(2) Nothing in this section shall enlarge or diminish vicarious or contributory liability for copyright infringement in
connection with any technology, product, service, device, component, or part thereof.
(3) Nothing in this section shall require that the design of, or design and selection of parts and components for, a
(4) Nothing in this section shall enlarge or diminish any rights of free speech or the press for activities using consumer
electronics, telecommunications, or computing products.
(d) EXEMPTION FOR NONPROFIT LIBRARIES, ARCHIVES, AND EDUCATIONAL INSTITUTIONS—
(A) may not be retained longer than necessary to make such good faith determination; and
(B) may not be used for any other purpose.
(3) A nonprofit library, archives, or educational institution that willfully for the purpose of commercial advantage or
financial gain violates paragraph (1)—
(A) shall, for the first offense, be subject to the civil remedies under section 1203; and
(B) shall, for repeated or subsequent offenses, in addition to the civil remedies under section 1203, forfeit the
exemption provided under paragraph (1).
ENHANCING YOUR LECTURE—
ordinary course of its operation, prevents, restricts, or otherwise limits the exercise of a right of a copyright owner
under this title.
(c) OTHER RIGHTS, ETC., NOT AFFECTED—
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COPYRIGHT LAW VERSUS FREE SPEECH
Since the ratification of the First Amendment to the U.S. Constitution in 1791, Congress has been prohibited from
making any law “abridging the freedom of speech.” Clearly, at that time the framers did not anticipate radio,
television, the movies, computers, computer programs, or the Internet. As radio, television, and the movies became
important at the beginning and middle of the twentieth century, they gave rise to free speech issues. As the Internet
moves into virtually everyone’s home and place of work in the twenty-first century, First Amendment issues have
arisen and will continue to arise.
APPLYING THE DIGITAL MILLENNIUM COPYRIGHT ACT OF 1998
Almost as soon as encryption technology was used to safeguard the contents of DVDs, the code was cracked by a
group of hackers, including nineteen-year-old Norwegian John Johansen. His decryption program, called DeCCS, was
quickly made available at various sites on the Internet including 2600.com, owned by Ed Corly. Almost immediately
after DeCCS was posted, a group of movie companies, including Disney and Twentieth Century-Fox, filed suit.
In what was seen as a victory for the motion picture industry, a federal district court ruled, in Universal City
Studios, Inc. v. Reimerdes,a that DeCCS violated the Digital Millennium Copyright Act (DMCA) of 1998. As noted
elsewhere, among other things the DMCA prohibits the circumvention (by decryption programs, for example) of
encryption systems that are embedded in intellectual property to protect the property from piracy, or unauthorized
use. The court noted that since the posting of DeCCS, along with a separate video-compression program known as
Divx, the pirating of movies had become increasingly common on the Internet.
A DIFFERENT APPROACH
In November 2001, a California appellate court reviewed a case brought by a trade association of movie industry
businesses against Internet Web site operators who made DeCCS programs available from their Web sites. The trade
association asked the court to enjoin the defendants from copying, distributing, publishing, or otherwise marketing the
DeCCS computer program because, by doing so, the defendants were, by necessity, disclosing or using the trade
secrets contained in the encryption programs.
182 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
offered by the First Amendment. The California legislature is free to enact laws to protect trade secrets, but these
provisions must bow to the protections offered by the First Amendment.” The court labeled any attempt at blocking
the future use of computer programs “an impermissible prior restraint” on Web site operators’ First Amendment
rights.c
THE DEBATE CONTINUES
If you buy a book, you can read it, throw it away, give it to someone else, or sell it to a used bookstore. Once you
have bought it, you can legally do just about anything with it except make copies for resale. There is no way that the
owner of the intellectual property contained in that book can insert an encryption system to prevent you from letting
someone else read it. In contrast, any form of digitized intellectual property can contain an encryption system.
WHERE DO YOU STAND?
At issue in the twenty-first century is the trade-off between the necessity of writers, musicians, artists, and movie
studios to profit from their work and the free flow of ideas for the public’s benefit. Movie (and music) industry
participants claim that encryption programs are necessary to prevent piracy. Others, however, including the
defendants in cases such as those discussed above, argue that the law should at least allow purchasers of movies,
music, and books in digital form to make limited copies for fair use. Which side of this debate do you support? Is it
a. 111 F.Supp.2d 294 (S.D.N.Y. 2000).
b. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001).
c. DVD Copy Control Association v. Bunner, 113 Cal.Rptr.2d 338 (2001). Note that in 2002, the California Supreme Court agreed to review this case.
B. MP3 AND FILE-SHARING TECHNOLOGY
The text describes MP3 file compression and music file sharing over the Internet through peer-to-peer (P2P)
networking. The copyright issues in this context are noted. Liability exists when a distributor of file-sharing
software has reason to know of infringement and does not stop it, or could control infringing activities and
benefits financially from them.
CASE SYNOPSIS—
Case 8.3: Maverick Recording Co. v. Harper
Whitney Harper shared digital audio files of songs with others through a peer-to-peer network. Maverick
CHAPTER 8: INTELLECTUAL PROPERTY AND INTERNET LAW 183
of statutory damages to a sum of not less than $200.” The court ruled in the plaintiffs’ favor on the issue of
infringement, but awarded only $200 per infringed work. Both parties appealed.
The U.S. Court of Appeals for the Fifth Circuit affirmed the finding of liability, but reversed the finding of the
innocent-infringer defense, and ordered the damages increased to $750 per infringed work. When a copyright notice
…………………………………………………………..……………………………………………………………………
Notes and Questions
How might a file-sharing system, or a similar service, be put to commercially significant but nonfringing uses? One
possibility is that the service could pay copyright owners before allowing the transmission of their material via the
Internet and charge its Web site’s users to download that material. The same might be done with other types of
intellectual property—movies, books, etc.
What interest does the public have in upholding copyright law and granting the sort of relief that was awarded in
ANSWER TO “THE ETHICAL DIMENSION” QUESTION IN CASE 8.3
In this and other cases involving similar rulings, the courts have held that when the published phonorecordings
from which audio files were taken contained copyright notices, the innocent infringer defense does not apply. It is
irrelevant that the notice is not provided in the online file. Is this fair? Explain. Some contend that labels placed on the
physical copies of the CDs from which downloaded songs originate are not sufficient notification to someone who
184 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
CHAPTER 8: INTELLECTUAL PROPERTY AND INTERNET LAW 185
VI. Trade Secrets
Some business processes and information that cannot be patented, copyrighted, or trademarked are protected against
appropriation by a competitor as trade secrets. Customer lists, plans, research and development, pricing information,
marketing techniques, production techniques, formulas, and generally anything that makes an individual company
unique and that would have value to a competitor constitute trade secrets.
A. STATE AND FEDERAL LAW ON TRADE SECRETS
B. TRADE SECRETS IN CYBERSPACE
The nature of technology (especially e-mail) undercuts a firm’s ability to protect its confidential information,
including trade secrets.
ENHANCING YOUR LECTURE—
HOW CAN YOU PROTECT YOUR TRADE SECRETS?
Most successful businesses have trade secrets. The law protects trade secrets indefinitely, provided that the
information is not generally known, is kept a secret, and has commercial value. Sometimes, of course, a business needs
to disclose secret information to a party in the course of conducting business. For example, a company may need to
hire a consultant to revamp a computer system, an engineer to design a manufacturing system, or a marketing firm to
implement a sales program. All of these individuals may need access to some of the company’s trade secrets. One way
to protect against the unauthorized disclosure of such information is through confidentiality agreements.
CONFIDENTIALITY AGREEMENTS
In a confidentiality agreement, one party promises not to divulge information about the other party to anyone else
DEFINING THE SCOPE OF THE AGREEMENT
Confidentiality agreements must be reasonable. Businesspersons should consider what information needs to be
protected and for how long. Make certain to define what you mean by confidential information in the agreement. Do
you want to protect just your customer list or all financial, technical, and other business information? Think ahead,
cover the bases, and be specific.
186 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
advertising campaign, the time period for confidentiality may be self-evident (if the campaign ends in six months, for
example). Tailor the agreement to your needs as much as possible. If the party to whom you are disclosing
information will no longer need the information after a certain date—such as when the project is completed—include a
provision requiring the return of confidential information after that date. This will alleviate concerns that your
confidential trade secrets might later fall into the hands of a stranger.
CHECKLIST FOR THE OWNER OF TRADE SECRETS
1. Determine what your trade secrets are and who may need access to them.
3. Specify a time period that is reasonable under the circumstances.
4. Identify the agreements to which the confidentiality provisions apply.
5. Require that the confidential materials be returned to you.
6. Create a mechanism to enforce the policy.
VII. International Protection for Intellectual Property
A. THE BERNE CONVENTION
Under the Berne Convention, if an American writes a book, every country that has signed the convention must
recognize his or her copyright in the book. Also, if a citizen of a country that has not signed the convention first
publishes a book in a country that has signed, all other countries that have signed the convention must recognize
that author’s copyright.
ADDITIONAL BACKGROUND—
The Berne Convention
International protection of copyright is provided by international treaties, including the Berne Convention, which
* * * *
(Source of Text: Paris Act of July 24, 1971, as amended on October 2, 1979, provided by the World Intellectual Property
CHAPTER 8: INTELLECTUAL PROPERTY AND INTERNET LAW 187
Organization, Geneva, 1987.)
The countries of the Union, being equally animated by the desire to protect, in as effective and uniform a manner as
possible, the rights of authors in their literary and artistic works, * * * have agreed as follows:
Article 1
* * * *
The countries to which this Convention applies constitute a Union for the protection of the rights of authors in their
literary and artistic works.
Article 2
* * * *
(1) The expression ‘literary and artistic works’ shall include every production in the literary, scientific and artistic
domain, whatever may be the mode or form of its expression, such as books, pamphlets and other writings; lectures,
addresses, sermons and other works of the same nature; dramatic or dramatic-musical works; choreographic works
* * * *
(3) Translations, adaptations, arrangements of music and other alterations of a literary or artistic work shall be
(4) It shall be a matter for legislation in the countries of the Union to determine the protection to be granted to official
texts of a legislative, administrative and legal nature, and to official translations of such texts.
copyright in each of the works forming part of such collections.
(6) The works mentioned in this Article shall enjoy protection in all countries of the Union. This protection shall
operate for the benefit of the author and his successors in title.
(7) Subject to the provisions of Article 7(4) of this Convention, it shall be a matter for legislation in the countries of the
Union to determine the extent of the application of their laws to works of applied art and industrial designs and
(8) The protection of this Convention shall not apply to news of the day or to miscellaneous facts having the character
of mere items of press information.
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Article 2[b]
* * * *
(1) It shall be a matter for legislation in the countries of the Union to exclude, wholly or in part, from the protection
provided by the preceding Article political speeches and speeches delivered in the course of legal proceedings.
(2) It shall also be a matter for legislation in the countries of the Union to determine the conditions under which
(3) Nevertheless, the author shall enjoy the exclusive right of making a collection of his works mentioned in the
preceding paragraphs.
Article 3
(1) The protection of this Convention shall apply to: (a) authors who are nationals of one of the countries of the Union,
of the Union.
(2) Authors who are not nationals of one of the countries of the Union but who have their habitual residence in one of
them shall, for the purposes of this Convention, be assimilated to nationals of that country.
(3) The expression ‘published works’ means works published with the consent of their authors, whatever may be the
means of manufacture of the copies, provided that the availability of such copies has been such as to satisfy the
(4) A work shall be considered as having been published simultaneously in several countries if it has been published in
two or more countries within thirty days of its first publication.
Article 4
The protection of this Convention shall apply, even if the conditions of Article 3 are not fulfilled, to: (a) authors of
a building or other structure located in a country of the Union.
(1) Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the
nationals, as well as the rights specially granted by this Convention.
(2) The enjoyment and the exercise of these rights shall not be subject to any formality; such enjoyment and such
(3) Protection in the country of origin is governed by domestic law. However, when the author is not a national of the
rights as national authors.
(4) The country of origin shall be considered to be: (a) in the case of works first published in a country of the Union,
that country; in the case of works published simultaneously in several countries of the Union which grant different
terms of protection, the country whose legislation grants the shortest term of protection; (b) in the case of works
published simultaneously in a country outside the Union and in a country of the Union, the latter country; (c) in the
Union or other artistic works incorporated in a building or other structure located in a country of the Union, the
B. THE TRIPS AGREEMENT
More significant is the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS was part
of the agreement creating the World Trade Organization (WTO). TRIPS established standards for the international
protection of intellectual property rights.
1. No Discrimination against Foreign Intellectual Property Owners
2. Types of Covered Intellectual Property
This includes patents, trademarks, and copyrights for movies, computer programs, books, and music.
190 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
TEACHING SUGGESTIONS
2. One of the issues raised in this chapter is whether an instructor should be allowed to photocopy (has the common
use of the brand name “Xerox” to refer to photocopying rendered the brand name generic?) all or part of one or more
library book for later study? Would students feel differently if they owned the rights to the work and would receive
legging of other products protected by intellectual property law, including compact discs, cassette tapes, video-
3. To help students analyze problems that focus on topics in this chapter, you might outline the following three steps.
First, it should be determined if the party who is bringing the suit has a protectible interest (that is, whether the subject
matter of the plaintiff’s interest is appropriate for copyright protection, parent protection, trademark protection, or
whatever the case may be). Second, it should be determined whether the other party—the defendant—has interfered
with those rights. Third, it should be considered what remedy is appropriate.
Cyberlaw Link
Questions that students might be asked include the following.
• Is linking to a Web site without authorization an infringement of the site’s copyright? Is it a violation of
trademark law? Would it make any difference if the URL included a person’s name or a trademark?
• Should copyright law be made uniform throughout the world? Should the United States recognize moral rights
• Should a company be entitled to monitor the use of its copyrighted software after it’s been sold? If so, should
DISCUSSION QUESTIONS
1. What is a trademark? A trademark is a distinctive mark, motto, device, or emblem that a manufacturer stamps, prints,
3. Would the use of a purported trademark solely on a Web site satisfy the “use in commerce” requirement for
trademark protection? The use of a purported mark on a Web site alone would likely qualify as “use in commerce,” assuming of
4. Why is it important to allow those who have applied for trademark protection to defend preemptively against the use
of the mark by another party? Policy considerations, especially the promotion of certainty in business transactions by fixing an
5. What are some of the pros and cons of having an international standard for trademark protection? An international
6. What are service, certification, and collective marks? A service mark distinguishes services rather than goods. A
7. Why don’t all software products qualify for patent protection? A patent is a grant from the federal government
securing the exclusive right to make, use, and sell an invention for seventeen years (designs are covered for a shorter period).
The invention or design must be genuine, novel, useful, and not obvious. Software products often do not meet the “novel” and
9. Discuss the fair use doctrine and what factors are considered in determining whether a use is fair. Reproduction of
192 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
10. Why is copyright the most important form of intellectual property protection on the Internet? What is the protection
for copyrighted works online? Copyright law is probably the most important form of intellectual property protection on the
Internet, in part because much of the material on the Internet consists of works of authorship (multimedia presentations,
software, database information, etc.). These works are the traditional focus of copyright law. Copyright law is also important
because the nature of the Internet requires that data be “copied” to be transferred online. Loading a file or program into a
computer’s random access memory, or RAM, constitutes the making of a “copy” for purposes of copyright law.
ACTIVITY AND RESEARCH ASSIGNMENTS
1. News reports of local, national, and international controversies involving the subjects considered in this chapter can
3. Ask students to research online how the design of a Web site can be protected. Here is one possibility: (1) Register it
4. Ask students to research online the following question: how does a business choose and protect a domain name? (1)
Find out if a name is taken (there are firms that run global searches). (2) Register the name. (3) Consider: (a) the risks of not
registering in countries other than the United States (for instance, do you do business abroad? do you have foreign
competitors? etc.); (b) the costs of registering elsewhere (about $250 per country, with as many as two hundred countries in
5. More than most of the other chapters in this textbook, the material in this chapter can be researched online. As of this
writing, most, if not all, of the cases set out in this chapter can also be found at more than one Web site. Ask students to go
194 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
EXPLANATIONS OF SELECTED FOOTNOTES IN THE TEXT
Footnote 12: Playboy Enterprises, Inc. (PEI), trademarks include “Playboy,” “Playmate,” and “Playmate of the Year.”
Terri Welles, who was featured as “Playmate of the Year” in 1981, maintains a Web site titled “Terri Welles—Playmate of the
Year 1981.” As meta tags, the site uses the terms “Playboy” and “Playmate.” PEI filed a suit in a federal district court against
Welles, asking the court to order her to, among other things, stop using the terms. On this issue, the court granted a summary
The court also analyzed Welles’s use of the PEI term “PMOY” as wallpaper on her Web site. Was this use nominative? No.
“The repeated depiction of ‘PMOY ‘81’ is not necessary to describe Welles. ‘Playboy Playmate of the Year 1981’ is quite
adequate. Moreover, the term does not even appear to describe Welles—her name or likeness do not appear before or after
each ‘PMOY ‘81.’ Because the use of the abbreviation fails the first prong of the nominative use test, we need not apply the
next two prongs of the test.” The court remanded the issue for a determination of whether this use infringed on a PEI
trademark, however. The question was whether “PMOY” is entitled to protection.
Could the winner of an Academy Award, or a Heisman Trophy, or any other award with a familiar title, use that trademark
as a meta tag for a Web site? Probably. The outcome in any case would depend on the factors applied in the Welles case. If
the circumstances were similar, however, it is likely that the result would be the same. Could someone who has not won such
an award use the trademark as a tag? This would also depend on the factors mentioned in the Welles case. If the use of the
mark on the Web site were editorial—an article discussing contenders for Academy Awards, for example—it would not seem
inappropriate to permit the use of the trademark as a tag..
Footnote 17: In Diamond v. Diehr, the United States Supreme Court held that a process constitutes patentable
subject matter, although several of its steps include use of a mathematical formula and a programmed digital computer, if, as a
whole, it performs a function designed to be protected by the patent laws. Molding raw, uncured synthetic rubber into cured
products requires shaping the rubber under heat and pressure and then curing it in the mold so that it retains its shape.
Achieving the perfect cure depends on several factors, including the temperature of the molding process and the amount of
Footnote 29: Bridgeport Music, Inc., and Westbound Records, Inc., own the copyright to “Get Off Your Ass and Jam,”
which opens with a three–note solo guitar riff that lasts four seconds. The rap song “100 Miles and Runnin” contains a two–
second sample from the guitar solo, at a lower pitch, looped and extended to sixteen beats, in five places in the song, with each
Limit and others, alleging copyright infringement. The court issued a summary judgment in the defendants’ favor. Westbound
appealed. In Bridgeport Music, Inc. v. Dimension Films, the U.S. Court of Appeals for the Sixth Circuit reversed. Digitally
sampling a copyrighted sound recording of any length is copyright infringement. “[A] sound recording owner has the exclusive
right to ‘sample’ his own recording.” In other words, “the world at large is free to imitate or simulate the creative work fixed in
the recording so long as an actual copy of the sound recording itself is not made. . . . Get a license or do not sample,” because
“even when a small part of a sound recording is sampled, the part taken is something of value. “
Suppose that instead of a sound recording, this case had involved three seconds of a copyrighted movie, which the
defendants pirated off the Internet and incorporated as background in a music video production. Would this court’s holding be
different? The result probably would have been the same, based on the same reasoning. The owner of the copyright in a film
has the exclusive right to its use. Licensing is always possible.
Who is most likely to perceive the holding in this case—which arguably sets out a new rule—to “stifle creativity”? The
court stated, “Since digital sampling has become so commonplace and rap music has become such a significant part of the
record industry, it is not surprising that there are probably a hundred articles dealing with sampling and its ramifications. It is
also not surprising that the viewpoint expressed in a number of these articles appears driven by whose ox is being gored. As is
How can artists sample others’ works and avoid liability for infringement? The court explained, “[M]any artists and record
companies have sought licenses as a matter of course. Since there is no record of those instances of sampling that either go
unnoticed or are ignored, one cannot come up with precise figures, but it is clear that a significant number of persons and
companies have elected to go the licensing route. Also there is a large body of pre-1971 sound recordings that is not protected
and is up for grabs as far as sampling is concerned. Additionally, just as many artists and companies choose to sample and take
their chances, it is likely that will continue to be the case.”
Suppose that rather than taking a few notes from another’s musical composition, No Limit had played the exact same
notes in the studio when recording. In other words, the band did not “sample” the copyrighted work of another. How would
this change the outcome of the case? Could Bridgeport and Westbound still prove copyright infringement? The result might
have been the same, based on the same reasoning. The owner of the copyright to a song has the exclusive right to its use.
Licensing is always possible. No Limit might have avoided liability if it could have proved that it had never heard the copyrighted
piece.
ANSWERS TO ESSAY QUESTIONS IN
STUDY GUIDE TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
BY HOLLOWELL & MILLER
196 INSTRUCTOR’S MANUAL TO ACCOMPANY BUSINESS LAW, TWELFTH EDITION
2. What is a trade secret and how is it protected? Trade secrets are customer lists, plans, research and development,
pricing information, marketing techniques, production techniques, formulas, and generally anything that makes a company
unique and that would have value to a competitor. They cannot be patented, copyrighted, or trademarked, but they are
protected from appropriation by the common law and in some states by the Uniform Trade Secrets Act. The protection extends
to ideas and their expression. There are no registration or filing requirements.
REVIEWING—
INTELLECTUAL PROPERTY AND INTERNET LAW
Two computer science majors, Trent and Xavier, have an idea for a new video game, which they propose to call
“Hallowed.” They form a business and begin developing their idea. Several months later, Trent and Xavier run into a
problem with their design and consult with a friend, Brad, who is an expert in designing computer source codes. Before
Hallowed is marketed, however, the video game “Halo 2” is released for both the Xbox and Playstation 3 systems. Halo
2 uses the same source codes as Hallowed and imitates its overall look and feel. Ask your students to answer the
following questions, using the information presented in the chapter.
1. Would the name “Hallowed” receive protection as a trademark or as trade dress? The name of the video game
2. If Trent and Xavier had obtained a business process patent on Hallowed, would the release of Halo 2 infringe on
their patent? Why or why not? No, because all steps of a patented process must be copied to constitute infringement
3. Based only the facts described above, could Trent and Xavier sue the makers of Halo 2 for copyright infringement?
Why or why not? Yes, because Halo 2 copies the source codes of Hallowed. Whenever the form or expression of an
4. Suppose that Trent and Xavier discover that Brad took the idea of Hallowed and sold it to the company that
produced Halo 2. Which type of intellectual property issue does this raise? The fact that Brad took and sold Trent and
CHAPTER 8: INTELLECTUAL PROPERTY AND INTERNET LAW 197
DEBATE THIS:
Congress has amended copyright law several times. Copyright holders now have protection for many decades.
Was Congress right in extending these copyright time periods? Why or why not? Obviously, copyright holders whose
copyrights were about to run out benefited from the time-period extensions legislated by Congress. Hence, they
certainly believe that Congress acted correctly. (It’s not surprising that major copyright holders such as large movie
companies, record labels, and publishing houses did most of the lobbying that led to extensions of copyright
protection periods.) In general, one can argue that more effort will go into the creation of intellectual property the
longer the period of copyright protection for intellectual property. In other words, for the creation of new original
works, the term extension of the copyright protection incentivizes creators of such works to extend more effort.