P A R T 2 Crimes Torts Crimes

P A R T 2 Crimes & Torts Crimes Intentional Torts Negligence & Strict Liability Intellectual Property & Unfair Competition Mc. Graw-Hill/Irwin Business Law, 13/e © 2007 The Mc. Graw-Hill Companies, Inc. All rights

C H A P T E R 8 Intellectual Property & Unfair Competition “I dream for a living. ” Steven Spielberg, quoted in Time magazine, July 1985

Learning Objectives v Infringement of intellectual property rights v Misappropriation of trade secrets v Unfair competition - intentional torts v Unfair competition – the Lanham Act 8 -4

Types of Intellectual Property PATENT: w Engine design, business methods v TRADEMARK w Logo, trade name v COPYRIGHT w Sales materials, artwork v 8 -5 Marketing materials for Case Construction Equipment

Copyright v Intangible right granted by statute to the author or creator of certain tangible literary or artistic productions w Can’t copyright an “idea” v Applicable law: Copyright Protection Act and the Copyright Term Extension Act v http: //www. copyright. gov/ 8 -6

Copyright v Protection automatic; registration not required, though recommended v Works created after 1/78 are given protection for life of author + 70 years v Protection for a work-for-hire (corporation owns copyright) is 95 years from first publication or 120 years from creation, which ever comes first 8 -7

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. v Facts & Procedural History : Defendants Grokster and Stream. Cast Networks, Inc. distributed free software that allowed computer users to share electronic files through peer-to-peer networks w Many copyright owners (collectively referred to as MGM) filed separate lawsuits against defendants and the cases were consolidated w MGM sought damages and injunction alleging that defendants knowingly and intentionally distributed software to enable users to reproduce and distribute copyrighted works in violation of the Copyright Act w 8 -8

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. v Issue and Legal Reasoning: w Issue is under what circumstances the distributor of a product capable of both lawful and unlawful use is liable for acts of copyright infringement by third parties using the product w One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it w Substantial evidence shows defendants acted with a purpose to cause copyright violations by use of software suitable for illegal use 8 -9

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. v Holding: w 8 - 10 One who distributes a device with the object of promoting its use to infringe copyright, as shown by affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties

Patent v Grant from federal government to an inventor in which inventor obtains exclusive right to make, use, and sell his invention for a period of 20 years (14 years for designs) v U. S. Patent Act requires registration w 8 - 11 http: //www. uspto. gov/

Patent A patent will not be issued if more than one year before the patent application the invention was patented elsewhere, described in a printed publication, or in public use or on sale in the United States v Example: Pfaff v. Wells Electronics, Inc. v Inventor sold patented item on April 8, 1981 w Inventor applied for a patent on April 19, 1982 w Since more than one year passed, the patent was invalid w 8 - 12

Patent v Protection for: a process, a machine, a manufacture or product, a composition of matter ( such as a new chemical compound), an improvement of any of the above, an ornamental design for a product, a plant produced by asexual reproduction, certain business methods v Even though an invention fits one of the categories, it is not patentable if it lacks novelty, is obvious, or has no utility 8 - 13

Trademark v Distinctive mark, motto, device, or emblem that a manufacturer or service provider stamps, prints, or affixes to products it produces or services it performs to distinguish products or services from those of competitors v Applicable law: Lanham Act v Registration with state or fed. government recommended, but not required 8 - 14

Trademark v “Trademark” applicable to: trade name (e. g. , Mc. Donald’s, Nike) w trade image (e. g. , Ronald Mc. Donald) w trade logo (golden arches, swoosh) w trade dress (red & white awnings of KFC) w v Trademark dilution is the diminishment of the capacity of plaintiff's marks to identify and distinguish plaintiff's goods or services 8 - 15

E-Commerce Infringement Trademark dilution on the internet is prohibited by the Anticybersquatting Consumer Protection Act v Creates civil cause of action against a person who, with bad faith intent to profit from a trademark, registers, traffics in, or uses a domain name identical or “confusing similar” to distinctive mark w Example: Volkswagen sued Virtual World for their registration of VW. com and won v 8 - 16

Work-for-Hire v. A work-for-hire exists when (1) an employee, in the course of her regular employment duties, prepares a copyrightable work; or w (2) an individual or corporation and an independent contractor (i. e. , nonemployee) enter into a written “hire” agreement under which the non-employee prepares a copyrightable work for the individual or corporation w 8 - 17

Infringement v Violation of intellectual property right: when someone uses, makes, or sells another’s trademarked, patented, or copyrighted intellectual property without owner’s permission, license, franchise v Penalties -- actual or statutory damages in civil proceedings or criminal penalties for willful violations 8 - 18

Proof of Infringement v Generally, infringement requires proof that: (1) defendant had access to copyrighted work; w (2) defendant engaged in enough copying (deliberately or subconsciously) that resemblance between allegedly infringing work and protected work could not be coincidental; and w (3) substantial similarity exists between the works w 8 - 19

The “Fair Use” Defense v For copyright and trademark infringement, a “fair use” defense or exception exists when the copyrighted work or trademark is used without the property holder’s permission w “for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research” Section 107 of the Copyright Act 8 - 20

The “Fair Use” Defense v A court weighs factors in a fair use determination: (1) the purpose and character of the use, w (2) the nature of the copyrighted work, w (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and w (4) the effect of the use on the potential markets for the copyrighted work or on its value w 8 - 21

Exceptions/Defenses v “Fair w Example: In Campbell v. Acuff -Rose Music, Inc. , the Supreme Court held that 2 Live Crew’s version of Roy Orbison’s “Pretty Woman” was a parody and could be a fair use if the use was not excessive and did not harm the market for the original w 8 - 22 Use” may include parody Case remanded to determine whether use was “excessive” or “harmed the market, ” but the two sides eventually settled with 2 Live Crew paying royalties

Mattel, Inc. v. Walking Mountain Productions v Facts & Procedural History : w Plaintiff artist produces works with social and political overtones, including a 78 -photograph series titled “Food Chain Barbie” w Forsythe describes the artworks as an attempt to “critique the objectification of women associated with [Barbie], and [to] lambaste the conventional beauty myth and the societal acceptance of women as objects. ” w Mattel sued Forsythe alleging that the series violated Mattel’s copyright and trademark rights in regard to the Barbie doll’s appearance and name 8 - 23

Mattel, Inc. v. Walking Mountain Productions v Issue : w Did defendant’s use of Mattel’s intellectual property infringe on Mattel’s rights? v Law Applied to Facts : w Because Forsythe reproduced photographs of the Barbie figure, Mattel established a prima facie case of copyright infringement w However, the Copyright Act recognizes certain statutory exceptions to protections on copyrights 8 - 24

Mattel, Inc. v. Walking Mountain Productions v Legal Reasoning and Holding : w “Purpose and character of use” factor in a fair use inquiry asks “to what extent the new work is transformative” and does not “supplant” original w Parodic works comment and criticize, thus often sufficiently transformative to fit under fair use exception Given extremely transformative nature and parodic quality of Forsythe’s work, the first fair use factor weighs heavily in favor of Forsythe w All other factors also weigh in favor of Forsythe w 8 - 25

International Law v International intellectual property law is governed by multilateral agreements Paris Convention w Madrid Agreement Concerning the International Registration of Trademarks w Madrid Protocol w World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) w v World Intellectual Property Organization (WIPO) resolves international intellectual property disputes 8 - 26

Test Your Knowledge v True=A, False = B w You may copyright an idea w Copyright protection requires registration with the U. S. Copyright Office w The U. S. Patent Act requires registration of a patent to obtain protection for the intellectual property w The Lanham Act protects trademarks 8 - 27

Test Your Knowledge v True=A, False = B w Trademark dilution refers to the overuse of a trademark on products or services w An employee who creates a new software program has made a work-for-hire w The “fair use” defense is an absolute defense to an infringement claim 8 - 28

Test Your Knowledge v Multiple w A trademark refers to: w w w Choice (a) (b) (c) (d) (e) trade name trade image trade logo trade dress all of the above Trademark dilution on the internet is prohibited by: (a) Anticybersquatting Consumer Protection Act w (b) Patent & Trademark Act w (c) Berne Convention w 8 - 29

Trade Secrets secret: any secret formula, pattern, process, program, device, method, technique, or database used in the owner’s business that gives the owner competitive advantage v A firm must take reasonable measures to maintain secrecy v Trade 8 - 30

Misappropriation v Misappropriation of a trade secret occurs when a person discloses or uses after acquiring the secret: w By improper means (theft, trespass, etc. ) w Through another party who is known or should have been known to have obtained the secret by improper means, w By breaching a duty of confidentiality v Example: North Atlantic Instruments, Inc. v. Haber 8 - 31

North Atlantic Instr. v. Haber v Facts : w North Atlantic manufactured electronic equipment w The firm acquired TMI in which Haber was a 1/3 owner and president; Haber had substantial client base w Acquisition of TMI conditioned on Haber’s continued employment since the client contacts were a valuable intangible asset w Haber’s employment contract, with a confidentiality clause, ended in 1997, when he joined Apex, a firm with a similar target market w North Atlantic sued Haber and Apex for misappropriation of trade secrets 8 - 32

North Atlantic Instr. v. Haber v Appellate Court Reasoning and Ruling : w Based on a magistrate’s findings, the trial court enjoined Haber and Apex from using the client contacts; Haber and Apex appealed w The appellate court examined and agreed with the magistrate’s findings that the identity of North Atlantic’s client contacts was a protectable trade secret and agreed that Haber had breached his duty of confidentiality w District court’s injunction affirmed 8 - 33

Commercial Torts v Commercial torts are intentional torts that involve business or commercial competition and include: w Injurious falsehood (product disparagement) involves the publication of false statements that disparage another’s business, property, or title to property, and thus harm economic interests w 8 - 34 Example: Jefferson County School District v. Moody’s Investor’s Services, Inc.

Commercial Torts v Commercial torts (cont. ) Intentional interference with contractual relations occurs when one party to a contract claims that the defendant’s interference with the other party’s performance of the contract wrongly caused the plaintiff to lose the benefit of that performance w Intentional interference with prospective advantage parallels the elements for interference with contractual relations, except prospective relations are the focus rather than existing contracts w 8 - 35

Commercial Torts v Commercial w Section 43(a) of the Lanham Act creates civil liability for unfair competition, including misleading, confusing, or deceptive representations made in connection with goods or services w Example: American Italian Pasta Co. v. New World Pasta Co. , in which the pasta companies battled over whether the defendant could claim its brand was “America’s Favorite Pasta” w 8 - 36 torts (cont. ) Sales puffery or not?

Thought Question v Music is intellectual property. What do you think about people who download music illegally? Have they committed theft? 8 - 37