allows for effective treatment of pain by a single dose of an opioid. The District Court found that the patent was insufficient in its description that the final concentration of opioid be less than half of the maximal concentration of the opioid.

        The Federal Circuit agreed that one skilled in the art could not immediately realize that a final opioid concentration of less than half the maximum concentration was described in the Purdue patent. Purdue's argument was based on a statement in their patent regarding a "substantially flat serum concentration curve" which Purdue claimed was equivalent to a fluctuation of 100% or less. While some experts agreed with this interpretation, one acknowledged that changes over 100% could be considered flat. An additional problem was that the examples used in the patent cover ranges of fluctuation outside of this claimed critical range of fluctuation. Also, those examples that were within the critical range of fluctuation were not in any way emphasized.

        The Federal Circuit described Purdue's patent as lacking any "blaze marks" directing the skilled artisan to the relevant range in opioid fluctuation. The Federal Circuit further characterized Purdue's action as having described a forest and then attempting to pick out an individual tree it wanted to protect. Purdue's additional arguments, that the District Court made an error of law, were also denied. The Federal Circuit declared the first two such issues to be based on misinterpretations the lower court's opinion. The final issue was that the lower court should have initially deferred to the examiner. The Federal Circuit found that the lower court was correct in not yielding since the lower court found the examiner's statement insufficient and unpersuasive. The Federal Circuit did not address the issue of infringement after finding the claim invalid. [blurb by EL]


    2. Infringement
      1. Literal Infringement
      2. Doctrine of Equivalents
        • In Vehicular Technologies Corp. v. Titan Wheel Int'l, Inc., No. 96-1557, 141 F.3d 1084 (Fed. Cir. 1998), the court vacated the district court's preliminary injunction order regarding allegedly infringing automotive locking differentials, concluding that the district court erred in finding a likelihood of success on the merits. A normal differential applies equal torque to each wheel, which can cause problem when one wheel loses traction. The locking differential solves this problem by shifting drive power to the wheel that has traction, by using springs to push toothed drive plates against toothed driven plates. The prior art spring-disk-pin solution was very difficult to install. Plaintiff's invention solved this with (1) window openings in the drive plates; (2) spring assemblies that used concentric springs and a pin, instead of the spring-disk-pin configuration; and (3) spring passageways with oblong cross sections. Plaintiff Powertrax introduced the new product two years before the patent issued, and defendant Trachtech promptly reverse-engineered the device. When the Powertrax patent issued, Trachtech redesigned its differential by eliminating holes around the edges of the drive plates, and by replacing the inner spring of the two spring assembly with a single spring and a plug. The district court found that the new Trachtech assembly was equivalent to the Powertech two spring assembly.

          The Federal Circuit focused on the following limitation in the Powertrax patent: "biasing means interposed between said driving surface faces comprising at least a pin in alignment with a spring assembly consisting of two concentric springs bearing against one end of said pin," and held that the district court erred in finding the claimed design equivalent to the Trachtech spring/plug assembly. In so holding, the court essentially based its decision on an estoppel theory related to the written description, which "repeatedly emphasized" the importance of the second spring as performing a backup function. Although this backup function was not claimed, the court found that it was nevertheless "key."

          A vigorous dissent by Judge Newman characterized this as an improper importation of a limitation from the specification, in a case where the claims were clear on their face. The dissent further characterized the holding as a "new rule" creating a new bar to equivalency based on unclaimed advantages. The dissent also noted that the backup feature was not viewed by the patentee or the accused infringer as necessary to the device's function, and that the accused device was just as durable as the patented device. [blurb by CKR]


        • In Festo Corporation v. Shoketsu Kinzoki Kogyo Kabushiki Co., Ltd., 2000 U.S. App. LEXIS 29979, 56 U.S.P.Q.2D (BNA) 1865, (No. 95-1066) (Fed. Cir. Nov. 29, 2000) (rehearing en banc) the Federal Circuit reversed the District Court's judgment of patent infringement because the amendments to the patents gave rise to prosecution history estoppel, the plaintiff failed to establish that the amendments were unrelated to patentability, and the amended claim elements were not entitled to a range of equivalents. The Stoll and Caroll patents, assigned to Festo, each disclosed a hollow cylinder with an inner piston magnetically coupled to an outer sleeve, wherein the piston drives the sleeve in order to convey articles. Additionally, the two patents each disclose a pair of sealing rings at the axial ends of the cylinder. The SMC patent differed from the Stoll and Caroll patents in that it disclosed only a single resilient two-way sealing ring at one end of the piston, rather than a pair of sealing rings at both piston ends. The District Court jury found that the SMC patents infringed the Stoll patent under the doctrine of equivalents since the single sealing ring performed substantially the same function in substantially the same way to obtain substantially the same result as the pair of sealing rings.

          The Federal Circuit, in answer to its en banc questions, held that any amendment, either voluntary or required by the examiner, that narrows the scope of a claim for a reason related to the statutory requirements for patentability will give rise to prosecution history estoppel; and that no range of equivalents is available for unexplained amendments or an amended claim element that gives rise to prosecution history estoppel. In other words, any claim amendment that narrows the scope of a claim for a reason related to patentability creates a complete bar to the doctrine of equivalents. The Federal Circuit acknowledged that it was overruling its prior acceptance of a flexible bar approach, stating that it was an "unworkable" approach.

          Under the complete bar approach, the court held that the SMC patents did not infringe the Stoll patent. During patent prosecution, Stoll amended claims in response to a rejection under 35 U.S.C. 112, P 1, which stated that it was unclear whether the claimed device was a motor or a clutch. The amendment recited "first sealing rings located axially outside said guide rings," and cancelled, "sealing rings." Since Stoll narrowed the claims regarding sealing rings, the Federal Circuit held that prosecution history estoppel existed and there was no available range of equivalents for the pair of sealing rings.

          The dissent disagreed with the majority's opinion that no range of equivalents should be available, stating that the majority's new complete bar rule was inequitable and contradicted Supreme Court precedent established in Warner-Jenkinson Co., v. Hilton Davis Chemical Co. The dissent warned that the complete bar rule would invite technology theft-anyone who wanted to steal a patent need only review a patent's prosecution history to identify patentability related amendments, then make a trivial modification in order to avoid infringement. The dissent also objected to the majority's upset of the balance struck by the Supreme Court between the competing needs for meaningful patent protection and adequate public notice. The Supreme Court, as recently as Warner-Jenkinson, stated that the all-elements rule, as supplemented by prosecution history estoppel, sufficiently balanced competing needs, so that a complete bar would not be necessary to serve the public with adequate public notice.[blurb by CW]


      3. "Reverse" Doctrine of Equivalents
      4. Equivalents for Means-Plus-Function Claims
      5. Contributory Infringement
    3. Defenses
      1. Experimental Use
      2. Inequitable Conduct
      3. Patent Misuse
    4. American Inventors Protection Act
      • Title IV of the Intellectual Property and Communications Omnibus Reform Act of 1999, Pub. L. No. 106-113, the American Inventors Protection Act of 1999 (*pdf download*), includes significant changes to U.S. patent law:

        1. The Inventor's Rights Act of 1999 regulates the invention promotion industry, providing statutory damages of up to $5,000 for failure to comply with the new law, fraudulent statements and omissions of material facts. The law also requires a written contract between the inventor and promoter, and detailed disclosures by the promoter.

        2. The Patent and Trademark Fee Fairness Act of 1999 lowers filing fees for patent and reissue applications, U.S. filing of foreign patents, and the first patent maintenance fee. It also creates an Undersecretary of Commerce for Intellectual Property and vests this position with power to further adjust these fees. It also requires a study of alternative fee structures.

        3. The First Inventor Defense Act of 1999 applies to infringement actions filed after November 29, 1999. It creates an affirmative defense for prior users of business methods who, in good faith, reduce a method to practice at least one year before the filing date of the patent, AND commercially use it before the filing date. It must be proven by clear and convincing evidence. Filing date is the earliest date patentee can assert, including reliance on earlier-filed foreign applications. Use is commercial if it's an internal commercial use, the sale of a useful end result or premarketing regulatory review. There are also limited protections for certain nonprofit entities like universities and hospitals. The defense also protects third parties who purchased a useful end product from a prior user. This defense only applies to business methods, and is limited to the specific subject matter of the qualifying patent (e.g., no license to practice all claims of the patent). The defense does not apply if there is derivation or abandonment. Finally, the defense generally may not be conveyed unless the entire enterprise is transferred, in which case it may only be asserted where the method was in use before the effective filing date of the patent, or the transfer, whichever is later (e.g., original inventor may expand, but transferee may not expand uses after patent application is filed.

        4. The Patent Term Guarantee Act of 1999 applies to patents issued on or after August 29, 1999. The continued examination provisions apply to nonprovisional and international applications filed after June 7, 1995. In general, patents that do not issue within three years of the filing date will get an extra day in the patent term for each additional day the PTO delays in issuing the patent. Whereas the old law provided for a maximum of five years of extension, the new law removes the limit and expands the circumstances which can give rise to an extension.

        The Act guarantees that the PTO will either issue an allowance or rejection of an application within 14 months of filing; that the PTO must respond within four months to a reply, appeal or interference/court decision, and mandates issuance of a patent within four months after payment of the issue fee. Each day of delay will result in an additional day of patent term.

        If total patent prosecution takes longer than three years, the term will be extended unless the delay is due to an interference, secrecy order, successful appellate review, delay requested by the applicant. It also does not apply to continued examinations. Further, in case of interference, secrecy order or appellate review where an adverse determination is reversed, the term must be extended for each day of delay.

        Overlaps in extensions are limited to the actual number of days of delay, and extensions may not be granted beyond the limit of a terminal disclaimer. Further, extensions will be reduced by the number of days the applicant didn't exercise reasonable efforts to conclude prosecution, presumptively any response to an office action taking longer than three months. Applicants are automatically notified of any extensions in the notice of allowance, and may request reconsideration or appellate review. Although an applicant may object to a term extension prior to issuance, third parties must wait until the patent issues before making an objection.

        5. Domestic Publication of Foreign Filed Patents. Effective November 29, 2000, all patent applications filed abroad (either before or after a U.S. filing), must be published within 18 months from the earliest filing. This does not apply to design patents, applications no longer pending, or pending applications subject to a secrecy order. Patents that are not foreign filed may remain unpublished upon the applicant's request. Only the portions of the application published abroad need be published in the U.S. To avoid publication, an applicant must certify that it does not intend to file abroad. If the applicant changes its mind, notice to the PTO within 45 days (failure results in abandonment of the U.S. application) is required, and the application will be published.

        For those who publish their U.S. applications, a reasonable royalty applies after publication and before the patent issues, and will accrue against any infringers during this term, to the extent these infringers have actual notice of the publication. This provisional benefit vests only after issuance of the patent, and the granted claim must be "substantially identical" to the claim in the published application. Patentee must bring an action within six years to collect the provisional reasonable royalty. Published applications become part of the prior art as of their filing date, as may published international applications if they are published in English. With regard to interferences, an interfering claim may be made prior to one year after the date on which the application was published. U.S. publication does not give rise to opposition or reissue proceedings unless the applicant consents.

        6. The Optional Inter Partes Reexamination Procedure Act of 1999 applies to any patent that issues from an application filed on or after November 29, 1999. This provision gives parties requesting reexamination a choice of the old system (reexamination can be requested but the third party may not participate), and the new system. Under the new system, third parties may submit a written response to each response filed by the patentee (although they may not participate in any discussions or between examiner and patentee).

        The new system has significant disadvantages. Third parties may not appeal an adverse decision, may not participate in an appeal by the patentee, and the third party is estopped from later asserting the invalidity of any claim determined to be valid. The third party is also estopped from raising any issues in subsequent proceedings that it could have raised in the reexamination, as well as from challenging any facts determined during the reexamination proceeding. Only facts proven erroneous in light of new information and newly discovered prior art may be asserted in subsequent proceedings. Because of these substantial limitations, it is generally thought that the new system will rarely be used.

        7. The Patent and Trademark Efficiency Act of 1999 places the PTO under the Department of Commerce and provides for appointment of an Undersecretary of Commerce for Intellectual Property and Director, appointed by the President. The Secretary of Commerce appoints a Director, Deputy Director, a Commissioner of Patents and Commissioner of Trademarks. Also included are two 9-member Public Advisory Committees (Patents and Trademarks), which review policies and procedures.

        8. Miscellaneous provisions include (a) elimination of the copendency requirement for provisional and nonprovisional applications to obtain the provisional filing date; (b) permitting the PTO to require certain documents to be filed electronically; (c) requiring a study of the risks of transfer of biological materials on deposit; (d) limiting a showing of prior foreign invention in an interference proceeding to Section 104 acts, and that such an invention must not have been abandoned, suppressed or concealed; and (e) 102(e) prior art no longer precludes patentability if it was commonly owned with the claimed subject matter at the time the invention was made (applies to applications filed after November 28, 1999). [blurb by CKR]



    5. International Patent Law
      1. Procedural Rules
      2. Substantive Harmonization and GATT-TRIPS
    6. Remedies
      1. Injunctions
      2. Damages
    7. Design & Plant Patents
      1. Design Patents
      2. Plant Patents
  3. Copyright Law
    1. Requirements
      1. Original Works of Authorship
      2. Fixation
      3. Formalities
    2. Subject Matter
      1. Function vs. Expression
      2. Domain and Scope of Copyright Protection
        • In SmithKline Beecham Consumer Healthcare LP v. Watson Pharmaceuticals Inc., 2d Cir., No. 99-9501, 4/4/00), the court held that the Hatch-Waxman amendments to the Federal Food, Drug, and Cosmetic Act ("FFDCA") trumped copyright law with regard to brochures and audiotapes explaining the proper use of generic versions of Nicorette gum, a smoking cessation aid. The amendments, designed to simplify the process for generic drug approval, require that such drugs use the "same labeling" as the original pioneer drug. Getting approval on such labeling can be a very time-consuming process - in this case, for example, 70 changes over three years were required prior to approval. Based on the rule that, where two statutes conflict the court should attempt to preserve the primary purposes of each, the court reasoned that the "same labeling" requirement could not be served if the user guide and audiotape had to be changed, since this would require significant FDA approval. With regard to the copyright law, the court reasoned that, although the materials were clearly copyrighted material, the purpose of copyright law is to create incentives for the production of creative works. The drug materials were primarily created for an administrative purpose, and were ancillary to obtaining FDA approval. Further, the court reasoned that allowing copyright infringement in such cases would not reduce the incentive to create effective drug labeling. [blurb by CKR]


    3. Ownership & Duration
      1. Initial Ownership
        • In Tasini et al. v. New York Times Co., Inc. et al., 1999 U.S. App LEXIS 36241, 206 F.3d 161 (Nos. 97-9181, 97-9650) (2nd Cir. Sept. 24, 1999, as amended Feb. 25, 2000), Certiori granted, 2000 U.S. LEXIS 7321, the Second Circuit Court of Appeals reversed a District Court decision granting defendant Publishers summary judgment against Authors' claim that Publishers infringed their copyright rights by including Authors' copyrighted works in online databases. The court ruled that online databases containing individual articles from multiple publications cannot be construed as "revisions" of collective works under 17 U.S.C. Section 201(c). Authors of collective works (such as dated editions of newspapers, magazines, and encyclopedias) containing individually copyrighted contributions own copyright only to the original material they create, including the "selection, coordination, and arrangement of the preexisting materials." Only the individual copyright holders, the court held, may authorize republication or redistribution of their individual contributions by licensing to databases.

          The court's decision turned on the interpretation of section 201(c) of the 1976 Copyright Act, which limits the default rights collective-works authors acquire over individually copyrighted contributions to the collective work. Following the plain language of section 201(c) in conjunction with sections 103(b) (denying collective-work authors "any exclusive right in the preexisting material"), and 201(d) (permitting separate ownership of individual copyright rights and their subdivisions), the court found that defendant Publishers had infringed Author's exclusive rights. Section 201(c) grants a limited privilege to collective-work authors to reproduce and distribute individually copyrighted contributions "as part of that particular collective work, any revision of that collective work, and any later collective work in the same series." The District Court erred, the court held, in accepting Publishers' claim that online databases constitute "revisions" of the editions of newspapers or magazines in which the stories were first published.

          In reaching its decision, the Appellate Court relied on statutory construction and legislative history. The court found that the statute's distinction between three kinds of publication could not be reconciled with the broad definition of "revisions" proposed by Publishers. The court noted that the first clause "sets the floor . . . of the presumptive privilege: the collective-work author is permitted to reproduce and distribute individual contributions as part of 'that particular collective work.'[and] in this context,. . . 'that collective work' means a specific edition or issue of a periodical. . . ." The second clause, according to the court, "[permits] the reproduction or distribution of . . . a revision of a particular edition of a specific periodical." Finally, the third clause "sets the outer limit or ceiling on what the Publisher may do; it permits the reproduction and distribution of the individual contribution as part of a 'later collective work in the same series,' such as a new edition of a dictionary or encyclopedia." According to the court, "[t]he most natural reading of the 'revision' of 'that collective work' clause is that section 201(c) protects only later editions of a particular issue of a periodical, . . ." The court found support for this reading in the House Report on the 1976 Copyright Act stating that the "revision" clause "was not intended to permit the inclusion of previously published freelance contributions 'in a new anthology or an entirely different magazine or other collective work.'" H.R. Rep. No. 94-1476, at 122-23 (1976).

          The court invoked a second rule of statutory construction (exceptions to general rules should be narrowly construed) in analyzing Section 201(c) as an "exception to the general rule that copyright vests initially in the author of the individual contribution" and concluding that Publishers' theory posits an exception so broad that "it is not clear that the rights retained by the Authors could be considered 'exclusive' in any meaningful sense."[blurb by MKW]


        • In late 1999, Congress passed the Satellite Home Viewer Improvement Act of 1999, enacted as part of Pub. L. No. 106-113, 113 Stat. 1501 (1999), which, in a short provision added in a last minute closed door meeting, modified the definition of "work made for hire" in section 101 of the Copyright Act by adding "sound recordings" to the list of works that may be considered "works made for hire." The new language was apparently added at the request of record companies, which insisted that the change was a mere "technical" correction meant to "clarify" existing law. Recoding artists quickly mobilized to seek a repeal, and ultimately prevailed when congress passed the ( Work Made For Hire and Copyright Corrections Act of 2000 (H.R. 5107, Pub. Law 106-379).

          According to recording artists and their supporters, the 1999 amendment was far more than a mere technical clarification, but may have converted many existing copyrights in sound recordings to "works made for hire." If correct, the change may have effected a substantial reworking of future copyright ownership rights. There is crucial difference between a work created by an author and transferred by copyright, and a "work made for hire." When artists transfer copyright by contract, the termination provision of the 1976 Copyright Act gives the artist the right to recapture the work 35 years after the transfer is made. This allows artists to capitalize on a work that has grown far beyond its perceived value at the time of the initial transfer. If, however, the work is deemed a "work made for hire," the "employer" or here, the recording company, is deemed the putative "author," thus, the artist has no termination right.

          Generally, material contributed by an independent contractor may be considered a "work made for hire" only under the very specific circumstances defined in the second paragraph of the section 101 definition of a "work made for hire." Prior to the 1999 amendments, the nine categories of works listed in section 101 as potential works made for hire did not include "sound recordings" (although some of those categories listed, such as "audio visual works" might include a sound recording specifically made for inclusion in such a work).

          Most recording artists transfer their copyrights in their sound recordings to a recording company in exchange for upfront payments, promotion, and royalties. Most recording contracts contain provisions stating that the sound recording is "a work made for hire." However, such contract language, by itself, is not thought to be dispositive of whether a given work meets the legal definition of a "work made for hire" under the 1976 Copyright Act (allowing contract language to override the termination right would make the termination and recapture right, meant to re-balance author's unequal bargaining position, essentially meaningless). The U.S. Supreme Court, in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), held that in situations where an entity exercises a high degree of control over an artist's activities in making a particular work, application of a multi-factor test derived from the common law of agency might yield the conclusion that the artist was an "employee" working within the scope of his or her employment, with the result being that the work created would be a "work made for hire" and the putative "author" would be the employer. Thus, it is possible that certain sound recordings, prior to the 1999 amendments, could qualify as works made for hire. Prior to the 1999 change, however, several courts had ruled out treating typical recording artists' contributions to typical sound recordings as "works made for hire" on the basis of the then existing second paragraph of the Sec. 101 definition, because a "sound recording does not fit into any of the nine categories of 'specially ordered or commissioned' works...." Staggers v. Real Authentic Sound, 77 F.Supp. 2d 57, 64 (D.D.C. 1999); see also Ballas v. Tedesco, 41 F.Supp. 2d 531, 541 (D.N.J. 1999). Thus, with the 1999 amendment specifically adding "sound recordings" to the list of works eligible for treatment as "works made for hire" under section 101, courts could no longer rely on the lack of such language to find that a typical sound recording could not be a work made for hire.

          In congressional hearings on the Work Made for Hire bill introduced to repeal the 1999 change, Hilary Rosen, president of the Recording Industry Association of America (RIAA - the chief lobbying arm of the recording industry), insisted that the new provision was simply a clarification of existing law: namely that sound recordings could be (but didn't necessarily have to be) "works made for hire." Despite this insistence, Rosen also argued that sound recordings should generally be considered works made for hire because otherwise, any person who made any contribution to the sound recording, no matter how minor (e.g. producers, co-authors, sound engineers, etc.), might have a claim to the status of "author" upon statutory termination and recapture, and the resulting uncertainty of ownership rights would lead to substantial under exploitation of the full value of the work. Work for hire status, on the other hand, ensures single ownership, and thereby promotes full exploitation of the work.

          Artists, the Register of Copyrights, Marybeth Peters, and numerous copyright law scholars argued, however, that the change was far more than a mere technical correction, but was rather a significant substantive change in copyright law (See Register's Statement) They also argued that typical sound recordings should not be deemed works for hire as this would upset the purpose of the termination and recapture right of section 203 to "safeguard[] authors against unremunerative transfers. A provision of this sort is needed because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work's value until it has been exploited." H.R. Rep. No. 94-1476, at 124 (1976). As to the potential problem of many potential claimant authors, it could be readily solved by limiting the termination right to only major or "key contributors."

          Ultimately, the artists prevailed when congress passed the Work Made For Hire and Copyright Corrections Act of 2000, which essentially put the law back where it was prior to the 1999 amendment. Concerned that courts not interpret the subsequent deletion as an intent to exclude sound recordings from ever being works made for hire, the law also included specific language stating that no interpretive weight be given to either the 1999 addition or the 2000 removal of language in section 101.[blurb by MSV]


      2. Duration & Renewal
        • In Eldred v. Reno, 2001 U.S. App. LEXIS 2335 (No. 99-5430) (D.C. Cir., Feb. 16, 2001), the United States Court of Appeals for the District of Columbia affirmed a district court ruling dismissing plaintiffs' claims that the Copyright Term Extension Act of 1998 (CTEA) was unconstitutional. The majority opinion by Judge Ginsburg, and joined by Judge Henderson, reviewed de novo and rejected plaintiffs' arguments that the CTEA, which amended various sections of the Copyright Act to extend the terms of existing and future copyrighted works by twenty years, was unconstitutional as violating both the First Amendment and the Copyright Clause. Circuit Judge Sentelle, dissenting in part, agreed with much of the majority's conclusions, but found that the Copyright Clause, Art. I, 8, cl. 8, limits Congress' power to extend copyright protection for existing works, and found unconstitutional the CTEA's twenty year extension of copyright protection for existing works.

          In 1998, Congress enacted the CTEA, which amended various sections of the Copyright Act of 1976 to extend the terms of all copyrights, existing and new, by twenty years. According to the Senate report, a primary purpose of the Act was to better align the terms of United States copyrights with those of the European Union. However, the CTEA was only the latest in a series of congressional extensions of copyright. Between 1962 and 1974, Congress passed a series of laws that incrementally extended the terms of existing copyrights. Plaintiffs, which include various organizations and individuals that have an interest in utilizing, preserving, and making available public domain works, brought suit to obtain a declaration that the CTEA was unconstitutional. Plaintiffs raised three primary arguments: (1) granting a copyright to a work that would otherwise be in the public domain violates the First Amendment; (2) extending an extant copyright violates the originality requirement of the Copyright Clause because the copyrighted work already exits, and thus cannot be original; and (3) extending copyright terms violates the "for limited times" language of the Copyright Clause.

          Addressing plaintiffs' First Amendment argument, the court cited Harper & Row Publishers, Inc., v. Nation Enterprises, 471 U.S. 539 (1985), and its own decision in United Video v. FCC, 890 F.2d 1173 (D.C. Cir. 1989), as "insuperable bars to plaintiffs' first amendment theory." According to the majority, "copyrights are categorically immune form challenges under the First Amendment." "The works to which the CTEA applies, and in which plaintiffs claim a first amendment interest, are by definition under copyright; that puts the works on the latter half of the "idea/expression dichotomy" and makes them subject to fair use. This obviates further inquiry under the First Amendment."

          The court next rejected plaintiffs' argument that the CETA unconstitutionally extends protection to works that lack originality because they would otherwise be in the public domain, and public domain works by definition lack originality. The court simply disagreed. "A work with a subsisting copyright has already satisfied the requirement of originality and need not do so anew for its copyright to persist." The court noted that if Congress could not extend a subsisting copyright, it could not provide for a renewal right either. Nevertheless, even if there were something special about extending a copyright beyond the combined initial and renewal terms, the court refused to characterize an existing copyright as in the public domain. The court appeared willing to accept the argument that Supreme Court precedents in patent cases denying Congress the power to grant patents "whose effects are to remove existent knowledge from the public domain" may also apply to copyright. But the court found such an analogy irrelevant here because the works to which the CETA applies are not (yet) in the public domain.

          The court quickly disposed of plaintiffs' argument that the "for limited times" language of the Copyright Clause, read in conjunction with the "to promote the arts and sciences" introductory passage, acts as a limit on Congress' power to extend the term of copyright protection. Essentially, plaintiffs' argued that if 50 years were sufficient to "promote ... Progress," then a grant of 70 years would be unconstitutional. But court held that the plaintiffs ran squarely up against its holding in Schnapper v. Foley, 215 U.S. App. D.C. 59, 667 F.2d 102, 112 (1981), in which it rejected the argument "that the introductory language of the Copyright Clause constitutes a limit on congressional power." While Amicus argued, and the dissenting opinion agreed, that Schnapper should be read more narrowly, the court refused to even consider the argument because, as a procedural matter, plaintiffs had rejected it. Nevertheless, the court held that even if it were to determine that Schnapper was wrong (and the preamble was limiting) it would still find the CETA constitutional. Applying a "necessary and proper" analysis, the court noted that it might well have held that the term extension for subsisting copyrights was "plainly adapted" and "appropriate" to "promoting progress." The court cited a congressional finding that extending copyright term would provide an incentive to preserve existing works as evidence that the CETA "promotes progress." Finally, the court cites the first Copyright Act, which extended the terms of many copyrights then protected by state law, as insurmountable proof that extending the term for subsisting copyrights is within the power of Congress.

          The dissent by Judge Sentelle, agreed with many of the majority's conclusions, but read Schnapper more narrowly, and found that the "for limited times" language of the Copyright Clause denied congress the power to extend the term for subsisting copyrights; thus, in so far as the CETA extended terms on such existing works, it was unconstitutional. The dissent argued that the same "outer limits" analysis the Supreme Court applied to the Commerce Clause in United States v. Lopez, 514 U.S. 549 (1995), should be applied to the Copyright Clause. Applying that analysis, the dissent found that Copyright Clause was not an "open grant of power to secure exclusive rights," but rather "a grant of power to promote progress" by "a securing for limited times." The dissent found that the government had "offered no tenable theory as to how retrospective extension can promote the useful arts." Citing United States v. Lopez, the dissent noted that just because "Congress concluded a given piece of legislation serves a constitutional purpose 'does not necessarily make it so.'" The court also rejected the majority's argument that the first copyright act made it clear Congress had the power to extend the copyright on subsisting works. Terming works pre-existing under state acts as sui generis, the court noted that something had to be done. As to the argument that Congress was obligated to conform to international copyright terms, the dissent noted that unlike other nations, Congress is bound by the Constitution.[blurb by MSV]


      3. Division & Transfer
    4. Rights of Copyright Owners
      1. Right to Make Copies
      2. Right to Prepare Derivative Works
      3. The Distribution Right
      4. Public Performance & Display Rights
      5. Moral Rights
      6. Contributory Infringement
    5. Defenses
      1. Fair Use
      • In Worldwide Church of God v. Philadelphia Church of God, (No. 99-56489) (9th Cir. Sept. 18, 2000), the Ninth Circuit, reversing the court below, found copyright infringement by defendant's use of a religious text authored by the plaintiff's late spiritual leader.

        Herbert Armstrong, founder of the Worldwide Church of God (WCG), published a religious text in 1985, shortly before his death. Although over 9 million copies of the text had been distributed free-of-charge worldwide, in 1987, WCG rejected the views of it's recently deceased leader as outdated, insensitive and racist. WCG destroyed all remaining copies of the text save those used for archival and research purposes. In 1989, two former ministers of WCG formed a splinter church, Philadelphia Church of God (PCG) based on the teachings of Armstrong. PCG made unauthorized copies of his text, which every PCG member was required to read, and ignored WCG's demand that it discontinue distribution of the work.

        The Ninth Circuit rejected PCG's challenge to WCG's copyright ownership and its fair use defense. In assessing the four statutory factors, the court found that three (nature of use, nature of the copyrighted work, substantiality of portion used) clearly weighed in WCG's favor, with the fourth factor (effect on potential market) was, at worst, neutral. The court rejected as untimely WCG's claim that Armstrong granted an implied to distribute, but nonetheless noted that the claim was without merit.

        The court also rejected PCG's use-justification based on the Religious Freedom Restoration Act (RFRA) because PCG failed to satisfy the court that the copyright laws subjected it to a substantial burden in its exercise of religion. The court assumed, without deciding, that while RFRA has been held invalid with respect to state and local laws, it remains constitutional as applied to federal law.

        In a fairly strong dissent, Circuit Judge Brunetti considers WCG's infringement claim a disguised effort to suppress religious ideas which ran counter to WCG, and would hold fair use by PCG under the totality of circumstances.[blurb by NR]


      1. Other Defenses
    6. International Issues
      • In its Report of the WTO Panel concerning Section 110(5) of the U.S. Copyright Act, WT/DS160/R, No. 00-2284 (WTO, June 15, 2000) (see also appendices), the Panel ruled that the Fairness in Music Licensing Act of 1998 violates the TRIPS Agreement. The Act amended Section 110(5) of the Copyright Act of 1976 to expand exceptions to the exclusive rights granted copyright holders under Section 106. Section 110(5)(A), the "homestyle exemption," is similar to a prior exemption flowing from a U.S. Supreme Court case, Twentieth Century Music v. Aiken (sole proprietor of small restaurant could play radio through four small loudspeakers). It exempts "communication of a transmission embodying a performance or display of a work by the public reception of the transmission on a single receiving apparatus of a kind commonly used in private homes," unless a fee is charged for the music, or it is retransmitted to the public. Significantly, the 1998 Act limited this exemption to dramatic works (e.g., plays, sketches, operas, musicals).

        Section 110(5)(B), the "business exemption," is newly introduced in the 1998 Act. It applies to nondramatic works (e.g., all other musical works, including a single song taken from a musical and played on the radio). It exempts transmission of such works by radio, television, cable or satellite carriers from consent of the rights holder, provided the business is under a certain size limit. Size limits differ based on whether the business is a retail establishment or a food service/drinking establishment. If above these size limitations, the provision restricts the type of equipment used, although it does not distinguish between analog and digital transmissions.

        Provisions of the TRIPS Agreement incorporate portions of the Berne Convention that provide exclusive rights to copyright holders, including the exclusive rights to broadcast or publicly perform the works. Article 13 of the TRIPS Agreement contains a "minor exception" provision, which provides that "[m]embers shall confine limitations or exceptions to exclusive rights to (1) certain special cases (2) which do not conflict with a normal exploitation of the work and (3) do not unreasonably prejudice the legitimate interests of the right holder." (numbering added). The Panel held that each is a separate requirement that must be satisfied for an exception to be valid under TRIPS. It further interpreted the doctrine to apply to "de minimis" uses, although not confined to the specific examples set forth in connection with the Berne convention (religious, military and educational uses), nor confined to noncommercial uses.

        As to category 1, the Panel concluded that any exception must be narrowly limited in application. With regard to 110(5)(B), the Panel concluded that the application was not narrow, where a study concluded that at least 70% of eating and drinking establishments, and 45% of retail establishments were exempt, without equipment limitations, from obtaining consent of rights holders for playing music from radio and TV on their business premises. With regard to 110(5)(A), the "homestyle" exemption, the Panel concluded that equipment of the type "commonly used in homes" has been expanding since the Aiken decision, and now includes a wide range of devices ranging from CD players to Internet-connected computers. Despite the EC's argument that this "moving target," as well as judicial decisions tending to broaden the scope of the exemption, have expanded the scope beyond "certain special circumstances," the Panel held that given the small percentage of exempt locations (around 15%), and subsection A's limitation to only dramatic works, this limitation was permissible.

        As to category 2, the Panel held that the business exemption did conflict with normal exploitation of the work, because the large number of businesses exempted under the provision constituted a significant potential source of royalties. Although some businesses had not obtained licenses for playing music, others had, bringing such uses within the "normal" language of Article 13. The Panel held that the homestyle exemption, because of its limitation to dramatic works and homestyle equipment, and because there was little or no direct licensing of such works in normal use, was permissible.

        With regard to category 3, both parties agreed that the rights holders' interests were legitimate. The Panel therefore focused on prejudice, holding that this should be assessed "on the basis of the economic effects in the country applying the exception." The Panel further held that potential for "unreasonable" prejudice, not a finding of actual losses, was sufficient to satisfy this criterion. The U.S. and EC submitted very different estimates of actual losses ($500,000 vs. $56 million respectively). Finding that both calculations depended on widely varying assumptions, the Panel held that the U.S. failed to carry its burden in showing that its figures were more correct, or that even this small amount would not unreasonably prejudice rights holders with regard to the business exemption. As to the homestyle exemption, the Panel held that it did not unreasonably prejudice rights holders because it is limited to dramatic works, and the types of establishments it applies to represent a very small segment of the potential licensing market. [blurb by CKR]


    7. Remedies
  4. Trademarks & Trade Dress
    1. Scope of Protection
      1. Trademarks, Trade Names & Service Marks
      2. Color, Fragrance & Sounds
      3. Certification & Collective Marks
      4. Trade Dress & Product Configurations
        • In Wal-Mart Stores, Inc. v. Samara Brothers, Inc., ---U.S.--- (March 22, 2000) (No. 99-150), the Court unanimously held that in an action for trade dress infringement, a product's design is distinctive only upon a showing of secondary meaning. The ruling reversed a Second Circuit affirmation of a district court ruling that the trade dress at issue, Samara's line of children's clothing featuring styled appliques, was inherently distinctive and infringed.

          The Court distinguished between product design, where consumers are not predisposed to equate the source of a product with its design, and product packaging, which may immediately identify a source to customers. Design is exemplified by cases such as Qualitex v. Jacobsen Products, where the Court held that secondary meaning was required to protect color as trade dress (green-gold on dry cleaning press pads). The Court thus limited its holding in Two Pesos v. Taco Cabana (that trade dress could be protected based on inherent distinctiveness) to a narrower subset of trade dress, under the rationale that with product design, as with color, "even the most unusual of product designs is intended not to identify the source, but to render the product itself more useful or appealing." Because product design is inherently bound up with functional aspects of the product, the Court held that consumers should not be denied the benefits of competition without an additional showing - especially when it's unlikely that any product design would be inherently distinctive. Perhaps as consolation, the Court noted that owners of distinctive product designs may obtain design patent or copyright protection for trade dress that has not yet acquired secondary meaning.

          The Court acknowledged that distinguishing product design and packaging may be difficult. However, it noted that such difficulty would be no greater than determining whether a product was inherently distinctive. In a close case, the Court suggested that courts should err on the side of caution, classifying ambiguous trade dress as product design. [blurb by CKR]


        • In TrafFix Devices, Inc. v. Marketing Displays, Inc., No. 99-1571, 2001 U.S. LEXIS 2457 (Mar. 20, 2001), a unanimous United States Supreme Court reversed the Sixth Circuit, and held that respondent's "dual-spring" road sign design, the subject of an expired utility patent, was not eligible for trade dress protection under the Lanham Act because the design was a functional feature. In so doing, the Court resolved a split among the Circuits on the issue of how much weigh an expired utility patent should be given in determining the functionality of a claimed trade dress in a product's design.

          Marketing Displays, Inc. (MDI), holds expired utility patents for a "dual-spring design" used to keep temporary road signs upright in wind conditions. MDI claimed that its sign stands were recognizable to buyers and users because the patented design was visible near the sign stand's base. After the patents expired and Defendant TrafFix Devices, (TrafFix) began marketing sign stands with a dual-spring mechanism copied from MDI's design, and MDI brought suit for trade dress infringement. The District Court granted TrafFix's motion for summary judgment, holding that that MDI had not established secondary meaning in its alleged trade dress, and that there could be no trade dress protection for the design because it was functional. The Sixth Circuit reversed. Relying on Qualitex Co. v. Jacobson Products Co., 514 U.S. 159, 165, (1995) the Sixth Circuit held that exclusive use of a feature must put competitors at a significant non-reputation-related disadvantage before trade dress protection is denied on functionality grounds.

          Justice Kennedy, writing for the Court, held that the Sixth Circuit had given insufficient weight to the expired utility patent in determining functionality. Noting that "trade dress protection may not be claimed for product features that are functional," the Court explained that "[a] utility patent is strong evidence that the features therein claimed are functional," which "adds great weight to the statutory presumption that features are deemed functional until proved otherwise." "[O]ne who seeks to establish trade dress protection must carry the heavy burden of showing that the feature is not functional, for instance by showing that it is merely an ornamental, incidental, or arbitrary aspect of the device."

          Applying this standard, the Court held that MDI had not, and could not "carry the burden of overcoming the strong evidentiary inference of functionality based on the . . . claims of the expired patents." As the Court explained, "the central advance claimed in the expired utility patents ... is the dual-spring design; and the dual-spring design is the essential feature of the trade dress MDI now seeks to establish and to protect." The Court rejected the argument that dual-spring design at issue, because it was different in appearance, was not covered by the disclose in the expired patent. MDI's success in establishing in previous patent litigation that the scope of the expired patent claims included the present design under the doctrine of equivalents precluded such an argument.

          The Court held that the Sixth Circuit misapplied Qualitex in formulating its functionality test, requiring that a functional feature must "put competitors at a significant non-reputation-related disadvantage."(quoting Qualitex). This was improper as a comprehensive definition of functionality, where "a feature is also functional when it is essential to the use or purpose of the device or when it affects the cost or quality of the device." The Court explained that the "non-reputation-related" language in Qualitex was an elaboration on the traditional rule appropriate for use in determining "aesthetic functionality," the question involved in Qualitex. But "[w]here the design is functional under the Inwood formulation there is no need to proceed further to consider if there is a competitive necessity for the feature."

          In reaching its decision, the Court emphasized the different goals of trademark and patent law. "The Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity. The Lanham Act, furthermore, does not protect trade dress in a functional design simply because an investment has been made to encourage the public to associate a particular functional feature with a single manufacturer or seller."

          Resolving the issue on functionality grounds, the Court left open the question of whether the Patent Clause of the Constitution, Art. I, 8, cl. 8, "prohibits the holder of an expired utility patent from claiming trade dress protection." [blurb by MSV]



    2. Establishment & Extension of Rights
      1. Priority
      2. Distinctiveness
      3. Trademark Office Procedures
      4. Incontestability
      5. Extension Overseas: International Trademark Practice
      6. Extension by Contract: Licensing & Franchising
    3. Infringement
      1. Likelihood of Consumer Confusion
      2. Dilution
        • In Times Mirror Magazines, Inc. v. Las Vegas Sports News, --- F.3d ----, 54 U.S.P.Q.2d 1577 (No. 99-1299) (3rd Cir., Apr 2000), the court affirmed the district court's issuance of a preliminary injunction on dilution grounds, under the Federal Trademark Dilution Act (FTDA). In its opinion, the Third Circuit held that famousness within a niche market is sufficient to constitute fame under the act, and upheld a finding based on rather scant evidence that Times Mirror's "Sporting News" was famous within the sports publications market.


          In dissent, Judge Barry detailed serious reservations about the majority's famousness holding, noting that the evidence for fame was "woefully inadequate," and that the Act was meant only to apply to truly famous marks like Kodak or Buick. Judge Barry reviews the legislative history and scholarly criticism of the Act and relevant case law in some detail. She concludes that a finding of famousness in this context presents a grave risk that the FTDA (which protects business investment) will be applied well beyond its intended scope, perhaps to the point of eclipsing traditional infringement analysis (which focuses on harm to consumers). The dissent goes through the eight factors, with particular emphasis on (f), the degree of recognition in the relevant trading areas, concluding that the factors generally weigh in favor of LVSN. In light of the legislative history and public policy concerns, the dissent states that a finding of famousness in this context is "beyond the pale." [blurb by CKR]


      3. Contributory Infringement
      4. False Advertising
    4. Defenses
      1. Functionality
      2. Abandonment
      3. Genericness
      4. Nontrademark ("Nominative") Use
        • In a case that explores the tension between the Lanham Act and the First Amendment, the Fifth Circuit Court of Appeals, in Westchester Media v. PRL USA Holdings, Inc., 214 F.3d 658 (5th Cir. 2000) (No. 99-20754), upheld a lower court's finding of trademark infringement for plaintiff's "POLO" mark where defendant Westchester's use of "Polo" in its magazine title was likely to cause confusion, but held that the lower court may have erred in permanently enjoining defendant from using "Polo", and remanded for reconsideration. The circuit court criticized the lower court for too abruptly dismissing First Amendment concerns in granting the permanent injunction, and for failing to consider the possibility of using a disclaimer or other limited injunctive relief as a remedy, rather than completely restraining defendant Westchester's right of choosing the title for its literary work.

          The circuit court noted that in a run of the mill Lanham Act case, the presence of a likelihood of confusion disposes of the issue of infringement. But in this case, plaintiff PRL was attempting to do more than merely enjoin a purely commercial use of the "Polo" mark; it was trying to prevent Westchester from using "Polo" as a title for a magazine. As such, the court held that, PRL's infringement claim implicates the First Amendment right to choose a title for literary works. The court held that a permanent injunction would only be appropriate in such a case if the likelihood of confusion could not be solved by means of a disclaimer or other limited injunctive relief.

          Here, the court found a permanent injunction may be inappropriate because it: (a) could extend beyond the title of Westchester's magazine, posing special First Amendment concerns, (b) would allow PRL to arrogate the very name of a sport from the players' publication; (c) did not take into account that there was no evidence of actual confusion after the preliminary injunction of using a disclaimer was granted by the district court, and (d) did not take into account that the buyers for both PRL's products and Westchester's magazine are relatively sophisticated, being able to differentiate the trademarks by means of a disclaimer or other injunctive relief.[blurb by BR]


      5. Parody
    5. Remedies
      1. Injunctions
      2. Damages
  5. State IP Law / Federal Preemption
    1. State IP Law
      1. The Tort of Misappropriation
      2. State "Common Law" Copyright
      3. Idea Submissions
      4. Publicity Rights
      5. State Moral Rights
    2. Federal Preemption
      1. Patent Preemption
      2. Copyright Preemption
      3. Trademark Preemption
  6. Protection of Computer Software
    1. Trade Secret Protection
    2. Copyright Law
      1. Scope of Software Copyright
      2. Exclusive Rights in Computer Programs
      3. Fair Use
        • In Sony Computer Entertainment, Inc. v. Connectix Corp., --- F.3d ----, 2000 WL 144399, 53 U.S.P.Q.2d 1705 (9th Cir.(Cal.), Feb 10, 2000) (NO. 99-15852), the court dissolved a preliminary injunction against the sale of Connextix' Virtual Gamestation. In doing so, the court held that intermediate copies of copyrighted software created during the reverse engineering products are protected by fair use, and that Sony was unlikely to prevail on its claim that sale of the Connectix product would tarnish its Playstation mark.

          Connectix had repeatedly copied the entirety of Sony's BIOS, the Playstation's operating system, in the course of reverse engineering. The resulting product, however, was created entirely by Connectix. Although the reasoning in this case is strongly based on that put forth in Sega v. Accolade, it's worth noting that here Connectix was seeking to produce directly competing, as opposed to downstream code. "Intermediate" copying, the process of loading copyrighted software into RAM, constitutes copyright infringement under Sega. In this case, such copying was permitted under the fair use doctrine for the purpose of gaining access to the functional aspects of the code. The court also clarified its Sega decision in light of the district court's finging that Connectix not only studied the Sony BIOS, but that they also used it in developing their competing code. The Sony court explicitly reject any distinction between studying and use, and also held that the amount of times intermediate copying occurs is not a relevant factor in the analysis.

          The nature of the copyrighted work was key to the court's holding. Because the BIOS contained unprotected functional code, and because there was no way to reverse engineer it without copying, the court afforded it a "lower measure of protection." As to the amount and substantiality of the portion used, the court reiterated the concept from Sega that, in cases of intermediate copying, this factor is to be afforded very little weight because, although the entire work is copied briefly, none of it ever ends up in the final infringing product. As to the purpose and character of the use, the court found Connectix product "modestly transformative", noting the value inherent in interoperability and the fact that the Connectix product was entirely original expression. The court ruled that the commercial nature was "indirect or derivative", and thus did not weigh heavily against fair use. Although recognizing that the Connectix product could harm Sony's console sales, the court held that because it was transformative, it was a legitimate competitor in the market for platforms capable of playing Playstation games. [blurb by CKR]

        • In Universal City Studios, Inc. v. Reimerdes, 111 F. 2d 294 (S.D.N.Y. 2000) (PDF Document), the District Court for the Southern District of New York the court held that DeCSS, a software tool for circumventing the DVD encryption scheme, was prohibited by the DMCA's anticircumvention provisions. DeCSS was created by a 15 year old Norwegian, ostensibly for the purpose of playing DVDs on Linux machines, for which DVD player software was not available. Defendants, who did not create DeCSS but rather posted copies (prior to the PI) and links to copies of it on their web sites, argued that it was an important tool enabling DVD users to effectuate their fair use rights (e.g., making backup copies, extracting portions of movies for commentary, playing DVDs on platforms for which no authorized decryption software existed, etc.). The court found that Congress had debated this issue extensively, struck a balance between the needs of rights holders and the needs of DVD users, and promulgated a statute that clearly prohibited the posting of DeCSS. Although the court recognized that computer code is speech, it held that computer code's "expressive element no more immunizes its functional aspect from regulation that the expressive motives of an assassin immunize the assassin's action."

          The court found that, using DeCSS and other compression software available on the Internet, the potential for widespread dissemination of pirated movies was significant. It further found that compromising the DVD encryption scheme was very expensive for the motion picture industry, requiring either a new protection scheme (possibly making all existing players obsolete), or forcing it to tolerate steadily increasing piracy as bandwidth increases.

          The DMCA, Section 1201(a)(2) provides that no one shall "offer to the public, provide, or otherwise traffic in" technology "primarily" designed to circumvent a technical protection measure such as the DVD encryption scheme. It found that DeCSS was a prohibited circumvention technology, and was not persuaded by defendants' argument that the encryption was weak (40 bit), given the statute's broad language. Nor was the court persuaded by the creator's purpose in creating the software, because even if designed to allow DVDs to operate under Linux, it was still designed to circumvent encryption without the rights holders' consent. Motive, the court held, is irrelevant in this context.

          In response to defendants' argument that DeCSS came under the reverse engineering exception, Section 1201(f) (allowing circumvention to achieve interoperability), the court noted that the exception only permits those who perform the reverse engineering to make information acquired by such means available - not the tool itself. Further, the exemption is limited to circumvention measures whose "sole purpose" is interoperability. The DeCSS program runs under Windows and has wide-ranging applications beyond a Linux DVD player. The court similarly held that the encryption research exemption did not apply (DeCSS was posted for the world, no information provided to the rights holders on how it was made); and that the security testing exemption did not apply (not for testing).

          With regard to defendants' assertion that the anticircumvention provisions made the exercise of fair use rights illegal in this context, the court responded that although perhaps true, Congress deliberately intended the fair use defense to be inapplicable in this context. It reasoned that Congress had authority to do this because it struck an appropriate balance in exempting persons who had already obtained an authorized copy of a protected work, in delaying implementation of the DMCA pending a study, and in certain other exemptions.

          The court also enjoined defendants not only from publishing, but also linking to copies of the DeCSS software. It justified this in part on defendants' "electronic civil disobedience," whereby they linked to copies after entry of the PI, which prohibited them from posting actual copies, and actively encouraged others to mirror the software. It found a justification for such an injunction in the "or otherwise traffic" language in the DMCA, and held that defendants' linking was the "functional equivalent" of actual posting. It further held that, even where sites linked to offered content in addition to the software, linking could still be enjoined because defendants' main purpose was to provide the software to their sites' visitors.

          The court also shot down First Amendment arguments that (a) computer code is protected speech, and (b) that the DMCA is overbroad in effectively gutting the fair use right. As to the first, the court merely held that although computer code is speech, it may still be regulated. It further held that nonspeech (i.e., functional) elements of the DeCSS code were regulated in this case, and that the DMCA was content neutral, subject to intermediate scrutiny. It also analogized functional vs. nonfunctional aspects of software to speech vs. conduct in First Amendment jurisprudence. Because the antitrafficking provision furthered an important state interest, and because the speech considerations were minimal, the court held, the provision was permissible.

          As to the argument that the DMCA was overbroad, in that it eviscerated fair use rights of ordinary citizens without the means to design DVD cracks on their own, the court found that fair use rights are "probably affected" by the DMCA, but not to a great degree. For example, the court suggested, someone wishing to quote from a movie could watch the DVD and copy the relevant lines by hand. It also suggested that defendants lacked standing to fully litigate the argument, because defendants were not attempting to use the technology to effectuate fair use rights.

          As to the First Amendment implications of the linking prohibition in the injunction, the court again relied on a functionality rationale. Although it recognized that exposing people to such liability under the DMCA could have a chilling effect, it noted that the law of defamation has a similar effect and suggested the solution lay in a high standard of culpability. In this regard, it held that an essential element of "trafficking" is "a desire to bring about the dissemination," that the relevant standard requires proof of intent, and knowledge that the link is to a circumvention device, by clear and convincing evidence.

          See also the statement by Emmanuel Goldstein in response to the ruling. [blurb by CKR]


        • On February 12, 2001, the Ninth Circuit Court of Appeals, in A&M Records, Inc. v. Napster, Inc., (Nos. 00-16401, 0016403) (9th Cir., Feb. 12, 2001), affirmed in-part a District Court ruling by Judge Marilyn Patel finding that Napster, the phenomenally popular Internet based "peer-to-peer" digital music file-sharing service, would likely be found liable for contributory and vicarious copyright infringement and entering a preliminary injunction effectively shutting the company down. The appeals court agreed with the lower court that plaintiffs' exclusive rights under the Copyright Act were violated and that Napster's users were not engaged in "fair use." However, the court reversed-in-part and remanded for a more narrow injunction, noting that the mere existence of Napster's "peer-to-peer" file sharing system, absent actual notice and Napster's established failure to remove offending material, was insufficient to impose contributory liability.

          The court began by describing the way in which Napster's "peer-to-peer" file sharing system works, noting that Napster doesn't actually store, transfer or copy MP3s, but rather, maintains a centralized, searchable, real-time index of its users' MP3 files, and facilitates connections between users seeking to transfer MP3 files.

          Turning first to direct infringement, the court agreed that plaintiffs had made out a prima facia case of direct infringement by Napster's users of plaintiffs' exclusive rights of reproduction and distribution. The court then addressed Napster's affirmative defense that its users are engaged in fair use, first addressing the factors generally, and then turning to specific fair uses alleged by Napster.

          Applying the first factor, the purpose and character of the use, the court noted that a use is generally not deemed fair where an original is merely "retransmitted in a different medium," and concluded "downloading MP3 files does not transform the copyrighted work." The court also found users' use under this factor to be "commercial." Stating that direct economic benefit is not required, the court held that "[i]n the record before us, commercial use is demonstrated by a showing that repeated and exploitative unauthorized copies of copyrighted works were made to save the expense of purchasing authorized copies."

          The court found the second factor, the nature of the use, and the third factor, the portion used, both weighed against fair use as the sound recordings copied were creative, and the entire works were copied. Applying the fourth fair use factor, the effect of use on the market, the court found no reason to disturb the lower court's findings that copying by Napster users harms plaintiffs' market for CD sales to college students, and has a "deleterious effect on the present and future digital download market." Further, the court noted, "lack of harm to an established market cannot deprive the copyright holder of the right to develop alternative markets."

          The court next addressed specific uses. Napster argued the lower court erred in finding that "sampling," or temporary downloading of songs for preview purposes, was commercial in nature and would harm the market for plaintiffs' works. The court questioned whether the downloading and storage of MP3s could be considered "sampling" as it permitted permanent, rather than only temporary storage. Nevertheless, citing plaintiffs' practice of licensing "sampling" and collecting fees, the court agreed with the lower court that "even authorized temporary downloading of individual songs for sampling purposes is commercial in nature." As to market effect, the court noted "even if the type of sampling supposedly done on Napster were a non-commercial use, plaintiffs' have demonstrated substantial likelihood that it would adversely affect the potential market for their copyrighted works if it became widespread." (quoting district court). The court refused to credit Napster's argument that sampling may increase sales, noting that "increased sales of copyrighted material attributable to unauthorized use should not deprive the copyright holder of the right to license the material. Nor does positive impact in one market . deprive the copyright holder of the right to develop alternative markets, here the digital download market."

          The court next addressed Napster's argument that "space-shifting" is fair use. Napster argued that its users engaged in space shifting when they download music they already own on CD, citing RIAA v. Diamond Multimedia (1999), where the Ninth Circuit, extending the Supreme Court's holding in Sony(time-shifting), held that a portable MP3 player "merely makes copies in order to render portable, or space-shift, those files that already reside on a user's hard drive.. Such copying is paradigmatic noncommercial fair use." The court held these cases inapposite, as users in Sony and Diamond did not make their copies "available to millions of other users" as do Napster users.

          The court next reviewed the lower court's determination that Napster would likely be found liable for contributory and vicarious copyright infringement. Considering first contributory infringement, the court analyzed the knowledge requirement, and in an apparently novel application, cited the Supreme Court's refusal in Sony to impute the requisite level of knowledge where a device was capable of both infringing and substantial noninfringing uses for its refusal to impute the requisite knowledge to Napster "merely because peer-to-peer file sharing technology may be used to infringe plaintiff's copyrights." The court departed from the district court's reasoning, finding it had placed "undue weight on the proportion of current infringing use as compared to current and future noninfringing use." Nevertheless, the court concluded that for purposes of preliminary injunction, sufficient evidence existed to establish Napster had actual knowledge that specific infringing material is available using its system, that it could block access to suppliers of such material, and that it refused to do so. Under the "material contribution" factor, the court agreed that "Napster provides the site and facilities for direct infringement." Thus, the court found no error with the lower court's finding the Napster would likely be found liable for contributory infringement.

          Reviewing vicarious infringement, the court held that vicarious copyright liability extends where a defendant has both the right and ability to supervise the infringing activity, and receives a direct financial interest in such activities. In evaluating the financial benefit prong, however, the court seemed to depart from earlier cases requiring a more "direct" benefit when it held "[f]inancial benefit exists where the availability of infringing material acts as a draw for customers." The court found that "[a]mple evidence supports the . finding that Napster's future revenue is directly dependant upon "increases in userbase." Turning to the "supervision" prong, the court found that while the lower court had correctly determined that Napster had the right and ability to police the system, and failed to exercise that right to prevent the exchange of copyrighted material, it had "failed to recognize that the boundaries of the premises that Napster 'controls and patrols' are limited." Nevertheless, the court found that Napster had the ability to police the "file name indices" and had failed to do so.

          The court quickly disposed of Napster's argument that the Audio Home Recording Act shielded it from liability, stating that the Act "does not cover the downloading of MP3 files to computer hard drives." "[C]omputers do not make 'digital music recordings' as defined by the [Act]." The court did not, however, so quickly dismiss Napster's claim to fall within the safe harbor provisions of the DMCA, 17 U.S.C. section 512. While declining to accept the lower courts "blanket conclusion that [the DMCA] will never protect secondary infringers," the court did note that serious questions had been raised as to Napster's ability to qualify as an "ISP" under those provisions, and that the balance of hardships weighed in favor of a preliminary injunction.

          The court quickly disposed of the remaining arguments by Napster of waiver, implied license, and copyright misuse. As to misuse, Napster argued that plaintiffs' colluded to "use their copyrights to extend their control to online distribution." But the court found no evidence that plaintiffs' seek to control areas outside their grant of copyright, and the fact "that copyrighted works are transmitted in another medium - MP3 format rather than audio CD - has no bearing on our analysis."

          Finally, the court concluded that while a preliminary was warranted, the scope of the district court's injunction was overbroad. Specifically, the court reiterated its differing view of contributory liability, holding that liability may only be imposed to the extent that Napster "(1) receives reasonable knowledge of specific infringing files containing copyrighted [material], (2) knows or should know such files are available on the system, and (3) fails to act to prevent viral distribution of the works." The court emphasized that "the mere existence of the Napster system, absent actual notice, and Napster's demonstrated failure to remove the offending material, is insufficient to impose contributory liability." The injunction was overbroad because it places on Napster the entire burden of ensuring that no copying occurs, and fails to place any burden, as required, on the plaintiffs' to provide notice. As to policing file names under vicarious liability, the court noted that because users name the files, it is not an exact science, and the district court must weigh this in crafting the injunction on remand.

          While there is no shortage of media coverage for this closely watched case, readers may find the following links of interest: http://www.gseis.ucla.edu/iclp/napster.htm (providing case summary and additional links) http://www.nytimes.com/2001/02/12/technology/13NAPSTER-REUTERS.html (NY Times Story discussing how Napster's demise is good news for Napster clones) http://www.msnbc.com/modules/DigitalMusic/(digital music timeline) [blurb by MSV]


    3. Patent Protection
      1. Subject Matter Issues
      2. Examination & Validity of Software Patents
      3. Infringement
    4. Trademark / Trade Dress
      1. Protecting Programs Through Trademark
      2. Compatibility & Standardization
      3. Trademarks and the Internet
        • The ICANN Dispute resolution system is producing domain name decisions at a furious pace. For far less than the cost of litigating in federal court, and in far less time (60 days), complainants can have a domain name transfer ordered. For example, check out Harrods Limited v Robert Boyd, Case No. D2000-0060, ordering the transfer of dodialfayed.com. See also the complete list of proceedings. As of April 1, several hundred ICANN proceedings had been filed, and over 100 had been resolved. Trademark owners prevailed in about 78% of these cases. [blurb by CKR]


        • Congress recently passed the Anticybersquatting Consumer Protection Act, P.L. 106-113, 113 Stat. 150, prohibiting registration or use of an Internet domain name that is (a) confusingly similar to a distinctive trademark; (b) confusingly similar to, or dilutive of, a famous mark; or (c) a trademark already registered by another entity. [blurb by CKR]


        • In Sporty's Farm L.L.C. v. Sportsman's Market, Inc., --- F.3d ----, 2000 WL 124389, 53 U.S.P.Q.2d 1570 (2nd Cir.(Conn.), Feb 02, 2000) (NO. 98-7452 L, 98-7538 XAP), the first case interpreting the Anticybersquatting Consumer Protection Act, the Second Circuit found a domain name holder acted in bad faith with regard to a distinctive mark. The court, affirming the lower court's decision, found that injunctive relief was proper and that plaintiff was not entitled to damages under the dilution act or state law. In applying the new law, the court dismissed defendant's contention that it was impermissibly retroactive on the grounds that the remedy corrected a continuing harm, and thus implicated only prospective relief. [blurb by CKR]



    5. Sui Generis Protection of Computer Technology
  7. Intellectual Property and Competition Policy
    1. Monopolization
      1. Defining the Market
      2. IP & Anticompetitive Conduct
        • In In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322, 53 U.S.P.Q.2d 1852 (Fed.Cir.(Kan.), Feb 17, 2000), (No. 99-1323), the Federal Circuit affirmed the district court's finding of summary judgment in favor of Xerox, which had been sued by a number of independent service organizations (ISOs) for refusing to license patents and copyrights essential to maintain its copiers. Although Xerox settled with a number of ISOs, Plaintiffs in this case opted out of that settlement, and claimed that Xerox violated the Sherman Act by charging ISOs a higher rate for its patented parts than it did to end users, eliminating ISOs from the copier repair market. Xerox counterclaimed for patent and copyright infringement. The district court held that a unilateral refusal to sell or license a patented invention or copyright does not violate antitrust laws, even if it impacts more than one market.

          In affirming the holding below, the Federal Circuit noted that, although intellectual property protection is not a shield from antitrust laws, the nature of the IP grant does confer a legitimate monopoly on the grantee. As to the patent claims the court held that there is a strong showing required before an antitrust finding may be imposed: "In the absence of any indication of illegal tying, fraud in the Patent and Trademark Office, or sham litigation, the patent holder may enforce the statutory right to exclude others from making, using, or selling the claimed invention free from liability under the antitrust laws." The court further noted that the infringement defendant bears the burden of proving such exceptional circumstances.

          As to the copyright claims, there is an unresolved split in the circuits concerning the Sherman Act implications of refusal to sell or license copyrighted expressions. Relying heavily on the First Circuit's Data General v. Grumman decision, the court held that such refusal is a presumptively valid business justification, and may only be overcome by evidence that their monopoly was acquired in an unlawful manner. The court criticised the 9th Circuit's extension of this doctrine in Kodak v. Image Technical Services to include the rights owner's subjective motivation, under the rationale that it would undermine the exclusive rights granted by the Copyright Act. [blurb by CKR]

          Update: The United States Supreme Court has denied cert., 69 USLW 3087, 2001 WL 137633, 2001 U.S. LEXIS 1102 (U.S. Feb. 20, 2001). The Solicitor General's amicus brief supported the denial of cert.


        • In United States v. Microsoft, D.D.C. (No. 98-1232) (April 3, 2000) (see also pdf version), the court concluded that Microsoft violated sections 1 and 2 of the Sherman Act, giving current and potential plaintiffs against the company a prima facie case that Microsoft is an illegal monopolist. The next phase of the Microsoft antitrust trial will focus on remedies. The court found that Microsoft illegally maintained its Windows OS monopoly, and that it illegally attempted to monopolize the browser market, both violations of Section 2. The court also found that Microsoft violated Section 1 of the Clayton Act by tying its browser to the Windows operating ystem. However, the court did not find that Microsoft's agreements with companies regarding browser distribution constituted exclusive dealing. In its opinion, the Court took issue with the D.C. Circuit's opinion in United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998) ("Microsoft II"), which in dictum stated that software design decisions shouldn't be second-guessed by judges if there is a plausible claim of consumer benefit. The court stated that that the D.C. Circuit dicta was not intended to apply to cases like this one, and that following its rationale would effectively insulate software design from antitrust scrutiny and is inconsistent with Supreme Court precedent. [blurb by CKR]


    2. Agreements to Restrain Trade
      1. Vertical Restraints
      2. Horizontal Restraints
    3. Mergers & Acquisitions

Please send questions, comments or updates to mjvoss@boalthall.berkeley.edu
Initial site design and content by Chris K. Ridder, with revisions and updates by Matthew S. Voss, as research assistants to Mark Lemley.
This page last revised on 3-23-01, by Matthew S. Voss.


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