Selected Papers

CYBERSPACE 1995:

A Survival Guide to

Technical Issues and Intellectual Property

In the Information Age

presented to

Association of University Technology Managers

July 15, 1995

by

Steven W. Lundberg

Schwegman, Lundberg & Woessner, P.A.

Minneapolis, MN 55402

Table of Contents

1. Introduction
2. GATT: Uruguay Round Agreements Act
   1. Background
   2. Changes in Patent Law
   3. Trademarks
   4. Copyrights
3. Major Changes for Software Patents
   1. New Guidelines Published for Comment
   2. Struggle in CAFC over Software Patents Continues
   3. New Liability Issues for Distributors of Software
4. Role of Juries in Patent Cases Curtailed by CAFC
   1. Markman v. Westview Instruments, Inc., (Fed. Cir. Apr. 5, 1995)
   2. Markman Decision Likely to be Appealed to U.S. Supreme Court
5. First Circuit Curtails Scope of Copyright Protection for Software
   1. Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807 (1st Cir. 1995)
   2. Trend is Away From Broadening Scope of Copyright Protection, but Cases Remain Mixed
6. New Antitrust Department Guidelines on Licensing
   1. Overview
   2. Important Points
7. The Internet: A Legal Perspective
   1. What is the Internet?
   2. Products and Services on the Internet
   3. Does the Internet Present New Legal Problems?
   4. If Your Client Operates a Web Site Used to Sell a Product
   5. If Your Client Operates a Bulletin Board Service or Transfers Information Between Users
   6. Security Issues on Internet
8. Proposed UCC Provisions on Intellectual Property Licensing
   1. Background
   2. General Description

I. Introduction......

II. GATT: Uruguay Round Agreements Act

1. Background
   1. Enacted on December 8, 1994
   2. Allows the U.S. to join the World Trade Organization (WTO)
   3. WTO agreement in force with respect to the U.S. on January 1, 1995
2. Changes in Patent Law
   1. Term of patents
      1. Term of patents filed on or before June 7, 1995:
         longer of 17 years from issue or 20 years from filing
      2. Term of some existing patents extended:
         if in force (unexpired) on June 8, 1995, then the term is the longer of 17 years from issue or 20 years from filing
      3. Term of patents filed after June 7, 1995:
         20 years from filing
   2. Maximum 5-year patent term extension available for delays due to:
      1. Secrecy orders
      2. Interference proceedings
      3. Successful appeal in the PTO or the CAFC
      4. Premarket regulatory review (e.g. FDA)
   3. Priority of invention can now be established by acts outside U.S. in GATT signatory/WTO countries (i.e. most countries but China)
   4. 4. Changes in infringement law: two new infringement rights
      1. Offer to sell (followed by actual sale during patent term)
      2. Importation alone
   5. Provisional applications
      1. Are not examined and do not mature into patent
      2. Filing does not start 20-year patent term running, but does start 1-year period for non-provisional applications claiming priority
3. Trademarks
   1. Nonuse of a mark for 3 years (not 2) required to presume abandonment
   2. Wines and spirits cannot be registered with false geographic indications
4. Copyrights
   1. Owners of copyrights of computer programs will continue to have exclusive statutory rights to authorize or prohibit rental of the programs
   2. Performers have right to prohibit unauthorized recording/reproduction of live performances
   3. Formerly non-copyrightable pre-1972 sound recordings from Berne Convention countries now have "restored" U.S. copyright protection

III. Major Changes for Software Patents

1. New Guidelines Published for Comment, Written Comments Due July 31, 1995
   1. Permit claims to "software on a disk"
      1. Previously, software coverage only available for systems or processes - no direct infringement for distributing code
      2. Distribution of code will now be direct infringement of these software claims
      3. This change is fraught with pitfalls not yet understood
   2. Liberalize PTO's interpretation of case law restricting patents on mathematical algorithms and abstract ideas
      1. Only bare attempts to claim abstract ideas or mathematics will be challenged
   3. With this change, patents are an even more powerful tool for software and service industries such as banking and information services
2. Struggle in CAFC over Software Patents Continues
3. New Liability Issues for Distributors of Software
   1. Distributor may be liable for direct infringement of software patent
   2. Previously, direct infringement could only occur by end use of software product

IV. Role of Juries in Patent Cases Curtailed by CAFC

1. Markman v. Westview Instruments, Inc., 1995 U.S. App. LEXIS 7593 (Fed. Cir. Apr. 5, 1995):
   1. Affirmed the lower court's finding of non-infringement on a motion for judgment as a matter of law, when the jury verdict was incompatible with proper claim construction
   2. Holds that claim interpretation is a question of law reserved solely for the court, and may be reviewed de novo on appeal
2. Markman Decision Likely to be Appealed to U.S. Supreme Court

V. First Circuit Curtails Scope of Copyright Protection for Software

1. Lotus Dev. Corp. v. Borland Int'l, Inc., 49 F.3d 807 (1st Cir. 1995):
   First Circuit reversed the lower court, finding that commands and command menus are not copyrightable as they constitute a "method of operation"
2. Trend is Away From Broadening Scope of Copyright Protection, but Cases Remain Mixed

VI. New Antitrust Department Guidelines on Licensing (1)

1. Overview
   1. "Antitrust Guidelines for the Licensing of Intellectual Property", April 6, 1995; issued by the U.S. Department of Justice (DOJ) and the Federal Trade Commission
   2. These guidelines supersede parts of the 1988 DOJ Antitrust Enforcement Guidelines for International Operations
2. Important Points
   1. Three core principles frame the policy of the 1988 and 1995 Guidelines:
      1. Licensing arrangements are generally procompetitive
      2. No presumption that intellectual property necessarily creates market power in the antitrust context
      3. Application of the same general approach to conduct involving intellectual property and conduct involving other forms of property
   2. 1995 Guidelines: key changes from the 1988 Guidelines
      1. A safe harbor is included for licensing transactions; restraint in a licensing agreement will not be challenged if:
         1. The restraint is not facially anticompetitive (i.e. it does not involve price fixing or market division), and
         2. The licensor and its licensees collectively account for less than 20% of each relevant market
      2. A new approach to the analysis of competitive effects in research and development: the "innovation market"
         • n innovation market consists of the research and development (and close substitutes) directed to particular new or improved goods or processes
         • n innovation market analysis will be used if the competitive effects of licensing arrangements cannot be adequately analyzed as conventional product markets
         • or example, in research and development joint ventures, licensing arrangements may affect the prices and availability of products that do not presently exist
      3. Recognition that non-exclusive licenses of intellectual property that do not contain any restraints on competitive conduct do not present antitrust concerns
      4. Cross-licensing: even if non-exclusive, may reduce competition and incentives to develop new technology
      5. Grant-backs are less likely to be anticompetitive if non-exclusive
   3. When does a licensing arrangement warrant antitrust scrutiny?
      1. 1988 Guidelines: "The owner of intellectual property is entitled to enjoy whatever market power the property itself may confer."
      2. 1995 Guidelines: "[A]ntitrust concerns may arise when a licensing arrangement harms competition among entities that would have been actual or likely potential competitors in a relevant market in the absence of the license."
      3. Rule of reason applies: is restraint reasonably necessary to achieve procompetitive benefits that outweigh anticompetitive effects?

VII. The Internet: A Legal Perspective

1. What is the Internet?
   1. Simply put, it is a world-wide network of computers
   2. First established in 1969 by U.S. Government as a Defense Department initiative to link important research and command sites
   3. The phone system is a relatively good metaphor for the Internet where:
      
      

      Telephone System Component		Internet Component
      Regional and international telephone companies and their switching equipment	=	Regional and international computer sites forming the Internet (e-mail messages and user request are routed through network to desired location)
      Local telephone office switching equipment	=	Local "node" (i.e. computer connection) of the Internet
      Telephone lines used for voice	=	Telephone lines used for data
      Telephone (handset)	=	Personal computer (PC)
      User's voice	=	Messages typed by user into PC
      Voice mail	=	E-mail
      Touch-Tone information retrieval	=	Typed or menu-selected computer commands used to retrieve data files from a remote computer system
      Conference call	=	"Conferences" or "rooms" allowing a group of users at diverse sites to "converse" using typed messages sort of "instant e-mail"
      Broadcast voice-mail lists	=	News groups or bulletin boards

   4. 4. World-Wide-Web (WWW)
      1. Consists of graphical user interface "Web sites" on the Internet
      2. Each Web site is organized like a book
         1. The "home page" of a Web site is like the cover of a book
         2. When a user logs on to a Web site, they see the home page first
         3. The home page includes graphical menus allowing a user to select and hyperlink to specific parts of the "book"
         4. The "book" is essentially a multimedia work that can include text, images, video, and sound
2. Products and Services on the Internet
   1. Commercially, the Internet largely amounts to a mechanism for rapidly expanding the type of "on-line" service storefronts already in service such as Prodigy , CompuServe , and America Online
   2. Types of services
      1. Information services
      2. Catalog sales (i.e. cybermalls)
3. Does the Internet Present New Legal Problems?
   1. Generally, no
   2. The legal issues confronting Internet users are largely the same issues faced by publishers, software vendors, private mail carriers, and common carriers
      1. Copyright liability issues and patent infringement:
         Are providers of on-line services liable for infringement by users? See discussion of Playboy and Sega below
      2. First Amendment and libel issues
         Are providers of on-line services liable for potentially defamatory statements made by users on-line? See discussion of CompuServe and Prodigy below
      3. Obscenity
         A California couple running a bulletin board service that allows downloading of explicit digital pictures was convicted in Tennessee of transmitting obscenity over interstate phone lines - U.S. v. Thomas (W.D. Tenn.1994)
      4. Right of publicity issues
      5. Right of privacy issue
         1. The Electronic Communications and Privacy Act (ECPA) prohibits interception or disclosure of electronic communications
         2. When a bulletin board service was wrongfully raided and the company's e-mail seized, it successfully sued the Secret Service under the ECPA - Steve Jackson Games v. United States Secret Service (W.D. Tex. 1993)
         3. Proposed bill to outlaw "cyberstalking": Electronic Anti-Stalking Act of 1995
      6. Trademark issues
         1. Suits for unauthorized use of marks may provide more powerful remedies than for copyright infringement
         2. Internet site names such as "Schwegman" should be registered with the Internet's InterNIC central registry
      7. Unfair advertising issues
      8. Contract issues
      9. Export licensing issues
4. If Your Client Operates a Web Site Used to Sell a Product:
   1. Legal issues are virtually the same as in any ordinary business using conventional sales channels
   2. There may be some issues related to controlling geographical boundaries of sales activities
5. If Your Client Operates a Bulletin Board Service or Transfers Information Between Users:
   1. Does your client's service operate like a phone company or post office - limited or no liability for calls or letters?
      1. Operator of bulletin board service may be liable for user's use of the service to illegally copy computer programs, Sega Enter. Ltd. v. Maphia, 30 U.S.P.Q.2d 1921 (N.D.Cal. 1994), and may be liable for copyright infringement even if unaware of any infringing activity, Playboy Enter., Inc. v. Frena, 839 F.Supp 1552 (M.D.Fla. 1993)
   2. Does your client's service behave like a newspaper or publisher, and undertake the liability of editorial control?
      1. In Cubby, Inc. v. CompuServe, Inc., 776 F.Supp 135 (S.D.N.Y. 1991), CompuServe was not liable as it claimed to have no editorial control over potentially defamatory material posted on an electronic bulletin board it distributed
      2. Prodigy was recently found liable for a user's defamatory statements because it had at one time claimed to be a "family-oriented" service which screened all messages posted to its bulletin boards, Stratton Oakmont, Inc. v. Prodigy Servs. Co.,1995 N.Y. Misc. LEXIS 229 (N.Y. Sup. Ct., May 26, 1995)
6. Security Issues on Internet
   1. Are e-mails confidential under law? Yes, under the ECPA
   2. Is sending trade secrets over the Internet a failure to take reasonable precautions to protect them?
   3. Discovery of e-mail contents in litigation
      1. Delete e-mail regularly

VIII. Proposed UCC Provisions on Intellectual Property Licensing (2)

1. Background
   1. Article 2 of the Uniform Commercial Code (UCC) ("Sales of Goods") is currently applied to intellectual property (IP) licensing:
      1. Through broad court interpretation of what falls under "goods"
      2. Through judicial analogy to contracts other than the sale of goods
   2. The current UCC Article 2 reflects a "1950s" economy, producing inconsistent court decisions with respect to recently developed technologies such as software.
   3. Article 2, like other parts of the UCC (articles 2A, 4A, 8) is being revised to reflect economic changes such as the diminishing distinction between "goods" and "services" in a computerized society
      1. The revisions are being carried out jointly by:
         National Conference of Commissioners on Uniform State Laws (NCCUSL), andAmerican Law Institute (ALI)
      2. The revisions are planned to be complete by the end of the 1990s
   4. 4. The revisions to UCC Article 2 will more directly address licensing contracts, including licenses of patents, trade secrets, and other intangible property
2. General Description
   1. The currently proposed framework for the revised Article 2 has a "hub"and "spoke" structure:
      1. The "hub" represents basic contract law principles common to sales and licensing
      2. The "spokes" are specialized contract law provisions applicable to a particular type of contract
   2. The revised Article 2 "spoke(s)" relating to licensing contracts will incorporate law from the following sources:
      • urrent UCC Article 2 - sale of tangible goods
      • UCC Article 2A - leases of personal property, primarily goods
      • ommon law of contracts, including the Restatement 2d of Contracts
      • ommon law of torts relating to contracts
      • State and federal intellectual property law
   3. Basic commercial contract law principles to be followed in the revision: Preservation of "freedom of contract" - flexibility, default "gap- filling" provisions only if parties do not agree otherwise Codification as a way to unify and facilitate commercial practices
   4. 4. Specific provisions for licenses in the current draft of revised Article 2:
      1. Contract formation
         May abolish statute of frauds for Article 2 Electronic transactions valid even if not seen by either party Mass market licenses/standard forms: adoption of all terms by manifest consent, even if not read
      2. Contract construction (default provisions)
         • rant of license - nonexclusive, single-copy, single-machine
         • Single user may use anywhere for any purpose
         • No right to improvements/enhancements
         • No right to underlying data
         • onfidentiality not presumed (unless circumstances indicate)
         • Nonexclusive license generally not transferable
      3. Performance Standards
         • nstallment licenses
         • ontinuous access licenses
         • Support agreements
         • Maintenance and repair of tangibles
         • orrection and update of intangibles
      4. Warranties:
         • uthority to transfer / non-infringement
         • Quality of product - substantial conformance to documentation
         • nformation and services - no warranty of accuracy
         • tness for purpose
         • lectronic security - reasonable care to exclude
         • Modification of software voids performance warranties
      5. Licensor Remedies:
         • Recover for damage to intangible property
         • Recover damages including consequentials
         • Right to repossess or prevent use
         • Right to discontinue (if material breach)
         • Self-help (if material breach)

See Richard J. Gilbert, The 1995 Antitrust Guidelines for the Licensing of Intellectual Property: New Signposts for the Intersection of Intellectual Property and the Antitrust Laws. ABA Section of Antitrust Law Spring Meeting, Washington, D.C., April 6, 1995. Back to text

See Raymond T. Nimmer, UCC Revisions: Article 2 in the Information Age. From "Proposed UCC Provisions and Software Licensing", sponsored by the Minnesota Intellectual Property Law Association, April 13, 1995. Back to text