161
Chapter 8
Intellectual Property
and Internet Law
See Separate Lecture Outline System
INTRODUCTION
Laws protecting patents, trademarks, and copyrights are designed to protect and reward inventive and artistic
creativity. These laws limit the economic freedom of some individuals, but they protect the freedom of others to enjoy the
fruits of their laborsin the form of profits.
ADDITIONAL RESOURCES
162 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
 VIDEO SUPPLEMENTS 
The following video supplements relate to topics discussed in this chapter
PowerPoint Slides
To highlight some of this chapter’s key points, you might use the Lecture Review PowerPoint slides compiled for
Chapter 8.
Business Law Digital Video Library
The Business Law Digital Video Library at www.cengage.com/blaw/dvl offers a variety of videos for group or
individual review. Clips on topics covered in this chapter include the following.
Drama of the Law
Choosing a Business Name and a Domain Name: Wizard for Hire dot comA start-up software company finds that
there are others who have similar business and domain names. What options do they have for resolving the conflict?
set up a web site that uses deep links to another site. Do they need permission from the linked site to put them into a
Ask the Instructor
Intellectual Property: Patents and Trade Secrets: What’s the Difference between a Patent and a Trade Secret?
Both patents and trade secrets are forms of intellectual property. A patent is a right, granted by the government, to
exclusive use of an invention. As a government granted right, the details of a patent are part of the public record. Trade
secrets, on the other hand, consist of valuable unique processes, formulas, or ideas that are protected by virtue of the
fact that they are kept confidential.
Real World Legal
Jack’s Restaurant, Scene 2—A restaurant owner prepares to sell his business to two employees. Tempers flare
when the owner asks for a confidentiality agreement for his “trade secret” recipes and the employees asks the owner
to sign a non-compete agreement. The scene explores issues in contract negotiation as well as intellectual property
rights.
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The JerkIntellectual PropertyThe Invention.
CHAPTER OUTLINE
I. Trademarks and Related Property
A trademark is a distinctive mark, motto, device, or implement that a manufacturer stamps, prints, or otherwise affixes
to the goods it produces so that they may be identified on the market and their origin vouched for.
CASE SYNOPSIS
Case 8.1: The Coca-Cola Co. v. The Koke Co. of America
The Coca-Cola Co. sought to enjoin The Koke Co. of America and other beverage companies from, among other
things, using the word Koke for their products. Koke contended that the Coca-Cola trademark was a fraudulent
representation and that Coca-Cola was thus not entitled to an injunction. Koke alleged that Coca-Cola, by its use of the
Coca-Cola name, represented that the beverage contained cocaine (from coca leaves). The court granted the injunction
against Koke, but an appellate court reversed. Coca-Cola appealed to the United States Supreme Court.
…………………..……………………………………………………………………………………………………………
Notes and Questions
Until 1903, the amount of active cocaine in each bottle of Coke was equivalent to one “line” of cocaine, and,
“many years before this suit was brought,” as the Supreme Court put it, Coca-Cola was advertised as an “ideal nerve
tonic and stimulant.” In the first part of this century, the word Dope was understood to mean Coke. If a customer
asked for a “Dope,” he or she was given a Coke. Koke attempted to associate the word with its product, and Coca-Cola
also sought to stop this, arguing that people would be confused if they ordered a Dope, expecting a Coke, and got
something else. The Supreme Court refused relief, concluding that Dope was not a sufficiently descriptive term. The
Court found that the word had no clear connection to Coke.
The name “Coke” was not registered as a trademark until 1945.
164 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
What, if any, harm could the Coca-Cola Company have suffered as a result of the Koke Company’s use of the Name
“Koke” to market its products? The use of the name “Koke” may have created confusion in the mind of customers who
could not distinguish “Koke” from “CocaCola.” Such confusion could result in lost sales for Coca-Cola. Confusion could
also damage the reputation and goodwill associated with the Coca-Cola Company.
Suppose that the trial court had found that 25 percent of all adult Coca-Cola drinkers believed that Coca-Cola
contained cocaine, despite the fact that cocaine was not listed among the soft drink’s ingredients. In that situation,
should the court deny Coca-Cola’s request for an injunction against Koke? Probably not. Proving that many customers
have a mistaken belief regarding a product is not the same as proving that the seller has fraudulently misrepresented
the product.
Should the principles applied in this case to the confusingly similar product of a domestic manufacturer also apply
to the goods of foreign producers? Why or why not? Yes, particularly if they are sold in the United States, where those
ANSWER TO “WHAT IF THE FACTS WERE DIFFERENT?” IN CASE 8.1
Suppose that Coca-Cola had been trying to make the public believe that its product contained cocaine. Would the
result in the case likely have been different? Yes. The product in this case did not actually contain cocaine. To advertise
that it did would be to commit fraud. A court will refuse to grant relief to a complaining party who commits fraud.
ADDITIONAL CASES ADDRESSING THIS ISSUE
Recent cases involving a sufficient likelihood of confusion to support an injunction against a non-owner’s use or
alteration of a trademark include the following.
buy a counterfeit or defective product.
confused into believing that they are dining at such restaurants.
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things, failing to pay royalties.
A. STATUTORY PROTECTION OF TRADEMARKS
1. Trademark Dilution
Statutory protection of trademarks and related property is provided at the federal level by the Lanham
2. Similar Marks May Constitute Trademark Dilution
A famous mark may be diluted by the unauthorized use of an identical or a similar mark.
ADDITIONAL BACKGROUND
The Federal Trademark Dilution Act
Congress passed the Federal Trademark Dilution Act in 1995 as an amendment to 15 U.S.C. § 1125. The following
Westlaw.
UNITED STATES CODE
TITLE 15. COMMERCE AND TRADE
CHAPTER 22TRADEMARKS
SUBCHAPTER IIIGENERAL PROVISIONS
§ 1125. False designations of origin and false descriptions forbidden
(a) Civil action
(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any
word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading
description of fact, or false or misleading representation of fact, which
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such
person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial
to the remedies set forth in sections 1117(a) and 1118 of this title, subject to the discretion of the court and the
(2) As used in this subsection, the term “any person” includes any State, instrumentality of a State or employee of a
State or instrumentality of a State acting in his or her official capacity. Any State, and any such instrumentality, officer,
or employee, shall be subject to the provisions of this chapter in the same manner and to the same extent as any
nongovernmental entity.
(b) Importation
Any goods marked or labeled in contravention of the provisions of this section shall not be imported into the United
refused entry at any customhouse under this section may have any recourse by protest or appeal that is given under
the customs revenue laws or may have the remedy given by this chapter in cases involving goods refused entry or
seized.
(c) Remedies for dilution of famous marks
(1) The owner of a famous mark shall be entitled, subject to the principles of equity and upon such terms as the court
deems reasonable, to an injunction against another person’s commercial use in commerce of a mark or trade name, if
such use begins after the mark has become famous and causes dilution of the distinctive quality of the mark, and to
obtain such other relief as is provided in this subsection. In determining whether a mark is distinctive and famous, a
court may consider factors such as, but not limited to
(A) the degree of inherent or acquired distinctiveness of the mark;
(B) the duration and extent of use of the mark in connection with the goods or services with which the mark is used;
(C) the duration and extent of advertising and publicity of the mark;
(D) the geographical extent of the trading area in which the mark is used;
(E) the channels of trade for the goods or services with which the mark is used;
person against whom the injunction is sought;
(G) the nature and extent of use of the same or similar marks by third parties; and
(H) whether the mark was registered under the Act of March 3, 1881, or the Act of February 20, 1905, or on the
(2) In an action brought under this subsection, the owner of the famous mark shall be entitled only to injunctive relief
unless the person against whom the injunction is sought willfully intended to trade on the owner’s reputation or to
(3) The ownership by a person of a valid registration under the Act of March 3, 1881, or the Act of February 20, 1905,
(4) The following shall not be actionable under this section:
(A) Fair use of a famous mark by another person in comparative commercial advertising or promotion to identify the
competing goods or services of the owner of the famous mark.
(B) Noncommercial use of a mark.
(C) All forms of news reporting and news commentary.
(July 5, 1946, c. 540, Title VIII, s 43, 60 Stat. 441.)
(As amended Nov. 16, 1988, Pub.L. 100-667, Title I, s 132, 102 Stat. 3946; Oct. 27, 1992, Pub.L. 102-542, s 3(c), 106 Stat.
HISTORICAL AND STATUTORY NOTES
Derivation. Act Mar. 19, 1920, c. 104, s 3, 41 Stat. 534.
References in Text. Acts March 3, 1881, and February 20, 1905, referred to in subsec. (c)(1)(H), (3), are acts Mar. 3,
1881, c. 138, 21 Stat. 502 and Feb. 20, 1905, c. 592, 33 Stat. 724, which were repealed insofar as inconsistent with this
chapter by act July 5, 1946, c. 540, s 46(a), 60 Stat. 444. Act Feb. 20, 1905, was classified to sections 81 to 109 of this
title.
1996 Amendments. Subsec. (c). Pub.L. 104-98, s 3(a), added subsec. (c).
1992 Amendments. Subsec. (a). Pub.L. 102-542, s 3(c), redesignated existing provisions as par. (1) and, in par. (1), as
so redesignated, substituted “(A)” and “(B)” for “(1)” and “(2)”, respectively, and added par. (2).
mistake, or deceive as to affiliation of such person with another person, for provisions which related to false
designations of origin and false descriptions.
B. TRADEMARK REGISTRATION
To register for federal protection, an application must be filed with the U.S. Patent and Trademark Office in
Washington, D.C. A mark can be registered (1) if it is currently in commerce or (2) if the applicant intends to put
the mark into commerce within six months. (Under some circumstances, the six-month period can be extended
168 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
to three years.) Registration is renewable between the fifth and sixth years after the initial registration and every
ten years thereafter (twenty years for marks registered before 1990).
C. TRADEMARK INFRINGEMENT
When a trademark is copied to a substantial degree or used in its entirety by another, it has been infringed. To
D. DISTINCTIVENESS OF MARK
Only trademarks deemed sufficiently distinctive from competing trademarks are protected.
1. Strong Marks
2. Secondary Meaning
Descriptive terms, geographical terms, and personal names are not inherently distinctive and do not receive
protection until they acquire a secondary meaning. Whether a secondary meaning becomes attached to a
term or name depends on how extensively the product is advertised, the market for the product, the
amount of sales, and other factors.
 ANSWER TO VIDEO QUESTION LTR. D 
Assume that Navin is able to manufacture his invention. What might Navin do to ensure that his product is
identifiable and can be distinguished from other products on the market? Navin could affix a distinctive mark or
emblem as a trademark on his invention in order to help consumers identify his product and vouch for its origin.
3. Generic Terms
Generic terms, such as bicycle or computer, cannot be trademarked, even if they acquire secondary
meanings (but they still cannot be used to deceive consumers).
E. SERVICE, CERTIFICATION, AND COLLECTIVE MARKS
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The image and overall appearance of a product is subject to the same protection as trademarks. As in common
law trademark infringement cases, a major consideration is whether consumers are likely to be confused by the
allegedly infringing use.
G. COUNTERFEIT GOODS
Counterfeit goods copy or imitate trademarked goods but are not genuine.
1. The Stop Counterfeiting in Manufactured Goods Act
2. Counterfeiting Penalties
These include fines of up to $2 million and imprisonment of up to ten years (more for repeat offenders).
Forfeiture of counterfeit products and the payment of restitution to a trademark holder or other victim can
be imposed.
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H. TRADE NAMES
A trade name indicates part or all of a business’s name. A trade name may be protected at common law (if it is
unusual or fanciful), but it is not protected under federal statutes and cannot be registered with the federal
government—unless it is of course the same as the business’s trademarked product (such as Coca-Cola).
II. Cyber Marks
The text covers questions concerning cyber marks (trademarks in cyberspace) that relate to cybersquatting and other
issues.
A. DOMAIN NAMES
The text explains what a domain name is and how their use has been abused. The Internet Corporation for
Assigned Names and Numbers (ICANN) oversees the Internet domain name system and facilitates the resolution
of domain name disputes. The disputes often involve cybersquatting, which occurs when a person registers a
domain name that is the same as, or confusingly similar to, another’s mark and offers to sell it to the authentic
mark’s owner.
B. ANTICYBERSQUATTING LEGISLATION
C. META TAGS
Meta tags are words in a Web site’s key-word field that determine when the site is listed in response to a search
engine query. Using others’ marks as tags without permission may constitute trademark infringement.
D. DILUTION IN THE ONLINE WORLD
Dilution occurs when a mark is used, without permission, in a way that diminishes its distinctive quality. Tech-
related cases have concerned the use of marks as domain names (such as “Candyland”) and spamming under
another’s logo. To be diluted, however, a mark must be famous when the alleged infringement occurs.
 ANSWER TO VIDEO QUESTION LTR. C 
Suppose that after Navin legally protects his idea, he realizes he doesn’t have the money to mass produce the
special handle. Navin therefore agrees to allow Fox to manufacture the product. Has Navin granted Fox a license?
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ENHANCING YOUR LECTURE
  A BOOK IS A BOOK IS A BOOK
BUT IS IT AN “E-BOOK?
 
One of the significant issues raised by the cyber age has to do with whether copyrights in printed materials extend
to the same materials presented in digital form over the Internet. A related issue involving licensing agreements came
before a federal district court in 2001. The case was brought by the well-known publishing firm Random House, Inc.,
against Rosetta Books, LLC, with which several authors had arranged to publish works electronically. At issue in the
case was the following question: Did contracts in which the authors had licensed Random House to “print, publish and
sell” their works in “book form” include the right to publish their works in electronic formats (as “ebooks”) as well?
In evaluating the issue, the court looked to the letter of the law, as decided by other court cases, but found little
House Webster’s Unabridged Dictionary. That dictionary defines a “book” as “a written or printed work of fiction or
THE BOTTOM LINE
To avoid litigation, anyone signing a licensing contract should make sure that the specific wording in the contract
makes very clear what rights are or are not being conveyed.
A. SEARCHABLE PATENT DATABASES
Searchable patent databases are important to a business to inventory its assets or to study trends in an industry
or a technology.
B. WHAT IS PATENTABLE?
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nature, (2) natural phenomena, and (3) abstract ideas (including algorithms). This includes artistic methods,
certain works of art, the structure of storylines, and genetically engineered plants and animals.
 ANSWER TO VIDEO QUESTION LTR. A 
In the video, Navin (Steve Martin) creates a special handle for Mr. Fox’s (Bill Macy’s) glasses. Can Navin obtain a
CASE SYNOPSIS
Case 8.2: KSR International Co. v. Teleflex Inc.
KSR designed a pedal assembly for General Motors Corp. (GMC) to use in its Chevrolet and GMC light trucks.
Teleflex Inc. filed a suit in a federal district court against KSR for the design’s infringement Teleflex’s patent titled
“Adjustable Pedal Assembly With Electronic Throttle Control” (known as “the Engelgau patent”). KSR countered that
“claim 4” of the Engelgau patent was obvious and thus invalid. The court ruled in KSR’s favor. The U.S Court of Appeals
for the Federal Circuit reversed. The case was appealed.
…………………………………………………………..……………………………………………………………………
Notes and Questions
Can your students rephrase in more succinct terms the Court’s ruling in the KSR case? The Court itself more
ANSWERS TO QUESTIONS AT THE END OF CASE 8.2
1. Suppose that a person of ordinary skill creates an item by implementing a predictable variation of another’s
patented invention. Does the Court’s opinion indicate that the item is likely or unlikely to be patentable? Discuss. Yes,
2. Based on the Court’s reasoning, what other factors should be considered in determining the obviousness of a
patent? The Court explained that a court may need “to look to interrelated teachings of multiple patents; the effects of
a person having ordinary skill in the art, all in order to determine whether there was an apparent reason to combine
1. Patents for Software
2. Patents for Business Processes
A business process patent is, as used in the text, a patent for a process used to conduct business on the
Web (for example, Priceline.com’s method of facilitating consumer offers to buy tickets from airlines).
These are patentable.
C. PATENT INFRINGEMENT
A firm that makes, uses, or sells another’s patented design, product, or process without the patent owner’s
permission commits patent infringement. But no patent infringement occurs when a product is made and sold in
another country.
 ANSWER TO VIDEO QUESTION LTR. B 
Suppose that after Navin legally protects his idea, Fox steals it and decides to develop it for himself, without
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D. REMEDIES FOR PATENT INFRINGEMENT
If a patent is infringed, the owner can obtain an injunction against the infringer and damages for royalties and lost
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IV. Copyrights
A copyright is an intangible right granted by federal statute (the Copyright Act of 1976) to the author or originator of
certain literary or artistic productions. The right is granted automatically (registration is not required). Protection lasts
for the life of the author plus 70 years. Copyrights owned by publishing houses expire 95 years from the date of
publication or 120 years from the date of creation, whichever is first. For works by more than one author, the copyright
expires 70 years after the death of the last surviving author.
A. WHAT IS PROTECTED EXPRESSION?
To be copyrighted, a work must be “fixed in a durable medium” from which it can be perceived, reproduced, or
communicated. Copyright law protects works that are original and fall into one of the following categories:
Literary works.
Musical works.
1. Section 102 Exclusions
Protection is not available for any “idea, procedure, process, system, method of operation, concept,
principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied.”
2. Compilations of Facts
Compilations of facts are copyrightable. A compilation is “a work formed by the collection and assembling
B. COPYRIGHT INFRINGEMENT
Copyright infringement occurs when the form or expression of an idea is copied in substantial part (a copy does
not have to mirror the original or reproduce it entirely).
2. The “Fair Use” Exception
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and (4) the effect of the use upon the potential market for or value of the copyrighted work.” The last factor
is often the most important.
C. COPYRIGHT PROTECTION FOR SOFTWARE
The Computer Software Copyright Act of 1980 extended Copyright Act protection to computer programs. A
program’s source code (the part of a program readable by humans) was clearly included. Protection has also been
V. Copyrights in Digital Information
Copyright law is important in cyberspace in part because the nature of the Internet means that data is “copied” before
being transferred online. Loading a file or program into a computer’s random access memory (RAM) is the making of a
“copy.” If it is done without authorization, it is infringement. Criminal piracy includes persons who exchange
unauthorized copies of copyrighted works, even for no profit.
ENHANCING YOUR LECTURE
  LEGAL ISSUES FACING
BLOGGERS AND PODCASTERS
 
Companies increasingly are using blogs (Web logs) and podcasts (essentially an audio blog, sometimes with video
clips) internally to encourage communication among employees and externally to communicate with customers. Blogs
offer many advantages, not the least of which is that setting up a blog and keep it current (making “posts”) costs next
BENEFITS OF BLOGS AND PODCASTS
Internal blogs used by a company’s employees can offer a number of benefits. Blogs provide an open
communications platform, potentially allowing new ways of coordinating activities among employees. For example, a
team of production workers might use a blog to move a new product idea forward: the team starts a blog, one worker
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POTENTIAL LEGAL RISKS
Despite their many advantages, blogs and podcasts can also expose a company to a number of legal risks, including
the following.
Tort Liability Internal blogs and podcasts can lead to claims of defamation or sexual harassment if an employee
posts racist or sexually explicit comments. At the same time, if a company monitors its employees’ blogs and podcasts,
it may find itself facing claims of invasion of privacy (see Chapter 33 for a discussion of similar issues involving
employees’ e-mail).
Discovery Issues As explained in Chapter 3, litigation today frequently involves electronic discovery. This can
extend to blog posts and comments as well as to e-mail. Thus, a company should be aware that anything posted on its
blogs can be used as evidence during litigation. A company will therefore need to preserve and retain blog postings
related to any dispute likely to go to trial.
Compliance Issues Many corporations are regulated by one or more agencies and required to comply with various
statutes. Laws that require compliance may also apply to blog postings. For example, the Securities and Exchange
Commission (SEC) has regulations establishing the information a company must disclose to potential investors and the
public in connection with its stock. A company regulated by the SEC will find that these rules apply to blogs. The same
is true for companies regulated under the Sarbanes-Oxley Act, which will be discussed in Chapters 7, 30, and 35.
Copyright Infringement Blogs can also expose a company to charges of copyright infringement. Suppose, for
example, that an employee posts a long passage from a magazine article on the company’s blog, either internal or
external, without the author’s permission. Similarly, photos taken from other blogs or Web sites cannot be posted
without prior permission. Note, also, that copyright infringement can occur even if the blog was created without any
pecuniary motivation. Typically, though, a blogger can claim “fair use” if she or he posts a passage from someone else’s
work with an electronic link to the complete version
External blogs carry most of the same risks as internal blogs and others as well. Not only can external blogs lead to
charges of invasion of privacy, defamation, or copyright infringement related to what the company and its employees
Do individuals who create blogs face the same risks as companies that use blogs? Explain.
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ADDITIONAL BACKGROUND
Digital Millennium Copyright Act of 1998
The following is an excerpt from the Digital Millennium Copyright Act of 1998, downloaded from
http://lcweb.loc.gov/copyright/penleg.html.
Sec. 1201. Circumvention of copyright protection systems
(a) VIOLATIONS REGARDING CIRCUMVENTION OF TECHNOLOGICAL MEASURES
(1)(A) No person shall circumvent a technological measure that effectively controls access to a work protected under
this title. The prohibition contained in the preceding sentence shall take effect at the end of the 2-year period
beginning on the date of the enactment of this chapter.
(B) The prohibition contained in subparagraph (A) shall not apply to persons who are users of a copyrighted work which
is in a particular class of works, if such persons are, or are likely to be in the succeeding 3-year period, adversely
affected by virtue of such prohibition in their ability to make noninfringing uses of that particular class of works under
this title, as determined under subparagraph (C).
making such recommendation, shall make the determination in a rulemaking proceeding on the record for purposes of
(i) the availability for use of copyrighted works;
(ii) the availability for use of works for nonprofit archival, preservation, and educational purposes;
(iii) the impact that the prohibition on the circumvention of technological measures applied to copyrighted works has
on criticism, comment, news reporting, teaching, scholarship, or research;
(iv) the effect of circumvention of technological measures on the market for or value of copyrighted works; and
(v) such other factors as the Librarian considers appropriate.
(2) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product,
service, device, component, or part thereof, that
(A) is primarily designed or produced for the purpose of circumventing a technological measure that effectively
(B) has only limited commercially significant purpose or use other than to circumvent a technological measure that
(3) As used in this subsection
(A) to `circumvent a technological measure’ means to descramble a scrambled work, to decrypt an encrypted work, or
otherwise to avoid, bypass, remove, deactivate, or impair a technological measure, without the authority of the
owner, to gain access to the work.
(b) ADDITIONAL VIOLATIONS
(1) No person shall manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product,
service, device, component, or part thereof, that
(A) is primarily designed or produced for the purpose of circumventing protection afforded by a technological measure
circumventing protection afforded by a technological measure that effectively protects a right of a copyright owner
(2) As used in this subsection
users with respect to such class of works for the ensuing 3-year period.
(A), nor any determination made in a rulemaking conducted under subparagraph (C), may be used as a defense in any