doing business on the Net:  Protecting intellectual property

 

Jerry Wegman, University of Idaho

wegman@uidaho.edu

 

ABSTRACT

 

The Internet and e-commerce have revolutionized communications and business.  Innovative dotcom companies have pioneered new business models and methods.  However once a particular business model has proven to be successful, it is often plagued with numerous copycats.  Some are legitimate, taking only the basic concept, for example selling wine on line.  Others however go further, taking not only the general concept but also stealing the leader’s intellectual property including customer lists, trade secrets, trademarks, service marks, patents and copyrights.  When such conduct occurs, the leader must assert its legal rights or see its business stolen.  This paper will describe and explore the legal protections afforded to intellectual property, particularly as they apply to dotcoms and technology companies.  Finally conclusions will be drawn, including practical suggestion for companies that have valuable intellectual property to protect.

 

INTRODUCTION

 

Unlike an earlier industrial age, dotcom companies of the information age can not point to massive industrial structures or other tangible assets.  Their assets consist largely of new ideas, processes, trade symbols, software and goodwill built up by satisfying customer demands.  These assets are intellectual property (IP).  IP must be protected with the same vigilance as tangible property. 

            Ironically digital copying and the Internet, which made possible these new innovative companies, also make it extremely easy to misappropriate IP.  An unethical company can use a competitor’s trademarked terms to lure customers to its site.  It can violate copyrights by placing visible or hidden text on its site.  It can confuse customers by copying the look and feel of a popular site.  And it can steal the customer lists of its competitors. 

 

LEGAL PROTECTION OF INTELLECTUAL PROPERTY

 

1.  Copyright.

 

Copyright is perhaps the most important legal protection of software and Internet information.  Copyright protects “original works of authorship” including “literary works … sound recordings … motion pictures” (Copyright Act of 1976, 17 U.S.C. Sec. 101 et seq.) The 1980 amendment to the Copyright Act added computer software to copyrightable works.  Copyright law is governed by the U.S. Copyright Act, also known as the Lanham Act. The federal act preempts state law.  Copyright confers on its owner an exclusive right of use.  In effect, the owner has a temporary monopoly on the copyrighted work.  Copyright and patent share the distinction of being enshrined in the U.S. Constitution.  Article I, Sec. 8 grants Congress the power “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”.  Copyright protection is now extremely long lived, lasting the life of the author plus seventy years.

An important recent case of copyright infringement in the technology area is Computer Associates International, Inc., v. Altai, Inc. (982 F.2d 693, 2^nd Cir. 1992).  In Computer Associates, a computer programmer, Arney, developed a software product for CA.  He was later hired by a competitor, Altai.  Arney had been permitted to take home copies of the source code for various CA products while he was employed there. Upon leaving that firm, he took with him copies of CA source code for various products, including one called ADAPTER that he had developed.  While at his new firm, he was asked to develop a product similar to ADAPTER.   No one at Altai knew that Arney had developed a similar product for CA and no one knew that he still had the source code for that product.  Arney produced the new product for Altai.  It was named OSCAR 3.4, and contained about 30% of the source code of ADAPTER, copied by Arney without the knowledge of Altai personnel.  After three years CA learned of the copying and sued Altai for infringement.  The District Court found a direct infringement during those three years and awarded damages of  $364,444.

What makes this case interesting is the response of Altai to being informed of the copying.  Altai first became aware of it when it was served with the summons and complaint by CA.  Altai’s president, Williams, verified the accuracy of the claim then immediately removed Arney from the OSCAR project and put six other programmers to work writing original source code to replace the copied code.  These new programmers had no previous experience with OSCAR and did not see the source code for OSCAR 3.4 or for ADAPTER, which Williams locked away.  After six months the new programmers had developed original source code to replace the copied material.  Altai then released OSCAR 3.5 and provided it as a free upgrade to users of OSCAR 3.4.

In spite of Altai’s admirable efforts to cleanse itself of the infringed material, CA claimed that OSCAR 3.5 also violated its copyright. CA claimed that although there was no literal copying of CA material on OSCAR 3.5, there was access to ADAPTER and also “substantial similarity” to it because of similar structure, sequence and organization.  Some earlier cases had accepted this theory of infringement.  However, in Computer Associates the court held that even though access and similarities existed, the strong evidence of original work in that case overcame the inference of copying with respect to OSCAR 3.5.

 

2.  Patent

 

As noted above, the framers of our Constitution recognized the importance of encouraging and protecting “Writings and Discoveries”.  The current federal statute governing inventions is the Patent Act (35 U.S.C. Sec. 101-112, 1952). To qualify for patent protection, the invention must be novel, useful and non-obvious.  Ideas, concepts, and formulas such as e=mc² are not patentable. Until World War II patents were issued only for tangible things including “process, machine, manufacture, or composition of matter, or any new and useful improvement thereof”. The industrial Age produced tangible inventions like the light bulb.  Patents now last twenty years.

With the coming of the Information Age invention included intangible products like computer software.  American courts were slow to allow patentability of these new forms of invention, considering them mere ideas and formulas and therefore not entitled to patent protection.  The landmark U.S. Supreme Court case of Gottschalk v. Benson (409 U.S. 63, 1972) illustrates this.  The inventor had developed an algorithm for converting decimal numbers into binary numbers.  Such an algorithm is a necessary part of the software used by almost every computer.  An earlier algorithm existed, but it was less efficient than the new one.  The Patent Office rejected the application because it considered it a mere mathematical formula.  The U.S. Supreme Court agreed.  This led to the general conclusion both in the United States and Europe that computer software was not patentable.

Recently the courts have expanded patent protection to include Internet business processes and models.  The patentability of Internet processes and business models is a hotly debated topic.  Some critics complain that many such patents are obvious should not have been granted. 

            The recent spate of Internet patents has drawn criticism from some who claim that they are not warranted, that they increase costs to e-commerce generally and that they generate unnecessary litigation expense.  Even Jeff Bezos, president of Amazon which has patented the one click checkout system, has said "I now believe it's possible that the current rules governing business methods and software patents could end up harming all of us" (Wall St. Journal Interactive, April 17, 2000). 

 

3.  Trademark, Service Mark

 

A trade symbol informs consumers of the origin of goods and services.  It also protects the goodwill that a firm has developed.  Trademarks and service marks are among the four trade symbols that are recognized by the Federal Trademark Act, also know as the Lanham Act.  Trademarks can also be protected under state law. Trademarks should be registered.  The U.S. Office of Patents and Trademarks (OPT) is the preferred registrar because in order to sue in federal court and to obtain the benefits of the Lanham Act the marks must be registered with the OPT.  Federal registration lasts ten years but is infinitely renewable.  If the infringement is intentional, treble damages plus reasonable attorney’s fees may be awarded.

Most cases of trademark infringement involve confusion and diversion of customers to the infringing firm.  Recently a new form of trademark abuse has surfaced.  This consists of using another’s trademarked terms as part of the metatag of a web site, invisible to the site visitor.

A metatag consists of source code imbedded in the hypertext markup language (HTML) of a web site.  It is invisible to the site visitor but a search engine “sees” it and uses it to place it appropriately in a search.  It may be viewed as follows: using Netscape Communicator 4.7, go to a site e.g. eBay, then click on the “view” button and choose “page source”.  The HTML will be displayed.  At the top of the HTML the “meta name” lists the metatags associated with that site.  Ebay’s metatag terms include “auction”, “bid”, and “memorabilia”.  A customer entering those terms in a search engine would find eBay among the first sites listed.

An unethical dotcom could include a competitor’s trade name or trademarked terms in its metatag.  This would cause a customer looking for the legitimate business to go to the infringing site.  Once there, the customer would realize the error, but might be enticed to do business at that site.  This has been described as “invisible trademark infringement” (G. Ferrera, et al, Cyberlaw Text and Cases, 2001).

 

4.  Trade Secrets  

 

Sometimes copyright, patent and trademark are either unavailable or not good choices for protecting intellectual property.  If the IP is not a “creative work” it is not entitled to a copyright.  Mere lists such as customer lists are not considered creative works, unless perhaps they are arranged in a particularly creative way.  A trademark or service mark can only protect certain distinctive terms or terms that have acquired a “secondary meaning”(Qualitex Co. v. Jacobson Products Co., 115 S. Ct. 1300, 1995).  They must have been properly registered and renewed.  A patent will only be issued if it is novel, useful and non-obvious.  Patents expire after 20 years, and once a patent is issued it becomes public knowledge.  It is easily available to anyone who conducts a patent search.  Encryption-breaking hackers will sometimes conduct a patent search to find out how to break anti-copying software.

When other protections of intellectual property are either unavailable or unsuitable, trade secret protection may be a good choice.  If information legally qualifies as a trade secret, then it is the private property of its owner and protected potentially forever.  The formula for Coca-Cola, which was first used in 1886, is perhaps the best example of this.  On the other hand, if the secret is discoverable by reverse engineering, trade secret would bee a poor choice.

The Uniform Trade Secrets Act (UTSA) states that in order to qualify as a trade secret, two elements must be present.  The first is “independent economic value … from not being generally known”.  The second is that it must be protected by “efforts that are reasonable … to maintain its secrecy” (Uniform Trade Secrets Act, 14 U.L.A. 433,1990).   

While misappropriation of trade secrets is unlawful, it is perfectly legal for a former employee to use general knowledge and skill gained at that former employment.  Trade secrets law tries to strike a reasonable balance between protecting a firm’s intellectual property rights and a former employee’s right to earn a livelihood.

 

CONCLUSION

 

The most valuable asset of a dotcom is often its intellectual property.  It must act to protect its intellectual property just as it acts to protect its tangible property.  Trade secrets must be given reasonable protection, even at some cost.  Access to trade secrets should be provided only on a need to know basis.  Encryption should be considered.  If passwords are used they should be made difficult to hack and they should be changed regularly.  Trademarks should be registered with the U.S. Patent and Trademark Office, and renewed on time; this involves routine legal work and is not expensive.  The entire web site should be registered with the U.S. Copyright Office; this is also not expensive.  If the dotcom has developed a web based business process, a patent attorney should be consulted to determine if it qualifies for patent protection.

The firm should have its attorney draw up employment contracts with well-defined non-compete and non-disclosure agreements.  It should have a written intellectual property policy that limits taking of proprietary intellectual property from the workplace. The policy should also govern computer and Internet use by employees, and it should advise them of the possibility of surveillance.

When employees leaves, exit interviews should be held to remind them of these legal obligations.  It would also be advisable to inform the employee of his or her potential criminal liability under the Economic Espionage Act, the No Electronic Theft Act, and the computer fraud section of the federal criminal code.  Subsequent employers should be contacted and informed of the type of work performed by the employee and of the employee’s access to proprietary intellectual property.

Doing all of the above will not guarantee that the firm will achieve complete protection for its valuable intellectual property, just as the finest lock will not guarantee complete protection against a break-in.  However, it is foolish not to take advantage of one’s rights.  As always in our society, it is left to the individual first to become educated as to his or her rights, and then to assert them.