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					monday, aprIl 20, 2009                                                        Intellectual property                                                                                                                 S1




     From Pop Stars
                                                                              YouTube unfair
                                                                                  To The LiTTLe Guy
    To The President
    Recent cases center on borrowing                                                                                    Video posting site profits off those
       trademarks and materials                                                                                              unable to enforce copyrights
             By MARGO LYNN HABLUTZEL


   t    he often-cited “imitation is the sincerest of
        flattery” is occasionally used to justify actions
   when no defense excuses them. But under copy-
   right and trademark laws, imitation is not flattery
   —it can be infringement.
      louis Vuitton, a division of lVmH moet Hen-
   nessy louis Vuitton Sa, recently learned that use of
   another’s trademark is not always infringing when
   it claimed that the furry chewy Vuiton dog toys
   created by a company called Haute diggity dog
   violated its trade dress and trademark, most often
   seen on fashionista-friendly handbags.
      However, a three-judge panel of the Fourth u.S.
   circuit court of appeals affirmed a lower court’s
   ruling that Haute diggity dog’s creations did not
   infringe, but successfully parodied the French fash-
   ion company’s products.
      Helping the judges reach their decision was the
   fact that Haute diggity dog admits that its focus is
   to create a successful line of popular parody dog toys,
   which include chewnel #5 toys and dog beds, Jimmy
   chew and Bark Jacobs shoe-shaped toys, a Growlex
   watch, and dog beds shaped like a Furcedes. Because
   of the wide line of products and the great number
   of trademarks mimicked, the Fourth circuit found




                                                                                                                                                                                  Image designed by Rachele Doyon
   ample evidence that the toys and bags were parodies
   of louis Vuitton’s products.
      lVmH was more successful in a lawsuit against pop
   tart Britney Spears, whose 2005 video for “do Some-
   thing” features Spears driving a pink Hummer with a
   faked version of the Vuitton ‘cherry blossom’ design
   printed on the interior. Bringing suit in its home city
   of paris, Vuitton obtained an injunction against Sony                                                       By JAMES L. WALKER Jr.
   BmG and mtV online for showing the video. possibly
   key to the case is the fact that the song doesn’t mention
   louis Vuitton or any designer, but has Spears singing
   about how she wants to drive her truck through the
   clouds. no parody, no mention, just misuse.
                                                                      I  n 2007, Viacom, the media conglomerate and parent company of mtV, VH1 and
                                                                         comedy central, filed a lawsuit in the Southern district of new york requesting
                                                                      a billion dollars in damages under the copyright act. It alleged that youtube, and
                                                                      its parent company, Google, actively engaged in, promoted, and induced massive
   Tribute Bands
                                                                      copyright infringement through the youtube video distribution service.
      The trademarks of pop stars of a different gen-
   eration were featured in a case that could be titled

                        SEE PAGE 2                                                                                  See paGe 3



                                                                                      alSo InSIde

     Smoothing Away                         Before You Make                     The Tax Code                         Reform Efforts                       Not Enough
     Some Confusion                         That Photocopy                     And IP Transfers                      Not All Popular                  To Show Deception
     an opinion in Egyptian God-              In the modern workplace,           When discussing tax issues         a decision in Tafas v. Doll has   In RCT v. Microsoft, the court
    dess Inc. v. Swisa makes it clear      pressure to keep costs down and    questions often arise about the        alleviated some concerns in         of appeals for the Federal
      what test must be satisfied            a misunderstanding of copy-      availability of capital gain treat-   the patent community, but the     circuit affirmed the two-prong
       when assessing claims of            right law can expose businesses     ment for the transfer of copy-         courts and bar are split on     standard for evaluating inequi-
     design patent infringement.           to copyright infringement suits.    rights and computer software.              reform initiatives.          table conduct in patent cases.
             SEE PAGE 2                              SEE PAGE 4                         SEE PAGE 5                           SEE PAGE 6                        SEE PAGE 7
S2                                                                             Intellectual property                                                                 monday, aprIl 20, 2009



Nail Buffer Case Smooths Away Confusion
‘ordinary observer’ test now standard for design patent infringement
By MICHAEL A. CANTOR                                It found that Swisa’s buffer didn’t incor-   A Nail-Biter
                                                  porate the point of novelty in eGI’s patent,       The entire Federal circuit took up the case
                                                                                                                                                     intellectual
F   or decades, court opinions have re-
    quired satisfaction of two different
tests when assessing claims of design pat-          tHe court conceded
                                                                                                 to address the appropriate legal standard to
                                                                                                 be used in assessing claims of design patent
                                                                                                 infringement. It began its discussion with                                                p
ent infringement, leading to understand-                                                         the u.S. Supreme court decision in Gorham
                                                     tHat tHe extent to
able confusion. the Federal circuit court
of appeals has put an end to that confu-
                                                                                                 v. White. In Gorham, the Supreme court set
                                                                                                 forth the ordinary observer test:
                                                                                                                                                                                           r
sion with its opinion in Egyptian Goddess
                                                    wHicH tHe point of                               “… If, in the eye of an ordinary observer,
Inc. v. Swisa, which pitted the “ordinary             novelty test Has                           giving such attention as a purchaser usually                                              o
observer” test against the “point of nov-                                                        gives, two designs are substantially the same,
                                                   been a separate test
elty” test.                                                                                      if the resemblance is such as to deceive such
                                                                                                 an observer, inducing him to purchase one                                                 p
The Background File                                Hasn’t always been                            supposing it to be the other, the first one pat-
   egyptian Goddess Inc. (eGI) sued Swisa
for design patent infringement. The case in-      clear. tHerefore, tHe
                                                                                                 ented is infringed by the other.”
                                                                                                     the Federal circuit also cited Litton
                                                                                                                                                                                           e
volved eGI’s design patent for a four-sided                                                      Systems Inc. v. Whirlpool Corp. In Lit-
nail buffer that features buffer surfaces on         case would serve                            ton Systems, the Federal circuit held that                                                r
three sides. Swisa sold a four-sided buffer                                                      proof of similarity under the ordinary
                                                       as a veHicle for
with buffer surfaces on all sides.
   The district court held that the plaintiff       reconsidering tHe
                                                                                                 observer test is insufficient on its own
                                                                                                 to support a finding of design patent in-                                                 t
in a design patent infringement case must                                                        fringement. rather, the accused design
prove that the accused device (Swisa’s buf-
fer):
                                                     place of tHe point                          must also appropriate the patented de-
                                                                                                 sign’s novelty. the similarity between the
                                                                                                                                                                                           y
   Is “substantially similar” to the patented        of novelty test in                          two designs must be attributable to the
design (eGI’s buffer) under the ordinary ob-                                                     novelty that distinguishes the patented            been clear. Therefore, the case would serve
server test, and                                    design patent law.                           device from the prior art.                         as a vehicle for reconsidering the place of the
   contains “substantially the same points of                                                        The court in Egyptian Goddess conceded         point of novelty test in design patent law.
novelty” that distinguished the patented design   and a three-judge panel of the Federal cir-    that the extent to which the point of novelty
from previous designs (or the “prior art”).       cuit affirmed the decision.                    test has been a separate test hasn’t always                                       n see PAGE S5

n From pop stars on PAGE S1                       ing truth in music acts remain unchallenged    found their trade dress, menu, and other           analysis. on march 11, the ap counter-
                                                  from a trademark standpoint.                   items copied, echoing the claims in Two            sued asking that the court find that there
“I challenged the law, and the law Backed                                                        Pesos Inc. v. Taco Cabana Inc., 505 u.S. 763       was no fair use and that infringement has
down.” The law in question is new Jersey’s Lobster Bars                                          (1992). Some chefs take additional steps to        occurred.
truth in music act, which requires bands         another recent case could be likened to         protect the effort they make to have their            at issue is whether the definition of fair
to show a direct connection to a past group a truth in restaurants challenge. chef re-           restaurant be as unique as possible: having        use, usually limited to use for comment,
or label themselves as ‘tribute bands’ so the becca charles of the pearl oyster Bar in           staff sign non-disclosure agreements, regis-       discussion, and educational purposes, ap-
public is not confused into thinking they will new york brought suit in manhattan last           tering menu item names with the trademark          plies when someone takes a news photo as
be hearing the original group. connecticut summer against a rival chef and her former            office, and filing patent claims for new tech-     the basis for a work of art. numerous cases
enacted a similar law in 2006.                 sous-chef, ed mcFarland of ed’s lobster           niques. others are watching charles’s case         have alleged that artwork was based upon
   Singer Management Consultants Inc. and Bar. the suit said the latter eatery had im-           to see whether she prevails and forces ed’s        a photograph, including the alfred eisen-
Live Gold Operations Inc. v. Milgram com- itated the look of charles’s establishment             lobster Bar to change its menu and décor,          stadt photo of a sailor kissing a nurse that
menced when three                                                      and copied her            or whether the courts deem her claim just          appeared in Life magazine in 1945. While
groups performing
the hits of 1950’s vo-
                            Helping tHe judges menu. Specifically,     charles     alleged
                                                                                                 another bunch of sour grapes.
                                                                                                    The most recent case focuses on an im-
                                                                                                                                                    that case settled without a reported deci-
                                                                                                                                                    sion, the decision in Rogers v. Koons, 960
cal groups the coast-
ers, the drifters, and
                         reacH tHeir decision Bar’s copied the         that ed’s lobster         age of president Barack obama almost a
                                                                                                 year before he announced he would seek
                                                                                                                                                    F.2d 301 (2d cir. 1992), decided in the
                                                                                                                                                    same Second circuit where Fairey v. AP
the platters were           was tHe fact tHat                          white marble bar,         the presidency. In april 2006, the national        is filed, is more informative, as the courts
instructed by new                                                      the gray paint on         press club hosted a panel discussion about         there held that the sculptor Jeff Koons was
Jersey attorney Gen-       Haute diggity dog the wainscoting,                                    darfur, featuring actor George clooney and         liable to photographer art rogers when he
eral anne milgram                                                      the chairs and bar        Sens. Sam Brownback and obama among                made three sculptures based upon rogers’s
to meet the require-           admits tHat its                         stools with their         the speakers. But a photograph of clooney          photograph “puppies.” In that case, Koons
ments of the truth                                                     wheat-straw backs         and obama by associated press photogra-            claimed that he had fair use protection
in music act. While        focus is to create and the dress-                                     pher mannie Garcia has become the focus            because his sculpture was a parody of the
awaiting the attorney                                                  ing on the cae-           of a court case almost three years later, as the   photograph, a claim both trial and appel-
general’s decision on        a successful line                         sar salad, which          ap sues artist Shepard Fairey for copyright        late courts found lacking.
the information pro-                                                   contains her eng-         infringment.                                          In his original complaint, Fairey pointed
vided by two of the of popular parody lish muffin-based                                             the ap charged that by basing his ubiq-         out that he used only a small portion of the
groups showing their                                                   croutons. as a re-        uitous obama Hope poster (and other                original photograph, and that his use did
link to the original         dog toys, wHicH                           sult, she claimed         merchandise) on the april 2006 photo,              not diminish the value of the photograph
groups, two of the                                                     the new eatery            Fairey created a derivative work based             itself. He also argues that his use as the ba-
groups sued to have          include cHewnel                           (and her former           upon the photograph. as the owner of the           sis of the obama Hope poster has enhanced
the law overturned,                                                    sous-chef)     stole      photograph’s copyright, the ap charges it          the value of the Garcia photograph beyond
alleging that the fed-        dog beds and a                           her trade dress and       should have been asked for a license to use        measure.
eral lanham act pre-                                                   other intellectual        the image, and is entitled to remuneration            The ap countered that the poster image
empted the state law.
                             growlex watcH.                            property.                 as a result. approximately a week after            copied the heart and essence of the ap’s
The attorney general                                                      mcFarland re-          obama’s inauguration, the ap’s lawyer              photo, including but not limited to its patri-
responded that the lanham act pre-empted sponded that a caesar salad is a caesar                 called Fairey’s studio and demanded pay-           otic theme. certainly the case will continue
state law only as to registered marks, and salad, a white marble bar is a standard fix-          ment. In response, on Feb. 9, Fairey filed         to be of interest not just because of the fair
groups singing under an unregistered mark ture in seafood restaurants with raw bars,             a request for a declaratory judgment and           use and infringement claims, but because
must bill themselves as tribute groups. The and that he felt the lawsuit only served as          injunctive relief on the basis that there had      of its relationship to the historically-elected
state later agreed that unregistered marks free publicity for his restaurant. For her            been no infringement under a ‘fair use’            44th president.                               n
could be treated equally. In early 2009, the part, charles indicated that she was bring-
district court ruled that this change meant ing the lawsuit not only on her own behalf,                 Attorney Margo Lynn Hablutzel is a senior contracts manager with CSC Inc. of
that the lawsuit was moot. So the proliferat- but on behalf of all restaurant owners who               Newington, a global consulting, systems integration and outsourcing company.
monday, aprIl 20, 2009                                                            Intellectual property                                                                                                                    S3
n From youtube on PAGE S1                          over, youtube provides interactive features       ing terms from content owners. and, there

   Viacom noted that more than 150,000 un-
                                                   that allow users to embed uploaded videos
                                                   on their own sites.
                                                                                                     is a strong case that Google and youtube are
                                                                                                     really running a tV network over the inter-
                                                                                                                                                                       INTELLECTUAL
authorized clips of its copyrighted films and
programs, including entire episodes of such
                                                       For example, I logged on youtube recent-
                                                   ly and found several of my favorite gospel
                                                                                                     net and should be immediately shut down
                                                                                                     for airing tV shows and music videos with-                                                                          P
popular fare as The Colbert Report, South Park,    songs, my favorite run-dmc videos and a           out a license or written permission from the
and The Daily Show with John Stewart, had
been identified on youtube. By Viacom’s cal-
                                                   jazz clip of lena Horne, all comfortably in-
                                                   dexed and discovered in five seconds or less
                                                                                                     copyright owners, such as Viacom. and, it is
                                                                                                     undeniable that Google, through its purchase
                                                                                                                                                                                                                         R
culations, Google’s failure to take reasonable     with a search on the youtube home page.           of youtube a few years ago, has profited from
steps to prevent the display of infringing clips       although the transformative processes that    the public display of such unlicensed copy-                                                                         O
had resulted in unlicensed Viacom properties       youtube’s service performs on uploaded con-       righted works.
being viewed more than 1.5 billion times.
   Viacom also alleged that Google withheld
                                                   tent are automated and uniformly applied to
                                                   all uploads, Viacom notes that pornographic       Congressional Action                                                                                                P
internally developed filtration technology in      material is suspiciously absent from youtube.        regardless of whether Viacom is settled,
order to gain leverage in copyright licensing
negotiations. Such technology compares up-
                                                   That fact lends some strength to Viacom’s argu-
                                                   ment that Google is well aware of the nature of
                                                                                                     congress should revisit the dmca and
                                                                                                     clarify its safe harbor provisions. Whether
                                                                                                                                                                                                                         E
loaded youtube videos to the digital “finger-      the content that is uploaded to youtube. and,     through new law or amendments, lawmak-
prints” of copyrighted works. Those videos         more importantly, youtube and Google profit       ers should continue to protect the interests                                                                        R
that match a copyrighted work are immedi-          from the display of uploaded content through      of copyright holders, acknowledging that
ately pulled from youtube. However, at the
time of Viacom’s filing, such technology was
                                                   the sale of advertising. Thus, youtube does not
                                                   fit neatly within the dmca’s existing safe har-
                                                                                                     individual copyright owners may lack the
                                                                                                     resources necessary to enforce their copy-                                                                          T
offered only to Google’s business partners.        bor provisions and such legal theory will most    rights. an amended dmca or new law
   of course, Google and the youtube brass
deny any such illegal activity and have fought
                                                   likely be rejected before a jury.                 should make clear that services like you-
                                                                                                     tube must share in the burden of policing
                                                                                                                                                                                                                         Y
the case vigorously.                             Policing Efforts                                    their sites for infringing content.                             their sites’ terms of use policies. placing such
                                                    technological nuances aside, the real               new laws are needed to make it clear that                    a minimal burden on online content distrib-
Safe Harbor                                      question in Viacom boils down to where the          such sites are obligated to maintain at least                   utors seems a fair compromise to combat the
    Before analyzing the Viacom case further, burden for policing copyrights should be               a minimal degree of filtration technology so                    rampant abuse of copyright law.
it is important to look at the state of technol- placed, on content creators or on content dis-      as to identify and “weed out” infringing up-                       In the end, if new laws are made, I am
ogy 11 years ago. In 1998, the ipod had yet to tributors? The dmca effectively places such           loaded content, regardless of whether such                      certain even folks like me, who pull those
be released, Facebook founder mark Zuck- burden on copyright holders, such as Viacom                 site has a licensing agreement with a content                   old motown classics on youtube, would be
erberg was just entering high school and as the owner of VH-1’s Behind the Music and                 provider.                                                       willing to pay whatever fee necessary to ac-
“twittering” was a sound that birds made.        numerous mtV shows, among others. It is                moreover, such distribution platforms                        cess these works with assurance the actual
    But it was during this same period that easy to ask a large company like Viacom to               should be obligated to build more robust                        copyright holders are reaping the financial
congress passed the digital millennium bear the burden for protecting its own copy-                  procedural safeguards into their systems, no                    gains for their intellectual property and
copyright act (dmca), a legislative com- rights as financially Viacom has the resources              longer relying on disclaimers tucked within                     classic songs.                                 n
promise between copyright holders and in- to do so.
ternet service providers (ISps). The dmca’s         However, that requirement is unduly                  James L. Walker Jr. is the managing partner of Walker & Associates, a Stamford-based
primary purpose was to protect content cre- burdensome and costly when applied to in-                 firm, and also an adjunct 4/13/09 at the University of 1
                                                                                                     CT_Law_5x6.5:3312009 professor 10:36 AM Page Connecticut School of Law. This
ators from the growing threat of digital rep- dependent record labels, small production                article was written with great writing and research assistance from Attorney Michael
lication and distribution while simultane- companies or individual artists. Such enti-                                                       Cummings.
                                                             ties do not have the technologi-
         ThERE Is A sTRONg CAsE                              cal infrastructure, manpower, or
                                                             financial resources to engage in
  ThAT gOOgLE ANd YOUTUbE a meaningful copyright policing
                                                             effort. oftentimes, such entities             Webster’s Attorney Package.
        ARE REALLY RUNNINg A                                 are reduced to blindly searching
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the copyright act’s infringement penalties.      recognize that a number of small artists em-
    So long as ISps expeditiously responded to brace the digital revolution in the entertain-
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moving infringing content from their servers, as a tremendous opportunity to build a loyal
they avoided sanctions. Google has asserted fan base, regardless of piracy concerns.                       Voted best bank for attorneys to do
the dmca’s safe harbor provisions as a de-          admittedly, shifting the burden for po-                business with by the readers of the
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that it is immunized from infringement liabil- shoulders could have a chilling effect, stunt-
ity since youtube is merely a passive host of ing technological innovation and invest-
                                                                                                                                                                                               WebsterOnline.com
any unlicensed content uploaded to its serv- ment. exposed to greater risk under the
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tent that is uploaded to its site, converting       However, a copyright is a copyright. Thus,           equity and installment loan balances is not maintained. This fee will be waived as long as your employer remains
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dexing the content for search purposes, and content to be uploaded to the youtube ser-                 and Trademark Office. Webster Bank, N.A. Member FDIC. Equal Housing Lender.                           04/09
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S4                                                                                        Intellectual property                                                                      monday, aprIl 20, 2009




Before You Make That PDF Or Photocopy...
Routine business practices can turn into copyright infringement
By ARTHUR G. SCHAIER                                    works regardless of whether they have been            thought to be justified by expediency or cost
and MEREDITH A. LONG                                    formally registered with the u.S. copyright
                                                        office. copyright owners have the exclusive
                                                                                                              savings. For example, some people believe that
                                                                                                              the doctrine permits the use of others’ copy-
                                                                                                                                                                     iNtellectual
m     ay you cut and paste the text of this
      article and send it out as your own?
                                                        right to copy their work, prepare derivatives of
                                                        it, distribute copies of it to the public, and pub-
                                                                                                              righted works as long as the intended audience
                                                                                                              is small, the author is credited, other people are
What if you make multiple copies and route
them to co-workers – is that oK? How about
                                                        licly perform or display it, among others.            doing the same thing, or the work is already                                                   p
                                                            you should at least assume that any con-          widely available to others. However, as the fol-
    No-No No. 1 is copyiNg                              temporary written or artistic work may be
                                                        protected by copyright and should not,
                                                                                                              lowing list of common workplace copyright
                                                                                                              violations indicate, this is just not true.                                                    r
      articles aNd widely                               absent inquiry, be copied or used without                 No-No No. 1: copying articles and widely
 circulatiNg them arouNd                                permission. exceptions to this rule may be
                                                        made for older copyrighted works that are
                                                                                                                  circulating them around the office or e-
                                                                                                                  mailing them as pdFs to others. This quick
                                                                                                                                                                                                             o
   the office or e-mailiNg                              currently in “the public domain” and any                  and popular way to disseminate informa-
  them as pdfs to others.                               work of the u.S. government.                              tion can diminish the original author’s abil-                                              p
                                                                                                                  ity to sell or profit from his or her work.
     this popular way to
 dissemiNate iNformatioN
                                                        Fair Use
                                                           There are, of course, certain instances
                                                                                                                  The author’s profits might be in the form
                                                                                                                  of newspaper or trade journal sales, or they                                               e
caN dimiNish the origiNal                               in which copyrighted material can be used                 might be derived from the number of “hits”

   author’s ability to sell
                                                        without the owner’s permission. For exam-
                                                        ple, “fair use” is a well-known legal doctrine
                                                                                                                  on a website. either way, copying and dis-
                                                                                                                  tributing someone else’s work in this man-
                                                                                                                                                                                                             r
       or profit from his                               that permits the use of limited portions of               ner may be difficult to justify as “fair use.”
            or her work.
                                                        copyrighted material in certain circumstanc-              No-No No. 2: Buying one subscription                                                       t
                                                        es. Factors that may be considered in deter-              to a journal or other publication, making

                                                                                                                                                                                                             y
sending a copy as a pdF to all your clients?            mining whether or not a practice constitutes              multiple copies of it, and routing the copies
does giving credit to the source of the article         “fair use” include: (1) the purpose and char-             throughout the office to co-workers. Some
make it oK to copy it?                                  acter of the use, including whether such use              people may be surprised to learn that this
   If you answered “yes” to any of these hy-            is of a commercial nature or for nonprofit                common cost-cutting technique may be a
potheticals, then you should keep reading!              educational purposes; (2) the nature of the               violation of copyright law. The same goes
In the modern workplace, pressure to keep               copyrighted work; (3) the size and signifi-               for in-house distribution systems that            theories, such as breach of contract for im-
costs down and a misunderstanding of basic              cance of the portion used in relation to the              send pdF images of publications to cli-           proper use of the information on the linked-
copyright law principles can expose busi-               copyrighted work as a whole; and (4) the ef-              ents to avoid the cost of buying additional       to site, may still be made. other critics of deep
nesses to copyright infringement suits and              fect of the use upon the potential market for             subscriptions. Some publishers have writ-         linking claim it may cause economic harm to
possible financial liabilities.                         or value of the copyrighted work.                         ten policies regarding this specific practice     the operators of the linked-to sites if their
   u.S. copyright law, which is found in title 17          unfortunately, the “fair use” argument is              that are designed to educate customers            sites generate revenue based on the number
of the u.S. code, protects original works of au-        often thought to protect actions that it prob-            about what is and isn’t permissible.              of visitor “hits” to their homepages.
thorship in fixed tangible mediums. It protects         ably doesn’t protect, some of which may are               No-No No. 3: Incorporating downloaded                 The web design techniques of “framing” and
                                                                                                                  images or sound bites into a presentation.        “inlining” may also be problematic. Though
                                                                                                                  Have you been to a conference where the           the two techniques are technically distinct,
                                                                                                                  speaker incorporated movie clips, photo-          they produce similar results: both allow web
           A N Y O N E W I T H A C A L C U L AT O R C A N                                                         graphs or other images into the presenta-         users to view the contents of a third party’s web


       DO THE MATH
                                                                                                                  tion? With all sorts of digital technology at     site through a frame or window created on the
                                                                                                                  our fingertips, it is easier than ever to down-   first site, similar to the “picture-in-picture”
                                                                                                                  load and reproduce artistic works from the        feature offered on some televisions. Here too,
                                                                                                                  Internet. unfortunately, using those materi-      an argument can be made that that such ac-
                    WE’RE HERE TO HELP YOU                                                                        als in such presentations may violate copy-       tivity infringes upon the third party’s exclusive

       MAKE YOUR CASE
                                                                                                                  right law unless the owners of the materials      rights, such as the right to publicly display the
                                                                                                                  have given permission in advance.                 contents of its own web site.
                                                                                                                  No-No No. 4: creating a company web
                                                                                                                  site that misappropriates or misuses the          Recommendations
                                                    When you work with our team of litigation
                                                                                                                  content of other web sites. company web               employers and employees may decrease
                                                    support professionals and business valuation                  sites are powerful marketing tools but            their exposure to copyright infringement by
                                                    consultants, you can count on a depth of                      can be very costly to develop – a fact that       following these three simple rules:
                                                    experience that will bring clarity to even                    may tempt businesses to borrow or link            • Identify and seek permission from the
                                                    the most complex financial issues, with                       to material hosted on other web sites. In            copyright holder before using their work.
                                                    responsive, reliable service you and your                     a limitless network of information like              If you’re trying to obtain copyright and li-
                                                                                                                  cyberspace, what constitutes “fair use?”             cense information, a third party resource
                                                    clients can count on. Our services include:
                                                                                                                  While pasting the contents of someone                like the copyright clearance center
                                                    •   Litigation Support                                        else’s web page onto your own without                (www.copyright.com) may help.
                                                    •   Business Valuation                                        their permission may be an obvious ex-            • To decrease the risk of infringement, con-
                                                    •   Investigative and Forensic Analysis                       ample of a copyright violation, what                 sider using original works created by you
                                                    •   Fraud Investigations                                      about more sophisticated web design                  or by others within your company or works
                                                                                                                  techniques like “linking,” “framing,” and            that are in “the public domain.” Web sites
                                                    Let us help you make your case.                               “inlining,” which allow web site operators           like flickr.com/creativecommons/ offer
                                                    For a complete listing of our litigation                      to feature the content of third-party sites          images that may be used on an “attribu-
                                                    support and business valuation                                without using the old-fashioned “cut and             tion” basis (meaning the images may be
                                                    services, visit www.kostin.com,                               paste” method? These techniques can, in              freely copied and distributed provided the
                                                    or contact us at 860.678.6000.                                certain situations, be unlawful.                     author is given proper credit).
                                                                                                              as a general rule, it is permissible for websites     • Live by the Golden Rule: If you wouldn’t want
                                                                                                              to feature links to the homepages of third-              someone else to use your work in the manner
     Business Advisors and                                                                                    party web sites without permission. In certain           you are using theirs, rethink your plans. n
     Certified Public Accountants                                                                             situations even “deep linking,” the practice of
     Farmington & New London, Connecticut                                                                     linking a website user deep into the internal               Arthur G. Schaier is a partner and
     Springfield, Massachusetts                                                                               pages of a third party’s web site (thus bypass-         head of the Intellectual Property Group
     1.860.678.6000                                                                                           ing the third party’s homepage) has been held            at Carmody & Torrance in Waterbury.
     www.kostin.com                                     GET   WHERE      YOU     WA N T    TO   GO            to be permissible under u.S. copyright law,             Meredith A. Long is an associate in the
                                                                                                              but allegations of wrongdoing under other                      firm’s Waterbury office.
monday, aprIl 20, 2009                                                              Intellectual property                                                                                       S5

Copyrights, Computer Software And The Tax Code
intellectual property transfers raise questions about capital gain treatment
By DANIEL L. GOTTFRIED                               third party. can the client achieve capital       gain treatment if transferred in a sale or        contributes to the creation of the property,
                                                     gain treatment?                                   exchange. In determining whether a copy-          or if such taxpayer directs and guides others

I  n speaking with creators of intellectual
   property and their legal advisors about
tax issues, a question often arises as to the
                                                        This fact pattern raises two related tax is-
                                                     sues: First, whether the client is deemed to
                                                     have personally created the software, and
                                                                                                       right is self-created, the general rule looks
                                                                                                       to whether the copyright was created by the
                                                                                                       taxpayer’s “person efforts.” While it is usu-
                                                                                                                                                         in the performance of such work.” However,
                                                                                                                                                         the regulations go on to provide that a tax-
                                                                                                                                                         payer, “such as [a] corporate executive, who
availability of capital gain treatment for the       second whether the software is considered a       ally uncontroversial to determine if a natu-      merely has administrative control of [the
transfer of copyrights and computer soft-            copyright or some other type of intangible        ral person created a copyright – for example,     creative personnel] and who does not sub-
ware. The context is usually as follows:             asset for tax purposes.                           an artist who painted a picture – there are       stantially engage in the direction and guid-
   The client — a corporation or other le-                                                             significant unresolved issues as to whether       ance of such persons in the performance of
gal entity — developed a software product            Self-Created Copyrights                           a corporation or other legal entity can “per-     their work, does not create property by his
through its employees and independent                   The usual refrain is that self-created copy-   sonally” create a copyright.                      personal efforts.”
contractors. contractors previously as-              rights are excluded from capital gain treat-         u.S. treasury department regulations              By focusing on the natural persons – the
signed all of their intellectual property rights     ment, but that third-party copyrights (e.g.,      state that property is created by a taxpayer’s    creative personnel and the “mere” corporate
in the work product to the client. The client        those created by a third party and acquired       personal efforts if the taxpayer performs “cre-
would like to sell the software product to a         by purchase) can often give rise to capital       ative or productive work which affirmatively                                    n See PAGE S8



                                                              McCARTER EXPANDS ITS
n From nail buFFer on PAGE S2


Nailing It Down

                                                              IP/IT GROUP IN THE NORTHEAST
    eGI argued that the point of novelty test
shouldn’t be recognized as the second part of
the test for design patent infringement. The
Federal circuit agreed, holding that the point
of novelty test as a separate test or second re-
quirement for proof of infringement is incon-
sistent with the test outlined in Gorham as well
as another case, Smith v. Whitman Saddle Co.
    In Whitman, the Supreme court inter-
preted the ordinary observer test as requir-
ing that the hypothetical ordinary observer’s
perspective “be informed by a comparison
of the patented design and the accused de-
sign in light of the prior art.” The Supreme
court in Whitman theorized that this would
enable the fact-finder to determine whether
the accused design had appropriated the
patented design’s inventiveness.
    The Federal circuit observed that the Su-
preme court’s Whitman opinion didn’t suggest
that it was fashioning a separate point of novelty
test for infringement. The point was that in-
                                                                  WE ARE PLEASED TO WELCOME OUR NEW PARTNERS
fringement couldn’t be found where the accused                    Cristin Howley Cowles, Ph.D.
design includes no features that would make it
distinctively similar to the patented design, as                  Danielle L. Herritt
opposed to numerous prior art designs.
    The Federal circuit determined that its pre-                  Elizabeth A. Hanley
vious readings of Litton Systems as supporting
a separate point of novelty test were incorrect.
                                                                  Michael I. Wolfson
Instead, Litton should be read as applying a dif-                 Maria Laccotripe Zacharakis, Ph.D.
ferent version of the ordinary observer test in
which the ordinary observer views the differ-
ences between the patented design and the ac-                     In addition to 5 new partners, the group also welcomes a team of eight patent
cused product in the context of the prior art.                    professionals with industry experience and advanced scienti c degrees including:
    In cases with many examples of similar                        Jermaine A. Lawrence, Associate; Jill Ann Mello, Ph.D., Associate; Christopher B.
prior art designs, the ordinary observer with
knowledge of the prior art will give more
                                                                  Westberg, Ph.D., Associate; A. Jacqueline Wizeman, Ph.D., Associate; Marcie B.
significance to differences between the pat-                      Clarke, Ph.D., Patent Agent; Deborah L. Nagle, Ph.D., Patent Agent; Joshua K.
ented and accused designs that others might                       Roth, Patent Agent and Meaghan L. Richmond, Ph.D., Patent Agent.
not notice. Thus, the Federal circuit held
that the ordinary observer test should be the
                                                                  The Firm’s full IP group, 45 intellectual property and information technology lawyers
sole test for determining whether a design
patent has been infringed.                                        spanning its regional of ces, ranks among the nation’s top 10 by number of patent
                                                                  cases in which it is counsel, according to the 2009 Law 360 Litigation Almanac.
Plaintiff Rebuffed
    although eGI prevailed on its argument
regarding the appropriate test, it lost in the
end. The court held that the similarity of
the prior art to the Swisa buffer would pre-                                                                       CityPlace I 185 Asylum Street Hartford, CT 06103
clude a finding that an ordinary observer                                                                          T 860.275.6700 F 860.724.3397
would believe the design to be the same as                                                                         Financial Centre, Suite 304A 695 East Main Street Stamford, CT 06901
eGI’s. Satisfying the ordinary observer test,                                                                      T 203.399.5900 F 203.979.3899 www.mccarter.com
it seems, will not necessarily be easy.      n


     Michael Cantor is the co-managing
partner of Cantor Colburn LLP in Hartford.
S6                                                                                                  Intellectual property                                                              monday, aprIl 20, 2009




Patent Reform Efforts Not Entirely Popular
Courts, bar split on initiatives designed to streamline process
By JONATHAN B. TROPP                                                 of the patent act and thus impermissible.                                                        to file a petition “showing that the amend-
and LINDSAY ADAMS                                                    The decision rejecting the continuation rule
                                                                     alleviates some of the most significant con-
                                                                                                                        intellectual                                  ment, argument, or evidence sought to be
                                                                                                                                                                      entered could not have been submitted dur-

o     n march 20, the u.S. court of appeals
      for the Federal circuit weighed in on
the legitimacy of recent patent reform ef-
                                                                     cerns in the patent community. moreover,
                                                                     whether the other three challenged rules
                                                                     ever will go into effect is hardly certain. The                                        p
                                                                                                                                                                      ing the prosecution of the prior-filed appli-
                                                                                                                                                                      cation” in order to preserve priority, the rule
                                                                                                                                                                      was found to add an additional condition in
forts by the u.S. patent and trademark of-                           pto web site presently acknowledges that                                                         conflict with the patent act.

                                                                                                                                                            r
fice (pto). In a 2-1 opinion, the court ruled                        the litigation remains pending and declares:
that the pto did not exceed its authority in                         “The Final rules will not be implemented                                                         Further Review?
promulgating four new patent rules in 2007.                          until further notice.”                                                                              In reaching these conclusions, the panel
(Tafas v. Doll, 08-1352). While the Federal
circuit decision represents a partial victory   Hue And Cry
                                                                                                                                                            o         was horribly split. Judge randall rader, in
                                                                                                                                                                      his dissenting opinion, considered all four of
for the pto, the otherwise split panel unani-      In 2007, the pto announced a set of                                                                                the rules to be “substantive” and thus outside
mously affirmed the lower court’s ruling that
the pto’s proposed Final rule 78 limiting
                                                rules intended (from the pto’s perspec-                                                                     p         the pto’s rule-making authority. But Judge
                                                tive) to streamline patent prosecution and                                                                            William Bryson in concurrence rejected the

         What cannot be in
                                                             to apply scarce office resources
                                                             better. The hue and cry from                                                                   e         entire procedural/substantive/interpretive
                                                                                                                                                                      distinction as unhelpful. Judge Bryson also
                                                             the patent community was swift                                                                           suggested a mechanism by which the pto
        doubt, hoWever, is                                   and strong. two lawsuits were
                                                             brought in the eastern district
                                                                                                                                                            r         might try to revive even the continuation
                                                                                                                                                                      rule.
   that our patent system of Virginia. on april 1, 2008,                                                                                                                 Given chief Judge paul michel’s recent

        is in the process of
                                                             having previously enjoined                                                                     t         encouragement to the bar to seek en banc re-
                                                             enforcement of four rules, the                                                                           view from his court more often, an applica-
     transformation. the
                                                             district court granted sum-
                                                             mary judgment to the plaintiffs,                                                               y         tion for further review seems likely. But even
                                                                                                                                                                      without such review, the case is far from over,
                                                             concluding that these rules were
    supreme court has, in                                    “substantive” and so exceeded
                                                                                                                                                                      as the plurality decision identified several is-
                                                                                                                                                                      sues to be decided on remand that could af-
     a series of decisions,                                  the pto’s procedural rule-mak-
                                                             ing authority.
                                                                                                                                                                      fect implementation of the rules: (1) whether
                                                                                                                       nation Search document (eSd) (Final rules      any of them is arbitrary and capricious; (2)
 shifted the laW in favor                                       The rules at issue in the case,                        75 and 265, the eSd rules).                    whether any conflicts with the patent act in
                                                             in addition to the continuation                              While the Federal circuit agreed that       ways not specifically addressed in the Federal
        of defendants and                                    rule, would limit an applicant’s                          the pto has no authority to promulgate         circuit’s opinion; (3) whether pto rule-mak-
                                                             ability to file requests for con-                         “substantive” rules, both the plurality and    ing is subject to notice and comment under 5
 against patent holders. tinued examination (Final rule                                                                concurring opinions concluded that the         u.S.c. § 553; (4) whether any of the rules is
                                                             114, the rce rule) and limit the                          pto was within its rule-making authority       impermissibly vague; and (5) whether any is
an applicant’s ability to file continuation ap- number of claims that can be presented for                             to promulgate these four rules. The major-     impermissibly retroactive.
plications was inconsistent with Section 120 examination without submitting an exami-                                  ity likewise found no conflict between three      With all four rules remaining unimple-
                                                                                                                       of the rules and the patent act. Granting      mented for now, the Federal circuit’s deci-

 CONNECTICUT LANDLORD                                                                                                  the pto Chevron deference, the majority
                                                                                                                       found the agency’s interpretation that the
                                                                                                                                                                      sion has no immediate practice implica-
                                                                                                                                                                      tions. What happens next may depend on

 AND TENANT LAW with FORMS                                                                                             act does not grant unlimited rces reason-
                                                                                                                       able. The court thus upheld the rce rule’s
                                                                                                                                                                      what the pto will now do. It is entirely pos-
                                                                                                                                                                      sible, for example, that the new administra-
                                                                                                                       limitation of one rce per family of appli-     tion of president Barack obama will chart a
                                                                                        By Noble F. Allen              cations. The Federal circuit likewise found    different path and perhaps even pull back on
                                                                                                                       no conflict between the patent act and the     the three rules that the Federal circuit has,

  Landlord                                                                                                             eSd rules’ requirement that an applicant
                                                                                                                       submit an eSd when submitting more than
                                                                                                                                                                      for the moment, given new life. If not, as the
                                                                                                                                                                      pto observes, the litigation continues.
  Tenant                                                                                                               five independent claims or 25 total claims.
                                                                                                                       While acknowledging a patent applicant or-
                                                                                                                                                                         What cannot be in doubt, however, is
                                                                                                                                                                      that our patent system is in the process of
  Law                                                                                                                  dinarily has no duty to conduct a prior art
                                                                                                                       search, the majority concluded that the eSd
                                                                                                                                                                      transformation. The Supreme court has, in
                                                                                                                                                                      a series of recent decisions, shifted the law in
  at your                                                                                                              rules leave unaltered the patent examiner’s    favor of defendants and against patent hold-

  fingertips.
                                                                                                                       burden to determine whether a prima facie      ers. The Federal circuit has reacted to the
                                                                                                                       case of patentability exists. The majority     Supreme court’s more active oversight by
                                                                                                                       also found that the eSd rules do not place     likewise adjusting decades-old precedents
                                                                                                                       an absolute limit on the number of patent      concerning patentability and willfulness
                                                                                                                       claims but simply place an additional bur-     and, on the pro-patent side of the ledger, in-
                                                                                                                       den on applicants who choose to exceed the     equitable conduct.
                                                                                                                       claim limit. The panel was not prepared to        perhaps most significantly, there are early
                                                                                                                       find that burden unreasonable on its face,     signs that substantial patent reform legisla-
                                                                                                                       but indicated that the court would deal with   tion that passed the House of representa-
                                                                                                                       the pto’s implementation of the eSd rules      tives last year and stalled in the Senate may
                                                                                                                       on a case-by-case basis.                       now be achieving bipartisan consensus in
                                                                                                                          on the other hand, all three members        the Senate, having recently cleared the Sen-
                                                                                                                       of the panel found the continuation rule       ate Judiciary committee by a 15-to-4 vote.
                                                     ONLY                                                              to be invalid. The patent act says the pto     The challenged pto rules, as unpopular as
                                                                                                                       “shall” treat continuation applications as     they are in the patent community, reflect the
               NOBLE F. ALLEN




     A Publication of the Connecticut Law Tribune   $249.00                                                            having the same priority date under statuto-   pto’s recognition of the need for reform.
                                                                                                                       rily-enumerated circumstances. Because the     How Tafas is resolved remains to be seen,
                                                                                                                       continuation rule would have required an       but powerful reform forces will continue to
                                                                                                                       applicant filing more than two continuations   operate.                                       n


                                                              ORDER ONLINE:                                                Jon Tropp, a partner in the Stamford office of Day Pitney, handles patent and other
   W W W. L AW C ATA L O G . C O M / L A N D T E N                                                                       complex commercial litigation. Lindsay Adams, counsel in Day Pitney’s New York office,
                                                                                                                        handles patent prosecution and counseling. Both are admitted to practice before the U.S.
                                                       BY PHONE: 860-527-7900                                                                        Patent and Trademark Office.
monday, aprIl 20, 2009                                                              Intellectual property                                                                                               S7

It’s Not Enough To Simply Show Deception
Court upholds two-prong inequitable conduct test in patent cases
By MARINA F. CUNNINGHAM                              court judge inexplicably ignored what has         er determination of inequitable conduct.                 publication is common, and in cases where
and SCOTT A. LYDON                                   been settled law for years and based his find-       In its ruling, the Federal circuit not only           the intent to deceive is primarily inferred
                                                     ing of inequitable conduct solely on the in-      reversed and remanded the district court’s               from the highly material nature of the art. n

I  n its recent holding in RCT v. Microsoft, the tent of the applicant, stating: “I am not trying
   court of appeals for the Federal circuit af- a patent case; I am trying a particular matter
firmed the two-prong standard for evaluating that has been presented to me having to do
                                                                                                       holding, but also included instructions to reas-
                                                                                                       sign the case to a different judge for a proper
                                                                                                       determination on the merits, noting that the              INTELLECTUAL
inequitable conduct in patent cases, strongly with candor and good faith.” The trial court’s           strongly expressed convictions of the trial
admonishing the district court judge for his finding of inequitable conduct was based                  court interfered with its objectivity. The Fed-
improper one-prong analysis.                         primarily on the fact that the inventors of
   In addition to reiterating the importance the patented invention did not disclose cer-
                                                                                                       eral circuit’s strong reaction to the trial court’s
                                                                                                       holding reiterates the importance of properly                                                  P
of considering both materiality and intent in tain published tests to the uSpto during                 applying both prongs of the two-pronged ineq-
the analysis, the Federal circuit hinted at a prosecution of the patent application.
possible future argument against an inequi-             as noted by the Federal circuit, the trial
                                                                                                       uitable conduct test in patent cases.
                                                                                                          In its opinion, the Federal circuit made an
                                                                                                                                                                                                      R
table conduct challenge available to patent court erroneously failed to evaluate whether               interesting observation, noting that it was sig-
inventors who author publications, noting the published tests were material to pat-                    nificant that the applicant published informa-                                                 O
that the very act of publication is inconsis- entability. The Federal circuit found that               tion regarding tests to the scientific community,
tent with intent to deceive.                         proper consideration of materiality is a re-
   during patent litigation, the defense of in- quired element of the inequitable conduct
                                                                                                       stating that “publication is an act inconsistent
                                                                                                       with intent to conceal data from the uSpto.” as                                                P
equitable conduct is a powerful weapon in any analysis and went on to determine that the               this ruling was based primarily on the district
defendant’s arsenal because it is typically less ex- tests in question were, in fact, not material
pensive and easier to assert than non-infringe- to the inventive activity. The Federal circuit
                                                                                                       court’s failure to analyze the materiality prong
                                                                                                       of the inequitable conduct test, the full implica-
                                                                                                                                                                                                      E
ment of the patent itself. Furthermore, a finding reasoned that because the tests in question          tions of this statement are not yet clear. However,
of inequitable conduct results in complete un- were conducted after the patent application             the court’s observation suggests that publication                                              R
enforceability of the entire patent if successfully was filed, the inventors had no obligation to      may provide grounds for refuting a charge of in-
proven for even a single patent claim.               report them to the uSpto. Furthermore,
   It is established law that a finding of ineq- the scientific subject of the test was not even
                                                                                                       equitable conduct, which could have significant
                                                                                                       implications in the future. as it is rare to find the                                          T
uitable conduct in a patent case requires clear mentioned in the patents at issue or neces-            smoking gun establishing proof of actual intent
and convincing evidence that the applicant: sary to practice the patented invention. Thus,
(1) made an affirmative misrepresentation of the Federal circuit held that the materiality
                                                                                                       to deceive uSpto, evidence of intent is typically
                                                                                                       inferred, at least in part, by the high materiality of
                                                                                                                                                                                                      Y
material fact, failed to disclose material infor- prong of the analysis was not satisfied.             the art not disclosed to the uSpto.
mation, or submitted false information; and             The Federal circuit also held that the trial      If publications by inventors are now ca-
(2) intended to deceive the u.S. patent and court’s analysis of the intent prong was clearly           pable of being offered as evidence for refuting
trademark office (uSpto). Thus, a finding erroneous, finding that it focused improperly                the inference of intent, the intent prong of the           Marina F. Cunningham is a partner in the
of both materiality and intent is required for on comments that the inventors made at trial            test will, in some situations, become more dif-           Hartford office of McCormick, Paulding &
 MPH 1/2 pLock AD2f color 4/5/06 7:38 PM Page 1
unenforceability due to inequitable conduct.         regarding the purposes of the patented sys-       ficult to satisfy. This argument would be par-            Huber, an intellectual property law firm.
   However, in RCT v. Microsoft, the district tem, which are generally irrelevant to a prop-           ticularly useful in areas of technology where            Scott A. Lydon is an associate in that office.




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S8                                                                               Intellectual property                                                                  monday, aprIl 20, 2009


n From copyrights on PAGE S5                     cifically confirming this conclusion, it leads                                                        tax court ruled that the transfer of designs

executives – this regulation evidences an in-
                                                 one to believe that a copyright can only be
                                                 personally created by a natural person. If so,
                                                                                                    INTELLECTUAL                                       and design patents was eligible for capital
                                                                                                                                                       gain treatment under section 1235 of the tax
terest in the efforts of the individuals. How-
ever, the regulation is silent as to whether
                                                 works for hire or copyrights otherwise held
                                                 by a corporation or other legal entity gener-                                              P          code without examining whether the prop-
                                                                                                                                                       erty should have been considered self-creat-
the personal efforts of these individuals can    ally should be outside the scope of the rule                                                          ed copyrights under this rule. This case was
be attributed to a corporation or other le-
gal entity, such as the client in the example
                                                 that denies capital gains treatment to self-
                                                 created copyrights.
                                                                                                                                            R          based on section 1235 which creates special
                                                                                                                                                       rules for self-created patents that apply in lieu
above.                                                                                                                                                 of other capital gains provisions under certain
   There are two separate authorities — a      Computer Software                                                                            O          circumstances – this allows for self-created
case and an administrative ruling — which         an interesting issue that arises in these                                                            patents precisely that which would be disal-
have some bearing on this issue. In each of
these authorities, the taxpayer was a corpo-
                                               circumstances, and others, is whether com-
                                               puter software is a copyright for purposes of                                                P          lowed for self-created copyrights. on balance
                                                                                                                                                       then, this case could be understood to stand
ration which produced copyright materi-        these rules. of course, the classification of                                                           only for a simple lesson of tax law: If you can’t
als (one produced television programs and
the other produced motion pictures). Just
                                               computer software has long eluded the legal
                                               world with myriad interesting legal and tax
                                                                                                                                            E          succeed under one provision of the code, you
                                                                                                                                                       should consider other provisions!
like the client in the hypothetical above,     issues. The focus here is whether computer                                                                 In a separate case, the tax court ruled that
these taxpayers were corporate entities and    software is a “copyright” for purposes of the                                                R          the sale of computer software is subject to
                                                             self-created copyright rules                                                              the self-created copyright rule because it is

    ThE fOCUs hERE Is whEThER is something else entirely.
                                                             discussed above, or whether it
                                                                                                                                            T          entitled to copyright protection – regard-
                                                                                                                                                       less of the fact that the taxpayer did not file
                                                                The treasury regulations take                                                          for copyright protection. unfortunately, the
    COmPUTER sOfTwARE Is A                                   the position that the self-creat-                                              Y          taxpayer in that case did not raise the argu-
   ‘COPYRIghT’ fOR PURPOsEs ed copyright rules apply to “any                                                                                           ment that his software was an “invention” or
                                                             property eligible for copyright                                                           otherwise entitled to protection under other
  Of sELf-CREATEd COPYRIghT protection (whether under stat-                                        sistent with the statutory scheme as a whole,       intellectual property laws. Therefore, this
                                                             ute or common law), but [not          which subjects copyrights but not patents to        case does not provide a solid understanding
      RULEs, OR whEThER IT Is                                to] a patent or an invention, or a    this somewhat unique treatment.                     of the issues encountered in this area or how
    sOmEThINg ELsE ENTIRELY.                                 design which may be protected            The same concept should apply to an in-          they can be sensibly resolved.
                                                             only under the patent law and         vention – though this term is not defined in           In the meantime, while we are hoping for
                                                             not under the copyright law.”         the regulation and therefore, could be subject      clarity to prevail eventually, careful attention
their copyrighted materials were produced In essence, this creates three possibilities: (1)        to a variety of nebulous and conflicting in-        should be paid to the tax treatment of any
by agents acting on their behalf. although patent; (2) an invention; or (3) a design which         terpretations. most computer programmers            transfer of intellectual property interests – in-
the cases focused on whether the taxpay- is protected only under the patent law and not            would view much of the code that they create        cluding copyrights – to ensure that the trans-
ers could obtain capital gain treatment on under the copyright law.                                as something “invented” even though it may          action reflects the most desirable tax position
the transfer of these copyrights, the Internal    computer software can potentially fall into      also be subject to copyright protection. clar-      available under the circumstances.              n
revenue Service never raised the argument any of these categories. First, if the software is       ity here would be a welcome change.
that the copyrights were ineligible for capi- subject to a patent, it seems pretty clear that it      Finally, the regulations state that a “design”       Daniel L. Gottfried is a tax attorney in
tal gain treatment because they were self- is outside the scope of the self-created copy-          must be protected only under patent law and          the Hartford office of Day Pitney LLP. You
created.                                       right rules – even if the property also could       not under copyright law to escape the rules                     can contact him at
   While there is no binding authority spe- be protected under copyright law. This is con-         on self-created copyrights. In one case, the               dlgottfried@daypitney.com.




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