Chapter 8

Text – Chapter 8
Learning Objectives
• Infringement of intellectual
property rights
• Misappropriation of trade secrets
• Unfair competition - intentional
• Unfair competition – the Lanham
Types of Intellectual Property
– Engine design,
– Logo, trade
– Sales
• Intangible right granted by statute to
the author or creator of certain
tangible literary or artistic productions
– Can’t copyright an “idea”
• Applicable law: Copyright Protection
Act and the Copyright Term Extension
• Protection automatic; registration not
required, though recommended
• Works created after 1/78 are given
protection for life of author + 70 years
• Protection for a work-for-hire
(corporation owns copyright) is 95
years from first publication or 120
years from creation, which ever
Metro-Goldwyn-Mayer Studios,
Inc. v. Grokster, Ltd.
• Facts & Procedural History:
– Defendants Grokster and StreamCast
Networks, Inc. distributed free software that
allowed computer users to share electronic
files through peer-to-peer networks
– Many copyright owners (collectively referred
to as MGM) filed separate lawsuits against
defendants and the cases were consolidated
– MGM sought damages and injunction alleging
that defendants knowingly and intentionally
distributed software to enable users to
Metro-Goldwyn-Mayer Studios,
Inc. v. Grokster, Ltd.
• Issue and Legal Reasoning:
– Issue is under what circumstances the
distributor of a product capable of both lawful
and unlawful use is liable for acts of copyright
infringement by third parties using the product
– One infringes contributorily by intentionally
inducing or encouraging direct infringement,
and infringes vicariously by profiting from
direct infringement while declining to exercise
a right to stop or limit it
– Substantial evidence shows defendants acted
Metro-Goldwyn-Mayer Studios,
Inc. v. Grokster, Ltd.
• Holding:
– One who distributes
a device with the
object of promoting
its use to infringe
copyright, as shown
by affirmative steps
taken to foster
infringement, is
liable for the
• Grant from federal government to
an inventor in which inventor
obtains exclusive right to make,
use, and sell his invention for a
period of 20 years (14 years for
• U.S. Patent Act requires
• A patent will not be issued if more than
one year before the patent application
the invention was patented elsewhere,
described in a printed publication, or in
public use or on sale in the United
• Example: Pfaff v. Wells Electronics,
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– Inventor sold patented item on April 8,
• Protection for: a process, a
machine, a manufacture or product, a
composition of matter (such as a new
chemical compound), an improvement
of any of the above, an ornamental
design for a product, a plant produced
by asexual reproduction, certain
business methods
• Even though an invention fits one
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of the categories, it is not
• Distinctive mark, motto, device, or
emblem that a manufacturer or service
provider stamps, prints, or affixes to
products it produces or services it
performs to distinguish products or
services from those of competitors
• Applicable law: Lanham Act
• Registration with state or fed.
government recommended, but not
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• “Trademark” applicable to:
– trade name (e.g., McDonald’s, Nike)
– trade image (e.g., Ronald McDonald)
– trade logo (golden arches, swoosh)
– trade dress (red & white awnings of KFC)
• Trademark dilution is the diminishment
of the capacity of plaintiff's marks to
identify and distinguish plaintiff's
8 - 13goods or services
E-Commerce Infringement
• Trademark dilution on the internet is
prohibited by the Anticybersquatting
Consumer Protection Act
• Creates civil cause of action against a
person who, with bad faith intent to profit
from a trademark, registers, traffics in, or
uses a domain name identical or
“confusing similar” to distinctive mark
– Example: Volkswagen sued Virtual
World for their registration of
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• A work-for-hire exists when
– (1) an employee, in the course of her
regular employment duties, prepares a
copyrightable work; or
– (2) an individual or corporation and an
independent contractor (i.e.,
nonemployee) enter into a written “hire”
agreement under which the nonemployee prepares a copyrightable work
for the individual or corporation
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• Violation of intellectual property right:
when someone uses, makes, or sells
another’s trademarked, patented, or
copyrighted intellectual property
without owner’s permission, license,
• Penalties -- actual or statutory
damages in civil proceedings or
8 - 16 criminal penalties for willful violations
Proof of Infringement
• Generally, infringement requires proof
– (1) defendant had access to copyrighted
– (2) defendant engaged in enough copying
(deliberately or subconsciously) that
resemblance between allegedly infringing
work and protected work could not be
coincidental; and
8 - 17 – (3) substantial similarity exists between the
The “Fair Use” Defense
• For copyright and trademark
infringement, a “fair use” defense or
exception exists when the copyrighted
work or trademark is used without the
property holder’s permission
– “for purposes such as criticism, comment,
news reporting, teaching (including multiple
copies for classroom use), scholarship, or
Section 107 of the
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Copyright Act
The “Fair Use” Defense
• A court weighs factors in a fair use
– (1) the purpose and character of the use,
– (2) the nature of the copyrighted work,
– (3) the amount and substantiality of the portion
used in relation to the copyrighted work as a
whole, and
– (4) the effect of the use on the potential
markets for the copyrighted work or on its value
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• “Fair Use” may include parody
– Example: In Campbell v. Acuff-Rose
Music, Inc., the Supreme Court held
that 2 Live Crew’s version of Roy
Orbison’s “Pretty Woman” was a
parody and could be a fair use if the
use was not excessive and did not
harm the market for the original
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• Case remanded to determine whether use was
“excessive” or “harmed the market,” but the two
sides eventually settled with 2 Live Crew paying
Mattel, Inc. v. Walking Mountain
• Facts & Procedural History:
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– Plaintiff artist produces works with social and
political overtones, including a 78-photograph
series titled “Food Chain Barbie”
– Forsythe describes the artworks as an
attempt to “critique the objectification of
women associated with [Barbie], and [to]
lambaste the conventional beauty myth and
the societal acceptance of women as objects.”
– Mattel sued Forsythe alleging that the series
violated Mattel’s copyright and trademark
Mattel, Inc. v. Walking Mountain
• Issue:
– Did defendant’s use of Mattel’s intellectual
property infringe on Mattel’s rights?
• Law Applied to Facts:
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– Because Forsythe reproduced photographs of
the Barbie figure, Mattel established a prima
facie case of copyright infringement
– However, the Copyright Act recognizes certain
statutory exceptions to protections on
Mattel, Inc. v. Walking Mountain
• Legal Reasoning and Holding:
– “Purpose and character of use” factor in a fair
use inquiry asks “to what extent the new work
is transformative” and does not “supplant”
• Parodic works comment and criticize, thus often
sufficiently transformative to fit under fair use
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– Given extremely transformative nature and
parodic quality of Forsythe’s work, the first fair
use factor weighs heavily in favor of Forsythe
International Law
• International intellectual property law is
governed by multilateral agreements
– Paris Convention
– Madrid Agreement Concerning the International
Registration of Trademarks
– Madrid Protocol
– World Trade Organization’s Agreement on TradeRelated Aspects of Intellectual Property Rights
• World Intellectual Property Organization
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(WIPO) resolves international intellectual
Test Your Knowledge
• True=A, False = B
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– You may copyright an idea
– Copyright protection requires
registration with the U.S. Copyright
– The U.S. Patent Act requires
registration of a patent to obtain
protection for the intellectual property
– The Lanham Act protects trademarks
Test Your Knowledge
• True=A, False = B
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– Trademark dilution refers to the
overuse of a trademark on products
or services
– An employee who creates a new
software program has made a workfor-hire
– The “fair use” defense is an absolute
defense to an infringement claim
Test Your Knowledge
• Multiple Choice
– A trademark refers to:
trade name
trade image
trade logo
trade dress
all of the above
– Trademark dilution on the internet is
prohibited by:
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• (a) Anticybersquatting Consumer Protection Act
• (b) Patent & Trademark Act
Trade Secrets
• Trade secret: any secret formula,
pattern, process, program,
device, method, technique, or
database used in the owner’s
business that gives the owner
competitive advantage
• A firm must take reasonable
measures to maintain secrecy
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• Misappropriation of a trade secret
occurs when a person discloses or
uses after acquiring the secret:
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– By improper means (theft, trespass,
– Through another party who is known
or should have been known to have
obtained the secret by improper
– By breaching a duty of confidentiality
North Atlantic Instr. v. Haber
• Facts:
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– North Atlantic manufactured electronic
– The firm acquired TMI in which Haber was a
1/3 owner and president; Haber had
substantial client base
– Acquisition of TMI conditioned on Haber’s
continued employment since the client
contacts were a valuable intangible asset
– Haber’s employment contract, with a
confidentiality clause, ended in 1997, when he
joined Apex, a firm with a similar target market
North Atlantic Instr. v. Haber
• Appellate Court Reasoning and
– Based on a magistrate’s findings, the trial
court enjoined Haber and Apex from using the
client contacts; Haber and Apex appealed
– The appellate court examined and agreed
with the magistrate’s findings that the identity
of North Atlantic’s client contacts was a
protectable trade secret and agreed that
Haber had breached his duty of confidentiality
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Commercial Torts
• Commercial torts are intentional torts
that involve business or commercial
competition and include:
– Injurious falsehood (product
disparagement) involves the publication of
false statements that disparage another’s
business, property, or title to property, and
thus harm economic interests
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• Example: Jefferson County School District v.
Moody’s Investor’s Services, Inc.
Commercial Torts
• Commercial torts (cont.)
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– Intentional interference with contractual
relations occurs when one party to a
contract claims that the defendant’s
interference with the other party’s
performance of the contract wrongly
caused the plaintiff to lose the benefit of
that performance
– Intentional interference with prospective
advantage parallels the elements for
Commercial Torts
• Commercial torts (cont.)
– Section 43(a) of the Lanham Act creates
civil liability for unfair competition,
including misleading, confusing, or
deceptive representations made in
connection with goods or services
• Example: American Italian Pasta Co. v.
New World Pasta Co., in which the pasta
companies battled over whether the
defendant could claim its brand was
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Thought Question & Participation
Assignment for Chapter 8:
• Music is
property. What do
you think about
people who
download music
illegally? Have
they committed
8 - 35 theft?

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