BUS 504: Chapter 9 David Baumer North Carolina State University Spring 2001.

BUS 504: Chapter 9

David Baumer

North Carolina State University

Spring 2001

Copyright Overview

• A copyright is given for:

• “original works of authorship fixed in any tangible medium of expression,… from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” – Section 102(a) of the Copyright Act.

Copyright Overview

• The works for which copyrights are awarded include: literary works, including computer software, musical, dramatic, pictorial, graphic movies, sound recordings, and audiovisual performances that have been captured on film. – Section 102(a) of the Copyright Act.

Copyright Overview

• A copyright grants to the author exclusive right to reproduce and distribute the copyrighted work as well as exclusive rights to prepare derivative works.

• A book about, say, President Clinton, would be an original work of authorship and the medium is the pages in the book. Making a movie from a book is a derivative work.

• These PP notes are a derivative work of my book

– Section 106 of the Copyright Act.

Copyright Overview

• CR’s take place – Without registration with Copyright Office or

– Without notice (©) next to the copyrighted work

– My book and these PP notes are CR’ed

• Duration of a Copyright– Life of the author plus 70 years

– For joint works, it is the life the last surviving author plus 70 years

– For a work for hire it is 95 years from the date of publication or 120 years from creation, whichever expires first

Copyright Overview

• Registration of Copyrighted Work – Although registration of CR’ed works are not required

there are distinct advantages legally

» If there is an infringement suit, registration provides for much higher, statutory damages in some cases

» Registration provides notice to possible infringers and negates claims of innocent infringement

» Registration dates the work and provides prima facie evidence of validity

– Registration is a public event, but there are special provisions for software code--only first 25 and last 25 pages are available to the public

Scope of Copyright Protection

• The key to CR law is to be able to distinguish an idea from the expression of the idea– According to Section 102(b)

• copyrights cannot be used to protect ideas, facts, procedures, processes, concepts, principles, methods of operation or discoveries

• In general CR cannot be used to protect functionality--that is the province of patent law

Scope of Copyright Protection

– In software the functionality of the software is not CR’able.

• If there is only way of accomplishing the task, the code that performs that function is not CR’able

• If there are several ways of accomplishing the function, then the particular way it is accomplished is CR’able

• The structure, sequence, and command structure of a software program are CR’able so long as there are more than one way to accomplish the task

Database Protection

– Facts are not CR’able• The particular arrangement of facts can be as long

as there is a minimal level of creativity exhibited– If the only creativity is alphabetical arrangement of

names, that is not sufficient for CR protection

» Copying names in a phonebook is not a CR infringement

– If the arrangement of facts did show a minimal level of creativity then copying would be an infringement

» Copying Hall of Fame statistics from a particular arrangement of facts probably is an infringement

Database Protection

– The EU has much more of a sweat of the brow approach

• If a research digs up facts, the researcher should have some protection against copying

– Commercial databases are protected by their CR laws– Database copyrights are for 15 years

• Under EU law small copying of commercial databases is not an infringement as long as the source is recognized by the copier

– If there is no other way of obtaining the facts then under EU law the copier must pay a license fee

Database Protection

• EU database privacy provisions also cause international incompatibilities– If a country such as the U.S. does not subscribe

to EU privacy standards then EU countries are technically not allowed to share records

• These differences are particularly troubling w.r.t. financial and medical records

• At present a compromise seems to have been worked out

Copyright Infringement

• The five protections of a CR holder are– Reproduction, distribution, and derivative

works and in the case of movies, musical works etc

• The right to perform

– In the case of musical, dramatic, graphic, sculptural works etc

• The right to display


– Proof of Copying• In some cases, the infringer will admit copying

• In other cases, such as software the same mistakes in code appear in the CR’ed software and in the accused software

– The burden of proof is upon the pl., the CR holder

• The pl. must show (1) that the works are substantially similar and (2) that the def. had access to the CR’ed work.


– In CR law, independent creation is a defense• If the def. did not have access to the CR’ed work, it

must have been an independent creation

– Substantial similarity• The similarities are so striking so as to disprove

independent creation

• The idea must be separated from the expression of the idea

– The idea can be copied, but not the expression unless the expression is functional


– Computer Software• Both source code and object code are protectible

• Compilation and decompilation are sources of controversy

– Decompilation is an infringement unless the purpose is to make software compatible with other software or hardware

» Decompilation under such circumstances is a fair use

– Note that decompilation is prohibited by most software licenses and so it can be a breach of contract as well

Damages

• Section 504(b) of the CR Act allows the pl. to recover

– Actual damages as a result of the infringement and

– Profits of the infringer, but precludes double counting

• Actual damages of the pl. could exceed the profits of the def. if the infringement caused the pl. to be foreclosed from a market

– Could involve present value of lost future sales in the foreclosed market

Damages

– Burden of Proof• Pl. need only show lost sales and revenue

– Burden of proof is upon def. to show their costs

– Only the def’s. variable costs are deductible from the infringing revenue

– In software variable costs are apt to be trivial relative to gross revenue

» Def’s. are allowed to reduce damages by the value of other software that is bundled with the infringing software

• There is no provision in CR law for recovery of recovery of reasonable royalties from the def.

Damages

– Statutory Damages• Pls. are entitled to select, in the alternative, statutory

damages– Section 504(c)(1) allows for recovery of $500 to $20,000 for

each work that is infringed» This award is regardless of the number of individual

infringements» For multiple infringements, actual damages are

generally greater– For willful infringements, the statute provides for damages

of up to $150,000 for each infringement– For innocent infringements, minimum damages are $200

Additional Remedies

• Section 505 allows for recovery of attorney fees and court costs for the prevailing party

– The section envisions that defs. could recover if the pl.’s suit is frivolous

– The CR Act allows for recovery of prejudgment interest

• Criminal infringement occurs when a person willfully infringes for purposes of commercial gain

– The Act provides for incarceration of up to 10 years

– Section 506 also allows for forfeiture and destruction of all infringing copies and equipment used in the illegal infringements

CR Defenses

• First Sale– You can sell a book or CD to a friend without violating

the CR laws

» You cannot copy the book or CD and resell to a lot of friends or customers

» You cannot legally resell software on a disk

• Archival Copies--Section 117– You can make an archival copy of any software program

and

– You can reproduce the software if it is for operating purposes

» Reproductions of software from disk to hard drive are legal

CR Defenses

– Fair Use Exception» The fair use exception to the copyright laws allows

unauthorized parties to reproduce parts or all of copyrighted works if the reproductions are for purposes of criticisms, commentary, news, teaching or research.

– Section 107 of the Copyright Act.

– The fair use exception is an affirmative defense which means that the def. bears the burden of proof

– In fair use cases the courts look at whether the use was commercial (-), nature of the CR’ed work (- for fiction), the amount (-), and how the market for CR’ed work is affected (-)

Fair Use Cases

• Types of Infringement– Direct--the def. is copying the CR’ed work– Contributory--the def. facilitates copying– Vicarious--the def. benefits financially from the

infringements• In a vicarious case, the def. must have the right to

control the infringer

Other Defenses

– Common law defenses of laches, estoppel, and unclean hands apply

• Laches and estoppel were described in chapter 8.

• If the actions of the pl. were judged unethical or fraudulent, the court may deny the infringement suit

– The doctrine of misuse has crept into CR law also

• If the pl. has used the CR law to violate some other law, particularly the antitrust laws, the courts will refuse to enforce their CRs.

The Music Market and Technological Change

• In music, technological change has clearly necessitated legal changes, and more changes are likely– Until recently it was not possible to digitize and

download music from the Internet, but that has all changed with MP3

– Napster and others are simply the result of MP3 technology as well as linkups on the Internet

Audio Home Recording Act, 1992

• At the bottom of most significant technological change is an economic fact

– The economic fact in this case is that musical CDs sell for $10 to $20, while Napster offers an opportunity for the same music at $1

• The AHRA requires three things– Sellers of CD writers must pay a 2% royalty to the

Copyright Office

– Seller of blank CDs must pay a 3% royalty to the CR Office

– Sellers of DARs must have a serial copy management system (SCMS) so that royalties are properly recorded


– AHRA allows for copying of CDs for home use but not for commercial use

• AHRA creates a fair use exception for home copying of CDs

• Home recordings were not a major threat to royalties because of the time necessary to copy CDs

• All that has changed with Napster and other websites that facilitate copying of music using the Internet


– In the Diamond case (decided in 1999), the RIAA went after the Rio system

• The AHRA prohibits DARs that do not conform to SCMS

• The Rio system reproduced files from a computer hard drive via a cable linking it to another hard drive

– In Diamond, Rio was judged not to be within the ambit of the AHRA, because it can only make copies of music located on the hard drives of computers

– Rio escaped liability because its method of copying CR’ed songs did not involve a digital audio recording device.

Napster

– Napster is a web site that allows for pooling of copyrighted music among millions of subscribers

• The bottom line is that millions of CR’ed songs are being downloaded without royalties being paid

• A major problem is that if Napster is shut down, and it was, briefly, other websites are offering the same services

– Some of these alternative web sites are officially located in countries located in the Caribbean

Napster

• As we know, Napster was effectively shut down because it could not qualify as an ISP under the DMCA– Napster does more than simply transmit

information--it provided information location assistance.

Digital Performance Right in Sound Recordings Act, 1995

• Section 106 was changed to add another exclusive privilege– The right to perform their works by digital

audio transmissions– After some confusion, the following is illegal:

• interactive subscription transmissions--situations in which subscribers, for a fee, can select transmissions

• Web sites that offer this service must negotiate with CR owners or face an infringement charge

Digital Millennium Copyright Act, 1998

• The DMCA contains some significant changes in CR law– The U.S. becomes part of WIPO and adheres to

its CR policies– Creates limitations of liability for ISPs unless

the ISP is paid a fee for allowing infringements– Adds to the ability of purchasers of software to

make copies for maintenance and repair


– Title I of the DMCA makes it illegal to • create software or other devices that circumvents

technological measures taken by CR owners to protect their CR’ed works

– Software that is designed to break (gain access to) encryption algorithms are made illegal

– Software that is designed to undermine SCMS is illegal

• There are a number of exceptions to the DMCA– You can develop software that is designed thwart

encryption and anti-copying software if the purpose is legitimate


– Exceptions to Title I• For nonprofits and educational institutions making use

of circumvention devices for purposes of determining whether they want to obtain authorized access to the work

• Reverse engineering-- if the purpose of the reverse engineering is to achieve interoperability with other programs - in other words to achieve compatibility with other programs.

• Encryption research in order to identify flaws in current encryption technology.


• Exceptions to Title I• .Protection of minors from objectionable material on

the Internet.

• .Personal privacy needs. It is legal if the purpose of the circumvention is to protect personal privacy, such as disabling cookie files.

• If the purpose of the circumvention measures is to test security systems, it is legal.

No Electronic Theft Act, 1997

• This act clears up a loophole in federal criminal CR law

– If a hacker breaks into a govt. computer, for profit or just for mischief, under the NETA, they are now subject to criminal prosecution

• Visual Artists Rights Act, 1990– Moral rights are rights that artists retain even if they have

assigned for money their rights to their own work

» In the U.S. artists retain the right to prevent distortions that would harm his or her reputation

» Also artists are entitled limited rights of attribution

Works for Hire

– Section 201 makes the author the CR owner unless it is a work for hire which occurs when

• The author has been hired to compose and is therefore an employee

• or it falls into one of nine categories:» “a work specially ordered or commissioned for use as

a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation,...”

• and so on

Joint Works

• Under Section 101, a joint work is a work prepared by two or more authors with the intent that their contributions be merged into a complete, inseparable, unitary whole. – Any royalties earned by a joint author must be

shared with the other joint authors– Each has the right to license the joint work

Copyright Law and the Internet

• A huge amount of CR’ed work is reproduced on the Internet– Some of the CR’ed work that is reproduced on

the Internet is reproduced without a license or payment of royalties

• Generally the direct CR infringers do not have enough assets to justify a suit, but certainly ISPs do

• ISPs have been the target of a number of CR suits


• ISPs basically allow for the uploading and downloading of the CR’ed material– If the burden was placed on ISPs to supervise

content, it would destroy the Internet– Courts have basically treated ISPs as

bookstores rather than as publishers• According to these decisions, an ISP is only liable

for reproducing copyrighted work that they knew or should have known amounted to a CR infringement


• Title II to the DMCA deals with the issue of ISP republishing of possibly infringing material

– The CR owner contacts the ISP and says the material on this other web site infringes my CR

– The web site says that their site does not infringe a CR--what is the ISP to do?

• Title II of the DMCA adds a new Section 512 to the Copyright Act.

» Under the DMCA an ISP is not liable for contributory or vicarious infringement when they are simply performing mechanical routing tasks which allow subscribers to transmit files and messages.


– Title II to the DMCA exempts ISPs from possible CR liability for infringement

• for emails as long as they do not have a say in the initiation, content or addressees of the message

– Napster tried to fit in this defense

– Napster basically said that was an ISP and that it was not initiating the contact between members and

– that it was not affecting content, so it should qualify under Title II of the DMCA for an exemption from liability for CR infringements of members

– the court did not agree with Napster


– Caching--enables ISPs to conserve bandwidth by storing copies of web sites

– In essence the ISP is making a copy of copyrighted material--the web site

– Section 512(b) enables the ISP to escape liability for this copying as long as they refresh the cached material according to generally accepted industry data communication protocol


– Liability for Posting Infringing Material • The DMCA exempts ISPs from liability for posting

infringing material unless they have notice that the material they are posting is a CR infringement

– If the ISP does not receive compensation for the infringing material then they are not liable for posting infringing material so long as they follow safe harbor procedures

» If the ISP knows the material is infringing then they must take steps to expeditiously remove it

» If the ISP does not know for sure, but receives a notice from the CR owner, then the ISP can remove the allegedly infringing material

Liability for Posting Infringing Material

• If the subscriber objects then– the ISP must notify the CR owner it is going to

reinstate the subscriber’s material unless– the CR owner goes to court within 10 to 14

days against the subscriber

Link Law

• In general providing a hyperlink from your site to another site is legal--basically it is a fair use

– Technically linking is a reproduction of CR’ed material– If the site makes it clear it does not want a link from your site to

its site, then implied permission is gone

• Suppose you provide a hyperlink to a site that contains infringing material?

– The DMCA (Section 512(d)) exempts from liability » “hyperlinks, online directories, search engines and the like”

as long as there is no knowledge of the infringement by the hyperlinker

» U.S. Copyright Office Summary, The Digital Millennium Copyright Act of 1998 December 1998.

Link Law

– Suppose the linker is apprised of CR infringements at the linked site?

• Basically the same provisions as those that applied to ISPs apply to linkers

• The linker must inform the linked site which can contest the action

– The linker can relink with the linked site if the third party does not go ahead in court and sue the linked site for a CR infringement

Link Law

– Deep linking– This practice allows visitors to the hyperlinker to avoid

home pages and advertisements of the linked site

» To date the one deep link case that I am aware of between MS and Ticketmaster was settled

» If the hyperlinker changes what a visitor would see if the visitor went directly to the linked site, it is technically a derivative work, which is an exclusive right of the CR owner

• If hyperlinkers diminish the value of the linked webs site, it would seem that their fair use arguments would fail

Trademark Law

• The function of trademark law is to prevent consumer confusion by prohibiting sellers from selling their products using trademarks that are confusingly similar to another’s trademark.

– Trademarks allow companies to build up goodwill based on the quality of their products

» Federal trademark law is administered under the Lanham Act, which was originally passed in 1946 and has been amended several times since then

» States also issue trademarks

» Servicemarks fulfill the same function for businesses that supply services such as restaurants, law firms

Trademarks

• According to the Lanham Act, • “a trademark includes any word, name, symbol, or

device, or any combination thereof”, used by a person “to identify his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown.”

– Section 1127 of the Lanham Act. Constructions and Definitions.

Trademarks

• Recently the courts have been allowing more and more things to be registered as TMs

– Colors, sounds, and even smells

• Federal Registration takes place through the PTO– Again, there are a lot of online services offered by the

PTO

– Registration provides constructive notice that the mark has been taken. Actual notice is provided by the ( ® )symbol. For state TMs, TM is used

» Using the ( ® ) enables the TM owner to recover damages. The def. would have to have notice and therefore the infringement is willful

PTO Procedures

– In order to obtain a TM, you must sell the product in interstate commerce

• or allege that you have a bonafide intention to sell in interstate commerce within 6 months

• The PTO examiner will look at the application and make a determination as to whether the proposed mark will confuse the public

– As with patents, the PTO provides online search engines that can make a preliminary search

– As with Patent law, it is probably best to rely on a TM attorney

Duration of Trademarks and Incontestability

– Duration is potentially infinite, subject to the requirement to pay fees between 5th and 6th years

• Assuming fees are paid, after the 5th year the mark becomes incontestable, which means some, but not all, bases for challenging the validity of the mark expire

• Actually most bases for declaring a mark invalid remain after five years, genericism, abandonment etc

PTO Decisions, Appeals, and Interferences

– As with patents, an applicant can appeal a decision of the examiner to the

– Trademark Trial and Appeal Board and

– Ultimately to the Fed. Cts.--the CAFC

• If the decision is positive, the proposed mark is published in the Official Gazette of the PTO

– Anyone harmed by the registration of the proposed mark has 4 weeks to protest.

» Those harmed include (1) prior registrants and (2) prior users who are not registered with the PTO

What Can and Cannot Be Registered

• According to Section 1052 of the Lanham Act,

• “No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it--…”

• This is followed by a long list of disqualifiers


– Generic Marks• If the mark describes a class of goods rather than the

particular manufacturer, the mark is considered generic

– Marks that are extremely successful tend to become generic: cellophane, trampoline, aspirin

– Generic marks are denied registration because they would convey monopoly like advantages on the registrant

– Companies such as Xerox spend a lot of money reminding the public that Xerox® has two R’s in it, the second being the trademark symbol.


• Other Marks That Are Not Eligible For Registration. Section 1052 disqualifies

• Consists of scandalous or immoral matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt or disrepute.

• More recently there has been a greater willingness on the part of the PTO to allow risque’ marks to be registered

Other Marks That Are Not Eligible For Registration.

• Flags– Consists of or comprises the flag or coat of

arms or other insignia of the United States, or of any State or municipality, or of any foreign nation, or any simulation thereof.

Other Marks That Are Not Eligible For Registration

– At common law it is an invasion of privacy to use someone’s name or likeness for commercial purposes without their permission

• Consists of or comprises a name, portrait, or signature identifying a particularly living individual except by his written consent, or the name, signature, or portrait of a deceased President of the United States during the life of his widow, if any, except by written consent of the widow.


• Confusingly Similar to Previously Registered Marks

• Consists of or comprises a mark which so resembles a mark registered in the Patent and Trademark Office a mark or trade name previously used in the United States by another and not abandoned, as to be likely, when used on or in connection with the goods of the applicant, or cause confusion, or to cause mistake

• This is probably the main reason for turning down applicants


• Confusingly Similar to Previously Registered Marks– The criteria used to exclude by the PTO is the

same as that used by the courts• A mark can be confusingly similar if less than a

majority is confused


• Merely Descriptive and Misdescriptive Marks

– Consists of a mark which, (1) when used on or in connection with the goods of the applicant is merely descriptive or deceptively misdescriptive of them, or (2) when used on or in connection with the goods of the applicant is primarily geographically descriptive or deceptively misdescriptive of them,…”

– If a mark is merely descriptive, then it does not identify the manufacturer

» If merely descriptive marks are registered, firms will run out of ways to describe their goods


– Misdescriptive marks • If the mark misdescribes the product, it is akin to

fraud and thus not suitable for registration

– Fanciful and Suggestive Marks• The strongest marks are fanciful; they do not

describe the product, but are purely based on goodwill--3M company

• Marks that are suggestive are also capable of being registered on the Principal Register

– as long as they acquire secondary meaning--Cool Whip

PTO Registers

• The Principal Register of the PTO– Provides constructive notice to the world

– If the mark is registered for 5 years, it becomes incontestable

» Secondary meaning to the mark is presumed

• The Supplemental Register is for descriptive marks– Supplemental Registrants do not have all the rights that

are possessed by those on the Principal Register

– After five years on the Supplemental Register the mark is generally transferred to the Principal Register

Duration of Trademarks• The initial duration of a registered TM with

the PTO is 10 years, with a requirement to pay fees between the 5th and 6th years– The 10 year registration period assumes

continuous use– If registration is rejected by the examiner, the

applicant has 6 months to respond and amend the application

Incontestable Marks

• It takes 5 years for a mark to be considered incontestable– Following registration, section 1064 allows for

a petition (within 5 years) to cancel registration of a mark based on the claim that

• He or she will be damaged by registration the mark (it is confusingly similar)

• The mark was fraudulently obtained or abandoned

Incontestable Marks

• After 5 years the following two challenges to the validity of the mark are lost

• the mark should not have been registered because it is confusingly similar to a previously registered mark and is likely to cause customer confusion, and

• the mark is not inherently distinctive and has not acquired secondary meaning.

Registration and Notice

• Registration of a TM provides constructive notice to the world– In order to collect damages, however, the TM

owner must provide notice of the mark on the product itself or on the adver. materials.

Remedies

• Section 1114 of the Lanham Act defines a trademark infringer as, “Any person who shall, without consent of the registrant—

– Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale etc. any goods or services which is likely to cause confusion, mistake or to deceive, or

– Reproduce, counterfeit, or imitate etc. any registered mark and apply such reproduction to labels, signs, prints, packages, wrappers or advertisements intended to be used in commerce in connection with the sale of goods or services that are likely to cause confusion, mistake, or deception,…”

Defenses in the Event of an Infringement Suit

– According to Section 1115, once a mark becomes incontestable

• “the registration shall be conclusive evidence of the validity of the registered mark, the registrant’s ownership of the mark, and of the registrant’s exclusive right to use the registered mark in commerce.” Except…

– The mark was fraudulently obtained, abandoned, the def. has permission to use the mark, the def. is using its own name in business, the def. was using the mark prior to pl.’s registration, and other defenses

Defenses in the Event of an Infringement Suit

• Other defenses include– Acquiescence--if a TM owner does not patrol

and challenge infringers, their TM can be lost due to acquiescence

Remedies: Injunctions

• Section 1116 of the Lanham Act allows a court to issue an injunction

– where it is clear that infringing sales are taking place and there likely to be irreparable harm to the TM owner

– Injunction could involve court orders to recall infringing products

• For Counterfeit marks the court allows for seizure of the goods sold by the def.

– Counterfeiters know what they are doing is illegal and rely on time not detected to make their money

Remedies: Money Damages

• The Lanham Act allows for damages equal to – The def.’s profits, the harm to the TM owner,

and costs of litigation– Pl. only need show sales by the def. using the

infringing TM, and the burden is upon the def. to show costs

– Court could award attorney fees to either side

Remedies: Money Damages

• For counterfeit goods Section 1117 requires a tripling of damages, plus attorney fees and court costs

• Section 1124 allows for collaboration between TM owners and customs officials to stop the import of goods that are trademark knockoffs

The Anti-Dilution Act of 1996

– Dilution takes place when a vendor uses a famous mark to sell noncompeting goods

– In 1996 Congress passed the Federal Antidilution Act

• Section 1125(c) of the Lanham Act provides for a civil action for anyone who owns a famous mark

– Subsection c does not allow for the recovery of monetary damages unless the use is willful

– The preferred remedy is an injunction

Anticybersquatting Consumer Protection Act 1999

– Any person who in bad faith intends to profit by registering or using an Internet domain name

• That is identical or confusingly similar to a registered TM shall be liable in a civil action to the owner of the registered mark.

• Statutory damages--those the do not require proof are very substantial

– Damages can range from $1,000 to $300,000 in damages

– Plus full costs and reasonable attorney fees

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BUS 504: Chapter 9 David Baumer North Carolina State University Spring 2001.

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