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TheControversiesOverAudioRecordingDevices303

TheAudioHomeRecordingAct304

TheControversyoverPortableDigitalMusicPlayers304

OnlineServiceProviderLiability305

ContributoryandVicariousLiability306

DMCAProtectsOSPsfromCopyrightInfringement309 ResponsibilityforCopyrightInfringementsonPeer-to-PeerFile-SharingNetworks313

TheNapsterDispute313

TheRecordingandMotionPictureIndustriesContendwithPost-Napster ServicesintheCourts318

TheEntertainmentIndustriesUseaMulti-ProngAttacktoCombatFileSharing325

TheDMCAandCopyrightProtectionTechnologies329

DMCA’sAnti-CircumventionandAnti-TraffickingProvisions329

OtherRecentDMCAControversies336

ProposedStatutoryAmendmentstotheDMCA338

InternetLinkingIssues339

StandardLinking339

Deep-Linking340

InlineLinkingandFraming340

Conclusion344

CHAPTER10

ProtectingTrademarksandProductDesignsinInternationalMarkets

Introduction345

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FundamentalPrinciplesofTrademarkProtection346

TrademarksandCompetitiveEthics346

TrademarksandMarketEfficiency349 GenericMarks350

DescriptiveMarks352

TheSpectrumofTrademarkProtection353

TrademarkProtectionofTradeDressandProductDesigns356

DistinctivenessofTradeDressandProductDesigns357 Functionality361

TrademarkProtectionforComputersandRelatedDevices365

FederalRegistration:StandardsandProcedures366 LikelihoodofConfusion366

UseRequirements367

ReasonstoConductaTrademarkSearch368

BasicRegistrationProcedures368 Intent-to-UseApplications369 LossofRegistrationRights369

TrademarkInfringementandRemedies370 LikelihoodofConfusion370 Dilution374

RemediesforInfringement376

InternationalAspectsofTrademarkProtection378

InternationalTrademarkRegistration378 TheGrayMarket383

Conclusion386

CHAPTER11

DomainNamesandOtherTrademarkIssuesontheInternet ..................387

Introduction387

TheInitialProblemswiththeInternetDomainNameSystem387 NSI’sRevisedDomainNameRegistrationPolicy391 InternationalDomainNameComplexities392

PreliminarySuggestionstoResolveDomainNameProblems393 AnticybersquattingConsumerProtectionAct394

ICANNAddressesDomainNameRegistrationIssues397

NewTop-LevelDomainNames397

TheUniformDisputeResolutionPolicy399 “Suck” SitesandCriticalCommentary404

UsingTrademarksinMetatags407

SearchEnginesandSponsoredAdvertising410

TrademarkIssueswithAdware413

ResponsibilityofInterentAuctionSitesforTrademarkInfringement414

OtherRecentTrademarkIssues416

DomainNameTastingandSpeculating416

TrademarkProblemsWithTwitterProfiles417

Conclusion418

CHAPTER12

TortLiabilityforPhysicalandEconomicHarms

Introduction419

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Negligence419

NegligenceandtheRestatementofTorts420

CausationIssuesinNegligence421

ProximateCause:ResponsibilityforNegligence422

DefensestoLiabilityforNegligence423 WhatisNegligentConduct?424

StrictProductsLiability426

PolicyReasonsforStrictProductsLiability426

FormsofProductDefects427

TheRevisedRestatementofTortsonProductsLiability431 ConsumerProductSafetyCommissionRegulations435

IntentionalTortsInvolvingComputerSystems437

TrespassbyElectronicRobots437 Spam440

ComputerViruses,TrojanHorses,andWorms446 Fraud447

Conclusion448

CHAPTER13

IntrusionsonPrivacyandOtherPersonalRights .............................449

Introduction449

APreliminaryLookatPrivacy449

SourcesofLawsRegulatingPrivacy450

ThePrivacyBalance451

PrivacyConcernsinModernTechnologyContexts452

MonitoringCommunicationsandPersonalActivitiesintheWorkplace457

MonitoringforEfficiency457

MonitoringInternetActivity458

MonitoringE-MailCommunications459

RecommendationsRegardingElectronicMonitoringActivities465

CollectionofPersonalInformationfromtheInternet466

SpywareandIdentityTheft471

LegislativeandRegulatoryActionsintheUnitedStates474

TheChildren’sOnlinePrivacyProtectionAct476 IndustryInitiativestothePrivacyofInformationontheInternet477

EuropeanUnionDirectiveonInformationPrivacyProtection478

RecommendationsforCoolEdge479

ContentControlandtheRegulationofIndecentSpeech480 TheCommunicationsDecencyActof1996481

ChildOnlineProtectionActof1998484

Defamation484

OtherViolationsofPersonalRights490 IntrusionsonPublicityRights490 Cyberbullying491

Conclusion492

CHAPTER14

ImportantContractIssuesforTechnologyCompanies

Introduction493

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Warranties,Limitations,andRemedies493 ExpressWarranties495 ImpliedWarranties497 RemediesforBreachofWarrantiesandLimitationsofRemedies500

Shrink-WrapandClick-WrapLicenses505

GeneralPrinciplesRegardingStandardizedForms505 Shrink-WrapLicenses:StandardizedFormsintheConsumerContext505 Click-WrapLicenses508

TheUniformComputerInformationTransactionsAct513 ElectronicCommerceIssues514 Mass-MarketLicenses516 Warranties517 ChoiceofLawandForum517

StrategicAlliancesandtheImportanceofAlternateDisputeResolution518 StrategicAlliances518 AlternativeDisputeResolution520 Conclusion525

CHAPTER15

AntitrustandAnticompetitiveConduct

Introduction527

OverviewofAntitrust527

PhilosophicalJustificationsforAntitrust528 FederalAntitrustPolicyMakers529 AntitrustEnforcementandRemedies530

ApplicationoftheAntitrustLaws532

TheRuleofReason532

PerSe Illegality534

Monopolizing535

ServiceforHigh-TechnologyProducts:AnImportantExampleofAntitrustAnalysis538

SomeFinalCommentsontheApplicationoftheAntitrustLaws541

TheAntitrustDebateaboutMicrosoft543

TheIssueofMarketPower543

ThePotentialThreatfromInternetBrowsers544

PreliminaryJusticeDepartmentAntitrustProceedings545

The1998AntitrustComplaintandTrial546

PrivateSuitsagainstMicrosoft554

EuropeanUnionActionsagainstMicrosoft554

InternationalDimensionsofAntitrust555

AntitrustintheEuropeanUnion556

IntellectualProperty:AntitrustandtheDoctrineofMisuse558

IntellectualPropertyAntitrustGuidelines559

MisuseofIntellectualProperty561

Conclusion563

CHAPTER16

Biotechnology:PatentIssuesandOtherControversies

Introduction565

BasicsofGeneticEngineering565

TheHumanGenomeProject567

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BiotechnologyPatentIssues569

PatentsonBioengineeredPlantsandAnimals572

PatentsonHumanBeings574

PatentsonGenes575

InternationalPatentIssues576

BiologicalSafetyandDiversity578

Food:LabelingandOtherRegulatoryMatters580

BioengineeredPlants581

GeneTherapies585

Cloning:AdvancesandControversies585

AnimalCloning585

HumanReproductiveCloning588

EmbryonicStemCellsandTherapeuticCloning588

GeneticTesting,Discrimination,andBehavioralIssues591

Conclusion593

TableofCases

Preface

Thedawnofthe21stcenturyisnowuponus.Thesciencefictionwriterswhopredicted thatthenewmillenniumwouldbemarkedbyenormousadvancesintechnologicalinnovationsclearlywerecorrect.Atthisjuncture,notopicgeneratesmoreexcitementand interestthantechnology.Investmentdollarsarepouringintotechnologycompaniesthat arebreakingnewgroundatbreathtakingrateswithcomputers,biotechnology,electronic commerce,andtheInternet.Also,themedianowblanketsaudienceswithtechnology stories,reflectingbothitsimportanceandthepublic’sfascinationwiththeissues.For managers,therapid-pacedworldoftechnologyoffersbothunlimitedopportunitiesto grabanddifficultchallengestomeet.Itisnowonderthatbusinessexecutiveshaveinsatiableappetitesforeducationalprogramsaddressingtheverylatestdevelopmentsintechnologymanagement.

Thisbookisdesignedformanagerswhoworkwithinnovationsinanytechnological field.Thetextfocusessubstantialattentiononthewiderangeofcontroversialissues regardingintellectualpropertyrightsbutcoversallotherkeytechnologylawtopicsas well,suchasprivacy,biotechnology,e-commerce,andantitrust.Thebookexamineslegal policiesfrommanagerialandsocialperspectives,anditaddressesstrategicdecisionmakingwithintheinternationalcontext.Italsouseshypotheticalandreal-worldthreadcases tohelpreadersthinkcriticallyaboutlegalchoicesasnewtopicsareintroduced. Theresultisatextthatprovidesaseamlesscombinationofcriticalelements:Itfocuses onintegraltechnologylawtopics,analyzesthemostcurrentandinterestingissues, engagesreadersincontroversialandimportantsocialissues,anddemonstratesthepublic policyprocess.

HallmarkFeatures

The5theditionof LegalAspectsofManagingTechnology guidesreadersthroughthecomplexandcontroversiallegalissuesregardingtechnologyintoday’sfast-paced,rapidly changingtechnologyenvironment.

TopicalCoverageAllowsUltimateFlexibility

Inadditiontoofferingin-depthcoverageofpatentsandthewiderangeofissuesregardingintellectualpropertyrights,thistextalsoexaminesallotherkeytechnologylawtopics, suchase-commerce,privacy,antitrust,andbiotechnology.Thisvariedcoverageallows instructorstotailorcontenttosuittheneedsofavarietyofcoursesintendedforstudents pursuingcareersinbusiness,management,computerscience,engineering,architecture, biology,orlaw.

PrintFormatOffersConvenient,CompleteCoverage

Theantitrustandbiotechnologychapters,previouslyavailableonline,havenowbeenincludedintheprintedtextbook.Thesetopicshavetakenonrenewedimportanceinthese changingpoliticalandeconomictimes,asdemonstratedbythefederalgovernment’ s moreaggressiveantitruststanceanditspledgetosupportresearchinemergingbiotechnologicalfields.

ClearFocusProvidesSuperiorReadability

Thisbookisspecificallydesignedforstudentsandbusinesspeoplewhoneedtounderstandthefundamentallegalissuespertinenttotechnologymanagementsothattheycan competentlycreatestrategicplansinconsultationwithattorneys.Thisbookisnotintendedtoenableitsreaderstobecomelegalexperts.Thiseditionhasbeencarefullyedited tofurtherenhancethepresentationofthematerialandnowprovidesamoreconciseexplanationofintegraltechnologyissueswithoutsacrificingtopicalcoverageorcase quantity.

IntegratedApproachBuildsStrongFoundation

RatherthantreatingtheInternetassomethingdistinctandseparate,thephilosophy behindthistextisthatallaspectsoftechnologylawstemfromacommoncoreofprinciples.Thetextguidesstudentsthroughthelegalprinciplesfirstbyoutliningtherationale; thenbyapplyingthemintangible,familiarcontexts;andfinallybymovingtohowthose sameconceptsareappliedincyberspace.Thisapproachbuildsastrongfoundationthat allowsstudentstopredicthowthelawsmightadapttochangingtechnologies.

UpdatedContentIllustratesCurrentCoverageofEvolvingLaws

Thiseditionhasbeenfullyupdatedtoincorporatechangesinthelawandincludesthe mostcurrentissuesinthetechnologylawenvironment.

PatentReformAct

Thechaptersonpatentprotectionofferconsiderableattentionto thelikelypassageofthePatentReformAct,whichisundergoingcongressionalconsiderationasthisbookgoestoprint.DiscussionsofthehistoricchangesproposedbythePatentReformActarecomplimentedbyimportantdetailsofcurrentpatentlaws.

InterestingandControversialTopicsEngageStudents

Thelivelyandaccessiblewritingstyleofthistextisfurtherenhancedawealthofinteresting,real-lifeexamplesthatstudentscanrelateto includingtopicsthatinvolvecompaniessuchas Apple, Facebook, Google,and Amazon.com.Thebookemphasizesthe mostrecentcontroversialtopics,suchasdeceptive Twitter accounts,biometricscanning, digitalremix,andthepostingof YouTube videos,topeakstudentcuriosityandspark livelylectures.

PublicPolicyProcessHighlightsEthicaland InternationalC onsiderations

Thisbookimmersesitsreadersinthepublicpolicyprocess.Rapidchangesintechnologiesraisecomplexdebateswithintherealmsofethics,religion,sociology,philosophy,and economics.Fromthemyriadofviewpoints,thepublicpolicyprocess,basedontheworkingsofgovernments,legalsystems,andpolitics,mustdevisesolutions.Thisbookprovides anexcellentmeanstodiscussnotonlythe “should,” butalsothe “how” andthe “why” of thepublicpolicyprocess.ItisalsoavehicletocontrastdifferencesbetweentheUnited Statesandothercountries,suchasthemembersoftheEuropeanUnionandJapan.

• ResponsibilityfortheUnlawfulConductofOthers.Oneconsequenceofmanynew technologiesisthattheyhavedecentralizedtheopportunitiesforindividualstoinfringerights.DVRs,forinstance,makeiteasyforindividualstocopymoviesorTV shows.TheInternetenablesindividualstoengageinmanytroublingactions,suchas copyrightviolationsanddefamation.Underthesecircumstances,enforcementisan

enormousproblemforthosewhosufferlosses.Thus,theyoftenattempttolocatemajorbusinessesthattheycanmorallyandlegallyblamefortheirgrief.Thebook examinesnumerousexamples,includingaccusationsagainstpeer-to-peerfilesharing servicesandInternetserviceprovidersfortheunlawfulconductoftheirusers.

• BusinessRightsversusPersonalRights.Firmsareentitledtotakestepstoprotect theirassetsandpropertyrights.Whathappens,though,whenthosestepsintrudeon personalrightsenjoyedbyemployeesorotherindividuals?Drugtestingisaclassic historicalexample.Morerecentexamplesincludee-mailandInternetmonitoring, genetictesting,andthecollectionofpersonalinformation.Businessandpersonal rightsclashinothercontexts,aswell,suchaswhenhigh-technologycompanieswith tradesecretstakestepstopreventemployeesfromworkingwithcompetitors.

• PersonalResponsibilityforHarmfulConduct.Thebookexaminesnegligenceand strictproductsliability,whichbothraisequestionsaboutwhenconsumerscanblame manufacturersforinjuries.Thelatterismorecontroversialsinceitinvolvesblame withoutfault.

• ProtectionofChildren.TheInternetallowsmerchantsandinformationprovidersto opendirectchannelsofcommunicationswithchildren.Familyvaluesareattheheart ofcontroversiesregardingsuchmattersasthedisplayofindecentmaterials,theuseof manipulativesellingdevices,andunwarrantedintrusionsonprivacy.

• BiotechnologyIssues.Protectionofbiotechnologicalinventionsthroughpatentsraises fundamentalandcontroversialnotionsregardingtheownershipoflife.Studentsare forcedtoinquirewhetherthereshouldbeanylimitsontheabilitiesofhumanbeings toplayGod.Isitethicaltocreateanincentivesystemthatrewardsthecreationof animalshavingdeformities?Shouldhumansbeentitledtoownhumangenes?This isanexcellentopportunitytoprobethereactionsofthepublicpolicyprocesswhen humanfearsareraisedandreligiousconvictionsarechallenged.

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• InternationalPerspective.ThroughtheInternet,foreignfirmscantransactbusiness inalocalcommunityjustasiftheywerelocatedthere.Shouldlocallawsapplyto theirconductevenwhentheiroperationstakeplaceoverseas?Thebookraisesthis issueinseveralcontexts,suchaswithdomainnames,Internetauctions,andcopyright infringement.Italsoaddressesinternationalsovereigntyinotherrealms,suchaswith antitrustandbiotechnology.

• EconomicDevelopmentandIntellectualPropertyRights.Sometimes,theeconomic needsandculturaltraditionsofless-developedcountriesleadtoverydifferentviews abouttheappropriateroleofintellectualpropertyprotection.Thebookexamines howthesedifferencesmayfrustratetheeconomicgoalsofdevelopednationsandconsidersthesuitabilityofpotentialresponses.Theadvantagesofmultilateralagreements, suchastheWorldTradeOrganization,arehighlightedinthesediscussions.

RunningExamplesProvideContext

Managersmustbeabletoviewasituationfromvariouslegalcontextsinordertomake thebestdecisions.In LegalAspectsofManagingTechnology,tworunninghypothetical andreal-worldcompanyexamplesprovideaframeworkforapplyingthelawtovarious aspectsandstagesofproductcreation,development,distribution,andsale.

CoolEdge Thisfeaturedemonstrateshowthelawwouldapplytoahypotheticalcompany, CoolEdge,whichdevelopsaninnovativeself-adjustingstairclimbercalledthe Optimizer.Therunningexampleprovidesanintegrativewayforstudentstoexplore managerialissuesthroughoutthetextbyexaminingkeydecisionsthat CoolEdge must makeaboutthe Optimizer fromitsinitialdesigntomarketingandsalesacrosstheglobe.

DeCSS Thetextalsohighlightsaseriesofveryrealcontroversiescreatedbythedistributionofacomputerprogram,calledDeCSS,thatdefeatedcopyrightprotectiontechnologiesusedonDVDs.ThisexamplealoneillustratesissuesregardingInternetjurisdiction, tradesecretmisappropriation,thelegalityofclip-wraplicenses,theapplicationofthe DigitalMillenniumCopyrightAct,andtheFirstAmendment.

CaseAnalysisDemonstratesInterpretationand ApplicationoftheLaw

Ablendofkeyhistoricallandmarkcasesandrecentimportantjudicialdecisionsare includedinthe5thedition.Allcaseshavebeencarefullyedited(preservingthecourt’ s originallanguage)sothatreaderscanfocusonthemajorfactsandissueswithout beingdistractedbylegalnuances.Tofurtherassistthereader,casesareprecededby explanationsofwhattoexpectandfollowedbysummariesofmajorprinciplescovered inthecase.

DetailedFootnotesProvideOpportunitiesforOnlineResearch

Thetextprovidesnumerouswebsiteaddressesineachchapter,indicatingthebestsitesto findadditionalsourcesoflegalandtechnicalinformation.

SignificantRevisions

Someofthehighlightsoftherevisedcontentsofthiseditioninclude:

• Chapters1and2 CoverthemostrecentU.S.governmenteffortstoincreaseintellectualpropertyenforcementworldwide.Chapter2addsarecentInternetmarketing casethatdemonstratestheprinciplesfordeterminingwherelawsuitscanbebrought.

• Chapters3and4 HavebeensubstantiallyredesignedtobetterintegratetheimpendingchangesthatwilloccurwithpassageofthePatentReformAct.Chapter3includes KSRInt’lv.Teleflex,theSupremeCourt’srecentdecisiononthepatentobviousness standard.

• Chapter5 ReorganizesthediscussionofpatentsforcomputerprogramsandInternetbusinessmethodpatentsinlightof InreBilski,whichisincludedinthe text.

• Chapter6 Exploresrecenttradesecretdisputes,suchasthosebetweenthemakersof Barbie and Bratz andthecreatorsof Facebook.Italsoevaluatesnewwaysthatthat Internetwebsites,suchas Wikileaks,maypotentiallythreatentradesecrets.

• Chapter7 Updatesthediscussionofwebcasting;evaluatesthecopyrightissues raisedby Google’sdigitalbookscanningproject;andaddressesothertopicalissues, suchasdisputesinvolving HarryPotter and Coldplay’shitsong,VivaLaVida.

• Chapter8 Thesectionondigitalremixhasbeenreorganizedtobetteraddressnew technologicaldevelopmentsanddiscussesnumerousrecentexamplesinvolvingmovies,music,politics,andYouTubevideos.

• Chapter9 Addsrecentexamplesthatapplycopyrightlawsinnewcontexts,suchas theDMCAwith YouTube and iTunes.Italsoimprovesthediscussionofinlinelinkinginlightofthe Perfect10 case,whichhasbeenaddedtothetext.

• Chapter10 Addsdiscussionsofthemostrecentexcitingtrademarkcontroversies, suchasthoseinvolvingthe iPhone and BlackBerry smartphones.

• Chapter11 Updatesnewdomainnameregistrationpoliciesanddiscussesthemost recentdomainnamecontroversies,suchasdomainnametastingandinfringing

Twitter profiles.ItalsoevaluatestrademarkissuesfacedbyInternetauctionsitesand addsacaseinvolving Tiffany and eBay.

• Chapter12 Includesrecentcontroversiesthatwillintereststudents,suchasspamon FaceBook and MySpace andmodernversionsoffraud,includingscarewareandclickfraud.

• Chapter13 Reorganizestreatmentofinformationcollectionpracticestohighlight newcontroversiesoveruseofbehavioralinformationforInternetadvertising.Includesdiscussionsofrecentissuesthatdirectlyaffectstudents,suchassexting;cyberbullying; GoogleStreetView; anddefamationover MySpace, YouTube, and Twitter.

• Chapters14and15 Chapter15addsafascinatingnewcaseonclick-wraplicensing involvingthevirtualworld, SecondLife.Chapter15fullyupdatesdiscussionofthe antitrustactionsagainst Microsoft andincludesdiscussionsofothercompaniesnow raisingsignificantantitrustconcerns,suchas Google and Intel

• Chapter16 Substantiallyreorganizesthematerialtomoreclearlyfocusattentionon thebiotechnologycontroversiesthatmostintereststudents.Thischapteralsoincludes discussionofnewFoodandDrugAdministrationpoliciesonraisinggenetically engineeredanimalsandsellingfoodfromclonedlivestock.Thischapterupdatesthe discussionofstemcellresearchinlightofnewpoliticaldynamics.

InstructorResources

BusinessLawDigitalVideoLibrary

www.cengage.com/blaw/dvl

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TheBusinessLawDigitalVideoLibraryhasfivevideosthataddressintellectualproperty lawtopics(likepatents,tradesecrets,domainnames,andpermissionsincyberspace)in additiontoothertopics.Accesstothesevideosis free foryourstudentswhenbundled withanewtextbook.Pleasebesuretoletyoursalesrepresentativeknowifyouwould liketemporaryaccesstodemothisproduct,whichoffersatotalofover65clipswithinstructorresources(likediscussionquestions).

CourtCaseUpdates

www.cengage.com/blaw/cases

South-Western’sCourtCaseUpdatesprovidemonthlysummariesofthemostimportant legalcaseshappeningaroundtheUnitedstates.Accesstothesecasesisfreefortextbook adopters.

BusinessLawCaseDatabase

www.textchoice.com

Wonderingwhathappenedtoyourfavoritecase?TheBusinessLawCaseDatabaseisa robustcaselibrarythathousesover700cases.Youcannowhand-pickthecasesyou want,makingiteasytocreatecustomizablecasebooks.StartbysearchingtheBusiness LawCustomCaseDatabasebystateortopicforacompletelistofofferings.

WestlawAccess

www.westlaw.com

Westlaw,WestGroup’svastonlinesourceofvalue-addedlegalandbusinessinformation, containsover15,000databasesofinformationspanningavarietyofjurisdictions,practice areas,anddisciplines.Qualifiedinstructorsmayreceive10complimentaryhoursofWestlawfortheircourse.Certainrestrictionsapply;contactyourSouth-Westernsalesrepresentativefordetails.

Acknowledgments

IwouldliketothanktheentireteamatCengageformakingthisprojectareality:Vicky Trueforherconfidenceintheproject;JaredSterzer,whomanagedtheproductionteam; andJenniferGaramy,whorecognizedthebroadmarketingpotentialofthework.IespeciallywanttothankKristaKellman,whoservedastheDevelopmentEditorofthisedition.Kristadevotedanenormousamountoftimeandenergytoimproveeveryfacetof thisprojectwithskill,humor,andtheutmostprofessionalism. Iamalsoindebtedtothereviewers,whosesubstantialinsightshelpedtransformthe newedition:

DanielR.Cahoy

ThePennsylvaniaStateUniversity

WadeM.Chumney

GeorgiaInstituteofTechnology

BarbaraD’Angelo

ArizonaStateUniversity

JonathanJ.Darrow

PlymouthStateUniversity

GaryGaines

TheGeorgiaInstituteofTechnology

JohnL.Gilbert

SouthernIllinoisUniversityEdwardsville

SaraAnneHook

KonnieKustron

EasternMichiganUniversity

JackBaldwinLeClair

MontclairStateUniversity

WilliamJ.Luddy,Jr.

SpecialLegalCounsel,World CustomsOrganization

NealOrkin

DrexelUniversity

ChristineR.Russell EastCarolinaUniversity

MichaelShapiro UniversityoftheDistrictofColumbia

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IndianaUniversity

JosephJ.Joyce

FerrisStateUniversity

JamesF.Kelley

SantaClaraUniversity

RobertE.Thomas UniversityofFlorida

MelanieStallingsWilliams

CaliforniaStateUniversity,Northridge

IamgratefultoProfessorPaulGoldstein,whofirstintroducedmetotheworldofhightechnologylawatStanfordLawSchoolandinspiredmethroughhiskindmentorshipto pursueacareerinthefield.IextendthankstomyfriendsatCalPolywhogenerously gavemethetimeandresourcestoengageinthisendeavor.And,mostofall,Ithank myparents;mywife,Susan;andmytwobeautifulyoungdaughters,BrittanyandKasey, fortheirconstantlove,support,andunderstanding.

AnOverviewoftheTechnology PolicyEnvironmentinthe UnitedStates

Introduction

Youareabouttoembarkonanimportantjourney.Thisbookwillguideyouthroughthe mazeoflegalpoliciesthataffectthestrategicdecisionsofthosemanagingnewtechnologies.Whatyouwillfindmaysurpriseyou.Thepaceofinventionsisadvancingatan ever-increasingrate,constantlychallengingthelegitimacyoflegalframeworksthatgovernhownewtechnologiesshouldbedeveloped,controlled,andused.

Thisbookwillimmerseyouinsomeofthemostexcitingandcontentiousdebates currentlyfacingmanagersandsociety.TheInternet,forinstance,raisesenormousconcernscoveringawiderangeofdimensions.Entertainmentindustriesarebattlingnew breedsofpeer-to-peerservicesthatallegedlyencouragewidespreadpiracyoftheircreativeworks.Inresponse,multimediafirmsnotonlyhavebroughtanumberofhighprofilelawsuitsbutalsohavesuccessfullylobbiedCongresstopassnewlawsthatsome sayprovidethebusinessestoomuchcontroloveremergingtechnologies.Wewillsee thatthedecentralizednatureoftheInternetallowsindividualstocausewidespread harmfromtheprivacyoftheirhomes.Thisfacthasledtodifficultquestionsabout whetherweb-basedbusinesses,suchasInternetserviceproviders,shouldbeheldlegally responsibleforthewrongfulactionsofcustomerswhentheyengageininappropriate conduct.Theseproblemsareonlymagnifiedintheinternationalcontextwhenactivities thatarelegalinonecountryareunlawfulinanother.Thehighlycontroversialcase broughtinFranceagainst Yahoo! forenablingauctionsofNaziartifactsclearlydemonstratesthetensionscreatedbytheinternationalcontext.

ThelistofInternet-relatedconcernsseeminglygoesonandon.Howdoesthegovernmentdealwithpornographyandobscenityontheweb?Whoisentitledtouseparticular domainnames?Whatkindsofe-mailmonitoringandInternetsurveillanceareallowed? HowmuchpersonalinformationmayadvertiserscollectaboutInternetusage,andhow cantheyusethatinformation?Areusersboundby “agreements” whentheyclicktheiracceptancewithoutfirstreadingthetermsofthedeal?CanfirmsreceivepatentsonInternet businessmethods,suchasone-clickshopping,andtherebypreventcompetitorsfromusing similartechniques?Thisbookwillgiveyoutheopportunitytothinkaboutthenatureof thesedebatesandtogainsomeperspectiveonhowsocietygoesaboutaddressingthem.

AlthoughtheInternetcertainlyraisesnumerousfascinatingissues,itisonlythetipof thetechnologylawiceberg.Biotechnology,forinstance,maysoonsurpasstheInternet,

notonlyintermsofeconomicimportance,butalsowithrespecttothenumberof complicatedmoralandlegalcontroversiesitraises.Consider,forinstance,thatabiotechnologypatentmay,inasense,giveindividualscertainrightstoownandcontrollife. Likewise,newexperimentaltherapiesthatareshowingtremendousmedicalpotential maydependonthecloningandperhapsthedestructionofhumanembryos.Biotechnologyhasalsobecomeincreasinglyimportantinagricultureandfoodproduction,butnot withoutcreatingenormousfearsaboutenvironmentaldamageandhealtheffects.

Thecomputerindustry,too,hasbeenasourceofsubstantiallegaldebateswithinthe technologyarena.Forinstance,computerprogramsarewrittenworks,inasense,butthey alsoservecriticalfunctionsinmachines.Thecombinationhasstrainedtraditionallegal doctrinesthatweredesignedtotreatthesesubjectsdifferently.Also,manyobserversbelieve thatthesuccessofcomputercenters,suchas SiliconValley,dependsonemployeemobility andtheinterchangeofideas,yetthishasnotpreventedahostofallegationsthatsecrets oftenareunlawfullystolen.And,ofcourse,alleyeshaveintentlyfocusedongovernment antitrustactionsagainst Microsoft formaintainingitsdominanceinoperatingsystemsand usingitspowerallegedlytocontrolnewcomputer-relatedtechnologiesandservices.

ThisfirstchapterprovidesaquickoverviewofthelegallandscapefortechnologypolicyintheUnitedStates.Thechapterbeginswithasnapshotoftheintellectualproperty system,whichhasbecomethenervecenterforlegalprotectionintechnology-basedindustries.Theintent,here,istoconsiderbrieflywhatformsintellectualpropertymaytake andwhylegalprotectionmaybenecessary.Thisshorttreatmentshouldprovideabasic foundationforunderstandingmoredetailedconsiderationsinseveralsubsequentchapters.Followingthisdiscussion,thechapterexploreshowlegalpoliciesaredevelopedin theUnitedStatestoensurethatyouunderstandwhotheimportantgovernmentplayers areandwhattheycando.Inaddition,theFirstAmendmentisreviewed,becauserecent governmentaleffortstoprotectinformationtechnologiesintheUnitedStateshaveincreasinglybumpedintosocietalvaluesthatsanctifythefreeflowofideas.Finally,the chapterpresentstwocaseexamples onehypotheticalandonereal thatwillbeused invariousportionsofthebooktodemonstratehowseeminglydistinctlegalissuesmay simultaneouslyberelevanttothestrategicdecisionsthatmustbemaderegardingthe developmentandmarketingoftechnologicalinnovations.

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TheIntellectualPropertySystem

Manythingscanmakeafirmprofitable.Theinnateabilitiesofthemanagersandemployees, coupledwithhardwork,arealmostalwayscriticaltothesuccessofanorganization.Thebusinessmayalsohaveuniquesituationaladvantages,suchasitsproximitytobuyersordistributors.Inaddition,thefirmmayhaveaccesstorelativelycheapsourcesofrawmaterialsand power.Allofthese labor,land,andnaturalresources aretangibleingredientsforsuccess. Profitabilitydependsonmuchmorethansuchtangibleaspects,however.Novelproductiontechniquesmayreducecoststhroughincreasingtheefficiencyofthephysical plants.Newmanagerialmethodsmayleadtobetterqualitycontrolandmoreindustrious employees.Developmentofuniqueproductfeaturesandcharacteristicsmayresultin greatercustomersatisfactionandsales.Astylishbrandimagemaycreateconsumerinterest.Unliketangibleassets,however,thesequalitiesaremoreelusiveinthattheirvalue isderivedfromthenovelimplementationofideas.Forthisreason,suchresourcesare called intangible or intellectualassets

Inacompetitiveeconomy,suchasthatoftheUnitedStates,themerepossessionof assets,whethertangibleorintangible,maynotbesufficienttogenerateprofits.Implicitin theforegoingwastheassumptionthatthefirm’sassetswereasgoodas,orbetterthan,those heldbycompetitors.Thus,forexample,apieceoflandmaynotbeprofitableunlessthat

parceliscomparativelywellsituatedforitsuses.Thelandmayberelativelyclosetothe firm’scustomers,forinstance,therebyyieldinglowertransportationcoststhanthoseenjoyedbycompetitors.Orperhapsthelandisunusuallyfertile,providinggreateryields thanmostotherparcels.Whateverthereason,suchcomparativeadvantagesareakey determinantoflong-termprofitability.

Theimportanceofcomparativeadvantage,however,leadstoproblemsinafreemarketeconomy.First,ifonepossessesalucrativeasset,thencompetitorswillattemptto takeitfortheirownuses.Justconsiderwhatmighthappenifyouwerethefirsttodiscoveragorgeouslakewithin50milesofLosAngeles.Aslongasyouaretheonlyone whoknowsaboutit,yourlifewillbeimprovedthroughenhancedrecreationalfreedoms. Butwhenotherslearnofyouradvantageouslifestyle,theytoowillwanttoshareyour asset.Soontherewillbeafree-for-all,withnumerousindividualsusingactsofaggression tolayclaimtotheirparticularportionsofthelake.Inorderforyoutomaintainyour advantage,youwillneedtocontroltheasset,backedupbytheauthorityofthegovernment.Thisisoneofthereasonswhypropertyrightsarecreatedandprotectedbylaw. Legalprotectionofproperty,evenwithitsprivateexclusivity,resultsinsocialbenefits. Recallyournewlydiscoveredpristinelake.Certainimprovements,suchastastefullyconceivedlakefronthouses,roads,andboatingfacilities,maybesociallydesirable.Butwould youbewillingtoinvesttimeandmoneyintheseconstructionprojectsifvisitorscould freelytakethemwhentheywerecompleted?Withthisprospectinmind,youwouldlikely abandontheconceptandrefrainfromanylabororinvestmentsintheregion.Onlywith propertyrightsenforcedbylawwouldyoubewillingtoundertakesuchefforts.Thissocial justificationforpropertyconformstothephilosophicalteachingsofJohnLocke.Putsimply,thepremiseisthatpeoplemustbemotivatedtoperformlabor,andthebestwayto encourageandrewarditisthrough propertyprotection

Propertyprotectionisnolessvitalforintellectualassetsthanfortangibleones.Forexample,assumethatyoubelieveyoucancreateahandheldradiocapableofclearFMreception fromadistanceofupto500miles.Yourtheoryisbasedonadjustingsuchfactorsastransistornumbers,theirplacement,circuitry,andmaterials.Afterthreeyearsofexpensive researchanddevelopment(R&D),yourtheoryisconfirmed,andanaffordableworking prototypeiscompleted.Youthenembarkonproduction,distribution,andmarketing.

Afterthenewradioispubliclydistributed,variouseventsmaytakeplaceinthecompetitivemarket.Personsinterestedintheradiobusinesswilltaketheradioaparttodeterminehowitsextendedrangewasachieved.Thisexercisewilllikelybemucheasierthan theeffortyouexpendedduringtheinitialR&D.Oncethisknowledgeischeaplyinthe handsofcompetitors,theymaychoosetoproducesimilarradios.However,thesefirms willbemoreprofitablethanyourssincetheyhavefewerstart-upcoststocover.Also, oncefirmsareinpossessionofyournovelradioideas,theymaycomeupwithassociated conceptsthatyieldagreaterrange,ortheymaymakeotherbeneficialimprovements. Competitorsmaynowhaveanevenbetterradiothanyours andwithoutincurringyour initialR&Doutlay.Finally,firmsthathaveexpertiseinmassproductionmayfindways tomanufactureyourradiomorecheaplythanyoudo,againwithouttheinitialrisksand expensesofdevelopment.

Thesecompetitiveeffectsareadvantageoustotheconsumerandsociety,atleaston firstglance.Afterall,theresultmaybeabetterproductproducedpossiblywithfewer resourcesandsoldatalowerprice.ThisiswhyfreecompetitionischerishedintheU.S. economyandwhyitservesasthefundamentaltenetofmostsocialpolicies.However, underthesecircumstances,youmightbereluctanttoriskputtingthetimeandcapital intothedevelopmentofthisradiointhefirstplace.Whygothroughtheexpensewhen everyoneelsecanjusttakeafreerideonyoureffortswhenyouaredone?Inthisenvironment,youmightlogicallyconcludethatyouwouldbebetteroffifyousimplywaitedfor

someotherfoolishindividualtodeveloptheradio,therebyallowingyoutolearnfrom thatpersonwithminimalcosts.Intheend,rationalmarketparticipants,suchasyourself, willlikelyeitherforgousefulandcreativeinvestmentsbasedonideasortakegreatpains tohidethemfromthepublic.Therefore,iffirmsareallowedtocompetefreelywithout regardtopropertyrights,thenetresultmaybethatcreativityisstifledtothedetriment ofsocialwelfare.

Thecomponentsofthe intellectualpropertysystem aredesignedtomaintaintheincentivesforinventorstocreateandpubliclydisclosenewproductsinafreemarketenvironment.Exhibit1.1demonstratesthedelicatebalancethattheselawsintendtoachieve. Ononesidearethevirtuesoffreelycompetitivemarkets lowercosts,lowerprices,and productimprovements.Becauseintellectualpropertylawsrestraincertaincompetitiveresponses,theycausesomepotentiallossestosocialwelfare.However,thelawsalsoprovide socialbenefitsbyprovidingincentivesforinventorstocreatenewideasandsharethem withthepublic.Forintellectualpropertylaws,therefore,thekeyistostriketheappropriate balancebycuttingofffreecompetitionnomorethanisnecessarytoachievethedesired socialbenefits.Wewillseelaterinthisbookthatexpertsoftenopposethestrengthening ofintellectualpropertylawsbecausetheybelievethattheallegedbenefitsdonotoutweigh theharmstocompetition.Inthisregard,perhapsthemostnotableexamplescomefrom thedebatesoverthe DigitalMillenniumCopyrightAct andtheextensionofpatentsto Internetbusinessmethods.

EXHIBIT1.1 TheDelicateBalanceofFreeCompetitionandIntellectual PropertyProtection

Benefits from Free Competition

• Lower costs

• Lower prices

• Product improvements

Patents

Benefits from Intellectual Property Protection

• Incentives for creation

• Public disclosure

Patents intheUnitedStatesprovidepropertyrightstocreatorsofinnovationsthatare useful,novel,andnonobvious.Theyalsobestowsimilarbenefitsonoriginatorsofnovel andnonobviousornamentaldesigns.Patents,though,lastforonlylimitedperiodsoftime. Forinventionsthatareuseful,thepatenttermbeginswhenthepatentapplicationisfiled andlastsfor20years.Patentsforornamentaldesignslastfor14years,butthisperiod beginsonlywhenthepatentbecomeseffective.1 Inventorshavetherighttocontroltheir newdevelopmentsanddesignswhilethepatentsareinforce,andtheyhavethelegalauthoritytopreventanyonefrommakingorsellingintheUnitedStatesanyproductsthat incorporatethem.Assumingtheimprovementsaregoodones,theperiodsofexclusive

1Thepatenttermfordesignpatentsmaysoonbeincreasedto15yearsunderarecentlegislativeproposalthat islikelytobepassed.

controlpotentiallymaybeveryprofitable.Thedurationofthepatentisintendedtostrike theappropriatesocialbalancebyprovidinginventorssufficientincentivestoundertake therisksofdevelopmentwhilereturningtheinventionsasearlyaspossibletothepublic domain,wherefreecompetitioncanbegin.Also,duringthelivesofpatents,thedetails oftheinventionsarefullydisclosedtothepublicforscrutiny,therebyincreasingthe likelihoodthatcompetitiveimprovementswillhitthemarketeitherimmediatelyonthe expirationofprotectionorsooneriftheinventorsapprove.

Copyrights

Copyrights satisfypublicgoalssimilartothoseforpatents,buttheydosoforcreative expressionsratherthanusefulinventions.Imaginethatyouhaveawriter’sgiftandan intriguingstorytotell.Unfortunately,thenovelprobablywilltaketwoyearstodevelop. Althoughyoulookforsomeassurancethatyouwillbeadequatelycompensated,faithin yourselfisallthatyougather.Nonetheless,youdecidetotaketheriskandcreatethe piece.Whenthebookisfinallycompleted,youknowyouhaveawinner.Youtherefore contactapublisherwithanestablisheddistributionnetwork,and,basedonsalesprojections,youjointlydecidetopricethebookat$29.95.Thisfigureisintendedtocompensateyouadequatelyforyouryearsofeffortandtorewardyoufortherisksofundertaking aprojectthatcouldhavetotallyfailed.Itshouldalsobesufficienttocompensatethe publisherfortheexpensesandrisksitincursinmarketinganddistributingthebook.

Oneweekafteryournovelhitstheshelves,however,anotherauthorintroducesa bookexactlylikeyours,butsellingfor$7.95.Howdidthishappen?Thisauthorsimply boughtonecopyofyournovel,scannedthepagesintoacomputerprintingsystem,and createdhisorherowncopiestosell.Theprice,albeitmuchlowerthanyours,issufficienttocomfortablycoverthecostsofoperation.Inaddition,thisbusinessenterprisehas relativelyfewrisks,giventhatthenovelwasalreadycompletedandsoobviouslydesirable.Intheend,youdonotmakenearlyenoughmoneytojustifythetimeandriskyou dedicatedtotheproject,butthesubsequentauthormakesatidyprofit.Underthesecircumstances,itisdoubtfulthatyouwillevercreateanothernovel.Totheworld’sdismay, yourartisticgeniusneveragainwillbepubliclyenjoyed.

The U.S.copyrightsystem isdesignedtopreventothersfromcopyingcreativeexpressionsthatarefixedintangiblemedia,sothatartistswillhavesufficientincentivestoshare theirtalents.Itemssuchasbooks,sculptures,movies,andpaintingsclearlymaybeprotectedwithcopyrights.Debatebegins,however,whenconsideringartisticcreationsthat arealsouseful,suchascomputerprogramsorhandsomelysculptedindustrialproducts. Suchissuesbecomeimportantbecausetheperiodofcopyrightprotectionismuchlonger thanwithapatent,sometimeslastingwellover100years.Also,copyrightprotectionis mucheasiertoobtain.Fromaneconomicperspective,thesedifferencesnormallyareeasy toexplain.Apatentprovidesprotectiontoaproductideaordesign,effectivelyallottinga limitedformofmonopolypowertotheowner.Acopyright,ontheotherhand,merelyprotectsoneexpressionofanideaanddoesnotextendtotheideaitself.Therefore,intheory, thecopyrightshouldbelessintrusiveoncompetitivemarkets.Wewilldiscover,though, thatproductssuchascomputerprogramssometimesblurthedistinctionsbetweenideas andexpressions,leadingtopotentialmisapplicationsofcopyrightprotection.

Asnoted,copyrightprotectionintheUnitedStatesisprimarilydesignedtoprovide sufficienteconomicincentivestorewardcreativeinvestments.ThisagainfollowsthephilosophyofJohnLocke,whobelievedthatindividualsarenotwillingtoundertakelabor unlesstherearereasonableprospectsforcompensation.Copyrights,byprovidingpropertyrightsoverexpressions,offertherequisiteopportunitiesforeconomicrewards. Copyrights,therefore,aremerelytoolsfortheirownerstoachieveeconomicendsand maybeexploitedinthemarketastheirownerswish.Thismeansthattheownerscan

completelysellorotherwisetransferalloftheircopyrightprivilegestoothers,ifthatbest suitstheireconomicobjectives.

Copyrights,though,mayalsobejustifiedinsomewhatdifferentphilosophicalterms.2 AccordingtophilosopherssuchasGeorgHegel,artistsself-actualizebyextendingtheir personastoexternalphysicalobjects.Apainting,forinstance,maybebeautiful,butitalso reflectstheverybeingoftheartist.Itbecomes,inasense,amirrortotheartist’ssoul. Accordingly,thereisanintimatebondbetweentheartisticworkandthepainter’sunique personality.Underthisconception,copyrightsprovideproperty-likeprotectiontocreative expressionstopreventothersfrominterferingwiththeself-actualizingprocess.Artistsmay alwaysselltheirpaintings,therebyallowingpurchaserstosatisfytheirownpersonalneeds throughownershipofthecreativepieces.However,thepainterscannotgiveupallclaimsto theworks,sincetodosowouldbetototallyalienatetheirownpersonalities.Thus,anartist alwayswillhavesomepersonalormoralrightstoacreationevenafterdisposingofitto others.Asweshallsee,thisviewhasbeenadoptedbymanycountries,notablyinEurope, andrecentlyithasalsobeenfollowedtoalimiteddegreeintheUnitedStates.

TradeSecrets

Anotherimportantcomponentoftheintellectualpropertysystemistradesecretprotection. Tradesecretlaws protectvaluableinformationthatisnotpubliclyknownandthat issubjecttomeasurestopreserveitssecrecy.Again,therationaleforprotectionisto stimulatethedevelopmentofnewinventions,techniques,andothercreations,aswell astopreservehighmoralstandardsofcorporateconduct.

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Forexample,supposeyoustartasmoothiecompany.Youaresurethatacombinationof prunes,apples,andapricotswillmakeafabulousnewdrink,butyoudonothavetheskillsto createit.Thus,youhireaproductdevelopmentstaffofexpertstocreateaformulabasedon thesefruits.Finally,thestafffindstheproperproportionsinconjunctionwithotheringredientsneededforcoloring,additionalflavor,andpreservation.Ifoneoftheseexpertscould freelytaketheformulaandeitherstartarivalcompanyorsellittoacompetitor,thepotential profitabilityofyourR&Deffortsmightquicklydiminish.Indeed,withoutsomemeanstopreventsuchoccurrences,onewouldbereluctanttoshareideasorinformationwithothers,even employees,inordertocommerciallyimproveanddevelopthoseideas.Tradesecretlawsallow onetocontrolsuchsecretinformationbypreventingthoseentrustedwiththeinformation,or thosewhootherwisestealit,fromusingordisclosingit.

Trademarks

Thefinalmajorarmoftheintellectualpropertyschemeis trademarkprotection 3 Trademarksservesomewhatdifferentpublicgoalsfromthoseservedbypatents,copyrights, andtradesecrets.Theroleoftrademarksisnottoprovidecreativeincentives;rather,trademarksfunctiontoincreasedistributionalefficiencybymakingproductseasyforconsumerstolocatewithoutconfusion.

Forasimplebutillustrativedemonstrationoftheimportanceoftrademarks,imagine thatyouareinamanagerialpositionatahypotheticaldetergentcompany.Yourcompanyinvestssignificantcapitalintheproductionofitsdetergenttoensurethatitsproductisamongthebestlaundryagentsonthemarket.Inaddition,greatpainsaretaken toguaranteethatthequalityoftheproductisconsistentlymaintainedsothatthe

2Foranexcellentdiscussionofthecontrastinghistoricalandphilosophicaljustificationsforcopyright,see P.Goldstein, Copyright’sHighway (NewYork:HillandWang,1994).

3Thereareother,morespecificcomponentsoftheintellectualpropertysystem.Forexample,federallawprotectssemiconductorchips,ormaskworks,underaseparate(suigeneris)system.

purchasingpublicwillbecontinuallysatisfied.Youpackagethedetergentinawhitebox, whichbearsthename “Denton’ s ” onit.

Soonafterintroductionoftheproduct,youbecomeawareofamenacingcompetitive response.Anothercompanyfreelycopiedthecharacteristicsofyourpackagingand begansellingitsdetergentinawhiteboxwiththename “Denton’ s ” onit.Insideisa cheapandineffectivesubstancecloselyakintosawdust.Theeffectonyourcustomers wasbothswiftanddetrimental.Manybuyerswhopreviouslyenjoyedyourproductand whowanteditagainpurchasedthecompetitor’sproductbymistake.Ofcourse,when theyusedtheproductthistime,theirclotheswerenotadequatelycleaned.Thecustomers becameconfused.Whatisgoingonhere?Maybethiscompany,whichmakes “Denton’ s, ” doesn’tperformenoughqualitycontrol?Clearly,thenegativerepercussionsonthegoodwillofyourcompanymaybesubstantial.

Theabilityofthecompetitortocompetefreelybycopyingyourpackaginghasresultedinanumberofsociallyundesirableconsequences.First,yourincentivetomaintain consistentqualityisdiminished,sincemanycustomers,afterbeingfooled,willattribute theirannoyancetospottyproductiontechniques.Also,whyshouldyoucontinuetomake apremierproductatgreatexpensewhencompetitorscansoeasilypassoffsawdustfor thesameretailprice?Indeed,thecompetitor’sbusinessisthemorelucrative,somaybeit istimetomoveintosawdustsalesyourself.

Providinglegalexclusivitythroughpropertyprotectionofidentificationsymbolsand productcharacteristicscansolvetheseproblems.Ifyourcompanyhadexclusiverightsto usethename “Denton’ s ” onthepackaging,thenthecompetitor’sattemptstofoolcustomerswouldbefoiled,forwheneverthatnameappearedonabox,buyerscouldbesure thatitcamefromyou.Yourinvestmentsinqualityandconsistencynowwouldpayoff becauseyourcustomerswouldbeconstantlysatisfiedwiththeirpurchases.Also,these benefitscouldbeenjoyedinmostsituationswithoutanycountervailingsocialharms. Thosecompetitorswhotrytolegitimatelycompetewillnotbedisadvantagedsimplybecausetheycannotusethename “Denton’ s. ” Certainlythereisnothingspecialaboutthat wordthatmightgiveyourcompanyanunfairadvantageinthemarketplace.Competitors canchoosefromhundredsofotherwordstoequallyidentifytheirproducts.Infact,the onlypersonswhowillbeharmedarethosewhowishtocompeteunfairlybymisleading yourcustomers.

Atonetime,technologymanagersmaynothaveneededtogivespecialattentionto trademarkissues.However,thisisnolongerthecase.Forinstance,trademarksareraising majorheadachesontheweb,suchaswhentheyareusedindomainnamesortotrigger pop-upadvertisements.Also,thelawwithregardtotrademarkshasbroadenedrapidlyin recentyears,allowingmanynewproductcharacteristicstobeprotected.Further,internationalissuessuchasthegraymarketandcounterfeitingareincreasinglyimportanttothose personsinvolvedwithmanagingtechnology.

Insum,theintellectualpropertysystemconfersvaryingdegreesofprotectiononintangibleassets.Themostimportantrationaleistostimulatecreativitywithoutunduly displacingthebenefitsthatnormallyflowfromfreecompetition.Patents,copyrights, andtradesecretsallaregroundedsubstantiallyonthisprinciple.Patentsandcopyrights alsoencouragepublicdisclosureofideasandexpressionssothatthepubliccanlearnand enjoy.Theintellectualpropertysystemalsomayfosterthedevelopmentofself-identity throughtheprotectionofmoralandpersonalattributes.Copyrightprotectionservesas onevehicleforthisoverseas,whileintheUnitedStatessuchconcernsarejuststartingto arise.Finally,intellectualproperty,notablybywayoftrademarks,promotesdistributionalefficiencyandthemaintenanceofhigh-qualitystandards.Exhibit1.2(p.8)outlinestherespectiverolesplayedbythesefundamentalformsofintellectualproperty protectionintheUnitedStates.

EXHIBIT1.2 ImportantFormsofIntellectualPropertyProtectionintheUnitedStates

FORMOF PROTECTION WHATIT PROTECTS STANDARDS FOR PROTECTION WHATIT PROTECTS AGAINST LENGTHOF PROTECTION REGISTRATION REQUIREMENTS?

Patent

Utility

InventionsUseful,novel, nonobvious

Independent creation,copying, use,sale

DesignDesignsOrnamental, novel, nonobvious Independent creation,copying, use,sale

TradeSecret

InformationSecret,subject toreasonable securitymeasures

Copyright Expressions inatangible media

TrademarkIdentification symbolsand features

20yearsafter filingthepatent application

14yearsafter thepatent issues

MisappropriationPotentially unlimited

OriginalCopying,display, distribution, performance, transmission*

DistinctiveSimilaruse causingalikelihood ofconfusionor dilution

* Protectionagainsttransmissionissomewhatlimited.

** Forcertainworks,thelengthofcopyrightprotectionis95to120years.

Yes

Yes

No

Lifeofauthor plus70years** No,but recommended simpleprocedure

Potentially unlimited No,but recommended

ThePublicPolicyProcessintheUnitedStates

ThePowerStruggle:FederalversusState

PublicpoliciesintheUnitedStatesemanatefromaninterrelatedstructureconsistingof federalandstatedomains.Whenseparatespheresofinfluenceattempttoexpandtheir respectiverealmsofcontrol,tensionusuallyresults.Thepublicpolicyprocessthatestablishesthegroundrulesformanagingtechnologyprovidesaclassicexample.

ThefoundingoftheUnitedStateswasadifficultfeatthatrequiredtheunionofseparateanddistinctstategovernments,whichtheretoforehadcontrolledthepoliciesenacted withintheirrespectiveborders.Asyoucanimagine,stateparticipantswereextremelywary ofrelinquishingpowerandcontroltoafederalgovernment.Afterall,astateisonlyoneof manyvoiceswithinanationalentity,whereasinitsownstatepolicystructure,itisthesole determinant.TheU.S.Constitutionprovidedthegreatcompromisethatbroughtthestates togetherbydefiningandlimitingtheauthoritythatthefederalgovernmentcouldexert overthevariousstategovernments.

ArticleI,Section8,oftheU.S.Constitutionspecificallyliststhoseactivitiesinwhichthe federalgovernmentmayengageifitspolicymakerssochoose.Thelistisactuallyfairly short,includingsuchthingsasthepowertotax,spend,regulateforeignaffairs,andprovide militaryforces.Ofmostimportanceforthisbook,alsoincludedarethefollowingrights:

• topromotetheprogressofscienceandusefulartsbysecuringforlimitedtimesto authorsandinventorsexclusiverightstotheirwritingsanddiscoveries

• toregulatecommerceamongtheseveralstates

Clearlythefederalgovernmenthastheauthoritytoregulatepatentsandcopyrights,asit hasdone.However,byvirtueofitspoweroverinterstatecommerce,thefederalgovernmentalsomaymakepoliciesregardingtrademarksandtradesecrets,aslongasabusiness isinvolvedinsomeinterstateactivity.Inaddition,thefederalgovernmenthastheauthoritytoregulateotheraspectsofinterstatecommercialactivity,suchascontractualrelationshipsandliabilitiesforproductdefects,butforthese,ithasremainedsomewhat uninvolved.4

Afewadditionalpointsareworthnotinghere.First,ArticleIoftheU.S.Constitution, withfewexceptions,delineatestheentirepermissiblesphereoffederalinfluence.Ifan activityisnotonthelist,orisnotatleastsomehowrelatedtoaccomplishingapoweron thatlist,thenitissubjecttostatecontrolonly.Second,stategovernmentsgenerallyhave simultaneousauthoritytoregulatemattersthatarealsosubjecttofederalcontrol.Thisis whyweseestategovernmentsmakinglawsaffectingtrademarksandtradesecrets,aswell ascontractsandproductliabilities.However,thisstatepowerisqualifiedbythe Supremacy Clause,whichprovidesthatfederalpoliciesarethesupremelawsoftheland.Thus,ifthe federalgovernmentpassesalaw,thenthestatescannotdoanythingthatunderminesthe intentofthefederalpolicy.

Supremacyissuessometimesaresimpletoresolve,buttheyalsomaybecomplicatedand contentious.Theeasysituationsoccurwhenthefederallawexplicitlyarticulatesthatthe federalpolicyistobeexclusiveandthatthestatesareforbiddenfromexercisinganyauthority.Insuchasituation,thereisnoquestionthatanystatelawregulatingthesameactivity wouldunderminetheveryclearintentofthefederallaw.Federalcopyrightlaw,forinstance, providesthatnopersonmayreceiveequivalentprotectionsunderstatelaw.Thus,thestates arerestrictedfrompassinglawsthatprotectexpressionswrittenontangiblemedia.

Themoredifficultsituationsresultwhenthefederallawdoesnotexplicitlypreempt stateregulation.Inthatcase,theintentoffederallawmakersmustbeindirectlydiscerned.Usually,supremacywillbeestablishedwhenastatelawstandsasanobstacleto theaccomplishmentofthepurposesandobjectivesoffederallawmakers.Whenastate lawservestostrengthenorotherwisefurtherthefederalpolicy,thetwomaycoexist.The mutualexistenceoffederalandstatetrademarkpoliciesservesasanexample.However, whenastatelawdetractsfromfederalpolicy,thenthatstatelaw,includingitsrequirements,prohibitions,andpenalties,mustfall.

Inoneimportantexample,theSupremeCourtdeterminedthataFloridastatuterestrictingthewaysinwhichboathullscouldbeduplicatedundulyinterferedwiththefederalpatentlaws.5 AccordingtotheCourt,thepatentlawsprovideadelicatebalanceof creativeincentivesbyestablishingwheninventionscanbeprotectedandwhentheymay befreelycopied.TheFloridalawinterferedwiththisbalancebypreventingcompetitors fromusingcertainpreferredmethodstoduplicateunpatenteddesigns.TheCourttherefore ruledthatthestatuteviolatedtheSupremacyClauseandsostruckdownthestatelaw.

Thiscasetypifiesthestrugglebetweenthefederalandstatedomainsovercontrolofintellectualproperty.MembersoftheFloridalegislatureresolvedtoprotecttheR&Defforts ofFloridaboatmanufacturersfromthosecompetitorswhowantedtouseanefficient methodtocopythem.WhytheFloridalegislaturewasmotivatedtopasssuchalawis opentodebate,anexercisethatwillnotbeentertainedhere.However,youcaneasilyimagineascenariowhereinall50statespassamultitudeofsuchlawsinavarietyofcontexts.If allowed,theresultingpatchworkofintellectualpropertylawswouldseverelyrestraincommercialactivityonanybutalocalscale.Similarly,theeffectivenessoffederalpatentpolicy,

4Thefederalgovernmentoftenregulatescontractsandtortswithinthecontextofotherspecificregulatory areassuchasdrugs,motorvehiclesafety,securities,andcigarettes.Also,Congresshasforsometimedebated adoptingamoregeneralproductsliabilitylaw.

5

whichisdesignedtoprovideuniformityinthiscontext,wouldbeextremelyhampered. ThatiswhytheSupremeCourtrepeatedlyhasstruckdownattemptsbystategovernments toexercisecontrolovervariousformsofintellectualproperty.6 However,theCourthasalso madeitclearthatstatetradesecretlawsdonotinterferewithfederalpatentpoliciesand, indeed,servetostrengthenanewfederaltradesecretlaw.Likewise,aspreviouslymentioned,statetrademarklawsusuallyareconsistentwithfederalpolicies.

Thenetresultcanbesummarizedasfollows.Thefederalpatentlawsserveasthenationalumbrellapolicytoprovidetheproperlevelofincentivesforinventiveactivityinusefulproducts.Althoughmoststatelawsthatinsulateusefulinventionsfromcompetitionare nottolerated,statetradesecretprotectionsurvives.Federalcopyrightlawsexplicitlydirect thatallsimilarstateprotectionschemesarevoid.Thus,therearenostatelawsthatprotect creativeworksofauthorshipexpressedintangiblemedia.Federaltrademarklaws,aswe shallsee,weredevelopedforthemostparttorectifycertainproceduraldeficienciesinexistingstatetrademarkpoliciesandwereintendedtoworkhandinhandwiththevariousstate laws.Therefore,onefindspoliciestocombatcustomerconfusionsimultaneouslyatboth thefederalandstatelevels.Finally,thestatesareheavilyinvolvedwithregulatingother fields,suchastortsandcontracts,becausethefederalgovernmenthaschosentoremain largelyonthesidelinesinthesematters.Exhibit1.3illustrateshowtheseprincipleshave beenappliedtoallocatepowerbetweenthefederalandstatesystemsofregulation.

6TheSupremacyClause,however,doesnotpreventthefederalgovernmentfrompassinglawsthatprotect boathulldesigns,evenwhenthoselawsotherwisemightseemtoconflictwithexistingpatentpolicies.In 1998,thefederalgovernmentpassedtheVesselHullDesignProtectionAct,whichdoesprovidesomefederal protectiontoboathulldesigns.

HowIntellectualPropertyPoliciesAreMadeintheUnitedStates

Intellectualpropertypoliciesaremadeinsimilarfashionsatboththefederalandstate levels.Wewillreviewthebasicconceptsheretoprovideaframeworkforunderstanding themorespecificelementspresentedinthechaptersthatfollow.Thediscussionfocuses onthefederalpolicyprocess,buttheprinciplescanbeappliedreadilytothevarious statemethods.

TheFederalProcess

Thedynamicnatureofthepolicyprocesscanbestbeunderstoodbyfirsttakingaquicklookatpatents.WhenCongresspassesastatute,itusually willspeakinbroadterms.TherepresentationalnatureofCongressoftenmakesagreementonspecificsimpossible.Also,detailsmaybestbelefttoexpertsactingwithinthe generaldirectivesfromCongress. ThePatentAct,forexample,providesthatoneisentitledtoapatentuponinventinganovelandnonobviousprocess,machine,manufacture, orcompositionofmatter.Whichgovernmentalbodyshoulddecidewhetherthesecriteriahavebeenmetinparticularcases?In2008inventorsmademorethan485,000patent requestsintheUnitedStates.Clearly,neitherCongressnorthepresidenthasthetimeto focusonsuchminutiae.Therefore,asithasdoneformoststatutesrequiringadministration,Congressformedanadministrativeagencytomakethesedeterminations.For patents,aswellastrademarks,Congresscreatedandfundedthe PatentandTrademark Office(PTO) toreviewsuchapplications.ThePTOiswithintheDepartmentofCommerceandisheadedbyacommissioner,whoservesatthepleasureofthepresident.

Let’sassumethatthePTOreceivesarequesttopatentageneticallyengineeredliving bacteriumthatisusefulfordispersingoilfloatingonwater.Ifyouweretheexpertatthe PTOinchargeofexaminingthisfile,wouldyougrantthepatent?DidCongressintend forlivingthingstobepatentable?Thisiscertainlyafarcryfromthemoretypicalsituationsinvolvingmachinesorchemicals.Obviously,yourjobwouldbeeasierifCongress hadspecifiedinthestatutethefactthatbioengineeredmicroorganismsmaybepatented, butunfortunatelynothingsoexplicitwasdrafted.Ultimately,youinterpretthevague termsofthePatentActsoastoprohibitpatentsonlivingthings,andthereforeyourejecttheapplication.Suchanactionbyagencypersonneltherebyestablishesthepolicy thatlivingthingsarenotpatentable.

Theinventorherewilllikelyfeelwrongedandbecomebitter,wonderinghowasingle bureaucratcanmakesuchanimproperdecision,whichmayruinanotherwisebright future.Fortunatelyfortheinventor,Congresssubjectsalladministrativeagencies,includingthePTO,toproceduralsafeguards,whichallowsotherstoreviewtheinitialdecision. InthePTO,theinventormayappealtoanappellatebody,whichhasthepowerto correcttheexaminer’sinterpretation.Iftheagencyappealboardagreeswiththeexaminer ’sinterpretation,thentheinventormayappealthatrulingtothefederalcourtsystem. AsChapter16onbiotechnologymakesclear,thissituationactuallyoccurred,andthe federalcourtsultimatelyinterpretedthestatutedifferently,therebyconcludingthatliving thingswerepatentable.Thisthenbecamethenewpolicy,andtheinventorultimately wasgrantedapatentunderit.

ItisworthnotingthatifCongresswereopposedtothedeterminationbythecourts thatlivingthingsarepatentable,itcould(subjecttopresidentialaction)amendthestatutetoexplicitlystatethatlivingthingsmaynotbepatented.Aftersuchaclarification, thedoorwouldbeclosedonthoseinthePTOorthecourtswhofeltthepolicyshould beotherwise.Thus,inthesematters,Congresshastheultimatesay.However,Congress movesveryslowly,andsuchclarificationamendmentsoftencomerelativelylate,especially intechnologicalfieldswhererapidchangeiscommon.Wewillseethisdynamicoccur ofteninthisbook,suchaswhenwestudythecourseofpatentprotectionforInternet businessmethods.

Federaltrademarkandcopyrightpoliciesarisethroughsimilardynamics.Trademark policyiscontrolledbythe LanhamAct,whichempowersthePTOtomakeregistration decisionsandengageinotheradministrativeduties.Copyrightlawisgroundedonthe CopyrightAct andisadministeredbythe CopyrightOffice,abranchoftheLibraryof Congress.Aswithpatents,thecourtsmaybeinvolvedinmakingpolicybyreviewing administrativedecisionsorbydecidingcaseswhenprivatepartiesallegedlyviolatethe laws.Likewise,Congressandthepresidentalwayshavethepowertoamendthelaws,if necessary,toclarifytheirpolicywishes.

Wewillencounterahostofotherlawsthataffecttechnologycompanies,andmanyof thesealsorelyonadministrativeagenciestoenforcethem.Forinstance,Congressempoweredthe FoodandDrugAdministration(FDA) tomakereasonableregulationsthatprotectthepublicfromunsafefoodproducts.Thus,wewillseethattheFDAhasarolein makingpoliciesthataffectcertainmembersofthebioengineeringindustry.Likewise,biotechnologyfirmsthatdevelopnewcropsmustpayattentiontothe EnvironmentalProtectionAgency(EPA),whichischargedwithensuringasafeenvironment.Anotheragency withwidespreadimportancefortechnologycompaniesisthe FederalTradeCommission (FTC),whichhasthepowertopreventunfairmethodsofcompetitionandunfairtrade practices.Thus,thisagencymaytakestepstopreventcertainadvertisingormarketingpractices,suchasspamorunderhandeddatacollectiontechniques.Inaddition,theFTC,along withthe AntitrustDivisionoftheJusticeDepartment,hastheauthoritytopolicethemarketsforantitrustviolations.Oneotheragencyworthnotinghereisthe ConsumerProduct SafetyCommission,whichhastheauthoritytoregulateandrecallhazardousproducts.

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Exhibit1.4providesanoutlineofthefederalgovernmentpolicy-makinginstitutions andindicateshoweachmayaffectthedevelopmentofintellectualpropertyandother technologypoliciesintheUnitedStates.

EXHIBIT1.4 PowersofU.S.GovernmentPolicyMakers COURTS

Appoints court justices*

Resolves disputes and interprets vague language

Passes statutes

Signs statutes Influences policy actions

TECHNOLOGY STATUTES AND REGULATIONS

Appoints agency heads* Passes regulations

Administers and enforces

CONGRESS

ADMINISTRATIVE AGENCIES

Defines agency authority

*The president’s appointments must be approved by the Senate.

Tosummarizebriefly,Congressmakespolicies,inconjunctionwiththepresident,by passingstatutes.Administrativeagenciesadministerthedetailsofthosepolicies.Incarryingouttheirresponsibilities,theagenciesmayhavetointerpretvaguetermsandconditionsinthestatutes,therebyestablishingnewpolicies.Likewise,courtsmakepolicies

byinterpretingstatuteswhendecidingcases.Thismayhappeninappealsfromadministrativeactions,asdescribed,ormayariseinothercontexts,suchasdisputesbetween privateparties.IfCongressbelievesthatthecourtsaremakinginappropriateinterpretations,itcanalwaysamendthoselawstomorespecificallyarticulateitsdesires.Likewise, ifCongressdeterminesthatexistinglawsdonotdealadequatelywithmodernrealities, itcanpassnewstatutestoaddressanyrecentconcerns.The DigitalMillenniumCopyrightAct,discussedlaterinthisbook,isonestunningexampleofhowCongressmaybe motivatedtodothis.

StatePolicies Policiesmadeatthestatelevelarecontrolledbyanalogousprinciples. Legislaturesmakelawsthataresubjecttointerpretationsbycourtsandadministered,if necessary,byadministrativeagencies.Statepolicies,however,raiseanewissue.Youcan imaginehowpotentiallyburdensomeitmightbeforanationalorinternationalcompany todealwithstatelawsifthoselawsvariedgreatlyfromstatetostate.Forinstance,ifyou havevaluableinformationthatisprotectedbytradesecretlawsinsomestatesbutnot all,youradvantagecouldbelostifyoudonotexercisespecialcarewithincertain borders.

Fortunately,inavarietyofcontexts,thestateshavetakenstepstounifytheirindividualpolicies.Forexample,tradesecretpolicyhasbeenbroughtintosubstantialconformity inmanystatesthroughadoptionofthe UniformTradeSecretsAct,adocumentthatwas developedbyexpertstoserveasamodelforlegislativeaction.Also,inthecontracts arena,allstatesexceptLouisianahaveadoptedArticle2ofthe UniformCommercial Code(UCC),therebyunifyingpoliciesdealingwiththesaleofgoods.However,Article2 oftheUCChasstartedtoshowitsageinthefaceoftechnologicalchanges,suchaswith computersandtheInternet.Forthisreason,legalprofessionalsinitiatedeffortsinthemid1990stodraftnewmodellawstoaddresstheuniquecontractualissuesthatariseinthese moderncontexts.Oneresultwasthedevelopmentofthe UniformComputerInformationTransactionsAct,butwewillseeinChapter14thatstatelegislatures,sofar,have beenveryreluctanttoadoptit.Thus,companiesinvolvedwithcomputertechnologies andinformationservicesmayhavetowaitsomewhatlongerbeforetheirdreamofgreater uniformityinstatelawsregardingcontractualmattersisachieved.

Thestatesalsoprimarilycontrolpoliciesregardingpersonalinjuriesthroughtortlaw, whichincludesnegligenceandstrictproductsliability,amongotherthings.Inthisarea, statelawsvarymorewidely,althoughthe AmericanLawInstitute(ALI) haspublished theso-called RestatementofTorts,whichservesasanauthoritativeguidetoprevailing legalprinciples.AlthoughtheRestatementisnotalaw,itpromotesuniformitybecause statecourtjudgestendtorelyonittoguidetheirdecisionsintortcases.In1998,the ALIpublisheditsthirdrevisionoftheRestatement,includingahotlydebatedprovision onstrictproductsliability.WewilltakealookathowtherevisedRestatementhandles thiscontroversialbodyoflawinChapter12.

TheExpandingScopeofIntellectualPropertyProtection

Inrecenttimes,wehaveexperiencedasubstantialtrendtowardincreasingintellectual propertyprotectionwithintheUnitedStates.Thesechangeshavenotcomewithoutcontroversy.Althoughpublicpoliciesaresupposedtofurtherthegreatergood,theyundoubtedlyareshapedbypoliticaldimensions.Thus,inthefaceofthreateningtechnological changes,powerfulprivateinterestshaverepeatedlyappealedtoCongressandthepresidenttomaintaintheircontroloverthemarkets.Criticsbelievethatattimesthesecompanieshavebeentoosuccessfulintheirquestfordominance,leadingtopoliciesthatsimply benefittheirnarrowinterestsattheexpenseofthepublicatlarge.

Asweenterthesedebates,rememberthebalanceillustratedinExhibit1.1.Whenlaws preventcompaniesfromfreelycompetingwithnewproductsorservices,theresultant harmsmustbecomparedtothepublicbenefits,whichoftenareframedintermsofincentivesforcreation.Don’tbetooquicktobelieveanindustrywhenitarguesthatcreativitywillbestifledwithoutfurtherprotection.Ontheotherhand,youshouldalsonot summarilyassumethatallnewlawsaredesignedtounfairlyperpetuatethepositionsof dominantfirmsfacingcompetitiveinnovationsfromnewbusinessenterprises.Asyou readthisbook,youmaybesurprisedbyhowmanyissuesraiseemotionaldebates.That isoneofthereasonswhytechnologylawissointerestingandexciting.Atthisjuncture, thebestpieceofadviceisthatyoushouldlistencarefullytothoseholdingcontrasting positions,andthenmakeyourownindependentjudgmentbasedonyourunderstanding ofthefactsandthelaw.

Duringthepasttwodecades,wehaveseenanexplosionofnewlawsandamendmentsaddressingintellectualpropertyrights.Althoughafewoftheselawsdonotfavor theinterestsofintellectualpropertyowners,thegreatmajorityofthemhaveenhanced thescopeoflegalprotection.Themostimportantdevelopmentswillbediscussedin somedetaillaterinthisbook.However,togiveyouatasteforthetrend,hereisjusta smallsampleofthechangesmadebyCongressonthedomesticfront:

• CongresspassedtheDigitalMillenniumCopyrightAct,which,amongotherthings, strengthensdigitalcopyrightmanagementsystemsandtechnologicalsafeguards.

• CongressgavetrademarkownersenhancedremediesagainstindividualsandcompaniesthatregisterInternetdomainnamesinbadfaith.

• OwnersofcopyrightsinsoundrecordingsreceivednewrightsintheCopyrightAct, givingthemaddedcontrolsoverdigitaltransmissionsoftheirworks.

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• Congresslengthenedthetermofcopyrightprotection.

• Criminalpenaltiesfortrademarkcounterfeitingwereincreased.

• Congressaddednewfederalcriminallawsdealingwithtradesecretmisappropriation.

• CriminalpenaltiesundertheCopyrightActwereexpandedandnowcoversituations thatarenotnecessarilymotivatedbypersonalfinancialgain.

• Congresscreatedanewintellectualpropertypolicycounciltocoordinategovernment enforcementactivities.

Also,forthelastfewyears,Congresshasbeenputtingthefinishingtouchesonthe mostimportantsetofchangestotheU.S.patentsysteminmorethan50years.Infact, somuchprogresshadbeenmadebythemiddleof2009thatmostobserversnowbelieve thatpassageofthehistoric PatentReformAct hasbecomeimminent.Forthisreason, thepatentchaptersinthisbookhighlightthekeydevelopmentsintroducedbythePatent ReformActandexplainwhytheyareexpectedtofacilitatetheoperationofthepatent systemintheUnitedStates.

TheotherplayersintheU.S.policyprocessreinforcedtheexpansionandsolidification ofintellectualpropertyrights.Thepresidentsduringthisperiodwereallcommittedto strengtheningintellectualpropertyprotectionbothathomeandabroad.Thiswasdemonstratednotonlyintheirspeechesandlegislativeproposalsbutintheirvariousgovernmentalappointmentsaswell.Forinstance,theintellectualpropertycoordinationcouncil,under PresidentGeorgeW.Bush,launchedanambitiousnewinitiativecalled STOP!(Strategy TargetingOrganizedPiracy) thatsuccessfullyfocusedgreatergovernmentattentionand resourcestowardfightingglobalpiracyandcounterfeiting.Inaddition,theCommerce Departmentinitiatednewprogramstoplacemoreintellectualpropertyattachesinpiracyproneregions,suchasBrazil,China,Russia,andThailand,sothattheycouldadvocateimprovedintellectualpropertyprotectionandtrainforeignjudgesandenforcementofficials. Thoseappointedtoheadtherelevantadministrativeagencieshaveworkeddiligently

duringthepastdecadetomodernizeandimprovetheirdepartments.Forexample,the PTOembarkedonprogramstocomputerizeitsoperationsandotherwiseutilizenewtechnologiesinordertohandletherapidlyincreasingnumberofpatentandtrademarkapplications.7 Theenforcementagenciesalsocontributedtothepoweroftechnology-based companies.Forinstance,theJusticeDepartment’sAntitrustDivision,whichpolicesthe marketsforanticompetitiveactions,clearlyindicatedinitsenforcementguidelinesthat businessescouldexercisemorecontrolovertheusesoftheirintellectualproperty.

TheU.S.presidentsalsoaffectedtheopinionsfromthefederaljudiciarybynominating judgeswhenvacanciesonthebencharose.Thenomineesultimatelyappointedbythe Republicanpresidentsconsistentlyheldconservativejudicialphilosophies,whereasthose appointedunderPresidentClintonweremoremoderate.Itisnotaltogetherclearwhat effects,ifany,thesephilosophicaldifferencesmighthavehadondecisionsregardingintellectualpropertyrights.Conservatives,forinstance,tendtosupportstrongpropertyrights protectionsandperhapsaremoretolerantofneedsexpressedbypowerfulmarketparticipants.Thus,youmightexpectthattheywouldbemorelikelytosupportpositionsadvocatedbyintellectualpropertyowners.Ontheotherhand,conservativesalsoadamantly believeinfreelycompetitivemarkets,whichmaycausethemtoresistanyincreasein governmentalintrusionsthroughenhancedintellectualpropertyrights.

Asyoureadthejudicialdecisionsinthisbook,youwillseethatthecourts,forthe mostpart,haveembracedthetrendtowardexpandingthereachofintellectualproperty policies.Forinstance,inthepatentarena,thecourtswereinstrumentalinallowingprotectionforbiotechnologyandforInternetbusinessmethods.Itiseasytospotsimilar positivetrendswithintheotherintellectualpropertyrealmsaswell.Howthecourts dealtwith Napster,atopicaddressedinChapter9,certainlydemonstratestheinfluence thatjudgeshavehadinstrengtheningthepositionsofintellectualpropertyowners. Likewise,theSupremeCourtshockedtheInternetcommunitywhenitsidedwiththe recordingandmovieindustriesintheircopyrightbattleagainstpeer-to-peerservices, suchas Grokster.Nonetheless,exceptionstothisgenerallysupportivetrendhave emergedwithincreasingfrequency.Wewillseethatjudgeshavebeguntocutbackon thedegreeofcopyrightprotectionaffordedtocomputerprogramsanddatabases.Also, courtsnowseemlesswillingtobacktrademarkprotectionforcertainproductdesigns. Inaddition,theSupremeCourtruledin2006thatpatentownerscannotalwaysexpect courtstoissueinjunctionstopreventpatentinfringements.8 Whetherthesepocketsof resistanceareduetoanyfundamentalshiftsincourtphilosophiesisnotyetclear.Itis alsohardtopredictwhetherintellectualpropertyownersshouldexpectfurthersetbacks fromthejudicialsystem.Allthatweknowisthatthecourtswillcontinuetobemajor playersindevelopingfuturelegalpolicies,andthattheyarethereforeworthwatching veryclosely.

TheRisingImportanceoftheFirstAmendment inTechnologyPolicyDisputes

Afascinatingdevelopmentinthetechnologylawarenaisthenumberofhigh-profiledisputesthatraise FirstAmendment issues.TheFirstAmendmentprohibitslawsandgovernmentalactionsthatabridgethefreedomofspeech.ThedemocraticcoreoftheUnited Statesisfoundedonthenotionthatindividualsmustbefreetoexpressandshareideas, nomatterhowobjectionabletheymightbetothemajorityofothercitizensortothose

7OneimportantchangethatthePTOimplementedin2006wasupgradingitsrelativelycumbersomeelectronic patentfilingsystemtoaweb-basedformat.By2008,72%ofpatentapplicationswerefiledelectronically.

8EbayInc.v.MercExchange,L.L.C., 547U.S.388(2006).

whoholdpoliticalpower.Thus,perhapsitshouldnotbesurprisingthattheFirst Amendmenthasbecomesoimportant,giventhegrowthoftheinformationeconomy andthedegreetowhichtechnologybusinessesrelyonintellectualpropertylawstoprotecttheircommercialinterests.Afterall,somecomponentsoftheintellectualproperty system mostnotablycopyrights,trademarks,andtradesecrets maypreventindividualsfromdisclosinginformationorincorporatingprotectedexpressionsorsymbolsin theirowncreativestatements.Also,whenevertherearepublicdemandstocontrolactivitiesovertheInternet suchasthedisplayofindecentmaterials freespeechissuesvery willlikelyarisebecausesomuchofwhathappensoverthewebinvolvesthecommunicationofideasandinformation.

Inaddition,andperhapsmoresubtly,thethreatstotheinformationeconomymay actuallyentailinformation.Withtraditionalbusinessoperations,securityisprovided throughphysicalmeasuressuchassafes,locks,andguards.Therefore,measurestobreak suchsecurity,suchasgunsandburglarytools,typicallyarealsophysicalinnature.In thedigitalage,though,securityoftendependsontheapplicationofinformation,such asthroughencryption,topreventothersfromobtainingandduplicatingvaluable contents.Thewaytodefeatthesekindsofprotectiontechniques,therefore,often involvestheintroductionofnewinformationthat “outsmarts” thesecuritymeasures.

Thereisnoquestionthatthegovernmentcantakestepstopreventthedistributionof physicalthreatstohelpbusinessesprotecttheirassets.However,whengovernment comestotheaidofinformation-basedbusinesses,freespeechissuesmaybeimplicated. Thisproblemresultsbecausethegovernment’sattemptstooutlawthereleaseofantisecuritymeasures whichdependoninformation mightbeviewedasrestrictionson communications,albeitperhapsinlanguagesdesignedforimplementationbycomputers. InChapter9,wewilllookcloselyattheDigitalMillenniumCopyrightAct,whichpreventsthedistributionoftechnologiesthataredesignedprimarilytodefeatdigitalcopyrightprotectiontechniques.Oneburningquestionregardingthislaw,amongothers,is whetheritunconstitutionallyinterfereswithfreespeechconcerns.

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AthoroughanalysisoftheFirstAmendmentiswellbeyondthescopeofthisbook. Thefabricoffreespeechanalysisisenormouslycomplex,witheachnuanceraisingemotionaldebates.However,sincewewillbedealingwithFirstAmendmentissuesonseveral occasions,itisimportanttounderstandsomeofthebasicparametersthatunderliefree speechrightsintheUnitedStates.

AlthoughtheFirstAmendmentstatesthatgovernmentshallnotabridgethefreedom ofspeech,thisdoesnotmeanthattherighttospeakisabsolute.Governmentsmay,underavarietyofcircumstances,regulateandevenprohibitindividualsfromengagingin speech.Fivefundamentalquestionsnormallyprovetoberelevantwhendeterminingthe permissibleextentofrestrictionsonspeech.Eachoftheseissuesisimportant,butnone istypicallycontrolling.Rathereachelementmustbeweightedaccordingtoitsrelevance totheparticularfactsathand.

DoestheLawRegulateSpeech?

Speechentailscommunicationbetweenhuman beingswhocanderivemeaningfromthespeech.Whenhumansutterorwritewords forotherstohearorread,speechclearlyisinvolved.Also,individualsmayspeakto othersusingshorthandnotations,suchaswithmusicalnotes.Beyondtheseobviousexamples,onemustalsorecognizethatpeoplerelaythoughtsbyengaginginconduct, throughpersonalbehaviorsoractions.Forinstance,apersonwhoshowssomeone “the bird” orburnsadraftcardinpublicengagesinspeechbecausethereisanintenttocommunicateideastoothers.9 Inthecontextoftechnologylaw,wewillseethatthisissue

9U.S.v.O’Brien, 391U.S.367(1968).

becomesimportantwhenconsideringregulationsonthedistributionofcomputerprograms.Althoughyourfirstinstinctmaybethatregulationsaffectingcomputerprograms havenothingtodowithfreespeechrights,keepinmindthataskilledprogrammercan easilyreadthesourcecodeofprogramsandthuscanunderstandtheideasandconcepts embeddedwithinthem.

HowMuchProtectionDoestheKindofSpeechReceive? Differentkindsofspeech meritdifferentlevelsofFirstAmendmentprotection.Forinstance,theAmendmentdoes notprotectobscenity.Thismeansthatthegovernmenthasafreehandtoregulateor outlawthedistributionsofobscenematerialsasitchooses.Ofcourse,onedifficultissue isdeterminingexactlywhattypesofwordsorpicturesareobscene,atopicreviewedin Chapter13.OtherformsofspeechthattheFirstAmendmentdoesnotprotectinclude defamatoryremarks,misleadingadvertising,anddirectthreatsofviolence.Certaintypes ofspeechreceiveanintermediatelevelofprotection.Thatis,unlikewithobscenity,the governmentisrestrictedonhowitmightregulatesuchspeech,butperhapsnottothe samedegreeaswithotherformsofcommunications.Forinstance,thegovernmenthas someflexibilitytoregulatetruthfulcommercialspeech,suchasadvertising,aslongasthe governmenthassubstantialorimportantreasonsforregulatingthestatements.TheFirst Amendmentprovidesitsgreatestprotectiontocommunicationsinvolvingmattersof publicpolicyorthepublicinterest.Undoubtedly,thedraftersoftheConstitutionwere mosthighlyconcernedaboutfreedomstoengageinpoliticalandsocialdiscourse,and thuswouldbemostoffendedifthegovernmentattemptedtoexercisecontrolsover suchmatters.Thus,thegovernmentwouldneedcompellingreasonstoregulatethese formsofspeech,astandardthatisnearlyimpossibletosatisfy.

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IstheLawAimedattheSpeechortheEffectsfromtheSpeech? SincetheFirst Amendmentisintendedtoprotectthefreeexpressionofideas,thecourtsaremostskepticalwhenthegoalofgovernmentregulationsistolimitparticulartypesofstatementsor thosewhomightutterthem.However,attimes,governmentregulationsaffectspeech interestswhenthegovernment’sgoalisnotsomuchfocusedonthesubstanceofthe speech,butratheronotherkindsofissuesorproblems.Forinstance,thegovernment mayimposenoiseordinancesatmusiceventstoprotectneighborhoodsfromunduedisturbance.Also,municipalitieshavethepower,throughzoning,toprohibitstripclubs fromcertainareastoreducethelevelofcrime.

Thecourtsalsorecognizethatgovernmentsmayneedtoregulatecommunicativeconduct,notsomuchbecauseofthespeechinvolved,butbecauseofitsdesiretoconstrain theconduct.Forexample,thegovernmentmaywanttoprohibittheburningofdraft cardsnotbecauseitobjectstothesymbolicexpressionofantiwarsentiments,butbecauseoftheadministrativeproblemsthatmightresultwhendraftcardsaredestroyed. Althoughspeechisaffectedinallofthesesituations,thegovernmentnonethelesswill notrunafouloftheFirstAmendmentaslongastheregulationsserveimportantobjectiveswithoutundulyburdeningthespeechinterests.Wewillseethatthisissueiscentral todebatesregardingregulationsofcomputerprogramsbecause,tosome,computerprogramsaresimplyformsofspeech,whereasothersbelievethattheycombineelementsof conductwithspeech.

WhatIstheGovernment’sRationaleforRegulatingTheSpeech? Sincethereisa basicassumptionthatregulatingspeechharmsimportantsocialvalues,thegovernment mustestablishthatithassufficientlylegitimatereasonstointerferewithfreespeech rightssothat,onbalance,therestrictionswillimprovesocialwelfare.Asalreadymentioned,thedegreeofsocialbenefitsthatthegovernmentmustproffervaries,depending onthefocusoftheregulationandthetypeofspeechthatitaffects.Insomesituations,

suchaswhenitintendstocontrolconduct,thegovernmentmustdemonstratethatthere areimportantreasonsforanyintrusionsonspeech.Inothersituations,thereasonsmust becompelling.

CantheSpeechbeRegulatedBeforethereIsaCompleteHearingontheIssues? Sometimesitmaytakeyearsbeforeadisputeultimatelyisresolvedattrial.Unfortunately,thepartieswhoaresuingmaysuffergreatharmwhiletheywaitfortheoutcome. Asanexample,considerasituationinwhichanInternetfiletradingservicepermits userstodownloadcopyrightedmusicwithoutpayingthecopyrightownersforit.Even ifeveryoneisconfidentthatajurywilldetermineattrialthattheserviceisunlawfuland thereforeshouldbeenjoined(shutdown)byacourtorder,thecopyrightownersnonethelessmaypotentiallysufferbillionsofdollarsofharmwhilewaitingforthetrialtobe scheduledandcompleted.Thus,thecopyrightownersmayaskthejudgetostoptheservicewellbeforethetrialdate,basedonarelativelybriefhearing.Logically,suchanorder,ifgranted,iscalleda preliminaryinjunction

Preliminaryinjunctivereliefisconsideredextraordinary,andtrialjudgeswillnot grantitunless

• theaggrievedpartycandemonstrateatthehearingthatitisverylikelytosucceedon themeritsattrialand

• thatitwillsufferirreparableinjuryifthepreliminaryinjunctionisnotgranted.10 FirstAmendmentconcernsaregreaterwhenthecourtsareconsideringpreliminaryrelief thanwhentheyimposeinjunctionsafterafulltrialonthemerits.Restrictionsonspeechin thecontextofpreliminaryinjunctionssometimesarecalled priorrestraints.Priorrestraints areconsideredespeciallytroublesomebecausecommunicationissuppressedbeforeconductingathoroughanalysisattrialaboutitsstatusundertheFirstAmendment.Forexample,itwouldnotoffendtheFirstAmendmentforacourttoenjointhereleaseofobscene speechifithaddeterminedafteracompletereviewoftherecordthatthespeechtrulyis obscene.However,apreliminaryinjunctionpreventsspeechbasedonlyonalikelihoodof successonthemerits.This,ofcourse,leavesopenthepossibilitythatthepreliminaryinjunctionwouldtemporarilybarcommunicationsthatthegovernmenthasnorighttocontrol, becausethedeterminationattrialmightbethatthespeechisnotobscene.Forthisreason, courtsareparticularlywaryofrestrictingspeechinthecontextofapreliminaryinjunction hearing.Wewillseethatthismaybeimportantwhencompaniesrequestpreliminaryrelief tostopthespreadofmisappropriatedtradesecrets.

TwoRunningExamples

Thelegaldecisionsrequiredtomanagetechnologyarechallengingbecausethereoften arenumerousoptionsfromwhichtochoose.Forinstance,onemayprotectacomputer programthroughpatents,copyrights,and/ortradesecrets.Wewillseethatnumerous considerations,suchasthoselistedinExhibit1.5(p.19),guidethebestapproachtoprotection.Inaddition,manytechnologyproductscancausesubstantialphysicalandeconomicharmsiftheymalfunctionorareusedinunusualways.Often,manufacturers mustassesswhethertheyneedtomaketheirproductssaferormorereliable.Onthe otherhand,theymayaddresstheissuesthroughcontracts,perhapsbyhavingusersagree thattheywillassumethoserisks.

10Thetrialjudgeshouldalsoconsider(1)whethertheplaintiffwouldsuffergreaterhardshipwithoutapreliminaryinjunctionthanthedefendantwouldincurfromtheinjunctionand(2)whethergrantingthepreliminary injunctionwouldbeinthepublicinterest.