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Part Nine:
Regulation of Business
CONTENTS
Chapter 39 Protection of Intellectual Property
Chapter 40 Antitrust
Chapter 41 Consumer Protection
Chapter 42 Employment Law
Chapter 43 Securities Regulation
Chapter 44 Accountants' Legal Liability
Chapter 45 Environmental Law
Chapter 46 International Business Law
ETHICS QUESTIONS RAISED IN THIS PART
1. In your opinion does government regulation work? Why or why not? If you are of the opinion that it does
not work, who should police the conduct that you would characterize as unethical or wrongful?
2. Does a company have ethical responsibilities to its workers? If so, what are they? How can a company
balance its ethical responsibilities to its workers and its legal responsibilities to its shareholders?
3. Who is harmed by insider trading? Do these people really need to be protected or are the securities laws
unnecessary in today's business world? Why?
4. The trend in recent years has been towards deregulation of more and more industries. Is this a trend that is
beneficial to society as a whole? Why? Cite examples to support your opinion.
5. Should the Internet be regulated in any way by the Federal government? Why or why not?
6. What is unethical about sexual harassment? In a world with two sexes who frequently work together, how
do you distinguish between normal sexual behavior and conduct that you would characterize as sexual
ACTIVITIES AND RESEARCH PROBLEMS
1. Have students select an industry that has recently been deregulated, such as the airline industry. Then have
them research to determine whether the deregulation has benefited the consumer.
2. Have students conduct a survey of workers to see how many of them have experienced sexual harassment.
Use the EEOC guidelines as a definition of conduct that would constitute sexual harassment.
3. Have students research news articles and recent court cases involving illegal trading on the New York Stock
Exchange and the Chicago Board of Trade and the Chicago Mercantile Exchange. What sorts of violations
occurred in these cases? Then have students discuss whether regulation is necessary to prevent fraud and
insider trading. You might have a panel of students research such cases and then have an in-class discussion
of the effect of these regulations on the market place.
Chapter 39
PROTECTION OF INTELLECTUAL PROPERTY
A. Trade Secrets
1. Definition
2. Misappropriation
3. Remedies
4. Criminal Penalties
D. Copyrights
1. Procedure
2. Rights
3. Ownership
4. Infringements and Remedies
Cases in This Chapter
Ed Nowogroski Insurance, Inc. v.
Rucker
Wal-Mart Stores, Inc. v. Samara
Brothers, Inc.
Supap Kirtsaeng v. John Wiley & Sons, Inc.
Association for Molecular Pathology v. Myriad
Genetics, Inc.
Chapter Outcomes
After reading and studying this chapter, the student should be able to:
Explain what trade secrets protect and how they may be infringed.
Distinguish among the various types of trade symbols.
Explain the extent to which trade names are protected.
Explain what copyrights protect and the remedies for infringement.
Explain what patents protect and the remedies for infringement.
TEACHING NOTES
Intellectual property is an economically significant type of intangible personal property
that includes trade secrets, trade symbols, trade names, copyrights, and patents.
*** Chapter Outcome ***
Explain what trade secrets protect and how they may be infringed.
A. TRADE SECRETS
A business may choose not to obtain a patent on a trade secret, because patent
protection is available for only a limited time, whereas a trade secret may remain a
secret as long as the company can protect it.
Definition
A trade secret is commercially valuable, secret information that is guarded from
disclosure and is not general knowledge. It may include a formula, pattern, compilation,
program, device, method, technique or process.
Misappropriation
A trade secret may be disclosed in confidence to an employee with the understanding
that the employee will not disclose the information. If a person wrongfully uses a trade
secret, the owner may obtain damages and, where appropriate, injunctive relief. Trade
secrets are misappropriated when (1) an employee wrongfully uses or discloses it; or (2)
a competitor wrongfully obtains it.
Remedies
Includes damages and, where appropriate, injunctive relief.
Criminal Penalties
As amended in 2012, the Economic Espionage Act of 1996 prohibits the theft of trade
secrets, as well as attempts and conspiracies to steal trade secrets, if the trade secret is
related to a product or service used in or intended for use in interstate or foreign
commerce. The Act imposes criminal penalties for violations but does not provide any
civil remedies. The U.S. Attorney General, however, may bring a civil action to obtain
CASE 39-1
ED NOWOGROSKI INSURANCE, INC. v. RUCKER
Supreme Court of Washington, En Banc, 1999
137 Wash.2d 427, 971 P.2d 936
http://scholar.google.com/scholar_case?
q=971+P.2d+936+&hl=en&as_sdt=2,34&case=15515769364715143148&scilh=0
Guy, C. J.
Facts
This case is a trade secrets misappropriation action brought under the Uniform Trade Secrets Act, [citation], by an
employer against former employees. The employer, Ed Nowogroski Insurance, Inc. (Nowogroski Inc.), owned by
the Rupp family, sued its former employees, Michael Rucker, Darwin Rieck and Jerry Kiser, for soliciting its clients
using confidential information. The employees had worked for Nowogroski Inc. as insurance salesmen and servicers
of insurance business. Nowogroski Inc. also sued Potter, Leonard and Cahan, Inc., a rival insurance agency, for
which employees Rucker, Rieck and Kiser commenced work when they terminated their employment with
Nowogroski Inc.
Nowogroski Inc. appealed, arguing that the trial court erred in holding that prior Washington cases prohibiting
an ex-employee from using memorized, confidential client information to solicit his former employer’s customers
were abrogated by the Uniform Trade Secrets Act. Nowogroski Inc. argued that the form of information which
constituted a trade secret is irrelevant. Nowogroski Inc. also argued that the employees should be liable for
misappropriation of a trade secret whether the information that constituted the protected information was written or
memorized.
* * *
* * *
Analysis
As a general rule, an employee who has not signed an agreement not to compete is free, upon leaving employment,
to engage in competitive employment. In so doing, the former employee may freely use general knowledge, skills,
and experience acquired under his or her former employer. However, the former employee, even in the absence of an
enforceable covenant not to compete, remains under a duty not to use or disclose, to the detriment of the former
employer, trade secrets acquired in the course of previous employment. Where the former employee seeks to use the
trade secrets of the former employer in order to obtain a competitive advantage, then competitive activity can be
enjoined or result in an award of damages. [Citation.]
Once a common law concept, trade secret protection is now governed by statutes in most states, including
Washington. [Citation.] * * * The Act codifies the basic principles of common law trade secret protection. [Citation.]
A purpose of trade secrets law is to maintain and promote standards of commercial ethics and fair dealing in
protecting those secrets. [Citation.]
The Uniform Trade Secrets Act defines trade secret as follows:
“Trade secret” means information, including a * * * compilation * * * that:
In determining whether information has “independent economic value” under the Uniform Trade Secrets Act,
one of the key factors used by the courts is the effort and expense that was expended on developing the information.
[Citation.] A plaintiff seeking damages for misappropriation of a trade secret under the Uniform Trade Secrets Act
has the burden of proving that legally protectable secrets exist. [Citation.]
In this case, the trial court found that the insurance information, including the customer lists: (1) derived
independent economic value from not being known or readily ascertainable by proper means by other persons who
can obtain economic value from its disclosure or use, and (2) that the plaintiff’s efforts to keep the customer files
erred in concluding that they “misappropriated” a trade secret; rather, they argue that information in the memory of
the employee about a customer list is not a trade secret.
A customer list is one of the types of information which can be a protected trade secret if it meets the criteria of
the Trade Secrets Act. [Citations.]
Trade secret protection will not generally attach to customer lists where the information is readily ascertainable.
[Citations.] If information is readily ascertainable from public sources such as trade directories or phone books, then
customer lists will not be considered a trade secret and a prior employee, not subject to a noncompetition agreement,
would be free to solicit business after leaving employment. [Citation.] * * *
Briefly expressed, whether a customer list is protected as a trade secret depends on three factual inquiries: (1)
whether the list is a compilation of information; (2) whether it is valuable because unknown to others; and (3)
whether the owner has made reasonable attempts to keep the information secret. There is no dispute in this case that
* * *
The Uniform Trade Secrets Act does not distinguish between written and memorized information. The Act does
not require a plaintiff to prove actual theft or conversion of physical documents embodying the trade secret
information to prove misappropriation. [Citations.] The Washington Uniform Trade Secrets Act defines a “trade
secret” to include compilations of information which have certain characteristics without regard to the form that
such information might take. The definition of “misappropriation” includes unauthorized “disclosure or use.”
[Citation.] As the Court of Appeals noted, two types of information mentioned in the Uniform Trade Secrets Act as
examples of trade secrets include “method” and “technique;” these do not imply the requirement of written
documents. [Citation.]
* * *
Conclusion
The form of information, whether written or memorized, is immaterial under the trade secrets statute; the Uniform
Trade Secrets Act makes no distinction about the form of trade secrets. Whether the information is on a CD, a
blueprint, a film, a recording, a hard paper copy or memorized by the employee, the inquiry is whether it meets the
definition of a trade secret under the Act and whether it was misappropriated. Absent a contract to the contrary, an
employee is free to compete against his or her former employer, and a former employee may use general knowledge,
skills and experience acquired during the prior employment in competing with a former employer. However, an
employee may not use or disclose trade secrets belonging to the former employer to actively solicit customers from
*** Chapter Outcome ***
Distinguish among the various types of trade symbols.
B. TRADE SYMBOLS
“Palming o3,” the fraudulent marketing of one person’s goods as those of another, was
one of the earliest forms of unfair competition and is still common today. Section 43(a)
of the Federal Trademark Act (known as the Lanham Act) prohibits the use of a false
designation of nature, characteristics, qualities, or geographic origin in connection with
Types of Trade Symbols
The Lanham Act recognizes four types of trade symbols or marks.
A trademark is a distinctive symbol, word, name, device, letter, number, design,
picture, or combination in any arrangement that a person uses to identify the tangible
products he manufactures or sells. Trademarks also include “trade dress,” which is the
appearance of the goods or its packaging. Internet domain names that are used to
identify and distinguish goods or services and to indicate the source of the goods and
services may be registered as a trademark.
A service mark, similar in function to the trademark, is used to identify and distinguish
the services (such as TV show titles and characters or the name of a carpet cleaning
process) of one person from those of another. May include trade dress such as a
distinctive shape or decor of a building in which a service is provided.
CASE 39-2
WAL-MART STORES, INC. v. SAMARA BROTHERS, INC.
Supreme Court of the United States, 2000
529 U.S. 205, 120 S.Ct. 1339, 146 L.Ed.2d 182
http://scholar.google.com/scholar_case?
case=11551321958641509496&hl=en&as_sdt=2&as_vis=1&oi=scholarr
Scalia, J.
In this case, we decide under what circumstances a product’s design is distinctive, and therefore protectible, in an
action for infringement of unregistered trade dress under §43(a) of the Trademark Act of 1946 (Lanham Act),
[citation].
I
Respondent Samara Brothers, Inc., designs and manufactures children’s clothing. Its primary product is a line of
spring/summer one-piece seersucker outfits decorated with appliques of hearts, flowers, fruits, and the like. A
number of chain stores, including JCPenney, sell this line of clothing under contract with Samara.
Petitioner Wal-Mart Stores, Inc., is one of the nation’s best known retailers, selling among other things
children’s clothing. In 1995, Wal-Mart contracted with one of its suppliers, Judy-Philippine, Inc., to manufacture a
line of children’s outfits for sale in the 1996 spring/summer season. Wal-Mart sent Judy-Philippine photographs of a
number of garments from Samara’s line, on which Judy-Philippine’s garments were to be based; Judy-Philippine
duly copied, with only minor modifications, 16 of Samara’s garments, many of which contained copyrighted
elements. In 1996, Wal-Mart briskly sold the so-called knockoffs, generating more than $1.15 million in gross
profits.
After a weeklong trial, the jury found in favor of Samara on all of its claims. Wal-Mart then renewed a motion
for judgment as a matter of law, claiming * * * that there was insufficient evidence to support a conclusion that
Samara’s clothing designs could be legally protected as distinctive trade dress for purposes of §43(a). The District
Court denied the motion, [citation], and awarded Samara damages, interest, costs, and fees totaling almost $1.6
million, together with injunctive relief, [citation]. The Second Circuit affirmed the denial of the motion for judgment
as a matter of law, [citation], and we granted certiorari, [citation].
II
The Lanham Act provides for the registration of trademarks, which it defines in §45 to include “any word, name,
symbol, or device, or any combination thereof [used or intended to be used] to identify and distinguish [a
producer’s] goods * * * from those manufactured or sold by others and to indicate the source of the goods * *”
[Citation.] Registration of a mark under the Act, [citation], enables the owner to sue an infringer under [citation]; it
also entitles the owner to a presumption that its mark is valid, [citation], and ordinarily renders the registered mark
incontestable after five years of continuous use, [citation]. In addition to protecting registered marks, the Lanham
Act, in §43(a), gives a producer a cause of action for the use by any person of “any word, term, name, symbol, or
approval of [the] goods,” as the section requires. Distinctiveness is, moreover, an explicit prerequisite for
registration of trade dress * * *.[Citation.]
In evaluating the distinctiveness of a mark * * *, courts have held that a mark can be distinctive in one of two
ways. First, a mark is inherently distinctive if “[its] intrinsic nature serves to identify a particular source.” [Citation.]
In the context of word marks, courts have applied the now-classic test originally formulated by Judge Friendly, in
which word marks that are “arbitrary” (“Camel” cigarettes), “fanciful” (“Kodak” film), or “suggestive” (“Tide”
It seems to us that design, like color, is not inherently distinctive. The attribution of inherent distinctiveness to
certain categories of word marks and product packaging derives from the fact that the very purpose of attaching a
particular word to a product, or encasing it in a distinctive packaging, is most often to identify the source of the
product. Although the words and packaging can serve subsidiary functions—a suggestive word mark (such as “Tide”
for laundry detergent), for instance, may invoke positive connotations in the consumer’s mind, and a garish form of
packaging (such as Tide’s squat, brightly decorated plastic bottles for its liquid laundry detergent) may attract an
otherwise indifferent consumer’s attention on a crowded store shelf—their predominant function remains source
identification. Consumers are therefore predisposed to regard those symbols as indication of the producer, which is
why such symbols “almost automatically tell a customer that they refer to a brand,” [citation], and “immediately * *
* signal a brand or a product ‘source,’” [citation]. And where it is not reasonable to assume consumer predisposition
to take an affixed word or packaging as indication of source—where, for example, the affixed word is descriptive of
the product (“Tasty” bread) or of a geographic origin (“Georgia” peaches)—inherent distinctiveness will not be
found. That is why the statute generally excludes, from those word marks that can be registered as inherently
Registration
To be protected by the Lanham Act, a mark must be distinctive. Marks may meet this
requirement in one of two ways: (1) it may be inherently distinctive, such as marks
that are fanciful or arbitrary, or (2) it may be distinctive through secondary meaning,
by taking on an association with the product which is beyond its surface meaning.
Descriptive or geographical marks may meet the distinctiveness requirement by the
secondary meaning method, but not usually by the inherently distinctive method. The
trademark o=ce may accept as prima facie evidence of secondary meaning proof of
substantially exclusive and continuous use of a mark for five years.
Ironically, a mark can lose its protected status if its secondary meaning becomes
understood by the public to mean the entire category of those goods (such as aspirin
and thermos).
Infringement
Infringement occurs when a person without authorization uses an identical or
substantially indistinguishable mark that is likely to cause confusion, or mistake, or that
is likely to deceive. Intention and actual confusion need not be proved.
The Federal Trademark Dilution Act of 1995 amended the Lanham Act to protect famous
marks from dilution of their distinctive quality.
Remedies
The Lanham Act provides several remedies for infringement: 1) injunctive relief, 2) an
accounting for profits, 3) damages, 4) destruction of infringing articles, 5) attorneys’ fees
in some cases, and 6) costs. In assessing damages for trademark counterfeiting, the
court shall, unless it finds extenuating circumstances, enter judgment for three times the
defendant’s profits or the plainti3’s damages, whichever is greater, plus reasonable
attorneys’ fees. Instead of actual damages and profits, the plainti3 may elect to receive
an award of statutory damages, in an amount the court considers just, between $1,000
and $200,000 per counterfeit mark or, if the use of the counterfeit mark was willful, not
*** Chapter Outcome ***
Explain the extent to which trade names are protected.
C. TRADE NAMES
A trade name is any name used to identify a business, vocation, or occupation. Although
descriptive and generic words, and personal and generic names are not proper
trademarks, they may become protected as trade names upon acquiring a special
significance in the trade which is referred to as “secondary meaning.” Trade names may
not be federally registered under the Lanham Act, but they are protected. Remedies
include injunction and damages.
*** Chapter Outcome ***
Explain what copyrights protect and the remedies for infringement.
D. COPYRIGHTS
Copyright is a form of protection provided by the Federal Copyright Act to authors of
original works, which include literary works, musical works, dramatic works, pantomimes,
choreographic works, pictorial, graphic and sculptural works, motion pictures,
architectural works, and sound recordings. The act extends the protection to “original
works of authorship in any tangible medium of expression, now known or later
developed.” Since 1980 protection has extended to computer programs
On March 1, 1989, the United States joined the Berne Convention, an international treaty
protecting copyrighted works. In 1998 Congress enacted the Digital Millennium Copyright
Procedure
Although registration is not required (protection begins automatically as soon as the
work is fixed in a tangible medium), it is advisable since it a condition for some remedies.
Applications are filed with the Register of Copyrights, Washington, D.C.
Rights
In most instances, copyright protection lasts for the period of an author’s life plus fifty
years. The owner of the copyright has the exclusive right to the copyright. However,
this ownership is subject to the limitations of “compulsory licenses,” “fair use” and. the
first sale doctrine.” In a work made for hire the copyright lasts for a term of 95 years
from the year of its first publication, or a term of 120 years from its creation, whichever
expires first.
Ownership
The author of a creative work owns the entire copyright; this is usually the actual creator
of the work, except in two situations under the doctrine of works for hire (1) when an
employee prepares a work within the scope of employment, her employer is considered
author of the work, (2) if a work is specially ordered or commissioned for certain
purposes and the parties expressly agree in writing that the work shall be considered a
work for hire, the person commissioning the work is deemed the author.
