The Role of Intellectual Property in eCommerce CPS 181s April 8, 2003 Source: David Drooz, Associate...

The Role of Intellectual The Role of Intellectual Property in eCommerceProperty in eCommerce

CPS 181s

April 8, 2003

Source: David Drooz, Associate General Council, NCSU

QuestionsQuestionsQuestionsQuestions

What is the Legal Authority for IP?How is IP used in Business?What is a Business Method Patent?What is the Role of Trademarks &

Domain Names? Issues Related to Copyright & DMCA?

What is the Purpose of Protecting What is the Purpose of Protecting Intellectual Property?Intellectual Property?




Encourage CreativityPromote the public good!

Legal Authority for Intellectual Legal Authority for Intellectual PropertyProperty

Legal Authority for Intellectual Legal Authority for Intellectual PropertyProperty

IntellectualIntellectual Property - SourcesProperty - SourcesIntellectualIntellectual Property - SourcesProperty - Sources

US Constitution, Article I, sec. 8, gives Congress the power:

“To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”

IntellectualIntellectual Property - sourcesProperty - sourcesIntellectualIntellectual Property - sourcesProperty - sources

Patents -- federal statutes Copyright -- federal statutes Trademark -- federal statutes & state law Trade secrets -- state laws Different countries = different laws. Treaties

help reconcile differences.

What is a …..?What is a …..?What is a …..?What is a …..?

Patent?Copyright?Trademark?Trade Secret?

What’s a Patent?What’s a Patent?What’s a Patent?What’s a Patent?A government grant that empowers the owner to prevent others from making, using, or selling the patented invention for a limited time (20 years in the US only)

-- ie., a Monopoly

In return, the inventor(s) must describe their technology in sufficient detail that anyone of ordinary skill in the art, can practice the invention.

History of PatentsHistory of PatentsHistory of PatentsHistory of Patents

First Recorded Patent - Barge with hoist to transport marble, 1421, Florence

Statute of Monopolies enacted by Parliament in 1623, provided 14 years of protection

First US Patent Statute enacted by Congress in 1790

Today there are over 100 separate jurisdictions regarding Patents

What is Patentable?What is Patentable?What is Patentable?What is Patentable?

What’s Patentable?What’s Patentable?What’s Patentable?What’s Patentable?

ProcessesMachinesArticles of ManufactureCompositions of MatterNew and Useful ImprovementsNot:

Theoretical IdeasNatural Phenomena (Equations)

What’s Protected?What’s Protected?What’s Protected?What’s Protected?

It is a negative right! It gives the owner no rights. Instead, it prohibits others of the right to make, have made, use, and sell the invention in the US (or foreign countries in which patent protection is obtained).

Key Steps to an InventionKey Steps to an InventionKey Steps to an InventionKey Steps to an Invention

Conception - when invention is sufficiently defined in the mind of the inventor to enable the inventor to describe the invention

Reduction to Practice - steps taken to make the invention and demonstrate that it achieves the intended purpose -- ie., research

Statutory RequirementsStatutory RequirementsStatutory RequirementsStatutory Requirements

The Invention Must Be:UsefulNovelUnobvious (to one of ordinary skill in the art)

Duty of Candor and Disclosure

Statutory Bars (US)Statutory Bars (US)Statutory Bars (US)Statutory Bars (US)

Prior to one year before the application, must not have been:

In public use Offered for salePatented anywhere in the worldDescribed in a printed publication (including the Web)

Who’s an Inventor?Who’s an Inventor?Who’s an Inventor?Who’s an Inventor?

Who’s an Inventor?Who’s an Inventor?Who’s an Inventor?Who’s an Inventor?

One who contributes, in an inventive manner, to the subject matter of at least one claim in the patent.

Who Can Get a Patent?Who Can Get a Patent?Who Can Get a Patent?Who Can Get a Patent?

The First to Invent Based on Date of Conception (in US)

Can be Single Individual, or Multiple Individuals Working Together (co- or joint-inventors)

Foreign PatentsForeign PatentsForeign PatentsForeign Patents

First to FileAbsolute Bar if Prior Public DisclosurePatent Cooperation Treaty (PCT) Filing

12 Months After US Filing

PatentsPatentsPatentsPatents

Patents -- 35 United States Codes Protects: inventions (utility and design) and

discoveries of “machines, processes, manufacture & composition of matter”

Duration: 20 years (14 for designs) Exclusive right to: prevent using, making,

selling Must be: new + nonobvious +

useful/ornamental NOTE: unlike other IP, no right until PTO issues

Financial ObligationsFinancial ObligationsFinancial ObligationsFinancial Obligations

$70K US$150K International (typical)$750 Maintenance fee unless

abandoned

CopyrightCopyrightCopyrightCopyright

17 United States Codes Protects: works of authorship

e.g., text, graphics, software Duration: author’s life + 70 years (95-120

years for works-for-hire or anonymous works) Exclusive right to: copy, distribute, display,

perform, derive Must be: original + fixed in tangible medium Begins: immediately

TrademarkTrademarkTrademarkTrademark

Trademark -- 15 USC 1051 - 1127; 19 USC 1526

Protects: trade & service marks e.g., name or symbol for a company, product, or

service Duration: until abandoned Exclusive right to: prevent confusingly similar

uses / prevent dilution of famous marks Must be: distinctive + actually used

IntellectualIntellectual Property - statutesProperty - statutesIntellectualIntellectual Property - statutesProperty - statutes

Digital Millennium Copyright Act (DMCA)(10/98)

DMCA updates copyright law in response to the computer age. Protects ISPs from some liabilities for user

acts. Adds 17 USC 1201 to outlaw circumvention of

technology that protects copyrighted work. Adds 17 USC 1202 to outlaw tampering with

Copyright Management Information.


Anticybersquatting Consumer Proctection Act Nov. 1999 law / 15 USC 1125(d)

unlawful to have bad faith intent to profit from another’s mark, and register, traffic in, or use a domain name that

is confusingly similar to a distinctive mark or dilutive of a famous mark

(without regard to type of goods or services) Statutory damages up to $100,000


Trade secrets -- N.C.G.S. 66-152 et seq.

Protects: secret business and technical info Duration: until disclosed Exclusive right to: prevent others from

misappropriation ( taking or using it) Must be: commercially valuable + subject to

effort to keep it secret + not widely known or readily ascertainable by others

Business Use of Intellectual Business Use of Intellectual PropertyProperty

Business Use of Intellectual Business Use of Intellectual PropertyProperty

Business use of IPBusiness use of IPBusiness use of IPBusiness use of IP

Perform legal groundwork for your own IP - register ©, register tm, file for patents

Audit to discover any areas where your business may infringe IP rights of others

Block competitors from technological progress

IP litigationIP litigationIP litigationIP litigation

Lawsuits over IP are business strategy for some companies.

Cross-licensing of patents is crucial in many industries (e.g., computer chip design)

Where does one patent stop and the next start?Average cost to challenge a patent: $1.2 millionLawsuits over IP rights may create barrier to

entry, esp. in fast developing technology

IP litigationIP litigationIP litigationIP litigation

Financing can evaporate when Internet company is sued for copyright violation

July 2000 - RIAA and MPAA sue Scour for copyright infringement (like Napster suit)

July 2000 - court rules against Napster July 2000 - venture capital flees from ScourIn Sept 2000 Scour lays off 2/3 employeesIn Oct 2000 Scour files for bankruptcy

Hot Issues -- Business Hot Issues -- Business Method PatentsMethod Patents


State Street Bank & Trust v. Signature Financial Group

SFG had patent on “Hub and Spoke” data processing method for pooling mutual funds

old Supreme Court law: no patents for laws of nature, natural phenomenon, and abstract ideas.

Math algorithms and business methods were old judicial exceptions to patentability



State Street Bank & Trust v. Signature Financial

But now: math algorithm that transforms data into a useful result is not an “abstract idea”

Under statutes, a “process” is patentable, and a “method” is one form of “process”

So, SFG’s computer method for tracking investment info is patentable



Reaction to State Street

Panic that business method monopolies would kill eCommerce

Concern that PTO would miss “prior art”Rush to file business method patentsCalls for legal reform



NY Times reaction to State Street 3-12-00

“[T]he patent system is in crisis.” “A … threat to the digital economy.” “The patent office has ... become a ferocious

generator of litigation; and many technologists believe that it has begun to choke the very innovation it was meant to nourish.”

Hot Issues -- PatentsHot Issues -- PatentsHot Issues -- PatentsHot Issues -- Patents

The Rush to File

Over 150,000 patents issued in 1998200,000 expected for 2000

1990 patent royalties = $15 billion1998 patent royalties = $100 billion


The Rush to FileInternet-related patents:

1995 = 1651999 = 3,312

1997-99: 61% increase in patents issued1997-99: 800% increase in Internet patents


The Rush to File

~4000 software patents in 1992-93~40,000 in 1998

> 50% of patent examiners have less than 2 years on the job


Business method patents issued for:reverse auctionsInternet sales of music and videopaying computer users to view adspaying online with credit cards“associates” program - % for Web referralseven hyperlinking!

Is “Business Method” Exception Is “Business Method” Exception Good Law?Good Law?

Is “Business Method” Exception Is “Business Method” Exception Good Law?Good Law?


Criticism from Stanford’s Larry Lessig: What is "novel," "nonobvious,“ or "useful" is hard

enough to know in a relatively stable field. In a transforming market, it's nearly impossible….

On average it takes $1.2 million to challenge the validity of a patent, which means it is often cheaper simply to pay the royalties than to establish that the patent isn't deserved.

“Bad patents" thus become the space debris of cyberspace. Nowhere is this clearer than in the context of business-method patents.


Criticism from Stanford’s Larry Lessig: Awarding patents of that type siphons off

resources from technologists to lawyers – from people making real products to people applying for regulatory privilege and protection. An increasingly significant cost of Net startups involves both defensive and offensive lawyering – making sure you don't "steal" someone else's "idea" and quickly claiming as yours every "idea" you can describe in a patent application.


Response from the US PTO:

Public outcry was so great that in March 2000, the PTO published a Business Methods Patent Action Plan

Patent Office promised to review business method applications more thoroughly


Response from Congress: Business Method Improvement Act of 2000

bill was introduced in October 2000creates presumption that computer business methods are “obvious” (not patentable)

lowers standard of proof required to overturn a business method patent


Bottom Line for Digital Enterprises Patent your own novel, nonobvious, useful

business methods (or make them public) Establish that other methods you use are either

not new (already known or used by the public), or, obvious

Acquire license for methods patented by others

Hot Issues -- Domain names & Hot Issues -- Domain names & TrademarksTrademarks

Hot Issues -- Domain names & Hot Issues -- Domain names & TrademarksTrademarks

Anti-cybersquatting law

Metatags and keywords

Hot Issues -- copyrightHot Issues -- copyrightHot Issues -- copyrightHot Issues -- copyright

Deep hyperlinksSite A may link to a page several levels inside Site B. Site B provides key content but loses promotional benefits of user going through its other pages.

E.g., Tickemaster has exclusive right to sell tickets to certain events. It offers them for sale on its Web site.


Deep hyperlinks Ticketmaster sued Microsoft for linking to event

pages within the Ticketmaster site - case was settled confidentially.

Next Ticketmaster sued Ticket.com for same thing. Ruling in March 2000:

“hyperlinking does not itself involve a violation of the Copyright Act”

.


Deep hyperlinks“deep linking by itself (i.e., without

confusion of source) does not necessarily involve unfair competition.”

Also, court held that taking factual information from Ticketmaster’s web pages and putting it on Ticket.com was not a copyright violation.


Linking to infringing material -- held to be contributory infringement in one case:

Intellectual Reserve v. Utah Lighthouse Ministries (1999) - federal court enjoined web site operator from providing addresses of other web sites that contained infringing copies of the Mormon Handbook.

The Intellectual Reserve case raise questions offree speech rights on the Internetthe very ability to link, and therefore have a World Wide Web


FramingWeb site A links user to Web site B, but “frames” the content with info from Web site A.

No clear court decisions. Possible infringement of copyright or trademark, and commercial misappropriation.

Copyright and DMCACopyright and DMCACopyright and DMCACopyright and DMCA

What about music file sharing?

Hot Issues - copyrightHot Issues - copyrightHot Issues - copyrightHot Issues - copyright

Napster was invented by Shawn Fanning, a 19 year old college dropout.

The program allows users to swap MP3 music files on the Internet - for free.

Napster did not copy any files itself. Just an index of where to find digital songs.

38 million users


Music industry sued for contributory infringement.

Napster argues the “Betamax defense” - not liable for providing device used by others to infringe, if device has substantial legit uses

Preliminary ruling favored music industry.


Nov 2000 Napster enters deal with music giant Bertelsmann (BMG) to convert to a subscription service and presumably pay license fees to © owners

Will users turn to other free services?Will the Secure Digital Music Initiative

protect copyright?


DMCA Title I“No person shall circumvent a technological measure that effectively controls access to a [copyrighted] work”

Also unlawful to make or distribute a device, technology, or service with primary purpose of circumventing copyright or access controls


DMCA Title I -- main case is 2600 Enterprises DeCss program removes the Content Scrambling

System from DVD movies. Created by 15 yr old. Hacker web site 2600.com posted DeCSS and

linked to other sites with it. Movie studios sued 2600 because DeCSS

promoted unauthorized copying of movies. MPAA: losses of $2.5 billion/year to DVD pirates.


DMCA Title I -- main case is 2600 Enterprises

Court ruled that posting DeCSS violated DMCA law against trafficking in technology that circumvents copyright protections.

And that intentionally posting links to other sites with DeCSS was equally a violation.


Digital Millennium Copyright Act (10/98)

DMCA Title II protects interactive computer service providers (e.g., ISPs) from liability for infringing acts of users. Conditions:

ISP must act as content carrier, and not a provider of content.

ISP must have no actual knowledge of infringing content (or act promptly when it gains knowledge)


Digital Millennium Copyright Act (10/98)

ISP must provide info to users; designate an agent to receive notice of infringing material

Must remove material when notice of infringement is given

No liability of ISP to the user (in case of wrongful removal) or to the copyright owner

More informationMore informationMore informationMore information

Harvard online course about Intellectual Property in Cyberspace

http://eon.law.harvard.edu/property/

Berkeley online courses on cyberlaw, intellectual property, etc.

http://www.law.berkeley.edu/institutes/bclt/courses/

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