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CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 1 of 13 BUSINESS LAW PROFESSOR MOERSEN ROBERT PAUL ELLENTUCK Lecture Outline Intellectual Property & Criminal Law INTELLECTUAL PROPERTY (IP) Intangible rights protecting the products of human intelligence and creation, such as copyrightable works, patented inventions, Trademarks, and trade secrets. Although largely governed by federal law, state law also governs some aspects of intellectual property. Intellectual property describes a wide variety of property created by musicians, authors, artists, and inventors. The law of intellectual property typically encompasses the areas of Copyright, Patents, and trademark law. It is intended largely to encourage the development of art, science, and information by granting certain property rights to all artists, which include inventors in the arts and the sciences. These rights allow artists to protect themselves from infringement, or the unauthorized use and misuse of their creations. Trademarks and service marks protect distinguishing features (such as names or package designs) that are associated with particular products or services and that indicate commercial source. The bulk of intellectual Property Law is contained in federal statutes. Copyrights are protected by the Copyright Act (17 U.S.C.A. §§ 101 et seq. ); patents are covered in the Patent Act (35 U.S.C.A. §§ 101 et seq. ), and trademark protection is provided by the Lanham Act (also known as the Trademark Act) (15 U.S.C.A. §§ 1501 et seq. ). PATENTS “TO USE WITHOUT PERMISSION” COPYRIGHTS INFRINGEMENT – EXCLUSE RIGHTS, MUST GET TRADEMARKS CONSENT TO USE. TRADE SECRETS MISAPPROPRIATION – OTHERS CANNOT NO EXCLUSEIVE RIGHT WRONGFULLY TAKE, STEAL, HACK, ETC. OTHRS CAN USE. SOURCE OF IP IS FEDERAL, STATE, TREATEY, COMMON LAW IP rights can be assigned or licensed. IP CAN BE TRANSFERRED. The Case of IBM, Microsoft, and DOS BUSINESS LAW MOERSEN - ROBERT PAULELLENTUCK 1 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 2 of 13 MICOSOFT LICENSED DOS TO IBM. NON-EXCLUSIVE LICENSE LICENSE – GRANTS PERSION TO USE. OWNER CAN LICENSE TO OTHERS. ROYALTY IS OWED. ASSIGNMENT - SALE ROYALTY IS OWED. EXCLUSIVE – ONLY ONE FIRM CAN USE. NON-EXCLUSIVE – CAN LICENSE TO MANY FIRMS. IP Hypo 1 tip Get a CONFIDENTIALITY (NON-DISCLOSURE) AGREEMENT from everyone to whom an idea is given. IP Hypo 1-C Why does the law provide patent rights? Because they prevent competition, patent rights are limited in a couple ways: 1. 2. BUSINESS LAW MOERSEN - ROBERT PAUELLENTUCK 2 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 3 of 13 The Case of Huge Corp.’s Patent in Smallovia COMPULSORY LICENSE Under Copyright law, compulsory license is a statutorily created license. A compulsory license allows certain parties to use copyrighted material without the explicit permission of the copyright owner in exchange for a specified royalty. Compulsory license is also known as equitable remuneration. Under Patents law, compulsory license is a statutorily created license allowing certain people to pay a royalty and use an invention without getting the consent of the patentee. The U.S. does not recognize compulsory licenses, but there are other nations having compulsory licenses. IP Hypo 1-D WORK FOR HIRE A 'work for hire' is an exception to the general rule that the person who creates a work is the author of that work and holds all rights to the work product. This is a concept of intellectual property protection outlined in Section 101 of the 1976 Copyright Act. In most cases, the person who creates a copyrightable work—such as a story, poem, song, essay, sculpture, graphic design, or computer program—holds the copyright for that work. A copyright is a form of legal protection which gives the holder sole rights to exploit the work for financial gain for a certain period of time, usually 35 years. In contrast, the copyright for a work for hire is owned by the company that hires the person to create the work or pays for the development of the work. The creator holds no rights to a work for hire under the law. Instead, the employer is solely entitled to exploit the work and profit from it. A work for hire lasts for the shorter of 95 years from publication or 120 years from creation. BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 3 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 4 of 13 When a professor hands out copies of a newspaper article is that infringement? FAIR USE Fair use is the non-competitive right to use of copyrighted material without being required to compensate the author or giving the author the right to sue for infringement of copyright. Federal copyright law provides as follows: "the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include: 1. The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; 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 upon the potential market for or value of the copyrighted work. The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors. Could GW copy our business law text? IP Hypo 1-E Why give trademark protection? In US one gets trademark protection merely from using a mark or name, but registration BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 4 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 5 of 13 is advised for two reasons: 1. 2. In many other countries, trademark rights belong to whoever registers the mark first, regardless of use. The Case of the Coffee Bar called “Federal Espresso” What about their argument "our name is different?" Issues in the Case: A. Confusion in the market place? When trademark infringement cases go to trial, the judge tries to determine the likelihood confusiontaking place among consumers. Judges do not actually converse with consumers or take a poll among consumers, but they do use a set of criteria established by the Ninth Circuit Court of Appeals inthe AMF, Inc v Sleekcraft Boats case from 1979. In that case, the court created eight different circumstances that would help a judge determine if consumers are likely to be confused by trademarkissues. 1. The similarity or strength of the marks: 2. Similarities of good or services: 3. Similarity of marks: 4. Evidence of actual confusion: 5. Marketing Intent: 6. Physical proximity of good in the market place: 7. Defendant's intent when the trademark in question was created: 8. Likelihood of expansion of product lines: The first five elements are used in every trademark infringement case. The last three elements are used when the first five elements do not clearly state whether trademark infringement took place. BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 5 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 6 of 13 http://trademark.laws.com/trademark-infringement/likelihood-of-confusion B. DILUTION of famous mark? Trademark dilution is the lessening of the capacity of a famous mark in order to identify and distinguish goods or services, regardless of the presence or absence of (1) competition between the owner of the famous mark and other parties; or (2) likelihood of confusion, mistake or deception. Two forms of Dilution: 1. BLURRING Dilution by blurring is defined as “association arising from the similarity between a mark or trade name and a famous mark that impairs the distinctiveness of the famous mark. In determining whether a mark or trade name is likely to cause dilution by blurring, the court may consider all relevant factors, including the following: (i) The degree of similarity between the mark or trade name and the famous mark. (ii) The degree of inherent or acquired distinctiveness of the famous mark. (iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark. (iv) The degree of recognition of the famous mark. (v) Whether the user of the mark or trade name intended to create an association with the famous mark. (vi) Any actual association between the mark or trade name and the famous mark.” 15 USCS § 1125 2. TARNISHMENT “Dilution by tarnishment is association arising from the similarity between a mark or trade name and a famous mark that harms the reputation of the famous mark. The following shall not be actionable as dilution by blurring or dilution by tarnishment: (A) Any fair use, including a nominative or descriptive fair use, or facilitation of such fair use, of a famous mark by another person other than as a designation of source for the person's own goods or services, including use in connection with-- BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 6 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 7 of 13 (i) advertising or promotion that permits consumers to compare goods or services; or (ii) identifying and parodying, criticizing, or commenting upon the famous mark owner or the goods or services of the famous mark owner. (B) All forms of news reporting and news commentary. (C) Any noncommercial use of a mark.” (15 USCS § 1125) The Case of the “Kitchen Chair” One can't get a trademark on just any words or symbols; it depends on the degree of distinctiveness: Generic Descriptive Suggestive Arbitrary Generic "marks" are devices which actually name a product and are incapable of functioning as a trademark. Descriptive marks (or more properly, "merely descriptive marks") are devices which merely describe the services or goods on which the mark is used and it is not a mark at all. No trademark rights are granted to merely descriptive marks. Suggestive marks are marks that suggest a quality or characteristic of the goods and services. Arbitrary marks: An arbitrary mark utilizes a device having a common meaning that has no relation to the goods or services being sold. What do these famous brand names have in common? Band-aids, Kleenex, Xerox, Scotch Tape IP Hypo 1-F Trade secret = any information which is 1. BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 7 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 8 of 13 2. 3. A trade secret is a process, method, plan, formula or other information unique to a manufacturer, which has value due to the market advantage over competitors it produces. Use or disclosure of a trade secret by an employee, former employee, or anyone else may be prohibited by a court- ordered injunction. The owner of a trade secret may seek damages against such a person for revealing the secret. Also, when trade secrets are involved in a lawsuit, a "protective order" may be requested from the judge to prohibit revelation of a trade secret or a sealing of the record in the case where references to the trade secret are made. A trade secret is separate from and covered under different law from a patentable invention. Trade secrets include, among others, business assets such as financial data, customer lists, marketing strategies, and information and processes not known to the general public. Under the Uniform Trade Secrets Act, trade secrets are defined as follows: ""Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique or process that: (1) derives independent economic value, actual or potential, from not being generally known to, and not being easily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under circumstances to maintain its secrecy." Note the differences between Patents and Trade secrets. Suppose RC Cola uncovers the secret recipe to Coke through reverse engineering. Can RC use the formula? Suppose you are mistakenly sent an email with a copy of your competitor's marketing BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 8 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 9 of 13 plan. Can you use it to plan your firm's strategy? Suppose A licenses a trade secret to B. The agreement calls for B to pay ROYALTIES. A royalty is a percentage of gross or net profit or a fixed amount per sale to which a creator of a work is entitled which is agreed upon in a contract between the creator and the manufacturer, publisher, agent and/or distributor. Inventors, authors, movie makers, scriptwriters, music composers, musicians and other creators contract with manufacturers, publishers, movie production companies, producers, and distributors to be paid royalties in exchange for a license to manufacture and/or sell the product. Later the trade secret becomes public knowledge. Must B continue paying royalties under the agreement? CRIMINAL NOT ON FINAL Criminal Law To convict anyone of a crime, state must prove: 1. ACTUS REUS (guilty act) Defendant committed an act that violated a valid criminal statute What about a corporate defendant? BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 9 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 10 of 13 2. MENS REA (guilty mind) At the time the act was committed, the defendant had the required mental state. What is the required mental state to commit a crime? First-degree murder? Speeding? REGULATORY CRIMES Can a corporation have intent? rule The intent of an employee is attributed to the corporation if the employee acted with intent to benefit the corp. Criminal Law Hypo 1 Suppose your chauffer is drinking as he drives here to get you and he runs over Jogger. Can Jogger hold you civilly liable? Can DC hold you criminally liable? Prosecutors are unlikely to prosecute unless a good reason exists. e.g., 1. 2. 3. a. Employer encouraged the illegal activity BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 10 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 11 of 13 b. Employer was aware and could have but didn't prevent c. Employer should have been aware and controlled When the agents' acts and intent are imputed to the corporation, is theagent no longer criminally liable? Insider Trading RULE 10b-5 (Anti-Fraud Provision of the Securities Exchange Act of 1934) INSIDER TRADING, i.e., trading in securities by people with access to company information not available to the public. 2 reasons it is made illegal: 1. 2. Elements of the Crime: 1. Trading while possessing material, non-public information. 2. Use of the information to trade must somehow be wrongful A. Info wrongfully obtained or B. Info wrongfully used BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 11 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 12 of 13 "Insiders" obviously includes directors, officers, and employees of the Company But also prohibited from trading are: 1. Outsiders who owe a duty of confidentiality, and 2. TIPPEES Criminal Law Hypo 2 What if you get caught? Consequences: 1. 2. 3. How do violators get caught? SEC can pay BOUNTIES of up to 10% of SEC's triple recovery Criminal Law Hypo 3 BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 12 2/24/13 9:33 PM CLASS NOTES WEB DEFINITION CLASS 6 CHAPTER 5 p. 13 of 13 FOREIGN CORRUPT PRACTICES ACT The major countries have all signed the Anti-Bribery Convention and conformed their laws to it. What the FCPA requires: Anti-Bribery Provisions It is illegal for any US person to pay or offer to pay a bribe to a foreign politician, political party, or government official to influence a government decision. Bribing businesses is not prohibited by the FCPA, unless there is reason to know it will be passed on to a politician or government official. Under the FCPA, some bribes to foreign government employees are allowed: FACILITATION (GREASE) PAYMENTS - Payments that merely facilitate non- discretionary government actions. Accounting Provisions All public companies must have a system of internal controls and financial reporting to ensure that all payments are properly authorized and reported. BUSINESS LAW MOERSEN - ROBERT PAUL ELLENTUCK 13 2/24/13 9:33 PM
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