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"Eye of the Beholder: Client Perceptions of Ethical Issues in Intellectual Property Law," the handout from the Section's CLE program at the VBA Annual Meeting, is now online in a downloadable PDF document. Click here to print a copy.

A series of articles published by the VBA Intellectual Property and Information Technology Law Section in the VBA's periodicals, featuring intellectual property law issues which may be encountered in general law practice. The intent of this series is to increase awareness of intellectual property law issues as the pace of business, communication and technological progress increases. Suggestions for topics are welcome.

Intellectual property issues apply to 'smartcard'

When is a corporate name a trademark?

Internet domain an issue of intellectual property law

Provisional patents useful for new inventions

Limiting in-line link liability

If you like the USPS. . .

Intellectual property issues apply to 'smartcard'
(March 1996)
by Michael E. Whitham

A small business client of yours decides to develop and market a "smartcard" used for tracking the performance and repair history of recreational boats. The "smartcard" is the size of a credit card and includes a computer chip programmed to store information entered by licensed marinas using an encoding/decoding device.

Types of information which may be stored on the card would include engine repairs and tune-ups, dry docking, repairs to the hull, etc. In addition, ownership data including the boat model, manufacturer, serial number and ownership transfers may be stored. Thus, when a boat is sold, the new owner would have a complete history via the "smartcard."

Your client is in the marina business and has a good handle on the needs and wants of boat owners. He is convinced that this idea would be a success. However, your client is not an expert computer programmer and will need assistance in developing the computer code necessary for operating the "smartcards" and the encoder/decoders. Your client decides to engage a computer consultant to write the computer code on a contract basis. What issues will be important for your client to cover in the contract?

Under the current Copyright Act, a "work made for hire" is one which is prepared by an employee within the scope of employment, or a work which is specially commissioned that falls within certain defined categories in the Act (17 U.S.C. §101). In this fact scenario, neither category applies and, absent an express written agreement to the contrary, all copyright rights in the computer code will be retained by the computer consultant. (Community for Creative Nonviolence v. Reid, 490 U.S. 730 (1989))

Thus, your client should obtain an agreement from the computer consultant expressly assigning all copyright rights in any computer code which are developed in connection with the "smartcard" project to your client. The agreement should also state that the consultant will execute all assignment documents deemed necessary to secure your client's rights in the computer code.

Preferably, the agreement should be made prior to the code being written. Furthermore, to secure your client's rights in the computer code, you should register the computer code after it is written and also record an assignment of the code from the computer consultant to your client with the U.S. Copyright Office.

It should also be understood that some software may include patentable inventions. Therefore, it is advisable to have the agreement provide for the assignment of any inventions which may be developed by the computer consultant while writing the code.

It will also be advantageous for your client to obtain a noncompete covenant from the computer programmer. These covenants must be narrowly focused and be reasonable under the circumstances. Under Virginia's three-part test for assessing a restrictive employment covenant, the court must ask the following: (1) is restraint, from standpoint of employer, reasonable in the sense that it is not greater than necessary to protect employer in some legitimate business interest; (2) from view of employee, is restraint reasonable in sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood and (3) is restraint reasonable from the stand of sound public policy? (Comprehensive Technologies International, Incorporated v. Software Artisans, Incorporated, 3F.3d 730, 28 U.S.P.Q.2d 1031 (1993))

In your client's case, it is recommended that the covenant be restricted specifically to "smartcards" used in boating and marina operations, as opposed to "smartcards" per se and that the covenant be restricted to a reasonable period of time.

About the Author: Michael Whitham is a partner in the Reston firm Whitham, Curtis, Whitham & McGinn. The firm specializes in intellectual property law including patents, copyrights, trademarks and trade secrets.

When is a corporate name a trademark?
(April 1996)
by Lee N. Kump

A client of yours has been building and selling the proverbial better mousetrap for more than one year (no patentability issue). The world has, in fact, beaten a path to his door. You advise your client to form a corporation to make and sell the mousetrap, primarily for liability reasons.
Your client decides to name the corporation "Fantastic, Inc." and wants to know if the name can be registered as a trademark. What further inquiries must you make?

Trademarks and service marks identify the source and/or quality of goods and services. Both are registrable under the Lanham Act. (15 U.S.C. §1052-53) Trade names are defined as "any name used by a person to identify his or her business or vocation" (15 U.S.C. §1127) and are not registrable unless also used in a trademark or service mark sense. Therefore, you need to inquire if the corporate name will be used on the goods or on packaging for the goods. If so, "Fantastic, Inc." can likely be registered as a trademark for mousetraps. (15 U.S.C. §1051, et seq.) Otherwise, "Fantastic, Inc." would simply be a corporate trade name.

Assuming "Fantastic" will be used as a trademark, the next question is whether the mousetraps will be sold outside Virginia. To obtain Federal trademark registration, the mark must be used in commerce regulated by Congress, such as interstate commerce or commerce between the U.S. and a foreign country. If the mark will not be used outside the Commonwealth, Federal registration is not possible.

In that case, your client should obtain a state registration from the State Corporation Commission (SCC) Division of Securities and Retail Franchising. (Va. Code §59.1-77, et seq.) Before attempting to register a trademark, inquire whether the mark is available for registration. Unless a confusingly similar mark is already registered, your mark can be registered by submitting the proper form, three specimens of the mark and $30 to the SCC. Once registered, the owner can enjoin others from infringing the mark, recover damages and have imitation or counterfeit marks destroyed.

Federal registration constitutes constructive notice nationwide of a claim to trademark ownership, eliminating any defense of good faith adoption by a third party (15 U.S.C. §1072) and providing a presumption of ownership and mark validity. After five years, the owner's rights in a trademark become incontestable. (15 U.S.C. §1065) The owner of a federally registered mark can sue infringers for injunctive relief and damages, including recovery of an infringer's profits, treble damages, attorneys' fees and destruction of infringing articles. (15 U.S.C. §1114, 1116-1118) The owner can also stop importation of goods bearing infringing marks. (15 U.S.C. §1125)

Many trademark applicants first obtain a search report to determine if any similar mark is registered, has been applied for, or is currently in use. Often the search will cause the applicant to select a different trademark to enhance the likelihood of registration and to reduce the possibility that the mark will be contested by third parties.

If the client has a bona fide intention to use a mark in interstate or foreign commerce, it is possible to reserve that mark for future use. (15 U.S.C. §1051(b)) By virtue of one automatic six-month extension to file a statement of use subsequent to the patent and trade mark office (PTO) publication of the mark for opposition and allowance, the client will have one year from the date of allowance (about one year after filing) to use the mark in commerce. Therefore, the expense involved in beginning to use the mark in commerce can be deferred until after the PTO has determined that there are no similar marks and no opposition to its registration have been filed.

About the Author: Lee N. Kump, an associate with the Richmond firm of Thompson & McMullan, P.C., specializes in intellectual property law matters.

Internet domain an issue of intellectual property law
(June 1996)
by Sean McGinn

Facts
You have a small business client, COMPNet, Inc., which provides computer networking and maintenance services. As part of her marketing strategy, President Billary, the president and chief executive officer of COMPNet, Inc., placed a home page advertisement on the Internet to describe COMPNet's computer networking and maintenance services. Additionally, in her promotional literature, she states that she can be reached at "president@compnet.com" for further information.

As part of the "hookup," Billary filed for and was granted a domain name of compnet.com. Each Internet user is issued by Network Solutions, Inc. of the Internet Network Information Center (InterNIC) a domain name which is a unique electronic address personal to the company or individual user, on a "first-come, first-serve" basis. The domain name includes a source identifying designation selected by the applicant (e.g., compnet), followed by a generic abbreviation describing the nature of the applicant, such as .edu for educational institutions, .com for commercial entities, .gov for government entities, etc. Thus, the domain address identifies an entity within the Internet marketplace.

Issues
Yesterday, Billary received a "cease and desist" letter from an attorney for Complete Hair Nets, Inc., a producer of high quality hair nets for food service employees, who alleges that your client's registration and use of compnet.com on the Internet constitute trademark infringement. She calls for you and explains the problem. What should you advise her?

Analysis and Course of Action
Prior to analysis, it is noted that the above represents a scenario which is becoming increasingly common, given the fixed number of domain names and that identical trademarks may be obtained for dissimilar products and services. Further, this area of the law is relatively virgin, given the only recent popularity of "the Net" and thus is very dynamic in terms of the issues involved and their resolution. {See, for example, MTV Network v. Curry, 867 F. Supp. 202 (S.D.N.Y. 1994) and In re Arbitration Between Stanley H. Kaplan Education Center and Princeton Review Management Corp. No. 13-199-00145 94 (Sept. 26, 1994)}

First, it should be determined whether Complete Hair Nets, Inc. has a federally (or foreign) registered trademark to "COMPNET." Specifically, a trademark search of the U.S. Patent & Trademark Office (U.S.P.T.O.) records should be conducted to determine whether the mark has been registered. Similar searches of foreign databases may also be conducted.

According to the Domain Dispute Resolution Policy statement issued by NSI in November 1995, if NSI receives evidence that a registered domain name is identical to that of a third party's federally (or foreign) registered trademark or service mark, the owner of the domain name must provide NSI with a certified copy of its own federal trademark or service mark for the mark being used as a domain name. State trademark registrations are given no weight by NSI.

Thus, if Complete Hair Nets, Inc. has a federally registered trademark, then it must provide a certified copy of its mark to NSI within 30 days of its demand. If Complete Hair Nets, Inc. has no federally registered mark, then NSI will simply dismiss any demand made by Complete Hair Nets, Inc.

Second, it must be determined whether your client, COMPNet Inc., has a federal trademark registration. In the event that COMPNet, Inc. can provide NSI with its federal registration, then COMPNet, Inc. can continue to use the domain name until NSI receives a court or arbitration order providing otherwise.

Given the completely different goods, channels of trade, and the profile of the purchasers of products of the two companies in this particular case, it is unlikely that your client's (COMPNet, Inc.) usage of its domain name would be held to raise a substantial likelihood of confusion by purchasers of the products that the sources of the products are the same, and thus would not likely be so confusingly similar to the Complete Hair Nets, Inc. trademark, as to constitute trademark infringement.

Regardless, according to the NSI's Policy Statement, your client must agree to indemnify NSI from any liability and post a bond in an amount that will satisfy Complete Hair Nets, Inc.'s claim. Failure to do so allows NSI to place the domain name on "hold" status, such that no one can use the domain name, until the dispute is resolved.

Conversely, in the event that your client cannot provide proof of its federal registration, NSI will assist in finding a new domain name for your client and will provide a 90-day transition period during which both domain names will be used simultaneously by your client, COMPNet, Inc. After the 90-day period, the disputed name will be put on "hold" status until the dispute is resolved by the courts or arbitration.

If your client has not filed for a federal trademark registration, it is important to do so as soon as possible after registering the domain name.

Specifically, while NSI may look to the priority of the trademark registrations or first use of the trademarks in commerce, so long as each party has such a registration, NSI is likely to follow its "first-come, first-serve" convention in issuing domain names.

Hence, even if COMPNet Inc. does not have a federal trademark registration, it may be possible to file and obtain one prior to NSI's demand for a certified copy of the mark and your client may obtain a better position with regard to Complete Hair Nets, Inc.

Further, if the U.S. Patent and Trademark Office were to issue a trademark for "COMPNet" which is identical to that of Complete Hair Nets, Inc. but which is associated with computer networking and maintenance services, such a registration would strengthen your client's position in any subsequent negotiations and/or suit for trademark infringement.

Conclusion
Thus, your client need not necessarily "fold its cards" and abandon its mark and domain name in the face of the "cease and desist" letter. However, should the client decide to take the "path of least resistance," it could simply adopt a further "level" of the domain name (e.g., computer.compnet.com) or add further characters to its "second level domain" of "compnet" up to a maximum of 255 characters.

Nevertheless, valuable goodwill and public recognition may accrue to a domain name in a manner similar to a trademark and it would be prudent to exercise a similar degree of care in adopting a domain name as for a trademark.

About the Author: Sean M. McGinn is a principal in the Reston firm of Whitham, Curtis, Whitham & McGinn. He lectures frequently on intellectual property issues and has served since 1992 as a claims drafting instructor for the Patent Bar Review Course and as an instructor for the Advanced Application and Amendment Writing Workshop.

Provisional patents useful for new inventions
(July 1996)
by Frederick W. Gibb III

Fact Pattern
Your client has a working model of a novel device which she has kept secret during its development over the past year and is now on the verge of approaching investors who may fund its production.

The device will be especially useful in the U.S. and in Europe. Your client is concerned that someone will steal the concept behind the device and is leery of marketing it to investors, even with a confidentiality agreement.

Further, she has plans to speak about the device at an upcoming seminar in the hopes of attracting investors. She does not want to incur the expense associated with a patent application until she has investors committed. How can you help your client?

Analysis
Your client may benefit by filing a provisional patent application. Created in June 1995 by 35 U.S.C. §111(b), the provisional patent application was specifically designed to assist those in your client's situation by allowing a substantially reduced filing fee (currently $150 for large corporations, $75 for individuals and small entities) and eliminating many of the formal requirements of a regular patent application.

More specifically, the provisional patent application was born of the Uruguay Round Agreement Act (URAA) which President Clinton signed into law on December 8, 1994.

A provisional patent application only requires a detailed description of the invention, drawings which illustrate the invention, a cover sheet and a filing fee. It does not require a claim, an oath or an information disclosure statement and will not be examined by the patent office.

A regular patent application claiming priority to the provisional application should follow within one year because the provisional application will expire exactly 12 months after filing (even if that date occurs on a Saturday, Sunday or legal holiday.) Therefore, your client should strive to obtain commitment from investors within this one-year window.

A provisional patent application is also useful because it may add up to one additional year of patent protection. The 20-year patent term does not run from the provisional patent application filing date, but instead, runs from the filing date of the subsequent regular application. Therefore, if a maximum patent term is important, it may be beneficial to utilize a provisional patent application.

Another important aspect of your client's situation is that she will need patent protection in Europe. Further, your client may be speaking publicly about the device.

While an inventor has a full year after public disclosure to file a U.S. patent application, most of the rest of the world operates under the "absolute novelty" rule which requires that the patent application be filed before public disclosure.

It is strongly advised that some form of patent application be filed before any public disclosure, so as to protect international intellectual property rights by providing a basis for a claim of priority under international treaties. Once again, the reduced requirements associated with a provisional patent application make it an attractive option.

Paradoxically, while the legislative intent was to reduce filing requirements, the provisional patent application is required to include the same level of disclosure as a regular patent application under 35 U.S.C. §112, first paragraph. This requirement directly opposes the goal of reducing filing requirements.

Therefore, the client who wishes to file a "bare bones" provisional patent application to reduce expenses runs the risk of limiting claim breadth or of having the application rejected because of disclosure which is inadequate to support the claims of subsequent regular patent application.

Conclusion
A provisional patent application has reduced filing requirements when compared to a regular patent application. This makes a provisional patent application attractive to clients who will soon publicly disclose their inventions and/or clients who want to "test the waters" by filing a patent application with reduced requirements prior to filing a regular patent application.

About the Author: Frederick W. Gibb III is a principal in the Reston law firm of Whitham, Curtis, Whitham & McGinn. He specializes in electrical and mechanical patent applications.

Limiting in-line link liability
(November 1996)

Your client operates and derives revenues from a home page on the Internet. This page provides information on local businesses, including links to other Internet sites. Some of these links cause the display of others' home pages as though they were located on the client's computer. This is known as "in-line" linking, or "pulling in" other sites' pages. Other links are simply "jumps" to other Internet sites, known as links "out" to other sites. The client is concerned about any potential liability in this arrangement.

Comment
The client's concern is well justified. Courts have yet to characterize owners of Web pages in any definitive way that makes liability predictable. Owners might be analogized to copiers, publishers, broadcast media owners, agents and perhaps more. Thus, the mechanics of the Internet may blur the identities of the parties in a transaction under traditional fact pattern analyses.

Many people argue that existing "real world" situations and roles should not be analogized to activities on the Internet. They conclude that current common law and statutory doctrines have no place in this new world of "cyberspace." Whether or not that ought to be true as a philosophical matter, your client needs advice today. It is best to assume that any reasonable application of statutory or common law is possible if an issue is litigated.

Here are some things to worry about:

Others' pages linked by your client may contain information that is "wrongful" in some sense. Those pages may be libelous, contain privileged or confidential information (or modified information purporting to be original), disclose trade secrets, misuse trade and service marks, infringe copyrights, disclose potentially patentable inventions, or even violate regulations governing the export of weapons or other technical information! Provenance of documents and electronic signatures is critical to contracts which may be formed over the Internet.

The information most likely to be wrongful on others' pages will be copyright-infringing material. Some incident of ownership will be central to virtually any dispute.) Copyright applies to nearly everything that appears on the Internet, including e-mail, Web pages, computer software, and digital music including modifications thereof. Many people do not realize the breadth of copyright's application and conclude that if they have found something on the Internet, it must be in the public domain. That is incorrect.

If your client's page "pulls in" the pages of a third party and the latter pages contain infringing material, then your client may well be a contributory infringer, or possibly a direct infringer if the document is stored on the client's machine, even by temporary caching. At this stage in the law's uncertain evolution, it will be best to counsel against "pulling in" the pages of any third parties at all.

It is less clear that merely providing a link "out" to others' pages will have the same consequences. The prudent thing to do is to put a disclaimer before any such links, such as this: "[Client] provides these links as a courtesy. These links are to sites that are not under [client's] control, and that may be changing on a frequent basis. [Client] cannot and does not make any representation as to their contents."

About the Author: Professor I. Trotter Hardy teaches intellectual property, the law of cyberspace and torts at the Marshall-Wythe School of Law at the College of William and Mary. Professor Hardy is on leave this semester from William and Mary to serve as scholar-in-residence and technical advisor to the Register of Copyrights to predict the direction in which the Internet is heading for the next several years, then to try to assess the copyright consequences. The online address maintained by Professor Hardy for the Journal of Online Law is: http://www.edu/law/publications/jol.
Acknowledgment: Michael S. Horwatt has presented a lecture, including some views expressed above, entitled "Law in Cyberspace: Emerging Legal Issues in Electronic Communication" presented through the Loudoun County Bar Association in cooperation with Shenandoah University, Loudoun Campus. His e-mail address is US004952 @Interramp.com.

If you like the USPS. . .
(December 1997)
by C. Lamont Whitham and Marshall M. Curtis,
Whitham, Curtis, Whitham & McGinn, P.C., Reston

A Patent Reform Bill styled H.R. 400 and its Senate counterpart, S. 507, are rapidly working their way through Congress and may, if enacted, have a substantial impact on your clients' practices in the conduct of their businesses and the expectations they should have of the patent system. Several notable features of these bills include the conversion of the U.S. Patent & Trademark Office to a wholly owned government corporation, publication (with some exceptions) of patent applications 18 months after the filing date, increase of the scope of inventor's rights in regard to invention development companies and a trade secret defense to patent infringement.

Conversion of the USPTO to a corporation is said to favor an increase in patent examiner professionalism (by facilitating setting of pay rates) and obtaining equipment for improved communications, data handling and search facilities as well as facilitating the setting of user fees to cover such expenditures. The bills purport to eliminate the de facto government subsidy paid by inventors. A substantial percentage of USPTO fees is currently paid into the general fund.

However, a public corporation is neither fish nor fowl and the effects of the radical nature of such a change are difficult to predict. The facets of "professionalism" which may change may not entirely coincide with an increase in a spirit of public service. For instance, one country in Asia employs a substantial number of engineers as private contractors for its Examining Corps and the allowance rate of patent applications closely tracks the percentage of examiners who are public employees. The perception is that the private contractors feel they must display their professional knowledge by maintaining rejections in order to justify their continued employment. In any case, the examination process is largely reduced to a lottery. Prior public corporations in the U.S. have not included a corps of employees having the power to commit the agency on matters of substance basic to their public service mission. It does not appear that a public corporation environment will necessarily reduce the sometimes adversarial nature of ex parte patent application prosecution or improve service to the public or owners of intellectual property.

Publication of patent applications at 18 months after the filing date is accompanied by a provision for a reasonable royalty for use by others between the date of publication and the issue date of the corresponding patent. This provision, which is in accord with practices in most foreign countries, is said to further avoid the possibility of "submarine" patents (which issue after long pendency when the technology is mature and in widespread use) beyond the provisions of GATT which altered the period of enforceability, generally, to 20 years from the filing date (rather than 17 years from the date of issue).

However, the exceptions for independent inventors and small businesses, who are most likely to engage in "submarine" patents, are inconsistent with this objective. Further, at least one commentator has found virtue in projecting that the value of negotiations would be greatly reduced by publication since license negotiations would then be carried out prior to the issue date while lesser royalties were at stake and before exclusive rights arose. In any event, both the provision for publication and its exceptions amount to a complex web of procedural matters which may greatly affect your clients' strategy in dealing with their intellectual property.

Increase of inventors' rights in contracts with invention development companies is generally to be desired. Complaints against such companies generally arise when such companies skirt the fringes of unauthorized practice of law, even when counsel is retained by the invention development company. Numerous ethical questions arise, in any case, such as the ability of the inventor to freely choose legal representation. These concerns should be addressed by regulation of the invention development industry rather than providing for disclosure notices to the inventor and voidability of contracts. Advantages to the inventor may not be adequate to serve the public interest.

A new defense to patent infringement with respect to subject matter which would otherwise infringe a patent is also created by these bills. Specifically, if the person against whom the patent is asserted had, in good faith, commercially used the subject matter before the effective filing date or reduced the invention to practice one year before the filing date, that person shall not be liable as an infringer.

While this provision could be viewed as a special case of 35 U.S.C. §102(b) where there is a sale to bar the grant of a patent but no public knowledge thereof, this provision is essentially a "trade secret" defense and may prove to be a protection act for large corporations who could maintain a manufacturing process as a trade secret without fear of being enjoined by a subsequent inventor/patentee. There are at least two potential Constitutional objections to this provision in that it does not further the Constitutional objective of promoting the progress of science and the useful arts because it increases the incentive to maintain secrecy in regard to an invention rather than early disclosure and that it provides non-exclusive rights to both the trade secret holder and the patentee.

It has also been conjectured that this provision, like the early publication provision, are precursors to a policy change in the U.S. from a first-to-invent rule to a first-to-file rule, prevalent in other countries. It is clear that the provision would promote "reverse-engineering" and grant valuable patent rights to other than the first inventor while providing the first inventor some incentive to conceal the invention. However, the first-to-invent rule, consistent with the Constitutional mandate, has been of substantial benefit to U.S. companies as well as encouraging (in conjunction with the "best mode" requirement for disclosure of the current statute) greater development of inventions prior to filing and improved quality of disclosure, when filed.

Whichever course your client may wish to take pursuant to this provision, if enacted, there will be an increased need for scrupulous recordkeeping.

In summary, the pending "Patent and Trademark Office Modernization Act," if enacted, will have substantial effects on your clients' expectations of the patent system and business practices in regard to their intellectual property. Numerous other changes are included beyond the provisions noted above. While harmonization with the laws of other countries and the maintaining of user fees within the patent system are generally to be encouraged, the ultimate benefits and burdens to both the owners of intellectual property and the public must be reflected in your practice.