Volume 11, Number 4 - March/April 2002

Intellectual property for a wired world

Protection is more important than ever
By Justin E. D. Daily

An outside designer creates a Web site design for your client's company. Who owns the design? Read on for a modern primer on intellectual property.

Defense of intellectual property (IP) rights is becoming more and more important as the business community adapts to ever-changing technology combined with the recession. It is now much easier to steal, copy and produce goods in violation of IP rights.

Protection of those rights is becoming a global concern. With the proliferation of international communication, IP infringement has become increasingly simple and widespread. Current technology makes the cross-border transfer of extremely lengthy and complex files that violate intellectual property laws as simple as a click of the mouse.

The globalization of IP law also creates issues under international criminal laws. With respect to rights owned by a corporation, prosecutors will consider the corporation as well as the responsible individuals, as potential criminal targets. But, many infringements that are considered crimes in the United States are not considered crimes in other countries. Further, many small countries refuse to cooperate with international criminal investigations unless that small country has its own criminal offense precisely on point.

In some instances, pursuing criminal action based on an IP violation is not in the best interest of the holder of the rights. Because U.S. statutes prohibit many infringements as felonies as well as misdemeanor crimes, the consequences of an infringement may include adverse publicity for the company reporting the infringement. Investors often lose confidence in companies that do not adequately protect their intellectual property.

In addition, a party seeking to stimulate a governmental response to an infringing party must be willing to fully cooperate with the prosecutor. This may mean opening their own confidential and proprietary files to further the investigation. Those seeking to institute criminal action against another must be aware of the possibility of a fortuitous discovery that leads to its own liability for a crime.

Finally, companies seeking to enforce intellectual property rights abroad are in danger that a foreign court may hold that the IP right is not enforceable, putting the company in a worse position than it would have been in if it had never pushed for the prosecution.

Investors now consider much more seriously a company's IP rights and the efforts that the company has made to protect those rights. With large technology companies generating hundreds of millions of dollars per year solely through licensing agreements, many venture capital firms currently focus almost exclusively on a company's intellectual property.

Regardless of the justifications for the increased concern surrounding intellectual property, enforcement and defense of those rights is becoming increasingly important with respect to almost every modern business community. Because of their technical simplicity, two of the most easily infringible intellectual property rights are copyright and trademark rights.

Protection of copyrighted works has been a longstanding and important concern throughout American history. Article I, Section 8, Clause 8 of the Constitution delegates to 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."

A copyright gives protection to all original works of authorship fixed in a tangible medium of expression. Copyright protection begins as soon as a work is fixed in a tangible form. However, an author should immediately use the copyright symbol to notify others that he or she intends to exercise control over the production, distribution, display or performance of the work. Though it is not necessary to attach the copyright symbol in order to gain protection, it helps to enforce the copyright should a violation occur.

There are several rationales for protection of copyrighted works. First, protection allows a person to reap the benefits of his or her own labor. Copyright protection also provides an incentive for others to produce original works of authorship by allowing an individual to profit from his or her own works. The protection of copyrighted works benefits society by allowing a work to be openly shared and widely disseminated without the threat that others will unduly profit from the work. If authors were not allowed to exclude others from their own work, the incentive to disclose and to produce original works would be chilled.

Though traditional copyright law referred mainly to writings in printed form, modern copyright law, in an attempt to conform to the technology boom, protects a much wider array of areas including computer software, databases and architectural works. Because the extension of copyright protection is relatively recent, companies often fail to adequately provide for the protection of valuable IP rights when works have been commissioned from outside sources.

One example where the lapse in copyright protection has become increasingly apparent is within the realm of Web site design. An ever expanding number of businesses institute and maintain Web sites for advertising and informative purposes. Oftentimes, businesses use Web site designers to produce extremely professional looking and elaborate Web pages. However, if the Web site designer is an independent contractor, he or she is the owner of the copyright to the site. If the business owner does not negotiate for the copyrights to the site, a litany of copyright questions may arise.

There are several legal protections for businesses that maintain Web sites. First, if the business is able to show that the Web site designer was designing the site as an employee of the business, the business will be deemed the owner of the site under Section 201 of the Copyright Act.

As discussed in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), the Supreme Court noted several factors to consider when determining whether a Web site designer is an independent contractor or an employee. Those factors include:

• the level of skill required to do the work,
• the source of the instrumentalities and tools used to do the work,
• the location of the work,
• the duration of the relationship between the parties,
• whether the business has the right to assign additional projects to the designer,
• the extent of the designer's discretion over when and how long to work,
• the method of payment to the designer,
• the designer's role in hiring and paying assistants,
• whether the work is part of the regular business of the hiring party,
• whether the hiring party is in business,
• the provision for employee benefits, and
• the tax treatment of the designer.

A business may also assert rights through the joint-work doctrine. Under that doctrine, the Web site designer is treated as a co-owner under the Copyright Act. The Copyright Act defines a joint-work as "a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole." Under the joint- work doctrine, each author must make independent copyrightable contributions to the disputed work. See Aalmuhammed v. Lee, 202 F.3d 1227 (9th Cir.2000).

Although the Web site designer may technically create the Web site, the business owner or employee often contributes the text of the site. The designer may have formulated the source code and look of the site, but the business may be found to be a joint owner of the site simply by contributing the text. If it is found that each party has contributed copyrightable work, both parties are entitled to copyright protection.

However, in order to ensure that there are no copyright problems, a business should find it valuable and worthwhile to negotiate for the copyright to any work that may be construed as commissioned and amend any contract to include transfer of copyright ownership to the company. Adequate preparation in the short term will save time and cost immeasurably in the long run.

A trademark is a mark used to distinguish one's goods or services. Protection under trademark law endures so long as the mark continues to be used and effectively distinguishes goods or services.

Courts generally find infringement when a subsequent mark is likely to cause consumers to be mistaken or confused about the source, origin or sponsorship of the goods or services. Trademark law extends protection to brand names, business names, packaging, slogans and to other distinctive ways in which businesses identify their goods or services in commerce.

An effective trademark can be an extremely powerful symbol and invaluable to a business. There are relatively few people in this world who do not recognize the Nike swoosh or the Coca-Cola calligraphy. Many merchants try to capitalize on the widespread brand recognition of these and other trademarks through the sale of fake or "knock-off" goods. This type of infringement is damaging because it may reduce the market for the trademark holder as well as undermine the consumer confidence in the product that the business has worked so hard to build.

The Supreme Court has extended trademark enforcement to reach providers of Internet services in addition to those who actually infringe the trademark, holding that an Internet service provider is liable when it has actual or constructive notice of infringing material. This extension is certain to have several significant ramifications.

Since the number of possible infringers will increase, the causes of action will also increase. Consequently, lawsuits will become much more lucrative for plaintiffs in trademark infringement actions and much more dangerous for defendants.

Because of the actual or constructive notice requirement instituted by the Supreme Court, companies will also need to treat trademark complaints much more seriously. An unaddressed complaint could quite likely lead to liability.

Regardless of the type of intellectual property right involved, IP defense has become an increasingly important aspect of doing business. In order to adequately protect a business and create a successful plan for the future, one must seriously consider its benefits and consequences.