CHAPTER 8
LICENSING AND INTELLECTUAL PROPERTY
Outline
I. Intellectual Property Rights
A. Patents
Provides its owner with the exclusive right to make, use, or sell an invention or process during the patent period which is usually 20 years from the date of the filing.
1. Patentable Creations
In the U.S. the following things may be patented: processes, machines, products, composition of elements, improvements of processes and machines, product designs, and asexually produced plants.
Example: Association for Molecular Pathology v. Myriad Genetics: The court found that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated. However, synthetically made DNA is patent eligible because it is not naturally occurring.
2. Patentability of Incremental Advances
A court must consider the scope and content of the prior art; differences between the prior art and claims at issue; and the level of ordinary skill in the new art.
3. Standards for Patentability
The U.S. awards patents based on the “first to file” standard used in most nations of the world.
4. Patent Exhaustion
A patent holder’s rights over the patented product generally end once it is sold to a lawful purchaser. This doctrine, patent exhaustion, gives the buyer or anyone to whom he resells the article, the right to freely use or resell the article.
Example: Bowman v. Monsanto: The court found that the purchaser of soybeans did not have the right to reproduce the patentable article under the patent exhaustion doctrine.
5. Patent Infringement
Patent infringement occurs when a person makes, uses, or sells the patented invention without the patent holder’s authorization.
6. Extraterritorial Reach of U.S. Patent Law
When an infringement occurs overseas in violation of a company’s patent rights in the foreign country, the patent holder generally must look to the courts of that nation for redress.
Example: Microsoft v. AT&T Corporation: The court found that Microsoft did not infringe on the AT&T patent because the computers were made in another country.
B. Trademarks
A trademark is a distinctive word, name, symbol or device used by a business to distinguish its goods from those of its competitors.
1. Reasons for Legal Protection
Trademarks are given legal protection to assist purchasers in distinguishing among the many competitors in a particular market. Trademarks must be distinctive to merit legal protection.
Example: Schwan’s v. Kraft Pizza Company: The court found the term “Brick Oven” pizza to be too generic to warrant legal protection.
2. The Registration Process
A trademark is not eligible for registration in the absence of prior commercial use.
3. Trademark Rights
The first to use the trademark in commercial use within the U.S. will gain the “first in time equals first in right” principle.
4. Trademark Infringement
A plaintiff must show (1) it possesses the trademark, (2) the defendant used the mark in commerce, (3) the defendant’s use of the mark was in connection with a sale, distribution, or advertising of goods or services, (4) the defendant’s use of the mark will likely confuse customers.
5. Trademark Dilution
Trademark dilution laws focus on protecting the investment of trademark owners.
Example: Playboy Enterprises v. Netscape Communications: The court found that Netscape’s use of the trademark for business purposes in commerce diluted Playboy’s trademark.
6. Extraterritorial Reach of U.S. Trademark Laws
While courts have recognized that U.S. trademark law may reach overseas, they have never adopted a precise test to govern such cases.
Example: McBee v. Delica Co.: The court found that the U.S. court did not have jurisdiction over this trademark claim because there was no evidence proving American customers actually saw Delica’s products.
C. Copyrights
A copyright prohibits the unauthorized reproduction of creative works.
1. Creation and Notice
A copyright exists automatically upon the creation of the work. Authors are not required to register the creation with the government in order to protect the work, although it is advised.
Example: BMG Music v. Gonzalez: The court found that a copyright infringer is generally prohibited from reducing its liability by claiming innocent infringement if proper notice has been given. Here, even though the copyright notice appeared on CDs rather than on the internet where defendant accessed the music files, she could have learned of the copyright if she has inquired.
2. Copyright Infringement
a. To establish direct copyright infringement, a plaintiff must prove (1) ownership of a valid copyright and (2) copying of the elements of the work are original unless the actions fall within the fair use doctrine.
Example: Perfect 10 v. Google: The court found that Google’s use of thumbnail images did not infringe on Perfect 10’s copyright due to the fair use doctrine.
b. Contributory copyright infringement requires the plaintiff to prove (1) direct infringement by a primary infringer, (2) knowledge of the infringement by the defendant, and (3) material contribution to the infringement by the defendant.
c. Vicarious copyright infringement requires the plaintiff to prove (1) direct infringement my primary party, (2) direct financial benefit to the defendant, and (3) the defendant’s right and ability to supervise the infringers.
Example: Arista Records v. Flea World: The court found that a flea market was liable for vicarious copyright infringement because it permitted vendors to illegally sell copyrighted merchandise.
3. Fair Use
A defendant might be able to avoid liability if his useof the copyrighted material falls within the fair use defense. There are four factors for evaluating whether a use is fair use: (1) purpose and character of the use; (2) nature of the copyrighted work; (3) amount and substantiality of portions used; and (4) effect on the market.
4. First Sale Doctrine
The doctrine states that the Copyright Act allows a purchaser of copyrighted material “lawfully made…without the authority of the copyright, to sell or otherwise dispose of the possession of that copy.”
Example: Kirstsaeng v. John Wiley & Sons: The court found that the first sale doctrine permitted Kirtsaeng to freely sell foreign-bought books in the United States. The owner, Kirtsaeng, of a lawfully purchased copyrighted work can resell it without limitations imposed by the copyright holder.
D. Trade Secrets
Generally, a trade secret is developed by a firm and includes secret formulas, devices, processes, techniques, and compilations of information and must provide its owner with competitive advantage.
1. Maintaining Secrecy
The owner must take reasonable steps to maintain secrecy.
2. Misappropriation
An individual may freely use the trade secrets of another if he discovers them through proper channels such as reverse engineering. An individual is liable for disclosing or using a trade secret if she (1) acquired it by improper means; (2) obtained it from one who acquired it by improper means; (3) breached a duty of confidentiality regarding the secret; or (4) acquired it from someone who breached a duty of confidentiality regarding the secret.
Example: PhoneDog v. Kravitz: The court found that plaintiff had a misappropriation of trade secrets claim when the defendant continued to use plaintiff’s Twitter account.
II. Technology Transfer Agreements
Technology transfer occurs when a business licenses its intellectual property to another.
A. Nature of Licensing
The licensing agreement permits an intellectually property owner to grant another the use of the protected technology in return for compensation.
1. Parties to the Licensing Agreement
The licensor owns the property and permits the licensee to use the property.
2. The Need to License
In order to be successful, an intellectual property owner may have few options other than licensing it technology to others.
B. Advantage of Licensing
Numerous benefits are provided to both the licensor and the licensee. Licensors receive royalty payments and market presence. Licensees gain access to products and ideas that otherwise might not be available and may gain a competitive advantage.
C. Risks of Licensing
Perhaps the greatest risk is that the licensee, after gaining access to the licensor’s technology, will sever the licensing relationship and become a competitor.
D. Negotiating the Agreement
Licensing agreements, including global agreements, require meticulous planning and a great deal of flexibility.
1. Principal Considerations
Licensing agreements require careful partner selection.
2. Limits on Negotiating Authority
Foreign host countries frequently refuse to enforce contractual provisions granting liberal termination rights to the licensor. In the United States, many states have laws protecting the rights of licensees.
Learning Objectives
1. You should understand the reasons for protecting intellectual property.
2. You should know the four basic types of intellectual property.
3. You should know what types of intellectual property a patent is used to protect, the standards for patentability and how patent infringement occurs.
4. You should know what types of intellectual property a trademark is used to protect, the requirements necessary for a trademark, and how a trademark is registered.
5. You should know what types of intellectual property a copyright is used to protect, how to create a copyright, and the different types of copyright infringement.
6. You should understand how the fair use doctrine affects a copyright protected form of property.
7. You should understand how a trade secret differs from the other forms of protection for intellectual property and the requirements of a trade secret.
8. You should understand why a business might chose to license the use of its intellectual property to another.
9. You should know the parties to a license.
10. You should understand the risks of granting a license and how licensors attempt to protect themselves.
Learning Hints
1. Intellectual property law was established to protect creative individuals and businesses. These laws encourage creativity, and thus support a competitive market, by protecting the inventors.
2. Intellectual property is divided into four parts to better address the needs of specific forms of intellectual property. Patents are used to protect inventions and processes. Trademarks are used to distinguish one business from another, which in turn protects the consumer from purchasing “knock-off” products unknowingly. Copyrights are used to protect written work such as music, writings, artwork, and movies. Trade secrets must be developed by a firm in the course of business and the owner must take reasonable steps to maintain the secrecy.
3. Patents protect intellectual property for a period of 20 years from the date of filing. Trademarks protect intellectual property only until the distinguishing mark becomes generic. Copyrights protect written intellectual property for a period of time. Only trade secrets grant possible perpetual protection.
4. The fair use doctrine permits certain types of professions to use copyrighted materials of others without committing copyright infringement. For example, a professor may legally photocopy a piece of written work and distribute it in a classroom for educational purposes.
5. Copyright material need not be registered with the government to be protected just as a trade secret is not registered with government.
6. A licensing agreement is a contract. Businesses or individuals may choose to license the use of their intellectual property to increase revenue. Some businesses and individuals may not have the necessary capital to produce the products and may choose to license it to others. By licensing intellectual property, an inventor or writer may collect royalties from the licensee.
7. Awarding licenses to intellectual property is risky for the licensor. The licensor is in essence sharing knowledge with the licensee. The licensee may terminate the licensing agreement and use the licensor’s intellectual property to become a competitor.
8. Most licensing agreements are detailed in nature to protect both the licensor and licensee. These agreements typically include a granting clause which details the scope of the license. The licensee may require a warranty from the licensor that the licensor will not grant another licensing agreement to a competitor of the licensee. Licensor may require that the licensee guarantee that he will not share the intellectual property with a third party.
9. In return for sharing its intellectual property, the licensor will be compensated by the licensee. Compensation may be made in one lump sum payment or in smaller incremental payments.
10. Most licensing agreements state how the license will terminate and under which circumstances either of the parties may be discharged from the agreement.
True-False
In the blank provided, put "T" if the statement is True or "F" if the statement is False.
_____ 1. An individual is not eligible to register for a patent.
_____ 2. Failure to receive a certification of a copyright from the U.S. government will render that copyright unenforceable.
_____ 3. The major advantage of a patent is that it deprives competitors from using the invention without the patent holder’s consent.
_____ 4. The U.S. awards patent privileges based on a first to invent standard.
_____ 5. The NIKE swoosh is an example of a trademark.
_____ 6. A trademark does not need to be used in commercial use before the U.S. government will grant trademark protection.
_____ 7. The U.S. government requires all copyright protected material to be registered.
_____ 8. The copyright period for a work created after 1978 is 75 years.
_____ 9. Downloading songs from the Internet and storing them on a hard drive is copyright infringement if compensation is not paid.
_____ 10. It is rare for the owner of intellectual property to grant a license for another to use that intellectual property in commerce.
Multiple Choice
Circle the best answer.
1. Which of the following creates a temporary monopoly to encourage the development of new technologies?
a. Trademark
b. Patent
c. Copyright
d. Trade Secret
2. Which of the following is used by a business to distinguish it’s product from competitor products?
a. Trademark
b. Patent
c. Copyright
d. Trade Secret
3. Which of the following is registered for a ten year term but may be filed repeatedly upon expiration?
a. Trademark
b. Patent
c. Copyright
d. Trade Secret
4. Which of the following types of intellectual property protection may exist perpetually?
a. Patent
b. Copyright
c. Trade Secrets
d. All of the above.
5. The fair use doctrine applies to which of the following forms of protection?
a. Patents
b. Copyrights