Chapter 8 – Intellectual Property and Unfair Competition


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  • The hyperlink is to the U.S. Patent & Trademark Office.
  • The hyperlink is to the case information and opinion on the Cornell University Law School website. In Pfaff v. Wells Electronics, Inc., Pfaff began development work on a new computer chip socket in November 1980. He prepared detailed engineering drawings that described the design and dimensions of the socket and the materials to be used in making it, then sent the drawings to a manufacturer in February or March 1981. Prior to March 17, 1981, he showed a sketch of his concept to representatives of Texas Instruments. On April 8, 1981, the Texas Instruments representatives provided Pfaff a written confirmation of a previously placed oral purchase order for 30,100 of the new sockets. The total purchase price was $91,155. Pfaff did not make and test a prototype of the socket before offering to sell it. The first actual sockets were not produced until the summer of 1981. Pfaff filled the Texas Instruments order in July 1981. Other orders followed, as the socket became a commercial success. On April 19, 1982, Pfaff applied for a patent on the socket. A patent was issued to him in January 1985. Pfaff later filed an infringement action against Wells Electronics, Inc., which produced a competing socket. Wells Electronics argued that Pfaff’s patent was invalid under section 102(b) of the Patent Act of 1952, which states that a patent cannot be obtained for an invention if it has been “on sale” for more than a year before the filing of the patent application. The federal district court rejected Wells Electronics’ section 102(b) defense because Pfaff had filed the patent application less than a year after reducing the invention to practice (i.e., less than a year after the first actual sockets were produced and available for sale). The district court held Wells Electronics liable for infringement but the U.S. Court of Appeals for the Federal Circuit reversed. The Court of Appeals held that Pfaff’s patent was invalid because the socket had been offered for sale on a commercial basis more than a year before the filing of the patent application. The U.S. Supreme Court stated: “…April 19, 1981 constitutes the critical date for purposes of the on-sale bar of section 102(b); if the one-year period began to run before that date, Pfaff lost his right to patent his invention. …Pfaff ’s patent is invalid because the invention had been on sale for more than one year in this country before he filed his patent application.” Note that Pfaff missed having a valid patent by 11 days.
  • The hyperlink is to the Supreme Court opinion in pdf format. To be patentable, an invention must be non-obvious. In other words, a person having ordinary skill in the art would not use the same mechanism to solve the problem that the invention resolves. Since almost all inventions are combinations of known elements, the U.S. Court of Appeals for the Federal Circuit applied the teaching-suggestion-motivation (TSM) test, which requires a showing that some suggestion or motivation exists to combine known elements to form a claimed invention. The Supreme Court declared that the TSM test was inadequate and the true test of non-obviousness required an application of the Graham factors (from Graham et al. v. John Deere Co. of Kansas City et al. , 383 U.S. 1 (1966) ). In KSR , the Supreme Court decided that obviousness should be determined by looking at: the scope and content of the prior art; the level of ordinary skill in the art; the differences between the claimed invention and the prior art; and objective evidence of nonobviousness. Objective evidence of nonobviousness is evidenced by: commercial success; long-felt but unsolved needs; and failure of others
  • The hyperlink is to the U.S. Copyright Office.
  • The hyperlink is to the case information and opinion on the Cornell University Law School website.
  • Hyperlink is to the U.S. Patent and Trademark Office document entitled U.S. Trademark Law, Rules of Practice and Federal Statutes.
  • Patent infringement may be established under principles of literal infringement or under a judicially developed approach known as the doctrine of equivalents. Infringement is literal in nature when the subject matter made, used, or sold by the defendant clearly falls within the stated terms of the claims of invention set forth in the patentee’s application. Under the doctrine of equivalents, a defendant may be held liable for infringement if the alleged infringer’s subject matter performs substantially the same function as the protected invention in substantially the same way, in order to obtain the same result.
  • The hyperlink is to the Fourth Circuit opinion in pdf format.
  • The lower court granted defendant HDD’s motion for summary judgment. LVM appealed to the U.S. Court of Appeals for the Fourth Circuit.
  • Fourth Circuit noted that a successful parody conveys two messages: an original item that reminds consumers of a famous mark but is clearly not the parodied famous mark, and the parody conveys "some articulable element of satire, ridicule, joking or amusement".” Specifically, the court stated: “First, the pet chew toy is obviously an irreverent, and indeed intentional, representation of an LVM handbag, albeit much smaller and coarser. The dog toy is shaped roughly like a handbag; its name "Chewy Vuiton" sounds like and rhymes with LOUIS VUITTON; its monogram CV mimics LVM's LV mark; the repetitious design clearly imitates the design on the LVM handbag; and the coloring is similar. In short, the dog toy is a small, plush imitation of an LVM handbag carried by women, which invokes the marks and design of the handbag, albeit irreverently and incompletely. No one can doubt that LVM handbags are the target of the imitation by Haute Diggity Dog's ‘Chewy Vuiton’ dog toys.” In discussing the dilution issue, the court stated, “In this case, precisely because LOUIS VUITTON is so strong a mark and so well recognized as a luxury handbag brand from LVM, consumers readily recognize that when they see a ‘Chewy Vuiton’ pet toy, they see a parody. Thus, the strength of LVM's marks in this case does not help LVM establish a likelihood of confusion…. Indeed, by making the famous mark an object of the parody, a successful parody might actually enhance the famous mark's distinctiveness by making it an icon.”
  • Hyperlink is to the WIPO website.
  • False. You cannot copyright an “idea,” though once the idea has been made into a tangible work of artistic or literary expression, that work is automatically protected under U.S. Copyright law. False. Copyright protection is automatic, though registration certainly is recommended. True. True.
  • False. Trademark dilution is the diminishment of the capacity of plaintiff's marks to identify and distinguish plaintiff's goods or services. True. False. The fair use may not be excessive or harm the market for the original work. A court weighs factors in a fair use determination: (1) the purpose and character of the use, (2) the nature of the copyrighted work, (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 on the potential markets for the copyrighted work or on its value
  • The correct answer is (e)
  • The correct answer is (a). Trademark dilution on the internet is prohibited by the Anticybersquatting Consumer Protection Act.
  • Example: North Atlantic Instruments, Inc. v. Haber
  • North Atlantic Instruments, Inc., manufactured electronic equipment. In August 1994, North Atlantic acquired Transmagnetics, Inc. (TMI), which designed, manufactured, and sold customized electronic devices to a limited number of engineers in the aerospace and high-tech industries. At the time North Atlantic acquired TMI, Fred Haber was a one-third owner of TMI, as well as its president and head of sales. This position allowed Haber to develop extensive client contacts. North Atlantic conditioned its agreement to acquire TMI on Haber’s continuing to work for North Atlantic in a role similar to the role he had played at TMI. Specialized nature of TMI’s business made the identity of the relatively small number of engineers who required its products especially crucial to business success. The identity and needs of that small number of engineers (i.e., TMI’s client contacts) would have been very difficult for any company to derive on its own. TMI’s list of client contacts was among the intangible assets for which North Atlantic paid when it acquired TMI. North Atlantic retained Haber as president of its new TMI division. An employment agreement between North Atlantic and Haber ran until July 31, 1997. Its terms obligated Haber not to disclose North Atlantic’s customer lists, trade secrets, or other confidential information, either during his employment by North Atlantic or after that employment ceased. As president of the TMI division, Haber had access through desktop and laptop computers to information about North Atlantic’s technology and customer bases, including lists of clients and information about their individual product needs and purchases. In July 1997, Haber left North Atlantic to join Apex Signal Corp., which manufactured products targeted toward the same niche market as North Atlantic’s TMI division. According to North Atlantic, Apex began targeting North Atlantic’s customer base, with Haber allegedly asking clients he had dealt with at North Atlantic and TMI to do business with Apex. North Atlantic also contended that Haber had taken its confidential client information with him when he joined Apex.
  • North Atlantic sued Haber and Apex for misappropriation of trade secrets and requested a preliminary injunction. The federal district court referred the injunction request to a magistrate, who conducted an extensive hearing and issued a report recommending issuance of the injunction. The district court adopted the magistrate’s report and preliminarily enjoined Haber and Apex from using the individual client contacts Haber had developed at North Atlantic and TMI. Haber and Apex appealed.
  • In 1993, the Jefferson County School District decided to refinance part of its bonded indebtedness by issuing refunding bonds. The School District selected two firms other than Moody’s Investor’s Services, Inc. (hereinafter “Moody”), to rate the bonds, even though it had used Moody’s services in the past. The School District brought the bonds to market in late 1993. Initially, the bonds sold well. Less than two hours into the sales period, however, Moody published an article about the bonds in its “Rating News,” an electronically distributed information service sent to subscribers and news services. Moody stated in the article that even though it had not been asked to rate the bonds, it intended to assign a rating to the issue subsequent to the sale. The article went on to discuss the bonds and the School District’s financial condition, concluding that “the outlook on the district’s general obligation debt is negative, reflecting the district’s ongoing financial pressures due in part to the state’s [Colorado’s] past underfunding of the school finance act as well as legal uncertainties and financial constraints under Amendment 1.” Amendment 1, a 1992 measure, had changed the Colorado Constitution by requiring voter approval of certain tax increases. Within minutes after Moody released the article, Dow Jones & Company’s “The Dow Jones Capital Market Reports” issued an electronic communication repeating Moody’s statement about the refunding bonds’“negative outlook.” According to the School District, Moody’s article adversely affected the marketing of the bonds. Purchase orders ceased, several buyers canceled prior orders, and the School District found it necessary to reprice the bonds at a higher interest rate in order to complete the sale. As a result, the School District alleged, it suffered a net loss of $769,000. Contending the statement in Moody’s article falsely indicated that the School District’s financial condition was not creditworthy, the School District sued Moody for injurious falsehood. The federal district court dismissed the School District’s complaint for failure to state a claim upon which relief could be granted. The court based its ruling on a conclusion that Moody’s statement, rather than being provably false, was an expression of opinion protected by the First Amendment. The School District appealed. Appellate court: “We begin by examining the allegedly false statement that the School District maintains [was] implied by Moody’s article. …[I]n light of its failure to identify a more specific statement, the School District has failed to demonstrate that Moody’s implied statement about its creditworthiness is provably false. .. in this case, the School District’s failure to identify a specific false statement reasonably implied from Moody’s article, combined with the vagueness of the phrases “negative outlook” and “ongoing financial pressures,” indicates that Moody’s article constitutes a protected expression of opinion. District court’s dismissal of complaint affirmed.
  • The hyperlink is to the case opinion in pdf format on the Second Circuit’s website. Time Warner Cable, Inc. (TWC), and DIRECTV, Inc., are major players in the multichannel video service industry. In 2006, DIRECTV launched a multimedia advertising campaign based on the “Source Matters” theme. Shortly after DIRECTV began running the above-described television commercials and Internet ads, TWC sued DIRECTV in the U.S. District Court for the Southern District of New York. TWC, which claimed that DIRECTV had engaged in false advertising in violation of § 43 (a) of the Lanham Act, moved for a preliminary injunction against the commercials and ads. When the federal district court granted the preliminary injunction, DIRECTV appealed to the U.S. Court of Appeals for the Second Circuit. Second Circuit: Two different theories of recovery are available to a plaintiff who brings a false advertising action under § 43(a). First, the plaintiff can demonstrate that the challenged advertisement is literally false, i.e., false on its face. When an advertisement is shown to be literally or facially false, consumer deception is presumed and “the court may grant relief without reference to the advertisement’s [actual] impact on the buying public.” [Case citation omitted.] Alternatively, a plaintiff can show that the advertisement, while not literally false, is nevertheless likely to mislead or confuse consumers. Therefore, whereas “plaintiffs seeking to establish a literal falsehood must generally show the substance of what is conveyed, . . . a district court must rely on extrinsic evidence [of consumer deception or confusion] to support a finding of an implicitly false message.” Here, TWC chose to pursue only the first path of literal falsity, and the District Court granted the preliminary injunction. Second Circuit reviewed the statements and concluded that DIRECTV’s television commercials were literally false, therefore TWC had a basis for claiming irreparable harm and obtaining the injunction. However, the internet advertising was so unrealistic that confusion could not occur, thus mere sales puffery.
  • Refer back to the MGM v. Grokster decision.
  • Chapter 8 – Intellectual Property and Unfair Competition

    1. 1. Crimes Intentional Torts Negligence and Strict LiabilityIntellectual Property and Unfair Competition © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
    2. 2. Intellectual Property and Unfair Competition I dream for a living. Steven Spielberg quoted in Time magazine July 1985 © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
    3. 3. Learning Objectivesv Infringement of intellectual property rightsv Misappropriation of trade secretsv Unfair competition - intentional tortsv Unfair competition – the Lanham Act8-3
    4. 4. Types of Intellectual Propertyv PATENT: w Engine design, business methodsv TRADEMARK w Logo, trade namev COPYRIGHT w Sales materials, Marketing materials for Case Construction Equipment artwork8-4
    5. 5. Patentv Grant from federal government to an inventor in which inventor obtains exclusive right to make, use, and sell his invention for a period of 20 years (14 years for designs)v U.S. Patent Act requires registration w
    6. 6. Patentv A patent will not be issued if more than one year before patent application the invention was patented elsewhere, described in a printed publication, or in public use or on sale in the United States w Example: Pfaff v. Wells Electronics, Inc. w Inventor sold patented item on April 8, 1981 w Inventor applied for patent on April 19, 1982 w More than one year passed, the patent was invalid8-6
    7. 7. Patentv Protection for: a process, a machine, a product or manufacture, a composition of matter (such as a new chemical compound), an improvement of any of the above, an ornamental design for a product, a plant produced by asexual reproduction, certain business methodsv Even though an invention fits one of the categories, it is not patentable if it lacks novelty, is obvious, or has no utility8-7
    8. 8. KSR International Co. v. Teleflex, Inc .v Teleflex sued KSR claiming one of KSR’s products infringed on a Teleflex patentv Issue was whether disputed patent claim was obviousv Supreme Court said obviousness determined by: w Scope and content of the prior art; w Level of ordinary skill in the art; w Differences between claimed invention and prior art; w Objective evidence of nonobviousness (commercial success, long-felt but unsolved needs, and failure of others)8-8
    9. 9. Copyrightv Intangible right granted by statute to the author or creator of certain tangible literary or artistic productions w Can’t copyright an “idea”v Applicable law: Copyright Protection Act and the Copyright Term Extension Actv
    10. 10. Copyrightv Protection automatic; registration not required, though recommendedv Works created after 1/78 are given protection for life of author + 70 yearsv Protection for a work-for-hire (corporation owns copyright) is 95 years from first publication or 120 years from creation, which ever comes first8 - 10
    11. 11. Work-for-Hire v A work-for-hire exists when w (1) an employee, in the course of her regular employment duties, creates a copyrightable work; or w (2) an individual or corporation and an independent contractor (i.e., nonemployee) enter into a written “hire” agreement under which the non-employee creates a copyrightable work for the individual or corporation8 - 11
    12. 12. Metro-Goldwyn-Mayer Studios, Inc. Grokster, Ltd.v Facts & Procedural History: w Defendants Grokster and StreamCast Networks, Inc. distributed free software that allowed computer users to share electronic files through peer-to-peer networks w Many copyright owners (collectively referred to as MGM) filed separate lawsuits against defendants and the cases were consolidated8 - 12
    13. 13. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.v Facts & Procedural History: w MGM sought damages and injunction alleging defendants knowingly and intentionally distributed software to enable users to reproduce and distribute copyrighted works in violation of the Copyright Actv Issue: w Under what circumstances is distributor of a product capable of both lawful and unlawful use liable for acts of copyright infringement by third parties using the product?8 - 13
    14. 14. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.v Legal Reasoning: w One infringes contributorily by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it w Substantial evidence shows defendants acted with a purpose to cause copyright violations by use of software suitable for illegal use8 - 14
    15. 15. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.v Holding: w One who distributes a device with the object of promoting its use to infringe copyright, as shown by affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties8 - 15
    16. 16. Trademarkv Distinctive mark, motto, device, or emblem that a manufacturer or service provider stamps, prints, or affixes to products it produces or services it performs to distinguish products or services from those of competitorsv Applicable law: Lanham Actv Registration with state or fed. government recommended, but not required8 - 16
    17. 17. Trademarkv “Trademark” applicable to: w Trade name (e.g., McDonald’s, Nike) w Trade image (e.g., Ronald McDonald) w Trade logo (golden arches, swoosh) w Trade dress (orange & red of McDonald’s)v Trademark dilution is the diminishment of the capacity of plaintiffs marks to identify and distinguish plaintiffs goods or services8 - 17
    18. 18. E-Commerce Infringement v Trademark dilution on the internet is prohibited by the Anticybersquatting Consumer Protection Act v Creates civil cause of action against a person who, with bad faith intent to profit from a trademark, registers, traffics in, or uses a domain name identical or “confusing similar” to distinctive mark w Example: Volkswagen sued Virtual World for their registration of and won8 - 18
    19. 19. Infringement v Violation of intellectual property right: when someone uses, makes, or sells another’s trademarked, patented, or copyrighted intellectual property without owner’s permission, license, franchise v Penalties -- actual or statutory damages in civil proceedings or criminal penalties for willful violations8 - 19
    20. 20. Proof of Infringementv Generally, infringement requires proof that: w (1) defendant had access to protected work; w (2) defendant engaged in enough copying (deliberately or subconsciously) that resemblance between allegedly infringing work and protected work could not be coincidental; and w (3) substantial similarity exists between the works8 - 20
    21. 21. The “Fair Use” Defensev For copyright and trademark infringement, a fair use defense or exception exists when the copyrighted work or trademark is used without the property holder’s permission w “For purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research” Section 107 of the Copyright Act8 - 21
    22. 22. The “Fair Use” Defensev A court weighs factors in a fair use determination: w (1) purpose and character of the use, w (2) nature of the copyrighted work, w (3) amount and substantiality of portion used in relation to copyrighted work as a whole, w (4) effect of use on the potential markets for the copyrighted work or on its value8 - 22
    23. 23. Exceptions/Defenses v Fair use may include parody w InCampbell v. Acuff-Rose Music, Inc., Supreme Court held that 2 Live Crew’s version of Roy Orbison’s “Pretty Woman” was a parody and could be a fair use if use not excessive and did not harm market for the original w Case remanded to determine whether use was excessive or harmed the market, but parties eventually settled8 - 23
    24. 24. Louis Vuitton Malletier, SA v. Hautv Procedural History & Facts: w Louis Vuitton Malletier ("LVM"), the well- known maker of luxury goods, sued a Las Vegas company for infringement of its marks and design copyright w Defendant Haute Diggity Dog ("HDD"), manufactures and sells chewable dog toys intended to mimic and parody famous luxury products8 - 24
    25. 25. Louis Vuitton Malletier, SA v. Haute Diggity Dog, LLCv Procedural History: w Defendant moved for summary judgment to dismiss and the trial court granted the motionv Issue on Appeal: w Did defendant’s use of LVM’s intellectual property infringe on or dilute LVM’s rights?8 - 25
    26. 26. Louis Vuitton Malletier, SA v. Haute Diggity Dog, LLCv Legal Reasoning and Holding: w LVM established a prima facie case of infringement w Copyright Act and Lanham Act recognize certain statutory exceptions to protections w “Purpose and character of use” factor in fair use inquiry asks what extent new work is transformative and does not supplant original w Parodic works comment and criticize, thus often sufficiently transformative to fit under fair use exception w Clear parody and dilution claim fails since successful parody might strengthen a mark’s distinctiveness8 - 26
    27. 27. International Lawv International intellectual property law is governed by multilateral agreements w Paris Convention w Madrid Agreement Concerning the International Registration of Trademarks w Madrid Protocol w World Trade Organization’s Agreement on Trade- Related Aspects of Intellectual Property Rightsv World Intellectual Property Org. resolves international intellectual property disputes8 - 27
    28. 28. Test Your Knowledgev True=A, False = B w You may copyright an idea w Copyright protection requires registration with the U.S. Copyright Office w The U.S. Patent Act requires registration of a patent to obtain protection for the intellectual property w The Lanham Act protects trademarks8 - 28
    29. 29. Test Your Knowledgev True=A, False = B w Trademark dilution refers to the overuse of a trademark on products or services w An employee who creates a new software program has made a work-for-hire w The fair use defense is an absolute defense to an infringement claim8 - 29
    30. 30. Test Your Knowledgev Multiple Choice w A trademark refers to: (a) trade name (b) trade image (c) trade logo (d) trade dress (e) all of the above8 - 30
    31. 31. Test Your Knowledgev Multiple Choice w Trademark dilution on the internet is prohibited by: (a) Anticybersquatting Consumer Protection Act (b) Patent & Trademark Act (c) Berne Convention8 - 31
    32. 32. Trade Secrets v Trade secret: any secret formula, pattern, process, program, device, method, technique, or database used in the owner’s business that offers competitive advantage v A firm must take reasonable measures to maintain secrecy8 - 32
    33. 33. Misappropriationv Misappropriation of a trade secret occurs when a person discloses or uses after acquiring the secret: w By improper means (theft, trespass, etc.) w Through another party who is known or should have been known to have obtained the secret by improper means, w By breaching a duty of confidentiality8 - 33
    34. 34. North Atlantic Instr. v. Haberv Facts: w North Atlantic produced electronic equipment w Firm acquired TMI in which Haber was a 1/3 owner and president w Acquisition of TMI conditioned on Haber’s continued employment since Haber’s client contacts were a valuable intangible asset w Haber’s employment contract with a confidentiality clause ended in 1997, when he joined Apex, a firm with a similar target market8 - 34
    35. 35. North Atlantic Instr. v. Haberv Appellate Court Reasoning and Ruling: w North Atlantic sued Haber and Apex for misappropriation of trade secrets w Based on a magistrate’s findings, trial court enjoined Haber and Apex from using client contacts; Haber and Apex appealed w Appellate court agreed with magistrate’s findings that identity of North Atlantic’s client contacts was a protectable trade secret and that Haber had breached his duty of confidentiality w District court’s injunction affirmed8 - 35
    36. 36. Commercial Tortsv Commercial torts are intentional torts that involve business or commercial competitionv Injurious falsehood (product disparagement) involves publishing false statements that disparage another’s business, property, or title to property, harming economic interests w Example: Jefferson County School District v. Moody’s Investor’s Services, Inc.8 - 36
    37. 37. Commercial Tortsv Intentional interference with contractual relations occurs when one party to a contract claims that the defendant’s interference with the other party’s performance of the contract wrongly caused the plaintiff to lose the benefit of that performance8 - 37
    38. 38. Commercial Tortsv Intentional interference with prospective advantage parallels elements for interference with contractual relations, but prospective relations are focus (not existing contracts)v Section 43(a) of the Lanham Act creates civil liability for unfair competition, including misleading, confusing, or deceptive representations made in connection with goods or services8 - 38
    39. 39. Time Warner Cable, Inc. v. DIRECv Lanham Act tort in which multichannel video service companies battled over whether defendant had engaged in false advertising on television and the internetv Issue was whether statements were sales puffery or literally false statementsv Television statements by TWC’s competitor were literally false (not mere sales puffery)v TWC demonstrated irreparable harm, thus preliminary injunction affirmed8 - 39
    40. 40. Thought Questionsv Music is intellectual property. What do you think about people who download music illegally? Have they committed theft?v Does the MGM v. Grokster decision make good law?8 - 40