Business law

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Chapter 23 Intellectual Property

L E A R N I N G O B J E C T I V E S

After reading this chapter, you should understand the following:

1. The principal kinds of intellectual property

2. The difference between patents and trade secrets, and why a company might

choose to rely on trade secrets rather than obtain a patent

3. What copyrights are, how to obtain them, and how they differ from

trademarks

4. Why some “marks” may not be eligible for trademark protection, and how to

obtain trademark protection for those that are

Few businesses of any size could operate without being able to protect their rights to a particular type of

intangible personal property:intellectual property. The major forms of intellectual property are patents,

copyrights, and trademarks. Unlike tangible personal property (machines, inventory) or real property

(land, office buildings), intellectual property is formless. It is the product of the human intellect that is

embodied in the goods and services a company offers and by which the company is known.

A patent is a grant from government that gives an inventor the exclusive right to make, use, and sell an

invention for a period of twenty years from the date of filing the application for a patent. A copyright is

the right to exclude others from using or marketing forms of expression. A trademark is the right to

prevent others from using a company’s product name, slogan, or identifying design. Other forms of

intellectual property are trade secrets (particular kinds of information of commercial use to a company

that created it) and right of publicity (the right to exploit a person’s name or image). Note that the

property interest protected in each case is not the tangible copy of the invention or writing—not the

machine with a particular serial number or the book lying on someone’s shelf—but the invention or words

themselves. That is why intellectual property is said to be intangible: it is a right to exclude any others

Chapter 23 from Advanced Business Law and the Legal Environment was adapted by The Saylor Foundation under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0

license without attribution as requested by the work’s original creator or licensee. © 2014, The Saylor Foundation.

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from gaining economic benefit from your own intellectual creation. In this chapter, we examine how

Congress, the courts, and the Patent and Trademark Office have worked to protect the major types of

intellectual property.

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23.1 Patents

L E A R N I N G O B J E C T I V E S

1. Explain why Congress would grant exclusive monopolies (patents) for certain

periods of time.

2. Describe what kinds of things may be patentable and what kinds of things may

not be patentable.

3. Explain the procedures for obtaining a patent, and how patent rights may be

an issue where the invention is created by an employee.

4. Understand who can sue for patent infringement, on what basis, and with

what potential remedies.

Source of Authority and Duration Patent and copyright law are federal, enacted by Congress under the power given by Article I of the

Constitution “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.” Under current law, a

patent gives an inventor exclusive rights to make, use, or sell an invention for twenty years. (If the patent

is a design patent—protecting the appearance rather than the function of an item—the period is fourteen

years.) In return for this limited monopoly, the inventor must fully disclose, in papers filed in the US

Patent and Trademark Office (PTO), a complete description of the invention.

Patentability What May Be Patented

The patent law says that “any new and useful process, machine, manufacture, or composition of matter, or

any new and useful improvement thereof” may be patented. [1] A process is a “process, art or method,

and includes a new use of a known process, machine, manufacture, composition of matter, or

material.” [2] A process for making rolled steel, for example, qualifies as a patentable process under the

statute. A machine is a particular apparatus for achieving a certain result or carrying out a distinct

process—lathes, printing presses, motors, and the cotton gin are all examples of the hundreds of

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thousands of machines that have received US patents since the first Patent Act in 1790.

A manufacture is an article or a product, such as a television, an automobile, a telephone, or a lightbulb.

A composition of matter is a new arrangement of elements so that the resulting compound, such as a

metal alloy, is not found in nature. InCommissioner of Patents v. Chakrabarty, [3] the Supreme Court said

that even living organisms—in particular, a new “genetically engineered” bacterium that could “eat” oil

spills—could be patented. The Chakrabarty decision has spawned innovation: a variety of small

biotechnology firms have attracted venture capitalists and other investors.

According to the PTO, gene sequences are patentable subject matter, provided they are isolated from their

natural state and processed in a way that separates them from other molecules naturally occurring with

them. Gene patenting, always controversial, generated new controversy when the PTO issued a patent to

Human Genome Sciences, Inc. for a gene found to serve as a platform from which the AIDS virus can

infect cells of the body. Critics faulted the PTO for allowing “ownership” of a naturally occurring human

gene and for issuing patents without requiring a showing of the gene’s utility. New guidelines from the

PTO followed in 2000; these focused on requiring the applicant to make a strong showing on the utility

aspect of patentability and somewhat diminished the rush of biotech patent requests.

There are still other categories of patentable subjects. An improvement is an alteration of a process,

machine, manufacture, or composition of matter that satisfies one of the tests for patentability given later

in this section. New, original ornamental designs for articles of manufacture are patentable (e.g., the

shape of a lamp); works of art are not patentable but are protected under the copyright law. New varieties

of cultivated or hybridized plants are also patentable, as are genetically modified strains of soybean, corn,

or other crops.

What May Not Be Patented

Many things can be patented, but not (1) the laws of nature, (2) natural phenomena, and (3) abstract

ideas, including algorithms (step-by-step formulas for accomplishing a specific task).

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One frequently asked question is whether patents can be issued for computer software. The PTO was

reluctant to do so at first, based on the notion that computer programs were not “novel”—the software

program either incorporated automation of manual processes or used mathematical equations (which

were not patentable). But in 1998, the Supreme Court held in Diamond v. Diehr [4] that patents could be

obtained for a process that incorporated a computer program if the process itself was patentable.

A business process can also be patentable, as the US Court of Appeals for the Federal Circuit ruled in 1998

in State Street Bank and Trust v. Signature Financial Group, Inc. [5] Signature Financial had a patent for

a computerized accounting system that determined share prices through a series of mathematical

calculations that would help manage mutual funds. State Street sued to challenge that patent. Signature

argued that its model and process was protected, and the court of appeals upheld it as a “practical

application of a mathematical, algorithm, formula, or calculation,” because it produces a “useful, concrete

and tangible result.” Since State Street, many other firms have applied for business process patents. For

example, Amazon.com obtained a business process patent for its “one-click” ordering system, a method of

processing credit-card orders securely. (But seeAmazon.com v. Barnesandnoble.com, [6] in which the

court of appeals rejected Amazon’s challenge to Barnesandnoble.com using its Express Land one-click

ordering system.)

Tests for Patentability

Just because an invention falls within one of the categories of patentable subjects, it is not necessarily

patentable. The Patent Act and judicial interpretations have established certain tests that must first be

met. To approve a patent application, the PTO (as part of the Department of Commerce) will require that

the invention, discovery, or process be novel, useful, and nonobvious in light of current technology.

Perhaps the most significant test of patentability is that of obviousness. The act says that no invention

may be patented “if the differences between the subject matter sought to be patented and the prior art are

such that the subject matter as a whole would have been obvious at the time the invention was made to a

person having ordinary skill in the art to which said subject matter pertains.” This provision of the law has

produced innumerable court cases, especially over improvement patents, when those who wish to use an

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invention on which a patent has been issued have refused to pay royalties on the grounds that the

invention was obvious to anyone who looked.

Procedures for Obtaining a Patent In general, the United States (unlike many other countries) grants a patent right to the first person to

invent a product or process rather than to the first person to file for a patent on that product or process.

As a practical matter, however, someone who invents a product or process but does not file immediately

should keep detailed research notes or other evidence that would document the date of invention. An

inventor who fails to apply for a patent within a year of that date would forfeit the rights granted to an

inventor who had published details of the invention or offered it for sale. But until the year has passed, the

PTO may not issue a patent to X if Y has described the invention in a printed publication here or abroad

or the invention has been in public use or on sale in this country.

An inventor cannot obtain a patent automatically; obtaining a patent is an expensive and time-consuming

process, and the inventor will need the services of a patent attorney, a highly specialized practitioner. The

attorney will help develop the required specification, a description of the invention that gives enough

detail so that one skilled in the art will be able to make and use the invention. After receiving an

application, a PTO examiner will search the records and accept or reject the claim. Usually, the attorney

will negotiate with the examiner and will rewrite and refine the application until it is accepted. A rejection

may be appealed, first to the PTO’s Board of Appeals and then, if that fails, to the federal district court in

the District of Columbia or to the US Court of Appeals for the Federal Circuit, the successor court to the

old US Court of Customs and Patent Appeals.

Once a patent application has been filed, the inventor or a company to which she has assigned the

invention may put the words “patent pending” on the invention. These words have no legal effect. Anyone

is free to make the invention as long as the patent has not yet been issued. But they do put others on

notice that a patent has been applied for. Once the patent has been granted, infringers may be sued even if

the infringed has made the product and offered it for sale before the patent was granted.

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In today’s global market, obtaining a US patent is important but is not usually sufficient protection. The

inventor will often need to secure patent protection in other countries as well. Under the Paris Convention

for the Protection of Industrial Property (1883), parties in one country can file for patent or trademark

protection in any of the other member countries (172 countries as of 2011). The World Trade

Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) established

standards for protecting intellectual property rights (patents, trademarks, and copyrights) and provides

that each member nation must have laws that protect intellectual property rights with effective access to

judicial systems for pursuing civil and criminal penalties for violations of such rights.

Patent Ownership The patent holder is entitled to make and market the invention and to exclude others from doing so.

Because the patent is a species of property, it may be transferred. The inventor may assign part or all of

his interest in the patent or keep the property interest and license others to manufacture or use the

invention in return for payments known as royalties. The license may be exclusive with one licensee, or

the inventor may license many to exploit the invention. One important limitation on the inventor’s right

to the patent interest is the so-called shop right. This is a right created by state courts on equitable

grounds giving employers a nonexclusive royalty-free license to use any invention made by an employee

on company time and with company materials. The shop right comes into play only when a company has

no express or implied understanding with its employees. Most corporate laboratories have contractual

agreements with employees about who owns the invention and what royalties will be paid.

Infringement and Invalidity Suits Suits for patent infringement can arise in three ways: (1) the patent holder may seek damages and an

injunction against the infringer in federal court, requesting damages for royalties and lost profits as well;

(2) even before being sued, the accused party may take the patent holder to court under the federal

Declaratory Judgment Act, seeking a court declaration that the patent is invalid; (3) the patent holder may

sue a licensee for royalties claimed to be due, and the licensee may counterclaim that the patent is invalid.

Such a suit, if begun in state court, may be removed to federal court.

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In a federal patent infringement lawsuit, the court may grant the winning party reimbursement for

attorneys’ fees and costs. If the infringement is adjudged to be intentional, the court can triple the amount

of damages awarded. Prior to 2006, courts were typically granting permanent injunctions to prevent

future infringement. CitingeBay, Inc. v. Merc Exchange, LLC, [7] the Supreme Court ruled that patent

holders are not automatically entitled to a permanent injunction against infringement during the life of

the patent. Courts have the discretion to determine whether justice requires a permanent injunction, and

they may conclude that the public interest and equitable principles may be better satisfied with

compensatory damages only.

Proving infringement can be a difficult task. Many companies employ engineers to “design around” a

patent product—that is, to seek ways to alter the product to such an extent that the substitute product no

longer consists of enough of the elements of the invention safeguarded by the patent. However, infringing

products, processes, or machines need not be identical; as the Supreme Court said in Sanitary

Refrigerator Co. v. Winers, [8] “one device is an infringement of another…if two devices do the same work

in substantially the same way, and accomplish substantially the same result…even though they differ in

name, form, or shape.” This is known as the doctrine of equivalents. In an infringement suit, the court

must choose between these two extremes: legitimate “design around” and infringement through some

equivalent product.

An infringement suit can often be dangerous because the defendant will almost always assert in its answer

that the patent is invalid. The plaintiff patent holder thus runs the risk that his entire patent will be taken

away from him if the court agrees. In ruling on validity, the court may consider all the tests, such as prior

art and obviousness, discussed in Section 23.1.2 "Patentability" and rule on these independently of the

conclusions drawn by the PTO.

Patent Misuse Although a patent is a monopoly granted to the inventor or his assignee or licensee, the monopoly power

is legally limited. An owner who misuses the patent may find that he will lose an infringement suit. One

common form of misuse is to tie the patented good to some unpatented one—for example, a patented

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movie projector that will not be sold unless the buyer agrees to rent films supplied only by the

manufacturer of the movie projector, or a copier manufacturer that requires buyers to purchase plain

paper from it. As we will see in(Reference mayer_1.0-ch48 not found in Book), various provisions of the

federal antitrust laws, including, specifically, Section 3 of the Clayton Act, outlaw certain kinds of tying

arrangements. Another form of patent misuse is a provision in the licensing agreement prohibiting the

manufacturer from also making competing products. Although the courts have held against several other

types of misuse, the general principle is that the owner may not use his patent to restrain trade in

unpatented goods.

K E Y T A K E A W A Y

Many different “things” are patentable, include gene sequences, business

processes, and any other “useful invention.” The US Patent and Trademark Office

acts on initial applications and may grant a patent to an applicant. The patent,

which allows a limited-time monopoly, is for twenty years. The categories of

patentable things include processes, machines, manufactures, compositions of

matter, and improvements. Ideas, mental processes, naturally occurring

substances, methods of doing business, printed matter, and scientific principles

cannot be patented. Patent holders may sue for infringement and royalties from

an infringer user. E X E R C I S E S

1. Calera, Inc. discovers a way to capture carbon dioxide emissions at a California

power plant and use them to make cement. This is a win for the power

company, which needs to reduce its carbon dioxide emissions, and a win for

Calera. Calera decides to patent this invention. What kind of patent would this

be? A machine? A composition of matter? A manufacture?

2. In your opinion, what is the benefit of allowing companies to isolate genetic

material and claim a patent? What kind of patent would this be? A machine?

A composition of matter? A manufacture?

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3. How could a “garage inventor,” working on her own, protect a patentable

invention while yet demonstrating it to a large company that could bring the

invention to market?

[1] 35 United States Code, Section 101.

[2] 35 United States Code, Section 101.

[3] Commissioner of Patents v. Chakrabarty, 444 U.S. 1028 (1980).

[4] Diamond v. Diehr, 450 U.S. 175 (1981).

[5] State Street Bank and Trust v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998).

[6] Amazon.com v. Barnesandnoble.com, Inc., 239 F.3d 1343 (Fed. Cir. 2001).

[7] eBay, Inc. v. Merc Exchange, LLC, 546 U.S. 388 (2006).

[8] Sanitary Refrigerator Co. v. Winers, 280 U.S. 30 (1929).

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23.2 Trade Secrets

L E A R N I N G O B J E C T I V E S

1. Describe the difference between trade secrets and patents, and explain why a

firm might prefer keeping a trade secret rather than obtaining a patent.

2. Understand the dimensions of corporate espionage and the impact of the

federal Economic Espionage Act.

Definition of Trade Secrets A patent is an invention publicly disclosed in return for a monopoly. A trade secret is a means to a

monopoly that a company hopes to maintain by preventing public disclosure. Why not always take out a

patent? There are several reasons. The trade secret might be one that is not patentable, such as a customer

list or an improvement that does not meet the tests of novelty or nonobviousness. A patent can be

designed around; but if the trade secret is kept, its owner will be the exclusive user of it. Patents are

expensive to obtain, and the process is extremely time consuming. Patent protection expires in twenty

years, after which anyone is free to use the invention, but a trade secret can be maintained for as long as

the secret is kept.

However, a trade secret is valuable only so long as it is kept secret. Once it is publicly revealed, by

whatever means, anyone is free to use it. The critical distinction between a patent and a trade secret is

this: a patent gives its owner the right to enjoin anyone who infringes it from making use of it, whereas a

trade secret gives its “owner” the right to sue only the person who improperly took it or revealed it.

According to the Restatement of Torts, Section 757, Comment b, a trade secret may consist of

any formula, pattern, device or compilation of information which is used in one’s business, and which

gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a

formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern

for a machine or other device, or a list of customers.…A trade secret is a process or device for continuous

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use in the operation of a business. Generally it relates to the production of goods, as, for example, a

machine or formula for the production of an article.

Other types of trade secrets are customer information, pricing data, marketing methods, sources of

supply, and secret technical know-how.

Elements of Trade Secrets To be entitled to protection, a trade secret must be (1) original and (2) secret.

Originality

The trade secret must have a certain degree of originality, although not as much as would be necessary to

secure a patent. For example, a principle or technique that is common knowledge does not become a

protectable trade secret merely because a particular company taught it to one of its employees who now

wants to leave to work for a competitor.

Secrecy

Some types of information are obviously secret, like the chemical formula that is jealously guarded

through an elaborate security system within the company. But other kinds of information might not be

secret, even though essential to a company’s business. For instance, a list of suppliers that can be devised

easily by reading through the telephone directory is not secret. Nor is a method secret simply because

someone develops and uses it, if no steps are taken to guard it. A company that circulates a product

description in its catalog may not claim a trade secret in the design of the product if the description

permits someone to do “reverse engineering.” A company that hopes to keep its processes and designs

secret should affirmatively attempt to do so—for example, by requiring employees to sign a nondisclosure

agreement covering the corporate trade secrets with which they work. However, a company need not go to

every extreme to guard a trade secret.

Trade-secrets espionage has become a big business. To protect industrial secrets, US corporations spend

billions on security arrangements. The line between competitive intelligence gathering and espionage can

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sometimes be difficult to draw. The problem is by no means confined to the United States; companies and

nations all over the world have become concerned about theft of trade secrets to gain competitive

advantage, and foreign governments are widely believed to be involved in espionage and cyberattacks.

Economic Espionage Act The Economic Espionage Act (EEA) of 1996 makes the theft or misappropriation of a trade secret a

federal crime. The act is aimed at protecting commercial information rather than classified national

defense information. Two sorts of activities are criminalized. The first section of the act [1] criminalizes the

misappropriation of trade secrets (including conspiracy to misappropriate trade secrets and the

subsequent acquisition of such misappropriated trade secrets) with the knowledge or intent that the theft

will benefit a foreign power. Penalties for violation are fines of up to US$500,000 per offense and

imprisonment of up to fifteen years for individuals, and fines of up to US$10 million for organizations.

The second section [2] criminalizes the misappropriation of trade secrets related to or included in a

product that is produced for or placed in interstate (including international) commerce, with the

knowledge or intent that the misappropriation will injure the owner of the trade secret. Penalties for

violation are imprisonment for up to ten years for individuals (no fines) and fines of up to US$5 million

for organizations.

In addition to these specific penalties, the fourth section of the EEA [3]also requires criminal forfeiture of

(1) any proceeds of the crime and property derived from proceeds of the crime and (2) any property used,

or intended to be used, in commission of the crime.

The EEA authorizes civil proceedings by the Department of Justice to enjoin violations of the act but does

not create a private cause of action. This means that anyone believing they have been victimized must go

through the US attorney general in order to obtain an injunction.

The EEA is limited to the United States and has no extraterritorial application unless (1) the offender is a

US company or a citizen operating from abroad against a US company or (2) an act in furtherance of the

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espionage takes place in the United States. Other nations lack such legislation, and some may actively

support industrial espionage using both their national intelligence services. The US Office of the National

Counterintelligence Executive publishes an annual report, mandated by the US Congress, on foreign

economic collection and industrial espionage, which outlines these espionage activities of many foreign

nations.

Right of Employees to Use Trade Secrets A perennial source of lawsuits in the trade secrets arena is the employee who is hired away by a

competitor, allegedly taking trade secrets along with him. Companies frequently seek to prevent piracy by

requiring employees to sign confidentiality agreements. An agreement not to disclose particular trade

secrets learned or developed on the job is generally enforceable. Even without an agreement, an employer

can often prevent disclosure under principles of agency law. Sections 395 and 396 of the Restatement

(Second) of Agency suggest that it is an actionable breach of duty to disclose to third persons information

given confidentially during the course of the agency. However, every person is held to have a right to earn

a living. If the rule were strictly applied, a highly skilled person who went to another company might be

barred from using his knowledge and skills. The courts do not prohibit people from using elsewhere the

general knowledge and skills they developed on the job. Only specific trade secrets are protected.

To get around this difficulty, some companies require their employees to sign agreements not to compete.

But unless the agreements are limited in scope and duration to protect a company against only specific

misuse of trade secrets, they are unenforceable.

K E Y T A K E A W A Y

Trade secrets, if they can be kept, have indefinite duration and thus greater

potential value than patents. Trade secrets can be any formula, pattern, device,

process, or compilation of information to be used in a business. Customer

information, pricing data, marketing methods, sources of supply, and technical

know-how could all be trade secrets. State law has protected trade secrets, and

federal law has provided criminal sanctions for theft of trade secrets. With the

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importance of digitized information, methods of theft now include computer

hacking; theft of corporate secrets is a burgeoning global business that often

involves cyberattacks.

E X E R C I S E S

1. Wu Dang, based in Hong Kong, hacks into the Hewlett-Packard database and

“steals” plans and specifications for HP’s latest products. The HP server is

located in the United States. He sells this information to a Chinese company in

Shanghai. Has he violated the US Economic Espionage Act?

2. What are the advantages of keeping a formula as a trade secret rather than

getting patent protection?

[1] Economic Espionage Act, 18 United States Code, Section 1831(a) (1996)

[2] Economic Espionage Act, 18 United States Code, Section 1832 (1996).

[3] Economic Espionage Act, 18 United States Code, Section 1834 (1996).

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23.3 Copyright

L E A R N I N G O B J E C T I V E S

1. Describe and explain copyrights, how to obtain one, and how they differ from

trademarks.

2. Explain the concept of fair use and describe its limits.

Definition and Duration Copyright is the legal protection given to “authors” for their “writings.” Copyright law is federal; like

patent law, its source lies in the Constitution. Copyright protects the expression of ideas in some tangible

form, but it does not protect the ideas themselves. Under the 1976 Copyright Act as amended, a copyright

in any work created after January 1, 1978, begins when the work is fixed in tangible form—for example,

when a book is written down or a picture is painted—and generally lasts for the life of the author plus 70

years after his or her death. This is similar to copyright protection in many countries, but in some

countries, the length of copyright protection is the life of the author plus 50 years. For copyrights owned

by publishing houses, done as works for hire, common copyright expires 95 years from the date of

publication or 120 years from the date of creation, whichever is first. For works created before 1978, such

as many of Walt Disney’s movies and cartoons, the US Sonny Bono Copyright Term Extension Act of 1998

provided additional protection of up to 95 years from publication date. Thus works created in 1923 by

Disney would not enter the public domain until 2019 or after, unless the copyright had expired prior to

1998 or unless the Disney company released the work into the public domain. In general, after expiration

of the copyright, the work enters the public domain.

In 1989, the United States signed the Berne Convention, an international copyright treaty. This law

eliminated the need to place the symbol © or the word Copyright or the abbreviation Copr. on the work

itself. Copyrights can be registered with the US Copyright Office in Washington, DC.

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Protected Expression The Copyright Act protects a variety of “writings,” some of which may not seem written at all. These

include literary works (books, newspapers, and magazines), music, drama, choreography, films, art,

sculpture, and sound recordings. Since copyright covers the expression and not the material or physical

object, a book may be copyrighted whether it is on paper, microfilm, tape, or computer disk.

Rights Protected by the Copyright Act Preventing Copying

A copyright gives its holder the right to prevent others from copying his or her work. The copyright holder

has the exclusive right to reproduce the work in any medium (paper, film, sound recording), to perform it

(e.g., in the case of a play), or to display it (a painting or film). A copyright also gives its holder the

exclusive right to prepare derivative works based on the copyrighted work. Thus a playwright could not

adapt to the stage a novelist’s book without the latter’s permission.

Fair Use

One major exception to the exclusivity of copyrights is the fair use doctrine. Section 107 of the

Copyright Act provides as follows:

Fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any

other means specified by section 106 of the copyright, for purposes such as criticism, comment, news

reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an

infringement of copyright. In determining whether the use made of a work in any particular case is a fair

use, the factors to be considered shall include–

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for

nonprofit educational purposes;

(2) the nature of the copyrighted work;

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(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work. [1]

These are broad guidelines. Accordingly, any copying could be infringement, and fair use could become a

question of fact on a case-by-case basis. In determining fair use, however, courts have often considered

the fourth factor (effect of the use upon the potential market for the copyrighted work) to be the most

important.

Clear examples of fair use would be when book reviewers or writers quote passages from copyrighted

books. Without fair use, most writing would be useless because it could not readily be discussed. But the

doctrine of fair use grew more troublesome with the advent of plain-paper copiers and is now even more

troublesome with electronic versions of copyrighted materials that are easily copied and distributed. The

1976 act took note of the new copier technology, listing “teaching (including multiple copies for classroom

use)” as one application of fair use. The Copyright Office follows guidelines specifying just how far the

copying may go—for example, multiple copies of certain works may be made for classroom use, but copies

may not be used to substitute for copyrighted anthologies.

Infringement

Verbatim use of a copyrighted work is easily provable. The more difficult question arises when the

copyrighted work is altered in some way. As in patent law, the standard is one of substantial similarity.

Copyrightability Standards To be subject to copyright, the writing must be “fixed” in some “tangible medium of expression.” A

novelist who composes a chapter of her next book in her mind and tells it to a friend before putting it on

paper could not stop the friend from rushing home, writing it down, and selling it (at least the federal

copyright law would offer no protection; some states might independently offer a legal remedy, however).

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The work also must be creative, at least to a minimal degree. Words and phrases, such as names, titles,

and slogans, are not copyrightable; nor are symbols or designs familiar to the public. But an author who

contributes her own creativity—like taking a photograph of nature—may copyright the resulting work,

even if the basic elements of the composition were not of her making.

Finally, the work must be “original,” which means simply that it must have originated with the author.

The law does not require that it be novel or unique. This requirement was summarized pithily by Judge

Learned Hand: “If by some magic a man who had never known it were to compose anew Keats’s Ode on a

Grecian Urn, he would be an author, and, if he copyrighted it, others might not copy that poem, though

they might of course copy Keats’s.” [2] Sometimes the claim is made that a composer, for example, just

happened to compose a tune identical or strikingly similar to a copyrighted song; rather than assume the

unlikely coincidence that Judge Hand hypothesized, the courts will look for evidence that the alleged

copier had access to the copyrighted song. If he did—for example, the song was frequently played on the

air—he cannot defend the copying with the claim that it was unconscious, because the work would not

then have been original.

Section 102 of the Copyright Act excludes copyright protection for any “idea, procedure, process, system,

method of operation, concept, principle, or discovery, regardless of the form in which it is described,

explained, illustrated, or embodied.” [3]

Einstein copyrighted books and monographs he wrote on the theory of relativity, but he could not

copyright the famous formula E = mc2, nor could he prevent others from writing about the theory. But he

could protect the particular way in which his ideas were expressed. In general, facts widely known by the

public are not copyrightable, and mathematical calculations are not copyrightable. Compilations of facts

may be copyrightable, if the way that they are coordinated or arranged results in a work that shows some

originality. For example, compiled information about yachts listed for sale may qualify for copyright

protection. [4]

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One of the most troublesome recent questions concerning expression versus ideas is whether a computer

program may be copyrighted. After some years of uncertainty, the courts have accepted the

copyrightability of computer programs. [5] Now the courts are wrestling with the more difficult question of

the scope of protection: what constitutes an “idea” and what constitutes its mere “expression” in a

program.

How far the copyright law will protect particular software products is a hotly debated topic, sparked by a

federal district court’s ruling in 1990 that the “look and feel” of Lotus 1-2-3’s menu system is

copyrightable and was in fact infringed by Paperback Software’s VP-Planner, a competing

spreadsheet. [6] The case has led some analysts to “fear that legal code, rather than software code, is

emerging as the factor that will determine which companies and products will dominate the 1990s.” [7]

Who May Obtain a Copyright? With one important exception, only the author may hold the initial copyright, although the author may

assign it or license any one or more of the rights conveyed by the copyright. This is a simple principle

when the author has written a book or painted a picture. But the law is unclear in the case of a motion

picture or a sound recording. Is the author the script writer, the producer, the performer, the director, the

engineer, or someone else? As a practical matter, all parties involved spell out their rights by contract.

The exception, which frequently covers the difficulties just enumerated, is for works for hire. Any person

employed to write—a journalist or an advertising jingle writer, for example—is not the “author.” For

purposes of the statute, the employer is the author and may take out the copyright. When the employee is

in fact an “independent contractor” and the work in question involves any one of nine types (book,

movies, etc.) spelled out in the Copyright Act, the employer and the creator must spell out their

entitlement to the copyright in a written agreement. [8]

Obtaining a Copyright Until 1978, a work could not be copyrighted unless it was registered in the Copyright Office or was

published and unless each copy of the work carried a copyright notice, consisting of the word Copyright,

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the abbreviation Copr., or the common symbol ©, together with the date of first publication and the name

of the copyright owner. Under the 1976 act, copyright became automatic whenever the work was fixed in a

tangible medium of expression (e.g., words on paper, images on film or videotape, sound on tape or

compact disc), even if the work remained unpublished or undistributed. However, to retain copyright

protection, the notice had to be affixed once the work was “published” and copies circulated to the public.

After the United States entered the Berne Convention, an international treaty governing copyrights,

Congress enacted the Berne Implementation Act, declaring that, effective in 1989, notice, even after

publication, was no longer required.

Notice does, however, confer certain benefits. In the absence of notice, a copyright holder loses the right

to receive statutory damages (an amount stated in the Copyright Act and not required to be proved) if

someone infringes the work. Also, although it is no longer required, an application and two copies of the

work (for deposit in the Library of Congress) filed with the Copyright Office, in Washington, DC, will

enable the copyright holder to file suit should the copyright be infringed. Unlike patent registration, which

requires elaborate searching of Patent and Trademark Office (PTO) records, copyright registration does

not require a reading of the work to determine whether it is an original creation or an infringement of

someone else’s prior work. But copyright registration does not immunize the holder from an infringement

suit. If a second work has been unlawfully copied from an earlier work, the second author’s copyright will

not bar the infringed author from collecting damages and obtaining an injunction.

Computer Downloads and the Digital Millennium Copyright Act The ubiquity of the Internet and the availability of personal computers with large capacities have greatly

impacted the music business. Sharing of music files took off in the late 1990s with Napster, which lost a

legal battle on copyright and had to cease doing business. By providing the means by which individuals

could copy music that had been purchased, major record labels were losing substantial profits. Grokster, a

privately owned software company based in the West Indies, provided peer-to-peer file sharing from 2001

to 2005 until the US Supreme Court’s decision in MGM Studios, Inc. v. Grokster, Ltd. [9]

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For computers with the Microsoft operating system, the Court disallowed the peer-to-peer file sharing,

even though Grokster claimed it did not violate any copyright laws because no files passed through its

computers. (Grokster had assigned certain user computers as “root supernodes” that acted as music hubs

for the company and was not directly involved in controlling any specific music-file downloads.)

Grokster had argued, based on Sony v. Universal Studios, [10] that the sale of its copying equipment (like

the Betamax videocassette recorders at issue in that case) did not constitute contributory infringement “if

the product is widely used for legitimate, unobjectionable purposes.” Plaintiffs successfully argued that

the Sony safe-harbor concept requires proof that the noninfringing use is the primary use in terms of the

product’s utility.

The Digital Millennium Copyright Act (DMCA), passed into law in 1998, implements two 1996 treaties of

the World Intellectual Property Organization. It criminalizes production and sale of devices or services

intended to get around protective measures that control access to copyrighted works. In addition, the

DMCA heightens the penalties for copyright infringement on the Internet. The DMCA amended Title 17 of

the United States Code to extend the reach of copyright, while limiting the liability of the providers of

online services for copyright infringement by their users.

K E Y T A K E A W A Y

Copyright is the legal protection given to “authors” for their “writings.” It protects ideas

in fixed, tangible form, not ideas themselves. Copyright protection can extend as long as

120 years from the date of creation or publication. Expression found in literary works,

music, drama, film, art, sculpture, sound recordings, and the like may be copyrighted.

The fair use doctrine limits the exclusivity of copyright in cases where scholars, critics, or

teachers use only selected portions of the copyrighted material in a way that is unlikely

to affect the potential market for or value of the copyrighted work.

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E X E R C I S E S

1. Explain how a list could be copyrightable.

2. An author wrote a novel, Brunch at Bruno’s, in 1961. She died in 1989, and her heirs

now own the copyright. When do the rights of the heirs come to an end? That is,

when does Brunch at Bruno’senter the public domain?

3. Keith Bradsher writes a series of articles on China for the New York Times and is paid

for doing so. Suppose he wants to leave the employ of the Times and be a freelance

writer. Can he compile his best articles into a book, Changing Times in China, and

publish it without the New York Times’s permission? Does it matter that he uses the

word Times in his proposed title?

4. What kind of file sharing of music is now entirely legal? Shaunese Collins buys a

Yonder Mountain String Band CD at a concert at Red Rocks in Morrison, Colorado.

With her iMac, she makes a series of CDs for her friends. She does this six times. Has

she committed six copyright violations?

[1] 17 United States Code, Section 107.

[2] Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49 (2d Cir. 1936).

[3] 17 United States Code, Section 102.

[4] BUC International Corp. v. International Yacht Council, Ltd., 489 F.3d 1129 (11th Cir. 2007).

[5] Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983).

[6] Lotus Development Corp. v. Paperback Software International, 740 F.Supp. 37 (D. Mass.

1990).

[7] Peter H. Lewis, “When Computing Power Is Generated by the Lawyers,”New York Times, July

22 1990.

[8] Community for Creative Non-Violence v. Reid, 109 S.Ct. 2166 (1989).

[9] MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).

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[10] Sony v. Universal Studios, 464 U.S. 417 (1984).

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23.4 Trademarks

L E A R N I N G O B J E C T I V E S

1. Understand what a trademark is and why it deserves protection.

2. Know why some “marks” may not be eligible for trademark protection, and

how to obtain trademark protection for those that are.

3. Explain what “blurring” and “tarnishment” are and what remedies are

available to the holder of the mark.

Definitions of Trademarks A trademark is defined in the federal Lanham Act of 1946 as “any word, name, symbol, or device or any

combination thereof adopted and used by a manufacturer or merchant to identify his goods and

distinguish them from goods manufactured or sold by others.” [1]

Examples of well-known trademarks are Coca-Cola, Xerox, and Apple. A service mark is used in the sale

or advertising of services to identify the services of one person and distinguish them from the services of

others. Examples of service marks are McDonald’s, BP, and Hilton. A certification mark is used in

connection with many products “to certify regional or other origin, material, mode of manufacture,

quality, accuracy or other characteristics of such goods or services or that the work or labor on the goods

or services was performed by members of a union or other organization.” Examples are the Good

Housekeeping Seal of Approval and UL (Underwriters Laboratories, Inc., approval mark). Unlike other

forms of trademark, the owner of the certification mark (e.g., Good Housekeeping, or the Forest

Stewardship Council’s FSC mark) is not the owner of the underlying product.

Extent of Trademark Protection Kinds of Marks

Trademarks and other kinds of marks may consist of words and phrases, pictures, symbols, shapes,

numerals, letters, slogans, and sounds. Trademarks are a part of our everyday world: the sounds of a radio

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or television network announcing itself (NBC, BBC), the shape of a whiskey bottle (Haig & Haig’s Pinch

Bottle), a series of initials (GE, KPMG, IBM), or an animal’s warning growl (MGM’s lion).

Limitations on Marks

Although trademarks abound, the law limits the subjects that may fall into one of the defined categories.

Not every word or shape or symbol will be protected in an infringement action. To qualify for protection, a

trademark must be used to identify and distinguish. The courts employ a four-part test: (1) Is the mark so

arbitrary and fanciful that it merits the widest protection? (2) Is it “suggestive” enough to warrant

protection without proof of secondary meaning? (3) Is it “descriptive,” warranting protection if secondary

meaning is proved? (4) Is the mark generic and thus unprotectable?

These tests do not have mechanical answers; they call for judgment. Some marks are wholly fanciful,

clearly identify origin of goods, and distinguish them from others—Kodak, for example. Other marks may

not be so arbitrary but may nevertheless be distinctive, either when adopted or as a result of advertising—

for example, Crest, as the name of a toothpaste.

Marks that are merely descriptive of the product are entitled to protection only if it can be shown that the

mark has acquired secondary meaning. This term reflects a process of identification on the mark in the

public mind with the originator of the product. Holiday Inn was initially deemed too descriptive: an inn

where people might go on holiday. But over time, travelers came to identify the source of the Great Sign

and the name Holiday Inn as the Holiday Inn Corporation in Memphis, and secondary meaning was

granted. Holiday Inn could thus protect its mark against other innkeepers, hoteliers, and such; however,

the trademark protection for the words Holiday Inn was limited to the corporation’s hotel and motel

business, and no other.

Certain words and phrases may not qualify at all for trademark protection. These include generic terms

like “straw broom” (for a broom made of straw) and ordinary words like “fast food.” In one case, a federal

appeals court held that the word “Lite” is generic and cannot be protected by a beer manufacturer to

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describe a low-calorie brew. [2]Donald Trump’s effort to trademark “You’re fired!” and Paris Hilton’s desire

to trademark “That’s hot!” were also dismissed as being generic.

Deceptive words will not be accepted for registration. Thus the US Patent and Trademark Office (PTO)

denied registration to the wordVynahyde because it suggested that the plastic material to which it was

applied came from animal skin. Geographic terms are descriptive words and may not be used as protected

trademarks unless they have acquired a secondary meaning, such as Hershey when used for chocolates.

(Hershey’s chocolates are made in Hershey, Pennsylvania.) A design that reflects a common style cannot

be protected in a trademark to exclude other similar designs in the same tradition. Thus the courts have

ruled that a silverware pattern that is a “functional feature” of the “baroque style” does not qualify for

trademark protection. Finally, the Lanham Act denies federal registration to certain marks that fall within

categories of words and shapes, including the following: the flag; the name, portrait, or signature of any

living person without consent, or of a deceased US president during the lifetime of his widow; and

immoral, deceptive, or scandalous matter (in an earlier era, the phrase “Bubby Trap” for brassieres was

denied registration).

Dilution, Tarnishment, and Blurring

Under the federal Trademark Dilution Act of 1995, companies with marks that dilute the value of a senior

mark may be liable for damages. The act provides that owners of marks of significant value have property

rights that should not be eroded, blurred, tarnished, or diluted in any way by another. But as a plaintiff,

the holder of the mark must show (1) that it is a famous mark, (2) that the use of a similar mark is

commercial, and (3) that such use causes dilution of the distinctive quality of the mark. Thus a T-shirt

maker who promotes a red-and-white shirt bearing the mark Buttweiser may be liable to Anheuser-Busch,

or a pornographic site called Candyland could be liable to Parker Brothers, the board game company.

Interesting cases have already been brought under this act, including a case brought by Victoria’s Secret

against a small adult store in Kentucky called Victor’s Little Secret. Notice that unlike most prior

trademark law, the purpose is not to protect the consumer from confusion as to the source or origin of the

goods or services being sold; for example, no one going to the Candyland site would think that Parker

Brothers was the source.

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Acquiring Trademark Rights For the first time in more than forty years, Congress, in 1988, changed the way in which trademarks can

be secured. Under the Lanham Act, the fundamental means of obtaining a trademark was through use.

The manufacturer or distributor actually must have placed the mark on its product—or on related

displays, labels, shipping containers, advertisements, and the like—and then have begun selling the

product. If the product was sold in interstate commerce, the trademark was entitled to protection under

the Lanham Act (or if not, to protection under the common law of the state in which the product was

sold).

Under the Trademark Law Revision Act of 1988, which went into effect in 1989, trademarks can be

obtained in advance by registering with the PTO an intention to use the mark within six months (the

applicant can gain extensions of up to thirty more months to put the mark into use). Once obtained, the

trademark will be protected for ten years (before the 1988 revision, a federal trademark remained valid

for twenty years); if after that time the mark is still being used, the registration can be renewed. Obtaining

a trademark registration lies between obtaining patents and obtaining copyrights in difficulty. The PTO

will not routinely register a trademark; it searches its records to ensure that the mark meets several

statutory tests and does not infringe another mark. Those who feel that their own marks would be hurt by

registration of a proposed mark may file an opposition proceeding with the PTO. Until 1990, the office

received about 77,000 applications each year. With the change in procedure, some experts predicted that

applications would rise by 30 percent.

In many foreign countries, use need not be shown to obtain trademark registration. It is common for

some people in these countries to register marks that they expect to be valuable so that they can sell the

right to use the mark to the company that established the mark’s value. Companies that expect to market

abroad should register their marks early.

Loss of Rights Trademark owners may lose their rights if they abandon the mark, if a patent or copyright expires on

which the mark is based, or if the mark becomes generic. A mark is abandoned if a company goes out of

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business and ceases selling the product. Some marks are based on design patents; when the patent

expires, the patent holder will not be allowed to extend the patent’s duration by arguing that the design or

name linked with the design is a registrable trademark.

The most widespread difficulty that a trademark holder faces is the prospect of too much success: if a

trademark comes to stand generically for the product itself, it may lose exclusivity in the mark. Famous

examples are aspirin, escalator, and cellophane. The threat is a continual one. Trademark holders can

protect themselves from their marks’ becoming generic in several ways.

1. Use a descriptive term along with the trademark. Look on a jar of Vaseline and you will see that

the label refers to the contents as Vaseline petroleum jelly.

2. Protest generic use of the mark in all publications by writing letters and taking out

advertisements.

3. Always put the words Trademark, Registered Trademark, or the symbol ® (meaning “registered”)

next to the mark itself, which should be capitalized.

K E Y T A K E A W A Y

Trademark protection is federal, under the Lanham Act. Branding of corporate

logos, names, and products is essential to business success, and understanding

trademarks is pivotal to branding. A “mark” must be distinctive, arbitrary, or

fanciful to merit protection: this means that it must not be generic or descriptive.

Marks can be words, symbols, pictures, slogans, sounds, phrases, and even shapes.

In the United States, rights to marks are obtained by registration and intent to use

in commerce and must be renewed every ten years.

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E X E R C I S E S

1. How will Google protect its trademark, assuming that people begin using

“google” as a verb substitute for “Internet search,” just like people began

using the word “cellophane” for all brands of plastic wrap?

2. Do a small amount of web searching and find out what “trade dress”

protection is, and how it differs from trademark protection.

3. LexisNexis is a brand for a database collection offered by Mead Data Central.

Lexus is a high-end automobile. Can Lexus succeed in getting Mead Data

Central to stop using “Lexis” as a mark?

[1] 15 United States Code, Section 1127.

[2] Miller Brewing Co. v. Falstaff Brewing Corp., 655 F.2d 5 (1st Cir. 1981).

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23.5 Cases Fair Use in Copyright Elvis Presley Enterprises et al. v. Passport Video et al.

349 F.3d 622 (9th Circuit Court of Appeals, 2003)

TALLMAN, CIRCUIT JUDGE:

Plaintiffs are a group of companies and individuals holding copyrights in various materials relating to

Elvis Presley. For example, plaintiff SOFA Entertainment, Inc., is the registered owner of several Elvis

appearances on The Ed Sullivan Show. Plaintiff Promenade Trust owns the copyright to two television

specials featuring Elvis: The Elvis 1968 Comeback Special and Elvis Aloha from Hawaii.…Many Plaintiffs

are in the business of licensing their copyrights. For example, SOFA Entertainment charges $10,000 per

minute for use of Elvis’ appearances on The Ed Sullivan Show.

Passport Entertainment and its related entities (collectively “Passport”) produced and sold The Definitive

Elvis, a 16-hour video documentary about the life of Elvis Presley. The Definitive Elvis sold for $99 at

retail. Plaintiffs allege that thousands of copies were sent to retail outlets and other distributors. On its

box, The Definitive Elvisdescribes itself as an all-encompassing, in-depth look at the life and career of a

man whose popularity is unrivaled in the history of show business and who continues to attract millions

of new fans each year.…

The Definitive Elvis uses Plaintiffs’ copyrighted materials in a variety of ways. With the video footage, the

documentary often uses shots of Elvis appearing on television while a narrator or interviewee talks over

the film. These clips range from only a few seconds in length to portions running as long as 30 seconds. In

some instances, the clips are the subject of audio commentary, while in other instances they would more

properly be characterized as video “filler” because the commentator is discussing a subject different from

or more general than Elvis’ performance on a particular television show. But also significant is the

frequency with which the copyrighted video footage is used. The Definitive Elvis employs these clips, in

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many instances, repeatedly. In total, at least 5% to 10% of The Definitive Elvis uses Plaintiffs’ copyrighted

materials.

Use of the video footage, however, is not limited to brief clips.…Thirty-five percent of his appearances

on The Ed Sullivan Show is replayed, as well as three minutes from The 1968 Comeback Special.

* * *

Plaintiffs sued Passport for copyright infringement.…Passport, however, asserts that its use of the

copyrighted materials was “fair use” under 17 U.S.C. § 107. Plaintiffs moved for a preliminary injunction,

which was granted by the district court after a hearing. The district court found that Passport’s use of

Plaintiffs’ copyrighted materials was likely not fair use. The court enjoined Passport from selling or

distributing The Definitive Elvis. Passport timely appeals.

* * *

We first address the purpose and character of Passport’s use of Plaintiffs’ copyrighted materials. Although

not controlling, the fact that a new use is commercial as opposed to non-profit weighs against a finding of

fair use. Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 85 L. Ed. 2d 588, 105 S.Ct.

2218 (1985). And the degree to which the new user exploits the copyright for commercial gain—as

opposed to incidental use as part of a commercial enterprise—affects the weight we afford commercial

nature as a factor. More importantly for the first fair-use factor, however, is the “transformative” nature of

the new work. Specifically, we ask “whether the new work…merely supersedes the objects of the original

creation, or instead adds something new, with a further purpose or different character, altering the first

with new expression, meaning, or message.…” The more transformative a new work, the less significant

other inquiries, such as commercialism, become.

* * *

The district court below found that the purpose and character of The Definitive Elvis will likely weigh

against a finding of fair use. We cannot say, based on this record, that the district court abused its

discretion.

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First, Passport’s use, while a biography, is clearly commercial in nature. But more significantly, Passport

seeks to profit directly from the copyrights it uses without a license. One of the most salient selling points

on the box of The Definitive Elvis is that “Every Film and Television Appearance is represented.” Passport

is not advertising a scholarly critique or historical analysis, but instead seeks to profit at least in part from

the inherent entertainment value of Elvis’ appearances on such shows as The Steve Allen Show, The Ed

Sullivan Show, and The 1968 Comeback Special. Passport’s claim that this is scholarly research

containing biographical comments on the life of Elvis is not dispositive of the fair use inquiry.

Second, Passport’s use of Plaintiffs’ copyrights is not consistently transformative. True, Passport’s use of

many of the television clips is transformative because the clips play for only a few seconds and are used

for reference purposes while a narrator talks over them or interviewees explain their context in Elvis’

career. But voice-overs do not necessarily transform a work.…

It would be impossible to produce a biography of Elvis without showing some of his most famous

television appearances for reference purposes. But some of the clips are played without much

interruption, if any. The purpose of showing these clips likely goes beyond merely making a reference for

a biography, but instead serves the same intrinsic entertainment value that is protected by Plaintiffs’

copyrights.

* * *

The third factor is the amount and substantiality of the portion used in relation to the copyrighted work as

a whole. This factor evaluates both the quantity of the work taken and the quality and importance of the

portion taken. Regarding the quantity, copying “may not be excused merely because it is insubstantial

with respect to the infringing work.”Harper & Row, 471 U.S. at 565 (emphasis in original). But if the

amount used is substantial with respect to the infringing work, it is evidence of the value of the copy-

righted work.

Passport’s use of clips from television appearances, although in most cases of short duration, were

repeated numerous times throughout the tapes. While using a small number of clips to reference an event

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for biographical purposes seems fair, using a clip over and over will likely no longer serve a biographical

purpose. Additionally, some of the clips were not short in length. Passport’s use of Elvis’ appearance

on The Steve Allen Show plays for over a minute and many more clips play for more than just a few

seconds.

Additionally, although the clips are relatively short when compared to the entire shows that are

copyrighted, they are in many instances the heart of the work. What makes these copyrighted works

valuable is Elvis’ appearance on the shows, in many cases singing the most familiar passages of his most

popular songs. Plaintiffs are in the business of licensing these copyrights. Taking key portions extracts the

most valuable part of Plaintiffs’ copyrighted works. With respect to the photographs, the entire picture is

often used. The music, admittedly, is usually played only for a few seconds.

* * *

The last, and “undoubtedly the single most important” of all the factors, is the effect the use will have on

the potential market for and value of the copyrighted works. Harper & Row, 471 U.S. at 566. We must

“consider not only the extent of market harm caused by the particular actions of the alleged infringer, but

also whether unrestricted and widespread conduct of the sort engaged in by the defendant…would result

in a substantially adverse impact on the potential market for the original.” Campbell, 510 U.S. at 590. The

more transformative the new work, the less likely the new work’s use of copyrighted materials will affect

the market for the materials. Finally, if the purpose of the new work is commercial in nature, “the

likelihood [of market harm] may be presumed.” A&M Records, 239 F.3d at 1016 (quoting Sony, 464 U.S.

at 451).

The district court found that Passport’s use of Plaintiffs’ copyrighted materials likely does affect the

market for those materials. This conclusion was not clearly erroneous.

First, Passport’s use is commercial in nature, and thus we can assume market harm. Second, Passport has

expressly advertised that The Definitive Elvis contains the television appearances for which Plaintiffs

normally charge a licensing fee. If this type of use became wide-spread, it would likely undermine the

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market for selling Plaintiffs’ copyrighted material. This conclusion, however, does not apply to the music

and still photographs. It seems unlikely that someone in the market for these materials would

purchase The Definitive Elvis instead of a properly licensed product. Third, Passport’s use of the

television appearances was, in some instances, not transformative, and therefore these uses are likely to

affect the market because they serve the same purpose as Plaintiffs’ original works.

* * *

We emphasize that our holding today is not intended to express how we would rule were we examining

the case ab initio as district judges. Instead, we confine our review to whether the district court abused its

discretion when it weighed the four statutory fair-use factors together and determined that Plaintiffs

would likely succeed on the merits. Although we might view this case as closer than the district court saw

it, we hold there was no abuse of discretion in the court’s decision to grant Plaintiffs’ requested relief.

AFFIRMED.

C A S E Q U E S T I O N S

1. How would you weigh the four factors in this case? If the trial court had found

fair use, would the appeals court have overturned its ruling?

2. Why do you think that the fourth factor is especially important?

3. What is the significance of the discussion on “transformative” aspects of the

defendant’s product?

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Trademark Infringement and Dilution Playboy Enterprises v. Welles

279 F.3d 796 (9th Circuit Court of Appeals, 2001)

T. G. NELSON, Circuit Judge:

Terri Welles was on the cover of Playboy in 1981 and was chosen to be the Playboy Playmate of the Year

for 1981. Her use of the title “Playboy Playmate of the Year 1981,” and her use of other trademarked terms

on her website are at issue in this suit. During the relevant time period, Welles’ website offered

information about and free photos of Welles, advertised photos for sale, advertised memberships in her

photo club, and promoted her services as a spokesperson. A biographical section described Welles’

selection as Playmate of the Year in 1981 and her years modeling for PEI. The site included a disclaimer

that read as follows: “This site is neither endorsed, nor sponsored, nor affiliated with Playboy Enterprises,

Inc. PLAYBOY tm PLAYMATE OF THE YEAR tm AND PLAYMATE OF THE MONTH tm are registered

trademarks of Playboy Enterprises, Inc.”

Wells used (1) the terms “Playboy ”and “Playmate” in the metatags of the website; (2) the phrase

“Playmate of the Year 1981” on the masthead of the website; (3) the phrases “Playboy Playmate of the Year

1981” and “Playmate of the Year 1981” on various banner ads, which may be transferred to other websites;

and (4) the repeated use of the abbreviation “PMOY ’81” as the watermark on the pages of the website.

PEI claimed that these uses of its marks constituted trademark infringement, dilution, false designation of

origin, and unfair competition. The district court granted defendants’ motion for summary judgment. PEI

appeals the grant of summary judgment on its infringement and dilution claims. We affirm in part and

reverse in part.

A. Trademark Infringement

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Except for the use of PEI’s protected terms in the wallpaper of Welles’ website, we conclude that Welles’

uses of PEI’s trademarks are permissible, nominative uses. They imply no current sponsorship or

endorsement by PEI. Instead, they serve to identify Welles as a past PEI “Playmate of the Year.”

We articulated the test for a permissible, nominative use in New Kids On The Block v. New America

Publishing, Inc. The band, New Kids On The Block, claimed trademark infringement arising from the use

of their trademarked name by several newspapers. The newspapers had conducted polls asking which

member of the band New Kids On The Block was the best and most popular. The papers’ use of the

trademarked term did not fall within the traditional fair use doctrine. Unlike a traditional fair use

scenario, the defendant newspaper was using the trademarked term to describe not its own product, but

the plaintiff’s. Thus, the factors used to evaluate fair use were inapplicable. The use was nonetheless

permissible, we concluded, based on its nominative nature.

We adopted the following test for nominative use:

First, the product or service in question must be one not readily identifiable without use of the trademark;

second, only so much of the mark or marks may be used as is reasonably necessary to identify the product

or service; and third, the user must do nothing that would, in conjunction with the mark, suggest

sponsorship or endorsement by the trademark holder.

We group the uses of PEI’s trademarked terms into three for the purpose of applying the test for

nominative use.

1. Headlines and banner advertisements.

. . .

The district court properly identified Welles’ situation as one which must… be excepted. No descriptive

substitute exists for PEI’s trademarks in this context.…Just as the newspapers in New Kids could only

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identify the band clearly by using its trademarked name, so can Welles only identify herself clearly by

using PEI’s trademarked title.

The second part of the nominative use test requires that “only so much of the mark or marks may be used

as is reasonably necessary to identify the product or service[.]” New Kids provided the following examples

to explain this element: “[A] soft drink competitor would be entitled to compare its product to Coca-Cola

or Coke, but would not be entitled to use Coca-Cola’s distinctive lettering.” Similarly, in a past case, an

auto shop was allowed to use the trademarked term “Volkswagen” on a sign describing the cars it

repaired, in part because the shop “did not use Volkswagen’s distinctive lettering style or color scheme,

nor did he display the encircled ‘VW’ emblem.” Welles’ banner advertisements and headlines satisfy this

element because they use only the trademarked words, not the font or symbols associated with the

trademarks.

The third element requires that the user do “nothing that would, in conjunction with the mark, suggest

sponsorship or endorsement by the trademark holder.” As to this element, we conclude that aside from

the wallpaper, which we address separately, Welles does nothing in conjunction with her use of the marks

to suggest sponsorship or endorsement by PEI. The marks are clearly used to describe the title she

received from PEI in 1981, a title that helps describe who she is. It would be unreasonable to assume that

the Chicago Bulls sponsored a website of Michael Jordan’s simply because his name appeared with the

appellation “former Chicago Bull.” Similarly, in this case, it would be unreasonable to assume that PEI

currently sponsors or endorses someone who describes herself as a “Playboy Playmate of the Year in

1981.” The designation of the year, in our case, serves the same function as the “former” in our example. It

shows that any sponsorship or endorsement occurred in the past.

For the foregoing reasons, we conclude that Welles’ use of PEI’s marks in her headlines and banner

advertisements is a nominative use excepted from the law of trademark infringement.

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2. Metatags

Welles includes the terms “playboy” and “playmate” in her metatags. Metatags describe the contents of a

website using keywords. Some search engines search metatags to identify websites relevant to a search.

Thus, when an internet searcher enters “playboy” or “playmate” into a search engine that uses metatags,

the results will include Welles’ site. Because Welles’ metatags do not repeat the terms extensively, her site

will not be at the top of the list of search results. Applying the three-factor test for nominative use, we

conclude that the use of the trademarked terms in Welles’ metatags is nominative.

As we discussed above with regard to the headlines and banner advertisements, Welles has no practical

way of describing herself without using trademarked terms. In the context of metatags, we conclude that

she has no practical way of identifying the content of her website without referring to PEI’s trademarks.

. . .

Precluding their use would have the unwanted effect of hindering the free flow of information on the

internet, something which is certainly not a goal of trademark law. Accordingly, the use of trademarked

terms in the metatags meets the first part of the test for nominative use.…We conclude that the metatags

satisfy the second and third elements of the test as well. The metatags use only so much of the marks as

reasonably necessary and nothing is done in conjunction with them to suggest sponsorship or

endorsement by the trademark holder. We note that our decision might differ if the metatags listed the

trademarked term so repeatedly that Welles’ site would regularly appear above PEI’s in searches for one

of the trademarked terms.

3. Wallpaper/watermark.

The background, or wallpaper, of Welles’ site consists of the repeated abbreviation “PMOY ’81,” which

stands for “Playmate of the Year 1981.” Welles’ name or likeness does not appear before or after “PMOY

’81.” The pattern created by the repeated abbreviation appears as the background of the various pages of

the website. Accepting, for the purposes of this appeal, that the abbreviation “PMOY” is indeed entitled to

protection, we conclude that the repeated, stylized use of this abbreviation fails the nominative use test.

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The repeated depiction of “PMOY ‘81” is not necessary to describe Welles. “Playboy Playmate of the Year

1981” is quite adequate. Moreover, the term does not even appear to describe Welles—her name or

likeness do not appear before or after each “PMOY ’81.” Because the use of the abbreviation fails the first

prong of the nominative use test, we need not apply the next two prongs of the test.

Because the defense of nominative use fails here, and we have already determined that the doctrine of fair

use does not apply, we remand to the district court. The court must determine whether trademark law

protects the abbreviation “PMOY,” as used in the wallpaper.

B. Trademark Dilution [At this point, the court considers and rejects PEI’s claim for trademark dilution.]

Conclusion

For the foregoing reasons, we affirm the district court’s grant of summary judgment as to PEI’s claims for

trademark infringement and trademark dilution, with the sole exception of the use of the abbreviation

“PMOY.” We reverse as to the abbreviation and remand for consideration of whether it merits protection

under either an infringement or a dilution theory.

C A S E Q U E S T I O N S

1. Do you agree with the court’s decision that there is no dilution here?

2. If PMOY is not a registered trademark, why does the court discuss it?

3. What does “nominative use” mean in the context of this case?

4. In business terms, why would PEI even think that it was losing money, or could

lose money, based on Welles’s use of its identifying marks?

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23.6 Summary and Exercises

Summary The products of the human mind are at the root of all business, but they are legally protectable only to a

certain degree. Inventions that are truly novel may qualify for a twenty-year patent; the inventor may then

prohibit anyone from using the art (machine, process, manufacture, and the like) or license it on his own

terms. A business may sue a person who improperly gives away its legitimate trade secrets, but it may not

prevent others from using the unpatented trade secret once publicly disclosed. Writers or painters,

sculptors, composers, and other creative artists may generally protect the expression of their ideas for the

duration of their lives plus seventy years, as long as the ideas are fixed in some tangible medium. That

means that they may prevent others from copying their words (or painting, etc.), but they may not prevent

anyone from talking about or using their ideas. Finally, one who markets a product or service may protect

its trademark or service or other mark that is distinctive or has taken on a secondary meaning, but may

lose it if the mark becomes the generic term for the goods or services.

E X E R C I S E S

1. Samuel Morse filed claims in the US Patent Office for his invention of the

telegraph and also for the “use of the motive power of the electric or galvanic

current…however developed, for marking or printing intelligible characters, signs

or letters at any distances.” For which claim, if any, was he entitled to a patent?

Why?

2. In 1957, an inventor dreamed up and constructed a certain new kind of computer.

He kept his invention a secret. Two years later, another inventor who conceived

the same machine filed a patent application. The first inventor, learning of the

patent application, filed for his own patent in 1963. Who is entitled to the patent,

assuming that the invention was truly novel and not obvious? Why?

3. A large company discovered that a small company was infringing one of its

patents. It wrote the small company and asked it to stop. The small company

denied that it was infringing. Because of personnel changes in the large company,

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the correspondence file was lost and only rediscovered eight years later. The large

company sued. What would be the result? Why?

4. Clifford Witter was a dance instructor at the Arthur Murray Dance Studios in

Cleveland. As a condition of employment, he signed a contract not to work for a

competitor. Subsequently, he was hired by the Fred Astaire Dancing Studios,

where he taught the method that he had learned at Arthur Murray. Arthur Murray

sued to enforce the noncompete contract. What would be result? What additional

information, if any, would you need to know to decide the case?

5. Greenberg worked for Buckingham Wax as its chief chemist, developing chemical

formulas for products by testing other companies’ formulas and modifying them.

Brite Products bought Buckingham’s goods and resold them under its own name.

Greenberg went to work for Brite, where he helped Brite make chemicals

substantially similar to the ones it had been buying from Buckingham. Greenberg

had never made any written or oral commitment to Buckingham restricting his use

of the chemical formulas he developed. May Buckingham stop Greenberg from

working for Brite? May it stop him from working on formulas learned while

working at Buckingham? Why?

S E L F - T E S T Q U E S T I O N S

1. Which of the following cannot be protected under patent, copyright, or

trademark law?

a. a synthesized molecule

b. a one-line book title

c. a one-line advertising jingle

d. a one-word company name

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Which of the following does not expire by law?

a. a closely guarded trade secret not released to the public

b. a patent granted by the US Patent and Trademark Office

c. a copyright registered in the US Copyright Office

d. a federal trademark registered under the Lanham Act

A sculptor casts a marble statue of a three-winged bird. To protect against

copying, the sculptor can obtain which of the following?

a. a patent

b. a trademark

c. a copyright

d. none of the above

A stock analyst discovers a new system for increasing the value of a stock

portfolio. He may protect against use of his system by other people by

securing

a. a patent

b. a copyright

c. a trademark

d. none of the above

A company prints up its customer list for use by its sales staff. The cover

page carries a notice that says “confidential.” A rival salesman gets a copy

of the list. The company can sue to recover the list because the list is

a. patented

b. copyrighted

c. a trade secret

d. none of the above

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S E L F - T E S T A N S W E R S

1. b

2. a

3. c

4. d

5. c