law pp w3
nikke.teriha
contemporary_business_law_chpt_6.pdf
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21. Miller v. Alabama, S.Ct. (Supreme Court of the United States).
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7 Intellectual Property and Cyber Piracy
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Copyright of Books
The owners of copyright material such as books, movies, CDs, DVDs, and video games;
the owners of trademarks such as McDonald’s Corporation and Starbucks Corporation;
the creators of patents such as Microsoft Corporation and Intel Corporation; the owners
of trade secrets such as the Coca-Cola Corporation; and the owners of other intellectual
property lose substantial revenues caused by the sale of knockoffs of their intellectual
property. Computers and software programs have helped increase cyber piracy of
intellectual property. Intellectual property is protected by a variety of civil and criminal
laws.
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Learning Objectives
After studying this chapter, you should be able to:
1. Describe the business tort of misappropriating a trade secret.
2. Describe how an invention can be patented under federal patent laws and the
penalties for patent infringement.
3. List the items that can be copyrighted and describe the penalties of copyright
infringement.
4. Define trademark and service mark and describe the penalties for trademark
infringement.
5. Define cyber piracy and describe the penalties for engaging in cyber infringement
of intellectual property rights.
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Chapter Outline
Introduction to Intellectual Property and Cyber Piracy
Intellectual Property
Trade Secret
Ethics • Coca-Cola Employee Tries to Sell Trade Secrets to Pepsi-Cola
Patent
Case 7.1 • U.S. Supreme Court Case • Association for Molecular Pathology v.
Myriad Genetics, Inc.
Contemporary Environment • Leahy-Smith America Invents Act (AIA)
Copyright
Critical Legal Thinking Case • BMG Music v. Gonzalez
Case 7.2 • U.S. Supreme Court Case • Kirtsaeng v. John Wiley & Sons, Inc.
Digital Law • Digital Millennium Copyright Act
Trademark
Case 7.3 • Intel Corporation v. Intelsys Software, LLC
Case 7.4 • V Secret Catalogue, Inc. and Victoria’s Secret Stores, Inc. v. Moseley
Global Law • International Protection of Intellectual Property
“The Congress shall have the power . . . to promote the Progress of Science
and useful Arts, by securing for limited Times to Authors and Inventors the
exclusive Right to their respective Writings and Discoveries.”
Article 1, Section 8, Clause 8 of the U.S. Constitution
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Introduction to Intellectual Property and Cyber Piracy
The U.S. economy is based on the freedom of ownership of property. In addition to real
estate and personal property, intellectual property rights have value to both businesses
and individuals. This is particularly the case in the modern era of the Information Age,
computers, and the Internet.
Federal law provides protections for intellectual property rights, such as patents,
copyrights, and trademarks. Certain federal statutes provide for either civil damages or
criminal penalties, or both, to be assessed against infringers of patents, copyrights, and
trademarks. Trade secrets form the basis of many successful businesses, and they are
protected from misappropriation. State law imposes civil damages and criminal penalties
against persons who misappropriate trade secrets.
“And he that invents a machine augments the power of a man and the well-
being of mankind.”
Henry Ward Beecher
Proverbs from Plymouth Pulpit—Business
This chapter discusses trade secrets, patents, copyrights, and trademarks and how to
protect them from infringement, misappropriation, and cyber piracy.
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Intellectual Property
Intellectual property is a term that describes property that is developed through an
intellectual and creative process. Intellectual property falls into a category of property
known as intangible rights, which are not tangible physical objects.
intellectual property
Patents, copyrights, trademarks, and trade secrets. Federal and state laws
protect intellectual property rights from misappropriation and infringement.
Most persons are familiar with the fact that intellectual property includes patents,
copyrights, and trademarks. It also includes trade secrets. For patents, think of
Microsoft’s patents on its operating system. Microsoft has obtained more than ten
thousand patents. For copyrights, think of music, movies, books, and video games. For
trademarks, think of Nike’s recognizable “Just do it” and Swoosh logo and McDonald’s
Big Mac and “I’m lovin’ it.” For trade secrets, think of Coca-Cola Company’s secret
recipe for making Coca-Cola. Patents, trademarks, and copyrights give their owners or
holders monopoly rights for specified periods of time. Trade secrets remain valuable as
long as they are not easily discovered.
“Where a new invention promises to be useful, it ought to be tried.”
Thomas Jefferson
Intellectual property is of significant value to companies in the United States and globally
as well. Over one-half of the value of large companies in the United States is related to
their intangible property rights. Some industries are intellectual property intensive, such
as the music
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and movie industries. Other industries that are not intellectual property intensive, such as
the automobile and food industries, are still highly dependent on their intellectual property
rights.
Because of their intangible nature, intellectual property rights are more subject to
misappropriation than is tangible property. It is almost impossible to steal real estate, and
it is often difficult to steal tangible property such as equipment, furniture, and other
personal property. However, intellectual property rights are much easier to
misappropriate. Think of counterfeit compact discs (CDs) and DVDs and fake designer
purses. In addition, computers and cyber piracy make it easier to steal many forms of
intellectual property. The misappropriation of intellectual property rights is one of the
major threats to companies today.
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Trade Secret
Many businesses are successful because their trade secrets set them apart from
their competitors. Trade secrets may be product formulas, patterns, designs, compilations
of data, customer lists, or other business secrets. Many trade secrets do not qualify to be
—or simply are not—patented, copyrighted, or trademarked. Many states have adopted
the Uniform Trade Secrets Act to give statutory protection to trade secrets.
trade secret
A product formula, pattern, design, compilation of data, customer list, or
other business secret.
State unfair competition laws allow the owner of a trade secret to bring a lawsuit for
misappropriation against anyone who steals a trade secret. For the lawsuit to be
actionable, the defendant (often an employee of the owner or a competitor) must have
obtained the trade secret through unlawful means, such as theft, bribery, or industrial
espionage. No tort has occurred if there is no misappropriation.
The owner of a trade secret is obliged to take all reasonable precautions to prevent that
secret from being discovered by others. If the owner fails to take such actions, the secret
is no longer subject to protection under state unfair competition laws. Precautions to
protect a trade secret may include fencing in buildings, placing locks on doors, hiring
security guards, and the like.
Examples
The most famous trade secret is the formula for Coca-Cola. This secret recipe, which
is referred to by the code name “Merchandise 7X,” is kept in a bank vault in Atlanta,
Georgia. The formula is supposedly known by only two executives who have signed
nondisclosure agreements. Another secret recipe that is protected as a trade secret
is KFC’s secret recipe of eleven herbs and spices for the batter used on the Colonel’s
Original Recipe Kentucky Fried Chicken.
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Reverse Engineering
A competitor can lawfully discover a trade secret by performing reverse engineering
(i.e., taking apart and examining a rival’s product or re-creating a secret recipe). A
competitor who has reverse engineered a trade secret can use the trade secret but not
the trademarked name used by the original creator of the trade secret.
Web Exercise
Go to www.usatoday.com/money/industries/food/2005-07-22-kfc-secret-
recipe_x.htm and read about how KFC protects its secret recipe.
Example
An inventor invents a new formula for a perfume. The inventor decides to not get a
patent for her new formula (because patent protection is good for only twenty years).
Instead, the inventor chooses to try to protect it as a trade secret, which gives her
protection for as long a period of time as she can successfully keep it a secret.
Another party purchases the perfume, chemically analyzes the perfume, and
discovers the formula. The trade secret has been reverse engineered, and the second
party may begin producing a perfume using the inventor’s formula.
Civil Trade Secret Law: Misappropriation of a Trade Secret
The owner of a trade secret can bring a civil lawsuit under state law against anyone who
has misappropriated a trade secret through unlawful means, such as theft, bribery, or
industrial espionage. Generally, a successful plaintiff in a misappropriation of a trade
secret action can (1) recover the profits made by the offender from the use of the trade
secret, (2) recover for damages, and (3) obtain an injunction prohibiting the offender
from divulging or using the trade secret.
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Criminal Trade Secret Law: Economic Espionage Act
Congress enacted the federal Economic Espionage Act (EEA), which makes it a
federal crime to steal another’s trade secrets. Under the EEA, it is a federal crime for any
person to convert a trade secret to his or her benefit or for the benefit of others, knowing
or intending that the act would cause injury to the owner of the trade secret. The definition
of trade secret under the EEA is very broad and parallels the definition used under the
civil laws of misappropriating a trade secret.
Economic Espionage Act
A federal statute that makes it a crime for any person to convert a trade
secret for his or her own or another’s benefit, knowing or intending to
cause injury to the owners of the trade secret.
One of the major reasons for the passage of the EEA was to address the ease of stealing
trade secrets through computer espionage and using the Internet. Confidential information
can be downloaded onto a CD or Flash drive, placed in a pocket, and taken from the legal
owner. Computer hackers can crack into a company’s computers and steal customer
lists, databases, formulas, and other trade secrets. The EEA is a very important weapon
in addressing computer and Internet espionage and penalizing those who commit it.
The EEA provides for severe criminal penalties. The act imposes prison terms on
individuals of up to fifteen years per criminal violation. An organization can be fined up to
$10 million per criminal act. The criminal prison term for individuals and the criminal fine
for organizations can be increased if the theft of a trade secret was made to benefit a
foreign government.
The following ethics feature discusses the misappropriation of a trade secret.
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Ethics
Coca-Cola Employee Tries to Sell Trade Secrets to Pepsi-Cola
“What if you knew the markets Coca-Cola was going to move into
and out of and beat them to the punch.”
—Letter to PepsiCo
PepsiCo received a letter sent to the company by an employee of Coca Cola
Company that offered to sell PepsiCo trade secrets of Coca Cola. The letter
stated, “What if you knew the markets Coca-Cola was going to move into and out
of and beat them to the punch.” The letter proposed selling trade secrets regarding
a proposed Coke product code-named Project Lancelot for $1.5 million.
PepsiCo notified Coca-Cola officials and federal authorities. The Federal Bureau
of Investigation (FBI) initiated an investigation into the matter. The federal
government brought criminal charges against Coca-Cola secretary Joya Williams.
During trial, prosecutors produced the letter as well as a videotape of Williams
putting confidential documents and samples of Coke products that were still in
development into her bag.
Williams was convicted by a federal jury of conspiring to steal Coca Cola trade
secrets and attempting to sell them to archrival PepsiCo. The trial court judge
sentenced Williams to eight years in jail. The U.S. Court of Appeals upheld the
decision. Two other co-conspirators were arrested and pled guilty. United States
v. Williams, Web 2008 U.S. App. Lexis 6073 (United States Court of Appeals for
the Eleventh Circuit, 2008)
Ethics Question
Did Williams act loyally in this case? Did PepsiCo do what it was supposed to
do in this case? How likely is it that PepsiCo would have paid Williams and her
co-conspirators the money they demanded?
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Patent
When drafting the Constitution of the United States of America, the founders of the United
States provided for protection of the work of inventors and writers. Article I, Section 8 of
the Constitution provides, “The Congress shall have Power . . . To promote the Progress of
Science and useful Arts, by securing for limited Times to Authors and Inventors the
exclusive Right to their respective Writings and Discoveries.” Pursuant to the express
authority granted in the U.S. Constitution, Congress enacted the Federal Patent
Statute of 1952 to provide for obtaining and protecting patents.
Federal Patent Statute
A federal statute that establishes the requirements for obtaining a patent
and protects patented inventions from infringement.
A patent is a grant by the federal government upon the inventor of an invention for the
exclusive right to use, sell, or license the invention for a limited amount of time.
Patent
A grant by the federal government upon the inventor of an invention for the
exclusive right to use, sell, or license the invention for a limited amount of
time.
Patent law is intended to provide an incentive for inventors to invent and make their
inventions public and to protect patented inventions from infringement. Federal patent law
is exclusive; there are no state patent laws. Applications for patents must be filed with
the U.S. Patent and Trademark Office (PTO) in Washington, DC. The PTO grants
approximately 250,000 patents each year.
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U.S. Court of Appeals for the Federal Circuit
The U.S. Court of Appeals for the Federal Circuit in Washington, DC, was created
in 1982. This is a special federal appeals court that hears appeals from the Board of
Patent Appeals and Interferences of the U.S. Patent and Trademark Office and federal
courts concerning patent issues. This Court was created to promote uniformity in patent
law.
U.S. Court of Appeals for the Federal Circuit
A special federal appeals court that hears appeals from the Board of Patent
Appeals and Interferences and federal court concerning patent issues.
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Patent Application
To obtain a patent, a patent application must be filed with the PTO in Washington,
DC. The PTO provides for the online submission of patent applications and supporting
documents through its EFS-Web system. A patent application must contain a written
description of the invention. Patent applications are complicated. Therefore, an inventor
should hire a patent attorney to assist in obtaining a patent for an invention.
provisional application
An application that an inventor may file with the PTO to obtain three months
to prepare a final patent application.
If a patent is granted, the invention is assigned a patent number . Patent holders
usually affix the word patent or pat. and the patent number on the patented article. If a
patent application is filed but a patent has not yet been issued, the applicant usually
places the words patent pending on the article. Any party can challenge either the
issuance of a patent or the validity of an existing patent.
Web Exercise
Go to www.uspto.gov. Go to the left column entitled “Patents.” Click on
number 2 “Search.” Toward the middle of the page that appears find the term
“Patent Number Search.” Click on this term. In the open line under the term
“Query” type in the patent number 3741662. Click on the term “Search.” Read
the information about this patent.
Exhibit 7.1 shows the abstract from the patent application for the Facebook social
networking system (U.S. Patent 20070192299).
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Systems and Methods for Social Mapping
Abstract
A system, method, and computer program for social mapping is provided. Data about a
plurality of social network members is received. A first member of the plurality of social
network members is allowed to identify a second member of the plurality of social network
members with whom the first member wishes to establish a relationship. The data is then
sent to the second member about the first member based on the identification. Input from
the second member is received in response to the data. The relationship between the first
member and the second member is confirmed based on the input in order to map the first
member to the second member.
Exhibit 7.1 Patent Application for the Facebook Social Networking System
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Subject Matter that Can Be Patented
Most patents are utility patents ; that is, they protect the functionality of the item. The
term patent is commonly used in place of the words utility patent. Only certain subject
matter can be patented. Federal patent law recognizes categories of innovation that can
be patented. These include:
utility patent
A patent that protects the functionality of the invention.
Machines
Processes
Compositions of matter
Improvements to existing machines, processes, or compositions of matter
Designs for an article of manufacture
Asexually reproduced plants
Living material invented by a person
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Abstractions and scientific principles cannot be patented unless they are part of the
tangible environment.
Example
Einstein’s Theory of Relativity (E = mc ) cannot be patented.
For centuries, most patents involved tangible inventions and machines, such as the
telephone and the light bulb. Next, chemical and polymer inventions were patented. Then
biotechnology patents were granted. More recently, subject matter involving the computer,
Internet, and e-commerce has been added to what can be patented.
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Requirements for Obtaining a Patent
To be patented, an invention must be (1) novel, (2) useful, and (3) nonobvious. An
invention must meet all three of these requirements. If an invention is found to not meet
any one of these requirements, it cannot be patented:
1. Novel. An invention is novel if it is new and has not been invented and used in
the past. If an invention has been used in “prior art,” it is not novel and cannot be
patented.
requirements for obtaining a patent
To be patented, an invention must be (1) novel, (2) useful, and
(3) nonobvious.
Example
College and professional football games are often shown on television. It is
often difficult, however, for a viewer to tell how far the offensive team must go
to get a first down and keep possession of the football. Inventors invented a
system whereby a yellow line is digitally drawn across the football field at the
distance that a team has to go to obtain a first down. This “yellow line”
invention qualified for a patent because it was novel.
2. Useful. An invention is useful if it has some practical purpose. If an invention has
only theoretical benefit and no useful purpose, it cannot be patented.
Example
A cardboard or heavy paper sleeve that can be placed over the outside of a
paper coffee cup so that the cup will not be too hot to hold serves a useful
purpose. Many coffee shops use these sleeves. The sleeve serves a useful
purpose and therefore qualifies to be patented.
Critical Legal Thinking
Why did the founders of the United States put protections for
inventors and writers in Article I of the U.S. Constitution? Have these
protections become even more important in the current Digital Age?
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3. Nonobvious. If an invention is nonobvious, it qualifies for a patent; if it is
obvious, then it does not qualify for a patent.
Example
An invention called “Forkchops” was found to be nonobvious and was granted
a patent. Forkchops consist of chopsticks with a spoon on one end of one of
the chopsticks and a fork on one end of the other chopstick. Thus, when
eating, a user can either use the chopstick ends or the spoon and fork ends.
“The patent system added the fuel of interest to the fire of genius.”
Abraham Lincoln
Example
An inventor filed for a patent for a “waffle fry,” which is a fried slice of potato
with a waffle shape that is not as thick as a typical French fry but is thicker
than a potato chip. Thus, the thickness of a waffle fry is somewhere in between
the thickness of a French fry and a potato chip. The court rejected a patent for
the waffle fry because it was obvious that a potato could be sliced into different
sizes.
Concept Summary
Requirements for Obtaining a Patent
1. Novel. An invention is novel if it is new and has not been invented and used in the
past. If an invention has been used in “prior art,” it is not novel and cannot be
patented.
2. Useful. An invention is useful if it has some practical purpose. If an invention has
only theoretical benefit and no useful purpose, it cannot be patented.
3. Nonobvious. If an invention is nonobvious, it qualifies for a patent; if it is
obvious, then it does not qualify for a patent.
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The following U.S. Supreme Court Case involves the question of what is patentable subject
matter.
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Case 7.1 U.S. Supreme Court Case Patent
Association for Molecular Pathology v. Myriad Genetics, Inc.
133 S.Ct. 2107 (2013)
Supreme Court of the United States
“Laws of nature, natural phenomena, and abstract ideas are not
patentable.”
—Thomas, Justice
Facts
After substantial research and expenditure of money and resources, Myriad Genetics,
Inc. (Myriad) discovered the precise location and sequence of two naturally occurring
segments of deoxyribonucleic acid (DNA) known as BRCA1 and BRCA2. Mutations in
these genes can dramatically increase a female’s risk of developing breast and ovarian
cancer. The average American woman has a 12- to 13-percent risk of developing breast
cancer, but in a woman with the genetic mutations discovered by Myriad the risk can
range between 50 and 80 percent for breast cancer and between 20 and 50 percent for
ovarian cancer. Before Myriad’s discovery of the BRCA1 and BRCA2 genes, scientists
knew that heredity played a role in establishing a woman’s risk of developing breast and
ovarian cancer, but they did not know which genes were associated with those cancers.
For women who are tested and found to have the dangerous mutations of BRCA1 and
BRCA2 medical measures can be taken to reduce the risks of breast and ovarian cancer
developing.
Myriad obtained a patent from the U.S. Patent and Trademark Office based upon its
discovery. The Association for Molecular Pathology sued Myriad, seeking a declaration
that Myriad’s patent was invalid. The U.S. district court held that Myriad’s claim was invalid
because it covered a product of nature and was therefore unpatentable. The Federal
Circuit Court of Appeals held that the isolated DNA was patent eligible. The U.S. Supreme
Court granted review.
Issue
Is a naturally occurring segment of DNA patent eligible?
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Language of the U.S. Supreme Court
Laws of nature, natural phenomena, and abstract ideas are not patentable. It is
undisputed that Myriad did not create or alter any of the genetic information encoded
in the BRCA1 and BRCA2 genes. The location and order of the nucleotides existed in
nature before Myriad found them. Nor did Myriad create or alter the genetic structure
of DNA. Instead, Myriad’s principal contribution was uncovering the precise location
and genetic sequence of the BRCA1 and BRCA2 genes.
Myriad did not create anything. To be sure, it found an important and useful gene, but
separating that gene from its surrounding genetic material is not an act of invention.
Groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the §
101 inquiry. Myriad found the location of the BRCA1 and BRCA2 genes, but that
discovery, by itself, does not render the BRCA genes new compositions of matter
that are patent eligible. Extensive effort alone is insufficient to satisfy the demands of
§ 101.
Decision of the U.S. Supreme Court
The U.S. Supreme Court held that a naturally occurring DNA segment is a product of
nature and not patent eligible merely because it has been isolated. The U.S. Supreme
Court reversed the decision of the Federal Circuit Court of Appeals on this issue.
Ethics Questions
Will the Supreme Court’s decision affect the amount of research that is conducted to find
naturally occurring disease-causing DNA sequences? Should Myriad be compensated by
the government for its research costs?
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Patent Period
Utility patents for inventions are valid for twenty years. The patent term begins to run from
the date the patent application is filed.
After the patent period runs out, the invention or design enters the public domain, which
means that anyone can produce and sell the invention without paying the prior patent
holder.
Example
On January 12, 2016, an inventor invents a formula for a new prescription drug. On
March 1, 2016, the inventor files for and is eventually granted a twenty-year patent for
this invention. Twenty years after the filing of the patent application, on March 1,
2036, the patent expires. The next day the patent enters the public domain, and
anyone can use the formula to produce exactly the same prescription drug.
Provisional Patent Application
Congress enacted the American Inventors Protection Act, which permits an inventor to
file a provisional application with the PTO so that the inventor has time to prepare
and file a final and complete patent application with the PTO. This “provisional right” gives
an inventor three months to prepare a final patent application.
In addition, the act requires the PTO to issue a patent within three years from the date of
filing a patent application. The act provides that non–patent holders may challenge a
patent as being overly broad by requesting a contested reexamination of the patent
application by the PTO. This provides that the reexamination will be within the confines of
the PTO; the decision of the PTO can be appealed to the U.S. Court of Appeals for the
Federal Circuit in Washington, DC.
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Patent Infringement
Patent holders own exclusive rights to use and exploit their patents. Patent
infringement occurs when someone makes unauthorized use of another’s patent. In a
suit for patent infringement, a successful plaintiff can recover (1) money damages equal
to a reasonable royalty rate on the sale of the infringed articles, (2) other damages
caused by the infringement (e.g., loss of customers), (3) an order requiring the
destruction of the infringing article, and (4) an injunction preventing the infringer from
such action in the future. The court has the discretion to award up to treble damages if
the infringement was intentional. It costs between several hundred thousand dollars to
several million dollars to bring an infringement case to trial.
patent infringement
Unauthorized use of another’s patent. A patent holder may recover
damages and other remedies against a patent infringer.
