978-0077733711 Chapter 8 Lecture Note Part 1

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Chapter 08 – Intellectual Property and Unfair Competition

CHAPTER 08

INTELLECTUAL PROPERTY AND UNFAIR COMPETITION

I. OBJECTIVES

This chapter is designed to acquaint students with the law of intellectual property, certain

“commercial” or “competitive” torts, and the law of unfair competition as represented by § 43(a)

of the Lanham Act. See the Learning Objectives that appear near the beginning of the chapter.

The material on competitive torts can be treated separately, along with the other intentional torts

discussed in Chapter 6. Competitive torts are addressed in this chapter because they reflect the

general theme of unfair competition, as do the other doctrines and rules discussed in the chapter.

II. ANSWERS TO INTRODUCTORY PROBLEM:

A. Trademark

B. Patent, but only if requirements of patentability are met.

C. Copyright, though trademarks may be used in the commercial.

D. Copyright, usually; patent available if requirements are met.

E. Trademark

F. Trade secret, if kept secret; possibly patent if requirements are met.

G. Trademark

H. Patent, if requirements are met.

I. Trade secret, if kept secret.

J. Copyright

K. Trademark (trade dress variety)

III. SUGGESTIONS FOR LECTURE PREPARATION

A. Introduction

Stress the two policy justifications that individually or together underlie most of the topics

discussed in the chapter:

1. The idea that free competition can be carried to such an extreme as to discourage the

creativity and innovation such competition induces; and

2. The idea that certain minimum standards of ethical competitive behavior should be

upheld, quite apart from their ability to encourage creativity and innovation.

The introductions to most of the major sections in the chapter should suggest which

policy predominates in the area to be studied. Note that a different rationale–preserving

consumers’ ability to identify favored products and services–helps justify trademark law.

B. Patents

1. Describe the meaning of patent protection in general terms and state the policy rationale

underlying such protection.

a. With the enactment of America Invents Act (AIA), the U.S. made major changes in

certain aspects of patent law. The AIA took effect in March 2013. Chapter 8’s

discussion of patent law reflects the current provisions, now that the AIA has taken

effect.

b. Who is entitled to a patent? Is it the first to invent, or is it the first to file? Note that

historically, the U.S. adhered to a first-to-invent rule in determining who is entitled to

a patent. This approach ran contrary to what many other nations do. They instead

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Chapter 08 – Intellectual Property and Unfair Competition

have tended to go with a first-to-file approach. With the AIA (see the above

paragraph), the U.S. moved from a first-to-invent system to a first-to-file system in

March 2013. Note the implications and likely effects of this change.

2. Briefly note the types of patents that may be awarded (see p. 266), but emphasize that the

text focuses on utility patents. With regard to the “what is patentable?” question:

a. You might distinguish a process (a means devised for the production of a given

result) from a machine (a distinctive means–basically an apparatus–for

accomplishing a given result). Other examples of a composition of matter

(another category of potentially patentable subject matter) are a pharmaceutical

product, alloy, and a new food product. You might also note that an improvement

may be patentable even if it relates to already patented subject matter, so long as the

tests of novelty, utility, and nonobviousness are met. (Those tests are discussed

later.)

b. Stress that laws of nature and natural phenomena are not patentable, even if they

were previously unknown and were only recently discovered. The law-of-nature

disqualification from patentability has received considerable attention from the

Supreme Court in recent years. Note, for instance, the Mayo v. Prometheus Labs

decision (discussed at p. 266), in which the Court held that a certain drug-dosage

correlation test was not, under the circumstances, a patentable process but was

instead merely a law of nature. Although applications of laws of nature may

sometimes be patentable, the particular test at issue in the case did not qualify as

such an application. Note the effect when a patent has not been obtained or has

been invalidated: others are generally free to engage in copying. Continuing with

the law-of-nature prohibition on patentability, consider Association for

Molecular Pathology v. Myriad Genetics, Inc., the text case discussed immediately

below.

Association for Molecular Pathology v. Myriad Genetics, Inc. (p.267): The

Supreme Court holds the Patent & Trademark Office (PTO) should not have

granted patents arising from the discovery of the precise location and sequence of

human genes that would substantially increase a patient’s risk of breast or ovarian

cancer. The genes and propensity for increasing a patient’s cancer risk

constituted a law of nature and a naturally occurring phenomenon. Hence, patents

were not available to those who isolated the relevant genes and discovered their

health significance.

Points for Discussion: Walk the students through basic facts here, without

digging too deeply into the science (unless, of course, you have a fairly extensive

background regarding the latter). Ask why Association for Molecular Pathology

and other plaintiffs sued the patent owner (Myriad). (They wanted a declaratory

judgment to the effect that if they developed tests for the particular genes

supposedly covered by Myriad’s patents, they would not be infringers because

the patents shouldn’t have been granted in the first place.) Note that the plaintiffs are

arguing the same things they would have argued if they had developed such tests

and Myriad had sued them for infringement. They would then have made the

arguments that the patents were invalidly granted. By seeking a declaratory

judgment, the plaintiffs jumped the gun on Myriad and hoped to obtain what they

ultimately received: a ruling that wiped out Myriad’s patents. Ask the students

what the Court’s decision means for developers of tests regarding the genes

isolated by Myriad. (They received what amounts to a green light to do so.)

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Aren’t patents supposed to provide incentives to create and innovate? Didn’t

Myriad make a great discovery? (Yes, to both questions.) So why is there the

law of nature prohibition? (Do we really want those who discover previously

unknown facts to have dibs on what they discovered for 20 years? Would that be

good policy? Note, importantly, that particular applications of the law of nature

that Myriad discovered could be patent-eligible, whether the applications are

developed by Myriad or by someone else.

c. The Supreme Court has held that practical applications of mathematical

principles may merit patent protection. This ruling helped paved the way for an

eventual decision by the PTO that certain computer programs may be patentable.

Mere abstract ideas, however, are not patentable.

d. Regarding the patentability of certain business methods, note the controversy that

has resulted from a 1998 decision in which the U.S. Court of Appeals for the

Federal Circuit held that business methods could qualify for patent protection.

For example, Amazon obtained a patent on its “one-click” online shopping

method, though the validity of the patent was contested in litigation. Critics have

argued that the U.S. Patent Office has granted business method patents too

readily in recent years, and that patents are improperly being issued for business

methods amounting only to “dressed-up” (frequently “Internet-ized”) versions of

long-used methods. In Bilski v. Kappos (formerly a text case, but now Problem

#7), the Supreme Court focused on how to determine whether a business method

is patentable and disappointed some observers who hoped that the Court would

interpret the Patent Act as not permitting patents on business methods.

Discussion of Bilski appears below. It is followed by discussion of a text case,

Alice Corp. v. CLS Bank Int’l, in which the Supreme Court applied Bilski.

Bilski v. Kappos: The U.S. Supreme Court holds that the “machine or

transformation” test is not the exclusive test for whether a business method is

patentable, and that the particular method at issue in the case (a method for

hedging against risk in energy price fluctuations) was not patentable.

Points for Discussion: Begin by providing a sense of the history of patentability

of business methods and the controversy that has attended the issue since the late

1990s. (See the above background.) Note what the business method in the case

involved, and what was contemplated by the “machine or transformation” test

that the Federal Circuit held to be the exclusive test for patentability of business

methods. Why do the students think the Federal Circuit regarded that test as the

exclusive one? Was it a nod to critics of the conclusion that business methods

could be patented? Might it have been a way of limiting the number of patentable

business methods without admitting that the court had been wrong in the 1998

decision that said business methods could be patented? As for the Supreme

Court’s decision, some critics of the notion that business methods are patentable

hoped that the Court would go well beyond its actual holding in the case and rule

that business methods simply are unpatentable. Instead, the court issued a more

limited ruling, though one suggesting that business method patents shouldn’t be

routinely granted even though they may be granted. What does the Supreme

Court say about the “machine or transformation” test? (That it may be useful to

apply, but that neither the language of the Patent Act nor the objectives

underlying it suggest that the machine or transformation test is the exclusive one

to be used when the patentability of a process was to be determined.) Why,

according to the Court, was the business method at issue in the case

unpatentable? (Because it was merely an abstract idea placed in the form of a

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mathematical formula. It was thus an approach that should be fair game for all to

use.)

Alice Corp. v. CLS Bank Int’l (p. 269): The Supreme Court holds that a

computer-implemented scheme for implementing settlement risk by using a

third-party intermediary amounts to an abstract idea and is therefore ineligible for

a patent. The Court therefore ruled that the patents at issue in the case were

invalid.

Points for Discussion: The Court traced a number of cases in which laws of

nature, naturally occurring phenomena, and abstract ideas are not patentable, and

the reason why those prohibitions appear in the Patent Act. Bilski (see above)

was among the decisions the Court cited and discussed. The reasoning and result

in Bilski led logically to the Court’s conclusion that the Alice patents at issue also

amounted to abstract ideas and thus were unpatentable. Although the Court

stressed that applications of abstract ideas may sometimes be patentable, simply

taking an abstract idea and saying “apply it with a computer” does not pass

muster under the Patent Act. Is that what was called for by the patents at issue?

(Yes, according to the Court.) Did the decision in Alice go as far as critics of

business method patents might have liked the Court to go? (No, because the

Court did not issue a sweeping ruling stating that business methods are

unpatentable.) But did the Court indicate that business method patents are likely

to receive fairly careful scrutiny when the validity is questioned? (It would

appear so.) Note, too, that those who are concerned about so-called patent trolls

(see the text’s later discussion at p. 276) probably enjoyed the fact that Alice’s

patents were ruled invalid. Alice, after all, had not obtained the patents in the

first instance; rather, Alice was an assignee of others’ patents.

e. In explaining the novelty requirement, note its overarching focus on whether the

invention is truly new and different from what has gone before in the relevant field.

Note that the novelty inquiry includes the before-application test outlined at p. 271.

List the things that, if they occurred prior to the filing of the patent application, will

disqualify the applicant from obtaining a patent. See p. 271. But be sure to note the

one-year window exception explained at p. 271. Walk the students through this

exception and stress its most common application: to the situation in which the

inventor begins public sale of the invention before filing the patent application. The

public sale constitutes a public disclosure of the invention, but the inventor can still

obtain a patent if the patent application is filed within a year after the public sale

commenced.

f. Discuss the nonobviousness requirement and what it contemplates. KSR v. Teleflex

(a former text case that is now Problem #1) is an excellent vehicle for doing so.

KSR International Co. v. Teleflex, Inc.: The Supreme Court reversed the Federal

Circuit’s judgment that a claim in Teleflex’s patent over placement of an electronic

sensor mechanism in an automobile accelerator pedal was nonobvious. In reversing,

the Supreme Court held that even though the prior art had not specifically “taught,

suggested, or motivated” Teleflex’s inventor to put the sensor on a fixed pivot point,

the solution would nonetheless have been obvious to a person of ordinary skill in the

area. The Court therefore saw merit in the defendant’s contention that Teleflex’s

patent was invalid.

Points for Discussion: When does an invention become obvious–and therefore

unpatentable–in light of the prior art? In rejecting the “teaching, suggestion,

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motivation” test applied by the Federal Circuit, the Supreme Court seemed to want to

reorient the obviousness test in a more pragmatic direction. Fixating on the fact that

the prior art had not specifically “taught” Teleflex’s inventor where to place the

sensor distracted from the real point of an obviousness analysis: namely, whether

Teleflex’s solution to the problem would have been apparent to persons of ordinary skill

in the field. Has the Supreme Court’s decision in this case made the

nonobviousness requirement a more difficult hurdle for patent applicants to clear?

Probably so. One other thing to note regarding this decision is that an effect of the

America Invents Act is to change the time frame of the nonobviousness inquiry. Until

March 2013, obviousness or nonobviousness was determined in regard to the time of

creation of the invention (i.e., what was obvious as of that time?). Under the AIA, the

relevant time is the time of filing of the patent application (i.e., what was obvious as of

then?).

3. The rights held by a patent owner are sweeping in nature, as the discussion in the text

indicates. They are effectively monopoly rights, though for a limited time. Note the mid-

1990s change in the law regarding the duration of utility patents (changing from 17 years

from the grant of the patent to 20 years from the filing of the application). Design patents

have a different duration, however. See p. 272 of the text.

4. Explain patent law’s exhaustion doctrine (also called the first sale doctrine), which

provides that the sale of an item embodying a patented invention exhausts the patent

owner’s rights over that particular item. Bowman v. Monsanto Co., the text case

discussed immediately below, involved a farmer’s unsuccessful attempt to invoke the

exhaustion doctrine as a shield against patent infringement liability. Your students may

have heard of the case, because the media reported fairly extensively on it.

Bowman v. Monsanto Co. ( p.272): The Supreme Court holds that the exhaustion

doctrine did not protect Bowman, a farmer, against patent infringement liability to

Monsanto.

Points for Discussion: What did Bowman do? Have the students summarize the basic

facts. Be sure they understand why purchasing soybeans from a grain elevator seemed to

him an attractive way to go for purposes of growing his second crop of the season.

(Those soybeans almost certainly had been grown from patented Roundup-Ready seeds,

they almost certainly were still Roundup-Ready to a considerable extent, and they were

much cheaper than buying more Roundup-ready seeds from a Monsanto licensee.) Of

course, the second-crop-of-the-season part of Bowman’s plan is what is problematic. But

hadn’t the soybeans he purchased from the grain elevator already been the subject of a

sale. So why doesn’t the exhaustion doctrine (the first-sale doctrine) apply with regard to

those soybeans and protect Bowman against infringement liability? (Because the

exhaustion doctrine only ends a patent owner’s rights regarding the particular copies or

items at issue—here, the previously sold soybeans. It does not entitle a person in

Bowman’s position to reproduce the patented invention in additional copies or items.

The latter is what Bowman did.) What would happen to Monsanto’s patent rights if lots

of farmers began doing what Bowman did? No doubt the Supreme Court was thinking

along those lines. Ask the students what they think about the bug guy versus little guy

flavor of this case. That flavor probably helped generate much of the media attention

given to the case. The Supreme Court, however, appeared to regard this case as an easy

one to decide.

5. Note that the shop-right doctrine discussed in the text (see p. 274) refers only to the

employer’s license to use the patent, not to patent ownership. The other two rules

discussed at this point deal with patent ownership.

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6. Note the doctrine of equivalents and its key role in many patent infringement cases of a

direct infringement nature. Emphasize the traditional formulation of the test used for

whether an allegedly infringing use by the defendant involves substantial equivalence to

the patented invention. Note also that there may be liability in appropriate cases for

inducing patent infringement or for contributory infringement.

7. Briefly note the remedies available to successful plaintiffs in patent infringement cases.

Mention that even though injunctions remain a standard and frequently imposed remedy

in such cases, they are not a mandatory remedy.

8. With regard to defenses, emphasize the two obvious ways to defend against a patent

infringement claim: arguing that the alleged infringement does not fall within the

subject-matter of the patent; and attacking the patent by arguing that it should not have been

granted.

9. A new section added for the 16th edition (see p. 266) summarizes other major changes

brought about by the America Invents Act. Note what that section says about actions

taken—and not taken—by Congress in the AIA.

C. Copyright

1. Regarding the original works of authorship protected by copyright law:

a. Note that originality is not the same thing as uniqueness or the novelty required for a

patent. Rather, to be original, the copyrighted matter must only be original to the author

(i.e., the author’s own work). A good example is a hypothetical situation in which

Composer B writes a song that is quite similar to an earlier copyrighted song written by

Composer A, with Composer B’s having neither heard nor otherwise had access to

Composer A’s song. Composer B is entitled to copyright protection for his song, just as

Composer A is entitled to copyright protection for her song.

b. Another example of the distinction between ideas, etc. and the form in which they are

expressed is the difference between the theory of relativity and a book on that subject.

c. A photograph is an example of a copyrightable depiction of pure fact involving

originality and creativity. The photographer would have exercised judgment in making

decisions on such matters as where to stand when taking the picture, how to position the

persons or things shown in the picture, and what type of film (color or black and white) to

use.

d. Students may be surprised to learn that the copyright on a work does not protect the

work’s title. (This point is not mentioned in the text.) This helps explain why there are

various songs, books, and other copyrighted works with the same or very similar titles.

Some–though clearly not all–work titles may be protected under trademark law or under

§ 43(a) of the Lanham Act.

2. Regarding copyright formalities, stress that registration is not needed for a copyright to

exist. Copyright protection exists once the original work of authorship has been created

and fixed in a tangible medium. Registration, however, is usually a prerequisite to filing

a suit for infringement. Although the Berne Convention Implementation Act of 1988

amended copyright law to make notice no longer mandatory, use of notice still affords

some advantages. For example, if proper notice is present, the defendant in an

infringement case usually cannot reduce the actual or statutory damages described later

by claiming that the infringement was innocent. In addition, use of notice may furnish

the practical benefit of “scaring off” would-be infringers.

3. In discussing copyright duration, be certain to note the effects of the 1998 Sonny Bono

October 1998 effective date of the CTEA received an extra 20 years of protection. Of

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course, the longer duration contemplated by the CTEA also attaches to works created

after October 1998. Concerning works created in 1978 or thereafter, contrast the basic

rule for determining copyright duration (life of the author plus 70 years, under the CTEA)

with the work-for-hire rule (under the CTEA, 95 years from first publication or 120 years

from creation, whichever comes first). Discuss the circumstances under which the basic

rule would apply, and those under which the work-for-hire rule would apply.

a. Note that if the basic rule governs the duration of the copyright when the work comes

into being, the basic rule still applies even if the author later transfers the copyright to a

legal entity such as a corporation. For instance, the composer of a song may later transfer

the copyright to a music publishing firm. The duration of the copyright is still measured

by the composer’s life plus 70 years, even though a corporation now owns the copyright.

b. The basic rule and the work-for-hire rule apply only to works created in 1978 or

thereafter. Huge numbers of pre-1978 works are still governed, in terms of duration, by

the “old” copyright rules discussed in the text. The rules governing pre-1978 works

provided for a 28-year term plus a renewal term (if the proper procedures for renewal

were followed). The renewal term, originally 28 years and later extended to 47 by

Congress, is now 67 years with the enactment of the CTEA. The “old” rules concerning

duration will therefore be with us for many years to come. The renewal aspect of the old

rules sometimes proved to be a trap for the unwary, so Congress scrapped the idea of

renewal when it enacted the duration rules that apply to works created in 1978 or

thereafter.

c. Because of the CTEA, we are still in a 20-year period in which no copyright protection

will lapse and no copyrighted works will pass into the public domain. Not until the year

2018 ends will the flow of works into the public domain again commence. You may wish

to discuss the public policy implications of this state of affairs. Critics of the CTEA have

asserted that the very lengthy copyright durations it establishes are contrary to the spirit

of the “limited times” language in the copyright clause of the U.S. Constitution.

d. In 2003, the Supreme Court decided Eldred v. Ashcroft, 537 U.S. 186, the case referred to

on p. 277 of the text. In upholding the CTEA against constitutional attack, the Court held

that even though the copyright protection period had become quite lengthy, it was still a

“limited time” for purposes of the Constitution’s Copyright Clause. As for the incentive-

to-create argument, the Court refused to require that each and every copyright enactment

by Congress satisfy the incentive requirement. The focus, instead, is on whether

approach, the CTEA passed constitutional muster. Moreover, the Court noted, all

previous copyright duration extensions enacted by Congress had been applied to already

existing works. Although the Court upheld the CTEA, it made comments that raised

questions about the wisdom of the enactment. Justices Breyer and Stevens wrote

vigorous dissents.

4. Provide an overview of the rights possessed by the owner of a copyright and the ways

these rights can be licensed or transferred. Be sure that students understand the difference

between a copyright license and an outright transfer (or assignment) of a copyright. See

p. 278.

American Broadcasting Cos. v. Aereo, Inc. (p. 278): The Supreme Court holds that

Aereo’s method of streaming copyrighted TV programs to paying subscribers violated

Points for Discussion: Note that most copyright infringement cases that focus on

performance rights (for instance, those involving copyrighted songs) tend to have less

complex facts than this one. Have the students trace the basic elements of Aereo’s plan,

without getting into too many technical details. Suffice it to say that Aereo devised what

it regarded as a way around having to pay the licensing fees that cable networks have to

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pay in order to make programming available to their paying subscribers. Of course, then,

Aereo could keep its prices low for its subscribers. Note, but probably only in a general

sense, the Court’s discussion of the Transmit Clause in the Copyright Act and of how a

violation of that clause serves as a violation of copyright owners’ performance right.

Does the Court’s decision have a substance-over-form feel to it? (I.e., Aereo’s form

differs from that of CATV providers (the forerunners of today’s cable networks), but its

substance is the same in terms of the access to copyrighted programs that consumers get).

Does the Court seem to be saying that Aereo’s method achieves the same results cable

companies achieve, that Congress clearly wanted CATV’s (and therefore cable

companies’) actions to be subject to the Copyright Act, and that Congress therefore

would have wanted an Aereo-like method to be subject to the Copyright Act as well?

5. Explain that the Copyright Act includes a provision setting forth the first-sale doctrine

(largely the same doctrine seen in patent law). Start this discussion with basic examples

similar to the textbook example noted at p. 281 of the text. For instance, one who buys a

novel owns that copy of it and can sell or give it to someone else without implicating the

rights of the copyright owner. But the owner of that copy of the novel cannot make

additional copies of it, because doing so would violate the copyright owner’s rights to

make and distribute copies. After such an introduction to the first sale doctrine, discuss

Kirtsaeng, a text case the students are likely to find interesting

Kirtsaeng v. John Wiley & Sons, Inc. (p. 282): The Supreme Court holds that the first

sale doctrine protects Kirtsaeng against copyright infringement liability to Wiley, the

owner of the copyrights on various books at issue in the case.

Points for Discussion: Ask the students to summarize Kirtsaeng’s profit-making plan.

(He had friends or family members in Thailand purchase copies of Wiley-copyrighted

textbooks that Wiley produced outside the U.S. and intended for distribution outside the

U.S.; the purchasers in Thailand would then ship the copies of the books to Kirtsaeng in

the U.S.; Kirtsaeng would then re-sell those copies in the U.S.; and Kirtsaeng, after

paying those who bought the copies for him in Thailand, would make a good profit.) Ask

why, as a practical matter, this worked for Kirtsaeng. (Because Wiley’s overseas editions

of the books were essentially the same as the U.S. versions but were sold at significantly

lower prices outside the U.S. than were charged in the U.S. for the U.S. versions. Thus,

Kirtsaeng could sell the overseas editions in the U.S. at lower prices than would be

charged for the functionally equivalent U.S. versions.) So, what was the possible hitch in

Kirtsaeng’s plan, which might otherwise seem to be a legally permissible way to take

advantage of the first sale doctrine? Ask students about the Copyright Act’s importation

provision, on which Wiley was relying. That provision states that importation of

coyrighted material into the U.S. without the authorization of the copyright owner

violates the distribution right held by the copyright owner and is therefore infringement.

So what is Wiley arguing? (That the importation provision should control, and that the

Court should harmonize the importation provision and the first-sale doctrine provision by

holding that the first-sale doctrine does not apply when the copies at issue were produced

outside the U.S.) Why did Wiley’s argument fail? (Because the importation provision

says that a violation of it is a violation of the copyright owner’s distribution right, as

outlined in the statutory section dealing with rights of copyright owners, and the statutory

section dealing with the first sale doctrine expressly states that copyright owners’ rights

are subject to the first-sale doctrine. Moreover, the section on the first sale doctrine does

not contain language amounting to a geographic limitation of the sort for which Wiley

was arguing. You may have to walk the students through some of this, but they will get

it.) Note the Court’s expressions of concern about the implications for possible future

cases if the Court were to read a geographic limitation into the section on the first sale

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doctrine. Ask, finally, about how this ruling by the Court may affect the overseas

production and sales practices of Wiley (practices that have been common in the

publishing industry).

6. In discussing infringement, explain the elements of access, copying (either deliberate or

subconscious), and substantial similarity. Note the extent to which the copying and

substantial similarity elements tend to overlap.

a. A famous case dealing with subconscious copying is the one in which former Beatle

George Harrison was held liable for infringing the copyright on the song “He’s So

Fine.” Portions of Harrison’s song “My Sweet Lord” reflected substantial similarity

to, and apparent copying from, portions of “He’s So Fine.” The fact that any copying

by Harrison was not deliberate (i.e., that it was subconscious) did not protect him

against liability. Intent to copy or to infringe is not an element of a copyright

infringement claim.

b. You might also note a recent example that students probably heard about because it

received considerable attention from the media: the 2015 jury decision in favor of

the Estate of Marvin Gaye in the estate’s copyright infringement lawsuit against

Robin Thicke and Pharrell Williams. The defendant’s song, “Blurred Lines,”

contained musical expression that was too similar, in the Estate’s view, to Gaye’s

song “Got To Give It Up.” Thicke and Williams supposedly planned to appeal. No

further development had occurred in the case as of the time this manual was

produced.

c. Emphasize that even a quantitatively small amount of borrowing from the

copyrighted work’s expression may be enough to constitute infringement–especially

if the borrowed portion was qualitatively significant (e.g., an important, particularly

memorable, or easily recognizable portion of the copyrighted work). Note, also, the

text’s statement that a defendant’s having paraphrased the original (as opposed to

having used the literal language) is not necessarily a defense. Neither is the

defendant’s having cited the copyrighted work as the source. It is not infringement,

however, to “lift” facts, general ideas, themes, and the like from copyrighted works,

because the copyright protects only the expression contained in the work.

d. MGM v. Grokster, a former text case now serving as the basis of the Cyberlaw in

Action box on p. 285, deals with a variety of infringement issues. We include

discussion notes on Grokster in case you wish to devote meaningful class time to it.

MGM Studies, Inc. v. Grokster, Ltd.: The U.S. Supreme Court recognizes the

inducement theory of copyright infringement liability and remands for further

proceedings, while offering a very strong indication that Grokster and StreamCast

(collectively referred to below as “Grokster”) should be held liable for inducing

infringing uses of their software that allowed peer-to-peer file-sharing.

Points for Discussion: This case should generate student interest because of its

relationship to the activity of file-sharing. Both Grokster and the Ninth Circuit’s

2001 decision in Napster (cited in Grokster) dealt with attempts to impose

infringement liability on entities other than the direct users of the copyrighted works

at issue. In Napster, the Ninth Circuit Court of Appeals had placed contributory and

vicarious infringement liability on Napster. In Grokster, however, the Ninth Circuit

had said Grokster was not liable. Distinguishing Napster, the Ninth Circuit held that

Grokster’s lack of a central server over which it had control prevented the

infringement theories that doomed Napster from being applied against Grokster. The

Ninth Circuit also regarded Grokster as protected by language in the Supreme Court’s

Sony decision–language seeming to indicate that a technological advancement could

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Chapter 08 – Intellectual Property and Unfair Competition

not be deemed an instrument of infringement if it could be put to substantial

nonfringing uses as well as to infringing uses. The Supreme Court concluded that the

Ninth Circuit’s decision in favor of Grokster was erroneous because the Ninth Circuit

failed to recognize that the inducement theory of liability would apply to Grokster.

Ask the students what underlying actions the contributory infringement, vicarious

infringement, and inducement theories all depend on. (Answer: direct infringement

by users of the Napster-like or Grokster-like service.) Note that the direct infringers

need not be named in the lawsuit, but proof of such infringing actions must be

demonstrated in order for contributory or vicarious infringement liability or

inducement liability to even potentially apply. Sometimes of course, direct users

themselves have been sued in recent years by owners of copyrights on songs,

recordings, and movies. Ask why it is that most uses of Napster or Grokster amount

to infringement. What are the elements of contributory infringement? (Knowledge

of infringing activity and material contribution to the occurrence of infringing

activity.) What are the elements of vicarious infringement? (Right and ability to

supervise users’ actions and direct financial benefit.) The Supreme Court appears to

acknowledge that Grokster wouldn’t be liable under either of these theories, but

strongly indicates that application of the inducement theory would lead to a different

outcome. Ask what area of the law the Supreme Court “borrows” from in

recognizing the inducement theory. (Patent law, where the inducement theory is

well-established.) Ask what must be shown, according to the Supreme Court, in

order for inducement liability to exist? (Intent to promote infringing uses, clear

expressions of that intent, and affirmative steps to promote infringing uses.) Why

would Grokster be subject to inducement liability? (Chiefly, its advertisements and

other promotional efforts–particularly those after Napster had been shut down by

court order–that effectively advocated the use of Grokster’s software to engage in

uses of an infringing nature.) Note that the Supreme Court remands without actually

holding Grokster liable, but the message to the lower courts on remand is clear. The

Supreme Court regarded Grokster’s unlawful objective as “unmistakable” and

considered the evidence potentially supporting inducement liability to be quite

strong.

Ask the class why the Supreme Court says that the Ninth Circuit erred in holding

that the Sony language about potential for noninfringing uses protected Grokster

against liability. (The Supreme Court says that the Sony language was never meant to

be applied in disregard of evidence clearly indicating the applicability of the

inducement theory. Unlike Grokster, the VCR makers in Sony hadn’t engaged in

conduct amounting to inducement. In addition, the evidence in Grokster showed that

an overwhelmingly large percentage of the uses of Grokster’s software were

infringing in nature, and that noninfringing uses were very few and very far

between.). Finally, ask about the Grokster-related ethical issues raised in the Ethics

in Action box at p. 293.

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